Bangabandhu Sheikh Mujibur Rahman Science and

Technology University

Subject name:Introduction to Business

Course Teacher: Ayeasha Akhter
Course code:103

Submitted by:Md.Aminul Islam Rabbi

Id no:19Mkt006
Department of Marketing
Chapter 01
Basic Concepts of Business

Definition of Business

Business means the state of being busy engaged in any

work. Any kind of legal activities for the intention to earn
profit is called business. The word 'Business' is come
from the English words Busi+Ness' that means business is
concerned to all human activities with earning profit.

In general sense: In general meaning business is the legal

process of production and purchasing and selling to earn
profit.
In broad sense: Business is related all kinds of legal works
of producing, marketing and exchanging products and
services with the intension to earn profit.
From the functional point of view, the business is related
to an equation that is as follows: B= Industry +Commerce
+ Direct service
So business is the form of three types of works such as:
 To produce products and distribute services.
 Purchasing and selling of products and services.
 Releted works of producing and marketing the
products and services.

Many scholars define the business on many perspectives.

Some of these definitions are as follows:
1. Lewis H. Haney Said, "Business may be defined as
human activity detected toward producing or
acquiring wealth through buying or selling goods."
2. R. W. Babson said, "Business includes those human
activities relating to the production and the
distribution of goods, services and ideas with a view
to earning profit."

3. B.O wheeler said, "Business is an institution organized

and operated to provide goods and services to the
society under the incentive of gain."
4. R.H. Hodgetts said, "Business is an organized approach
used by individuals for the purpose of providing goods
and services to mankind for a profit.
5. According to Peter F. Drucker, "Any organization that
fulfils itself through marketing of product or service is a
business.
6. According to Urwick and Hunt, "Business is any
enterprise which makes, distributes or provides an article
or service which other members of the community need
and are able and willing to pay for."

From the above definitions some characteristics of

business can be identified, These are as follows:
1. Business is involved with thc intention of carning
profit.
2. Business is to increase the wealth and welfarc of the
society,
3. Lusiness involves in creating the demand and the
needs of the human being.
4. Business is to produce and purehase and sell of
products and services to the customer.
1.4 Elements of Business
Business may be defined as human activity directed
towards producing or acquiring wealth through buying or
selling goods for earning profit. Business has some
elements which are essential for continue the
organizational activities. The elements of business an as
follows:
Elements of Business
1. Capital. 2. Organizational institution.3. Labor 4.
Transaction in terms money 5.Auxiliary elements. 6.
Goods and services. 7 Specific location.8. Profit
motive. 9. Risk and uncertainty. 10.Validity

These elements of business are described in below :

1. Capital: Capital is one of the important elements of
business. No business can be continued except capital.
Capital is needed to do any organizational activities.
Business has two types of capital. To conduct daily
activities need current capital and to buy assets of
business need permanent capital.
2. Organizational institution: Organizational institute is
very important element of business. Large or small
 whatever the expansion of business that must have
the organizational institute and it may be partnership,
joint stock, co-operative, national etc.
3. Specific location: A specific attractive location is to
create more value for the business. The businessman
needs a specific place to conduct the business. This
place may be a house or open place.
4. Labor: Labor is involved with the conducting of
business activities. To conduct the activities of
business labor is essential. Some businesses need
physical labor and some organizations need mental
labor.
5. Goods and service: Another important element of
business is to produce goods and services and to
distribute these to the ultimate consumers. Goods and
services are the main elements of any organization.
6. Profit motive: Every organization must have the
intention to carn profit. Without profit no organization
can continue it operations smoothly. Sometimes profit
may invest further to business organization.
7. Risk and Uncertainty: There is a proverb "No risk no
gain" and the business is directed toward the
achievement of several gains. So every business must
have risk and uncertainty to be successful. Every
businessman can conduct business activities intangible -
according to his own assumptions.
8. Transactions in terms of money: In the barter
system there was no fixed medium of transaction but
now there is a fixed media. So every transaction of
business should be in terms of money.
9. Auxiliary Elements: Auxiliary elements are the
supporting elements for conducting business
successfully. To conduct the business property, it is
needed some auxiliary elements. These auxiliary
elements are row materials, machinery, furniture,
transportation, banking and insurance etc.
10. Validity: Validity is an important element of business.
Every activities of the business organization should be
valid in the eye of law. Any illegal activities are not
considered as business though the business may be
conducted to earn profit

5
1.6 Characteristics of Business
 Generally business is divided into many types. It may be
small, middle or large. Again it may be sole
proprietorship, partnership. joint stock Company, co-
operative, or national organization.
The term "Business" possess the following
characteristies:
1. Production or acquisition of goods
2. Economic activities
3. Sale or transfer of title
4. Creation of utility
5. Dealings in goods and services
6. Service motive
7. Regularity of dealings
8. Uncertainty or risk about future
9. Profits as reward for service rendered
10. Flexibility
11. Developing good relation
12. Forecasting

The characteristics of business are discussed as follows:

 1. Production or acquisition of goods: The main task of
business is goods and services to the people for a price.
sometimes the products to be produced by the business
organization or acquire from the different source of
production.
2. Economic activities: Besic characteristic of business is
to involve with economic activities. Economic activities
mean all the activities which are conducted to fulfill the
needs of the human being. People have to provide
assets, money. goods and services to satisfy their needs
which fulfill these objectives.
3.sale or transfer of title :Gods which are produced or
procured for sale in return of price. This activity in
involved with the selling product or acquiring of
wealth.goods produced or aquired for personal
consumption.
4. Creation of utility: Another characteristic of business
is creation of utility of various products and services.
Through the industrial organization, business create
utilities, through the business ownership utility, through
the transportation place utility. through the insurance
risk utility and through the banking money utility are
created.
 5. Dealings in goods and services: Business means
dealing with goods and services. The goods may be
consumer's goods such as cloth, bread, jams, shoes,
watches etc, or producer's goods such as machinery and
tools. Services consist of those items which are not
stored by consumers. such as transport service.

Snapshot

Peoduction: The total process by which a company

produces finished goods or services
Production Management: The set of managerial
activities organization to transform resource inputs into
products, services, or both.
Productivity: Productivity is about the effective and
efficient use of all include resources. Resources people,
information, time, finance, equipment, space, energy,
materials.
Sale: exchange commodity for money; the action of
selling something The for money
. Utility: Utility is a measure of satisfaction, referring to
the total satisfaction received by a consumer from
consuming a good or service.

1.7 Objectives of Business

Every human activity has some objectives and business
has some important objectives as an economic activity.
There is a common belief that a money making is the
only objective of business. Maximization of profit is the
prevailing norm among the businessmen themselves.
Obviously a company must make profit for survival, bull
for survival it is also necessary to provide products or
render services that customers want. Besides economic
objectives, a business has social objectives. Various
objectives of business are discussed with the chart in
below:
Objectives of Business
 Social Objectives

1. To deliver scrvices
 2. To create employment
3. To develop living standard
4. To maintain actual income on investment
5. To abandon anti-social activities
6. To participate in welfere
 Economic Objectives
1.To carn profit
2. To invest capital
3. To produce product
4. To utilize wealth properly
5.To create customer
6.To use manpower properly
7.To conduct research and innovate new product.

 Human objective
1.To do justice to labors.
2.To pay the fair value of raw material
suppliers
3.To create human relations
4.To create good atmosphere
 5.To ensure stability of service

A.Economic objectives:

 To earn profit: The main and primary objective of

business is to carn profit. It is the economic
objective. There is no business organization in the
world without profit earning objective. If there is no
chance to earn profit, nobody will involve in the
business.
 To invest capital: Another objective of business is
capital investment. Assets are increased by using
deposited money. So businessmen collect all the
scattered smal! deposits, and invest it in the
business.
 To produce products: Another essential objective
investments, our homes o of every business is to
produce goods and services. Thus business fulfills
 the demand of human needs. Business is
established to fulfill the demand of human beings
producing various goods and services.
 To utilize wealth properly: The proper utilization of
wealth is defined by business. Natural wealth is
collected from nature and by the formation it is
made useable. These processes are done by the
business.
 To create customers: Selling the product to the
customer is another objective of business. Every
specific job or task. organization search customers
to sell their products. Advertisement and publicity is
the main method which is used to create the
customers.
 To use manpower properly: Manpower is the
important element of business. Labor is used to
produce and distribute products and services.
Business is always alert to utilize the manpower
properly by keeping them busy in production of
goods.
 To conduct research and innovate new product:
Innovation of new product and the improvement of
product are made by research and innovatiye
activities, Every businessman tries to produce new
 product and services for the customers. This work is
done through the research and the innovative
activities.

 To keep stability and progress of busines: The

objective of every business is to ensure the
existence and the consistent improvement. Profit
earning motive is not only the objective but also it
has the motive to improve and develop the
organization for the existence in the market.

