BUSINESS ORGANIZATION AND MANAGEMENT updated

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BUSINESS ORGANIZATION AND MANAGEMENT
UNIT-1
BUSINESS
Human beings are continuously engaged in some activity or other in order to

satisfy their unlimited wants. Every day we come across the world business or
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businessman directly or indirectly. Business has become essential part of modern
world.
Generally we know that business is an exchange of goods and services, the

exchange of goods and services is done with the exchange of money. Earlier the
goods are exchanged with the goods I, e barter system. Now business is the
exchange of goods and services for money. The main motive of business is to earn
profits. Business is done with not only profit motive but also with service motive
according to modern business concept. The main motive of business is to achieve
profits as well as Name and reputation of a particular business.
Business includes purchasing and selling of goods and services. Purchasing and
selling of goods and services may be cash transactions or credit transactions.
Immediate payment and receipts of cash is also known as cash transactions.
Postponement of cash payments and receipts are also known as credit transactions.
DEFINITION
―Business may be defined as human activities directing towards providing

or acquiring as wealth through buying and selling of goods‖
L.H.ELANEY
―The regular production or purchase and sale of goods undertaken with an

objective of earning profit and acquiring wealth through the satisfaction of human
wants‖
- STEPHENSON-
―Business refers to a form of activity conducted with an objective of

earning profits for the benefit of those on whose behalf activity is
conducted‖
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CHACTERISTICS OF BUSINESS
1. Entrepreneur: -―An entrepreneur is the agent who buys means of production

at ascertain prices in order to combine them in to a product that is going to sell at
prices that are certain at the moment at which he commits himself to his costs.‖
There must be someone to take initiative for establishing a business. A person
who recognizes the need for a product or service is known as entrepreneur. He is a
key figure in the process of economic growth.
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2. Economic Activities:- Business is an economic activity which is undertaken
with the object of earning money or livelihood and not because of love,
affection, sympathy, or psychological satisfaction. Business includes only
economic activities. All those activities relating to the production and
distribution of goods and services are called economic activities.
3. Exchange of goods and services:- A business must involve the exchange of

goods and services. The sale or exchange for a price is the basic feature of
business. Purchase of goods or services for personal consumption is not business.
The goods to be exchanged may be produced or produced from other sources. This
exchange can be undertaken with profit motive.Ex.A housewife cooking food at
home for consumption is not a business but cooking food at restaurant for selling
it to others for earing profit is business..
4. Profit Motive:- The main purpose of a business activity is to earn profits. This
is an important element of a business. The hope of earning profits brings people
into business. No business can survive for long without earning profits. Any
activity undertaken without profit motive is not a business. The intentions of
earning profit keeps a person in business on continues basis, but the profit
motive does not entitle a business man to start exploiting the consumers.
5. Risk and Uncertainty:- An element of risk is prevalent in business. Risk

implies the uncertainty of reward or the possibilities of loss. The factor on which
business depends are never certain. The business opportunities are also
uncertain, there may be shift on demand, strike by employees, floods, war, etc.
Though a businessman tries to forecast future possibilities but things may not
happen in the same way. Risk element keeps a businessman vigilant. If business
man is able to

foresee the future uncertainties and is also able to bear them , then he will be
successful.
6. Continuity Of Transactions:-dealing in goods and services becomes

business Only if undertaken on a regular basis.. An isolated transaction will not
be considered business even if it earns profits from the deal.
Ex. The sale of an old car for buying a new one, is not business even if the car is
sold at a profit. If a person deals in purchase and sale of cars for earning profit, it
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will be called a business.
7. Creation of Utility:- The goods are provided to the user as per their likings and
requirements. Business creates various types of utilities in goods so that
consumers may use them. It can be form utility or place utility.
Form utility:-when raw materials are converted into finished goods, It is of form
utility. the change in form creates more utility in goods.
Place utility:-When goods are transported from the place of production to the
place of consumption, it is the creation of place utility. The goods are produced at
certain places and then distributed to the places where these are required.
Time utility:-The goods are produced in anticipation of demand. Production is not

done only for the present but for the future also. The process of storing the goods
when these are not required and supplying them at a time when needed is called
creation of time utility.
8. Organisation:- Every enterprise need an organisation for its successful

working. Various business activities are divided into departments, sectors and jobs.
An organization creates framework for managerial performs and help in
coordinating various business opportunities.
9. Financing:- The financers are required for providing fixed or working capital. A
business needs fiancé for establishing developing and expanding an enterprise. The
funds will have to be raised from various sources. The sources will be selected in
relation to the implications attached with them. The money once received may
have to be returned also. If the use of funds is proper then its return will be easy.

The availability of other factors of production depends upon the availability of

finance.
10. Consumer Satisfaction:- A business aims to satisfy human wants. Goods and
services are produced to meet human needs. The ultimate aim of business is to
supply goods to consumers if the consumer is satisfied then he will purchase the
products again and again otherwise they may go for alternatives.. The
businessman should satisfy the consumer demand, for these products to be
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maintained.
OBJECTIVES OF BUSINESS
The primary goal of the business is to achieve the business objective. A business
objective is a detailed picture of a step you plan to take in order to achieve a stated
aim.
There are different categories of the objectives which have to be achieved by

business organisation those are as follows:
I. ECONOMIC OBJECTIVES-
 Profit earning
 Production of goods
 Creating market
 Technological improvement
II. HUMAN OBJECTIVES-
 Welfare of employees
 Satisfaction of consumers
 Satisfaction of shareholders
III. SOCIAL OBJECTIVES-
 Availability of goods

 Supply of quality goods
 Co-operation government
 Creation of more employment
 Utilizing resources properly
IV. ORGANIZATIONAL OBJECTIVES-
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 Survival
 Growth
 Recognition
V. NATIONAL OBJECTIVES-
 Helping national efforts
 Development of small entrepreneurs
 National self sufficiency
 Development of skilled persons
ECONOMIC SOCIAL HUMAN
ORGANIZATIONAL NATIONAL

1. ECONOMIC OBJECTIVES: Economic objectives of business refer to the

business of earning profit and also other objectives that are necessary to be
pursued to achieve the profit objective, which includes creation of
customers, regular innovations and best possible use of available resources.
Following are the economic objectives of a business.
It deals with all monetary transactions.
a) Profit earning: A business needs profit not only for its existence but also for
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expansion and diversification the investors wants an adequate returns on
their investments, work bonds higher wages and the entrepreneur needs
money for reinvesting all the demands will be met only when some profit are
made the business man should charge are reasonable profits and it will be
beneficial both to the business and society.
b) nProduction of goods: The producers estimate the demand for goods and
produce according the taste, preferences, and paying capacity of consumers
must be taken into account the business man creates form, place, and time
utilities to meet the requirements of society.
c) Creating markets: Market consists of those efforts which effect the transfer
in ownership of goods and care for there physical distribution the
businessman searches for new consumer for increasing its sale and effort
made to retain old consumers by supplying them better quality goods at
reasonable prices.
d) Technological Improvement: In the world of competition everybody try to
sale its product by offering good quality product at lower prices the
possible when latest technology is used for producing goods there should be
always an endeavour to increase the production and reduce cost.
2) HUMAN OBJECTIVES:- It deals with people in the organization and

people connected with the organization. Human objectives of a business require
that a workable balance should be maintained among the claims of various
interested groups like employee‘s shareholders, consumers, government etc.

a) Welfare of employees: The employees of an enterprise help in increasing in

the profitability and they should also given a share in profits, productivity
should be linked to various incentive schemes the works should be rewards
for their hard work.
b) Satisfaction of shareholders: The management should be given reasonable
sections on the money invested by the shareholders the shareholders should
do all so that their money is not measured by management.
c) Satisfaction of consumers. The consumers should provide quality goods at
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reasonable prices. The taste, likings and requirements of the consumers
should be given due weightage. The business is meant for consumers and
their satisfaction should be main objective of the business.
3) SOCIAL OBJECTIVES:- Social objectives are those objectives of
business, which are desired to achieve for the benefit of the society,
Since business operates in a society by utilizing its scarce resources, the
society expects something in return for its welfare. No activity of the
business should be aimed at giving any kind of trouble to the society.
It deals with society classification as follows:-
a) Availability of goods: The business should ensure the production of goods

to meet requirements of the society. The business should estimate the total
demand for various commodities and adjust the production accordingly.
b) Supply of quality goods: The supply of goods and services to consumers at
reasonable price is the responsibility of the business in the present scarcity
period. The consumers is the worst affected if he is supplied poor goods at
higher prices and still the goods are not made available.
c) Co-operation with Government: Business should co-operate with the
government in helping it to achieve the objectives of socialistic pattern of
society the government fixed the priority for execution of major policy to
the growth and development of the nation the businessman should pay al
taxes this leads to situation of prosperity of the society.
d) Creation of more Employment- a Business can help the society by creating
more and more job opportunities the expansion of business not only helps in
employing more persons in the factory but it has multiple efforts.

e) Utilization of natural resources properly: The business should put the

scarce natural resources to the best possible use the wastage of the used
resources will not only the loss to the enterprise but it is National loss.
4) ORGANIZATIONAL OBJECTIVES:- It deals with the life of the
organization .The classification is as follows:
a) Survival: The objective of the business is to survive in the market. The
business as to ensure that only those activities are taken up which are
beneficial in the society. It should try to create demand for its product so
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that it is able to earn profit.
b) Growth: A business will stay in the market if it is able to grow with the
passage of time. Growth is an important objective for every business. A
business unite price to utilize it resources properly so that it is able to get
back its profits for further expansion and deification every business as to aim
at it proper growth.
c) Recognition: A business enterprise always in to get recognition from those
with whom it deals it should have good repo with the suppliers and deals
by keeping proper schedule of payment and supply of goods of the
consumer should be supplied good quality product at reasonable prices.
5) NATIONAL OBJECTIVE:- Being an important part of the country every

business must have objective of fulfilling national goals and aspirations.
The goal of the country may be able to provide employment opportunity to
its citizen, earn revenue for its exchequer, become self-sufficient in
production of goods and services, promotes social justice etc. Business
activities should be conducted keeping these goals of the country in mind,
which may be called national objectives of business.
It deals with development of nation the classification is as follows:
a) Helping national efforts: The business should enter those fields of

industrial activity which remained neglected (rural industrialization)
business man should setup new units in backward and under developed
areas so that people living they get employment opportunities and resources
available they are fully utilized.
b) Development of small entrepreneurs: Big business organizations should
help in the development of small undertakings they should not frigate
small
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scale as they compete big units may also help by encouraging auxiliary unit
to sell products to them and arranging inputs for them.
c) Development of skilled person: Business houses can provide technical
knowledge and training to their employees this help in skill in formation
for the country‘s development.
FUNCTIONS OF BUSINESS
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In order to have successful business it has to perform several functions which may
be broadly classified into production, purchase, and marketing and finance
functions . These functions are interdependent on each other. There must be proper
integration of functional areas of business to achieve its objectives. These can be
achieved only when there is proper planning organizing, directing and controlling.
Following are the various functions of business:
1. PRODUCTION FUNCTION: Production refers to transferring of raw

material into finished goods. For the purpose of producing the final goods, it
needs a help of raw material, man power, machinery etc. Successful
production is possible when there is proper planning and arranging of
various inputs in a smart way. Before the production of final goods there is
a need of purchasing raw materials. So it go to be a next business function.
Production function carries out the following activities.
a) Designing the products and packages.
b) Production planning and control.
c) Procurement of materials and stores
d) Repair and maintenance of plant and a machinery.
e) Operating quality control standards.
2. PURCHASE FUNCTION: Normally purchase is considered as a part of

production function. Organizations will maintain a separate department
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for
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purchase in order to undergo several activities of the business. It is necessary

because without purchase there is no function called production. Purchase is
necessary for the purpose of production because final product is obtained
only when raw material is available. To obtain the raw material the business
needs to purchase the raw material. So purchase function and production
function are interdependent.
3. MARKETING FUNCTION: Marketing refers to the distribution of goods
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and services produced by the production department with the help of
various marketing intermediaries like sales agents, wholesalers, retailers,
etc. It creates place, time and possession utilities. It involves all efforts to
create customers for the products and provide maximum satisfaction to
them. The business has to undergo in to a research work in order to invent
various marketing techniques according to changing marketing conditions.
Marketing has to deal with the following activities.
a) Undertaking marketing research.
b) Deciding product design, package and brand name.
c) Product pricing
d) Selecting channels of distribution
e) Deciding product promotion methods.
4. FINANCE FUNCTION: Finance function is a function which is

responsible for commencing the business that is capital investment.
Finance is also necessary for various daily operations, that is working
capital. Without working capital there is not business. With the help of
finance, the business will purchase raw material. Finance is responsible for
advertising, distribution etc. The business has to arrange its capital and
analyses various sources of finance and applications. So it is essential for
the business. For a man blood is necessary similarly for business Finance is
necessary. Finance is called as life blood of the business. Finance function
has to deal with following aspects.
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a) Estimating financial requirements
b) Deciding capital structure
c) Selecting the sources of finance
d) Proper management of cash
e) Implementing financial controls
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f) Proper use of surplus funds.
5. PERSONNEL FUNCTION: This function is concerned with people at

work and with their relationship within an organization. It aims to bring
together and develop into an effective organization of men and women
who make up the enterprise. The enterprise should endeavor to make
proper utilization of human resources. The success of an organization is
related to the efforts of its manpower. A balanced personnel policy will
help an enterprise to deal with this function in an effective manner.This
function covers the following aspects
a) Human resource planning
b) Recruitment and selection
c) Organizing training and development plans
d) Induction and placement of employees
e) Framing policies for promotion, transfer and appraising
f) Determination of employee remuneration.
6. ADVERTISING AND SALES PROMOTION FUNCTION: Advertising is

necessary for the business in order to create awareness in the public. It is a type of
publicity. It is a part of marketing function, as advertisement creates awareness
about particular product and awareness leads the consumers to buy the products.
Therefore marketing and advertisement are inter dependent. Sales promotion is a
technique used for the purpose of increasing the sales. It is one of the tools for
increasing the sales for a particular business. Advertising is one of the sales
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promotional tool for increasing the sales Therefore advertisement and sales
promotion are inter dependent.
7. RESEARCH AND DEVELOPMENT FUNCTION.
Research and development activities are essential in the present competitive

market. A business has to keep pace with the products offered by competitors. A
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business needs to improve its production processes and marketing techniques.
This will be possible if relevant information is collected from various sources and
is used for the improvement of the business. R and D performs following activities
a) Collecting data about the current business processes.
b) Finding out the weaknesses and strengths of production processes
c) Conducting market surveys to get proper feedback
d) Implementing better ways of doing things
e) Implementing improved plans.
8. PUBLIC RELATION FUNCTION
Public relation function has assumed an important role in the current business
environment. Public relations is a deliberate effort to establish and maintain proper
understanding between organization and the public. It is an attempt to bring to the
notice of the public the activities of the organization in proper perspective. Public
relation function deals with following aspects.
a) Use public relations as a medium of communication with outside world.
b) Providing information about the policies and programmes to the public
c) Receiving feedback about the organization from outside sources.
d) Maintaining contacts with various stakeholders.
e) Clarifying understanding about the organization to the public.
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FINANCIAL
MARKETING
PERSONNEL
PRODUCTION
R&D
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PURCHASES
ADVERTISEMENT AND SALES
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CLASSIFICATION OF BUSINESS ACTIVITIES / SCOPE OF BUSINESS

ACTIVITIES
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CONCEPT OF INDUSTRY
A group of firms is known as industry. Industry is a place where raw material

converts into finished goods i. e, creates from utility. The goods are produced by
industry are either consumer goods or producer goods. Consumer goods are those
which are used by consumers for satisfying their wants.Ex.Food items, clothes,
drugs etc…Producer goods, are those which are further used to produce
goods.Ex.The production of plant, machinery, equipment etc.
In other words industry includes conversion, processing and production etc. The
main objective of industry is production of goods and satisfies the human
wants. Besides satisfying human wants profits earning is also its main motive.
Industries may be divided into three categories.
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A) PRIMARY INDUSTRY:-primary industries relate to all those activities

connected with the extraction, production and processing of natural
resources and reproduction of living species. These are classified as under-
a) Genetic industry:- This is related to reproducing and multiplying of certain

species of animals and plants with the objective of earning profit from their
sale,Nurseries,cattle –breeding, poultry farms are all covered under genetic
industry. No doubt nature, climate and environment play an important part
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in these industries, but human skill is also important.
b) Extractive industry:- These are engaged in raising some form of wealth
from the soil, climate, air, water or from beneath the surface of the earth.
These industries are classified into two categories.
In the first category, workers merely collect goods already existing.
Ex.mining, fishing and hunting etc.In the second category, the goods are to
be produced by the application of human skill.Ex.Agriculture and forestry.
B) SECONDARY INDUSTRY:-
These are related to processing of materials which have already been produced at
the primary stage. Ex. The mining of iron ore is a primary industry, but
manufacturing of steel is a secondary industry. The classification of secondary
industry is as follows-
a) Construction industry:- It is engaged in the creation of infrastructure for

smooth development of economy. It is concerned with the construction,
erection or fabrication of products. These industries are engaged in the
construction of buildings, roads dams, bridges and canals. These industries
use the products of other industries such as cement ,iron, bricks, wood etc.
Engineering and architectural skills play an important part in construction
industry. Engineering and construction firms are organised for
undertaking operations of construction industry.
b) Manufacturing industry:- It is in the process of conversion of raw
materials into finished goods or semi-finished goods.This industry creates
from utility in goods by making them suitable for human use.most of the
goods which are used by consumers are produced by manufacturing
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industries. These industries supply machines, tools and other equipment to

mother industries too.
Manufacturing industries produce two types of goods.
 Consumer goods.: These are the goods which are directly consumed by the
consumers for meeting day-to-day needs. Ex. Toothpaste, soap, oil, clothe
etc.
 Industrial goods: The goods which are produced for manufacturing
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consumer goods are known as industrial goods. Ex .Machinery, equipment,
tools etc.
Manufacturing industries are divided as follows
a) Analytical Industry:-In this industry a product is analysed and many

products are received as final products. Ex: In the processing of crude oil we
will get-oil, petrol, gas, kerosene, etc.
b) Processing Industry:-In this industry a product passes through various
process to become a final product. The finished product of one process
becomes the raw material of the receiving process and soon, the final
process produces the finished goods. Ex. In case of cotton textiles, cotton
passes through gaining, weaving and dyeing processes to become cloth.
c) Synthetic Industry: - In this industry, Many raw materials are brought
together in manufacturing process to make a final product.Ex: In
manufacturing cement rocks, gypsum, coal etc. are required.
C) TERTIARY OR SERVICE INDUSTRY:Service sector deals with all

those activities which smoother the flow of goods and services from the
producers to those who use them. Service industry supplements the
activities of primary and secondary industries. These are all backbone of all
business activities. They bridge a gap between of goods and services and
their consumers.
The classification of service sector:
a) Transportation:- Movement of goods from the places of production to the

place of their requirement.
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b) Banking:- Extending of all types of financial services required for

production as well as for commercial activities.
c) Insurance:- It covers all types of risks related to business.
d) Warehousing:- It stores raw materials as well as finished goods.
e) Advertising:- It provides information to consumers about various goods and
services produced.
COMMERCE
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Commerce is a branch of business. It is concerned with the exchange of goods and
services. It includes all those activities which directly or indirectly facilitate the
exchange i.e trade and aids to trade. It is also represented in the form of equation.
Commerce = Trade + Aids to Trade
Trade is the exchange of goods and services. Aids to trade are nothing but banking,
insurance, advertising and salesmanship etc are all the things which help for
trading.
Definition of Commerce:
―Commerce is an organized system for the exchange of goods between the

members of the industrial world‖-James Stephenson-
―Commercial operation occupations deal with buying and selling of goods

the exchange of commodity and the distribution of the finished product.‖-
Evelyn Thomas
“Commerce is concerned with a group of activities,which directly and indirectly
involved in the distribution of goods between the place where they come into
existence and the persons who finally use them‖-Noel Bradman
FEATURES OF COMMERCE:-
a) Economic Activity:- All the economic activities are undertaken to earn

profits. All commerce activities are economic activities. All those activities
related to the production and distribution of goods and services are called
economic activities.. Commerce deals those activities which are
undertaken
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for profit. Ex-A producer produces goods and a trader buys goods with the
sole aim of earning profits.
b) Exchange of goods and services:- It involves an exchange of goods and
services for profit. The goods or services to be exchanged may be produced
or produced from other sources. Commerce includes trade or aids to trade
which help in smooth exchange of goods producers to consumers. The
middle men involved in exchange are also a part of commerce.
c) Earning Motive:- Profit is an incentive or reward for undertaking
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commercial activities ,any activity which does not have the incentive of
profit will not be a part of commerce.Ex.A cloth trader selling cloth in his
shop is done with a profit motive, in case the trader donates the cloth to
needy person it will not be a commercial activity since it has no profit
motive.
d) Creation of Utility: - The goods are provided to the user as per their likings
and requirements. Business creates various types of utilities in goods so that
consumers may use them. It can be form utility or place utility.
 Form utility:-when raw materials are converted into finished goods, It is
of form utility. the change in form creates more utility in goods.
 Place utility:-When goods are transported from the place of production to
the place of consumption, it is the creation of place utility. The goods are
produced at certain places and then distributed to the places where these
are required.
 Time utility:-The goods are produced in anticipation of demand. Production
is not done only for the present but for the future also. The process of
storing the goods when these are not required and supplying them at a time
when needed is called creation of time utility.
e) Regularity of Transactions..:-Dealing in goods and services becomes
business Only if undertaken on a regular basis.. An isolated transaction will
not be considered business even if it earns profits from the deal.
Ex. The sale of an old car for buying a new one, is not business even if the
car is sold at a profit. If a person deals in purchase and sale of cars for
earning profit, it will be called a business.
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CLASSIFICATION OF COMMERCE.
Commerce is classified in to two categories.
1) Trade 2) Aids to Trade.
TRADE:-
Trade refers to buying and selling of goods and services for money or money‘s
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worth. It involves transfer or exchange of goods and services for money or money
worth‘s. The manufactures or producer produces the goods, then moves on to the
wholesaler, then retailer and finally to the ultimate consumer. Trade is concerned
with the transfer or exchange of goods and services. Trade provides platform for
meeting producers, customers and consumers together for the purpose of trading.
Trade deals with only purchase and sale of goods but not its auxiliary functions
like transportation, insurance, banking. They are also called aids to trade.
The classification is as follows:
1) Internal Trade:- Buying and selling of goods and services inside the country
is called internal trade. The exchange of goods and services takes place in the
currency of the country.The classification is as follows
a) Wholesale trade: It involves buying in large quantities from producers

and manufactures and selling in lots to retailers for resale to consumers.
The wholesaler is a link between manufacture and retailer.
b) Retail Trade: It involves buying in smaller lots from the wholesalers
and selling in very small quantities to the consumers for personal use.
The retailer is the last link in the chain of distribution. He establishes a
link between wholesalers and consumers.
2) External Trade:- When trade takes place between two or more countries it is
called external trade or foreign trade. This involves the exchange of goods and
services between citizens of two nations. Ex. India‘s trade with
USA,Japan,France,U.K.
Foreign trade transactions are classified under three categories.
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a) Import Trade: When goods are purchased from other countries is called import
trade. Import of technology and capital goods are encouraged instead of consumer
goods Example: A trader from India purchase goods from a trader located in
China
b) Export Trade: When goods are sold to other countries is called export trade.
Developing countries like India encourage exports because it brings foreign
exchange.. Example: A trader from India sells his goods to a trader located in
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china.
c) Entreport Trade: Sometimes goods are purchased or imported from one

