COMMERCE FORM FOUR STUDY NOTES, TOPIC 3-4.


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TOPIC 3: BUSINESS UNITS 
The Term Business Units
Explain the term business units
A business organisation is one unit of control which is engaged in the production or distribution of any commodity.business organisation are of business nature from the point of view of ownership,control and size.
It comprise the following
  1. sole proprietorship
  2. partnership
  3. joint stock companies
  4. cooperative
Meaning of Sole trading; Partnership; Joint Stock Company; Public Enterprise Parastatals; Cooperative Organization
Define the following business units: Sole trading; Partnership; Joint stock company; Public enterprise parastatals; Cooperative organization
Asoleproprietorship, also known as thesole traderor simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business.
A partnership is an arrangement in which two or more individuals share theprofitsandliabilitiesof a business venture. Various arrangements are possible: all partners might share liabilities and profits equally, or some partners may havelimited liability. Not every partner is necessarily involved in the management and day-to-day operations of the venture. In some jurisdictions, partnerships enjoy favorable tax treatment relative tocorporations.
A joint stock company is an organization that falls between the definitions of a partnership and corporation in terms ofshareholderliability. In the United States, shareholders of joint stock companies haveunlimited liabilityfor company debts, but in the United Kingdom, shareholder liability is limited to thenominal valueof shares held by each shareholder.
The shares of a joint stock company are transferable, so for a public joint stock company, the shares may be traded on a registered exchange, but for a private joint stock company, they are transferable between private parties.
Astate-owned enterprise (SOE), also calledstate-owned company,state-owned entity,state enterprise,publicly owned corporation,government business enterprise,crown corporation,government-owned corporation,commercial government agency,public sector undertaking, orparastatal, is a legal entity that undertakescommercialactivities on behalf of an owner, thegovernment.
The legal status of SOEs varies from being a part of the government to beingstock companieswith the state as a regularstockholder. The defining characteristics of SOEs are that they have a distinct legal form and are established to operate in commercial affairs. While they may also have public policy objectives, SOEs should be differentiated from other forms of government agencies or state entities established to pursue purely nonfinancial objectives.
Government-owned corporations are common withnatural monopoliesand infrastructure, such as railways and telecommunications, strategic goods and services (mail, weapons), natural resources and energy, politically sensitive business, broadcasting, demerit goods (alcohol), and merit goods (healthcare).
How Each Business Units is Formed and Organized
Point out how each business units is formed and organized
Sole proprietorship is the simplest and easiest to form. It does not require legal recognition and attendant formalities. This form is the most popular form in India due to the distinct advantages it offers. William R. Basset opines that “The one-man control is the best in the world if that man is big enough to manage everything”.
The main features of proprietorship form of business can be listed as follows:
  1. One Man Ownership: In proprietorship, only one man is the owner of the enterprise.
  2. No Separate Business Entity: No distinction is made between the business concern and the proprietor. Both are one and the same.
  3. No Separation between Ownership and Management: In proprietorship, management rests with the proprietor himself/herself. The proprietor is a manager also.
  4. Unlimited Liability: Unlimited liability means that in case the enterprise incurs losses, the private property of the proprietor can also be utilized for meeting the business obligations to outside parties.
  5. All Profits or Losses to the Proprietor: Being the sole owner of the enterprise, the proprietor enjoys all the profits earned and bears the full brunt of all losses incurred by the enterprise.
  6. Less Formalities: A proprietorship business can be started without completing much legal formalities. There are some businesses that too can be started simply after obtaining necessary manufacturing licence and permits.
PARNERSHIP is a relationship between persons carrying on a business in common with a view of profit.The persons who own the partnership business are individually called ‘partners’ and collectively they are called as ‘firm’ or ‘partnership firm’. The name under which partnership business is carried on is called ‘Firm Name’. In a way, the firm is nothing but an abbreviation for partners.
Based on the above definitions, we can now list the main features of partnership form of business ownership/organisation in a more orderly manner as follows:
  1. More Persons: As against proprietorship, there should be at least two persons subject to a maximum of ten persons for banking business and twenty for non-banking business to form a partnership firm.
  2. Profit and Loss Sharing: There is an agreement among the partners to share the profits earned and losses incurred in partnership business.
