Biyani's Think Tank

A concept based exclusive material

Business Organisation

Shipra Sharma

Lecturer Deptt. of Commerce & Management Biyani Girls College, Jaipur

Fore more detail:-

Published by :

Think Tanks Biyani Group of Colleges

Concept & Copyright :

©Biyani Shikshan Samiti
Sector-3, Vidhyadhar Nagar, Jaipur-302 023 (Rajasthan) Ph : 0141-2338371, 2338591-95 • Fax : 0141-2338007 E-mail : Website;

First Edition : 2009

While every effort is taken to avoid errors or omissions in this Publication, any mistake or omission that may have crept in is not intentional. It may be taken note of that neither the publisher nor the author will be responsible for any damage or loss of any kind arising to anyone in any manner on account of such errors and omissions.

Leaser Type Setted by : Biyani College Printing Department

Fore more detail:-



am glad to present this book, especially designed to serve the needs of the

students. The book has been written keeping in mind the general weakness in understanding the fundamental concepts of the topics. The book is self-explanatory and adopts the “Teach Yourself” style. It is based on question-answer pattern. The language of book is quite easy and understandable based on scientific approach. This book covers basic concepts related to the microbial understandings about diversity, structure, economic aspects, bacterial and viral reproduction etc. Any further improvement in the contents of the book by making corrections, omission and inclusion is keen to be achieved based on suggestions from the readers for which the author shall be obliged. I acknowledge special thanks to Mr. Rajeev Biyani, Chairman & Dr. Sanjay Biyani, Director (Acad.) Biyani Group of Colleges, who are the backbones and main concept provider and also have been constant source of motivation throughout this Endeavour. They played an active role in coordinating the various stages of this Endeavour and spearheaded the publishing work. I look forward to receiving valuable suggestions from professors of various educational institutions, other faculty members and students for improvement of the quality of the book. The reader may feel free to send in their comments and suggestions to the under mentioned address. Author

Fore more detail:-

Paper-II : Business Organisation
1. 2. 3. Origin and development of entrepreneurship in India : Problems and suggestions. Role of RIICO and District Industrial Centres. Significance and establishment of business organisation (Consideration and steps only). Business Environment. Business Ethics. Need and importance of Finance. Sources of Finance. A brief study of Rajasthan Finance Corporation.

4. 5. 6. Origin, development and activities of stock exchanges in India. A brief study of SEBI, OTCE and NSE. Concept, objectives, forms and kinds of Business combination, Combination movement in India. Modern methods of Advertisement and Publicity, Significance and evils of advertisement.

7. 8. 9. Economic liberalisation Policy and implications. Implications of globalisation Policy on Business. Concept of Welfare State, Government assistance to India Industrial Policy. Industrial Democracy.

Fore more detail:-

S.No. 1. Name of Topic Examination Paper 2008 Origin and Development of Entrepreneurship 1.1 Meaning 1.2 Characteristics 1.3 Importance 1.4 Problems 1.5 Suggestions 1.6 Role of RIICO 1.7 District Industries Centres Business Organisation 2.1 Meaning 2.2 Characteristics 2.3 Steps for Establishment of Business Organisation 2.4 Business Environment 2.5 Business Ethics Business Finance 3.1 Meaning 3.2 Need 3.3 Importance 3.4 Sources of Finance 3.5 Brief Study of RFC Stock Exchange 4.1 Meaning 4.2 Characteristics 4.3 Objectives 4.4 Significance 4.5 Functions 4.6 A Brief Study of SEBJ 4.7 A Brief Study of OITCE 4.8 A Brief Study of NSE Business Combination Fore more detail:- Page No. 9-10 11 –18









1 5.3 Objectives 6.4 6.5 Modern Methods of Advertisement and Publicity Liberalisation Policy and Globalisation 7.http://www. 70-74 8.5.3 Implications of Globalisation Welfare State 8. Concepts Objectives Forms and Kinds Combination Movement 65-69 Advertisement and Publicity .2 Characteristics 6.1 Meaning 6.1 Concept 8.1 Economic Liberalisation Policy 7.3 5.gurukpo. 75-79 9.2 Implication of Economic Liberalisation Policy 7.2 5. 80-82 Fore more detail:.4 Significance and Evils of Advertisement 6.2 Government Assistance to Industries Industrial Policy 7.

What is cartel? What is meant by 'welfare state'? Answer each of the following questions in not more than 50 words each.http://www.gurukpo. 2008 Business Administration Second Paper (Business Organisation) Time : 3 Hours MM. Answer each of the following questions in not more than 20 words each.Com.B. (i) (ii) (iii) (iv) (v) What are the provisions of the new industrial policy with regard to small scale industries? State the five main objectives of works committees. : 100 Objective Part-I Time : 1 Hour Attempt all questions. Fore more detail:. Each question carries 2 marks. What do you mean by a system? What is Business Ethics? State any four major functions of an entrepreneur. : 40 (viii) In which yearthe 'SEBI' was constituted and describe the name of its present Chairman? (ix) (x) 2." Explain. What are the current media of advertising? What is holding company? State the main types of a holding company. When was 'RIICO' established? What do you mean by working capital? What is sensex (Sensitive Index)? MM. (Part-I) Examination. (i) (ii) (iii) (iv) (v) (vi) (vii) "Business is a game of risk. . State the five main probable advantages of the globalisation of business. Each question carries 4 marks.

Fore more detail:. What do you mean by Business Organisation? Describe the main characteristics of it. Each question carries 20 marks. Give your suggestions to the Government for the rapid development of industries. Section-C 5. Section-B .DescriptivePart-II Time : 2 Hour MM. Describe the recent trends in the economic liberalisation in India and also discuss their merits and demerits. : 60 Attempt three questions in all. What do you mean by listing of securities? Describe the procedure for listing of securities in a recognized Stock Exchange. Or Describe the various components of business environment. Or Explain the role of 'SEBI' in regulating and controlling of Indian Stock Exchanges in modern global era. Section-A 3. selecting at least one question from each Section.http://www. How they influence business? Explain. Or Discuss the role of the State in the development of Indian industries.

Innovation Business oriented tendency.: Entrepreneurship is meant for the function of establishing and organising a new enterprise and to start production process by raising. It is leadership rather than ownership” In the words of Rao and Mehta.http://www. “Entrepreneurship is an innovation function.” Characteristics of an Entrepreneur : (i) (ii) (iii) (iv) Risk bearer Innovator Provider of resources An organizer Fore more detail:. capital. hiring labour. and introducing new techniques of the .gurukpo.1 Define Entrepreneurship? Discuss its characteristics and importance? Ans.CHAPTER-I Origin and Development of Entrepreneurship Q. Meaning of Entrepreneur : In the words of Gerald A Silver. “An entrepreneur is an individual who conceives an idea for a new product or service. Creative activity. then finds some way of raising capital to form a business to produce the product or service. “Entrepreneurship can be described as creative and innovative response to the environment. Transformation of resources.” Nature and Characteristics of Entrepreneurship : The definitions given above reveal the following characteristics of entrepreneurship : (i) (ii) (iii) (iv) (v) (vi) (vii) Entrepreneurship is the ability or urge to take risk. obtaining raw material. A function of high achievement . In the words of Schumpeter. It involves dynamic leadership.