B. Social Objectives: A business has some social

objectives. As such social objectives of business are
described below:
 To deliver services: The main social objective of
business is to fulfill the demand and want by
producing and delivering the products at
reasonable pricé. Businessmen also maintain the
quality of producers want to sell to the products
and services is the social objective.
 To create employment: Through the business
new scope of employment are created. It is
another social objective of business. Businesses
 employ many employees for producing and
distributing the products. As a result unemployed
employees get the employment
 To develop living standard: Another social
objective of business standard of the people by
producing and distributing services. their
necessary products and services. As a result tneir
living standard is improved
 To maintain actual income on investment: It is
the social responsibilities of business to maintain
the interest of the investors. Business ensures
that the investors get proper interest. It is a social
objective of business.
 To abandon anti-social activities: Only profit
earning is not the motive of business. Anti-social
activities such as theft, black-marketing,
syndicating availability of essential social etc,
 6. To participate in welfare activities: Business
takes part in various welfare activities such as
forestation, education, religious institution,
hospital, library, roads, bridge etc.
C. Human Objeetives: Business has some human
objectives. These objectives are described below:
 To do justice to labors: Human resource is one of
the main elements of business It has to ensure
proper salary or wages for them. Businessmen
should take care about their workers according to
the rules regulations and humanity
 To pay the fair value of raw-material
supplier:Every organization needs the raw
materials for producing products. These raw
materials, elements and scrvices are provided by
the suppliers. So the businessmen should pay
sufficient payment to the suppliers.
 To create human relations: Human relation is
very important for all the organizations. Now-a-
days business activities are made to create a
good relation goods and services produced
among the people of the various stages. Peoples
of societies are involved with the business.
 To create good atmosphere of work: Good
wages. profits, rents, interest, working
environment helps to increase productivity. So to
create good atmosphere of work is treated as an
objective of human in business. Good
atmosphere of work increases the job satisfaction
of the workers.
  To ensure stability of service: To get security is
one kind of motivation of the employees.
Businessmen try to give security of service to
motivate them. As a result productivity will be
increased. So it is one of the human objectives of
the busines
 To take initiatives of workers welfare: Workers
welfare is the human objective of business.
Businessmen always ensure a standard life for
the employees and give some incentives for
them. As a result they are motivated and do
more and more works.
D. National Objectives: Business has some objectives
to contribute the nation Such as improvement of the
economic condition of the country, development of
the agriculture and the industry, increasing
production to remove the poverty, reducing
unemployment, development of living conditions,
distribution of income and assets etc. Business tries to
achieve the objectives by keeping the national
interest. Such objectives are given below:
 To strengthen of economic structure:
Strengthening the economic structure is one of
the national objectives of business. Natural assets
 of the country and the manpower are used by
the business to produce the goods and distribute
services. So business plays a great role to
strengthen the cconomic condition of the
country.
 To increase national income: Business activities
are increased by production and distribution of
goods and services. As a result taxes are
increased and national income is increased
 To distribute income and wealth properly:
Business ensures the proper distribution of
income and wealth by its activities. It is a national
objective of business. Proper distribution of
income and wealth whole nation will be
benefited.
 To remove unemployment problem: By
increasing business organization employments
are created. Unemployed workers get
employment. Creation of new employment for
the unemployed employees and removing
unemployment problem is a national objective.
 To protect the state: Business organizations
strengthen the state by producing various
protective products that play a great role to
 protect the people, such as- medicines. Through
the business activities of organizations different
protective products and services are imported for
increasing living standard of people.
 To be refrained from anti-national activities:
Business organization is refrained from any type
of anti-national activities. Because any illegal
activity is not treated as business.

Other objectives
Business organization has some other objectives
such as social achievement, to serve the people. to
control the political issue of the country, to increase
the recognition etc. Businessmen want to achieve
these objectives which are important for the
business and the country. Business enterprise
which makes distributes or provides any product or
service which is needed other members of the
community, And business transactions are
essentially measured in terms of money.

12
1.8 Functions of Business
 Business means an enterprise engaged in the production
and distribution of goods for sale in the market or the
rendering of services to the client. The functions of
business as follows: 1. Planning 2. Production 3.
Purchase 4. Sale 5. Warehousing 6.insurance 7.Products
grading and standardization 8.Market research
9.Advertisement and publicity 10.Personnel function
11.management 12.Financing 13.Accounting
14.Distribution 15.Forecasting
1. Planning: The function of business is to make a plan
for production, distribution and investment. Planning is
essential for he every kinds of activities. Without
planning any business organization can not achieve
objective of the organization.
2. Production: Production or creating utility is the
primary function of the business. By producing goods and
delivering services business organizations try to fulfill the
needs of the people. In economics every type of activity
which is related to create utility is called production.
3. Purchase: To continue the process of production
businessmen purchase or collect raw-materials from the
suppliers from home and abroad. They have to buy
various machinery and other materials.
4. Sale: Sale is the basic function- of business. Sale
means transfer of the ownership of goods and delivery
services to another person. Sale is not limited to the
transfer of goods and services,
5. Warehousing: Warehousing is a great function of
business. Raw material finished goods, semi finished
goods are kept in the warehouse. Sometimes sales
delivery of products are not made at the just time. So it is
needed to keep the product un the warehouse.
13
6. Insurance: Insurance is an auxiliary function of
business. Through the insurance the risk of business
Snapshots, is reduced. Future is always uncertain.
Uncertainty and risk are existed in business.
Businessman can reduce his risk by insurance. In
business there are many types of risks such as
deflation, price falling. fire and accident etc. So
businessmen can take insurance policy such as fire
insurance policy .
7. Products Grading marketing requirements. Grading
means to classify the products according to their
criteria, quantity, value put nature standardization
means to according to divide the product 0f the
 quality. Grading and standardization are very useful
function of business.
8. Market research: To increase the sales and to
Advertisement- increase the efficiency of sales market
research is essential. By market research businessmen
get the information about the customers' need.
demand, purchasing power, expectation. expansion of
market etc. To exist in the market every business should
conduct market research.
9. Advertisement and publicity :Business organization
makes advertisement and publicity to create the
customers and to retain the custom long time. Every
business organization makes aware to the customers of
their products and the services and informs them about
the shape, size, color, quality and price of the
production.
10. Personnel function: Personnel are the main
workforce of the business organization. Business
organizations collect the employees, train the
employees, motivate the employees. and give various
facilities for the employees to conduct the business
activities property.
11. Management: Management is one of the important
functions of modern business, Management is the art of
getting things done through the effort of other
Management means to make planning, organizing.
directing controlling and adjusting to achieve the
organizational goals efficiently and effectively
12. Financing: Financial support is the backbone of a
business To establish the business organization and to
carry out the business capital is necessary. The existence
of the business depends on the capital of the
organization. In sole proprietorship business the owner
and in partnership business the partners provide the
capital but in Joint Stock Company shareholders provide
the capital and in co-operative organization members
provide the capital.
13. Accounting: Accounting is very important function of
business. The income and the expenses, profit,loss,
economic condition of the business are known through
accounting. Moreover the present condition and the
future condition and the work policy are determined by
the accounting activities.
14. Distribution: Distribution of goods and services is a
significant function of business. To distribute the
products various transportation systems is necessary.
These transportation systems reduce the problems to
distribute the products and the services to the consumer
15. Forecasting: Forecasting is essential for the business
organization. Every business organization has to
forecasts the future demand, future market conditions.
Henri Fayol said. "Demand forecasting is the important
function of management". If the businessmen can
forecast the future correctly, they will be successful in
the business.
15

1.10 Importance of Business

Business is an enterprise that makes, distributes or
provides any product or service which is needed to
other members of the community and they able to
pay for these. The importances of business are as
follows:
A.Economic Importance
B.Social Importance

Economic importance
1..Proper utilization of resources
2. Division of labor
3. Utilization of developed technology
4. Increase government revenue
5. Encouraging savings
6. Capital formation and its proper utilization
7. Growth of personal and national income
8. Development of transportation
9. Development of banking and insurance