country with objective of selling or exporting them to some other country, it is
called entrepot trade. It is done to benefit from the different prices prevailing
in countries. Example: An Indian trader (from India) purchase some raw
material from a Japanese trader (from japan) then assembles it I,e convert into
finished goods and then re-export to an American trader ( in US )
AIDS TO TRADE:-
Activities which assists business and trade. They provide proper infrastructure for
the smooth conduct of business and removing the obstacles in the exchange of
goods and services. Business infrastructure include transport, banking,
warehousing insurance, financing and other allied services known as aids to trade.
The following are some of the facilities provided by commerce-
1) Transportation:- The goods may be produced at places where there are in

less demand. These goods are to be taken to the place of consumption with
the help of transport facilities. This creates place utility. The place utility
helps the producers to increase the production and earn a remunerative price.
The consumer is also helped by supplying him with the goods, which
otherwise might not have reached him. The various modes of transport are
road, rail, sea, air, have helped the growth of commerce and industries.
2) Distribution:- The producer of the goods may not be able to come into
direct contact with consumer. The chain of the middle men acts between the
producers and consumers. The chain of wholesalers, retailers, agents….
Etc. operates between the producer and the consumer to remove the
hindrances of persons.
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3) Banking and Finance- There is always a time lag between the production
and sale of goods. The trader purchase goods from the producers and then
sells to consumers. It takes time to collect money after sale. The commercial
banks and financial help trade in the shape of overdraft, loans, and cash or
credits. These institutions play an important role in international trade,
where trading parties are not known to one another‘s .Banks help in
overcoming financial problems..
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4) Warehousing:-Goods are produced in anticipation of demand. They may
also be produced at a time, when they are not needed. .So, there is a need to
store goods up to time, when they are not needed. So, there is a need to
store goods up to time, these are required for consumption. The hindrance
of time is over with the help of warehouses. The foreign trade needs the
help of warehouse even more because there is more time between
production and consumption. It is same with agriculture good also.
5) Advertisements:- The consumers may not be aware of availability of

various goods in the market. The absence of information about the goods is
a great hindrance in the way of consumers buying them. The producer will
also like to increase his customers. The advertisement helps in forming the
consumers about the availability and usefulness of various products in
market.
6) Insurance:- There is a risk involved in transporting goods from one place to

another .There can be a risk due to fire or theft. The fear of loss of goods due
to any cause acts as an obstacle of development of trade. The insurance
companies provide a coverage for all types of losses of goods. The insurance
coverage has given a fillip not only the national trade ,but also the
international trade.
SOCIAL RESPONSIBILITY
The concept of social responsibility in relation to business means that the firm
functions to accomplish its financial objectives and serves the society as well. No
business exists in isolation.
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Every organ of the society contributes towards the success of a business. Thus it
becomes imperative that business too does something for the society in return. This
responsibility of business towards the society is called social responsibility.
A socially responsible firm should not work solely for profit maximization but
should also seek the welfare of different sections of the society. Social
responsibility of business refers to its obligations to take those decisions and
perform those actions which are acceptable in terms of the objectives and values of
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the society.
―Social responsibility of business refers to the obligations of businessmen‘s

decisions and actions taken for reasons at least partially beyond the firm‘s direct
economic and technical interest.‖ —Keith Davis
―Social responsibility is to pursue those policies, to make those decisions, or to

follow those lines of action which are desirable in terms of the objectives and
values of our society.‖ —Howard D. Bowen
concept of social responsibility of business as:
(i) Justice and fair play in all its dealings;
(ii) Making of serious attempts at growth and development of all the factors of
constituents of business from owners to consumers;
Social Responsibility of Business: Need:
Are business owners supposed to work only for profit-making or they should also
see to it that different interest groups such as investors, consumers, employees,
government and society are also benefited from them? An aspect of social
responsibility is that it is voluntary in nature because some business persons may
or may not choose to discharge their social obligations.
They may also choose to decide the extent to which they would prefer serving the
interest groups. However, if a business aims for all-round growth, there is no
escape from assuming social responsibilities.
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FORMS OF BUSINESS ORGANIZATION
A Business undertaking is an institutional arrangement to conduct ant type of

business activity. The undertaking may be run by one person or association of
persons. It may be based on formal or informal agreement among persons who
undertake to run the concern. The persons join together and pool their resources
and conduct the activities of the undertaking for the benefit of all.A business
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organization represents the structured arrangements to carry out the business
activity
Definition. ―A concern, company or enterprise which buys and sells, is owned

by one person or a group of persons and is managed under a specific set of
operating policies.‖-Wheeler
FORMS OF BUSINESS UNDERTAKINGS
A number of forms of organisation exist to suit requirements of different business

undertakings.The following are different classification of business organization-
1) Private undertakings
2) Public undertakings
3) Joint sector Enterprises.
 1)PRIVATE UNDERTAKINGS
Business undertakings owned and operated by private authorities are known as

private undertakings.
 Sole proprietorship: This organisation is as old as civilisation.A single

individual promotes and controls the business undertakings & bares the all
risk himself. He supplies entire capital for starting and running the
business.He takes all the profits and bears all risks alone.This is the simple
form of organisation requiring no formalities,.
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 Partnership:It is an association of two or more persons to carry on, as co-

owners, a business and to share its profit and losses. The partnership may come
into existence either as a result of expansion of the trading concern by means
of an agreement between two or more persons desirous of forming a
partnership. This represents the second stage in the evolution of the form of
business organisation.
 Joint Hindu family business:This form of organization exists only in India and
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that too among Hindus as the name is indicative. This business of Joint Hindu
family is controlled under the Hindu law instead of partnership Act.. The
membership in this form can be acquired only by birth or by marriage to male
person who is already a member of JHF. All the undertakings are controlled by
a person known as Karta.
 Joint stock company:A company is an association of many persons who

contribute money or money‘s worth to a common stock and employs it in
some trade or business, and who share the profit and losses arising there form.
A company is an artificial person created by law with corporate personality,
limited liability, perpetual succession and transferable shares.
 Co-operative societies:These are voluntary associations started with the aim

of service to members. The aim of the societies is to for the welfare of its
members. These societies are registered under the co –operative society‘s act
1912.It is a joint enterprise of those who are not financially strong and cannot
stand on their legs and therefore, come together not a view to get profits but to
overcome disability arising out of the want of adequate financial resources.
2) Public undertakings.
 Business undertakings owned by public authorities are known as public or state

undertakings. In these undertakings; either whole or most of the investment is
done by the government. The aim of these undertakings is to provide goods
and services to the public at a reasonable rate though profit earnings not
entirely excluded.
The classification is as follows-
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 Departmental organization: The enterprise works as a part of government and

management is in the hands of civil servants. The secretary of the department
acts as chief executive under the control and direction of minister. The minister
is accountable to parliament for the working of the department. Departmental
form of organisation is suitable for public utility services and strategic
industries.Eg – railway and postal departments etc.
 Public co-operations:Public corporations are created by a special statute of the
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state or central Government. A legislative act is passed by defining the sphere
of work and mode of management of the undertaking. It is a separate legal
entity created for a specific purpose. Example- RBI, Bank of India etc.
 Government companies:The Company owned by the central or state

government is called a government company. Either whole of the capital or
majority of the shares are owned by the government. Government companies
are registered both as public and private limited companies but the
management remains with the government.
3) Joint sector undertakings:It is a form of partnership between the private sector

and the government, where management will generally in the hands of private
sector and over all supervision will lie with the board of directors giving adequate
representation by government representatives. The capital is shared by state
government 26%, private enterprise 25%, investing public 49%. It ensures the use
of development technology and resources of government and private sectors.
Factors influencing the choice of suitable form of organization
The following are the different factors which influence the person to select the
forms of business organization.
 Capital requirement-The need for capital will depend upon the nature of
the business and scale of operations; Amanufacturing concern may require
more capital as compared to a retailed shop. On the other hand , If scale of
operations is large, the capital requirement will also be more. After
determing the capital needs, The form of organisation is selected.A Sole
trade business will be suitable if capital needs are less. A partnership
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concern may be able to meet the capital needs on medium scale. A joint
stock company will be suitable if capital requirement are large.
So, capital requirements will directly influence the choice of the form of
organisation.
 Liability-In sole proprietorship and partnership business, the liability of

owners is unlimited,heir liabilities are limited to the capital they have
invested but private property can also assign to meet business obligations.
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In case of joint stock companies the liability of shareholder is limited to
the value of shares they have purchased. The shareholders can be required
to pay only the unpaid amount of shares they are having. The private
property of shareholders is liable to meet business losses. A company has
large number of persons.
 Managerial needs-Managerial and administrative requirements also affect

the decision about the type of organization. When the concern is small and
it caters to local needs only then one person will be enough to manage the
business. The sole proprietorship, the only one person will be enough to
manage the business.
If the business caters to more areas, then more persons will be needed to look after
various business activities. In partnership business, more persons will be needed
to look after various business activities.
When a business is run on a large scale basis, it will require the services of
specialists to manage various departments. In company form of organization the
business is run on large scale basis. It will require the services of specialist to
manage the various departments.
 Continuity-If the concern is stable and there is no fear of discontinuity,it

will attract more investment.The trained and qualified persons will like to
join the concern. The company form of organization is the only form which
ensures stability and continuity.A sole trade business may be closed after
the death of its owner.Any type of physical and financial problem will
force the closure of a business. A partnership firm also too does not have a
permanent life. It may be dissolved for a number of reasons. A company
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form of organization will be unaffected by the personal life of its

shareholders.
 Tax Liability-A joint stock has more tax liability as compare to sole trade
business and a partnership. A Joint stock faces double taxation liability. A
company is taxed as an individual first and the profit distributed to
shareholders are again liable for tax. A partnership concern and a sole
trade business are not separately taxed. A small scale concern will be able
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to avoid higher tax liability.
 Government Regulations: While deciding about the form of organisation,

various kinds of rules and regulations affecting that form will also be
considered.A number of formalities are required to be complied with, while
in co-operating company, a company is expected to provide a large number
of information to the government every year. A sole trade business and
partnership firm is free from government ventilations. Even the registration
of a firm is not compulsory.
 Nature of business activity: If a concern deals with local market a

seasonal product or perishable goods then the sole trade business is
suitable. The capital requirements of such concerns will be less and scale of
operations will be low. If a company caters to large markets and the scarce
of operations is large then the company form of organizations will be
useful. If the primary aim of the concern is to serve its members then a co-
operative society will be most suitable.
 Relationship between ownership and management-There is a direct

relationship between ownership and management in sole trade concern and
partnership firm. In a company form of organization managements and
ownership are in two different hands. The owners are spread all over the
country and they do not take active interest in the working of the
enterprise. The management is in hands of few persons known as Board of
directors.When the investors want to retain management in their own
hands,the partnership or sole trade form of organisation will be
suitable.If the investors do not have much time for the business and they
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want to make investment only then the company form of organisation will
be suitable.
 Easy in formation-A joint stock company requires the services of

qualified persons who are getting it registered. It involves a lot of money at
the time of in-cooperation thesole trade business can be started at any time
without going through various formalities. If the owners are not ready to
go through various formalities they cannot start a company.
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 Flexibility-A good form of organization should also provide for flexibility
in its operations. It should be possible should change or adjust its operations
with the change in circumstances. A sole trade concern is more flexible than
a partnership or a company in operation. A sole-trader has absolute power
over the affairs of his business and is able to introduce changes quickly to
meet the needs of changing time and situations without involving
expenditure.
 Stability:The discontinuation of business causes wastage of resources and

inconvenience to the consumers. This also causes a social loss. The
company form of organization offers maximum stability and continuity as
it will not affect by the death or insolvency of its members.
A sole trading business comes to an end on the in ability or death of proprietor.A

partnership firm also suffers the uncertainty of duration because it can be dissolved
at the time of death or insolvency.
SOLE PROPRIETORSHIP BUSINESS
Introduction: A sole-proprietorship, also known as Individual Proprietorship,

Single Entrepreneurship is the oldest form of business organisation .A sole trader
is a person who carries on business exclusively by & for himself. He is not only
the owner of the capital of the undertaking but it‘s usually the organizer and
manager and takes all the profits and responsibility of losses. The business is
generally on a small scale due to limited finances and l8imited managerial
resources. It is the competence of the owner which determines the future of the
business. His powers are unlimited and his decisions are final.
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Definition:‖ The individual entrepreneurship is the form of business organisation

on the head of which stands an individual as the one who is responsible, who
directs its operations, who alone runs the risk of failure.‖- L.H.Haney
“.A sole trader is a person who carries on business exclusively by and for himself.
He is not only the owner of the capital of the undertaking, but is usually the
organiser and manger and takes all the profits or responsibility for losses.‖-James
Stephenson
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“The sole-trader is a person who carries on business of his own, that is, without the
assistance of a partner. He brings in his own capital and uses all his labour .He also
gets himself assisted by others to whom he pays a salary by way of remuneration‖.-
S.R.Davar.
FEATURES \ CHARACTERISTICS-
 Unlimited liability- In sole trade business liability is unlimited. The

proprietor is responsible for all losses arising from the business. The
liability is not limited only to his investment in the business but his
private property is also liable for business obligations.
 Management & control- The proprietor manages the whole business

himself. He prepares various plans and executesthem under his own
supervision. There may some persons to help him but ultimate control
lies with the owner.
 Motivation- One person is the sole owner of the business. He takes all
profits and bears losses if any. There is direct relationship between efforts
and rewards. If he works more, he will earn more. The person will be
motivated to expand the business.
 Secrecy- All important decisions are taken by the owner himself. He

keeps all the business secrets only with himself. Business secrets are very
important for small business. By remaining business secrets he avoids
competitors entering the same business.
 Owner & business exist together- There is no separate existence of the

business and the owner. The business and owner exist together. The
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business is dissolved if the owner dies, becomes insolvent or is removed

from the same.
 Limited area of operations- A sole trade business has generally a limited

area of operations, the reason being the limited resources and managerial
abilities of the sole trader. He can arrange limited funds only and will be
able to supervise a small business. Since all the decisions are to be taken
by the proprietor, so the area of business will be limited with his
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management abilities.
ADVANTAGES OF SOLE TRADING BUSINESS:
A. Easy in formation- It is the only form of organization where no legal

formalities are required to be performed. Anybody wishing to start the sole
trade can do without loss of time. This business is absolutely free from
legal formalities.
B. Better control- One man is responsible for all types of activities .He controls
all functions of the business .The authority & responsibility will lie with one
man. He himself takes decisions at appropriate time. He cannot afford to be
complacent in in obligations to other persons .The owner is all in all and he
cannot escape his work. The business is controlled in an effective way.
C. Flexibility in operation- A sole-proprietorship concern is generally run on a

small scale basis. In case a change in operation is required, it can be possible
without involving much expenditure. Even if a new line of production is to be
taken up, it will not involve much effort. All small scale concerns can adjust
its production according to the demand pattern and no legal formalities are
required for making such kind of changes.
D. Retention of business secrets- A sole trader can maintain business secrets.

Being the sole trader he is not expected to share his trade secrets to anybody
else. He is not expected to publish his accounts. He can maintain secrecy from
his competitor‘s secrecy is very vital for small scale concerns.
E. Easy to raise finance- An individual entrepreneur is able to create goodwill

for his business. This helps him to establish his creditworthiness in the market.
Secondly, the liability in sole trade organisation being unlimited, the creditors
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can have a claim over the private property of the owner. The creditor feels
secure in extending loans to individual proprietor.
F. Direct motivation- The proprietor takes keen interest in the working of the
business. He tries to put his heart and soul in the business so to earn as
much profits as he can .There is direct relationship in efforts and reward.
G. Promptness in decision making- All important decisions are taken by one

person. He can take prompt decisions. He will not let an opportunity slip
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way. So promptness of decisions is applicable.
H. Direct accessibility to consumers- The owner can have direct contact with
consumers and employees. He can know the relations and preferences of
consumers. It enables him to make necessary changes in the quality & design
of his products. It will help him to boost his sales. He can also put emphasis on
consumer service.
I. Inexpensive management-The sole trader is the owner, manger and controller

of the business. He does not appoint specialists for various actions. He
personally supervises various activities and can avoid wastages in the
business.. Hence he does not appoint specialist for various functions.
J. No legal restrictions-There are no legal requirements for starting a business.

There is no special act governing the work of sole proprietor. The proprietor
is not required to submit the results of his business to any authority. He is not
requires to submit the result of the business to any authority.
K. Self-employment- It offers the means of self-employment to those who do not

want to serve other. As every one cannot get a suitable job to earn his
livelihood in a developing country,the individual can easily start a small sized
business unit as sole trader
DISADVANTAGES OF SOLE TRADING-
a) Limited resources- Sole trader makes investment from his family sources
only. There is a limit to which a single person can invest. He tries to raise
finance from financial institutions also. This institution asks securities for
these loans. He cannot offer much security.
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b) Limited Managerial Ability- The managing capacity of a proprietor is

limited. He will not able to devote sufficient time for all types of
activities.One person may not be expect in each and every function of
business. He willhave to depend upon paid employees on the other hand
his limited resources will not allow him to user the services of professions.
c) Unlimited liability-.In this business the liabilities unlimited.A loss in
business may deprive him of his private assets also. It acts as determinants
to growth of business. The Liability is not limited only to the extent of his
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investment in the business, but his private property is also liable for his
business obligations.
d) Uncertain continuity-The business continues as along as sole proprietor is
there. In case of death the business is discontinued. The successor of the
sole proprietor may not have an ability to continue the business. The closer
of business causes inconvenience to the customers.
e) Limited scopes of employees- He cannot attract trained & qualify
persons because of limited career opportunities. Moreover, the continuity
of sole trade business being uncertain, the employees also remain under
psychological pressure. A sole trader cannot offer financial incentives to
employees because his activities are on a small scale.
f) No large scale economies- A small scale concern cannot economies is

purchases, production & marketing.In a sole trade concern other overheads
expenses are also more. So this type of concern cannot enjoy the benefits of
large scale economies.
g) More riskInvolved.: A sole proprietor is to take all decisions by himself. So

there is a possibility of taking wrong decisions. In other form of organisation
,the decisions are taken by more than one person .So the possibility of
mistakes and wrong decisions is minimised .lack of counselling may create
difficult situations.
PARTNERSHIP BUSINESS
Introduction
A partnership is an association of two or more persons to carry on as co-owners, a

business and to share its profits and losses. The partnership may come into
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existence either as a result of the expansion of the sole-trading concerns or by

means of an agreement between two or more persons desirous of forming a
partnership. When the business expands in size, the proprietor finds it difficult to
manage the business and is forced to take more outsiders who will not only provide
additional capital but also assist him in managing the business in sound lines.
Definition
―The relationship between persons who agree to carry on a business in
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common with the view to private gain‖-L. H. Haney
―The relationship between persons who agreed share profits of a

business carried on by all or any of them acting for all.‖-Partnership Act1932
―Two or more individuals may form a partnership by making a written or

oral agreement that they will jointly assume full responsibility for the
conduct of business‖- John A.Shubin.
CHARACTERISTICS OF PARTNERSHIP-
1. Association of two or more members- There must be at least two persons

according to contract act there is no maximum limit but according to
company‘s act the maximum number in banking is 10 & 20 in any other
business. The persons becoming partners must be competent to enter into a
contract.
2. Contractual relation - The persons joining the partnership enter into a

contract for running the business. According to the partnership Act, the
relation of partnership arises from contract and not from status. The Contract
may be oral or written but in practice written agreement is main.
3. Earning profits- The purpose of business should be to make profits &

distribute them among partners. If a work is done for charity purposes or
to serve the society it will not be called partnership. So. The motive of the
business is to earn profits.
4. Existence of business-Partnership can only be for some kinds of business

.The term Business includes any trade profession or occupation. Business
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means all activities covering production, distribution, profession or

occupation. Partnership can only be for some kind of business.
5. Unlimited liability- In case obligations arises then not only the partnership
assets but also private property of the partners can be taken for payment of
liabilities. Of the firm to the third parties. The creditors can claim their
dues from anyone of the partners or from all the partners. The partners are
liable individually and collectively.
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6. Principle & agent relationship- It is not necessary that all partners should
work in business. Any one or more partners can act on behalf of other
partners. Each partner is an agent of the firm & his activities bind the
firm.He also acts as a principal because he is bound by the activities of
other partners.
7. Utmost good faith- The very basic of partnership business are good faith &
mutual trust. In every partner should act honestly & give proper accounts to
partners. The partnership cannot run if there is suspicious among the
partners.it is very important that partners should act as trustees and for the
common good of all.
8. Restriction & transfer of share- No partner can sell or transfer his shares
to anybody else without the consent of the other partner. In case any
partner does not want to continue in the partnership, he can give notice for
dissolution of the firm.
9. Common management- Every partner has a right to take part in the

running of the business. It is not necessary for all partners to participate in
the day- to-day activities of the business but they are entitled to participate.
Even if partnership business run by .some of the partners the consent of all
partners is necessary for making important decisions.
10.Continuity- There is no true limit for the continuity of a partnership firm. It

goes on only up to the time the partners want it to go. Any misunderstanding
among the partners, death or insolvency of a partner may dissolve the
partnership .Dissolution of partnership does not necessarily mean dissolution
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of the firm. The remaining partners may continue the firm after meeting the
claims of outgoing partners.
TYPES OF PARTNERS
The classification of partners as follows-
a) Active partners- The persons who takes active part in the day to day working
of the business is called active partner. He is also called as working partner.
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He may act in different capacities such as manager, organiser, adviser and
controller of all the affairs of the firm.
b) Sleeping or dormant partners- A sleeping partner is one who contributes

capital, shares profits & losses of the business but does not take part in the
working of the concern. He is not known to the public as a partner.A person
may have money to invest but he may not be able to devote time for the
business. Sleeping partner is liable for the liabilities of the business like
other partners.
c) Nominal partners- A nominal partner is who lends his name to the firm. He
does not contribute any capital nor does he share profits of the business. He is
known as partner to the third parties. On the strength of his name ,the business
may get more credit in the market or may promote its sales .A nominal
partner is liable to those third parties who give credit to the firm on the
assumption of that person being a partner in the firm.
d) Partner in profits- A person may become a partner for sharing the profits only.
He contributes capital& he is liable to the third parties like other partners. He is
not allowed to take part in the management of the business. Such partners are
associated for their money and goodwill.
e) Partners by Estoppels/Holding out.- when a person is not a partner but

posses himself as a partner either by words or by its acts. Then his is called
partner by estoppels.
A partner by estopel shall be liable to outsiders who deal with the firm on the
presumption of that person being a partner in the business even though he is not a
partner rand does not contribute anything to the business.
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f) Secret partner- The position of secret partner lies between active and sleeping
partner. His membership of the firm is kept secret from outsiders.His liability
is unlimited and he is liable for the losses of the business. He can take part in
the working of the business.
g) Sub partners- A partner may associate anybody else in his share in the firm.
He gives a part of his share to the strangers. The relationship not between
the sub-partner and the firm but between him and the partner. He is not
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liable for the debts of the firm.
h) Minor as a partner- A minor is a person who has not yet attended the age of
majority. A minor cannot enter into a contract according to the Indian contract
act because a contract by a minor is void-abs-initio. The minor is not personally
liable for liabilities of the firm but his share in the partnership property &
profits of the firm will be liable for debts of the firm.
A minor has the following rights & liabilities-
 A minor has a right to such share of property & of profits of the firm as may
be agreed upon by all partners.
 A minor may inspect the books of accounts.
 Personal property of a minor is not liable for debts of the firm.
 At any time within 6 months of his attending majority the minor may
give public notice of the fact that he has decided to become or not to
become a partner in the firm.
 So long as a minor remains a partner he cannot file a suit against other

partners for Accounts or for the payment of his share in the property of the
firm.
 In case a minor decides to b3ecome a partner, he will be personally liable

to third parties for all acts of firm, since he was admitted to the benefits of
the firm.
 If a minor decides not to become a partner, his rights and liabilities continue
to be those of a minor up to the date on which he gives public notice.
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Registration of partnership-
The registration of partnership is not compulsory under Indian parliament act. In