com (viii) Hereditary character of occupation. (viii) Builder of new industrial unit. Business prophet. Catalytic Agent of change. Poor infrastructure facilities. Unproductive investment. What are the causes for slow growth of Entrepreneurship in India? Ans. Lack of entrepreneural spirit. . Other obstacles.2 Moving wheel towards the economic development Organiser of productive resources. Unfavourable social system.http://www. there have been a number of factors which impede the growth of entrepreneurship in India. Innovative giant.gurukpo. Business Agent. Components of modern production system. Captain of industry. Fore more detail:. important among them is as follows : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) (xii) Lack of coordination between different agencies.(v) (vi) A forecaster Agent of change Importance of Entrepreneurship : The importance of entrepreneurship is as follows : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) Q. Lack of training facilities.: In spite of various efforts made by the government for the development of entrepreneurship. Lack of efficient marketing and distribution system. Frequent changes in government regulation and policies. Dynamic Agent. Lack of adequate capital. Ambassador of social changes. Bureaucratic functioning.

gurukpo. (iv) (v) (vi) (vii) (viii) The tax structure should be restructured in favour of small entrepreneurs. The education system in the country should be restructured towards employment and entrepreneur oriented.(xiii) Lack of attention by big business institutions towards small entrepreneurs. water . More units may be given in the participation of trade fairs and exhibitions. as a public limited company and investment under the companies Act. Feasibility studies should be undertaken by the industrial departments to find out opportunities for setting up industries and perspective industrial maps should be prepared and provided to the individuals. electricity.: The Rajasthan State Industrial Development Corporation (RIICO) Ltd.4 Write a short note on RIICO & DICs in the development of Entrepreneurship? Ans. There should be adequate infrastructure facilities like roads.http://www. The number of technical and vocational studies institutions should be increased and scholarship be given to motivate the people to become entrepreneurs. Q. It aims to : Fore more detail:. Necessary improvement should be made in the industrial policy being announced by the government from time to time to create an investment climate in the country. There is also need for the existence of sound capital market in the country. was set up in 1969. The information about various assistance incentives and other motivations given by the government and other agencies should be notified to the new entrepreneurs from time to time through effective medias.. 1956.3 Write some suggestions for the development of Entrepreneurship in India? Ans. There should be wider publicity of various self employment schemes to create awareness among the young people. There is a need for the expansion of consultancy services at different industrial estates and zones.: For the faster development of entrepreneurship the following suggestions can be given : (i) (ii) (iii) There in need to identify a mechanism for the development of entrepreneurs in backward areas of the country. in rural areas for the industrial development. (ix) (x) (xi) (xii) Q.

There are executive directors looking after various divisions and they are responsible for effective functioning of all the divisions. (xv) Special purpose industrial parks.gurukpo. Organisation Of RIICO : The administrative control of RIICO has been placed under the board of directors. Identification of industrial plans and programmes. Incentive schemes for recovery of dues. (xviii) Village amenities development and skill development scheme funds. Promotional Role of RIICO : The major promotional role of RIICO includes the following : Fore more detail:. Special focus on national capital region. The board consists of a chairman and Managing director appointed by the state Government. (xix) (xx) (xxi) Critical infrastructure balancing scheme. Promote industrial units in public and joint sectors. etc. Growth centres. Development of II D centres. Developmental Role of the RIICO : The various developmental role of the RIICO at the present time include the following : (vii) (ix) (x) (xi) (xii) Financial sanctions.(i) (ii) (iii) (iv) (v) (vi) Develop industrial areas by construction of factories and building up necessary infrastructure. (viii) Recovery of dues.http://www. Provide assistance for the development of infrastructure. (xiii) Equity assistance. (xiv) Business development. (xvi) Return on investment. and Preparation of feasibility reports. Provide loans to private and other entrepreneurs for setting up industrial units in the state. New initiatives for social infrastructure in industrial . (xvii) New thrust on infrastructure development. Pollution control and advisory service.

Extends loan facility in association with RFC. Q. Rehabilitation of sick units.5 Write a short note on DIC (District industries Centre). Assistance by the central government. Establishment by state. . Upadhyaya. A means for implementing central government (viii) Labour intensive.(i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) (xii) Providing promotional loan facility. Coordinating institution. Ans.: District Industries Centres have been set up under the 1977 industrial policy of the government of India.gurukpo. Providing technical and managerial services. Distribution of capital investment grants for setting up new units. Mobilisation of resources. Interest free loans. Merchant banking services. Providing seed capital.” Characteristics : The characteristics of DIC are as follow : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) One window service concept. Division into four categories. Contribution in share capital of companies. A dynamic institution. Promotion of industrial enterprise.http://www. (xiii) Special concessions given to the entrepreneurs in allotment of lands.N. In the words of M. Campaigning towards industrial development. “District Industries centre means a single agency for making all the support and facilities to the entrepreneurs under one roof. Fore more detail:. (viii) Software zone. The main thrust was given to the growth and development of small and cottage industries situated in rural and semi urban areas.

Rapid industrialisation of the district. Registration of small units. Development of handicraft industry. Rehabilitation of sick units.gurukpo. The State Government should appoint professionally and technically qualified and experienced employees for managing the DICS. Dominance of bureaucracy and red-tapism. There should be sufficient coordination between different departments attached with the DICS. (xiii) Collection and dissemination of information. Balanced development of the district. Research and development .http://www. Problems of materials. (viii) To provide common facility.Role and Function of DIC : The major functions are described below : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) (xii) To examine the industrial potential in the district. Non-availability of suitable and trained employees. Fore more detail:. Problems of marketing. Encouragement for the setting up of industrial units. Defective organisation structure. Suggestions for Improvement : (i) (ii) (iii) Banks and financial institutions are needed to provide sufficient finance to the DICS. Consultancy services. (xiv) To uplift the socially backward people. To develop infrastructural facilities. (viii) Burden on the State Government. Problems of DICS : The important problems of DICS are : (i) (ii) (iii) (iv) (v) (vi) (vii) Lack of finance. To organise training programme. Problems of coordination. .http://www.(iv) (v) The DICS should encourage Government procurement of small industrial products on priority basis. □□□ Fore more detail:. The DICS should encourage to set up industrial units in the districts.

com (viii) Increasing trend in forming into combination.http://www. being owned by one person or group of persons. Wide scope of activities. A pluralistic institution.” In the words of Bayard O Wheeler. material. Coordination of resources. commercial or service organisation which produces goods and or services for sale. employee etc.” Characteristics and Nature of Business Organisation : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) An association of persons or group.CHAPTER-2 Business Organisation Q. company.. Dynamic Environment. who manage it within certain laid down creative policies.: A Business organisation refers to any industrial. “A business organisation is an enterprise engaged in the production or distribution of goods for sale in a market or rendering services for a price. It is to represent any collection of business resources – factories. Intensity of capital. company or enterprise which is engaged in buying or selling. “A business firm is an institution. are other form of business organisation. . and the planned use of which is limited within the framework of a one man business.gurukpo. warehousing. It is a system an organ of the society.1 What do you mean by Business Organisation? Also explain its characteristics and nature of Business Organisation? Ans. or engages in distributing or assists in the process thereof. partnership. In the words of Richard Norman Owens. Different forms. Created utilities. Customer satisfaction. machinery. Fore more detail:.

