INTRODUCTION TO BASINESS & MANAGEMENT

Meaning of business
The term business is derived from the word ‘busy’. Business refers to an occupation in which
people regularly engaged in activities related to purchase or sales of good and services with a view
to earn profit .

Forms of Business Organization

Sole proprietorship
Partnership
Cooperative society
Joint stock company

Sole proprietorship
Sole proprietorship refers to a form of business organization which is owned, managed and
controlled by an individual who is the recipient of all profits and bearer of all risk . The word “sole”
implies “only” and “proprietor” refers to “owner”. Hence, a sole proprietor is the one who is the only
owner of the business.

Features
Salient characteristics of the sole proprietorship form of organisation are as
follows:
(i) Formation and closure: There is no separate law that governs sole proprietorship. Hardly
any legal formalities are required to start a sole proprietary business, though in some cases
one may require a license. Closure of the business can also be done easily. Thus, there is
ease in formation as well as closure of business.

(ii) Liability: Sole proprietors have unlimited liability. This implies that the owner is personally
responsible for payment of debts in case the assets of the business are not sufficient to meet
all the debts. As such the owner’s personal possessions such as his/her personal car and
other assets could be sold for repaying the debt.

(iii) Sole risk bearer and profit recipient: The risk of failure of business is borne all alone by the
sole proprietor. However, if the business is successful, the proprietor enjoys all the benefits.
He receives all the business profits which become a direct reward for his risk bearing.
 (iv) Control: The right to run the business and make all decisions lies absolutely with the sole
proprietor. He can carry out his plans without any interference from others.

(v) No separate entity: In the eyes of the law, no distinction is made between the sole trader
and his business, as business does not have an identity separate from the owner. The owner
is, therefore, held responsible for all the activities of the business.

(vi) Lack of business continuity: The sale proprietorship business is owned and controlled by
one person, therefore death, insanity, imprisonment, physical ailment or bankruptcy of the
sole proprietor will have a direct and detrimental effect on the business and may even cause
closure of the business.

Merits
Sole proprietorship offers many advantages. Some of the important ones are as follows:

(i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in making
business decisions. Further the decision making is prompt because there is no need to consult
others. This may lead to timely capitalisation of market opportunities as and when they arise.

(ii) Confidentiality of information: Sole decision making authority enables the proprietor to keep all
the information related to business operations confidential and maintain secrecy. A sole trader is
also not bound by law to publish firm’s accounts.

(iii) Direct incentive: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the
sole recipient of all the profit. The need to share profits does not arise as he/she is thesingle
owner. This provides maximum incentive to the sole trader to work hard.

(iv) Sense of accomplishment: There is a personal satisfaction involved in working for oneself. The
knowledge that one is responsible for the success of the business not only contributes to self-
satisfaction but also instils in the individual a sense of accomplishment and confidence in one’s
abilities.

(v) Ease of formation and closure: An important merit of sole proprietorship is the possibility of
entering into business with minimal legal formalities. There is no separate law that governs sole
proprietorship. As sole proprietorship is the least regulated form of business, it is easy to start
and close the business as per the wish of the owner.

Limitations
Some of the major limitations of sole proprietorship are as follows:

(i) Limited resources: Resources of a sole proprietor are limited to his/ her personal savings
and borrowings from others. Banks and other lending institutions may hesitate to extend a
long term loan to a sole proprietor. Lack of resources is one of the major reasons why the
size of the business rarely grows much and generally remains small.
(ii) Limited life of a business concern: The sole proprietorship business is owned and controlled
by one person, so death, insanity, imprisonment, physical ailment or bankruptcy of a
proprietor affects the business and can lead to its closure.

(iii) Unlimited liability: A major disadvantage of sole proprietorship is that the owner has
unlimited liability. If the business fails, the creditors can recover their dues not merely from
the business assets, but also from the personal assets of the proprietor. A poor decision or
an unfavourable circumstance can create serious financial burden on the owner. That is why
a sole proprietor is less inclined to take risks in the form of innovation or expansion.

(iv) Limited managerial ability: The owner has to assume the responsibility of varied managerial
tasks such as purchasing, selling, financing, etc. It is rare to find an individual who excels in
all these areas. Thus decision making may not be balanced in all the cases. Also, due to
limited resources, sole proprietor may not be able to employ and retain talented and
ambitious employees.