India there are certain privileges which are allowed to those firms which are
registered. Unregistered firms are prejudiced in certain matters in comparison to
registered firms. Those directories the registration of the firm is not compulsory
but directly it is. So to avail certain advantages under law the firm must be
registered with the registrar of the firms of the state.
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Registration of a firm does not provide a separate legal entity to the concern
as in the case of a joint stock company .partnership does not need registration for
coming into existence because it is created by an agreement among two or more
persons. The registration of the firm merely certifies its existence and non-
registration does not invalidate the transaction of the firm.
Procedure for the registration-
The following procedure will be applicable to get firm registered.
 Filling an application- The first thing to be done is to file an application with

the registrar of firms on a prescribed form. A small amount of registration
fees is also deposited along with the application. The application should
contained the following information-
 The name of the firm.
 The principle place of the business of the firm.
 The names & address of the partners & the dates on which they join the firm.
 If the firm is started for a particular period then that period should be
maintained.
 If the firm is started to achieve a specific object then it should also be give.
 Certificate of registration- The particulars submitted to the registrar are

examined. It is also seen whether all legal formalities required have been
observed or not. If everything is in order then registrar shall record an entry
in the register of the firms.The firm is considered registered there on.
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Alteration of particulars-
Whenever a change or alteration is made on any of the following particulars then

it should be communicated to the registrar of firms & a suitable change is made in
the register. The change is to be made in the prescribed form and with the
prescribed fees.
Following changes or alterations are to be sent to the Registrar.
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 Any change in the name of the firm.
 Any change in a principle place of the business.
 When constitution of the firm changed.
 Any change in the name of partner or his address.
 When the firm is dissolved.
ADVANTAGES OF PARTNERSHIP.
a) Easy formation-This is suitable type of organisationrequring no legal

formalities. no formal documents are required to be prepared. As it is necessary
in case of Joint Stock Company. A simple agreement among partners is
sufficient to start partnership firm.
b) Large resources- The resources of more than one person are available for the
business. The partners can contribute to start a moderately large scale
concern. The partnership concern can also arrange funds from the outside
sources.
c) Greater managerial talent- the partners may be assigned duties according to

their talent. Different functional departments may be managed and controlled
by different partners. The talent, expertise & knowledge of partners in
different fields can be used for the welfare of business. It will help to increase
the efficiency of the business resulting in more profits.
d) More credit standing- The partners may have sufficient contacts in the
markets. They can offer more securities to the financial institutions. The
liabilities of partners being unlimited they will be able to raise more
finance.
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e) Promptness in decision making- As the partner meet frequently they can take
prompt decisions. The firm will not lose any business opportunities because of
delay in taking decision.
f) Sharing of risk- The risk of the business is shared by more persons. The
burden of every partner will be much as compare to sole trader further more, the
business expansion will not be hampered for fear of risk..
g) Relationship between reward & work-The partners try to put more labour to
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earn more and more profits. There is direct relationship between reward &
work. The more they work, they more they may be benefited.
h) More possibility of growth & expansion- As compared to sole trade business

partnership concern has more possibilities for expansion & growth of business
activity. The partner can contribute more and manage the activities more
systematically.
i) Close supervision – The partners themselves look after the business. So they
can avoid wastage. They have direct access to employees & can encourage
them for more production.
j) Flexibility in operation- There is no statutory obligation, to seek approval

from government before making major changes in the business set up. There
can be any change in the managerial set up, capital, and scale of operations.
These changes can be made easily depending up on the business opportunities.
DISADVANTAGES OF PARTNERSHIP-
 Unlimited liability- The liability of partners is unlimited. The partners are not
only liable for their business investments but theirs private properties can also
be taken for business liabilities .Partners try to avoid risks and it restricts the
expansion and growth of the business.
 Limited resources- There is a limitation in raising additional resources for

expansion purposes. The business resources are limited to the personal funds
of partners. Borrowing capacity of the partners is also limited. The number of
partners to be added to a business is also limited.
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 Instability- The partnership concern suffers from the uncertainty of duration

because it can be dissolved at the time of death of a partner. The lack of trust
among partners can also lead to dissolution. The discontinuity of the business
is a social loss and it causes inconvenience to the consumers and workers.
 Mutual Distrust-The mutual distrust among partners is the main cause for the
dissolution of partnership concerns. It is difficult to maintain harmony among
partners because they may have different opinions and they may not agree on
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certain matters. Lack of confidence in each other can be a cause for quarrels
an it may lead to the dissolution of the firm.
 Limitation on transfer of share- No partner can transfer his share to a third

party without the consent of the other partner. If a partner wants his share back
it will not be possible without approval of other partners or without
dissolution of the firm.
 Lack of public faith- The accounts of partnership concerns is not published.

So public is unaware of the exact position of the business. There is a suspicion
in public mind that these concerns earn huge profits at the cost of consumers.
There is no legal binding for the publication of accounts.
 Lack of prompt decisions- All important decisions are taken by consent of

partners. So decisions making process time consuming. There may be
possibility of losing business opportunities because of slow decision making.
The decisions are generally taken by concensus; it may be difficult to
convince all partners for agreeing to a particular decision.
Partnership agreement/ Deed-
Meaning:
Partnership deed forms the basis of partnership. It includes all important clauses
like name of business, contribution of capital, sharing of profits, mode of
management etc. It is a document containing all the matters according to which
mutual rights, duties & liabilities of the partner if the contact & management
affairs of the firm are determined. The deed must be signed by all partners. It can
be both oral or in writing. A written agreement ,however should be preferred
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because no body can dispute the contents. There may be a dispute even about what
was agreed if the contents are not in writing.
CONTENTS.
Some of the important clauses to be included in a partnership deed are
 The name of the firm.
 Names & addresses of the partners.
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 Nature of business proposed to be carried on by the firm.
 The total amount of capital & contribution by each partner.
 Amount of withdrawals to be allowed by the partner.
 The profit sharing ratio.
 Rate of interest to be allowed on capital as well as the rate of interest to

be charged on drawings.
 Division of powers & duties among partners.
 Procedure for dissolution of the firm.
 Maintain of books of the accounts.
 The amount of salary or commission payable to any partner for the services
rendered to the business.
LIMITED PARTNERSHIP-
In limited partnership the liability of some partners is limited, while liability if

some partners is unlimited. The partners with limited liability are called special
partners, while those with unlimited liability are called general or active partners.
The liability of special partner is limited only to their capital in business, while
liability of general partners can go beyond their capital. The limited partnership is
not prevalent in India and is not allowed under partnership Act.
Features of limited partnership-
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 There must be at least one general partner & one special partner in a
limited partnership.
 A special partner only invests money but cannot take active part in a business.
 A special partner cannot bind the firm or other partner by their acts.
 A special partner cannot withdraw any part of his capital from the firm.
 A special partner has to bring his capital in cash.
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 A special partner has a right to inspect the books of the firm.
ADVANTAGES OF LIMITED PARTNERSHIP-
a) Suits cautions investors- There are parsons who have money to invest but
do not incur unlimited liability. Limited partnership is suitable for these
persons because there is a category of special partners whose liability is
limited.
b) Stability- The death of special partners does not dissolve limited

partnership. This partnerships more stable than the general partnership.
c) Better management- Limited partnership is better managed. Special partners

can only give suggestions but cannot participate in management. The
management is in the hands of general partners. They work without the
interference from special partners. This leads to better management by
general partners.
d) More resources- Limited partnership will be able to mobilize more resources

because more persons will be willing to invest because of limited liability.
They will not incur unlimited liability from the firm. So they will be ready to
invest more in the firm.
DISADVANTAGES OF LIMITED PARTNERSHIP-
a) Dominance of general partners- limited partnership is exclusively managed

by general partners. Special partners are only entitled to give suggestions & it
is up to general partners‘ weather to accept it or not.
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b) Legal requirements- A number of legal requirement are required for limited

partnership. If a firm is not registered, then it is considered as a general
partnership.
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HINDU UNDIVIDED FAMILY BUSINESS-
Introduction: A joint Hindu family consists of common ancestor, which is a must

to bring a J.H.F. in to existence all his male descendants up to any generation
along with their wives and unmarried daughters. The death of a common ancestor
does not bring the Joint Hindu Family to an end.it continues till perpecuity,as
upper links removed by the death and lower ones are added by birth.
Hindu undivided family refers to a form of organization where in the business is

owned & carried on by the members of the family. The elder member of the family
is known as „Karta‟, controls & manages the business. The other members are
called „Co-parceners‟. All the members have equal ownership rights over the
property & ancestors.
FEATURES OF JHF-
a) Governed by Hindu law- The control & management of JHF firm is done
according to the Hindu law. The law consists of two schools-
Mitakshara law-
Dayabhaga law-
 Mitakshara law- This system is prevalent in whole of India except in west

Bengal, Assam & parts of Odessa. In this system only members are allowed
to be co-parceners. However an amendment in Hindu session acts in 2005.
The daughter is also allowed as co-parceners in Hindu law. This law gave
equal rights to male & female members.
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 Dayabhaga law- This system is prevalent in west Bengal, Assam & parts
of Odessa. This system allows both male & female members as co-
parceners.
a) Membership by birth- The membership of the family can be acquired only

by birth .who so ever is born in the family becomes the member. Outsiders
cannot be admitted in to the business by contract. Marriage with the male
member of the family also confers membership. This is by virtue of the fact
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that they are married to a person who is having membership by birth.
b) Management- The affairs are managed by the senior most member of the
family known as Karta. The powers of managers are unlimited. He cannot
questioned by any member. But the management is more effective due to the
natural love and affection with the members of the family. The members also
have full faith and confidence in ‗kartha‟.Only Kartha is entitled to deal
with third parties.
c) Limited liability of others- All members in a JHF have limited liability to the
extent of property which is jointly held by the family. The self –acquired
property of any member cannot be taken in order to satisfy the loans taken by
the family. The joint family property is liable for satisfying debts. Kartha is
personally liable for loan taken on promissory note.
d) Continuity- The death in the family does not being the JHF firm to an end.
It continues for ever. There is no limit to its membership also.
e) Minor also a member- This is an important feature of this business

organization that a person from birth becomes the member.
f) Accounts- Accounts are maintained by the Karta but this is not obligatory on
his part. He is not accountable to any member & no member can ask what
are the profits & losses of transaction.
g) Implied authority of Karta- There is a implied authority in favour of Karta to

contracts debts & pledge the property of the family for ordinary purpose of
family business. These decisions are binding on the entire family. No other
member is having such an authority.
ADVANTAGES OF JHF-
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 Centralized management- The management of JHF firm is centralized in

the hands of one man known as Karta. He being the eldest and most
experienced person gives a very disciplined management. He takes all
decisions & gets them implemented with the help of other members. He
may be managing rightly or wrongly, no other member interferes in his
management.
 Secrecy-The business requires secrecy regarding it. As in JHF only Karta
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is to manage the entire business. He can do it with utmost secrecy which no
other business can maintain he can keep a thing secret even from the
members of the firm.
 Quick decisions- A quick decision is great advantage in JHF. As Karta

is the only decision maker he can take very quick decisions. It is further
advantageous that the decision is final and unchallengeable.
 Credit facilities- For every business money is required. In JHF firm

the credit facilities are more. One reason for this that the liability if Karta
is unlimited. Because of contacts maintained by Karta the credit are
raised easily.
 Work according to capacity- Unlike other business organization the work

is assign to the members according to their capacity. A physically
handicapped or a partly disabled member may be assigned a little work or
no work at all. This will not disentitle him of his various needs and the
benefits which are being given to other members.
 Natural love between members- Due to natural love among members of

the family they will ignore shortcoming of each other and help to the
business smoothly & efficiently.
 Limited liability- The liability of all the members of the family firm is
limited to their undivided shares in the property of the family. However
Karthas liabilities are unlimited. This is also a great advantage of J.H.F
firm.
DISADVANTAGES OF JHF-
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 No reward for efficiency- All the members of the family are provided
with basic needs and other facilities. The persons who work more
efficiently & dedicatedly are not rewarded for their work. So efficient
workers are also tempted to work less the members try to avoid work.
 Limited capital- The investments are limited only up to the resources of one
family. They may not be sufficient to meet business requirement for
expansion. This is great disadvantage these days, when big industries are
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being encouraged.
 Limited managerial skills- Only the eldest member of the family is to

manage the family business. Karta is performing all the functions of the
management. He may not be having knowledge of each & every activity.
 Suspicion-The kartha is empowered with vast power of secrecy and he can

keep a thing secret even from its members. There is no restriction on Karta
that he cannot disclose anything to any member with whom he is having
more love. This gives birth to suspicion among the members of the family.
CO-OPERATIVE SOCIETIES
Introduction: - Co-operative societies are voluntary associations started with the

aim of service to members. The primary objective of this movement is ―how to
protect economically weaker sections of the society from the oppression of
economically strong segment of society. The co-operative form of organisation is
a democratic set up run by its members for serving their own interest.
Definition:
―Co-operation is a form of organization where in persons voluntarily

associate together as human beings on the basis of equality for the promotion
of the economic interest of themselves. ―-Hubert calvest.
―One aspect of a vast movement which promotes the voluntary association of

inviduals having common economic needs who combine towards the
achievement of the common economic end they have in view and who bring into
this combination a moral effort and a progressively developing realisation of
moral obligation.‖-V.L.Metha.
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The Indian co-operative society act 1912 defines as ―a society which has
objectives the promotion of economic interest of its members in accordance with
cooperative principle‖.
CHARACTERISTICS OF CO-OPERATIVE SOCIETIES-
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1. Voluntary membership- Everyone is at liberty to enter or leave the co-
operative society as and when he likes. Nobody is compelled to join a co-
operative society. The members are also free to use the services of the
society. Though there is no limit on the membership of the society.
Sometimes certain limits are imposed to keep the society as workable
group
.Voluntary membership is the main ingredient of co-operation. Everybody
willing to join a society is allowed to do so.
2. Political & religious neutrality- The membership of a co-operative society

is open to all religion, caste, creed, colors& or political affiliation The co-
operative movement can attract a large membership only by staying out of
politics where people have divided opinions. Co-operative represents
universal brotherhood and it should not lose its path in political
contradictions.
3. Democratic management- The management of co-operative societies is

always on democratic lines. All the members of a society elect a body of
persons to conduct and control the day to day working of the society. The
management elected through ‗one man, one vote‘ system. The day to day
work is conducted by expert‘s persons but the ultimate controls lies with
the members.
4. One man, one vote- In co-operative society every member is given one vote
irrespective of his contribution towards the capital. In a co-operative nobody
can control the society on the strength of his wealth. All members have
equal voice in management of the society.
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5. Service motive- The primary objective of co-operative societies is to

provide service to their members. The service of members is the
fundamental objective of co-operative societies. The societies earn
small amount of profit to cover up administrative expenses.
6. Distribution of surplus- The societies earn surplus from their services. This
surplus is not divided according to capital contributions. The aim is not to
earn profits as is the case in all other forms of organisation. It is distributed
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according to purchases made by the members in case of consumer co-
operatives & according to goods delivered to the society for sale in case of
producers co-operatives.
7. Cash credit- Another principle of co-operative societies is trading on

‗cash bases‘. Co-operatives flourish only when cash trading principle is
strictly followed. Cash ensures economy for the co-operatives. It
eliminates bad debts & collection expenses. Credit system reduces working
capital of the society.
8. Limited interest on investment- The pioneers of co-operative societies

wanted to give certain percentage on capital contribution in the form of
dividends. This is an incentive to members for keeping money with the
society as deposits.
9. State control- The co-operative societies are to follow certain rules &
regulations framed by the government. In India all co-operative societies are
registered under Indian co-operative societies act or respective state co-
operative law. The government gives a number of incentives for the
promotion of co-operatives.
10.Co-operative education & training- The success of co-operative will

depend upon awareness of its members towards the principles of co-
operation. The members should be properly educated about the aims and
objectives of the society. So that they may work united for the success of
society. The member should be trained to perform various activities of the
society. So proper education and training of members will add to the success
of co-operative movement.
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ADVANTAGES OF CO-OPERATIVE SOCIETIES-
 Open membership- The membership of co-operative societies is open to

each & every person. Nobody is barred from joining societies on the basis
of economic position, caste, colour & creed. Anybody wishing to enjoy the
fruits of a co-operative can join it. The number of members of a society may
be limited to make it a workable group but members are not discriminated in
any way.
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 Service motto- The co-operative societies are started not for profit but for
service. The societies try to promote the interest of the business. The
members are provided goods at a cheap rates and financial help is also
given at concessional rates.
 Supply of goods at cheaper rates- The societies purchase goods directly

from producers & sell them to the member‘s at cheap rates. The
middlemen are eliminated from the channel of distribution.
 Democratic management- The management of co-operative is elected by

the members from among themselves.all the members are given equal voting
rights irrespective of the number of shares held by them. Every member has
a equal say in formulating policies of the society.
 Low management costs- The management of a co-operative society is in

the hands of persons elected by the shareholders. Some persons are
employed to look after day-to-day working of the societies. Members take
active interest in the working of the society. So the societies need not
spend large amount on management personnel.
 Surplus shared by the members- These societies sell goods to the

members on a nominal profit to cover up administrative costs. Non-members
are charged at market rates. The surplus earned by the society is distributed
among members on the basis of their purchases.
 Limited liability- The liability of members of co-operative societies is

limited only to the extent of capital contributed by them. The private
assets of members cannot enjoy stability and continuity of operations.
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 Stability & continuity- A co-operative society becomes a separate legal

entity after registration. The death, lunacy & insolvency of any member
do not affect the stability & continuity of the co-operative society.
 State patronage- The main objective of government is the economic up

lift ment of society. The effort is to economically weaker sections of
society to get goods & services at reasonable prices.
 Employment opportunities- The societies create jobs for carrying out its
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activities. The co-operatives established for sugar, spinning mills & in
other areas create employment opportunities for large number of persons.
LIMITATIONS OF CO-OPERATIVES-
 Lack of capital- The co-operatives are started economically weaker

section of society. The resources of members are not enough to start large
scale enterprise. They cannot undertake production of goods for want of
funds. These societies suffer from lack of capital.
 Lack of unity among members- The members are drawn from different
sections of the society. There is lack of harmony among them. The
members do not understand the working of the societies, so they start
suspecting each other .The members do not take much interest in the
affairs of the society and leave everything to the paid officials.
 Political interference- The societies are generally under the regulations of

the government. Every government tries to send their own party members
to the societies. The societies are governed on political considerations
rather than on business lines.
 Unprofessional management- The co-operatives are managed by the

members who may not have any experience of managing business. These
societies cannot employ professional expert to run these organizations
because of limited resources.
 Lack of secrecy- the members of the society elect persons to manage

their societies. These persons remain changing from time to time. It is
very
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difficult to maintain secrecy of business policies when many persons are

involved in management.
 Lack of motivation- The societies are generally run on ―no profits, no

loss‖ basis or charge small profits on sales. Though surplus profits are
distributed among members but hardly there are profits for this purpose.
The members do not feel motivated since they do not get incentives for
their work.
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 Delay in decision making- All decisions are taken during meetings of
members & after proper discussions. The discussions take long time &
sometimes may not arrive at some consensus. There is a delay in
taking decisions and it may adversely affect the working of the co-
operatives.
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University Updates
UNIT -2
JOINT STOCK COMPANY
JOINT STOCK COMPANY.
Introduction: The traditional form of organisation such as sole-proprietorship,

partnership,etc. could not cope within the growth and expansion of
trade,commerce,and industry. The limitations of financial and managerial
resources and unlimited liability were limiting economic growth.in order to
overcome the limitation ,Joint stock company form of organisation was started in
England after industrial revolution. The first Act governing company form of
organisation passed in India in 1850.After independence first companies Act was
passed in 1956.New companies Act 2013 ,has now been passed taking in to
account the present requirements of the business.
Definition:-
A company is "an association of many persons who contribute money or

money's worth to a common stock and employ it in some trade or business,
and who share the profit and loss arising there form JAMES STEPHENSON
"A Joint stock company is a voluntary association of individual for profit having
a capital divided into transferable shares, the ownership of which is the condition
of membership." L.H. Haney
―Section 2(20)of the companies Act,2013 provided that ―Company means a

company incorporated under this Actor under any previous Company Law.‖
FEATURES OF JOINT STOCK COMPANY:-
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1. Association of persons:-A company is an association of persons joining hands

with a common motive. A private LTD. company must have at least two persons
and public LTD Company must have at least 7 members to get it registered. The
number of shareholders should not exceed 50 in private companies but there is
no maximum limit for the members in a public limited company.
2. Independent legal entity: - The company is create under law. It has a separate
legal entity apart from its members. A company acts independently of its
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members. The company is not bound by the acts of its members and members do
not act as agents of the company. A person can own its shares and can be its
creditors too. The life of the company is independent of the lives of its members.
The company can sue and be sued in its own.
3. Limited liability :- The liability of its shareholders is limited to the value of

shares they have purchased. The company being a separate legal entity can incur
debts in its own name and the shareholders will not be personally liable for that.
However, shareholders of a limited company have unlimited liability. The
liability by guarantee is limited to the guaranteed amount.
4. Common seal :- A company being an artificial person cannot put its

signature. The law requires every company to have a seal and get its name
engraved on it. The seal of the company is affixed in all important documents
and contracts as a token of signature. The directors must witness the affixation of
the seal.
5. Transferability of shares :- The shares of a company can be transferred by its

members. Under articles of association, the company can put certain restrictions
on the transfer of shares but it cannot altogether stop it. Private companies can put
more restrictions on transferability of shares.
6. Separation of ownership and management: - The shareholders of a company

are widely scattered. A shareholder may like to invest money but may not be
interested in its management. The companies are managed by the Board of
Directors. The ownership and management are in two separate hands .The
shareholders do not get any right to participate in company management. The
right to manage company affairs is vested in the directors who are elected
representatives of the shareholders.
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7. Perpetual Existence :- The company has a permanent existence. The

shareholders may come or may go but the company will go on forever. The
continuity of the company is not affected by the death, lunacy or insolvency of its
shareholders. The company may be winded up only by the operation of law. The
shares of the company may change hands a number of times, but the continuity
of the company.
8. Corporate finance :- A Joint Stock Company ,generally raises large amounts of
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funds .The capital is divided into shares of small denominations. A large number of
persons purchase shares and contribute to capital of the company. Since there is no
limit on number of maximum members in public companies, large amounts of
sources can be raised from persons in different walks of life.
9. Centralised and delegated management :- A Joint Stock Company is an

autonomous and self-governed body. The shareholders being large in number
cannot look after the day-to-day activities of the company. They elect board
of directors in general body meeting for managing company. All the important
decisions are taken in a democratic way The centralised management and
democratic functioning brings unity of action.
10. Publication of accounts :- A Joint Stock Company is required to file annual

statements with the registrar of companies at the end of a financial year. A joint
stock company is required to file annual statements with the registrar of
companies at the end of a financial year.
ADVANTAGES OF JOINT STOCK COMPANY:-
1. Accumulation of large resources :- The main drawback of the sole trade and
partnership concerns has been the scarcity of resources. The resources of the sole
trader and of partners being limited, these enterprises have always suffered for
want of funds .A company can collect large sum of money from large number of
shareholders. There is no limit on the number of shareholders in a public
company. If need for more funds arise, the number of shareholders can be
increased.
2. Limited liability :-The liability of members in a company form of organisation

is limited to the nominal value of the shares they have acquired. Eg. If a person
has purchased a share of Rs: 100, his liability is limited to Rs: 100 only. If the
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share is
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partly paid, then he can be required to pay only the unpaid value of the share.
Many persons will be reluctant to invest in those enterprises where liability
is unlimited.
3. Continuity of distance :-Where company is incorporated, it becomes a separate

legal entity. It is an entity with perpetual succession. The members of a company
may go on changing from time to time but that does not affect the continuity of a
company. The death or insolvency of members does not in any way the interests
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of the members but is also beneficial for the society. The discontinuation of a
company may cause wastage of resources and inconvenience to the consumers.
4. Efficient management :- In the company form of organisation ,ownership is