Improves the standard of living of people. Balanced industrial growth.gurukpo. Faster economic growth in the country. Increase in the standard of living of the people. (xix) (xx) (xxi) Q. namely : (1) (2) (3) (4) (1) Significance to National Economy Significance to Business itself Significance to Community Significance from other point for view Significance to National Economy : The significance of business to a nation may be expressed by the following facts : (i) (ii) (iii) (iv) (v) (vi) (vii) Optimum and profitable use of resources. Explain the significance of Business .http://www. (xiii) Socio-economic institution. Source of national income. (xv) An institution with multiple objectives. (ix) (x) To meet the obligations of development planning.2 Innovations and marketing as basic functions.(xii) Customer orientation. Ans. (xiv) Operating in different sectors of the economy. (xvi) Faster growth of service organisation. (xvii) Global operation.: The Significance of business may classified into the following four categories. Fore more detail:. Better utilisation of human resources. (viii) Source for meeting import requirements. Government control and regulation. Contributes of national prosperity. Larger creation of employment. (xviii) Independent and separate role of entrepreneur and manager.

(xi) (xii) Eradication of poverty.http://www. place. Development of labour . (xiii) Development of labour and capital markets. Appointment of efficient and experienced salesmen. Fulfillment of social responsibility. Creation of healthy competition. (2) Significance to Business itself : The significance of business from the point of view of business itself. Development of the undertaking. Helps to develop managerial skill. Closer cultural relations between countries. time and possession utilities. Advantage of form. Significance to other point of view : The other significance of business may be discussed under the following heads : (i) (ii) Promotion of international trade. Provides goods and services at reasonable prices. Significance to Community : The Significance of business from the point of view of community is discussed below : (i) (ii) (iii) (iv) (v) (vi) (vii) Uplifts the standard and quality of life. (viii) Consumer education. (ix) (x) (4) Attention towards customer grievances. Decrease in the cost of production. Fore more detail:. (ix) (3) Specialisation in production. may be stated as below : (i) (ii) (iii) (iv) (v) (vi) (vii) Large scale production and efficient distribution.gurukpo. Human prosperity. Creates habits of saving. Creation of employment. (viii) Profitable sales volume. Greater utilisation of production capacities. Capital formation.

http://www. social cultural.3 Helps in maintaining political peace.: The environment of business is an extremely complex and dynamic phenomenon. The environmental factors vary from country to country. In the wards of William Gluck and . This includes socioeconomic conditions. political legal. It is the product of the technological.” Component of Business Environment : Environment are as follows : The component of Business Fore more detail:. Weimer writes the business environment is the climate or set of conditions. What is Business Environment and what are it’s components? Ans. social. political or institutional in which business activities are conducted. economic. Arthur M. even region to region. social. legal and technological forces. technology and political conditions. “Environment contains the external factors that create opportunities and threat to the business. Environment is a mixture of economic.gurukpo. economic. political.(iii) Q. global and natural factors among which it functions.

: The important steps involved establishing a new enterprise are as follows: Preliminary Step or Promotion Stage Preparation of Project Report or Feasibility Report Completion of Legal Formalities and Registration of Enterprise Launching of the Business Enterprise Staffing Commencement of Business Fore more detail:.http://www.4 What steps are required to take before the establishment of a Business Enterprise? .gurukpo.Components of Business Environment Internal Environment External Environment o o o o o o o Objectives Management Structure Human Resource Marketing Capabilities R&D Technological Capability Internal Relationship Micro Environment Customers Suppliers Competitors Marketing Intermediaries Public o o o Macro Environment Economic Factors Political Factors Technological Factors Social – Cultural Factors Global Factors o o o o o o o o Q.

Not based on emotions & sentiments. Study of goals and means. Business ethics is rapidly becoming an important subject of study replacing yesterday’s “social responsibility of business. Recognition of moral responsibility.5 What do you mean by Business Ethics? Explain its main characteristics and scope of Business Ethics? Ans.” . Fore more detail:. Business ethics is not affected by social approval or disapproval. Issues relating to employees. A universal philosophy.http://www. Characteristics or Assumption of Business Ethics : For the understanding business ethics.Q.” In the words of Robert Gueinner and others.: Business ethics is concerned with day to day behaviour of business in a business situation. “Business ethics may be defined as those principles. Ethics is different from social morality. practices and philosophies that are concerned with moral judgments and good conduct. It is art and science both. Scope of Business Ethics : The scope of business ethics or the issues in business ethics are as follows : (i) (ii) Issues relating to objectives of Business. More greater than law. Theology is the basis of business ethics. (xv) Good intention. as they are applicable to business situations. (xiv) Hermony between different roles.” In the words of Rogene A. it is necessary to know its important characteristics there are : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) (xii) As a discipline. An ancient concept. “Business ethics refers to right or wrong behaviour in business decisions.gurukpo. (viii) Dynamic philosophy (xiii) Different from social responsibility. business ethics relates to the behaviour of a businessman in a business situation. Buchholz.

there are certain other who do not accept this findings that “good ethics promotes good business.http://www. Sound Business Insurance. Relieves from Tensions and worries.(iii) (iv) (v) (vi) (vii) (ix) Q. Arguments against the view of “Good Ethics promote Good Business” : The critics gives the following argument in support of their claim : (i) (ii) (iii) (iv) No reward for ethical conduct. Goodwill of Business and Businessman It increases Mutual Trust and confidence. No resistance from officers.6 Issues relating to competitive institutions. Essential in the present situation. Issues relating to □□□ . Their findings were supported by learned. Fore more detail:. The following paragraphs give the arguments in favour and against. Is “Good Ethics promotes Good Business” explain? Ans. Perpetual succession. their agreements cannot be overlooked. doolby and Katz. Initiative for others. Demand of the day. At the same time.: Well known authorities like Raymond Baumhart.” Although they are few in numbers. Issues relating to customers. (viii) Issues relating to creditors.gurukpo. Issues relating to national interest. Issues relating to owners of business. Issues relating to local community. Helps in Professionalisation of management. Brener and moltander etc proves in their finding that only those business can exists on a long term basis which conduct their activities on ethical grounds.” Arguments in Favour : Some of the important arguments in favour is as follows : (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) Satisfaction of sub conscious mind. (viii) Greater zeal and productivity. Difficult to decide in a situation of dilema. “good ethics promotes good business.

The need and importance of finance for a business can be experienced from the following advantages : (i) Finance is important to meet out promotion expenses i. such as. “Finance is the process of conversion of accumulated funds to productive uses. In the words of S. For the arrangement for current assets.CHAPTER-3 Business Finance Q. Fore more detail:. procurement of funds and judicious application of funds. accountants and management consultants. It is key sources of business. Finance is the foundation on which the structure of business built (ii) (iii) (iv) (v) (vi) . the term Business finance involves various functions. Finance is important-to meet out the working capital requirement. building. “In a modern money using economy.e. Need and Importance of Business Finance : Finance is the life blood of a business. The need of business raised both for a short run as well as for a long run. W. without which business activities can not be run.1 What is Business Finance? Explain about the need and importance of Business Finance? Ans. land. Kuchhal.e. payable to legal advisors. plant and machinery etc.” Hence we can say that finance is very essential for the establishment.” In the Words of R. Paish. Financial management is concerned with the proper management of funds and responsible for estimation of financial resources. finance may be defined as provision of money at the time it is wanted. estimation of financial resources. their procurement and their application in a manner in which they help the enterprise to grow according to well defined objectives. To meet the cost of obtaining business finance. For the purchasing of permanent assets i. nor could it be established. for preparation of various documents.http://www.: Business Finance: The term business finance refers to money or funds available to a firm. For the development and expansion of business. Thus.gurukpo. for registration etc. C. development and growth of any business enterprise.