  3. Contractual Relationship: Partnership is formed by an agreement-oral or written-among the partners.
  4. Existence of Lawful Business: Partnership is formed to carry on some lawful business and share its profits or losses. If the purpose is to carry some charitable works, for example, it is not regarded as partnership.
  5. Utmost Good Faith and Honesty: A partnership business solely rests on utmost good faith and trust among the partners.
  6. Unlimited Liability: Like proprietorship, each partner has unlimited liability in the firm. This means that if the assets of the partnership firm fall short to meet the firm’s obligations, the partners’ private assets will also be used for the purpose.
  7. Restrictions on Transfer of Share: No partner can transfer his share to any outside person without seeking the consent of all other partners.
  8. Principal-Agent Relationship: The partnership firm may be carried on by all partners or any of them acting for all. While dealing with firm’s transactions, each partner is entitled to represent the firm and other partners. In this way, a partner is an agent of the firm and of the other partners.
JOINT STOCK COMPANY
A Joint Stock Company is a voluntary association of persons to carry on the business. It is an association of persons who contribute money which is called capital for some common purpose. These persons are members of the company. The proportion of capital to which each member is entitled is his share and every member holding such share is called shareholders and the capital of the company is known as share capital. The Companies Act 1956 defines a joint stock company as an artificial person created by law, having separate legal entity from its owner with perpetual succession and a common seal. Shareholders of Joint Stock Company have limited liability i.e liability limited by guarantee or shares. Shares of such company are easily transferable. From the above definition the following characteristics of a Joint Stock Company can be easily identified:
The Advantages and Disadvantages of Business Units
Indicate the advantages and disadvantages of business units
The various advantages that proprietorship form of business offers are as follows:
  1. Simple Form of Organisation: Proprietorship is the simplest form of organisation. The entrepreneur can start his/her enterprise after obtaining license and permits. There is no need to go through the legal formalities. For starting a small enterprise, no formal registration is statutorily needed.
  2. Owner’s Freedom to Take Decisions: The owner, i.e. the proprietor is free to make all decisions and reap all the fruits of his labour. There is no other person who can interfere or weigh him down.
  3. High Secrecy: Secrecy is another major advantage offered by proprietorship. This is because the whole business is handled by the proprietor himself and, as such, the business secrets are known to him only. Added to it, the proprietor is not bound to reveal or publish his accounts. In present day business atmosphere, the less a competitor knows about one’s business, better off one is. What the competitors can make is guesstimates only.
  4. Tax Advantage: As compared to other forms of ownership, the proprietorship form of ownership enjoys certain tax advantages. For example, a proprietor’s income is taxed only once while corporate income is, at occasions taxed twice, say, double taxation.
  5. Easy Dissolution: In proprietorship business, the entrepreneur is all in all. As there are no co-owners or partners, therefore, there is no scope for the difference of opinion in the case the proprietor/entrepreneur-wants to dissolve the business. It is due to the easy formation and dissolution, proprietorship is often used to test the business ideas.
Pro prietorship form of ownership suffers from some disadvantages also.
  1. Limited Resources: A proprietor has limited resources at his/her command. The proprietor mainly relies on his/her funds and savings and, to a limited extent, borrowings from relatives and friends. Thus, the scope for raising funds is highly limited in proprietorship. This, in turn’ deters the expansion and development of an enterprise.
  2. Limited Ability: Proprietorship is characterised as one-man show. One man may be expert in one or two areas, but not in all areas like production, finance, marketing, personnel, etc. Then, due to the lack of adequate and relevant knowledge, the decisions taken by him be imbalanced.
  3. Unlimited Liability: Proprietorship is characterised by unlimited liability also. It means that in case of loss, the private property of the proprietor will also be used to clear the business obligations. Hence, the proprietor avoid taking risk.
  4. Limited Life of Enterprise Form: The life of a proprietary enterprise depends solely upon the life of the proprietor. When he dies or becomes insolvent or insane or permanently incapacitated, there is very likelihood of closure of enterprise. Say, enterprise also dies with its proprietor
The various advantages that partnership form of business offers are as follows:
  1. Easy Formation: Partnership is a contractual agreement between the partners to run an enterprise. Hence, it is relatively ease to form. Legal formalities associated with formation are minimal. Though, the registration of a partnership is desirable, but not obligatory.