separate from management. It enables the company will appoint expert and
qualified persons for managing various business functions. The availability of
large-scale resources enables the company to attract talented persons by
offering them higher salaries and better career opportunities.
5. Economies of large scale production :- With the availability of large scale

resources, the company can organise production on a big scale. The increase in
scale and size of the business will result in economies in production, purchase,
marketing, and management etc. The economies will enable the company to
produce goods at a lower cost, thus resulting in more profits. The company
will help consumers by providing them cheaper goods and will also be able to
accumulate more resources for further expansion.
6. Transferability of shares :-The shares of public company are freely

transferable. A shareholder can dispose of his shares at any time when the market
conditions are favourable or he is in need of money. The company does not
return share-money before its winding op but shareholders can easily sell their
shares through stock exchange markets. Stock exchange provides a ready market
for the purchase and sale of shares.
7. Democratic set-up :-The value of shares is generally small. It enables persons

with low incomes to purchase the shares of companies. Every individual has an
opportunity to become a shareholder. Board of directors is elected by the
member. So members have a say in deciding the policies of the company. The
company form of organisation is democratic both from ownership and
management side.
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8. Social benefits:-The company form of organization mobilizes scattered

savings of the community. These savings can be better used for productive
purpose. The companies also enable financial institutions to invest their money by
providing them avenues. It also enables the utilization of natural resources for
better productive uses.
9. Diffused risk: In sole trade and in partnership business, the risk is shared by
a small number of persons. Further uncertainties discourage them from taking
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up new venture for fear of risk. In company form, of organisation, the number
of contributors is large, so risk is shared by a large number of persons. It enables
companies to take up new ventures.
DISADVANTAGES OF JOINT STOCK COMPANY:
1. Difficulty of formation :-promotion of a company is not an easy task. A

number of stages are involved in company promotion. The suitability of a
particular type of business is to be decided first. A number of persons should be
ready to associate for getting incorporated. A lot of legal formalities are required
to be performed, at the time of registration.
2. Separation of ownership and management :-The ownership and management

of a public company is in different hands. Shareholders play an insignificant role
in the working of the company. The management may indulge in speculative
business activities. There is no direct relationship between efforts and rewards. The
profits of the company belong to shareholders and the Board of Directors are paid
only a commission. The management does not take personal interest in the
working of the company as is the case in partnership and sole –trade business.
3. Speculation in shares :-The joint stock companies facilitate speculation in the

shares at stock exchange. The prices of shares depend upon both economic and
non-economic factors. The speculators try to influence the prices of shares
according to the suitability. he management of joint stock companies also
sometimes encourage speculation in shares for their personal gains.
4. Fraudulent management :- The promoters and directors may indulge in

fraudulent practices.The management is in hands of those persons who have
not
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invested much in the company. The company law has devised methods to check
fraudulent practices but they have not proved enough to check them completely.
5. Lack of secrecy :- The management of companies remains in the hands of

many persons. Everything is discussed in the meetings of board of directors. The
trade secrets cannot be maintained. In case of sole trade and partnership concerns
such secrecy is possible because a few persons are involved in management.
6. Delay in decision-making :- In company form of organisation no single
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individual can make a policy decision. All important decisions are taken either by
the Board of Directors or are referred to general house. Decision-making process is
time consuming. If some business opportunity arises and a quick decision is
needed, it will not be possible to arrange meetings all of a sudden .Many
opportunities may be lot because of delay in decision-making.
7. Concentration of economic power :-The company form of organisation has

helped the concentration of economic power is in a few hands. Some persons
become directors in a number of companies and try to formulate policies which
promote their own interests. The shares of a number of companies are purchased to
create subsidiary companies. interlocking of direction ship and establishment of
subsidiary companies have facilitated concentration of economic power in the
hands of a few houses.
KINDS OF COMPANIES
According to incorporation:-
Incorporation is the formation of a new corporation.
1. Charted companies:-This type of companies are incorporated under royal

charted issued by the king or head of the state. Under the charter, certain
exclusive rights are privileges are granted to the company for undertaking certain
commercial activities. If the company violates the rules, the head of the state can
close such companies. These companies are no longer formed in any country.
Ex :-East India company, the charted bank of India.
2. Statutory companies :-The companies are formed under a special act of

parliament or of a state legislature. The objects, powers, rights and
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responsibilities
61

of these companies are clearly defined in the act. Generally, companies for public
utility services are formed under special statues. These companies may or may not
use the word ‗limited‘. These companies are given wide powers under the acts.
Ex: RBI, Industrial Corporation of India.
3. Registered companies :-These are the companies formed and registered under
the provisions of the companies act 1956. The method of formation.
Management and liquidation are given under various clauses of this act.
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Registered companies may be limited by guarantee or unlimited companies.
According to liability :-
1. Companies limited by shares :-The companies by shares have a share capital.

The capital is divided into shares. The shareholders pay share money at one time
by instalments. The shareholders are not liable to pay anything more than the
value of the shares held by them, whatever be the liabilities of the company.
2. Companies limited by Guarantee :-These companies are also formed under

the companies act with a speculation in the memorandum clause that members are
guaranteed to pay a certain amount of money in case of its winding up. The
amount which members undertake to pay is called the guarantee money.
Sometimes the members are required to buy shares of fixed value and also give a
guarantee for more sums in the event of its liquidation.
3. Unlimited companies :-The companies registered without limiting the

liability of members to the value of shares are called unlimited companies. The
companies are just like partnership concerns where the liability is unlimited. All
the members will be liable to meet the liabilities of the company to an unlimited
extent. These companies do not exist these days.
According to transferability of shares :-
1. Private company :-A company can be formed with the association of at least 2
members but the maximum number of shareholders cannot exceed 50. The
disadvantages of partnership firms encourage the formation of private companies.
A private company restricts by its articles. a) the right of members to transfer
their shares. b) limits the number of its members to 50 c)prohibits any invitation
to the
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public to subscribe to its shares and debentures. A private company may be

limited by guarantee. These cannot be a private company with unlimited liability.
EXCEMPTIONS AND PRIVILAGES OF PRIVATE COMPANY:-
 A private company can be started with just 2 members where as

public company requires at least 7 members.
 A private company is not required to file a prospectors or a statement in lieu
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of prospectus with the registrar of companies.
 The company can start its work just after getting a certificate
of incorporation
 It can work with just two directors.
 It is not under legal obligation to offer its issues of shares to the

existing shareholders.
 There is no limit on the remuneration of directors, managers etc.
 There is no restriction of minimum subscription as in the case of public

company.It can directly allot the shares.
 Unless otherwise a higher quorum is provided, the minimum quorum in a

general meeting of shareholders is only 2 members personally present.
 A private company is not required to hold a statutory meeting and filling

a statutory report.
 Investment in the same group of companies can be done without restrictions.
2. Public companies :-Indian companies act 1956 says that all companies other
than private companies are called public companies. Public company means the
public at large is interested in those companies. The membership of a public
company is open to all persons capable of entering in to contract. A minimum of
seven members are required to constitute a public company and to get it
registered. A company must allot it shares within 120 days fro the issue of its
prospectus. A public company can start work only after getting a ‗certificate of
commencement‘ from the ―registrar of companies.‖
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On the basis of ownership :
i) Government companies :- A company owned by central or state government

company. Either whole of the capital or majority of the shares are owned by the
government. Government companies are registered both as public limited and
private limited companies but the management remains with government in
both the cases.
According to Indian companies act 1956 ―government company means any
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company in which not less than 51% of the paid-up share capital is held by central
government or by any state government or government or partly by the central
government and partly by one or more state governments and includes a company
which is subsidiary of government company.
ADVANTAGES :-
1. Flexibility in management :-There is a freedom and flexibility in the

management of government companies. Companies can organize their
working according to the necessity of the situation.
2. Run on commercial lines :-Government companies are run on sound

business lines. They earn surplus to finance their own expansion plans.
3. Healthy competition :-Government companies provide healthy competition to

the private sector. Private businessman will have to be careful is fixing their
prices.The consumer is at the mercy of the private businessmen.
4. Financial autonomy :-These companies are dependent on the government

only for their initial investment. They can plan their own capital structure. The
companies earn profits and these profits can be used for further investments.
5. Helpful in developing neglected sectors :-These are certain sectors which are
important from the national point of view. private sector may not be coming
forth to invest in such sectors. Government can enter all then neglected areas and
can help all round growth.
DISADVANTAGES OF GOVERNMENT COMPANIES :-
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1. Slackness in management :-The management of government is slackened under

the grab of public service. These companies are not generally as efficient as units
in the private sector.
2. Political interference :- There is a lot of political interference in government

companies.Every government tries to nominate directors from its own political
party and the companies are run on political considerations.
3. Red-tapism :-These companies are dependent on the government for taking
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important policy decisions. Red-tapism is government companies effecting
the working of these companies.
4. Limited autonomy :- These companies are free from government control but
in reaklity they are dependent on various government departments.These have to
get permission from the government departments regarding loans, capital and
managerial appointments.
5. Official domination :-Civil servants are appointed on important managerial

posts of these companies. They are not capable of running these undertakings
on sound business lines.
II) HOLDING COMPANIES :-If a company can control the policies of another
company through the ownership of its shares on through control over the
composition of its Board of Directors, the company is called a ―Holding
company.‖ In a company the policies which are controlled is called a
―subsidiary company.‖ The holding company has a say in the formulation of
policies of the other company.
III) SUBSIDIARY COMPANIES :-A company is called a subsidiary company

where one of the following conditions is fulfilled.
 If the formation of Board of Directors is controlled by another company.
 The other company controls more than half of the voting rights of
this company.
 If it is subsidiary of a company which itself is the subsidiary of another

company.
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 The other company owns more than half of the maximum value of the shares
in the company.
A holding company and a subsidiary company are separate companies having

separate legal entities.
ON THE BASIS OF NATIONALITY:-
Indian companies:-A company incorporated in India under the companies act
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1956, when the operating in India or outside is called an Indian company. There
are many companies incorporated under Indian Companies Act but separate rules
are framed for their regulation. These companies may be manufacturing
companies, insurance companies banking companies.etc.
Foreign companies:-A foreign company means company incorporated outside

India but has a place of business in India through its branches and agencies. Such
companies have to furnish some information as required by the Registrar of
Companies in India.
PROMOTION
Promotion Introduction.
The promotion of every business requires a process to be followed. A number of

formalities have to be completed before a unit can come into existence. The length
of process and the number of formalities varies with the type of organisation and
scale of operations. It is easy to start a sole trade and partnership concerns but a
joint stock company requires a lengthy process.
Definition.
―Promotion may be defined as the process of organizing and planning the finance
of a business enterprise under the corporate form‘‘-L.H. Haney
―Promotion may be defined as the discovery of business opportunities, and the

subsequent organization of funds, property and managerial ability into a business
concern for the purpose of making profits there form.‖- C.W.Gernstenberg
STAGES OF PROMOTION: There are four stages of promotion of a Joint Stock

Company.These stages are
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Discovery of an idea
Detailed investigation
Assembling the requirements
Financing proposition
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DISCOVERY OF AN IDEA:
The first stage in company promotion is the conception of new idea. A person
visualises that there are opportunities for a particular type of business and it can be
profitably run.The idea may be to exploit a new area of natural resources or more
profitable ventures in existing line of business. If they are convinced that
profitable avenues are available in that line of business then the idea is taken
forward for more exhaustive analysis.
DETAILED INVESTIGATION :
At the second stage various factors relating to that business are studied from a
practical point of view. The promoters will estimate total demand for the product
.There may be certain concerns already in that type of business and so he will
determine his share of demand. After determining the prospective demand for
goods he will think of arranging finances for a venture, the availability of factors
of production is also considered an expert opinion is sought and the availability of
the project.
ASSEMBLING THE REQUIREMENTS:
After making sure that the proposition is practical and profitable the promotes
proceeds to assemble the requirements. He persuades some more persons to join
hands with him by becoming directors or founder members. If he has invented
new, he should get it registered in his name. He may also acquire some patent
rights. The promotes selects the factory site, decides about plant and machinery
and contacts suppliers or raw materials etc. the contracts are finalized by paying
option money and the ultimate purchase is done only when the company is
incorporated.
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FINANCING THE PROPOSITION:
The promoter decides about the capital structure of the company. The
requirements of finances are estimated first. Then the sources from which the
money will come are determined. How much share capital is issued, the type of
shares, loans etc are finalized. Generally commercial banks are helpful in
financing working capital requirements the financial institutions for a longer
period. The financial requirements for short period and long period are estimated
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separately, so that capital figures may be given in the memorandum of association.
Whether the issue is to be underwritten through some agency or the company is to
issue securities itself is decided after considering money market position and the
expected response from the public. The mode of issuing shares and debenture is
also decided by the promoters.
PROMOTERS:-
―A promoter is one who undertakes to form a company with reference to a given

object and sets it going and takes the necessary steps to accomplish that purpose.‖
:- Justice C.J.Cokburn.
―A promoter is a person conscious of the possibilities of transforming an idea

into a business capable of yielding a profit; Who brings together various persons
concerned and who finally superintendents the various steps necessary to bring the
new business in to existence.‖ :-
Arthur dewing.
―A person who originates the scheme of the promotion of a company, has the
memorandum and articles prepared, executed and registered and finds the first
directors, settle the terms, preliminary contracts, and prospectus if any ,and makes
arrangements for advertising and circulating the prospectus and raising the capital.-
Sir Francis Palmer.
CHARACTERISTICS OF A PROMOTER :-
1. A promoter conceives an idea for the setting up a business.
2. He makes preliminary investigations and ensures about the future prospects

of the business.
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3. He brings tighter various persons who agree to associate with him and share the
business responsibilities.
4. He prepares various documents and gets the company incorporated.
5 .He raises the required finances and gets the company going.
KINDS OF PROMOTERS:-
The promoters may be of the following types.
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1. Professional promoters:-These are the persons who specialized in promotion of
companies. They hand over the companies to shareholders where the business
starts. In India, there is a lack of professional promoters. In many other countries
professional promoters have played an important role and helped the business
community to a great extent.
Eg. In England, Issue Houses, In U.S.A. Investment Banks.
2. Occasional promoters:-These promoters take interest in floating some

companies. They are not in promotion work on regular basis but take up the
promotion of some company and then go to their earlier profession. Eg: engineers,
lawyers etc.
3. Financial promoters:-Some financial institutions of financiers may take up

the promotion of a company. They generally take up this work when financial
environment is favourable at the time.
4. Managing agents as promoters: - In India, managing Agents played an

important role in promoting new companies. These persons used to float new
companies and then got their managing agency rights. Managing agency
system has since long been abolished in India.
IMPORTANT DOCUMENTS PREPARED IN JOINT STOCK COMPANY.
Important documents issued by a company:
1. Memorandum of association.(MOU)
2. Articles of association.(AOA)
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3. Prospectus.
1. MEMORANDUM OF ASSOCIATION :-It is the constitution (act or a process

of setting something up) of the company and provides the foundation on which its
structure is built. It is the principal document of the company and company can be
registered with of MOA. It defines the activities of the company as well as its
relation with the outside world.
According to lord Macmillan, ‗The purpose of memorandum is to enable the
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shareholders, creditors and those who deal with the company to know what is
permitted range of enterprise.‖
Company act defines a memorandum as ―The memorandum of association of a

company‘s originally framed or as altered from time in pursuance of any previous
company laws or of this act.‖
Purpose :-The main purpose of the memorandum is to explain the scope of

activities of the company. The prospective shareholder knows the areas where
company will invest their money and the risk they are taking in investing the
money. The outsides will understand the limits of the working of the company and
their dealings with it should remain within the prescribed scope.
IMPOTANCE OF MEMORANDUM OF ASSOCIATION :-
 Memorandum defines the limitations on powers of the company established

under the act.
 The whole structure of a company is built upon memorandum.
 It explains the scope of activities of the company.
 It is a basic document of the company with regard to its constitution.
 It is a charter (defining its purpose and privileges) of the company which

sets out its written goals.
CLAUSES OF MEMORANDUM:-
1. The name clause:A company being separate legal entity must have a name.-A
company may select any name which does not resemble the name of any other
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company and it should not contain the words like king, queen, emperor, govt.
bodies and the names of world bodies like U.N.O, W.H.O. The name should not be
objectionable in the opinion of the government. The word ‗limited‘ most to be
used at the end of the name of public and ‗private limited‘ is used by a private
company. The name of the company must be painted outside evry place where
business of the company is carried on.
2. Registrated office clause:-Every company should have a registered office, the
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address of which should be communicated to the Registrar of companies. This
helps the registrar to have correspondence with the company. The place of
registered office can be initiated to the Registrars within 30 days of incorporation
or commencement of business, whichever is earlier. A company can change its
registered office from one place to another in the same town with information to
the Registrar.
3. Object clause :-It determines the rights and powers of the company and also
defines its sphere of activities. The object clause should be decided carefully
because it is difficult to alter this clause later on. No activity can be taken up by
the company which is not mentioned in the clause. The choice of the object clause
lies with the subscribers to the memorandum. They are free to add anything to it
provided it is not contrary to the provisions of the company act. The companies
act, 1965 requires that in case of the companies formed, after this amendment, the
memorandum must state separately
a) Main objects
b) Other objects
 Main objects:-Will include objects to be pursued by the company on

incorporation and objects incidental or ancillary to the attainment of
the main objects.
 Other objects:-It includes all other objects which are not included in
the main objects.
4. Liability clause:-This clause states that the liability of the members is limited
to the value of shares held by them. It means that the members will be liable to
pay only unpaid balance of their shares. It may be limited by guarantee. It also
states
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the amount which every member will undertake to contribute to the assets of the
company in the event of its winding up.
5. Capital clause:-The clause states the total capital of the proposed company. The
division of capital into equity share capital and preference share capital should also
be mentionedThe members of shares in each category and their value is given.. If
some special rights and privileges are conferred on any type of shareholders.
Mentioned may be made in the clause to enable the public to know the exact nature
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of capital structure of the company.
6. Association clause:-This clause contains the names of signatories (one who

signs on something) of association. The memorandum must be signed by at least
7 persons in the case of a public limited company and by at least two persons in
the case private limited company. Each subscriber must take at least one share of
the company. The subscribers declare that they agree to incorporate the company
and agree to take the shares stated against their names. The signature of
subscribers is arrested by at least one witness each.
ALTERATION OF A MEMORANDUM OF ASSOCIATION:-
MOA is a basic document of the company. Any change in various clause of

memorandum may have an adverse effect on any of the parties connected with the
company. Company law has prescribed a particular procedure for making a change
in the memorandum.
1. Name clause:-A company may change its name by passing a special resolution
and with the prior approval of the central govt. . .If the company is registered with
an undesirable name then it can change it with an ordinary resolution with the
approval the Central government.The central govt. can also direct the company
within 12 months of its registration to change its name and this will have to be
done within 3 months.
2. Registered clause:-The change in registered office from one state to another

requires a change in memorandum. This change effects the interest of
shareholders
,investors, creditors, employees etc This change can be affected only with the
approval of company law board.
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3. Object clause:- The object clause is the most important clause in the
memorandum,its change may affect the activities of the company.This clause is
a limitation on the company beyond which it cannot carry its activities. The
object clause can be changed by passing a special resolution and by getting the
permission of the company law Board. A copy of the resolution should be filled
with Registrar within 30 days of passing the resolution.
The change in situation and object clause is allowed only under certain situation.
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 The change is necessary to allow the company to carry on its business
more economically or efficiently.
 The company will be able to attain its objectives by new & improved means.
 The company may enlarge the local area of its operations.
 To sell whole a part of the company‘s property.
 To amalgamate with any other company or body of persons.
4. Liability clause:- If articles so permit, the liability of the directors, making

directors or manager can be made unlimited by passing a special resolution. The
officer concerned should also accord his consent for making the liability
unlimited.
5. Capital clause:-A change in capital clause involving an increase in the

authorized capital can be affected by passing an ordinary resolution in the General
meeting.
ARTICLES OF ASSOCIATION
The rules and regulations which are framed for the internal management of the
company are set out in a document named articles of association. The articles are
framed to help the company in achieving its objectives set out in memorandum of
association. It is a supplementary document to the memorandum.
According to companies act ―Articles of association of the company as

originally framed as alter altered from time to time in pursuance of any previous
company‘s law or of this act.‖
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The private companies limited by shares, companies limited by guarantee and

unlimited companies must have their articles of association. A public company
limited by shares may or may not have its own articles.as per the companies Act,
it is not obligatory on the part of ta public company limited by shares to prepare
and register articles of association along with Memorandum Of Association. The
articles cannot contain anything contrary to the companies Act and also to the
MOA. If the document contains anything contrary to the companies act or
memorandum, it will be inoperative. When articles are proposed to be registered,
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they must be printed, divided into paragraphs and numbered consecutively.
The nature of articles may be explained as follows:-
 Articles of association are subordinate to MOA.
 The articles are controlled by memorandum.
 Articles help in achieving the objectives laid down in the memorandum.
 Articles are only internal regulations over which member exercise control.
 Articles lay down the regulations for governance of the
company. CONTENTS:-
1. The amount of share capital issued, different types of shares, calls on

shares, for feature of shares, transfer and transmissions of shares and rights
and privileges of different categories of shareholders.
 Power to alter as well as reduce share capital.
 The appointment of directors, powers, duties and their remuneration.
 The appointment of manager, M.D etc.
 The procedure for holding and conducting of various meetings
 Procedure for winding up the company.
 Matters relating to maintaining of accounts,declaration of dividends

and keeping of reserves,etc.
Alteration of articles of association:-

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The articles of association can be altered by passing a special resolution.
 The change should not be violating provisions of the companies act.
 It should not be contrary to the provisions of the companies act.
 The alteration must not have anything illegal.
 The alteration should not adversely affect the minority shareholders.
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PROSPECTUS INTRODUCTION.
After getting the company incorporated, promoters will raise finances. The public
is invited to purchase shares and debentures of the company through an
advertisement. A document containing detailed information about the company
and an invitation to the public subscribing to the share capital and debentures are
issued. The document is called ‗prospectuses‘ .Only public company can issue
the prospectus. Private companies cannot issue a prospectus because they are
strictly prohibited from inviting the public to subscribe to their shares. .
Definition:
A document containing detailed information about the company and an invitation

to the public subscribing to the share capital and debentures is issued. This
document is called ―prospectus.‖
According to companies act ―A prospectus means any document described

or issued as prospectus and includes any notice, circular, advertisement or other
documents inviting deposits from public or inviting offers from the public for the
subscription or purchase of any share in or as debenture of a body corporate.‖
A prospectus should have the following essentials:-
 There must be an invitation offering to the public.
 The invitation must be made on behalf of the company or

intended company.
 The invitation must relate to shares or debentures.
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A prospectus must be filed with the registrar of companies before it is issued to the
public. The issue of prospectus is essential when the company wishes the public to
purchase its shares and debentures. It should be duly dated, signed by all the
directors. It should be filed with the registrar of company before it is issued to the
public.
A prospectus brings to the notice of the public that a new company

has been formed. The company tries to convince the public that it offers best
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opportunity for their investment. A prospectus outlines in detail the terms and
conditions on which the shares or debentures have been offered to the public
.Every prospectus contain an application form on which an intending investor can
apply for the purchase of shares or debentures.
CONTENTS :-
The following matters are to be disclosed in a prospectus.
 Name and full address of the company.
 Full particulars about the signatories to the memorandum of association

and the number of shares taken up by them.
 The number and clauses of shares.
 Name, addresses and occupation of members of board of directors .
 The minimum subscription fixed by promoters.
 If a company acquires any property from vendors, their full particulars

are to be given.
 The time of opening of the subscription list.
 The nature and extent of interest of every promoter in the promotion of

the company.
 The amount payable on application, allotment and calls.
 Particulars about resources and surplus.
 The amount of preliminary expenses.
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 The name and address of the auditors.
 Particulars regarding voting rights at the meeting of the company.
 A report by the auditors regarding the profits and losses of the company.
STATEMENT IN LIEU OF PROSPECTUS:-
A public company raises its capital from the public and it issues prospectus for this
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purpose. Sometimes, the promoters of a company decide not to approach the
public for raising necessary capital. They are hopeful of raising funds from the
friends and relations or through underwriters. In that case a prospectus need not be
issued but a statement in lieu of prospectus must be filed with the registrar at least
3 days before the first allotment of shares. Such a statement must be signed by
every person who is named there in as a directors or proposed director of the
company.
RED HERRRING PROPECTUS:-
A red herring prospectus as a first a preliminary prospectus is a document

submitted by a company as part of a public offering of securities. Most frequently
associated with an initial public offering (IPO).
A red herring prospectus is issued to potential investors but does not have
complete particulars on the price of the securities offered and quantum of securities
to be issued.
―Red-herring prospectus‖ means a prospectus that does not have complete

particulars on the price of the securities offered and quantum of securities offered.‖
CONTENTS:-
1. Purpose of the issue.
2. Disclosure of any option agreement.
3. Underwriter‘s commissions and discounts.
4. Promotion expenses.
5. Net proceeds to the issuing company.
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6. Balance sheet.
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7. Earnings statements for last 3 years, if available.
8. Names and address of all officers, directors, underwriter etc.
9. Copy of the underwriting agreement.
10. Legal opinion on the issue.
11. Copies of the articles of incorporation of the issuer.
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79

UNIT -3
INTRODUCTION TO FUNCTIONS OF MANAGEMENT
Management is a universal phenomenon. Every individual or entity requires setting

objectives, making plans, handling people, coordinating and controlling activities,
achieving goals and evaluating performance directed towards organizational goals.
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These activities relate to the utilization of variables or resources from the
environment human, monetary, physical, and informational.
Management is the process of planning, organizing, leading, and controlling an

organization‘s human, financial, physical, and information resources to achieve
organizational goals in an efficient and effective manner.
Management is a key factor for the success of any organized activity. It is the
force that unifies human and non- human resources in the service of organizational
goals. It is required whenever people work together in an organization. It is the
process of getting results with and through people.
Manpower Material
Management
Money
Machinery
Methods
Management is considered as a process which includes all the activities- starting

from the setting up of objectives of a business enterprise to the taking up of steps
which ensure the attainment of these objectives. The management process
comprises of all functions which transforms resources such as men, materials,
money, machines, methods, marketing, management into products and services to
satisfy the consumers‘ needs. These resources as a whole termed as 7 M‘s. The
functions performed during the process of transformation of resources are known
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as management functions. Thus the management process comprises of functions

such as planning, organizing, staffing, directing, coordinating and controlling.
Resources/inputs Outputs
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 Money
 Manpower
Management Process  Goods
 Methods
 Material  Services
 Machinery Functions of Management  Profit
 Marketing  Productivity
 Management Process Activities  Customer
Planning, Organizing, directing, staffing,

control
DEFINITION
―The art of getting things done through and with people in formally
organized groups.‖ ---HAROLD KNOOTZ
―Management is the art of knowing what you want to do and then seeing that it
is done in the best and cheapest way.‖---------------------------F.W.TAYLOR
CHARACTERISTICS OF MANAGEMEN T
1. Management is intangible: it cannot be seen. Its presence can be felt

by the results of its efforts in the form production, sale and profits.
2. Goal –oriented: it seeks to achieve goals (Economic or non-economic).