(viii) Purchase of patents and goodwill.http://www. (xiii) For keeping pace with increasing competition and technological changes.: Financial requirements of an enterprise falls primarily under the following two categories : (i) (ii) Short Term Financial Requirements Long Term Financial Requirements Short Term Financial Requirements : Short term finance are required to meet working capital requirement or we can say day to day requirement. the business requires more capital. On the other hand. and imposes statutory restriction in place of encouragement to entrepreneurs. less amount of capital is needed. Government policy : Where the government fellows liberal investment policy towards investment in the new areas of .3 What are the various sources of Business Finance? Ans.: The number of factors which determine the financial requirement of an enterprise are such as : (i) (ii) (iii) (iv) (v) (vi) Size of the enterprise Nature of business Possibility for future expansion Professional management Investment environment : The country where the people take more investment by the people.(vii) (ix) (x) (xi) (xii) To face the uncertain future effectively. less amount of capital is needed. For growth of business and industry. For providing liquidity. where there is enough sources of finance.gurukpo. if it fellows strict and rigid policies. For availing the trading opportunities. To bridge time gap between production and sales.2 What are the factors which determine the need of Business Finance? Ans. Sources of short term financial requirements is as follow : Fore more detail:. Q. Availability of finance : In a country. (vii) Q.

Long term finance are divided into two part:Long Term Finance Medium/Intermediate Term Funds Long Term Funds Note : Medium/Intermediate term funds are used for one to five years and long term funds are used for more than one Now. a company can raise finance from shareholders in two ways : (i) (ii) (a) (b) By a right issue. Provides permanent sources of finance.o o o o o Trade Credit B/R Factoring Bank Loan Cash Credit etc. since they are the owners. Long Term Financial Requirements : Long term finances are raised to meet fixed capital requirements of an enterprise. By an issue to the public i.e. Various Sources of Long Term Finance is as follows : Share (Owners’ Capital) : o o o o o o Debentures Company Deposits Long Loans from Financial Institutions Loans from Commercial Bank Venture Capital Financing Lease Financing Owners Capital : Here owner’s capital refer to the equity shares.http://www. we will have to look these various sources of long term finance in detail : (1) Merits: . the focus is on maintaining liquidity by obtaining short term funds at reasonable cost. Fore more detail:. No mandatory payment (i. They are raised for a period exceeding one year.gurukpo. IPO. Note : Under short term finance. dividend) to equity shareholders. Basically.

http://www. Issue of preference shares does not create any sort of change against the assets of company. Dividends are not tax-deductible like interest payments. Extends voting rights to new shareholders. Cumulative Preference Shares Non-cumulative Preference Shares Redeemable Preference Shares Non-redeemable Preference Shares Participating Preference Shares Non-participating Preference Shares Convertible Preference Shares Flexible methods. Entitled to receive a fixed rate of dividends. Dividends are not tax-deductible like interest payments. Fore more detail:. Issue of preference share does not materially disturb the existing management control.gurukpo. No risk.(c) New equity shares can always be issued and thus they remain flexible with the company regarding the choice to be made for raising additional finance. Distribution of profits among a wider group of people. Redeemed after a specified (d) (a) (b) (c) (d) (e) (2) Demerits : Preference Shares : o o Types of Preference Shares : o o o o o o o (a) (b) (c) (d) (e) (f) Merits : . Cost of underwriting and distributing new issues of ordinary shares are usually high. They have preferential rights over equity shareholders both with respect to payment of dividend as well as repayment of capital. which can reduce profits available. Leverage advantages. which can reduce available profit. Broadened by making a right issue.

who have a higher rate of return with comparatively lower risk. Types of Debentures : (a) Registered/Bearer Debentures : Registered debentures are those whose name. Therefore. Bearer debentures are transferable by more delivery and company does not record the name and address of the debenture holder. the principal amount can be redeemed by the company at the end of a specified period. Redeemable/Irredeemable Debentures : Redeemable debentures are those. debenture holders are the creditors. Funds raised by the issue of debentures may be used in business to earn much higher rate of return than the rate of interest.gurukpo. Irredeemable debentures refers to those the payment of principal amount can not be redeemed during the life of the company. Convertible/Non-convertible Debentures : The right of debenture holder to convert the debentures into any type of securities is known as convertible debentures conversion can be possible either fully or in partly. Debenture holders are not entitled to have any control over the management of the company. the debenture holders can sell mortgaged assets to recoup their amount. Debentures: A debenture is an instrument which acknowledge debt of a (b) (c) (d) Advantage /Merits of Debentures : (a) (b) (c) (d) (e) . address and other particulars of the debenture holders are entered into the register of debenture holders. Thus debenture issue is cheaper.(g) (3) Useful for investors. as per the terms of the issue. Naked Debentures holders are those who are not secured by any charge on assets of the company.http://www. Interest payable on debentures can be kept – normally less than the cost of equity and preference shares. Mortgaged/ Naked Debentures : Mortgaged debentures are also known as secured debentures because they have a specific charge on assets of the company. Fore more detail:. Debentures can be redeemed when a firm has surplus funds. receiving interests for the deposit of their money with the firm respective of Profit and Loss. Interest payable on debenture is allowable tax deduction in computation of taxable income. If the company becomes a defaulter in payment of interest and principal amount.

Demerits : (a) (b) (4) Plouging Back of Profits : Every business create a reserve funds by transferring a portion of its profits every year to this fund. Such enterprises succeed in establishing monopoly in the market. No need to subscribe the capital from outside sources. There is a fixed commitment to pay interest at fixed rate. Increases the credit worthiness of an organisation. There is a possibility of over capitalization. Debenture issue may not be possible beyond a certain limit. Following are the institutions : o o o o o o LIC Industrial Development Banks of India (IDBI) Unit Trust of India Industrial Finance Corporation Industrial Credit and Investment Corporation of India (ICICI) General Insurance Companies Fore more detail:. It will reduce tax ability of a shareholders. Disadvantages/ Demerits : (5) Loan from Financial Institutions : A number of specialised financial institutions have been set up to meet the specific financial needs of industrial enterprises. Funds can be used for the development or expansion of business. Provides security even during recession period. Dividend can be paid easily.http://www. Merits : (a) (b) (c) (d) (e) (f) (g) (a) (b) (c) (d) (e) Expansion and modernization become easier. Directors of such companies mis-utilize the reserve fund. Accumulation of retained profits constitutes a reasonable amount of finance which is used for the growth and development of .gurukpo. Get encouragement of speculation in shares market.(f) When company’s earning capacity is at a low level. Book value/ market value of shares get increase. debenture issue is more advantageous.

investment in new and tried enterprises that are lacking a stable record of growth.” Features of Venture Capital : Some of the features of venture capital financing is as follows : Fore more detail:. A lease is a contractual arrangement under which the owner of an assets. Demerits : (a) (b) (c) (d) (7) The interest rate on the leased finance will be higher. it may approach the leasing company.o o o o (6) State Financial Corporation Industrial Reconstruction Bank of India Export Import Bank of India (EXIM Bank) Small Industries Development Bank of India Lease Finance : When a company is in need of fixed assets. The burden of outdated technology or absolution of technology does not affect the company. Very little legal requirement is needed for acquiring finance. permits the another party. also specifies the period covered by the lease. A ventures capital company is defined as “a financing institution which joins an entrepreneur as a co-promoter in a project and shares the risks and rewards of the enterprise. It has the advantage of “pay as you can”. Advantages/ Merits : (a) (b) (c) (d) (e) (f) Simple and easy to financial problem. this arrangement is a costly one. the lessee to use the assets for a specified period of time in return for a specified payment. the leasee company has to bear heavy losses. If the technology is outdated before the expiry of the leasing agreement. Venture Capital Financing : The venture capital financing referd to. 100% cost of the fixed assets can be hired. called the . the capital of the company remains unutilised.http://www.gurukpo. venture capital refers to the commitment of capital as shareholding. The lease company has to depend on the leasing company for the maintenance of assets obtained on lease. In a broader sense. for the formulation and setting up of small firms specialising in new ideas and new technologies. If the assets are obtained by lease. The capital of the company can be invested in some projects.