B.Social Importance
1 Supply of goods and service
2. Employment
3. Improvement of the living standard
4. Development of efficiency
6. Urbanization
7. Help to industry
8. Development of international relationship
insurance
A. Economic Importance: Business plays a great
role in the economics of the country. Through the
business our economics is developed. Development
of money, utilization of power of the industry,
creation of middle businessmen etc. are performed
 due to the business. The Importances of the
business are given below:
1. Proper utilization of resources: The improvement
of the nation and the country depend on the proper
utilization of resources. Various programs are taken
to utilize the resources properly.
2. Encouraging savings: Business helps to create
investment by bank, insurance and other financing
organizations and collect small savings and utilize it.
So through the business pcople can earn profit.
People are interested to do savings. As a result the
whole investments of the country are increased by
the business.
3. Division of labor: Division of labor is the contribution
of the modern business. For division of labor work
efficiency and productivity are improved. S. P Robbins
said. "Division of labor means the entire job is broken
down into a number of steps. Each step is completed by
a separate individual."
4. Utilization of developed technology: Business
organizations need to take various steps to research and
developed the technology. By using this improved
technology business can invent various new products and
services which are essential for the customer
 5. Increase government revenue :For the advancement
of the business governmental revenue is increased.
Income tax and other taxes increase the governmental
revenue. As a result economic condition is improved and
side by side the country is improved. Then the people
can enjoy those benefits.
6. Capital formation and its proper utilization:
Businessmen collect money from various sources and use
it in the business and create capital. They organization or
the decrease also use the capital and ensure the
development of economics of the country
7. Growth of personal and national income: Generally
business makes profit survival. But for survival it is also
necessary to produce goods or render services. to the
organizations pay income tax, levis and other form of
revenue to the government.
8. Development of transportation: Through the
transportation systems busjness can distribute products
and servičes to the customers. For this reason
transportation system of the country is developed by
both government and non-government organizations.
 9. Development of banking and insurance: The business
can improve by the help of bank; insurance and other
improve the economic activities organization.
B. Social Importance: Business is important for every
society. It plays vital role for the sociely. Importances of
the business regarding society are discussed below:
1. Supply of goods and services: Business supplies
various goods and services to fulfill the demand of the
consumers. People can consume their necessary goods
and services from business.
2. Employment: Business creates employment for the
unemployed people vasthy Industries are increased by
increasing the business activities then the unemployed
persons get the chance to work in the business
organızation. As a result unemployment problems are
reduced.
3. Improvement of the living standard: Business is very
helptful to improve the living conditions of people.
People earn their livelihood by involving themselves in
business. As a result purchasing power of the customers
is imcreased and the living condition of the people is also
improved.
4. Development of efficiency: Now-a-days the economic
development of the country depends on the efficient
entrepreneurs and businessmen. Through the business
efficient managers and employees are ereated. Our
society and the country are benefited by these efficient
management and businessmen.
5. Assistance in expansion of education, culture and
industrial arts: The industry is expanded for the
expansion of the business. Education. culture, industrial
arts are developed by the businessmen directly or
indirectly. For example. our industrial organizations
establish various educational and cultural organizations.
6. Urbanization: Business helps to make the rural area
into the urban. The places where industries are
established provide various facilities such as improved
transportation system, employment. other facilities etc.
For this reason people create a society that creates
urbanization.
7. Help to industry: People can earn profit through the
business easily. For this reason people are very much
interested in business. In the industr people can use the
resources properly and create a good peaceful society.
 8.Development of international relationship: The
products and the services of one country are exported to
another country by making good international relations.
International business relations will depends on labor,
specialized production and activities business.

1.12 Scope of Business

Business includes industry, commerce, aids to commerce
and direct services. These are also treated as
classifications of business.
1.industry:Industry is concerned with the production of
goods and commerce is involved with the distribution, of
produced product.The process of extraction, production,
conversion, processing, and fabrication of products are
described as industry. These products are sold either for,
further transformation into finished goods or for ultimate
consumption.
Tvpes of Industry
i) Primary Industry: Primary industry are two types
a)primary Industry: Extractive industries are
engaged in supplying commodities which are
extracted or raised from the earth, sea and air with
 comparatively small help of human being. The
products of such industries are generally used by
manufacturing and construction industries for
fabricating finished industries are fishing, mining.
agriculture etc.
b) Genetic Industry: Genetic industries are
industries which, though dependent upon nature,
require a greater application of human skill in their
production. The enterprises engaged in agriculture,
forestry and fish culture are examples agriculture is
dependent upon the nature and quality of the soil
and climatic condition, yet success in this line will
very much depend upon the application of human
skill and knowledge.
18

19
ii)Secandary industry: secondary industry are three
types-
a) Manufacturing industries:These industrics are
concerned with the working of raw materials or
semi-finished materials into finished products.. That
means material is converted into semi- finished or
 finished products. For example; steel. mills, spinning
and weaving mills textiles mills. sugar mills ete.
b) Service industries: Service industries are involved
with proving service of professionals. For example:
lawyers, doctors. Teachers etc

1.18 Problems of Business in Bangladesh

There are many internal and external problems, of
business in Bangladesh: For these problems we are
loosing great prospect in business sectors. The problems
of business are given below:
Internal problems of business
1. Lack of efficient entrepreneurship and management:
In Bangladesh entrepreneurs and managers are not
efficient in the modern functions and dimension of
business. Mostly they are in capable to generate new
ideas. Most of Entreprencurship them have no
experience and organizational education on modern and
competitive global business
2. Limitation of capital: Bangladesh is still not a
developed country. So collection of capital is creating
barrier for establishing and running the sharing business
perfectly, Most of the capital which is used in business is
collected from the bank, insurance, leasing company and
foreign country.
3. Limitation in transportation and communication
system: Our communication and transportation systems
are not so good which can be supported the business
properly. The entrepreneurs cannot communicatc with
customers of the remote corner of the country easily. It
is a major problem for the development of business
23

4. Insufficient assistance of government: Business

sectors need the assistance of the government and
governmental institutions but they are very unaware
about business sector in Bangladesh such as helping in
sufficient gas, oil, electricity. constructing transportation
systems, maintaining laws etc.
5. Corruption and mismanagement: Corruption is one of
the major problems in cach and every sector of
Bangladesh. Mostly business is suffering a lot by
corruption. Administration of our country is affectotl by
corruption and mismanagement which affect the
business directly and indirectly. Managerial knowledge of
the managers of the organizations is very poor.
6. Crime, political inconsistency and strike: Generally the
political condition of Bangladesh is very unstable. So the
company cannot do their activities properly. The foreign
counties are not interested to transact with our country
which hampers the business badly. Besides crime, strike,
hartals are very common affairs Bangladesh that affect
the whole country.
7. Lack of knowledge on customer service: In
Bangladesh customers are not treated as an important
factor. The organizations do not think about betterment
of customers. Without thinking the condition of the
customers they'increase the price and decrease the
quality of the products and services.
8. Low quality of the products: In our country there is
no standard grading system of the products. So the
customer cannot assume the quality of the products."
Moreover for unimproved transportation system,
miscommunication system, unawareness of the
customers ete are liable for the low quality of products.
Some companies follow the grading system but lack of
proper awareness the customers.
Problems in external or foreign business: Not only the
internal business but also the foreign business of
Bangladesh has some problems which are as follows:
1. Lack of efficient exporters in Bangladesh.
2. Lack of industries which can export the products
3, Inability to compete with the international
competitors.
4. Lack of confidence of the importers.
5. More dependency on the garments industry,
6. Problems of late shipments of the products.
7. Problems of the quality of the products and
packaging.
8, Corruption and inefficiency of the related organization
of export and import.
9.Lack of proper promotion systems of the imported
products.
10. Lack of backward and forward linkage to expand the
exporl.
11. Political instability, crime and other problems.
12. Laek of assistance of the government and the
government institutions.
Future Prospect of Business in Bangladesh: Bangladesh
is glorious prospective O business in future. Expansion of
branded products, retail sales price determination
packaging, modern technology utilization, direct
marketing etc. steps of wholesaling anc retailing make
easy to expand the activities of business to the
customers. Transportation systems, electricity, banking,
insurance, warehousing, advertisement will help to
improve the conditions of the business in Bangladesh.
The purchasing power of the people of our country is
increasing day by day. So the scope of business is
developed Business sector tries to reduce the
dependency on garments industry and tries to search
new market for it It tries to export in Japan, Russia, and
Australian market.