Partnership
The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have
agreed to share the profit of the business carried on by all or any one of them acting for all.”

Partnership is the relation between persons competent to make contracts who have agreed to carry
on a lawful business in common with a view to private gain.

By- L H Haney

Features
(i) Formation: The partnership form of business organisation is governed by the Indian
Partnership Act, 1932. It comes into existence through a legal agreement wherein the terms
and conditions governing the relationship among the partners, sharing of profits and losses
and the manner of conducting the business are specified. It may be pointed out that the
business must be lawful and run with the motive of profit. Thus, two people coming
together for charitable purposes will not constitute a partnership.

(ii) Liability:The partners of a firm have unlimited liability. Personal assets may be used for
repaying debts in case the business assets are insufficient. Further, the partners are jointly
and individually liable for payment of debts. Jointly, all the partners are responsible for the
debts and they contribute in proportion to their share in business and as such are liable to
that extent.

(iii) Risk bearing: The partners bear the risks involved in running a business as a team. The
reward comes in the form of profits which are shared by the partners in an agreed ratio.
However, they also share losses in the same ratio in the event of the firm incurring losses.

(iv) Decision making and control: The partners share amongst themselves the responsibility of
decision making and control of day to day activities. Decisions are generally taken with
mutual consent. Thus, the activities of a partnership firm are managed through the joint
efforts of all the partners.
 (v) Continuity: Partnership is characterised by lack of continuity of business since the death,
retirement, insolvency or insanity of any partner can bring an end to the business. However,
the remaining partners may if they so desire continue the business on the basis of a new
agreement.

(vi) Number of Partners: The minimum number of partners needed to start a partnership firm is
two. According to section 464 of the Companies Act 2013, maximum number of partners in a
partnership firm can be 100, subject to the number prescribed by the government. As per
Rule 10 of The Companies (miscelleneous) Rules 2014, at present the maximum number of
members can be 50.

(vii) Mutual agency: The definition of partnership highlights the fact that it is a business carried
on by all or any one of the partners acting for all. In other words, every partner is both an
agent and a principal. He is an agent of other partners as he represents them and thereby
binds them through his acts. He is a principal as he too can be bound by the acts of other
partners.

Merits

(i) Ease of formation and closure: A partnership firm can be formed easily by putting an
agreement between the prospective partners into place whereby they agree to carryout the
business of the firm and share risks. There is no compulsion with respect to registration of
the firm. Closure of the firm too is an easy task

(ii) Balanced decision making: The partners can oversee different functions according to their
areas of expertise. Because an individual is not forced to handle different activities, this not
only reduces the burden of work but also leads to fewer errors in judgements. As a
consequence, decisions are likely to be more balanced.

(iii) More funds: In a partnership, the capital is contributed by a number of partners. This makes
it possible to raise larger amount of funds as compared to a sole proprietor and undertake
additional operations when needed.

(iv) Sharing of risks: The risks involved in running a partnership firm are shared by all the
partners. This reduces the anxiety, burden and stress on individual partners.

(v) Secrecy: A partnership firm is not legally required to publish its accounts and submit its
reports. Hence it is able to maintain confidentiality of information relating to its operations.
Limitations A partnership firm of business organisation suffers from the following.

Limitation:

I. Unlimited liability :Partners are liable to repay debts even from their personal resources in case
the business assets are not sufficient to meet its debts. The liability of partners is both joint and
 several which may prove to be a drawback for those partners who have greater personal wealth.
They will have to repay the entire debt in case the other partners are unable to do so.

II. Limited resources: There is a restriction on the number of partners, and hence contribution in
terms of capital investment is usually not sufficient to support large scale business operations. As
a result, partnership firms face problems in expansion beyond a certain size.

III. Possibility of conflicts: Partnership is run by a group of persons wherein decision making
authority is shared. Difference in opinion on some issues may lead to disputes between partners.
Further, decisions of one partner are binding on other partners. Thus an unwise decision by
some one may result in financial ruin for all others. In case a partner desires to leave the firm,
this can result in termination of partnership as there is a restriction on transfer of ownership.