Venture capitalist may disinvests his holdings either to the promoters or in the .(a) (b) (c) (d) (e) (f) Venture capital is usually in the form of an equity participation. Bill discounting etc. Commercial Banks : Commercial Banks are essential dealers in short term credit to finance current assets or circulating capital. Venture capitalist joins the entrepreneur as a co-promoter in projects and share the risks and rewards of the enterprise. Investment is made only in high risk but high growth potential projects. Commercial banks provide following facilities to the customers : • • • Bank loans and advance. (b) (c) The rate of interest on bank credit is fairly high but its burden is not excess because it is used for short period. Venture capital is available only for commercialisation of new ideas. after an agreed period. Trade Credit : It refers to the amount payable to the suppliers of raw material goods etc. (d) Depreciation Fund : Depreciation funds is created from a portion of profits to replace the obsolescence plant. Overdraft facilities.gurukpo. There is continuous involvement in business after an investment by the investor.http://www. Fore more detail:. There are number of sources for short term capital. It may also take the form of convertible debt or long term loan. machinery and equipment etc. Important among them are as follow : (a) Public Deposits : Public deposits invite by the companies through advertisement invite attention of general public to deposit their savings with the company the period of deposits may extend from six months to three years (The 12% rate of interest offered is generally higher from that given by the banks). Various Sources of Short-Term Finance : Short term capital satisfies the day to day needs of operation of business. which is generally less than a year (It is 2% customers for all business firms to allow credit facility to their customers in trade or business).

One directors nominated by the State Bank of Bikaner and Jaipur (SBBJ). Makes available financial assistance at easier terms to backward sections of the society. Extend assistance to small and medium scale industrial units. Such bankers and money lenders satisfying the financial needs of business end society. as a State Financial Corporation. Initiate rapid economic growth in the state through fast industrialization. (ii) (iii) (iv) (v) Two directors nominated by the state Government.(e) Indigenous Bankers and Money Lenders : Indigenous Bankers and money lenders are important sources of finance for rural artisans small and cottage industries and small trader. Its authorized capital is Rs. Two directors co-opted by the Board. Give encouragement to set up industries based on high technology. 1955.53crore as on March 31.4 Write a brief note on the Organisation of the RFC? Ans. The subscribed and paid up capital of the corporation stood at Rs. 67. 100 crore dividend into 10 crore shares of Rs.3. Create an environment of balanced industrial development.gurukpo. Some other sources of short term finance is as follows : • • • Finance Companies Advances from Customers Tax Redemption Fund Q.http://www. Promote and encourage new entrepreneurs. • • • Its registered office is situated in Jaipur. 2003. 10 each.2003) : (i) Chairman and managing director appointed by the state Government. Fore more detail:.: Rajasthan Financial Corporation (RFC) came into existence on April 8. It helps in formulating a basic structure for industrial development. Objectives of RFC : The main objectives of RFC is as follows : (i) (ii) (iii) (iv) (v) (vi) (vii) Management : The management of the RFC is entrusted to a board consisting of the following (as on . Two directors nominated by the SIDBI.

Scheme for roll-over-cum-principal replenishment 2002-2003. Interest subsidy under technology upgradation fund scheme (TUFS).http://www. Function of RFC : RFC introduced more schemes in the year 2002-2003 as under : (i) (ii) (iii) (iv) (v) Q.• • An executive committee is also functioning to assist the Board of directors.5 Fast track loan . All branches of the corporation are directed and controlled by regional offices. 90 lakh depending on the nature and size of the enterprise seeking loans. Special purpose working capital term loan scheme. Capital investment subsidy scheme. Role of RFC as an Agent of the State Government and SIDBI : The corporation plays an active role in implementing the schemes of the state Government and Small Industries Development Bank of India (SIDBI). The steps are to be taken for processing of loan from the RFC is as follows: Completion of Application Form Documents to be Furnished with the Loan Application Payment of Application Fee Submission of Application Form Processing of Loan Application Sanction of Loans Documentation Fore more detail:. Platinum card loan scheme. Some of the schemes are as follow : (a) (b) Interest incentive scheme. Write different steps to be taken for processing of loan from the RFC. Scheme or financial assistance to industrial concerns in commercial construction activities.: The RFC considers grant of financial assistance by way of loans up to Rs. Ans.

The paid up capital of the RFC.6 Ans. The loan facilities are available only for traditional industries. A Plethora of documents are required to be submitted along with the application forms which causes delay in getting loan.: What are the different steps to be taken for procedure adopted by the RFC in recovery of loan? Eighteen Months Moratorium Period Quarterly Installment One Month’s Notice Appropriation of Amount paid by Entrepreneur Follow Up Action against defaulters Legal Notice Acquisition of Assets Reschedulement of the Installments Q. buying of securities. The corporation could not succeeded in attraction public deposits due to low rate of interest paid to the investors. Lack of the professionally talented persons in the organisation structure of the RFC.gurukpo. is not sufficient to meet its financial .: On account of the following reasons the functions of the RFC are criticized : (i) (ii) (iii) (iv) (v) (vi) (vii) Least attention is paid on underwriting of securities. giving guarantee etc. Less attention is paid towards sophisticated and hi-tech industries. There is lack of flexibility in the working of the RFC. Fore more detail:.http://www.7 Write a critical essay on the performance of RFC? Ans.Q.

: The following suggestions can be given for the improvement in the functioning of the RFC : (i) (ii) (iii) (iv) (v) (vi) (vii) The criteria for the sanction of loans should be further Liberalised and more attention be paid for offering guarantee against loans.http://www. The procedure for the sanction and disbursement of loans should be made more simple. Corporation should pay due attention on its other functions. i. The corporation should invest in the capital of industrial units in association with other financial . □□□ Fore more detail:.8 Give a few suggestions for improving the functions of RFC? Ans. (viii) Exports from different field should be appointed in the functioning of the Board. Public deposits should be allowed on more attractive terms. Importance should be given to modern industrial units along with traditional industrial units.e. under writing.Q. The bureaucratic functions should be effectively checked and steps may be taken toward decentralization of authority. offering guarantee. equity participation etc. (ix) There is need to find additional sources of capital to meet its commitments in time.gurukpo.

objectives and also mention its significance? Ans. a stock exchange may be defined as an association of persons organised or incorporated to provide a market among themselves for the purchase and sale of securities.: The stock exchange is an important segment of capital market which. Transactions can be made according to the rules and bye-laws framed.” Thus. It is a barometer which indicate the general conditions of business in a country. In the words of Pyle. (ix) (x) (xi) Only those securities are allowed to be transacted which are listed in stock exchange. who are the authorized members of the stock exchange. Stock Exchange is a registered body. may be bought and sold for either investment or speculation. Securities are transacted only through the brokers. Objectives : The main objectives of a stock exchange are as under : Fore more detail:. Characteristics : (i) (ii) (iii) (iv) (v) (vi) (vii) A stock exchange is an important segment of capital market Stock Exchange is an important source of capital formation. Provides liquidity on securities to the investors.http://www.gurukpo.1 Define Stock Exchange? Explain its characteristics. It is an intermediary between the buyer and seller. It is a regular market for buying and selling in securities. (viii) Cash transactions and forward (future) transactions can be held in a stock exchange. not only provides capital but also helps investors to trade in . “Stock exchanges are market places where securities that have been listed thereon.CHAPTER-4 Stock Exchange Q. It is an highly organised market where securities are purchased and sold for a consideration through its members acting as brokers jobbers.