Chapter 07
Sole Proprietorship Business

7.2 Definition of Sole Proprietorship Business

A Sole proprietorship or one man business is a form of
business in which an individual produces independently
with his own capital. Skill and intelligence is entitled to
receive al the profits and assumes all the risks of
ownership. Where a business undertaking is owned and
controlled by one man with or without the help of his
family members or a few employees. We can say this
business is one man business and the owner is
commonly called the sole proprietor or sole trader.
Some scholars' definitions are given below:
1. Koontz and Fulmer: "A Sole trader is a person who
carries on business exclusively by and for himself"
2. B.O Wheeler: "Sole proprietorship is the form of
business ownership which is owned and controlled by a
single individual,"
3. R.M Hodgetts: "A sole proprietorship is a business
that is owned and controlled by a single individual.
4. David said: "A sole trader carries on business for his
own profit bearing all risks"
5. S.S. Sarkar: "A sole trader is a person who sets up the
business with his own resources manager of the
business himself".
 6. M.C. Shukla: "A sole proprietorship is a form of
organization in which an individual provides
independently with his own capital, skill and intelligence
and is entitled to receive all the profits and assume all
the risk of ownership
7.4. Benefits of Sole Proprietorship Business
To identify the benefits of the sole proprietorship
business, A. Jonne Samson and Mogill said, "The sole
proprietorship satisfies perhaps best of all forms of
business organization, he major incentive for a person
business to go into business or him
General Advantages of sole proprietorship The
principal advantages of sole proprietorship organization
re as follows:
1. Easy formation: An individual enterprise is easy to
form and simple to run. No legal formalities like
registration, clearance to start are required to set it up.
Any person can engage in such a business, in anytime.
The only restriction is that if he wishes to start certain
types of business like, he will have to obtain a licence
2. Direct motivation: personal interest in the business
which makes efficient and economy of owner. The direct
relationship between effort and reward acts as a
stimulus to maximize profit for a sole proprietor.
3. Complete degree of control: The owner of a sole
proprietor is the sole master; he has complete
controlling over his business. He is not responsible to
anyone else actually no problem of coordination arise
his own decisions that will make for re- conciliation of
the various interest of the firm.
4. Promptness in decision making: Promptness in
making decisions helps to increase efficiency. A sole
trader being the supreme judge and reget a make a
prompt decision and thereby take advantage for gaining
maximum profit
5. Maintenance of secrecy: Secrecy is the vital factor for
the success of a sole proprietor business. And sole
owner is in an eminent position to keep his affairs to gi
himself as there is no legal obligation to supply any
information regarding his t made by. him.
6. Catering for individual tastes: Sole trader is in a
position to be in close to with his customers and to
provide for their individual tastes. This helps hi build up
goodwill for.himself, The individual owner flourishes in
all enterprises where the personal element is important.
Social Advantages of sole proprietorship The
Sociological significance of sole proprietorship in the
form of a small shop consents in rendering some
important, may, indispensable services to the
community and at the same time providing the basis of
independent livelihood.
1. Independent way of life: The form of organization
provides a way of life for those who take pride in to
wownership and control of what they own such anti
persons are obviously of independent spirit and would
not care to serve under others.
2. Generation of social virtues: It affords a form of life
and work which permit a mutan high degree of self-
determination. The enjoyment of purposeful work, the
worth of social contact and a well-integrated family and
respectable life. It also develops tie qualities of self-
reliance responsibility and initiative which are of great
social doimportance.
3. Diffusion of business ownership: As under this form of
organization, very small number of people must own and
manage vast number of business units; speca one is
owned and controlled the business.
7.5 Demerits of Sole Proprictorship Business
1. Limited amount of capital
2. Limited management ability
3. Unlimited liability
4. Uncertainty of continuity
5. Lack of advantages of large scale organization
6. Poor management system
7. Limited opportunities for the employees
8. Autocracy
9. Limitation of personal capacity
10. Lack of social reputation
The demerits of sole proprietorship business are
discussed below:

1.Limited amount of capital ; The first limitation of sole

proprietorship is the limited amount of capital. The
amount of capital of a sole proprietor is very limited
which may not conduct the business perfectly.
2. Limited management ability: An individual, despite
being capable, cannot be expected to possess full
knowledge of all branches of a business. Since being
alone he has to put on his fingers on everything.
3. Unlimited liability: The liability of the proprietor is
unlimited. It is not only the assets of the business that
are liable, but also his entire personal fortune for the
debts of the business.
4. Uncertainty of continuity: It is difficult to maintain the
sole proprietorship business permanently. When the
proprietor dies or is no longer be able to run the
business, the business may come to an end if there is no
one to take his place.
5. Lack of advantages of large scale organization: The
amount of capital that a sole proprietor gets together
must be limited. As a result, he cannot expand his
business when it is necessary to take advantage of
economies of large scale operation.
6. Poor management system: The owner is the manager
of the sole proprietorship husiness. Most of the time it is
seen that the owner is not efficient about managerial
knowledge. Sometimes he takes wrong decision which
increases the ost of production and decreases his profits.
7.Limited opportunities for the employees: Most of the
cases, the owner of sole proprietorship is conducted
business individually. The amount of capital of sole
proprietorship business is very small. So the owner
cannot provide various opportunities tor the employees.
As a result, employees want to turnover to another
organization.
8. Autocracy: In sole proprietorship business, owner is
the person of every authority. So he has the supreme
power to take any kind of decisions. Sometimes he may
make wrong decision. Then nobody may advise him. He
plays an autocratic role that may be harmful for the
business .
9.Limitations of personal capacity: The owners do not
possess full knowledge of all branches of a business and
are bound to waste his energies in doing all activities
vhich could best be left to others in a partnership or a
company. As a result, it is not possible to conduct the
business properly for limitation of personal capacity
10. Lack of social reputation: Since sole proprietorship
business has no legal entity, the owner has less social
reputation. Sometimes people do not accept this type of
business very positively

7.6 Importance of Sole Proprietorship Business

 Every country,of the world depends on sole
proprietorship business to improve its economic
condition, People can start this type of business very
casily. Now-a-days about 5%% of business organizations
of the world are conducted as like the sole proprietorship
category of business.
The demerits of sole proprietorship business are
discussed below:
1. Maintaining of livelihood: To conduct sole nandhots
proprietorship business, the owner does not need
more capital and employees. As a result, people can
establish this type of business anywhere of the
country and can carn their livelihood easily. Sole
proprietorship business spreads very quickly all over
the world with creation of self employment.
2, More service render: Sole proprietorship business
renders various services for the society. People can get
their daily necessaries in their nearest places by sole
proprietorship business.
3. Proper utilization of resources :sole proprietorship
business plays a great role to utilize the natural
resources properly. Sole proprietorship business
supplies raw materials to the industry for creating
utilities.
4. Greater distribution of goods: Sole proprietorship
business helps to distribute the goods and services to
the consumers. By using this channel, producers of the
goods and services can distribute their products to the
desires consumers.
5. Creating demand of the goods: To create demand of
the goods, sole proprietorship business plays an
important role. Normally sole proprietorship business
sells the products to the consumers. As a result, a
direct relationship between the businessman and
consumers-is established.
6. Financial facilities: Sole proprietors sell their
products by overdue to the customers. Sometimes
customers buy the products on due and pay the bill
monthly. As a result, customers become beneficial by
the sole proprietor.
7.Employment: Sole proprietorship, business is a great
source of employment. Approximately, 85% of the
people of a country are involved in this type of
business. The Owners and the employees can earn
their livelihood by this business. For this reason
unemployment problem is reduced through sole
proprietorship business.
8.increasing national income: The owner of the sole
proprietorship business not only earns his own income
but also increases the national income of the country.
Sole proprietorship business plays an important role in
increasing the national income of the country.
9. Enhancement of social status and dignity: By
forming and conducting the sole proprietorship
business the owner of this business increases his assets
and his living condition is also increased. As a result,
his social status and dignity is also enhanced.
10. Adjustment with the changing demand: The
owner of the sole proprietorship business knows the
demand of his customers. So he can change his
business easily according to the demand of his
customers. As a result, customers casily get their
desired products or services from sole proprietorship
business.
11. Proper field of training: To be a good businessman
one person needs a proper field of training. Sole
proprietorship business is a platform from where the
people can learn or gain experience about business.
7.7 How to Start a Sole Proprietorship Business in
Bangladesh
The business which is owned and controlled by an
individual is called sole proprietorship business. The
starting of a sole proprietorship business is depends on
willingness of n owner. A sole proprietor needs not to
collect different documents for starting sole
proprietorship business. A sole proprietorship and the
business owner do not have separate existence from one
another. The steps to be needed for starting a sole
proprietorship business are as follows
Step 1: In the first step, the owners try to select name of
the business. Sometimes name is the important factor
for starting business. In a village of Bangladesh, most of
the sole proprietorship business is starting without
business specific name
step 2: Register the business name with the city
corporation office or taking trade license from proper
authority.some information provided for getting
registration of a sole proprietorship business such as
business name, your name, your address and the
business description. Pay the registration fee which may
vary from village to city of Bangladesh.
 Step 3: The authority need to take few days for checking
and investigating about the information. If the authority
is satisfied then provide license.
step 4: After getting license few business will be started.
Some to get license for starting sole proprietorship
business Bangladesh.
7.10 Suitable Areas for Sole Proprietorship Business in
Bangladesh Because of peculiar features of sole
proprietorship business, as a form of organization is
suitable for and is adopted by enterprise.
A great description of suitable areas of sole
proprietorship business :
1. Business of small capital: The unit of product is low
priced and to conduct the business needs small amount
of capital. That type of business is conducted by the sole
proprietor such as - tea stall and grocery shop, etc.
2. Products of flexible demand: The demand of the
products is changing every time. That type of business is
suitable for the sole proprietors. This businessman needs
direct relationship with their customers. The examples of
that type of business are tailoring, furniture shops etc
3. Professional or service business: The business which is
established and conducted by personal service and
advices is suitable for the sole proprietorship
businessmen such as doctors, law business etc.
4. Seasonal business: The business which is very seasonal
is established by the sole proprietors. Examples of these
businesses are fair and exhibition shops etc.
5. Small business: The area of that business which is
very small is suitable for the sole proprietorship business.
Such types of business are the fartory of creating small
things like toys, dolls etc.
6. Product of local and limited demand: The products
which are low demanded are produced by the sole
proprietorship business. Normally the local people are
the customers of these types of goods and services such
as the shops of fish and vegetables etc.
7. Business of perusable goods: The perusable goods and
the products that are not long time stable are
appropriate for the sole proprietorship business.
Examples of those types of business are fish, fruits, milk,
shops, etc.
8. Direct service rendering organization: The
organizations from where direct services are provided to
the customers are established by the sole proprietor,
such as-tutorial home, barber's shop etc.
9. Business of agricultural products: Normally the busine
ses which are agricultural products based are conducted
by one person.
10. Free attitude: The people who want to carn their
livelihood, freely and feel boredom to work under his
owner involvement in the sole proprietorship business.
11. Business of minimum risks: The businesses that are
little risky but people can earn more profit are suitable
for the sole proprietors these types of business are
business of paddy, rich, flour etc.