  2. More Capital Available: We have just seen that sole proprietorship suffers from the limitation of limited funds. Partnership overcomes this problem, to a great extent, because now there are more than one person who provide funds to the enterprise. It also increases the borrowing capacity of the firm. Moreover, the lending institutions also perceive less risk in granting credit to a partnership than to a proprietorship because the risk of loss is spread over a number of partners rather than only one. .
  3. Combined Talent, Judgement and Skill: As there are more than one owners in partnership, all the partners are involved in decision making. Usually, partners are pooled from different specialised areas to complement each other. For example, if there are three partners, one partner might be a specialist in production, another in finance and the third in marketing. This gives the firm an advantage of collective expertise for taking better decisions. Thus, the old maxim of “two heads being better than one” aptly applies to partnership.
  4. Diffusion of Risk: You have just seen that the entire losses are borne by the sole proprietor only but in case of partnership, the losses of the firm are shared by all the partners as per their agreed profit-sharing ratios. Thus, the share of loss in case of each partner will be less than that in case of proprietorship.
  5. Flexibility: Like proprietorship, the partnership business is also flexible. The partners can easily appreciate and quickly react to the changing conditions. No giant business organisation can stifle so quick and creative responses to new opportunities.
  6. Tax Advantage: Taxation rates applicable to partnership are lower than proprietorship and company forms of business ownership.
In spite of above advantages, there are certain drawbacks also associated with the partnership form of business organisation.
  1. Unlimited Liability: In partnership firm, the liability of partners is unlimited. Just as in proprietorship, the partners’ personal assets may be at risk if the business cannot pay its debts.
  2. Divided Authority: Sometimes the earlier stated maxim of two heads better than one may turn into “too many cooks spoil the broth.” Each partner can discharge his responsibilities in his concerned individual area. But, in case of areas like policy formulation for the whole enterprise, there are chances for conflicts between the partners. Disagreements between the partners over enterprise matters have destroyed many a partnership.
  3. Lack of Continuity: Death or withdrawal of one partner causes the partnership to come to an end. So, there remains uncertainty in continuity of partnership.
  4. Risk of Implied Authority: Each partner is an agent for the partnership business. Hence, the decisions made by him bind all the partners. At times, an incompetent partner may lend the firm into difficulties by taking wrong decisions. Risk involved in decisions taken by one partner is to be borne by other partners also. Choosing a business partner is, therefore, much like choosing a marriage mate life partner.
Importance of Business Units in Commerce
Mention the importance of business units in commerce
Activity 1
Mention the importance of business units in commerce
 TOPIC 4: MANAGEMENT AND ORGANIZATION
The Meaning and Importance of Management
Explain the meaning and importance of management
Management – act of allocating resources to accomplish desired goals and objectives efficiently and effectively. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.or is the organization and coordination of the activities of a business in order to achieve defined objectives. Or isThe activities associated with running a company, such as controlling, leading, monitoring, organizing, and planning.
Principles of Management
Management principles are guidelines for the decisions and actions of managers.
  1. Division of Work - According to this principle the whole work is divided into small tasks.The specialization of the workforce according to the skills of a person , creating specific personal and professional development within the labour force and therefore increasing productivity; leads to specialization which increases the efficiency of labour.
  2. Authority and Responsibility - This is the issue of commands followed by responsibility for their consequences. Authority means the right of a superior to give enhance order to his subordinates; responsibility means obligation for performance.
  3. Discipline - It is obedience, proper conduct in relation to others, respect of authority, etc. It is essential for the smooth functioning of all organizations.
  4. Unity of Command - This principle states that each subordinate should receive orders and be accountable to one and only one superior. If an employee receives orders from more than one superior, it is likely to create confusion and conflict.
  5. Unity of Direction - All related activities should be put under one group, there should be one plan of action for them, and they should be under the control of one manager.
  6. Subordination of Individual Interest to Mutual Interest - The management must put aside personal considerations and put company objectives firstly. Therefore the interests of goals of the organization must prevail over the personal interests of individuals.
  7. Remuneration - Workers must be paid sufficiently as this is a chief motivation of employees and therefore greatly influences productivity. The quantum and methods of remuneration payable should be fair, reasonable and rewarding of effort.