The primary goal in a business organization is to produce and distribute
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goods with the view of making profit or service organization the goal
might be customer service.
3. Universal: it is needed in all types of organizations. The basic principles

of management are applicable in business and in other organizations.
4. Social process- it deals with people. To make best use of human efforts,
managers have to create close cooperation among employees in an
organization. They have to use resources for the benefit of society as a
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whole, and look after the interests of employees, shareholders,
customers, investors and community.
5. Group Activity- it is concerned with getting things done through people.

People join groups in order to achieve results collectively. Management
helps in realizing individual as well as group goals in a coordinated way.
6. An activity – it is a distinct activity. It can be studied, knowledge about

it obtained and skill in its applications acquired.
7. system of authority – a manger is supposed to get things done, rather

than doing things himself, by using authority. Authority is the right to
give orders and the power to obtain obedience from subordinates.
8. Dynamic- it is dynamic and growth oriented function. It tries to visualize

problems before they turn into emergencies and takes suitable steps.it
trys to adopt itself to the environmental changes quickly. It proposes to
take actions to make the desire results to come.
9. Science as well as an art- a systematized body of knowledge based on

certain principles capable of application.
10.Multidisciplinary- it has rich contributions from various discipline like

psychology, sociology, anthropology the insight obtain from this
disciplines help managers in understanding the human mind much better.
The integration of knowledge of various fields are the major contribution
of management
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FUNCTIONS OF MANAGEMENT
University Updates PLANNING
CONTROL ORGANIZING
STAFFING DIRECTING
PLANNING: It is bridging the gap between the present and future. It is a process
of looking ahead. It is the determination of a course of action to be followed for
achieving the organizational objectives It is essential at all levels of management,
includes setting objectives (goals to guide the effort), strategies (an action plan on
the reaction pattern of others), policies (guide to an action), procedures (prescribe
the manner or method of doing) programmes (represents a sequence of related
activities, Schedule (prescribes the time table) and budget (a time-bound plan
expressed in quantitative terms).
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Planning consists of deciding in advance the following aspects
a) What is to be done
b) How it is to be done
c) Where it is to be done
d) When it is to be done
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e) By whom it is to be done
Planning involves the function of decision making and problem solving in other
words planning involves a selection of business objective and deciding the future
course of action for achieving this objectives.
ORGANIZING: this provides the necessary framework for the management. The
function of organizing is to arrange guide co-ordinate, direct and control the
activities of other factors of production. The purpose of organizing is to relate
organizational people to each other and to work for the achievement of
organizational goals. It is the process of dividing the work into sections,
departments. Assigning duties, delegating authorities and fixing the
responsibilities. It also includes blending together different resources human and
non-human. Depart mentation, decentralization, and delegation are the functions
of organization.
DIRECTING: Direction means guiding and supervising the subordinates. It

involves functions like communication- passing information from one person to
another. Telling the subordinates what they are required to do, how to do it, when
to do it. Leadership – it is the process by which a manger guides and influences the
work of his subordinates. Motivation- inspiring the subordinates with zeal to do
work for the achievement of organizational objectives.
Directing is a continuous function and is performed at all levels of

management. It consists of following steps:
a) Issuing orders and instructions by a superior to his subordinates
b) Motivating subordinates to contribute to the best of their capability
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c) Providing leadership to the subordinates to influence group activities
d) Observing the activities of subordinates
e) Helping subordinates to resolve their work problems
STAFFING: this refers to the managerial function of acquiring, activating,
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developing and maintaining human resources for achieving organizational goals.
Staffing provides personnel who are competent, qualified, and with essential skills
to perform the job efficiently. It includes functions like: recruitment, selection,
placement, training, promotion, transfer and retirement. The soul aim of staffing is
to take the right man for the right job.
CONTROLLING: it is a process which enables the management get its policies

implemented and take corrective actions if performances is not according to the
predetermined standards verifying whether everything occurs in conformity with
the plan adopted, the instructions issued and principles established. Steps involved
are: 1. establishing the standards.2. Measuring actual performance . 3. Comparing
the actual performance with the standard 4. Finding variance if any 5.taking
corrective measures.
SIGNIFICANCE OR IMPORTANCE OF MANAGEMENT
The significance of Management in business activities is relatively greater. The

inputs of labor, capital, raw material never become productive without the catalyst
of management.
1. Achievement of group goals- management plays an important role in

the achievement of objectives of an organization. Objectives can be
achieved only when the human and non-human resource are combined in
a proper way. Management is indeed goal oriented.
2. Optimum use of resources- it avoids all kinds of wastages and helps in

putting the resources to the best advantage within the limitations set by the
organization and its environment. A right climate is created to put their
best and show superior performance.
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3. Minimization of cost to combat rising competition- in the modern era of

intense competition, every enterprise must minimize the cost of
production and distribution. The study of the principles of management
helps in knowing certain techniques ( budgetary control, production
control, cost control financial control material control) used for reducing
costs
4. Change and growth- a business environment operates in a constantly
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changing environment. Changes in business environment create
uncertainties and risk an also provides opportunities for growth. An
enterprise has to change and adjust itself to the ever changing
environment sound management helps in this regard.
5. efficient and smooth running of business- management helps in the

smooth and efficient running of business though better planning,
sound organization and effective control of the various factors of
production.
6. Higher profits- profits are enhanced either by increasing sales revenue or by

reducing the cost. To increase the sales revenue is beyond the control of an
enterprise. Management decreases the costs and increases the profit thus
creates opportunities for growth and development.
7. Provides for innovation- management helps by way of giving new

ideas, imagination and visions.
8. Social benefits- management is helpful not only to firms but also society
as a whole. It improves the standard of living of the people through higher
production and more efficient use of resources. It promotes peace and
prosperity by establishing cordial relations between different social groups.
9. useful for developing countries- Management plays important role in

developing countries like India ( Productivity is low and resources are
limited)
10.Sound organization structure- it establishes proper structure and

avoids conflict between superiors and subordinates.
MANAGEMENT AS A SCIENCE OR AN ART

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MANAGEMENT AS A SCIENCE: science refers to a systematic body of

knowledge acquired through observation, experimentation and intelligent
speculation. Management deals with the systematic knowledge of acquiring the
skill of getting things done through others. Management has become a discipline,
which is more organized and systematized. It has evolved general principles
relating to planning, organizing, and coordination and controlling areas which have
become more scientific. Management is an accepted science as a way of solving
problems and taking decisions. The principles of management are universal in
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nature and are being applied in every branch of human activity.
MANAGEMENT AS AN ART: art mainly refers to the practical application of

theoretical knowledge. Management is an art because management principles are
evolved and accepted not merely for the sake of knowledge, but to apply them to
the actual practical situations in problem solving and decision making. A manager
is not only a scientist but also an artist. At times he has to depend upon his own
experience, intuition, judgment in taking managerial decisions and this art of
decision making has to be acquired by continuous effort and practice.
Management: the process of getting things done efficiently and effectively

through and with people.
Efficiency: Doing things right, minimize the resource costs
Effectiveness: doing the right things. Goal attainment
HENRY FAYOL:
He is father of administrative management. A French mining engineer developed

14 principles of management based on his management experiences. These
principles provide modern-day managers with general guidelines on how a
supervisor should organize her department and manage her staff. His perspective
extended beyond the shop level and the physical production processes.
According to him business activities of an enterprise can be divided into 6 groups.
Technical (production), accounting (Keeping financial records), security

(protection of property), commercial (buying and selling), financial (Use of
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capital), administrative/managerial. Special focus was given to managerial activity

because they are mostly neglected aspects of business operations.
14 PRINCIPLES OF MANAGEMENT (FUNDAMENTAL OR

UNIVERSAL)
• DIVISION OF WORK: The work should be divided among the individuals on

the basis of their specializations, so as to ensure their full focus on the effective
completion of the task assigned to them. According to Fayol, ―The intent of
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division of work is to produce more and better work for the same effort.
Specialization is the most efficient way to use human effort.‖ In business work can
be performed more efficiently if it is divided into specialized tasks; each
performed by a specialist or trained employee. This results in efficient and
effective output.
• AUTHORITY AND RESPONSIBILITY: ―Authority is the right to give

orders and obtain obedience, and responsibility is the corollary of authority. The
two types of authority are official authority, which is the authority to command,
and personal authority which is the authority of the individual manager.‖ There
should be a balance between authority and responsibility.
• DISCIPLINE: Discipline is the obedience to organisational rules and

employment agreement which are necessary for the working of the organisation.
According to Fayol, discipline requires good superiors at all levels, clear and fair
agreements and judicious application of penalties. Suppose management and
labour union have entered into an agreement whereby workers have agreed to put
in extra hours without any additional payment to revive the company out of loss.
In return the management has promised to increase wages of the workers when this
mission is accomplished. Here discipline when applied would mean that the
workers and managagement both honour their commitments without any prejudice
towards one another.
• UNITY OF COMMAND: An employee should receive orders from only one

superior. According to Fayol there should be one and only one boss for every
individual employee. If an employee gets orders from two superiors at the
same time the principle of unity of command is violated. The principle of unity
of command states that each participant in a formal organization should receive
orders from and be responsible to only one superior.
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• UNITY OF DIRECTION: Organizational activities must have one central

authority and one plan of action. All the units of an organization should be
moving towards the same objectives through coordinated and focused efforts.
Each group of activities having the same objective must have one head and one
plan. This ensures unity of action and coordination
• SUBORDINATION OF INDIVIDUAL INTEREST TO GENERAL

INTEREST: The interests of one employee or group of employees are subordinate
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to the interests and goals of the organization. The interests of an organization
should take priority over the interests of any one individual employee according to
Fayol. Every worker has some individual interest for working in a company. The
company has got its own objectives.
• REMUNERATION OF PERSONNEL: Salaries the price of services rendered

by employees should be fair and provide satisfaction both to the employee and
employer. The overall pay and compensation should be fair to both employees
and the organization. At the same time it should be within the paying capacity of
the company. In other words, remuneration should be just and equitable. This will
ensure congenial atmosphere and good relations between workers and
management. Consequently, the working of the company would be smooth.
CENTRALIZATION: The objective of centralization is the best utilization of
personnel. The degree of centralization varies according to the dynamics of each
organization. The management must decide the degree of centralization and
decentralization. The concentration of decision-making authority is called
centralization whereas its dispersal among more than one person is known as
decentralization. According to Fayol, ―There is a need to balance subordinate
involvement through decentralization with managers‘ retention of final authority
through centralization.‖
• SCALAR CHAIN: A chain of authority exists from the highest organizational

authority to the lowest ranks. If there is need for swift action the proper channel
of
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authority may be short-circuited by making direct contact (Gang plank) with the
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concerned authority.
• ORDER: According to Fayol, ―People and materials must be in suitable places

at appropriate time for maximum efficiency.‖ The principle of order states that ‗A
place for everything (everyone) and everything (everyone) in its (her/his) place‘.
Essentially it means orderliness. If there is a fixed place for everything and it is
present there, then there will be no hindrance in the activities of business/ factory.
This will lead to increased productivity and efficiency.
• EQUITY: In organizations, equity is a combination of kindness and justice.

Both equity and equality of treatment should be considered when dealing with
employees. There should be no discrimination against anyone on account of sex,
religion, language, caste, belief or nationality etc.
• STABILITY OF TENURE OF PERSONNEL: ―Employee turnover

should be minimized to maintain organizational efficiency‖, according to Fayol.
Personnel should be selected and appointed after due and rigorous procedure. But
once selected they should be kept at their post/ position for a minimum fixed
tenure. They should have stability of tenure. To attain the maximum productivity
of personnel, a stable work force is needed. The workers should be assured
security of job by the management.
• INITIATIVE: freedom to think out and execute a plan. Zeal, energy, and
initiative are desired at all levels of the organizational ladder. Employees should be
encouraged to take initiative.
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• ESPRIT DE CORPS: Teamwork is fundamentally important to an

organization. Work teams and extensive face-to-face verbal communication
encourages teamwork. Management must create team spirit among the employees.
Divide and rule should be avoided and verbal communication in the place of
formal and written communication to avoid misunderstanding
SKILLS OF MANAGEMENT
Henry Fayol, a famous management theorist also called as the Father of Modern
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Management, identified three basic managerial skills - technical skill, human skill
and conceptual skill.
TECHNICAL SKILL: Knowledge and skills used to perform specific tasks.

Accountants, engineers, surgeons all have their specialized technical skills
necessary for their respective professions. Managers, especially at the lower and
middle levels, need technical skills for effective task performance. Technical skills
are important especially for first line managers, who spend much of their time
training subordinates and supervising their work-related problems.
HUMAN SKILL: Ability to work with, understand, and motivate other people as
individuals or in groups. Ability to work with others and get co-operation from
people in the work group. For example, knowing what to do and being able to
communicate ideas and beliefs to others and understanding what thoughts others
are trying to convey to the manager.
CONCEPTUAL SKILL : Ability to visualize the enterprise as a whole, to

envision all the functions involved in a given situation or circumstance, to
understand how its parts depend on one another, and anticipate how a change in
any of its parts will affect the whole. Creativity, broad knowledge and ability to
conceive abstract ideas.
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LEVELS OF MANAGEMENT
TOP LEVEL
MIDDLE LEVEL
LOWER LEVEL
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TOP LEVEL MANAGEMENT
This level management consists of the board of directors, chief excutive officers
and the general managers. The main functions of the top level management
includes the following
a) To formulate overall long-term goals
b) To set the ways to attain the goals
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c) To frame policies and make plans to achieve this objectives
d) To lay down guidelines for the department or heads
e) To assemble the resources
f) To provide overall leadership
g) To exercise effective control on various activities
MIDDLE LEVEL MANAGEMENT
it consists of various functional managers such as production managers, marketing

managers, human resources managers, research and development officers etc. the
main functions of middle level management includes the following
a) To establish a link between top management and lower level management
b) To carry the problems and suggestions upwards
c) To achieve coordination between the different parts of the organization
d) To inspire lower level managers towards a better performance
e) To motivate employees to achieve higher productivity
LOWER LEVEL MANAGEMENT
Lower level management consists of superintendence, supervisors who are in a

direct touch with a file of workers. It is also called as operating management. The
main function of lower level management includes the following
a) To assign jobs and tasks to subordinates
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b) To arrange materials, machinery and tools
c) To assists the subordinates by explaining the process of work
d) To report the problems faced by the workers to the middle

level management
SCIENTIFIC MANAGEMENT : management based on careful observation,

objective analysis and an innovative outlook is called scientific management. It is
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the art of knowing exactly what is to be done and the best way of doing it. It may
be regard as a set of scientific technique which as support to increase the efficiency
of an enterprise. F.W TAYLOR is regard as the father of scientific management.
DEFINITION: ―Scientific management is the art of knowing exactly what

you want your men to do and seeing that they do it in the best and cheapest
way‖
F.W. TAYLOR
PRINCIPLES OF SCIENTIFIC MANAGEMENT:
1) Science but not rule of thumb:
Basic principle of scientific management is an adoption of scientific approach to

the process of making managerial decision and solving managerial problem. Work
should not be allotted according to traditional practices but according to the
capacity capability and efficiency of the employees. Taylor suggested work study
to eliminate unnecessary operations, differential piece rate system to encourage
employees for better performance.
2) Harmony, not discord
Harmony refers to unity of action while discord refers to differences approach.
As a principle of scientific management, it refers to absolute harmony in the action

of people in order to facilitate the attainment of organization goals. In the words of
Taylor,‖ substitution of war for peace, hearty and brotherly cooperation for
contentment, replacement of suspicious watchfulness with mutual confidence of
becoming friends instead of enemies.
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3) Co-operating, not individualism
Co-operating refers to the development of mutual understanding between

employees and management in order to direct their efforts to attain group
objective. Here individual objectives should be given less preference when
compared to organizational objective. This principle was suggested to encourage a
combined effort not only among workers but also between workers and
management.
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4) Maximum output, instead of restricted output:
In Taylor‘s view, the most dangerous evil in the industrial system was a deliberate
restriction of output in order to maximize returns. He emphasized maximization of
output as a need of promoting. The Prosperity of workers, management and
society. Taylor was against any curtailment of production either by management
or by workers. He suggested that both the parties should try to increase surplus by
stepping up production.
5)Equal division of responsibility:
This principle recommends the separation of planning from execution. According

to him, management should be concerned with planning of work and worker with
its execution the management should design the work, set up and supervise the
workers and the workers are free to perform the work.
6) Development of workers:
Management must develop its workforce to the fullest extent of their capabilities to
ensure to maximum prosperity of both employees and employers. Taylor
suggested on job training for workers so that they cope up with changing methods
of work.
The workers should be scientifically selected, placed and developed.
7) Mental revolution:
According to Taylor, no scheme of scientific management could be successful

unless workers and manager learn to cooperate with each other. This requires a
mental revolution in their part by giving up attitude of hostility and enmity towards
each other. Taylor‘s basic idea was to bring basic change in the mental attitude of
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workers and the management. Mutual understanding and co-operation between the
management and workers was essential aspect of Taylor
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UNIT -4
PLANNING AND ORGANIZING
CONCEPT OF PLANNING:
Planning is the fundamental function of management .It precedes

all other managerial functions. In fact planning is the base for all managerial
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functions and activities. Planning is a process which involves thinking before
doing. It is concerned with mental state of manager. Successful managers deal with
foreseen problems and unsuccessful managers with unforeseen problems. The
difference lies in planning. Every enterprise which strives to grow must place
heavy emphasis on planning. In a competitive business world a manager cannot
wait for favourable circumstances, he has to decide in the face of
uncertainities.There is no place for guess work or chance. Hence arises the need
for proper planning.
DEFINITION:
―Management planning involves the development of forecasts, objectives, policies,

programmes, procedures, schedules and budgets.‖
Louis Aalen.
Planning is deciding in advance what to do, when to do it & who is to it.
-Koontz & O‟ Donnel
Planning is the thinking process, the organized forecast, the vision based on the
fact and the experience that is required for an intelligent person.
–Alfred and beauty
NATURE/ CHARACTERISTIC OF PLANNING:
The nature or characteristic of planning can be studied as under.
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1. Planning an intellectual process:
Planning is an intellectual process, it is mental work. The facts

relevant to situation are related to manager‘s experience and knowledge. A planner
must visualize the situations which are likely to happen in future. He should
develop a future course of action.
Planning may be easy for some and difficult task for others depending
upon their capabilities. A planner has to think about the following aspects.
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a. What is to be done?
C . How is to be done?
done? 2 . Primary of planning:

b. When is to be done?
d. By who is to be
Planning is the first function of a planner. Other functions like Organizing,

Staffing, Directing, Controlling etc. are followed by planning. Without planning no
other function can be performed. It is not that the other functions can start only the
first is completed. There may also be need for replanning or adjustment of
planning. Controlling is one function which goes side by side with planning. One
is incomplete without the other.
• PLANNING
• ORGANIZING
• STAFFING
• DIRECTING
• CONTROLLING
3 . All managers plan:
Every manager in an organization has a planning function to perform. It

may also be said that planning is a fundamental managerial function. It is felt that
planning is done at top levels only. This may be true to certain extent that people at
top level denote most of their time to planning than the managers at middle and
lower levels of management but every manager at his level of activity has to plan
its activities. The planning at top level will be fundamental, broad, far reaching
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and
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basic. The chief executive will see to that persons at other levels of management
do not plan beyond their purview.
4 . Planning: A rational approach:
Planning process is rational approach to the achieving of organizational

goal. An action is rational, if its objectively and intelligently decided. Future is
always uncertain but planning process provides a rational approach for suggesting
alternative approaches to various situations. It is an intelligent approach for
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achieving the goals of the extensive. It is a problem to select an alternative which
will help in achieving desired results. The balancing of ends and means is also in
purview of planning.
5. Focus on objectives:
An organisation employs a number of persons. Each one of them has different

personality and attitude . There will be difference of opinion about the objectives
of the enterprise and methods to achieve them .Planning focuses attention on
setting up organizational objectives and suggests ways to achieve them. If the
objectives are not set properly then the efforts spent on them will go waste. The
main purpose of planning is to focus attention on setting up of objectives.
6. Leads to efficiency and economy:
Planning involves be efficient utilization of various resources like capital,

labour, machines, materials etc. Every factor of production is put to efficient and
economical use so that the output i.e. results is more than the efforts employed. An
effort is made to achieve organizational objectives with minimum resources .
Planning helps in controlling duplication of efforts which also ensures economy.
7. Limiting factors:
A planner should consider limiting factors like money, materials, market

etc. before taking up planning. If a planner ignores limiting factors then planning is
bound to fail.Ex:A consideration may be getting a quota for raw materials. The
availability of raw materials will be the limiting factor. The planner should first
determine how much raw material will be available during that period. The
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planning of other things like production, labour, marketing etc. should be

consistent with that of raw material.
8. Co-ordination:
Co-ordination is essential for harmonious working of the organization.