Significance to the community and the nation. Significance to Investors : Provide market.(i) (ii) (iii) (iv) (v) To provide a specific place. The investor can deal in buying and selling in securities while remaining any part of the country.http://www. . and other facilities to the registered members of Stock Exchange. Regular market becomes available. Fore more detail:. Decision about investment get easy. To regulate and control transactions in securities. regular market. Provides information about demand conditions. the significance of stock exchange may be grouped into as follows : (1) (2) (3) (1) (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) (xii) (2) Significance to investors. Importance or Significance of Stock Exchange : For the convenience of study. The buyers and sellers can transact business with full confidence. To develop the business of the country by increasing the volume of transaction in securities. This market makes provisions for future transactions. Significance to the Security Issuing Companies : (i) (ii) (iii) (iv) It brings liquidity and (viii) The listing of securities – provide security to investors. Significance to institutions issuing securities. It provides liquidity. It extends guidance to investors.gurukpo. Reduces the risk of investors. Publication of quotations and activities of stock exchanges. Maintaining price stability in securities. Investment in foreign securities. Buying and selling. Stability in prices. To build up high level of trustworthy and responsibility among the members who deal in securities.

It facilitates to obtain foreign investment. (viii) Able to subscribe for its share and deb. To provide a ready and regular market. Encouragement to healthy competition. Fore more detail:. To see that rules relating to listing of securities are strictly observed. The government can obtain capital for its economic development.2 It motivates the people to save and investment. It serves a source for the development of sound industrial organisation. Proper printing of securities. Write the functions of Stock Exchange? General Functions of Stock Exchanges : (i) (ii) (iii) .http://www.) Act. leading capital formation in the country. It helps in the balanced development of the country by wider distribution of securities throughout the country. Granting special permission to the members to transact beyond the limit approved. To make efforts to stop the undesirable speculation. To keep a watch on the day to day functioning of stock markets. The see that orders issued by the Central Government in respect of stock exchange are strictly followed. 1956.gurukpo.(v) (vi) Improves the goodwill of the company. (3) Significance to the Community and the Nation : (i) (ii) (iii) (iv) (v) (vi) Q.: The functions of stock exchanges are as follows : (1) Functions of Directorate of Stock Exchange : (i) (ii) (iii) (iv) (v) (vi) (vii) (2) To see whether all the stock exchanges are functioning according to the provisions of securities contract (Regu. It increases international dynamism or capital. It is the economic barometer of the country. To advice the Government in respect of administration of stock exchanges markets. whenever needed.

(xiii) Makes the transactions viable and secured. To prohibit insider trading in securities. To regulate the business in stock exchanges and other securities markets.http://www. bankers. 1992. credit rating agencies. To regulate and control the functioning of intermediate’s like stock brokers. (viii) To impart education and training to stock market investors. Publication of market report.gurukpo. popularly known as . sub-brokers share transfer agents. (viii) Assists in capital formation. Providing liquidity to healthy competition. and to promote and regulate the development of securities market in the country. Maintains stability in prices. Economic barometer. known as securities and Exchange Board of India Act. The basic object of this Act was to provide statutory powers to SEBI so as to protect the interest of investor.(iv) (v) (vi) (vii) (ix) (x) (xi) (xii) Encourage for more savings. Listing of securities. was constituted by department of economic affairs. (xv) Q. To register and regulate the working of depositories custodians of securities foreign institutional investors. In 1992 an Act was passed by parliament of India. Fore more detail:.: Securities and Exchange Board of India. Wider distribution of securities. To prohibit fraudulent and unfair trade practices relating to securities markets. Government of India on 12th April. 1988 with an object to develop and regulate the Indian capital market. Capital for industrial and services institutions. To promote and regulate self-regulatory organisations. This Act came into force with effect from 21 February. portfolio managers.3 Education to investors. Powers and Functions of the SEBI : It shall be the duty of the Board : (i) (ii) (iii) (iv) (v) (vi) (vii) To protect the interest of investors. (xiv) Acts as middleman. 1992. Discuss the Power and Function of SEBI? Ans.

Levying fees or other charges for carrying out operations in stock market. Introduction of ‘Stock Invest Plan’. Expression of ‘Risk Factors’. (xv) To control and regulate large scale purchase of company’s securities. Registration of merchant bankers. Regulating the working of venture capital funds and collective investment . 11A as may be appropriate in the interest of investor in securities and the securities market. To present the affairs of any intermediates or other persons referred to in the Sec. (xvi) Registration of intermediaries and issue of registration certificates to them as required under the SEBI Act. or To any company in respect of matters specified in sec. It has made the following effort in this connection : (i) (ii) (iii) (iv) Redesigning of prospectus. Q.gurukpo. it may issue such directions : (a) (b) To any person or class of persons referred in sec. To secure the proper management of any such intermediary or person. Fore more detail:.4 Discuss the role of SEBI? Ans.http://www. including mutual funds. (xiv) Performing such other functions as may be prescribed. 12 or associated with the securities market.: The role of SEBI can be divided into two parts for the convenience of the study : (1) (2) (1) Role in Primary Market Role in Secondary Market Role in Primary Market : The SEBI has been playing important role in safeguarding the interest of investors in primary market (new issue market). To regulate and promote self-regulatory organisations in the securities market.12 for the interest of investors or security market. (xiii) Conducting research for any of the above purposes. Power to Issue Directions : (i) (ii) (iii) In the interest of investors or orderly development of securities market.(ix) (x) (xi) (xii) To regulate substantial acquisition of shares and takeover of companies.

(viii) Efforts of complete allotment and listing procedure. Laying out guidelines. Research and publications. At the beginning its operations have been limited to the jurisdiction of Mumbai. This will be clear from the description of the following points : (i) (ii) (iii) (iv) (v) (vi) (vii) Contribution towards expansion of stock exchanges. Initially the recognition was granted by the government to this exchange in August 1989 for a period of five years. Regulation of insider trading. Improvement in the working . Registration of investors association. Inspection of stock exchanges. Constitution of advisory committee. Role in Secondary Market/ Stock Exchange : The SEBI also plays important role in the expansion and quality improvement of secondary market/stock exchanges in the country. towns and appointment of dealers and members have been in progress. 1992. Education to investors. Registration of other important institutions. but later extended to Madras and Delhi. dealers and representative offices. By January 1995. but it started the operations from November. Fore more detail:.(v) (vi) (vii) (ix) (x) (2) Solutions to investor’s complaints and problems. a net-work of its offices have been set up in 25 cities in the country in 1995 it had a total membership of 325 members.: The OTC exchange is a recognise stock exchange market under security contract (regulation) Act.http://www. Development of detachable abridged prospectus with share application. (viii) Registration of brokers and sub-brokers. Write a short notes on OTCE? Also mention it features and advantages? Ans. Regulation and control of ‘Mutual Funds’. Thereafter the process of setting up counters in different cities. Registration of ‘Portfolio Managers’. Objectives : The main objectives of setting up the OTC Exchange have been the following : (i) To provide listing facility to small and medium size companies. (ix) (x) (xi) Q.5 Registration of foreign investment institutions.