  8. The Degree of Centralization - The amount of power wielded with the central management depends on company size. Centralization implies the concentration of decision making authority at the top management.
  9. Line of Authority/Scalar Chain - This refers to the chain of superiors ranging from top management to the lowest rank. The principle suggests that there should be a clear line of authority from top to bottom linking all managers at all levels.
  10. Order - Social order ensures the fluid operation of a company through authoritative procedure. Material order ensures safety and efficiency in the workplace. Order should be acceptable and under the rules of the company.
  11. Equity - Employees must be treated kindly, and justice must be enacted to ensure a just workplace. Managers should be fair and impartial when dealing with employees, giving equal attention towards all employees.
  12. Stability of Tenure of Personnel - Stability of tenure of personnel is a principle stating that in order for an organization to run smoothly, personnel (especially managerial personnel) must not frequently enter and exit the organization.
  13. Initiative - Using the initiative of employees can add strength and new ideas to an organization. Initiative on the part of employees is a source of strength for organization because it provides new and better ideas. Employees are likely to take greater interest in the functioning of the organization.
Esprit de Corps - This refers to the need of managers to ensure and develop morale in the workplace; individually and communally. Team spirit helps develop an atmosphere of mutual trust and understanding. Team spirit helps to finish the task on time.
LEVELS OF MANAGEMENT.
The term “Levels of Management’ refers to a line of demarcation between various managerial positions in an organization. The number of levels in management increases when the size of the business and work force increases and vice versa. The level of management determines a chain of command, the amount of authority & status enjoyed by any managerial position. The levels of management can be classified in three broad categories:
  1. Top level / Administrative level
  2. Middle level / Executory
  3. Low level / Supervisory / Operative / First-line managers
Managers at all these levels perform different functions. The role of managers at all the three levels is discussed below:
Top Level of Management
It consists of board of directors, chief executive or managing director. The top management is the ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time on planning and coordinating functions.
The role of the top management can be summarized as follows -
  1. Top management lays down the objectives and broad policies of the enterprise.
  2. It issues necessary instructions for preparation of department budgets, procedures, schedules etc.
  3. It prepares strategic plans & policies for the enterprise.
  4. It appoints the executive for middle level i.e. departmental managers.
  5. It controls & coordinates the activities of all the departments.
  6. It is also responsible for maintaining a contact with the outside world.
  7. It provides guidance and direction.
  8. The top management is also responsible towards the shareholders for the performance of the enterprise.
<!-- [if !supportLists]-->1. <!--[endif]-->Middle Level of Management
The branch managers and departmental managers constitute middle level. They are responsible to the top management for the functioning of their department. They devote more time to organizational and directional functions. In small organization, there is only one layer of middle level of management but in big enterprises, there may be senior and junior middle level management. Their role can be emphasized as -
  1. They execute the plans of the organization in accordance with the policies and directives of the top management.
  2. They make plans for the subunits of the organization.
  3. They participate in employment & training of lower level management.
  4. They interpret and explain policies from top level management to lower level.
  5. They are responsible for coordinating the activities within the division or department.
  6. It also sends important reports and other important data to top level management.
  7. They evaluate performance of junior managers.
  8. They are also responsible for inspiring lower level managers towards better performance.
<!-- [if !supportLists]-->1. <!--[endif]-->Lower Level of Management
Lower level is also known as supervisory / operative level of management. It consists of supervisors, foreman, section officers, superintendent etc. According to R.C. Davis, “Supervisory management refers to those executives whose work has to be largely with personal oversight and direction of operative employees”. In other words, they are concerned with direction and controlling function of management. Their activities include -
  1. Assigning of jobs and tasks to various workers.
  2. They guide and instruct workers for day to day activities.
  3. They are responsible for the quality as well as quantity of production.
  4. They are also entrusted with the responsibility of maintaining good relation in the organization.
  5. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher level and higher level goals and objectives to the workers.
  6. They help to solve the grievances of the workers.
  7. They supervise & guide the subordinates.
  8. They are responsible for providing training to the workers.
  9. They arrange necessary materials, machines, tools etc for getting the things done.
  10. They prepare periodical reports about the performance of the workers.
  11. They ensure discipline in the enterprise.
  12. They motivate workers.
  13. They are the image builders of the enterprise because they are in direct contact with the workers.
IMPORTANCE OF MANAGEMENT IN BUSINESS ORGANISATION.