IV. Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy
of any partner. It may result in lack of continuity. However, the remaining partners can enter
into a fresh agreement and continue to run the business.

V. Lack of public confidence: A partnership firm is not legally required to publish its financial
reports or make other related information public. It is, therefore, difficult for any member of the
public to ascertain the true financial status of a partnership firm. As a result, the confidence of
the public in partnership firms is generally low.

Types of Partners
(i) Active partner: An active partner is one who contributes capital, participates in the
management of the firm, shares its profits and losses, and is liable to an unlimited extent to
the creditors of the firm. These partners take actual part in carrying out business of the firm
on behalf of other partners.
(ii) Sleeping or dormant partner: Partners who do not take part in the day to day activities of
the business are called sleeping partners. A sleeping partner, however, contributes capital to
the firm, shares its profits and losses, and has unlimited liability.

(iii) Secret partner: A secret partner is one whose association with the firm is unknown to the
general public. Other than this distinct feature, in all other aspects he is like the rest of the
partners. He contributes to the capital of the firm, takes part in the management, shares its
profits and losses, and has unlimited liability towards the creditors.

(iv) Nominal partner: A nominal partner is one who allows the use of his/her name by a firm,
but does not contribute to its capital. He/she does not take active part in managing the firm,
does not share its profit or losses but is liable, like other partners, to the third parties, for the
repayments of the firm’s debts.

(v) Partner by estoppel: A person is considered a partner by estoppel if, through his/her own
initiative, conduct or behaviour, he/she gives an impression to others that he/ she is a
partner of the firm. Such partners are held liable for the debts of the firm because in the
eyes of the third party they are considered partners, even though they do not contribute
capital or take part in its management.
 Partnership Deed

A partnership is a voluntary association of people who come together for achieving common
objectives. In order to enter into partnership, a clear agreement with respect to the terms,
conditions and all aspects concerning the partners is essential so that there is no misunderstanding
later among the partners.

The written agreement which specifies the terms and conditions that govern the partnership is
called the partnership deed.

The partnership deed generally includes the following aspects:

• Name of firm
• Nature of business and location of business
• Duration of business
• Investment made by each partner
• Distribution of profits and losses
• Duties and obligations of the partners
• Salaries and withdrawals of the partners
• Terms governing admission, retirement and expulsion of a partner
• Interest on capital and interest on drawings
• Procedure for dissolution of the firm
• Preparation of accounts and their auditing
• Method of solving disputes

Cooperative Society
The cooperative society is compulsorily required to be registered under the Cooperative Societies
Act 1912. The cooperative society is a voluntary association of persons, who join together with the
motive of welfare of the members. They are driven by the need to protect their economic interests
in the face of possible exploitation at the hands of middlemen obsessed with the desire to earn
greater profits.

Features
i. Voluntary membership: The membership of a cooperative society is voluntary. A person is
free to join a cooperative society, and can also leave anytime as per his desire. There cannot
be any compulsion for him to join or quit a society. Although procedurally a member is
required to serve a notice before leaving the society, there is no compulsion to remain a
member. Membership is open to all, irrespective of their religion, caste, and gender.

ii. Legal status: Registration of a cooperative society is compulsory. This accords a separate
identity to the society which is distinct from its members. The society can enter into
contracts and hold property in its name, sue and be sued by others. As a result of being a
separate legal entity, it is not affected by the entry or exit of its members.

iii. Limited liability: The liability of the members of a cooperative society is limited to the extent
of the amount contributed by them as capital. This defines the maximum risk that a member
can be asked to bear.

iv. Control: In a cooperative society, the power to take decisions lies in the hands of an elected
managing committee. The right to vote gives the members a chance to choose the members
who will constitute the managing committee and this lends the cooperative society a
democratic character.

v. Service motive: The cooperative society through its purpose lays emphasis on the values of
mutual help and welfare. Hence, the motive of service dominates its working. If any surplus
is generated as a result of its operations, it is distributed amongst the members as dividend
in conformity with the bye-laws of the society.

Merits
(i) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative
society. Irrespective of the amount of capital contribution by a member, each member is
entitled to equal voting rights.