To provides proper liquidity to all securities. Issue sponsor. To make available alternate arrangement for the investors to deal in securities. Nationwide trading. Ringless exchange. (viii) To assist in complying with buying and selling decision promptly. Advantages to Companies : The fallowing advantages are available to companies subscribing from public : Fore more detail:. Market maker. Computer screen based . To provide information about the latest prices of different securities to investors. Advantages of OTC Exchange : The new system of security market evolved by OTC exchange offers number of advantages over the traditional stock exchange. To make available nation-wide market for buying and selling of securities. To relieve the investors from delay in settlement of deals. Advantages to Investors. The advantages can be divided in to : (i) (ii) (iii) Advantages to companies. No physical delivery of security certificate. Modern technology to be used in stock exchange.http://www. Operation by authorised dealers / members. Advantages to members and dealers.gurukpo.(ii) (iii) (iv) (v) (vi) (vii) To assist such companies in subscribing capital at low issue expenses. Transparency. Trading through online system. (xiii) Nationwide listing of securities. No dual listing. (ix) (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) (xii) Features of OTC Exchange : The important features are as under : (viii) Registration of investors. Floorless exchange.

Its registered office is situated in . 1992. Provides definite liquidity. Initially for a period of five years.(i) (ii) (iii) (iv) (v) (i) (ii) (iii) (iv) (i) (ii) (iii) Helps in raising funds at fair price. The important objectives of setting up the NSE is as follows : (i) (ii) (iii) (iv) To make available a countywide market for dealing in securities. The exchange is wholly computerized and linked through the satellite communication system. quick disposal of transaction provides greater confidence to investors. Stability in management. it provides easier trading. Enhance capital raising power. Ans. Quick disposal of transaction. Fore more detail:. To make available top quality service to all investors. pragmatism transparency in security market.: National Stock Exchange (NSE) was set up on 27th November. There is a regular settlement system within a weeks time. Display of security prices on computers.gurukpo.http://www. Provides sense of security. It encourages closely help companies to go pubic. This exchange is granted permission by the Government of India under the provisions of security contract (Regulation) Act.6 Write a short note on NSE (National Stock Exchange). To bring efficiency. thus it increase the volume of work. Advantages to Investors : The following advantages are available to investors : Advantages to Members and Dealers : (iv) Q. under the provisions of companies Act. 1956 on the basis of ferwani committee recommendations for providing nation wide stock market services to investors. it started from April 1993. Due to high volume of work transparency in transaction. Saving in cost. To bring the stock exchange within the proximity of all the investors. As it is a ring less trading system based on computer network. Provides national market for buying and selling of securities.

com . □□□ Fore more detail:.gurukpo. To set an example of ideals for the other stock exchange. To extend the Indian stock market to world level.http://www.(v) (vi) (vii) To facilitate speedy clearing of transactions.

Objectives/ Advantages of Combinations : The basic objectives/ advantages of combinations are summarized below : (i) (ii) (iii) (iv) (v) (vi) (vii) (i) To avoid unhealthy and wasteful competition. In the words of M.: A combination is said to exist when two are more commercial or industrial units are operated or controlled by one ownership interest. survival or growth. It is not essential that always the combining units may lose their existence when forms into a new institution. a view to earn maximum profits on capital employed. Combination take a number of forms varying from the unwritten understanding amongst dealers to a highly integrated amalgamation or fusion of business houses covering a whole and of productive activity. producing similar or different article or engaged in the successive process of manufacture of an article with. Kothari. It enables the combining units to withstand the rigours of depression. To enjoy the advantages of professional management and services.1 What do you understand by Business Combination? Discuss its objectives? Ans. “Combination refers to any formal or informal combining of two or more industrial units. proprietary or corporate entity. Advantage to Other Objects : They include the following : .http://www.gurukpo. for a common purpose.” It is clear from above definitions that business combination may be any formal or informal agreements between two or more industrial units of similar or different articles producing units. Fore more detail:. Reductions in the distribution functions. To make the member units sound on economic and business point of view. To regulate output or prices.CHAPTER-5 Business Combination Q. L. Desire for prestige.

It enables the units to join hands and establish a monopoly with all its economics in –production. It enables the full utilisation of patents and technical know how on a cooperative basis. Inefficiency. What are the disadvantages/evils of Combinations? (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) (x) (xi) Mis-utilisation of collective strength. Bar to economic progress. management. Encouragement towards over capitalization.(ii) (iii) (iv) Q. OR What are the various form of Business Combinations? Ans. Increased risk. They have different forms in different types of situations existing in different countries of the world.2 It Provides full play to the ambitions and abilities of capable entrepreneurs.3 Write various forms of Business Combinations? Ans.http://www. Exploitation of consumers. Concentration of economic and political power.: Evils of combinations are given below : (viii) Exploitation of producers. and marketing. The classifications of combinations are as follow : Forms of Business Combinations Simple Association Complex Association 1) Federations 1) Trade Associations Fore more . Creates instability in the economic system. Unfair practices to root out small businessmen. Unfair tactics.: The business combinations are essentially the result of the different types of integration’s.gurukpo. Q.

Fore more detail:.4 What are the different types of Business Combinations? .http://www. There are five main types of business combinations such as : Kinds of Business Combinations Horizontal Combination Vertical Combination Lateral / Allied Combination Lateral Combination Circular Combination Diagonal Combination Convergent Divergent Lateral Combination (1) Horizontal Combination : Horizontal combination refers to the combinations of plants of the same stage of production or at the same plane in the trade of commerce. There are run under single form of Management.2) Chamber of Commerce 3) Trade Union 4) Gentlemen’s Agreements (a) Pools (b) Cartels 2) Consolidations (i) Partial Consolidation (a) (b) (c) (ii) (a) (b) Combination Trust Holding Company Community of Interest Amalgamation Merger Complete Consolidation Q.gurukpo. For Example : A combination of five steel mills doing similar business belongs to the category of horizontal combinations.

Vertical Combination : It implies the integrations of the various process of an industry controlled by different firms. Danger to units remain outside the combination. Fore more detail:. Exploitation of customers. wearing and bleaching may join together to form a vertical combination. spinning. and bailing. Brings economics of large-scale production. For Example : The units engaged in ginning of cotton carding. Economic stability.http://www. Equilibrium in demand and supply. Lead to the creation of monopoly. Representation of industry. Cost . pressing.Horizontal Combination Steel Mill A Steel Mill B Steel Mill C Distribution Forms of Vertical Combinations Forward Integration Backward Integration Steel Mill D Steel Mill E Advantages : The important advantages of horizontal combinations are given below: (i) (ii) (iii) (iv) (v) (vi) (vii) Reduce the intensity of competition. manufacture to the finished product for distribution. (viii) Facilitates government control easier. Monopoly profit. Disadvantages : They include the following : (i) (ii) (iii) (iv) (v) (2) Cannot ensure a regular supply of raw materials Cannot avoid cut-through competition.