  • It helps in Achieving Group Goals - It arranges the factors of production, assembles and organizes the resources, integrates the resources in effective manner to achieve goals. It directs group efforts towards achievement of predetermined goals. By defining objective of organization clearly there would be no wastage of time, money and effort. Management converts disorganized resources of men, machines, money etc. into useful enterprise. These resources are coordinated, directed and controlled in such a manner that enterprise work towards attainment of goals.
  • Optimum Utilization of Resources - Management utilizes all the physical & human resources productively. This leads to efficacy in management. Management provides maximum utilization of scarce resources by selecting its best possible alternate use in industry from out of various uses. It makes use of experts, professional and these services leads to use of their skills, knowledge, and proper utilization and avoids wastage. If employees and machines are producing its maximum there is no under employment of any resources.
  • Reduces Costs - It gets maximum results through minimum input by proper planning and by using minimum input & getting maximum output. Management uses physical, human and financial resources in such a manner which results in best combination. This helps in cost reduction.
  • Establishes Sound Organization - No overlapping of efforts (smooth and coordinated functions). To establish sound organizational structure is one of the objective of management which is in tune with objective of organization and for fulfillment of this, it establishes effective authority & responsibility relationship i.e. who is accountable to whom, who can give instructions to whom, who are superiors & who are subordinates. Management fills up various positions with right persons, having right skills, training and qualification. All jobs should be cleared to everyone.
  • Establishes Equilibrium - It enables the organization to survive in changing environment. It keeps in touch with the changing environment. With the change is external environment, the initial co-ordination of organization must be changed. So it adapts organization to changing demand of market / changing needs of societies. It is responsible for growth and survival of organization.
  • Essentials for Prosperity of Society - Efficient management leads to better economical production which helps in turn to increase the welfare of people. Good management makes a difficult task easier by avoiding wastage of scarce resource. It improves standard of living. It increases the profit which is beneficial to business and society will get maximum output at minimum cost by creating employment opportunities which generate income in hands. Organization comes with new products and researches beneficial for society.
Disadvantages of management.
  • Time consuming in making decision
  • high cost of operation i.employees salaries
  • conflict among employees
Historical Evolution of Management
Discuss the historical evolution of management
Meaning of Planning; Organization; Staffing; Direction; Control and Coordination
Explain the following functions of management: Planning; Organization; Staffing; Direction; Control and Coordination
FUNCTIONS OF MANAGEMENT
Planning
  • The planning function of management controls all the planning that allows the organization to run smoothly. Planning involves defining a goal and determining the most effective course of action needed to reach that goal. Typically, planning involves flexibility, as the planner must coordinate with all levels of management and leadership in the organization. Planning also involves knowledge of the company’s resources and the future objectives of the business.
Organizing
  • The organizing function of leadership controls the overall structure of the company. The organizational structure is the foundation of a company; without this structure, the day-to-day operation of the business becomes difficult and unsuccessful. Organizing involves designating tasks and responsibilities to employees with the specific skill sets needed to complete the tasks. Organizing also involves developing the organizational structure and chain of command within the company.
Coordinating
  • The coordinating function of leadership controls all the organizing, planning and staffing activities of the company and ensures all activities function together for the good of the organization. Coordinating typically takes place in meetings and other planning sessions with the department heads of the company to ensure all departments are on the same page in terms of objectives and goals. Coordinating involves communication, supervision and direction by management.
Staffing
  • The staffing function of management controls all recruitment and personnel needs of the organization. The main purpose of staffing is to hire the right people for the right jobs to achieve the objectives of the organization. Staffing involves more than just recruitment; staffing also encompasses training and development, performance appraisals, promotions and transfers. Without the staffing function, the business would fail because the business would not be properly staffed to meet its goals.
Controlling
  • The controlling function of management is useful for ensuring all other functions of the organization are in place and are operating successfully. Controlling involves establishing performance standards and monitoring the output of employees to ensure each employee’s performance meets those standards. The controlling process often leads to the identification of situations and problems that need to be addressed by creating new performance standards. The level of performance affects the success of all aspects of the organization.

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