(ii) Limited liability: The liability of members of a cooperative society is limited to the extent
of their capital contribution. The personal assets of the members are, therefore, safe from
being used to repay business debts.
 (iii) Stable existence: Death, bankruptcy or insanity of the members do not affect continuity of
a cooperative society. A society, therefore, operates unaffected by any change in the
membership.

(iv) Economy in operations: The members generally offer honorary services to the society. As
the focus is on elimination of middlemen, this helps in reducing costs. The customers or
producers themselves are members of the society, and hence the risk of bad debts is
lower.

(v) Support from government: The cooperative society exemplifies the idea of democracy and
hence finds support from the Government in the form of low taxes, subsidies, and low
interest rates on loans.

(vi) Ease of formation: The cooperative society can be started with a minimum of ten
members. The registration procedure is simple involving a few legal formalities. Its
formation is governed by the provisions of Cooperative Societies Act 1912.

Limitations

(i) Limited resources: Resources of a cooperative society consists of capital contributions

of the members with limited means. The low rate of dividend offered on investment
also acts as a deterrent in attracting membership or more capital from the members.
(ii) Inefficiency in management: Cooperative societies are unable to attract and employ
expert managers because of their inability to pay them high salaries. The members
who offer honorary services on a voluntary basis are generally not professionally
equipped to handle the management functions effectively.

(iii) (iii) Lack of secrecy: As a result of open discussions in the meetings of members as
well as disclosure obligations as per the Societies Act (7), it is difficult to maintain
secrecy about the operations of a cooperative society.

(iv) Government control: In return of the privileges offered by the government,

cooperative societies have to comply with several rules and regulations related to
auditing of accounts, submission of accounts, etc. Interference in the functioning of
the cooperative organisation through the control exercised by the state cooperative
departments also negatively affects its freedom of operation.

(v) Differences of opinion: Internal quarrels arising as a result of contrary viewpoints may
lead to difficulties in decision making. Personal interests may start to dominate the
welfare motive and the benefit of other member may take a backseat if personal gain
is given preference by certain members.

Types of Cooperative Societies

Consumer cooperative Society Credit cooperative Society

Producers cooperative Society Cooperative housing societies

MANAGEMENT

Meaning – Management , been defined as a process of getting things done by others with the aim of
achieving goals effectively and efficiently.

Definition of management

Management is the process of designing and maintaining an environment in which individuals

working together in groups effectively accomplish selected aims.

Characteristics of Management

(i) Management is a goal-oriented process: An organisation has a set of basic

goals which are clearly stated. Different organisations have different goals.
Management unites the efforts of individuals and groups in the organisation
towards achieving these goals.

(ii) Management is all pervasive: The activities involved in managing an enterprise

are common to all organisations .

(iii) Management is multidimensional: Management has three main dimensions.

(a) Management of work: All organisations exist for the performance of some
work. Management translates this work in terms of goals to be achieved and
assigns the means to achieve it.

(b)Management of people: The task of management is to make people work

towards achieving the organisation’s goals, by making their strengths effective and
their weaknesses irrelevant.

(c) Management of operations: No matter what the organisation, it has some

basic product or service to provide in order to survive. This requires a production
process which entails the flow of input material and the technology for
transforming this input into the desired output for consumption.

(iv) Management is a continuous process: The process of management is a series

of continuous, but separate functions (planning, organising, directing, staffing and
controlling). These functions are simultaneously performed by all managers all the
time.

(v) Management is a group activity: Every member of the management has a

different purpose for joining the organisation but as members of the organisation
they work towards fulfilling the common organisational goal. This requires team
work and coordination of individual effort in a common direction.

(vi) Management is a dynamic function: An organisation interacts with its

external environment which consists of various social, economic and political
factors. In order to be successful, an organisation must change itself and its goals
according to the needs of the environment.
(vii) Management is an intangible force: Management is an intangible force that
cannot be seen but its presence can be felt in the way the organisation functions.
The effect of management is noticeable in an organisation when targets are met
according to plans, employees are happy and satisfied, and there is orderliness
instead of confusions.

Nature of Management
(i) Management helps in achieving group goals: Management is required for
achieving the goals of the organisation. The task of a manager is to give a common
direction to the individual effort in achieving the overall goal of the organisation.