Planning coordinates that what, who, how, why and where of planning. In the
absence of planning different segments of the organization may pursue different
objectives.
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9. Flexibility:
Planning should be flexible, they should be adaptable to the changing

business environment, planning should not be rigid. If it is rigid organizational
goals cannot be achieved. Planning is a dynamic process and it adjusts with the
needs and requirements of the organization.
10. Realistic:
Planning is based on future forecasts. Though the future is always uncertain

but the predictions. Should as be realistic as possible. The objectives should be
realized with normal efforts. If planning is made on wishful thinking then it will
not be possible to achieve the goals. Planning is based on hard realities.
11. Planning is continuous:
Planning is a never ending activity of a manager. Planning is always a

tentative and subject to revision and amendment as new facts become known.
Managers try to recodify them if necessary. Depending upon the new situation
.Even in execution of planning there may be some changes in settings and
conditions necessitating modification on a somewhat continual basis. Generally,
managers follow the practice of re-examining plans regularly and modify them,
necessary in the view of new situations in such way it will be possible to heed to
new situations and overcome problems.
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IMPORTANCE OF PLANNING
The following points highlight the significance of planning for all types of
organization, small or big and profit –making or non-profit –making.
a) Planning is complementary to all management functions :
All management functions , via ., organizing , directing , leading , coordinating ,

controlling , staffing , and motivating , are directly related to planning . In fact,
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planning is the starting point of all managerial activities. It determines the course
of action to be followed for achieving various organizational objectives. A planner
foresees opportunities and devises ways and means to take advantage from them.
b) It helps management to face the future with confidence :
Planning is always done for the future. It cannot change the future, but it
certainly equips managers with clear vision and great determination to face the
future with greater strength and confidence. Business environment are always
changing. It is an effort to foresee the future and plan things in best possible ways.
Planning certainly minimizes future uncertainties by basing its decisions on past
experiences and present situations.
c) It focuses its attention on objectives:
Plans are objective – oriented, i.e., they are related to organization and social
objectives. Hence, they help in synchronizing the efforts of everyone towards the
fulfilment of pre-determined organizational objectives. There can be priorities in
objectives, important objectives to be taken up first and others to be followed after
them.
d) It leads to optimum utilization of resources :
Another important advantage of planning is the better utilization of resources of

business. All resources are first identified and then operations are planned. All
resources are put to their best possible uses. It also exercises a control over the
acquisitions and employment of resources and thereby ensures their optimum use.
e) It increases overall efficiency :
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It is said that more sweat on the parade ground lesser blood on the battlefield.
Planning prepare the organization to meet unforeseen future contingencies and
thus, reduces human and non-human wastages and increases overall organization
efficiency.
f) It provides premises for effective control :
Planning and control are inseparable. Planning helps in setting objectives and
laying down performance standards. It provides bases for comparing the actual
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performance with the targeted ones and locates deviations and takes corrective
action. The deviations in performance can be rectified at the earliest by taking
remedial measures.
g) It guides decision- making :
Though planning in it amounts to decision – making, yet it acts as guide to further

decision – making for the lower level manager‘s .The objectives, plans, policies
,schedules, rules etc. serve as guidelines for routine decision making. Good
planning helps in good decision making process as it takes into consideration all
critical factors. Planning makes sure that the manager becomes aware of the
importance in which different decisions and actions are to be taken. Besides this,
planning also helps manager to comprehend the consequences of his or her
behaviour.
h) It helps coordination :
A well –defined plan clearly lays down the objectives and defines the role of each
individual and department in the organization .All the efforts are made to achieve
objectives with combined efforts. The duplication in efforts is avoided. Planning
leads to better coordination in the organization which leads to better results.
Planning helps to avoid haphazard actions and helps in greater coordination.
i) It helps in performance evaluation :
Planning is a time–bound exercise and hence provides a yardstick for evaluation

of the performance of managers and employees. The concerns having formal
planning have performed in a better way as compared to those when planning is
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not done in a regular activity. The variables for assessing performance may be
return on investment, sales target, earning per share etc.
j) It makes provisions for contingencies :
A plan anticipates the possible unforeseen contingencies in advance. Business

failures may be due to wrong and unscientific planning .A bad planning may result
into wastage of human and physical resources. The enterprise may not be able to
face competition from well planned units. Good planning will help in utilizing
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available resources in a best possible way. Planning helps in various action plans
for facing the uncertainties in such a way that it does not affect the objectives of
the organization.
LIMITATIONS OF PLANNING:
1. Fundamental limitations:
Limitation of forecasting: The limitation of forecasting is a fundamental

limitation. The whole exercise of planning depends upon the accuracy of
forecasting, however rational or scientific it may be .
2. Other Limitations:
• Egoistic planning: Some top level managers have a tendency to undertake

unrealistic planning just to add to their own prestige and status, without making
any contribution to the goals . Such planning raises false hopes, without
producing any results. People in the organization have to work strictly according
to plans , where as they may be able to give better performance in an ay decided
by themselves.
• Wastage of resources: Planning involves huge investment in terms of

time, money, efforts and resources .It is ,in fact , a time -consuming and mind -
consuming process . If a plan fails, valuable resources of the organization go
waste. Planning is related to future and so future prediction is so much difficult.
Moreover planning is based on past experiences and such planning based on any
wrong information may lead to wastage of resources.
• Expensive: Planning is not easy task. Planning requires a great deal of

funds in order to finance the activities of collection of data, their classification,
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analysis
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and interpretation and employment of field staff. Hence, a small or a medium –

scale organization cannot afford planning exercise. If the planning is not useful
then the amount or time spent on its formulation is a waste.
• Limits individual freedom: Plans are formulated by the top management.

Usually lower level managers are ignored while farming organizational plans.
Planning restrict their individual freedom. They cannot think beside a plan and
they perform activities like a machine without using their psychology.
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• Not an end: Planning is a means to achieve organizational objectives and is
not an end in itself. People in the organization have to work in order to achieve
the desired results. If plans are not reviewed and revised from time to time then it
may result in delay of the plan implementation. So planning is a continuous
process.
• Dynamic in environment: Business environment is flexible, while a plan

makes business units inflexible. Thus, if business units are to function according
to the plans then they will lag far behind the existing environment. In spite of
managers being good planners they do not have any hold on the external
environment. As a result they would not be able to forecast the external
environment correctly. For instance, no manager can predict about the government
policies.
• Non – availability of Authentic and accurate data: Planning process is

dependent upon the past records and data. Such data may not available and
sometimes even if available they may not be adequate or relevant for the existing
environment. A successful plan needs accurate information on the basis of which
decisions are made. The quality of the plan would decrease or sometimes lead to
failure if the information is not accurate.
• Unsuitable for small units: Planning is continuous process carried on by

experts. It involves considerable amount of time, money and labour .It requires
specialized machinery for research and study and therefore, it is not suitable for
small units
• Time – consuming: Planning is not done or cannot be done in a day or two.

Thus more detailed the planning is, the greater time it would take. Usually
managers spend greater time on collecting information and taking decisions for
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enhancing the accuracy of planning. This would result in delay of plan

implementation, which would further result in loss of opportunities.
• Delayed Action due to Deliberation: Planning requires some time for

thinking, analysing the situation and designing the final plan and so in
emergency decision making is required . It will take time and business will lose
its opportunities. Moreover delay in decision will further delay in action.
PROCESS OF PLANNING
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Process of planning:
Plans are made in all of enterprise, at all levels & for all types of
activities. Therefore it is difficult to identify a standardized planning process.
However, some of types the basic steps involved in most types of planning are:
• Awareness of opportunities & threat:
The first step in planning is to identify the threat provided for the
opportunity to be seized. At the first the threats which is called for planning and
action is to be identified. Technically, this could be referred to as a ‗pre – step‘ in
the planning process .A progressive management must always be alert enough to
visualize opportunities offered & threats posed by the environment.
• Collective & Analysing information:
Before actual planning is initiated relevant facts and figures are collected.
All information related to the operation of the business should be in detail .Little
knowledge is always dangerous in business planning. Therefore, Accurate, up – to
– date, & unbiased data for planning should be collected from all possible sources
i.e., both internally & externally.
• Determining objectives:
Determination of objectives is the most crucial step in planning process.

Objectives should be formulated , keeping in mind the following factors :
• Objectives must be in conformity, with the mission of the organization.
• Objectives, as far as possible, must be expressed in numerical terms.
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• Objectives must be realistic and not idealistic.
• Establishing planning premises & constraints:
Planning premises means to visualize the constraints operating in the

environment. In fact, they are the assumptions as to future conditions – economic,
social, political, technological etc. It is vital for the success of planning as they
supply pertinent facts and information relating to the future such as population
trends, production cost and prices, competitive behaviour etc..
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• Identifying Alternatives courses of action:
Means have alternative uses; similarly one end can be achieved by

different means. Generally, in every situation, there is more than one possible
course of action. As such in the light of the analysis of the information gathered,
the possible alternative courses of action should be identified.
• Evaluation of alternative courses of action:
After determining the possible alternative courses of action, each of the

possible alternative courses of action has to be evaluated. That is, the strengths
and weakness of the possible alternative courses must be examined against
factors , such as cost, risk benefits, availability of facilities etc. The planner
studies all the alternatives and then the final selection should be made.
• Promulgation & implementation:
Drafting a plan completes the theoretical aspect. Promulgation means to

declare, proclaim or to make the plan known to the people, so that they co-operate
& contribute towards its achievement. Implementation of the plans requires the
formulation of policies, procedures, budgets and standards. It requires delegation
of requisite authority and responsibility to the subordinate. These tools will enable
a better implementation.
Progressive review:
Progressive review is necessary in order to analyses the

consequence. Both good & bad which arise from the implementation of the plan.
The calls for revision, modifications & adjustment in order to keep the plan up to
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date. By this the management can notice shortcomings in time and can also take
immediate suitable corrective action
TYPES OF PLANS
STANDING PLANS:
• Mission:
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The word ‗mission ‗as a type of planning explains the most fundamental
purpose of an enterprise. Every organization should have a purpose so that its
working becomes meaningful. The purpose or mission is assigned to every
organization by the society. The purpose of a business is to produce and distribute
goods or services, the purpose of public works department is to construct and
maintain roads. The purpose of standing plan in a business organisation which
defines its basic purpose in the light of which the other actions are designed.
• Objectives:
Objectives are more precise and are derived from mission. An organization
can have a number of objectives but not missions. Objectives are set by top level
management. Objectives are results, which an organization wants to achieve
through implementation of planning. Therefore, the objectives must be clearly
defined, determined, stated, expressed, understood, and accepted.
Example: The objective of the enterprise may be to earn profit, while

selling its products.
Strategies:
In management , it refers to the proactive or reactive measures taken by

manager in order to counter the move of competitors or a strand taken by business
to deal with peculiar problems or situations such as expansion , falling demand ,
changing fashion , growing competition ., etc. In a business set up , a planner
should see the plans and policies of his competitors and then modify or re-adjust
his plans so that he may prove his superiority of his product or service. Strategy
can also be used in the sense that it helps in the determination of organizational
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objectives and the deployment of resources for achieving it. Strategies are
formulated by only top level managers and low level management is only
expected to execute them.
(d) Policies:
Policies are framed to bring about uniformity in the planning activities

at different levels in the organization. A good policy must be simple, clear,
reasonable and ethically sound. It can be verbal or written, expressed or implied
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and temporary or permanent. Policies define boundaries within which decisions
can be made and decisions are directed towards the achievement of objectives.
Policies also help in deciding issues before they become problems and making it
unnecessary to analyse the same situation every time it comes up. Managers can
delegate authority within the given parameters and can still retain control over
what the subordinates do.
(e) Procedures:
They are clear administrative specifications or norms prescribing the

chronological manner in which respective activities are initiated. Procedures make
use of documents generally known as forms. They are filled, processed and filed,
processed and filed as per rules. Such forms serve as an authentic proof of
procedural validity. Procedures should be distinguished from policies. A procedure
acts as a plan of action whereas a policy is a guide to thinking. Procedures give
details of how things are to be done. No room is left for judgement. Procedures
also determine the policy of responsibility and accountability. It helps to ensure
uniformity and consistency of performance.
(f) Rules:
Rules spell out the specific actions and non –actions allowing no
discretion. For Example:, there may be rules governing the calculation of
overtime, rules for dealing unauthorized absence or for beach of discipline. A
policy is a statement of guidance while a rule is a statement .A rule is definite and
rigid and allows no deviation to the subordinates. A rule may or may not be a part
of procedure. A rule such as‖ No smoking in the factory‖ will not be a part of
procedure. On the other , a rule to make payment within 21 days will be the part
of a procedure. Rules will
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enable the manager to predict the behaviour of the subordinate. Management

should try to frame only those rules which are necessary and those rules too must
be explained properly.
SINGLE USE PLANS
Single use plans are meant for one-time use. The various types of single use
plans are:
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(a) Programmes:
A programme is a sequence of activities designed to implement the

policies and accomplish objective. Programs are divided into major and minor
programme. Major programmes are related to organization as a whole, while minor
ones deal with a specific problem or a particular department. A programme is a
single use comprehensive plan. It is formed to achieve a particular purpose only.
Once the goal is achieved the programme will not be used again. A number of
small plans are prepared to form a programme. It gives a time limit up to which the
programme is to be implemented.
b) Budget:
As a plan, budget is a statement of expected results in numerical terms. For

example, units of output, man hours, machine hours, sales-target, expense
estimates or revenue estimates. Budgets are classified as master budgets and
sectional or functional budgets. A master budget is prepared for the whole
organization while sectional budgets are for the different sections. A budge should
be based on past figures. The possibilities in future should not be taken into
account. There should be active involvement of top management incise of
budgets.
(c) Schedule:
A schedule shows the relationship between the time and work. It is an

effective instrument for daily supervision. A schedule is a time table for the work
to be undertaken. In order to keep the schedule realistic, the maximum and
minimum time periods may be specified. It specifies the date on which the task is
to start and the date at which it has to be completed. While planning a schedule
availability of resources, processing time and delivery schedules should be taken
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into account. There should also be an allowance for delays created by factors
beyond the control of management.
(d) Forecast:
Forecasting is a science of calculating the nature and impact of

probable future events on the organization. Hence, information about all aspects of
business are continuously gathered and processed in order to predict future trends
in the market. Only experts and experienced people can predict future rationally.
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(e) Project:
A project is usually referred to as a special type of programme. It is

constructed around one specific activity in the course of planning. Example:
Construction of a new office building, automation of a factory, is setting up of a
new plant etc.
APPROACHES OF PLANNING
 Top down planning

 Bottom up planning
TOPDOWN PLANNING: is referred to as strategy. Top down planning is

focused on keeping the decision making process at the senior level. Goals and
quotas are established at a highest level and those at the top are not often
willing to take advices or any guidance from lower level employees. Senior
level managers need to be as specified as possible when laying out
expectations. Since, those following the plan are not involved in the planning
process.
Because, employees are not included in any of the decisions making process
and are often only motivated to either fear or incentives, morale can become an
issue.
With top down planning management must choose techniques to align projects
and goals. Management goals the sole responsibility for the plans set forth and
for the end results. This way of thinking assumes that management knows best
how to plan and carry out a project. Thus, not taking advantages of talented
employees who may have more experience with certain aspects of projects.
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However the focus in on long-term goals and the here and now goals can get
lost.
BOTTOM UP PLANNING: is referred to as tactics with bottom up planning

you give your project deeper focus because, you have a large number of
employees involved in each team with their own area of expertise team
members work side by side and have input during each state of the process
plans are developed at the lowest levels and are then passed onto each next
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higher level. It then reaches senior management for approval.
Lower level employees are more likely to take personal stock ina plan that they
are involved in planning. Employees are more motivated and morale improves
ORGANIZATION:
Introduction:
Organization refers to the way in which group of people is arranged and

distributed among members to achieve the business objectives. It establishes the
relationship among the people in the enterprise and coordinates their activities in
such a way that all the resources are employed for achieving business objectives so
organisation is the process of combining the work of people working in the
enterprise for undertaking various duties and responsibilities. The word ―
organising ― is used for staffing it as a function of management for bringing
together human and non- human resources i.e. ., materials, machinery, money etc.
and defining and establishing the authority- responsibility relationship for
achieving organisational goals.
Definition:
According to Keith Davis organization may be defined as group of

individuals large or small that is cooperating under the direction of executive
leadership in accomplishment of certain common objective.
According to Chester I. Bernard organization is a system of cooperative activities

of two or more persons.
Features / characteristics/nature of Organization:
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The features of organization are as follows:
1. Outlines the objectives:
An organization structure is a means towards the achievement of enterprise goals.

The goals of various segments led to the achievement of major business goals. The
organizational structure should build around common and clear cut objectives.
This will help in their proper accomplishment.
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2. Identifies and enumerates the activities:
After objectives are selected, the management has to identify total task involved
and its breakup closely related component activities that are performed by an
individual or division or department.
3. Assigning the duties:
when activities have been grouped according to similarities and common

purposes they should be organised in a particular department. Within the
department the functional duties should be allocated to particular individuals.
4. Defines in granting authority:
An organisation consists of various positions arranged in hierarchy with

well-defined authority and responsibility. There is always a central authority from
which a chain of authority relationship stretches throughout the organisation .The
hierarchy of positions defines the lines of communication and patterns of
relationship.
5. well defined authority and responsibility relationship:
After assigning the duties and delegations of authorities, the establishment

of relationship is done it involves deciding who will act under whom, who will be
his subordinates, what will be his span of control and what will be his status in the
organisation besides these formal relationship, some informal relationships should
also be developed.
IMPORTANCE OF ORGANISATION
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The following points highlights the importance of an organisation
 Facilitates/accelerates the management
 Promotes the growth level
 Provides complete use of technology
 Encourages human use human begins
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 Encourages creativity
 Enhances coordination
Explanation:
1. Facilitates/ accelerates the management:
A well-defined organisation accelerates both the management and the

functions of an organisation. The functions of the management can run smoothly
and continuously only when adequate or relevant functional groups help the
managers.
Arranging and grouping activities influence the operational outcomes.
2. Provides complete use of technology:
The benefits of latest technology can be availed by having suitable

organisational structure.
For ex: the installation of new software requires heavy expenditure but it
completes the work faster and accurately. The technological improvements are
taking place every time and management is required to make them exist in
competitive world. The organisation should be flexible to incorporate all new
requirements.
3. Encourages human use of human beings:
Encourages human use of human beings refer to the provisions of psychological to

the personal. When employee is satisfied completely then she /he would be able to
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contribute greatly. Psychological satisfaction can be derived from ones work,

relationships and the working environment. The organisational structure develops
the employees by providing training and promotions.
4. Encourages creativity:
A sound organisation which is on specification encourages creative thinking and

initiates through establishing well defined work areas for developing new ways of
thinking. The initiative and creativeness encouraged in the organisation will make
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it dynamic and response to the new situations. If persons are not cooperative to
take initiative then the management may not be able to cope with the changing
environment.
5. Co-ordination:
Co-ordination of various activities is as essential as their division. It helps

in integrating and harmonising various activities. Co-ordination also avoids
duplications and delays. In fact various functions in an organisation depends upon
one another and the performance of one influence the other. Unless all of them are
properly co-ordinated, the performance of all segments is adversely affected.
PRINCIPLES OF ORGANISATION.
The following are the principles need to be implemented:
1. Principles of objective:
Every part of organisation must actively participate in accomplishing the main

objective of the organisation. The goals of the organisation must be clearly
defined, as they greatly influence the organisational structure. In order to make
organisational structure effective every individual must put in efforts to attain the
organisational objectives.
2. Principles of specialization:
It refers to division of work related activities according to their functions.

Specialization deals with assigning task to persons according to their functional
capabilities and specialities. The person should continue the same work so that he
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specialises in his work. This helps in increasing the capacity of or. Effective
organization should develop specialization.
3. Principle of span of control:
According to URWICK, ―a manager can directly supervise a limited number of

people‖ therefore the span of control should be minimum in order to provide
effective supervision. It means superior would be able to effectively handle a team
of few or less number of subordinate members .If the span is disproportionate, it is
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bound to effect the efficiency of the workers.
4. Principle of exception:
Top level executives due to lack of time handle only exceptionally difficult
problems. The routine, normal and daily issues must be handed over to the lower
level executives. This ensures high level executives to invest more time in the
important and the crucial issues. Principle of exception allows top management to
concentrate on planning and policy formation. Important time of management is
not wasted on avoidable supervision.
5. Principle of scalar chain:
It is also called chain of command. This principle vividly defines the line of
authority which flows from the top level to the lowest level. It is a continuous
chain of command and must try to avoid its breakdown from any kind of problem
6. Principle of unity of command:
There should be a unity of command in the organisation. A PERSON SHOULD

BE ANSWERABLE TO ONE BOSS ONLY. If a person is under the control of
more than one person then there is a likelihood of confusion and conflict. This
principle creates a sense of responsibility to one person. The command should be
from top to bottom for making the organisation sound and clear. .It also leads to
consistency in directing, co-ordinating and controlling.
7. Principle of delegation:
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Authority must also be delegated at lower levels of an organization. The

delegated authority must be equal to responsibility. Delegating authority up to
lowest competent level increases efficiency and smooth operations.
8. Principle of balance:
The principle means that assignment of work should be such that every
person should be given only that much of work which he can perform well. If
some person is over work and other is under work then the work will suffer in the
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both the situations. The work should be divided in such a way that everybody
should be able to give his maximum.
9. Principle of simplicity:
In order to establish a successful enterprise the organizational structure

must be simple in nature with minimum number of organizational levels. Larger
the number of organizational levels greater would be difficulty in communicating
and coordinating
10.Principle of continuity:
The organizational structure should not be rigid, it should be flexible in

nature. It must be adaptable to changing conditions allow expansions of enterprise
whenever need arises. There should be a possibility of making necessary
adjustments for its continuity. The organisation should be amendable according to
the changing situations.
11.Principle of unity of direction:
This principle can be achieved by following the concept of ―one person-

one plan‖ thus there should be only one objective and one plan for group of
activities aiming towards same objective. This principle helps in unification and
coordination of various activities which are being carried out at various levels of
organization.
FORMAL AND INFORMAL ORGANIZATION
Introduction :
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The formal organization is a form of organization where people work

together because of their official placements and assigning of work. All rules and
regulations of the organization are effectively framed by the top management in
advance. Formal organisation clearly defines the authority – relationship among
the various people working in an enterprise. This structure created by the
management to achieve organisational goals. The employees working in the
organisation know their relationship among one another and understand about
their superiors and subordinates. They know the work assigned to them and the
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persons to whom they are accountable.
Definition of formal organization:
According to CHESTHER BERNER ―an organization is formal

when the activities of two or more persons are consciously coordinated towards
common objective‖
ADVANTAGES OF FORMAL ORGANIZATION
The formal organization has following advantages
1. Specialization :
In formal organization work is divided into small parts and each part is
repeatedly performed by a person. A person performing the same work regularly
becomes a specialist in it. The organization gets the benefit of specialization
2. No overlapping of work:
In this type of organization every work is properly planned and assigned

there is no question of same work being performed by more people overlapping is
avoided at the planning level itself
3. Better coordination:
since duties and responsibilities of every person are specified and

relationship among employees are established there will be a better coordination.
4. Proper evaluation of work:
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The work to be done by each person is specified it will be easy to evaluate the
performance. It will be easy to distinguish between efficient and inefficient person.
5. Obtaining objectives:
In formal organization, objectives are easily obtained since the work of every
person is coordinated in such a way that organizational goals are reached.
6. Helpful in control:
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The comparison of actual performance with predetermined objectives helps in
controlling the work of employees. It helps in effective control.
DISADVANTAGES OF FORMAL ORGANIZATION
1. Mechanical system:
Division of work makes the work more mechanical in nature. The doing of
same work rapidly leads to monotony. Since the employees are to perform what
they have been told, they don‘t take new initiatives.
2. Rigorous regulations:
The employees remain under pressure for following the rules and regulations.
The officer‘s only emphasis the implementation of rules and regulations in letter
and spirit. This type of system leads to inefficiency instead of improving work
performance.
3. Delaying work:
The strict implementation of rules and regulations lead to delay in the

decision making and their implementations.
INFORMAL ORGANISATION.
INTRODUCTION:
Informal organisation refers to the relationship between the people in the

organisation. It arises from the personal and social relations of the people not
established by a formal authority. It is influenced by personal attitudes, likes and
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dislikes. The informal organisation is a powerful tool in all organisations and

excerpts a great influence on the work groups. The manager can neither cancel nor
create an informal organisation. It exists in every enterprise and all levels of
hierarchy. Management sometimes encourages employees to meet privately
because it serves the purposes in number of ways. Informal communication may
help in sorting many issues., which may not find solutions in a formal set up.
DEFINITION:
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According to Barnard,‖ Informal organisation brings cohesiveness to a
formal organization. It brings to the members of a formal organisation a feeling of
belonging of status, of self-respect and of gregarious satisfaction‖
ADVANTAGES OF INFORMAL ORGANISATION:
The following are the advantages of informal organisation.
1. VOLUNTARY MEMBERSHIP:
The members in the informal group are voluntary .They have the liberty
to join or exit the organization.
2. Relations are not planned:
It is a natural process, which takes place on its own. They discuss things
of common . Informal relations are spontaneous they do not follow any pattern.
3. Fast communication.
Informal communication is very fast because it does not follow scalar

chain. Communication. Communication from person to person and it spreads in no
time.
4. Fulfils social needs:
People with informal thoughts form informal groups. They all stand
together on personal and social issues.
5. Supports formal organisation:
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The management sometimes encourages the formation of informal groups.