7.13 Scope and Prospects of Sole Proprietorship

Business in Bangladesh
It is a common place that single proprietorship
businesses are the most numerous in Bangladesh at
everywhere. Large corporations and companies business
have entered in the field. It is also almost certain that
individual proprietorship is in no danger of being
crowded as like large corporations. The opportunities
offer to a vast number of people through the sole
proprietorship business. It is true that large corporate
enterprises have certain advantages inherent in large
scale operations.
The prospects of sole proprietorship business in
Bangladesh are as follows:
1.Normally, a business is started as a one-man
venture because of the many advantages it offers as
the proprietor makes a success of it and faces with
the problem of expansion. In business of sole
proprietorship, the capital needs not very
vast amount, he wishes to preserve secrecy and family
character of his business he will form a private company.
2. The proprietor is closely in touch with details with the
customers, and results are quickly known, the
advantages of economic viability, direct motivation, and
personal contact inherent in individual proprietorship
sustain one man business along with giant concerns
3. In the field of production, there are certain industries
which can run successfully only on a small scale business.
For instance, industries whose production cannot be
standardized and established which attempt to make
prediction to suit the different tastes of consumers can
best be owned and run by individual proprietors. Such
industries produce customized art goods, handicrafts,
and daintily bound books etc.
4. In Bangladesh the government has been encouraging
individual owners to take up small manufacturing
activities by setting up industrial establish and by
providing training facilities as well as by granting financial
assistance. The National Small Industries Corporation has
been rendering a useful service in 'the direction to
establish and manage small scale enterprises.
5. The vast majority of the service enterprises like
transport and warehousing are normally organized an
individual proprietorship owner. Such as chartered
accountants, lawyers can function as sole proprietors or
partnerships.
7.14 How to Dissolve a Sole Proprietorship Business in
Bangladesh
Step-1: Collecting all moneys owed to the business from
the business from customers and clients Sometimes all
money may not be collected just before dissolution of
sole dissolution of proprietorship business
step 2: Waiting until all receivables are paid, then inform
customers and clients that you will be going out of
business. The owner may inform to other businessmen
for quitting his business. It is polite and good form to
include your contact information and invite clients to call
if they have questions or concerns for the next time.
Step-3: Paying of debt or loans to anothers people of
finicial intitutions.
Step 4: Canceling or simply allow business licenses to
expire. A sole proprietor should have a business license
that is renewed on an annual basis from the city
corporation office
. Step 5: Closing any business bank accounts and bank
accounts that are in your business' name. Pay off and
cancel any business credit cards.
Step 6: Giving the notice to your office's landlord if you
do not work out of your home and pay all required rent.
Step 7: Selling off any equipment that you do not wish to
keep in your hand.
Step8: closing the business.
Chapter 08
Partnership Business

8. 02 Definition of partnership business

Two head is better than the one" is the theme slogan
of the partnership business. To remove the limitations
of the sole proprietorship business, the partnership is
formed. Although it has some liabilities but it is the
group endeavor to establish a legal business entity
among the member
In the view of Act and the authors: In the view of laws
the definition of partnership business are given below:
1. British Partnership Act in 1980 (Sec-1):
"Partnership is the relation which subsists between
persons carrying business in common with a view to
earning profit."
2. Partnership Act, 1932 enforceable in Bangladesh
(Sec-4): "Partnership is the relation between persons
who are agreed to share profit of a business carried on
by all or any of them acting for all."
3. Uniform Partnership Act, Sec-6 (1): "Partnership is
an association of two or more persons to carry on as
co-owners of a business profit."
 4. E. Thomas: "A partnership is an association of
people who carry on business together for the
purpose of making profit."
5. Mr. Pearson: "Partnership is the combination two
or more persons of capital or labor or skill for the
purpose of business for common benefits

After analysing the above definitions it can be said

about partnership business- A person who takes part
in a business or company with shared risks and profits.
(i) Partnership business is the combination of
two or more persons.
(ii) It is formed on the basis of deed.
(iiil) It is regulated by Act.
(iii) It is maintained and run by good faith and
mutual agreement of members.

8.03 Essential Elements of Partnership Business

There are some fundamentals or essential elements to
be needed to form a remains beyond this criteria then
partnership business will loss its existence. As per the
rules and regulations directed from Partnership Act-1932
the following essential elements partnership business. If
any element need to be mentioned:
ESSENTIAL ELEMENTS
 Plurality of Members
 Contractual Relation
 Legal Business
 Earning and sharing of profit
 Mutual confidence and Trust
 Mutual Agency
 Administration and Management
In the following the above essential elements are
discussed briefly:
1. Legal business: The first essential element of a
partnership business is that the parties must have
agreed to carry on a business. For instance, if the
Purpose is to carry on some heritable work, it will not
be a partnership business. So to become a
partnership business the legality of objectives is
necessary
2. Sharing of profits: The agreement to carry on
business must be with the objective of sharing profits
among all the partners proportionately. Impliedly the
partnership must aim to make profits because only
profits may be divided in according to their share.
3. Mutual agency: The conducting of all activities in a
partnership business as like the mutual agency. The
business must be carried on by all the partners or any
(one or more) of thêm acting for all, that is treated as
mutual agency.
4. Plurality of members: Two or more persons are
needed to form a partnership business. As per the
existing laws of our country the members are limited
within 2- 20 and in case of banking business it is 2-10.
5.Mutual confidence and trust : It is needed to have
mutual confidence and trust among the partners. For
this reason the relation held between partners is
called "utmost good faith.'
6. Contractual relation: Partnership is the result of a
contract. It does not arise from status operation of
law or birthright. This contract may be oral or written.
7. Administration and management: All the partners
or acting partner may Administer and manage in a
partnership business. Because they are responsible
for making decision and properly execution of that
decision in a partnership business.
8.05. Advantages of Partnership Business

1. Easy formation: The formation of partnership

business is very easy. Two or more person firm all
partnership business according to general rules and
regulations.
2.Distribution of risk:under the partnership business,
all the partners bear the risk equally so that the risk
can be minimized. Condition are applied so that
partners will get the profit and loss to take the risk
whether business makes profit or loss
3. Efficient administration: The combination of
expenses need skilled person lead partnership
business with a new horizon and there upon the
business managed efficiently and objectives are
fulfilled casily.
4. More capital: More partners invest capital to a
great extent upon the collection of capital is possible
easily. Most of the time, the amount of capital can be
increased admitting new partners in business.
5. Collective decision: One point to refer that
"collective decision is much better than single
decision". Besides any decision made by partner with
receiving from all partners' advice is fruitful to
strengthen and implement that decision."
6. Collective interest: Every partners work firmly for
achieving business objectives. It is happened due to
collective interest of partners in business.
7. Economy: This type of business reduces wasting
time and delivers economy to handle it effectively.
Partners engage themselves in different sectors. As a
result they try heart and soul to achieve pre-
determined goals.
8. Maintenance of secrecy: Maintenance of secrecy
of partnership businesses is possible due to limited
members and all partners belonging to promise to
the main secret in all activities.
9. Ease of dissolution: There is no legal complexity of
dissolution of the partnership business. All partners
are making decision to dissolute it without facing any
difficulties.