(ii) Management increases efficiency: The aim of a manager is to reduce costs

and increase productivity through better planning, organising, directing, staffing
and controlling the activities of the organization and increase efficiency.

(iii) Management creates a dynamic organisation: All organisations have to

function in an environment which is constantly changing. It is generally seen that
individuals in an organisation resist change as it often means moving from a
familiar, secure environment into a newer and more challenging one. Management
helps people adapt to these changes

(iv) Management helps in achieving personal objectives: A manager motivates

and leads his team in such a manner that individual members are able to achieve
personal goals while contributing to the overall organisational objective.

(iv) Management helps in the development of society: An organisation has

multiple objectives to serve the purpose of the different groups that constitute it. In
the process of fulfilling all these, management helps in the development of the
organisation and through that it helps in the development of society.

Functions of Management

Planning: Planning is thinking in advance what is to be done and who is to do it.

This implies setting goals in advance and developing a way of achieving them
efficiently and effectively.Planning cannot eliminate problems, but it can predict
them and prepare contingency plans to deal with the problems as and when they
occur.

Organising:Organising is the management function of assigning duties, grouping

tasks, establishing authority and allocating financial, physical and human
resources required to carry out a specific plan. It decides who will do a particular
task, where it will be done, and when it will be done.

Staffing: Staffing is finding the right people for the right job. A very important
aspect of management is to make sure that the right people with the right
qualifications are available at the right places and times to accomplish the goals of
the organisation. This is also known as the human resource function and it
involves activities such as recruitment, selection, placement and training of
personnel
Directing: Directing involves leading, influencing and motivating employees to
perform the tasks assigned to them. Motivating workers means simply creating an
environment that makes them want to work. Leadership is influencing others to do
what the leader wants them to do. A good manager directs through praise/reward
and criticism/punishments in such a way that it brings out the best in the
employee.

Controlling : Controlling involves establishing standards of performance,

measuring current performance, comparing this with established standards and
taking corrective action where any deviation is found.

Management as an Art
The basic features of an art are as follows:
(i) Existence of theoretical knowledge: Experts in their respective areas have
derived certain basic principles which are applicable to a particular form of art. For
example, literature on dancing, public speaking, acting or music is widely
recognised.

(ii) Personalised application: The use of this basic knowledge varies from
individual to individual. Art, therefore, is a very personalised concept. For example,
two dancers, two speakers, two actors, or two writers will always differ in
demonstrating their art.

(iii) Based on practice and creativity: Art involves the creative practice of existing
theoretical knowledge. We know that all music is based on seven basic notes.
However, what makes the composition of a musician unique or different is his use
of these notes in a creative manner that is entirely his own interpretation.

Management can be said to be an art since it satisfies the following criteria:

(i) A successful manager practices the art of management in the day-to-day job of
managing an enterprise based on study, observation and experience. There is a lot
of literature available in various areas of management like marketing, finance and
human resources which the manager has to specialise in. There is existence of
theoretical knowledge.

(ii) A manager applies these scientific methods and body of knowledge to a given
situation, an issue or a problem, in his own unique manner. A good manager works
through a combination of practice, creativity, imagination, initiative and
innovation. A manager achieves perfection after long practice

(iii) A manager applies his own theories for use in a given situation. This gives rise
to different styles of management. Management is there since time immemorial .So
Management is considered as oldest of all Arts.

Management as a Science
The basic features of science are:
(i) Systematised body of knowledge: Science is a systematic body of knowledge.
Its principles are based on a cause and effect relationship. For example, the
phenomenon of an apple falling from a tree towards the ground is explained by
Newtons’s law of gravity.
(ii) Principles based on experimentation: Scientific principles are first developed
through observation and then tested through repeated experimentation under
controlled conditions in the laboratory.

(iii) Universal validity: Scientific principles have universal validity and application.

Management has some characteristics of science.

(i) Management also has a systematised body of knowledge. It has its own
theory and principles that have developed over a period of time.

(ii) The principles of management have evolved over a period of time based on
repeated experimentation and observation in different types of organisations.
However, since management deals with human beings and human behaviour, the
outcomes of these experiments are not accurately predicted or replicated.
Therefore, management can be called an inexact science.