The reactions to proposed policies can be seen from the discussions at informal
groups. The subordinates can put their ideas
DISADVANTAGES
1. Spreads Rumours: It has been seen that most of the information shared at
informal gatherings spreads rumours. The communication is based on wrong
facts and figures.
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2. Resists Change: Informal organisation mostly resists change. Many
important changes are opposed just for the sake of it.
3. Emphasis on Individual Interest: More emphasis is given to individual interest

rather organisational interest
TYPES OF ORGANISATION.
A. LINE ORGANISATION:
Line organisation is the basic framework of organisation. It represents a

direct vertical relationship through which authority flows. This is the simplest and
oldest, known as chain of command or scalar principle. Authority flows vertically
from top level persons to all the persons responsible for the execution of work.
Responsibility, on the other hand flows upwards. Everybody is responsible for his
work and is accountable to his boss. Since authority and responsibility flow in an‖
unbroken straight line.
Example:
This form of organisation is followed in military establishments. The

Commander in-chief is at the top with various other officers at the lowest levels.
The officers at downward positions derive authority from top. The modern military
organisations do not entirely rely on line organisation. Following organisation
depicts the line organisation for a production department:
B. FUNCTIONAL ORGANISATION:
Functional organisation refers to the classic organizational structure where

the employees are grouped hierarchically , managed through clear lines of
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authority and report ultimately to one person. In functional organization the

activities of organization are grouped in different departments or division on the
basis of functions. Each functional department is headed by the manager that has
specialist knowledge of that function. The functional head will exercise final
authority over that function irrespective of level at which it is being performed.
EXAMPLE: In big organisations, all activities are grouped together according

to certain functions like production, marketing, finance, personnel etc. and are
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put under the charge of different persons.
C. LINE AND STAFF ORGANISATION: Line and staff organisation is a

modification of line organisation and is more complex than line. The power
of command always remains with the line executives and staff supervises
guide, advice and council the line executives.
EXAMPLE: Personal secretary to Managing Director is a staff official.
 In line and staff organisation, there are two types of relationships i.e.
line and staff.
 Line managers work in line authority give orders to subordinate and

are directly responsible for achieving organisational goals.
o Staff specialists have specialised knowledge of their respective areas,

perform supportive and auxiliary activities and guide, help and advise
the line managers.
 Line managers and staff specialists are not in the relationship of superior and
subordinate, because staff specialists are appointment beyond line of
authority and they work independently.
 Like line organisation, this structure is also marked by unity of command.
LINE AND STAFF ORGANISATION
INTRODUCTION:
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Line and staff organisation is a modification of line organisation and is

more complex than line. The power of command always remains with the line
executives and staff supervises guide, advice and council the line executives.
EXAMPLE: Personal secretary to Managing Director is a staff official.
 In line and staff organisation, there are two types of relationships i.e. line
and staff.
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 Line managers work in line authority give orders to subordinate and
are directly responsible for achieving organisational goals.
 Staff specialists have specialised knowledge of their respective areas,

perform supportive and auxiliary activities and guide, help and advise
the line managers.
 Line managers and staff specialists are not in the relationship of superior and
subordinate, because staff specialists are appointment beyond line of
authority and they work independently.
 Like line organisation, this structure is also marked by unity of command.
Functions of staff authority:
The staff authority is assigned by the following functions
1. Agency of control: It has to discharge functions as organisation, cost ,audit,

budget , personnel, accounting etc.
2. Agency of coordination : It has to help in coordination of work among

different departments. These functions are planning, order and distribution,
production planning , communication.
3. Agency of services: It performs functions like research and

development, taxes, statistical analysis and personal development.
4. Agency of advice: It has to perform functions such as legal advice, public

relations, labour relations, and economic.
The following diagram shows the relationship between line and staff organisation:
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Advantages of Line and staff organisation:
This organisation has following advantages:
1. Specialisation:
Line and staff organisation introduces specialisation in a systematic manner

Persons with specialised knowledge are appointed to help line officers. The
planning part is generally undertaken by staff personnel and line officers are able
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to devote much time for execution.
2. Better discipline:
The unity of command is maintained in this type of organisation. the staff

personnel do not interfere with the executive work of line officers. The workers get
command from line personnel and are accountable directly to them for their
performance. This creates better understanding and discipline among employees.
3. Balanced and prompt decisions:
The functional managers have the advantage of expert advice when taking.
Important decisions. The staff can also be used to investigate and advice on inter
departmental relationships. The line officers can take balanced and quick
decisions.
4. Growth and expansion:
The line and staff organisation is quite suitable for growth and expansion.
The burden of line staff is eased by the appointment of specialist. Line officers will
be able to devote much time for future planning .the present staff will enable the
expansion and growth of unit. Some assistance can be appointed to cope up with
the work if needed.
5. Quick decisions:
The line officers will have sufficient time to take various decisions
whenever there is a need for certain decisions, they will be able to devote time and
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decide things. This type of situation helps in solving many issues which would
have created difficulties if timely decisions would not have been taken.
DISADVANTAGES OF LINE AND STAFF ORGANISATION:
The line and staff organisation suffers from following drawbacks:
1. Conflict between line and staff personnel:
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The responsibility for operation lies with the line officers while staff
officers only advice. The staff officers feel ignored at the hands of line officers.
The line officers , on other hand , complain of interference by staff persons in the
day to day working. The conflict between line and staff officials adversely affects
the work in the organisation.
2. Lack of responsibility:
There is lack of responsibility for staff officials. They are not accountable
for the actual results of operations. They may tempt them to give rash or
theoretical advice. They may be so casual in their approach because the whole
blame for non- performance lies with the line.
3. More dependence on staff:
The line officers become habituated for advice on staff. They refer
everything to staff for their advice. Over dependence on staff will make line
officers less creative. They will not give much thought to activity since advice will
be available from staff.
4. Lack of coordination:
There will be lack of co-ordination between Line and staff. The staff officers
may also not be clear about their exact role. They may try to dominate the
implementation part of their advice. Overlapping of functions will create confusion
and disorder among employees.
5. Expensive:
This type of organisation is very expensive because a large number of

specialists are appointed. The persons being experts in their fields, they demand
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higher remunerations. Small and medium concerns cannot afford line and staff
organisation because of its expensive nature.
DIFFERENCES BETWEEN LINE AND STAFF.
1. Staffs think, lines do.
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2. Staff advices ,lines perform.
3. Staffs tell the line what to do, line tell the staff where to go.
4. Staffs has the authority of line, lines have the authority to command.
5. Staffs has no fixed responsibility, lines have fixed responsibility.
SPAN OF MANAGEMENT.
INTRODUCTION &MEANING
The term ‗span‘ refers to the number of subordinates a manger or supervisor

can supervise , manage or control effectively and efficiently. Obviously, if the
number of subordinates placed under one manager is too large, it will become
difficult to effectively control them and the desired results cannot be achieved . On
the other hand , if the number is too small , the time, energy and abilities of the
supervisor are not utilized fully and the task may not be accomplished .
FACTORS INFLUENECE THE SPAN OF MANGEMENT:
The following are the factors that influence or determine the span of
supervision in a particular organisation, the most important ones are:
1. The capacity and ability of the executive. The characteristics and abilities
such as leadership , administrative capabilities , ability to communicate , to
judge , to listen , to guide and inspire , physical vigour , etc. differ from
person to person . A person having better abilities can manage effectively a
large number of subordinates as compared to the one who has lesser
capabilities.
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2. Competence and training of subordinates. Subordinates who are skilled ,

efficient , knowledgeable , trained and competent require less supervision
and therefore , the supervisor may have a wider span in such cases as
compares to inexperienced and untrained subordinates who require greater
supervision.
3. Nature of work. Nature and importance of work to be supervised is

another factor that influences the span of supervision . The work involving
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routine, repetitive, unskilled and standardized operations will not call
much attention and time on the part of the supervisor. At higher levels of
management , the work involves complex and a variety of jobs and as such
the number of subordinates that can be effectively managed should be
limited to a lesser numbers.
4. Time available for supervision . The span of control would be generally

narrow at the higher levels of management because top managers have to
spend their major levels of management because top managers have to
spend their major time on planning , organizing , directing and controlling
and the time available at their disposal for supervision will be lesser. At
lower levels of management , this span would obliviously be wide because
they have to devote lesser time on such other activities.
5. Degree of Decentralisation and Extent of Delegation . If a manager

clearly delegate‘s authority to undertake a well-defined task, well-trained
subordinates can do it with a minimum of supervisor‘s time and attention
.As such , the span could be wide . On the contrary, ― if the subordinate‘s
task is not one he can do . or if it is not clearly defined, or if he does not
have the authority to undertake if effectively , he will either fail to perform
it or take disproportionate amount of the managers time in supervising and
guiding his efforts‖.
6. Effectiveness of communication system .Faulty communication puts a

heavy burden on manager‘s time and reduces the span of control. On the
other hand, if the system of communication is effective, larger number of
managerial levels will be preferred as the information can be transmitted
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easily . Further, a wide span is possible if a manger can communicate

effectively.
7. Quality of Planning . If plans and policies are clear and easily

understandable, the task of supervision becomes easier and the span of
management can be wider. Effective planning helps to reduce frequent calls
on the superior for explanation, instructions and guidance and thereby
saves in time viable at the disposal of the supervisor enabling him to have a
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wider span. Ineffective plans, on the other hand , impose limits on the span
of management.
8. Degree of Physical Dispersion . If all persons to be supervised are located

at the same place and within the direct supervision of the manager , he can
supervise relatively more people as compared to the one who has to
supervise people located at different places.
9. Assistance of Experts . The span of supervision may be wide where the

services of experts are available to the subordinate on various aspects of
work . They may need broad guidelines and they will perform accordingly..
They would require lesser time from their superior due to which manager
can have large number of subordinates. If such services are not provided in
the organization the span of control would be narrow.
10.Control of Mechanism . The use of objective standards enables a

supervisor ‗management by exception‘ by providing quick information
of deviations or variances . Control through personal supervision favours
narrow span while control through objective standards and favours wider
span.
11.Dynamism or Rate of Change : Certain enterprises change more rapidly

than others. This rate of change determines the stability of policies and
practices of an organization. The span of control tends to be narrow
where the policies and practices do not remain stable.
12.Need for Balance .” There is a limit in each managerial position to the

number of persons an individual can effectively manage , but the exact
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number in each case will vary in accordance with the effect of underlying
variable and their impact on the time requirement of effective managing‖.
TYPES OF SPAN OF MANAGEMENT
There are 2 types of supervision
1. Wider Span of Supervision. The supervisor controls and guides the

activities of subordinates directly under his control. Wider span of
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supervision is favoured where workers are competent and trained , the
control mechanism through standards is followed and the total number
of workers is not very large. It reduces the cost of supervision.
2. Narrow Span of Supervision . Under this type of supervision , there

are many levels and more supervisors are required to perform the job of
guidance and control from different activities . It increases the efficiency
of supervision but the cost of supervision is very high as compared to
wider span of supervision.
MANAGEMENT BY OBJECTIVES
Management By Objectives (MBO) is an performance management approach in

which a balance is sought between the objectives of employees and the objectives
of an organization. The essence of PETER DRUCKER ‘s basic principle:
Management By Objectives is to determine joint objectives and to provide
feedback on the results. Setting challenging but attainable objectives promotes
motivation and empowerment of employees.
Features of MBO
1) Superior and subordinates participation: MBO requires superiors and

subordinates to recognize that the development of objectives is a joint activity.
There must be jointly agree and write their duties and areas of responsibility
in their respective jobs
2) joint goal setting: MBO emphases jointly goal setting that are tangible,
verifiable and measurable. The subordinates in consultation with his superiors
set
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his own short term goals. However it is examined both by the superior and the
subordinate that goals are realistic and attainable. In brief the goals are to be
decided jointly to the participation of all.
3) joint decision on methodology: MBO focus special attention on what must be

accomplished rather than how it is to be accomplished. Superior and
subordinate mutually device methodology to be followed in attainment of
objectives
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4) makes way to attain maximum results:MBO is the systematic and rational
technique that allows management to attain maximum results from available
resources by focusing on achievement of goals
5) support from superior: when the subordinate makes efforts to achieve his
goals superiors helping hand is always available. The superior act as a coach and
provides his valuable advice and guidance to the subordinates. This is how MBO
facilitates effective communication between superior and subordinates for
achieving the targets.
STEPS INVOLVED IN MBO PROCESS
1) Goal setting: the first phase in the MBO process is to define the
organization objectives. This is determined by the top management. Once this
goals are established. They should be make note to all the members
2) Managers subordinate involvement: after the organizational goals are defined

the subordinates work with the managers to determine their individual goals in this
way everyone gets involved in the goal setting
3) Matching goals resources: management ensures that the subordinates are

provided with necessary tools and materials to achieve this goals. Allocation
of resources should also be done in consultation with the subordinates
4) Implementation of plan: after objectives are established and resources are

allocated the subordinates can implement the plan. If any guidance or clarification
is required they can contact their superiors
5) Review and appraisal of performance: this step involves periodic review of

progress between managers and the subordinates. Such reviews with determined if
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the progress is satisfactory or the subordinate is facing some

problems.performance
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appraisal at this reviews should be conducted based on fair and measurable

standards
ADVANTAGES/BENEFITS OF MBO
1) Develops result oriented philosophy: MBO is a result oriented philosophy

managers are expected to develop specific individual and group goals, develop
appropriate action plan, properly allocate resources and establish control
standards. It provides opportunities and motivation to staff to develop and make
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positive contribution in achieving the goals of an organization
2) Raises employee morale: participative decision making and two way

communication encourages the subordinate to communicate freely and
honestly. Participation clear goals and improve communication will go a long
way in improving morale of employees
3) Facilitates effective planning: MBO programs sharpen the planning process in

an org. it compels managers to think of planning by results. Developing action
plans by providing resources for goal attainment and disccusiing and removing
of obstacles, demands careful planning. In brief, MBO provides better
management and better results
4) Acts as the motivational force: MBO gives an individual or group opportunity to

use imagination and creativity accomplish the machine, managers devote time for
planning results. Since MBO aims at clear targets and there order of priority
employees are motivated
5) facilitates effective control: continuous monitoring is an essential feature of

MBO this is useful for achieving better results. Actual performance can be
measure against the standards lay down for measurements of performances and
deviations are corrected in time
6) facilitates personal relationship: MBO helps individual managers to develop

personal leadership and skills useful for efficient management of activities of a
business unit
WEAKNESS /LIMITATIONS OF MBO
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1) Time consuming: MBO is a time consuming process. Objectives at all levels of

an organization are set carefully after considering advantages and disadvantages
which consume lot of time. The superiors are required to hold frequent meetings
in order to develop subordinates with the new system
2) Reward punishment approach : MBO is pressure oriented program. It is based

on reward punishment phycology. it tries to indiscriminate force improvement on
all employees. At times it may give punishment to the people whose
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performance remains below the goal. This puts mental pressure on staff
3) Increases paper work: MBO programme introduce ocean of paper work such as
training manuals, newsletters, instructions, booklets, questionnaires, performance
data and report into the organisation. Managers need information feedback in
order to know what is exactly going on in the org.
4) Problems of coordination: considerable difficulties may be encountered while

coordinating objectives of the org. with those of individuals and the department
managers may face problems of measuring objectives when the objective are
not clear and realistic
5) Lack of appreciation: lack of appreciation of MBO is observed at different

levels of organisation. This may be due to the failure of top management to
communicate the philosophy of MBO, to entire staff and departments. Similarly
managers may not delegate adequately to their subordinates, or managers may
not motivate their subordinates properly
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UNIT-5
AUTHORITY,COORDINATION AND CONTROL
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AUTHORITY: In the words of Simon, "Authority may be defined as the power to
make decisions which guide the actions of others".
Characteristics of Authority :
1. There exists a right in authority. The right is given by a superior to

the subordinate.
2. The authority enjoyed by a subordinate is not unlimited. The person is required

to use authority as per rules, regulations and norms of the organisation.
3. The authority is given to influence the behaviour of subordinates so that

right things are done at right time.
4. Authority is a relationship between two individuals, One superior and the other
subordinate.
5. Authority is the key to the managerial job. It provides a basis for getting
things done. Authority also helps in coordinating various activities.
6. Authority is exercised by making decisions and seeing that they are carried out.
RESPONSIBILITY : George Terry defines it as, "Responsibility is the

obligation to carry out assigned activities to the best of his abilities".
Features of Responsibility :
1. Responsibility can be assigned to human beings only.
2. It arises from superior-subordinate relationship.
3. It arises from the duty assigned.
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4. The responsibility may be defined in terms of functions, targets or goals.
5. The responsibility of a subordinate is an obligation to perform the assigned task.
6. Responsibility cannot be delegated.
7. Responsibility always flows upwards. The subordinate remains accountable

to his superior.
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8. Responsibility arises out of the delegation of authority.
DELEGATION OF AUTHORITY:
INTRODUCTION
The entrustment of a part of the work, or responsibility and authority to another,

and the creation of accountability for performance
DEFINITION
O.S. Hinder, ―Delegation takes place when one person gives another the right to
perform work on his behalf and in his name, and the second person accepts a
corresponding duty or obligation to do what is required of him."
CHARACTERISTICS OF DELEGATION :
1. Delegation takes place when a manager grants some of his powers

to subordinates.
2. Delegation occurs only when the person delegating the authority himself has
the authority i.e. a manager must possess what he wants to delegate.
3. Only a part of authority is delegated to subordinates.
4. A manager delegating authority can reduce, enhance or take it back. He

exercises full control over the activities of the subordinates even after
delegation.
5. It is only the authority which is delegated and not the responsibility. A manager
cannot abdicate responsibility by delegating authority to subordinates.
ELEMENTS OF DELEGATION :
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1. Assignment of Responsibility : The first step in delegation is the assignment of

work or duty to the subordinate i.e. delegation of authority. The superior asks his
subordinate to perform a particular task in a given period of time.
2. Grant of Authority : The delegator grants authority to the subordinates so that

the assigned task is accomplished. The delegation of responsibility with authority
is meaningless. The superior may transfer it to enable the subordinate to complete
his assigned work properly. There should be a balance between authority and
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responsibility. The superior should delegate sufficient authority to do the assigned
work.
3. Creation of Accountability : Accountability is the obligation of a subordinate

to perform the duties assigned to him. The delegation creates an obligation on the
subordinate to accomplish the task assigned to him by the superior. When a work
is assigned and the authority is delegated then the accountability is the by-product
of the process.
IMPORTANCE OF DELEGATION :
1. Relieving Top executives : Top executives cannot perform and supervise

each and every work. Moreover they are required to undertake important tasks of
planning and controlling.
2. Improved functioning : Delegation helps in rationalising the functioning of

an organization. Work is divided among various persons in such a way that it is
done in an efficient way. Nobody is unduly burdened and no work is left
unattended.
3. Use of specialists : Delegation enables the use of specialists for taking up

different functions. The use of specialists for different functions will improve
the quality of work.
4. Helps in employee development : when subordinates are given independent

assignments then they will be able to use their initiative and experience. This will
also give them confidence in taking up further responsibilities. Without
delegation, subordinates will not get a chance to try their knowledge.
5. Helps in expansion and diversification : The assignment of various tasks to

subordinates will prepare them for undertaking new assignments.
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CENTRALIZATION
Introduction : centralisation of authority refers to the concentration of decision

making authority with the top level management. It means all important executive
& operational decisions are made more than the higher levels of organisation. The
decisions & actions at lower levels are subject to prior approval of the higher
authority in a centralised organisation.
DEFINITON:
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"Centralisation is that organization where the role of subordinates is reduced" -
Henry fayol.
―Centralization is the systematic and consistent reservation of authority

at central point‟s thin organization.” -Allen
ADVANTAGES OF CENTRALIZATION :
1. Uniformity of procedure: Uniformity in action is established throughout the

organisation because of central administrative control. It facilitates smooth
working in the organization. There is also a consistency in day to day working.
The customer service will also improve if standard policies are used.
2. Facilitates Evaluation: when same policies are used for all segments of the
enterprise their performance can easily be evaluated. This will bring a sense of
competition among various segments. Ultimately the overall performance will
improve.
3. Reduced costs: The standardization procedures and methods help in

considerably reduction of office cost. Office cost is reduced as it does not
emphasize on more specialists, and more departmental machines and
equipment. There will be a centralised buying and selling. This will enable bulk
buying resulting in discounts and saving.
4. BETTER CO- ORDINATION: Co-ordination of activities of various

segments is also facilitated by centralised management .Direct control and
supervision is facilitated which results in less likelihood of conflict of
authority and responsibility.
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5. Improved Quality of work: Improved quality of work is possible because of

standardisation of procedures. Better supervision and use of improved
machinery.
6. Personal leadership: Centralization encourages personal leadership. The

introduction of personal leadership facilities quick action, aggressive marketing
and attainment of pin pointed objective
DECENTRALISATION :
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Introduction : Decentralisation means dispersal of decision making power to
lower levels of the organisation. It implies the distribution of managerial authority
of planning, directing, coordinating, etc., among executives at all levels in the
organization.
According to Allen,” Decentralization refers to the systematic effort to delegate to

the lowest levels.
DISTINCTION BETWEEN DECENTRALISATION AND DELEGATION :
The words Decentralisation and delegation appear to be inter changeable

but it is not so. Even though both involve dispersal of authority but
decentralisation is an extension of delegation. Following are the points of
distinction between the two:
Basis Delegation Decentralisation
1.Scope Scope of delegation is Scope is wide as the decision making

limited as superior is sharing by the subordinates also.
delegated the powers to the
subordinates on individual
basis.
2.Responsibility Responsibility remains of Responsibility is also delegated is

the managers and cannot be subordinated.
delegated.
3.Freedom of Freedom is not given to the Freedom to work can be maintained

nature subordinates as they have to by subordinates as they are free to
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work as per the instructions take decisions and to implement it.

of their superior.
4.Nature It is a routine function. It is an important function of the

enterprise.
5.Need of Delegation is important in Decentralization is total by nature. It

purpose. all concerns big or small. spreads throughout the organisation
No enterprise can work i.e. at all levels and all functions.
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6.Grant of
authority
without delegation.
The authority is granted by

one individual to another.
It is a systematic act which takes
place at all levels and at all functions
in a concern.
7.Degree Degree of delegation varies Decentralization is total by nature. It
from concern to concern spreads throughout the organisation
and department to i.e., at all levels and all functions.
department.
8.Process Delegation is a process It is an outcome which explains

which explains superior sub relationship between top
ordinates relationship. management and all other
departments.
9.Essesntiality Delegation is essential of all Decentralization is a decisions

kinds of concerns function by function.
10. Significance Delegation is essential for Decentralization is an optional policy

creating the organisation. at the discretion of top management.
ADVANTAGES OF DECENTRALIZATION
The various advantages of decentralization are as follows:
a) Reduction in the budget of chief executives: In case of centralization of

authority the chief executive has to bear the entire burden of decision
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making. Decentralization reduces this burden and he can concentrate and

spend more time on managerial functions.
b) Quick decisions: Decentralization avoids redtapism in making decisions
because decisions are made at the place of work place/ operations.
Those who were very close to work situation can make reasonably
quickly an accurate decision because they are aware of the realities of
the situation.
c) Diversification of activities: When different units or departments are
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situated in different places or scattered or when the company is
producing different kinds of products decentralization is necessary.
d) Development of managerial personnel: When authority is decentralized
and subordinates get the opportunity to take initiative and develop their
talents and also develop managerial qualities for managerial posts or
positions. They learn how to decide and depend on their own judgement
and how to manage.
e) Effective control and supervision: Decentralization leads to effective
supervision because managers at lower levels have complete authority
to make changes in work assignments, to change production schedule, to
recommend promotion and take disciplinary action.
DISADVANTAGES OF DECENTRALIZATION:
The various disadvantages of decentralization are as follows
a). It requires competent managers to run the various departments independently.