8.06. Disadvantages of Partnership Business

1. Unlimited liability: The liability of a partnership

business is not limited up to the investment of
partners. Because the 'personal property of a partner
is liable whenever the partnership business will be
bankrupt. For this reason the liability of a partnership
business is unlimited.
2 Lack of Stability: Partnership business is easy to
form and easy to dissolute. This is true that the
successful working of a partnership business depends
on mutual trust and confidence. In case it doesn't
demonstrate these then the business will no longer
be existed
3. Different opinions: A proverb is, "Many men many
minds." Sometimes different opinion may create
problems in a partnership business.
4. Lack of public confidence: Public confidence is not
confirmed towards the partnership business because
there is no government or legal obligations without
registration of partnership deed.
5. Restriction on transfers of share: Without consent
of all partners, the shares of partnership business are
not transferred. As a result, many people have
negative attitude towards the partnership business.
6. Mismanagement: All partners have equal rights to
lead the business. For this reason, the disorder and
decline can easily be possible in terms of
management.
 7. Unable to hire expert employee: Sometimes with
the complain of other partners, a partnership
business is unable to hire expert employee then it
becomes quite difficult to run the business.
8. Inexpert management: Many partners leads the
firm without maintaining rules and regulations or
having proper managerial knowledge but try to do
illogical interference, complexity of handling and
many other issues whicn stands as a bar to continuing
the business.
9. Lack of separate entity: Partnership business has
no separate entity but the entity carry the identity of
business.
10. Limitation of expansion: Limited members,
inadequate capital, inefficiet management make
restrict the expansion of partnership business
properly
8.07.Formation of Partnership Business
Partnership business deals with earning profit taken by
partners equally or as par the condition of partnership
deed. The formation of partnership business is not as
difficult as it management under the legal formalities
closely. The registration of these sorts of firm not
mandatory. But deed formation is mandatory. The
system and procedure for forminga partnership business
are as follows:
1. Initiating more than one member: Partnership
business is an association of mon than one member,
termed as progressive business organization. The
minimum members are 2 and the maximum are 20, but
in terms of banking business it is 10.
2. Making contractual relation: Partnership is the result
of a contract. It is handled and maintained by association
of members on the basis of deed.
3. Registration: The registration for it is not mandatory
as per the Partnership Act 1932, In case, it is done the
business as well as partners will get extra benefit and the
silent benefit is acquired by the public who laid their
confidence in business.
4. Collecting license: After completing the registration
related activities, this is needed to collect license from
specific authority of government. The license is collected
from union-parished or city corporation or related
department of government on the basis of category
business. For import-export business, travel agency
business the license is collected from import-export run
office and government and parjatan department!
respectively.
5. Starting business: After completion of the above
whole formalities partners can start real business as a
whole. Here real business means; production, trading
and servicing for earning profit. Indeed the real activities
of business start this level or point.
8.7.1 How to Form a Partnership Business in
Bangladesh
A business partnership is an agreement between two or
more individuals to operate a business jointly, Partners
are responsible for the other partner's business actions,
as well as their own. To form a business partnership:
1. List the amount of equity to be invested by each
partner.
2. Determine how the profit or loss will be divided among
the partners.
3. Establish compensation levels for each partner,
including when the compensation will be given and any
restrictions that might affect that compensation.
4. Set guidelines for how the business will be modified or
dissolved should one or more partners wish to end the
partnership.
5. Define procedures for settling any disputes which
might arise.
6. Determine who has authority for which expenditures
and how expenditure decisions are to be made.
7. Develop procedures to follow in case of death or
incapacitation of a partner.
8. Write and sign an agreement detailing the responses
to the questions above.
9. A general partnership can be formed simply by an oral
agreement, but a legal partnership agreement drawn up
by an attorney is highly recommended.

8,10, Contract is the Essence of Partnership Business

1. Inherent right: If the son becomes the owner of a firm
after the death of his father, he leads if he gets profit as
per inherent rights. Although for that moment he seems
to have been partners of business but in reality which is
stated by partnership act that he can't be a partner of
partnership business. The business has not been
maintained by under contract relation.
2. Retired partners: When the retired partners take a
leave from partnership business he may keep his capital
in business and get profit as usual. After leaving from the
firm the contract relations finish to exist. Although he
gets the portion of profit but he will not be considered as
a partner of partnership business.
3. Hindus joint family business: Generally, Hindus Joint
families do business mutually and distribute acquired
profit among them. As it is mot the result of contract, so
it can't be said a partnership business.
4. Family relationship: Particularly the inheritors avail
the portion ef profit after the death of any partner.
Despite they get the portion of profit but are get to
consider partner they partnership deed.
5. Designation: deed arises from contract not from
designation. If any partner gets the benefits from firm
after investing goodwill that firm on the other hand he
will not be treated inclusive partner since no contract
with him is held in earlier.
6. Social position: If a number of artists acquire income
from showing exhibition socially then it can’t be said
partnership business because no contract is signed
among them.

8.16 Right of Partners

Partnership business is formed and managed by
partnership Act 1932. That Act defines the following
rights of partners:
1. Right of expressing opinion: Every partner can their
opinior frequently and participaie in handling the
business as a whole [Sec. 12 (a)]. But limited partners
can't participate in handling business.
2. Righ.t of consulting: Every partner has a right to
consult and hear before taking any decision [Sec. 12 (c)].
3.Right of accessing to books: Every partner has right to
have accessed to and to inspect and to copy from any of
the books of accounts of the firm [Sec. 12 (d)
4 Right to share the profit: Every partner has a right to
share in the profits earned by the firm. This is depends
on the amount of capital contribution to the business, ot
[Sec. 13(b)].
5. Right to take interest on capital: Where a partner is
entitled to take interest on capital subscribed by him,
such interest should be payable only out of profits [Sec.
13(c)].
6. Right to interest on advance: When a partner
provides any payment or advance beyond the amount of
capital for the purpose of business which is agreed to
subscribe, he is entitled to take interest at the rate of six
percent per annum. (Sec. 13 (d)]. ES
7. Right to indemnity: Every partner has a right to claim
indemnity from the firm in respect of payments made or
liabilities incurred by him [Sec. 13(c)].
8. Right of retirement of partner: Any partner has the
right of retirement from business as per deed [Sec-32(1)].
9. Right to act as an agent: Any partner act as an agent
on behalf of all partners or the partnership business
[Sec.18, 19].
8. 19. Who can be a Partner?
If any partner has the capability to do a contract as per
laws and regulations he can be a partner of partnership
business defined by partnership Act in 1932 prevailing in
our COuntry are those of the person and institution who
can't be a partner as per act are given below:
1. Person of unsound mind: The partners should have
a sound mind. Person of unsound mind can't be a
partner in a partnership business as per Partnership
Act 1932.
2. Minor: Minor can't be a partner in partnership
business as he has no ability to do a contract with
othef partners.
4.Company: A limited liability possessed by Joint Stock
Company can't be a partner of partnership business.
4. Foreign sovereign or ambassador: The foreign
sovereign or ambassador can't be a partner.
5. Alien enemy: Any alien enemy can't be a partner in
partnership business.
6. Corporation: Any artificial possession oriented
corporation can't be a partner in partnership business.
7. Convicted person: Any convicted person can't be a
partner in partnership business.
Chapter-9: Joint Stock Company: Its Nature and
Classification
Chapter 09
Joint Stock Company:Its Nature and Classification

9.02 Definition of Joint Stock Company

When some people voluntarily construct an
organization by investing their money for the purpose
of earning profit according to the rules and regulations
of the respective country is called Joint Stock
Company.
There are some important definitions of the joint
stock company given below:
1. Companies Act- 1994 Section 2 (1)(H): "Existing
Company means a company formed and registered
under any law related to companies in force at any
time before the commencement of this Act, and is in
operation after commencement of this Act".
2. According to the Indian Companies Act- I1956:
"Company refers to the mutual organization of some
people where they invest their money or valued
property in order to earn certain destination"
3. Justice Marshall: "A corporation is an artificial being,
invisible, in properties tangible and existing only in the
eyes of the law. Being a mere creature of law, it
possesses only those which the charter of its creation
confers upon it, either expressly or as incidental to its
very existence."

9.03 Essential Elements of Joint Stock Company

Joint Stock Company is a legal and invisible artificial
being created by Jaw. It has some vital components
that give it separate life and utmost position. These
important components are placed below:
1. Voluntary organization: Joint Stock Company is the
voluntary association of persons established for profit
motive. Some people willingly attempts to formation of
the private for construct it. For company, there must
be at least two & maximum fifty members needed,
while in public company, minimum members are seven
and maximum are determined by the number of
shares.
2. Artificial personality: A company is an artificial
person and has a legal entity quiet distinct from its
members or owners. Even though it has no natural
personality, it has legal personality. Like that of the
human being, it can own property, incur debts, file
suits, and enter into the contracts with others under its
own name.
3. Perpetual succession: The Company enjoys
perpetual succession, which means a continuous The
liability of a member or existence. Since the company
has a separate existence from its members, directors
and employees, their death, insolvency or insanity will
not affect its life and existence men may come and a
shareholder is limited to the extent of the face value of
shares held or the amount guaranteed by him. men
may go but a company remains forever.
4. Limited liability: The liability of a member or a
shareholder is limited w extent of the face value of
shares held or the amount guaranteed by him. Where
company, his total liability does not exceed the face
value of his shares.