(iii) Since the principles of management are not as exact as the principles of
science, their application and use is not universal.

Conclusion: Management has features of both art and science. The practice of
management is an art. However, managers can work better if their practice is based
on the principles of management. These principles constitute the science of
management. Management as an art and a science are therefore not mutually
exclusive, but complement each other.

Management as a Profession
A profession has the following characteristics:
(i) Well-defined body of know-ledge: All professions are based on a well-defined
body of knowledge that can be acquired through instruction.

(ii) Restricted entry: The entry to a profession is restricted without an examination

or through acquiring an educational degree. For example, to become a chartered
accountant in India a candidate has to clear a specified examination conducted by
the Institute of Chartered Accountants of India.

(iii) Professional association: All professions are affiliated to a professional

association which regulates entry, grants certificate of practice and formulates and
enforces a code of conduct.

Management does not meet the exact criteria of a profession but it does have some
of the features of a profession.

DIFFERENCE BETWEEN MANAGEMENT AND ADMINIATRATION

Fayol’s Principles of Management

(i) Division of Work: Work is divided into small tasks/ jobs which leads to specialisation.
According to Fayol, “The intent of division of work is to produce more and better work
for the same effort. Specialisation is the most efficient way to use human effort.”

(ii) Authority and Responsibility: According to Fayol, “Authority is the right to give orders
and obtain obedience, and responsibility is being accountable who assumes authority
also assumes responsibility.

(iii) Discipline: Discipline is the obedience to organisational rules and employment

agreement which are necessary for the working of the organisation. Penalities should be
applied judicially to encourage this common effort.

(iv) Unity of Command: According to Fayol there should be one and only one boss for every
individual employee.

(v) Unity of Direction: All the units of an organisation should be moving towards the same
objectives through coordinated and focussed efforts.
 (vi) Subordination of Individual Interest to General Interest: The interests of an
organisation should take priority over the interests of any one individual employee
according to Fayol.

(vii) Remuneration of Employees: The overall pay and compensation should be fair to both
employees and the organisation. The employees should be paid fair wages, which should
give them at least a reasonable standard of living. At the same time it should be within
the paying capacity of the company.

(viii) Centralisation and Decentralisation: The concentration of decision-making authority is

called centralisation whereas its dispersal among more than one person is known as
decentralisation. According to Fayol, “There is a need to balance subordinate
involvement through decentralisation with managers’ retention of final authority
through centralisation.”

(ix) Scalar Chain: An organisation consists of superiors and subordinates. The formal lines of
authority from highest to lowest ranks are known as scalar chain. According to Fayol,
“Organisations should have a chain of authority and communication that runs from top
to bottom and should be followed by managers and the subordinates.”

(x) Order: According to Fayol, “People and materials must be in suitable places at
appropriate time for maximum efficiency.” This will lead to increased productivity and
efficiency.

(xi) Equity: according to Fayol. This principle emphasises kindliness and justice in the
behaviour of managers towards workers. There should be no discrimination against
anyone on account of sex, religion, language, caste, belief or nationality etc.

(xii) Stability of Personnel: 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.

(xiii) Initative: Workers should be encouraged to develop and carry out their creative plans
for improvements according to Fayol.

(xiv) Espirit De Corps: Management should promote a team spirit of unity and harmony
among employees, according to Fayol. Management should promote teamwork

What is individual behavior?

Individual behavior can be defined as a mix of responses to external and internal stimuli. It is
the way a person reacts in different situations and the way someone expresses different
emotions like anger, happiness, love, etc.
Organization behavior views the organization as an individual's behavior. It studies the
individual behavior of people how they react to organizational plans, policies, etc.
Psychological theories like learning, motivation, and leadership are also considered to
the study of the behavior of an individual. It has also studied the factor like learning,
perception, belief, and attitude of each individual. OB studies the impact of psychological
factors upon behavior and job performance at an individual level.

Organizational behaviour
It has study the behavior of an organization as a whole. To study the organization, it
applies the knowledge of behavioral science. Organization behavior has tried to analyze
how organizational structure designs technology influences organizational effectiveness.
It tries to focus on the relationship between the organization and the environmental
factors that directly or indirectly affect the organization.