But it is difficult to find competent managers
b) It may sometimes become a handicap in the case of quick emergency decisions.
c) As such unit is independent this may lead to unhealthy competition

among different units of the enterprise.
d) It may result in duplication of functions and wastage of resources.
e) It is not suitable for development of specialized services such as

personnel, accounting and statistical department.
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CONTROL
Introduction: - The objective of every organisation is to use scarce resources in a

best possible way .Plans is formed to achieve better results. Control is the process
of checking whether the plans are being adhered to or not, keeping a record of
progress and then taking corrective measures if there is any deviation. So control
involves knowing what work is to be done as to quantity, quality and time
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available and verifying whether work has been or is being carried out in
accordance with the plan .Planning will be successful only if the progress is
properly controlled. Planning involves setting up of goals and objectives while
controlling seeks to ensure performance in accordance with plan.
Definition:-
“Controlling is determining what is being accomplished that is evaluated the

performance, and if necessary, applying correct measures so that the performance
takes place according to plans‖
-George R.Terry-
―Management control is the process by which managers assure that

resources are obtained and used effectively and efficiently in the accomplishment
of an organisations objective.‖
-Robert Anthony-
―In an undertaking, control consists in verifying whether everything

occurs in conformity with the plan adopted, the instructions issued and principles
established.” -Henry Fayol-
Functions of control
 Managerial Function:-Control is one of the managerial functions. It is not

only the function of chief executive but is the duty of every manager. A
manager is responsible for whatever work assigned to him. He will control
the performance of his subordinates for ensuring the accomplishment of
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goals. Control is mainly the function of line organisation but manger may
ask for data from staff personnel.
 Control is forward looking: Control is forward looking. Past is already

gone thus cannot be controlled. Measures can be devised to control future
activities only. Past provides a base for determining control for future. The
manager will study the past performance in order to find out the reasons for
low results. A corrective action will be taken to ensure that work in future
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is not adversely affected.
 Continuous Activity. Control is regularly exercised. It is not an activity

in isolation. The manager will have to see that his subordinates perform
according to plans at all the times. Once the control is withdrawn it will
adversely affect the work. So, control will have to be exercised
continuously.
 Control Involves Measurement. Control process will require the

comparison between actual and planned performance. It will be
possible only when actual performance is measured. So measurement is
a part of control exercise.
 Control related to Planning: Planning is the first function of management

while control is the last. Control cannot be exercised without planning
.First objectives are set and then efforts are made to see whether these are
accomplished or not. Whenever there is a laxity in performance and things
are not happening as per the plans then corrective measures are taken
immediately.
 Essence of Control is Action: Whenever performance is not as peer the

standards then immediate action is needed to correct the things. The purpose
of control will be defeated if corrective action is not taken immediately. If
the sale is less than the standard set for marketing department then steps are
taken to ensure that performance is not low in future. If no such steps are
taken then there will be lack of control.
 Control Process is Universal: Control process consist of same elements

irrespective of the type of organisation or function to be controlled. Every
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manager has to exercise control process to see whether the activities are
happening as per plans or not. This function is indispensable and has to be
taken up irrespective of size, nature, or type of enterprise
.Importance Of Control:
The control function helps management in various ways. It guides the

management in achieving pre-determined goals.. The efficiency of various
functions is also ensured by the control process. The shortcomings in various fields
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are also reported for taking corrective measures.
The following are some of the advantages of control system.
 Basis for Future Action: Control provides basis of future action. The
continuous flow of information about the project keeps the long range
planning on the right track. It helps in taking corrective actions in future if
the performance is not up to the mark. It also enables management to
avoid repetition of past mistakes.
 Facilitates Decision-making:- Whenever there is deviation between

standard and actual performance the control will help in deciding the
future course of action. A decision about follow up actions is also
facilitated.
 Facilitates Decentralisation:- Decentralisation of authority is necessary in

big enterprise. The management cannot delegate authority without ensuring
proper controls. The targets or goals of various departments are used as a
control technique .The ‗management by exception ‗enables top
management to concentrate on policy formulation. Various control
techniques like budgeting, cost control, pre-action approvals allow
decentralisation without losing control over activities.
 Facilitates Co-ordination:-Control helps in co-ordination of activities

through unity of action every manager will try to co-ordinate the activities of
his subordinates in order to achieve departmental gaols. Similarly, chief
executive wills co-ordinate the functioning of various departments. The
controls will act as checks on the performance and proper results will be
achieved only when activities are co-ordinated.
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 Helps in Improving Efficiency: The control system helps in improving

organisation efficiency. Various control devices acts as motivators to
managers. The performance of every person is regularly monitored and
any deficiency is corrected at the earliest.
 Psychological Pressure:-Controls put psychological pressure on persons

in the organisation. Everybody knows that his performance is regularly
evaluated and will try to improve upon his previous work. The rewards and
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punishments is one of the important tools of control it ensures that every
person tries to maximise his contribution.
 Accomplishing Organisational Goals:- Controlling function measures

progress towards the organisational gaols and involves taking corrective
actions in case of deviations. Through controlling, every attempt is made
to keep the activities on right track so that organisational goals are
accomplished.
 Making efficient use of Resources:- Controlling helps to reduce wastages

of spoilage of resources. It aims to ensure that every activity happens as
per predetermined standards. As a result of thus, there is effective and
efficient use of resources.
PROCESS OF CONTROL
Control is a continuous process. It is not applied when everything else is done.

Here may be some inbuilt controls in the exercise of managerial techniques.in
spite of this; there may be a difference in standards to be achieved and actual
performance. This may be due to human limitations. Steps in control process.
1) Setting of control standards
2) Measurement of actual performance
3) Comparing actual and standard performance
4) Taking corrective actions
 Setting of control standards:-Every enterprise plans its activities in

advance. On the basis of plans, the objectives and goals of every
department,
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branch etc. is fixed. These gaols are converted into quantity, values, man
hour etc. These are to be achieved in future. There may also be qualitative
goals. The achievement of various targets is made the responsibility of
specific persons. Whether a particular result is to be taken as satisfactory,
average or poor should be pre-determined so that the persons responsible for
that work should be able to assess their performance.
Guidelines for selecting strategic points:
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1) The control points should be timely so that they may be able to
reveal significant deviation in time, there by, saving further loss.
2) Control points should be such as to permit economical observation and report.
3) Control points, especially for executives at higher levels, should

provide comprehensive coverage.
4) Control points should be such as would promote balanced performance
 Measurement of actual performance:-The actual performance is measured

against the standards set. This will enable management to determine
whether the work is being done according to plans or not. The measurement
of quantitative objectives is easy since figures of work done will be
available The qualitative performance such as human relations, employee
morale, etc. can only be measured through psychological test and surveys..
Measurement of performance is an important part of control process.

If measurement is such that deviations is detected at the earliest then it will enable
appropriate action well in time .If that is not possible then deviations should be
detected as early as possible.
 Comparing actual and standard performance:-The purpose of this

comparison is
a) To find out deviations. If any
b) To determine the reasons for such deviations.
While comparing actual performance with the standard, some permissible

limits are also fixed. When the deviations are within the prescribed limits then
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there is no cause for worry. But if the deviations are within the prescribed limits
then there is no cause for worry. But if the deviations are more than the allowable
limits then it calls for urgent action. This is known as ―management by
exception.” When things are going as per the plans or within the allowable limits
then top management is not required to take any note of it. But on the other hand,
if performance is not up to the level then it is brought to the notice of top
management for taking corrective action. If the manager gives attention to every
deviation then he will not be able to give enough time for important things.
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When the actual performance is not up to the level then causes for it should
be pinpointed. Necessary steps are taken so that performance is not adversely
affected once again. If no efforts are made to rectify the weak areas then the whole
control process will be futile. Whenever the performance is low than the standards,
the reasons for it should immediately be found.
 Taking corrective actions:- Whenever the performance is less than the

standards efforts should be made to rectify it. Whatever the reasons for low
performance, efforts are made to achieve organisational goals. No control
process can automatically rectify the mistakes in a system. It is the action
which is required to set the things right Sometimes, the targets are not
achievable even with more efforts then these will have to be revised. The
control action may involve review of plans and goals, change in the
methods of work, change in the assignment of task, change in existing
technique of direction and change in organisation structure.
The corrective actions generally involve top management. It is said by

some persons that taking corrective action is not a part of control but a separate
managerial function. The overlapping of control function only shows the unity of
mangers‘ job. It shows that managing process should be an integrated one.
TYPES OF CONTROL
FEEDBACK CONTROL
Feedback and feed –forward are helpful in control process. The

managerial control is essential the same basic control process as that is found in
physical, biological and social system .Information feedback helps many control
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systems to control deviations whenever these are reported. The feedback

information helps in comparing the actual performance with the standards and
taking corrective actions if required. Feedback, in fact, refers to the process of
adjusting future actions on the basis of information about the past performance.
FEED FORWAD CONTROL.
Some management experts are of the opinion that there is a need to future-
directed controls due to time lag in management control process. There is a needed
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to have system which not only helps a manger to find out deviations and take
corrective measures but also is useful in informing the management of facing
impending problems in future if necessary action is not taken at present. There is a
feeling that simple feedback of either the output of a system or the results of a
programme may not be ideal enough for securing effective control. The main
difficulty with historical data is that the mangers are informed when something
adverse has already happened.
Eg: Accounting reports in march may shoe that there were losses in the month of
January or earlier. In such a situation the losses already occurred may not be
rectified .Mangers need a system that will tell them in time to take corrective
action that certain problem will occur if they do not do something now . Feedback
from the output of a system is nothing more than a post-mortem and there is no
way to change the past.
CURRENT CONTROL: this type of control is also called real time control. It is
concerned with the present rather than future or past. In a current control to keep
system or process in track attempts are made to evaluate and analyse performance
quickly and instant corrective action are taken has the process operates the
activities are continuously monitored to ensure that they are being perform
standards if it is not so necessary instructions in the form of corrective adjustments
are made
RELATIONSHIP BETWEEN PLANNING AND CONTROL
1) PLANNING ORIGINATES CONTROLLING: in planning process the

objectives or targets are to be set and to achieve those goals control
process is required
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2) CONTROL SUSTAINS PLANNING: controlling directs the course of

planning. Controlling spots the areas where planning is required
3) CONTROLLING PROVIDES INFORMATION FOR PLANNING : in
controlling the performances is compared with standards and deviations if
any are to be recorded. The information collected during any type of control
is used for planning also
4) PLANNING AND CONTROL ARE INTERRELATED: planning is the
initial step and controlling is the process required at every step for the same.
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Both are dependent on each other and interrelated
5) BOTH ARE FORWARD LOOKING: planning is always for the future
and control is forward looking no one has the control on past it is only
future which can be control.
Planning and controlling are concerned with the achievement of business
goals. Their combine efforts are to achieve maximum output with minimum
cost effect. Both systematic planning and organised controlling are essential
to achieve the organizational goals.
REQUIREMENTS FOR EFFECTIVE CONTROL
The following are the essentials requirements of an effective control system
a) Focus on objectives: the control system should always focuses on objectives.

It should aim to achieve the objectives of the organization
b) Suitability: the control system should be suitable to the needs of the
organization
c) Promptness: the control system should be prompt i.e, it should findout the
deviations quickly. This will help the management to correct the
deviations quickly
d) Flexibility: the control system should be flexible. It should change according
to the changes in plans, situations, environment, etc. a rigid control system
will always fail. Hence flexibility is necessary for a control system
e) Forward looking: the control system should be forward looking. It should
forecast the future deviations.i.e, it should find out the deviations before
it happens. It should also take steps to prevent this future deviations.
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f) Simplicity: the control system should not be complicated it should be easy

to understand and simple to use. Those who are going to use control system
should understand it clearly and completely.
g) Motivating: the control system should be motivating i.e, it should give more
importance to preventing the mistakes and less importance to punishing the
employees. So it should encourage not discourage the employee
h) Suggestive: the control system should be suggestive and should give
complete answers for the following questions what is the problem , where
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is the problem, how to solve the problem
What is co-ordination
Meaning:
co-ordination is the process of synchronizing activities of various persons in

an organization in order to active goals. Co-ordinations undertake at every level of
management. At top level, the chief executive will co-ordination the activity of
functional departments manages. If there is lack of co-ordination between
production and sales departments then either production will suffer or sales will
suffer. Similarly, personnel department will like to know the manpower needs of
various departments. No departments will be able to function without a proper co-
ordination with fiancé department. AT middle /lower levels of man agent the
deputy mangers/foreman/supervisors will coordinate the work of persons working
under them. The purpose of co-ordination is to create team work and harmony in
the enterprise. IT is the blending of human efforts in order to achieve better
organizational gaols.
Definition:
―To co.-ordination are to harmonic all the activities of a person in order

to facilities its work and its success, co.-ordination a person to improve his
functions.‖ -HENRY FAYOL.
“Co-ordination deals with the task of blending efforts in order to ensure

successful attainment of an objective. It is an accomplished by means of planning,
organizing, actuating and controlling”
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“Co-ordination is a part of all phases of administration and that it is not a

separate and distinct activity.‖ -George Terry
Co-ordination and co-operation.
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The term cooperation is entirely different from coordination. Cooperation
nearly indicates willingness of individuals who help each other .It is voluntary
attitude of people. Coordination on the other hand, is the synchronisation of group
efforts for achieving business goals. It is the process of integration of various
factors of production in an organisation. Cooperation implies collective efforts of
people on voluntary basis without assigning anytime, quantity or direction element.
Coordination is wider than cooperation, the later can be achieved through
concerned efforts of the management but it will be achieved from the former.
TECHNIQUES OF EFFECTIVE COORDINATION
Every management will try to improve its working through proper

coordination of work. The aim of every managerial function will be to reach
organisational goals and this is facilitated only through co-ordination. The purpose
should be a to achieve effective coordination.
Some of the techniques for achieving effective coordination are discussed as

follows.
1. Well defined goals.-The goals of the organisation should be cleared and

well defined. Everybody should know the objectives and his contribution
towards its achievement. Unity of purpose will be achieved through proper
coordination.
2. Simplified Organisation. :-The organisational structure should be clearly

defined the authority and responsibility of each and every person .These will help
in reducing conflicts among persons. Over specialisation of activities also creates
problems of coordination. There should be well defined organisational charts,,
job descriptions ,work manuals etc. For avoiding any type of misunderstanding.
Coordination will be achieved when they are clear lines of authority and
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responsibility.
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3. Proper Communication.-Effective communication helps in creating proper

understandings among persons whose work needs to be coordinated. Through
communication every individual understands his scope, limitations ,his position in
the organisation and his relationships with others. Regular communication among
various persons helps in resolving conflicts and differences. People can
understand the view point of others in the organisation.
4. Effective Leadership. It is essential for better coordination. A good leader is
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able to achieve coordination both at planning and execution stages. He brings
individual motivation and persuades the group to have identity of interest in total
efforts. If leader is undecided about his task then he will not be able to either guide
or coordinate their activities.
5. Proper supervision:-Coordination can also be facilitated by effective

supervision. A supervisor is the person who constantly watches the work of his
subordinate‘s .He can adjust the work load, provide guidance to his subordinates if
the situation demands, supervisor is an important person in coordinating the work
at execution level. He will keep the overall objectives of the organisation. A mind
and will direct the work of his subordinates in that direction.
6. Co-operation: It can be achieved through voluntary cooperation of

employees. There should be a feeling of manual help for each other .Cooperation
can be brought by keeping mutual help for each other, keeping harmonious
relations among employees. Management should encourage formal and informal
communication among employees .There should also be committees to take
important decision. The decisions of committees will be group decisions and
everybody will co-operate in implementing them.
Claim is a notification to an insurance company, requesting payment of an

amount, on happening of a specified event, under the terms of the policy.in simple
words claim is a promise made by the insurer to pay compensation to the insured
on happening of some uncertain event resulting in loss or damage to an asset.
IMPORTANCES OF CORDINATION
1) UNITY IN DIVERSITY
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Every large organization has a large number of employees, each with different
views or opinions, activities and background. Therefore, there are diverse
activities in an organization. However, all these activities would not be highly
effective in the absence of coordination. Hence, coordination is important for unity
in diversity.
2) UNITY OF DIRECTION
An organization needs to integrate the efforts and skills of different employees in
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order to achieve common objectives. Coordination also eliminates duplication of
work leading to cost-efficient operations.
3) FUNCTIONAL DIFFERENTIATION
An organization has many departments or sections performing different functions.

All these functions are important for achieving the overall goals of the
organization. If all departments work in isolation from the others, then they might
not work in tandem. Therefore, coordination is essential for integrating the
functions.
4) ACHIEVING OF GOALS
All individuals have their own goals which are more important to them than the
organization‘s goals. Coordination helps to reconcile the employee‘s goals with the
departmental and organizational goals
5) OPTIMUM UTILIZATION OF RESOURCES
Primarily, coordination ensures that employees do not engage in cross-purpose

work since it brings together the human and material resources of the
organization. Therefore, there is less wastage of resources which helps the
organization utilize them optimally.
6) ENCOURAGEMENT OF TEAM SPIRIT
In an organization, there exist many conflicts between employees, departments,

etc. Coordination encourages people and departments to work as one big team and
achieve the common objectives of the organization. Therefore, it encourages team
spirit.
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PRINCIPLES OF COORDINATION
There are different stages to achieve effective coordination.
Early Stage Principle
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This principle states that coordination must start at a very early stage. So, in the
management process, this is very vital. Thus, it can be said that this should start at
the planning stage. So, this will ensure that the best plans are made. Also, it is
necessary to implement these plans successfully.
Continuity Principle
According to the second principle, coordination is a process that requires

continuity. Thus, it means that the process should not be only a one-time process.
So, the process of coordination should begin at the time the organization starts.
This shall also continue until an organization exists.
Direct contact Principle
This principle believes in direct contact. It states that managers should directly
contact their subordinates. Thus, it will help in building good relations for
managers with their subordinates.
Also, because of this principle, any misunderstanding will be avoided. Along with
this, misinterpretations and disputes will be avoided between the subordinates and
the managers.
Reciprocal relation Principle
The actions and decisions of the people working in the organization and their
departments are inter-related. Thus, the actions and decisions of one department or
the person will affect other departments and people in the organization.
So, before taking any decision every manager must find out the effect of that
decision on the other departments.
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EFFECTIVE TECHINIQUES OF COORDINATION
1. Well defined goals: – the first means or technique of coordination is well

defined goals. The goals of the organization should be clear and well defined.
Each individual in the organization should understand the overall goals. When the
goals are not well defined the coordination may not effective.
2. Sound organization structure: – coordination is the essence of management. It is

not possible without sound organization structure. The authority and
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responsibility for each and every positions and employees should be clearly
defined.
3. Effective communication: – coordination helps in creating proper understanding

among persons. Without effective communication, coordination may be effective.
The ideas, opinions should be interchanged freely. It is only through effective
communication that even individual understand his/her limitations, positions and
responsibility in the organization. Effective communication helps in coordination.
Therefore, it is also an important means of coordination.
4. Proper leadership: – proper leadership leads the subordinates effectively and

efficiently. A good managerial leader uses the motivational tools to coordinate
the employees with effective communication system. In short, coordination is
made possible through proper leadership.
5. Proper supervision: – supervisors coordinate the subordinates and their

activities. Top level management cannot coordinate all employees. In short,
proper supervision helps in effective coordination.
6. Better plans and policies: – coordination is made according to plans and

policies of the organization and departments. When the plans and policies are not
better coordination is not effective in the organization.
7. Cooperation: – without cooperation, coordination may not succeed because

coordination is related to employees and their activities. When they are not
cooperative, coordination may not be made. So, cooperation is essential in
the organization.
8. Meeting and conference: – coordination may be possible when all employees

their all activities and departmental goals are involved in organizational
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planning
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and policies. Their all problems and matters may be involved. When there is
environment of constructive discussion and debate with meeting and conference
9. Group decision: – the group decision is a decision in which all members of the
organization are participated to make decisions. The ideas and feelings are
mixed into the decision and coordination may succeed.
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BUSINESS ORGANIZATION AND MANAGEMENT

Human beings are continuously engaged in some activity or other in order to

Generally we know that business is an exchange of goods and services, the

―Business may be defined as human activities directing towards providing

―The regular production or purchase and sale of goods undertaken with an

―Business refers to a form of activity conducted with an objective of

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1. Entrepreneur: -―An entrepreneur is the agent who buys means of production

3. Exchange of goods and services:- A business must involve the exchange of

5. Risk and Uncertainty:- An element of risk is prevalent in business. Risk

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6. Continuity Of Transactions:-dealing in goods and services becomes

Time utility:-The goods are produced in anticipation of demand. Production is not

8. Organisation:- Every enterprise need an organisation for its successful

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The availability of other factors of production depends upon the availability of

There are different categories of the objectives which have to be achieved by

II. HUMAN OBJECTIVES-

III. SOCIAL OBJECTIVES-

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 Supply of quality goods

 Creation of more employment

 Utilizing resources properly

IV. ORGANIZATIONAL OBJECTIVES-

 Helping national efforts

 Development of small entrepreneurs

 National self sufficiency

 Development of skilled persons

ECONOMIC SOCIAL HUMAN

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1. ECONOMIC OBJECTIVES: Economic objectives of business refer to the

It deals with all monetary transactions.

2) HUMAN OBJECTIVES:- It deals with people in the organization and

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a) Welfare of employees: The employees of an enterprise help in increasing in

It deals with society classification as follows:-

a) Availability of goods: The business should ensure the production of goods

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e) Utilization of natural resources properly: The business should put the

5) NATIONAL OBJECTIVE:- Being an important part of the country every

It deals with development of nation the classification is as follows:

a) Helping national efforts: The business should enter those fields of

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Following are the various functions of business:

1. PRODUCTION FUNCTION: Production refers to transferring of raw

Production function carries out the following activities.

a) Designing the products and packages.

b) Production planning and control.

c) Procurement of materials and stores

d) Repair and maintenance of plant and a machinery.

e) Operating quality control standards.

2. PURCHASE FUNCTION: Normally purchase is considered as a part of

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purchase in order to undergo several activities of the business. It is necessary

3. MARKETING FUNCTION: Marketing refers to the distribution of goods

a) Undertaking marketing research.

b) Deciding product design, package and brand name.