9.04 Features of Joint Stock Company.

A.General Features of Joint Stock Company
B. Legal Features of Joint Stock
A.Ggeneral features of joint stock company
1. Voluntary Association
2. Complicated Formation
3. Large Scale Enterprise
4. Professional Management
5. Democratic Management
6. Huge Capital 7
. Tax Payment
8. Winding Up
B.legal features of joint stock company
1. Share Capital
2. Number of Shareholder
3. Limited Liability
4. Perpetual Succession
5. Common Logo
6. Law Created Concern
7. Corporate Artificial Personality
8. Statutory Responsibility
 Common/General Features of Joint Stock Company:
Voluntary association: A company and incorporated
under the existing law. Few people willingly can
collectively construct a company. They voluntarily
contribute money or money's worth to a common
stock.
2. Complicated formation: The formation of a joint
stock company is. very complicated process as it
requires fulfilling strict legal procedures. Only when It
gets certificate of incorporation it comes into existence
as a company. is a voluntary association of persons
formed.
3. Large-scale enterprise: Basically Joint Stock
Company is a large-scale enterprise because of its huge
capital collected from its huge members. Because of
more members, a company has larger ad
proprietorship larger and partnership which helps it
grows as a capital with compared to sole scale
business.
4. Professional management: The company appoints
experience, competent . Their services lead to
managerial and administrative efficiency and accuracy.
5. Tax payment: Joint Stock Companies face double
taxation rules pay double taxes to the government.
One is by paying tax out of the profit of the company's
revenue. The other is being applied on the personal
income of the share holders.
6. Winding up: A Joint Stock Company can be winded
up by law according to the section 155 [1]. This
winding up may be occurred through the court or
under the court or by the company alone voluntarily.
B Legal Features of Joint Stock Company:
1. Share capital: The capital of a company is divided
into shares of small quantity which are readily
transferable from one owner to another without much
formality. The member who holds the shares of a
company can transfer its cwnership any other person
without the company's permission.
2. Members of shares: Number of share of Joint Stock
Company has determined by law. In this regard, the
members of private limited are at least 2 and at most
50 and in case of Public Limited Company the lower
bound is at least 7 and the highest bound is
determined according to the number of shares
3. Limited liability: The amount of liability of the
shareholders in confined in their purchased amount
share only. Their personai properties cannot be seized
to meet the company's liability beyond the other forms
of business.
4. Perpetual succession: As the company has got
distinct artificial personality created by law, it may
never be disorientated even if there is any change in
the company. In other words, its existence is not
affected by the death, insolvency or retirement of its
shareholders or directors.
5. Common logo: Since a company is an artificial
person created by law, therefore, I can not sign
document for itself. Every Joint Stock Company has its
own logo o seal that gives it a distinct familiarity in the
business world which is everywhere as its signature as
a company.

9,06 Advantages of Joint Stock Company

There are many advantages which the company form
of business organization enjoys over other forms of
business. . Let us take a look on those ones are as
follows:
1. Adequate capital
2. Limited Liability
3., Perpetual succession
4. Transferability of shares
5. Efficient administration
6. Balance of power
7.Field of lucrative investment
8. Higher profits
9. Diffused risk
1. Adequate capital: It is easy to raise a large amount of
share as the number of persons contributing to the
capital, except in case of Private Companies, it is easy to
raise huge amount of capital for a Joint Stock Company.
In a public limited company, shares can be offered to the
general public to raise capital.
2. Limited Liability: Liability of members of Joint Stock
Company is limited to only the extent of the amount of
the face value of the shares owned by them. This is an
attractive advantage which drags people to invest in such
company.
3. Perpetual succession: Company has got perpetual
succession by its legal distinctive personality. This
perpetual succession allows it to undertake the big
projects, as its operations are not affected by the death,
insanity or insolvency of any shareholder of the
company.
4. Transferability of shares: In a Joint Stock Company,
particularly the shares of public limited company are
easily transferable. As a result, if a sharcholder wants to
sell his/her shares, he/she can sell it any time (without
any obstacle) by properly following the rules and
regulation of selling imposed by Security & Exchange
Commission (SEC),
5. Efficient administration: The direction of the
operations of the business almost depends upon the
board of directórs. Since the directors of companies are
elected by shareholders.

9.07 Disadvantages of Joint Stock Company

Joint Stock Company has several advantages side by side
it also has some 5abvantages which are mentioned
below:
1. Complexity of formation: Company is a business
organization recognized by law. Therefore its formulation
becomes very lengthy, formal and needs heavy
expenditure for this purpose. For this reason, many
people are reluctant to incorporate ‘this business
2.Bureaucracy: Planning, regulating and decision
making of other aspects comes from directors, it gets
Practiced of salary taken by third party. Therefore
there is a chance of creating a gap between the vectors
and the customers of the products and it is also a slow
process. Management is suffered by bureaucratic
problems.
3.Heavy administrative expense: In a Joint Stock
Company, huge extra expenditure is needed for the
purpose of organizing several activities, practicing
these activities, ensuring the security of goods of ock,
portfolios, documents, auditing accounts etc.
therefore, the net profit becomes decreased and
"ultimately the investors may deprive.
4.Negligence shown to shareholders: Though
shareholders are considered as true owner of the
company .director sometimes prevent their interest and
try to direct the company according to their own
interest.

9.08 Classification of joint stock company

1.Chartered company: Company that has been
constructed by the law of 'Royal Charter' before
formulation and implementation of the Companies Act.
Chartered companies were usually formed, incorporated
and legitimized under a Royal or in Republics, an
equivalent government charter.
2.Statutory company : The Company that is constructed,
functioned or regulated by the parliament of the country
or by the order or special order of the President of a
country is called "Statutory Company'. These Companies
are operated by the laws. For example, municipal
councils, universities, central banks.
3. Registered company: The companies that are
registered or formulated by the regulation of law are
called registered company. Joint Stock Companies ia
Bangladesh are formulated, registered and regulated
with respect to the Companies Act- 1994
These registered companies are also categorized in two
categories that are as follows:
1 Limited liability company: The companies in which
liabilities of the shareholders are limited, is known as
Limited Liability Company. No members of those
companies are required to bear extra liability out of e
face value of their certain shares. In this viewpoint ie
limited liability companies are also classified into as i )
company limited by shares and ii) company limited by
guarantees
i.Company limited by guarantee: A company limited
primarily for non-profit organizations that require
guarantee is an alternative type of corporation used
personality. A guarantee company does not other usually
have a share capital instead of having members who act
as guarantors instead of shareholders.
ii. Company Limited by Shares: Where the members of
the companies are only liable for that range of liability
that is contained by the face value of their purchases
shares. Maximum Joint Stock Companies fall in these
types.
A.Private Limited Company: This type of company can
be formed by at least two individuals having
 minimum paid-up capital, having minimum 2 and
maximum 50 members. They are required to use
*Private Limited' after their names.
B. Public Limited Company: The Company that is being
constructed by minimum maximum according to the
shareholders with limited liability is called public
limited company. This company can raise funds from
general public through open invitations by selling its
shares or accepting fixed deposits. This type of
company is required to write either 'public limited'
or limited' after their names.

i . Holding company: When a certain company buys

all or 50% shares of one or more other companies,
the purchaser company is called holding company. In
Company Act 1994, section 2 [2] is mentioned as 'If
any company holds other company's or companies
half of nominal value of the equities or holds two-
thirds of voting power directly or indirectly of
electing the directors thereby this companies is
being said as Holding Company."
ii. Subsidiary company: It refers to those companies
in which maximum shares, voting power, operating
& regulating power are in the hand of other
company, as according to the companies Act, sec. 2
[2[.
2.Unlimited liability company: This is the registered
company that has unlimited liability over its
shareholders. According to the Company Act, section
5 [c] *Unlimited Liability Company is those types of
companies in which shareholders' liability is not
confined by certain boundary'. That is in spite of
being formulated and regulated under the
Companies Act, the members are individually or
jointly liable to meet up the debt of the business.

d.unregistered Company: Unregistered companies

are those despite of having above 7 members, which
are not registered under the Companies Act 1994 or
under any law before this Act. Eventually these types
of organization are company, In Bangladesh, there
are few companies like not considered or deemed as
this or even none.
e. other companies : Beside the above companies,
iere are some other types of companies as follows:
existing Company: According to the Companies Act
1994, section 2-1 N] 1. "Existing company means
that the company being formed and registered by
 law before adopting the Companies Act 1994 and
exists after adopting the law
Foreign Company: In Bangladesh, Companies Act
1994 mentioned that If any Company is formed and
registered outside the country,. but for the purpose
of 2. nducting business and creating employment,
apply to the registrar with necessary legal
documents and got registration is called foreign
company.

9. 10 Features of Private Limited Company

There are various types of features of Private Limited
Company which are as follows
1. Easy formation. 2. Limited Number. 3. Restriction
Selling Shares 4.issuing prospectus 5.Use of the
word limited 6.Raising capital statutory liability
7.shareholders liability 8.disciplined management
1. Easy formation: There are fewer formalities in
forming a private limited company so its formation
process is quite easy. It can start its business right
after getting the "Certificate of Incorporation' from the
registrar.
2. Limited number of members: The members of
 Limited Company are restricted into minimum 2 and
maximum 50 only
3. Restriction of selling shares: Private Limited
Company is not able to invite mass people for selling
its shares and debentures to them. This is prohibited
in the Companies Act. .
4. Issuing Prospectus: This type of company is not
required to publish statement in lieu of prospectus
or incorporator.
5. Use.of the word Limited': According to the
Companies Act, Private Company must use the
words "Private Limited" at the end of its name.
6.Raising Capital: In private limited company the
amount of capital is comparatively less because of its
limited number of members. As private limited
Company is not being permitted raising capital by
Selling shares, it tries to arrange capital from its
members.
7. statutory Liability: This Company gets facilities în
not making Statement, financial statement by certified
accountant and making audit conducting audit and
inspection etc
 8.shareholders' Liability: Liability of members of
Private Limited Company is members. limited to only
the extent of the amount of the face value of the
shares purchased by them. The shareholders' Liability
is never the same as the partnership business.

9.11 Advantages of Private Limited Company

On the basis of Company Act, various advantages are
found in the private lima companies.
A.Common Advantage
1.Ease of formation 2.Efficient Management 3.Taking
Prompt Decision. 4.Flexible ownership and control
6.Limited liability
B. Legal Advantages 1. Limited Number of Members
2. Commencement of Business 3. Collection of
Minimum Subscription. 4. Appointment of Director 5.
Profit Distribution 6.Reduced Tax Burden
A) Common Advantages: From the above table, we see
that there are various common advantages of a private
limited company which are as follows:
1. Ease of formation: Private Limited Companies benefit
from a quick and easy to set-up compared to the other
companies. To formulate the Private Limited Company,
less social and legal formalities are needed. Only two
members can establish the Private Limited Company
spontaneously.
2. Efficient management: As the management,
marketing, accounting, financing activities directly
practiced by the participation of the owners, its
management is bound to be efficient.
3. Taking prompt decision: It becomes very easy to
reach at any initiate decision because of fewer members
and formalities. It is known to all that prompt decision
making helps the company to progress in a large usually
with interest for its extent.
4. Maintenance of secrecy: As the members are the
owners and directors of such company, it becomes very
easier to keep the secrecy with strong security.
5. Flexible ownership and control: Private Limited
Companies is benefited from flexibility in controlling and
ownership. This is due to the fact that the directors are
also usually the main shareholders of the Company. Thus
both the ownership and control auditors).
6. Limited liability: The greatest benefit of a private
limited company is limited liability, Private limited
companies are treated as a single entity, making
company responsible for all debts. If anything happens to
the company, its members are not personally affected;
members are only liable for unpaid shares.
B)Legal Advantage
1. Limited number of members: The most important
advantage of the Private Limited Company is that its
members are limited. While minimum 7 members are
required to public limited company .private limited
company require only 2 member and maximum is 59
2.Commencement of business: The Company can start
its business as soon as it gets "Certificate of
Incorporation'. It does not need any permission leter to
operate or start the business after 'Certificate of
Incorporation".
3.collection of minimum subscription: According to the
Companies Act, 1994, sec 10L 181, It does not necessarily
collect minimum subscription before distribution of
shares as like as Public Limited Company.
4.Appointment of directors: Companies Act sec 83 [A]
mentioned, Private Limited Company does not
necessarily reform the board of directors. It enjoys much
more freedom in the field of appointing directors and
only two directors are required as minimum to operate
the business.
5. Profit distribution: Profits will be distributed to the
shareholders in the form of dividends. This allows them
to gather the benefit from their investment in the limited
company.
6. Reduced tax burden: Another advantage of private
limited company is reduced tax payment. While sole
proprietorship and partnerships pay income tax, Private
Limited Companies pay corporate tax on their taxable
profits. There are many al'owances and tax deductible
costs that can be offset against the profits of the
company.

9.12 Disadvantages of Private Limited Company

1. Limited numbers of members: The first and most
common disadvantage is i members are limited in few
numbers. As the upper limit is restricted, it create some
disadvantages for the company. Because when the
company needs another or more experienced and skillful
owners, it has no option to expand the business
2. Restriction on transfer of shares: The basic
disadvantage of private limited company is that shares
are not flexibly transferable. The members of private
limited company are not able to transfer the shares
according to the Company Act.
3. Difficulties in expansion: It is not so easy to transfer or
expand the business of private limited company due to
limited numbers of members, small cr shortage of
capital, provision of not to transfer or sale of shares etc.
However the economic growth may also be limited
because maximum shareholders , allowed are only 50.
4. Misrepresentation and fraudulent accounts: As it is
not necessary to publish the financial statement of the
company or other statement to the registrar or public,
there may be chances of making or conducting
fraudulent and misrepresentation in the accounting or
other financial transaction. Sometimes, the accountants
misuse their knowledge and try to show the income
lower to get rid of the tax payment to the Government.
5. Centraliżed authority: As the power and responsibility
of managing the organization is confined into the hand of
few members of board of directors, it 01 Af uni odde
oine officials. creates a centralized system of power.
6. Autocracy & Nepotism: As the management of Private
Limited Company enjo) the supreme power and
autonomy, they often try to influence in critical decisioe
and especially in the recruitment and the subject matters
that related to their OM interest.
7. Small capital: Private limited company is not any large
scale business so usua the amount of capital is not huge
which often stands as a major problem for the persons
concern
9.14 Features of Public Limited Company
In the Companies Act, 1994 section 2 [1] mentioned,
"Public Limited Company refers to that company is
incorporated by this law or by the law being activated in
previous".
1. Formation. 2. Number of Members. 3. Prospectus. 4.
Share capital 5. Transferability of shares The features of
6. Statutory duties 7. Separate logo 8. Limited liability
9. Voluntary association 10. Board of directors

1.Formation:For the formation of such company, there

are some further legal procedure even after getting the
letter of incorporation and certificate of commencement.
2. Number of members: The first and main feature of
Public Limited Company is that has minimum 7 members
and maximum limit is restricted by the number of shares.
If needed, the maximum number of members can be
enhanced by correcting the memorandum of association.
3. Prospectus: This type of company is obligated to
published prospectus or statemient in licu of prospectus
and they are required to send this copy to the registrar.
4. Share capital: The public limited company has share
capital which refers to the funds arrangement by issuing
shares in return for cash or other considerations. The
amount of share capital of a company can change over
time because each time a business sells new share to the
public in exchange cash.
5. Transferability of shares: Shares of a public limited
company are purchased and sold in a stock exchange
market. They are freely transferable between its
members and people trading in the stock exchange.
6. Statutory duties: This Company is also obligated to
arrange statutory board meeting, financial statements,
audit and inspection and send statements to the registrar
etc.
7. Separate logo: The Company has its own separate
logo. The company is obligated to use this logo in its all
types of operations and functions
9.17 Superiority of Joint Stock Company over other
Forms of Business Firm
I. Legal position 2. Liability 3. Capital 4. Research and
development 5. Share transferring ability 6. Ownership
& management 7. Payment of tax 8. Scope of operation
9. Secrecy or privacy 10. Authority
1. Legal position: The succession of the Joint stock
Company is treated as separate and distinct personality
from the owners. It always uses its own logo and
conducts all types of financial transactions by using its
own name. These types of organization can take legal
action against any person or any organization by using its
own name and other organizations also file case against
the respective company by using the legal position of
company
2. Liability: In Joint Stock Company, the liability of the
shareholders is confined by their purchased shares.
That's why the shareholders invest their money with full
satisfaction. On the other hand, the owner of sole
proprietorship and partnership businesses have
unlimited liability
3. Capital: Sufficient capital is the great advantage of
Joint Stock Company. As Joint Stock Company has
perpetual succession, it can raise capital by selling shares
in the capital market up to its authorized capital, The
more capital. the more power Can hold by company in
the competitive market.
4.Research and development: It is much easier to
conduct rescarch program for Joint Stock Company due
to available adequate information. The results that come
out from the research are to help the directors for taking
action to solve the problems. On the other hand sole
proprietorship or partnership is not doing escarch due to
different constraints in the business.
5. Share transferability: The shareholders are being
interested in the shares of Public Limited Company
because they got chance of buying shares at lower price
u selling shares when the price become higher. That's
why Joint Stock Company more popular as compared to
other types of firms
6. Ownership and management: The management and
ownership is separate from one another of the Company.
Shareholders are the true owners of a Joint Stoek
Company, Shareholders can't participate directly in the
management.
7. Payment tax: Joint Stock Company is subject to
double taxation and it has to provide a bigger amount
and a higher tax rate on the net income that reduce the
amount of profit of the shareholders. As mentioned in
previous that double taxation occurs when sharcholders
usually pay tax on two times-i) the amount that company
treated as income provide tax to government ii) the
amount that shareholders provide tax on dividend to the
government.
8. Scope of operation: Company's activity or area of
operation is confined or limited by articles of association.
That is company is subject to invest its money on the said
or predetermined region or company can't involve in
those business that are not mentioned in the Articles of
Association.
9. Secrecy: Sometimes a large number of directors and
managers become an obstacle to maintain the secrecy of
the company. Company's important decisions
competitive strategies, price of the products, mechanism
of production, creative advertisement plans ete are much
more important materials for the success of the
company. But keeping these things secret is not possible
because of its large number of directors and managers.
10. Authority: There is an active democratic system in
the company and shareholders have voting power to
elect the directors, sharcholders have no direet
contribution in the operation or function of the
organization.