Disadvantage : The disadvantages of vertical combinations are as follow : (i) (ii) (iii) (iv) (3) Large –scale production not possible. Better consumer services. Elimination of middlemen. (viii) Scientific innovation becomes . Increase in competition. Mutual dependence. Lateral combination may take any of the two forms such as: (i) (ii) Divergent Lateral Combination Convergent Lateral Combination Fore more detail:. Lack of flexibility.http://www. Need for lesser number of salesmen. Maintain quality of raw materials.Cotton Ginning Mills Cotton Spinning Mills Cotton Wearing Mills Printing and Dying Mills Selling Institution Advantages : The important advantages are summarized below : (i) (ii) (iii) (iv) (v) (vi) (vii) Certainty of raw materials. Certainty of income.gurukpo. Economics of bulk purchases. Lateral or Allied Combination : Lateral or allied combination refers to those firms which manufactures different kinds of products though they are allied in some way.

wire. Steel Industries Steel Machinery Printing Furniture Material (ii) Domestic Locomotives Utensils Convergent Lateral Combination : The various types of products manufactured by the combining units become the raw materials of a single firm. shoes. such a firm becomes the center nucleus of a combinations. to get the supply of these things required for it. stell furniture etc. it is called a circular or mixed combination. nails.http://www.gurukpo. printing machinery etc. can be . The important object or the idea of such a combination is to derive the benefits of combined administrative advantages. types. The diagram below depicts a convergent lateral combinations : Paper Printing Press Card Board (4) Imk.(i) Divergent Lateral Combination : It takes place when a major firm supplies its product to the other combining firms which uses it as their raw materials. Steel Mill supplies steel to a number of allied firms for the manufacture of a variety of products like tubing. For example : a printing press may combine with units producing paper. suit cases. This means that a product of one firm becomes the raw materials of many other firms. Fore more detail:. cardboard. machinery. Type Circular Combination: When firm belonging to different industries and producing altogether different products integrate or combine under a central agency. ink. fancy goods etc. building materials locomative. harness. For example : Leather is the source of raw material from which saddles.

Q. There were the simple associations.5 Write a short note on Combination Movement in India? Ans. Fore more detail:. the development and growth of combination movement in India were very slow.Electronics Heavy Machines Sugar Iron and Steel Pharmaceutical and Chemicals Large Business Houses Cement Textiles Automobile (5) Diagonal Or Services Combination : It is a combination which is bought about by diagonal integration.: The combination movement in India may be studied by dividing the periods into two parts: (1) (2) (1) Development till India’s Independence Development after Independence Development till India’s Independence : Before India’s Independence. It takes place when a unit providing essential auxiliary goods and services to an industry is combined with a unit operating in the main line of . In such a case.http://www. If a industrial enterprise combines with repairs workshop for maintaining the tools and machines in a order it is called as diagonal integration. three forms of combinations were found operating in the country. An organisation may make ancillary articles necessary for making the main product fit for sale.gurukpo. the goods and services required for the main process of production will be available inside the organisation itself. chambers of commerce and output combinations. The major reasons for this slow growth were continued because of following factors : (i) (ii) Lack of competition. Till Independence. Lack of industrial development.

(iii) (iv) (v) (vi) (vii) (2) Managing agency system in the country. many trade association and chamber of commerce have been established. the combination movement took momentum and the following two forms took place : (i) (ii) (i) Community Interest Alliances and Mergers Community Interest : After the independence. Small and Scattered industrial units. such as (a) (b) (ii) Interlocking of interests through managing agents of financial and managerial integration. (b) Ashoka Motors Ltd. Some of the main collaborations in early days were :(a) The Hindustan Motors Ltd. The main reason for this growth was the increasing number of companies in the country. another development started.linking with Austin Motors Ltd. as a result of Nuffield – Birla Motars deal. the process of takeovers have also been taken place in view of the Liberalisation policy adopted by the Government.. or collaborations between Indian and foreign industrialists.gurukpo. For instance.http://www. for the manufacture of cars and trucks etc. Less number and small size of units. State interference. namely the formation of alliances. Development after the Independence : After the independence.. Tata steel company has taken over the management and control of many engineering Fore more detail:. It was the most widely employed form of combination in India at that time and has assumed two main forms. Interlocking through directors. The managing agency system was prevalent in Indian companies and this has helped in the development of activity of . Alliances/ Collaborations/ Mergers/ Takeovers : After the world war II. (viii) Lack of corporative spirit. Some examples of public sector collaboration were (a) an agreement between the Government of India and Krupps and Demag of Germany for setting up of a steel plant at Rourkela. In addition to mergers and alliances. after 1985. Individual outlook of Indian businessmen. (b) another with a Swiss firm for production of Machine Tools etc.

Inter-locking directorship in companies. The momentum of takeovers. . Some important reasons for this interest are summarized below : • • • • • • • • • • Liberalisation. Q. has taken over many smaller companies producing detergent powders etc.: Pool : A Pool is a business organisation formed with member units to seek a degree of control over the price. Policy of the joint sector.http://www. To have the advantage of high technology. Coco-cola with Parle soft drinks.gurukpo.” Fore more detail:. Operations in stock exchange. Relaxation in the provisions of FERA. Provision in the sick Industrial companies. To cope with the supply of raw materials.H. At present more interest is found in the combination movement in India. and mergers have been more faster in recent year. The foregoing analysis is an indications of growing importance of combinations movement in India. for instance – General Electric Company with Godrej refrigerators. especially after the independence.companies operating in eastern southern regions similarly Hindustan Liver Ltd. “A pool is a form of business organisation established through federation of business units whole members seek a degree of control over prices by combining some factors in the price making process in common aggregate and apportioning that aggregate among members. Policy of nationalization.6 What do you understand by a Cartel and Pools? Ans. Proctor and Gamble with Godrej soap. It is usually formed by agreements in writing and provided for penalties to those who violate it. Godrej with Goodnight etc. Definition of Pool : In the words of L. To remove the problems of marketing.

In the words of Van Bechereth.” Fore more detail:.http://www.Federation of Pools : Company H Company A Pooling Member Company G The Pool Company C Company B Company F Types of Pools: (i) (ii) (iii) (iv) (v) (vi) (vii) (ix) Price Pool Output Pool Company E Company D Territorial or Market Pool Traffic Pool Income or Profits Pool Patent Pool Export Pool Mixed Pool (viii) Agriculture Pool Cartels : Cartel is a voluntary agreement of capitalistic enterprise of the similar type to secure a monopoly of the market. It is a pool in which common sales agency or syndicate is . The basic object of a cartel is the domination of market by the elimination of competition through various restrictive measures. An agreement which is made with a view to improve the profit of its members business. “A cartel is a voluntary agreement of capitalist enterprises of the same branch for the regulation of the sales market with a view to improve the profitability of its business member.gurukpo.

http://www. Merger or Absorption : Absorption is another name for merger.gurukpo. none of the existing companies retain its Fore more detail:. □□□ Send your requisition at info@biyanicolleges. Under amalgamation. The absorbing company retains its identity and enlarges its size through merger.7 Term Fixing Cartels Price Fixing Cartels Customer Assigning Cartels Zonal Cartels Quota Fixing Cartels Super Cartels or International Cartels Syndicate or Proper Cartel (viii) Buying Cartel What do you understand by Amalgamation and Merger? Ans. The company which is merged loses its entity in the absorbing company.Types of Cartels : (i) (ii) (iii) (iv) (v) (vi) (vii) . Merger refers to one business unit combine with another unit.: Amalgamation : Amalgamation implies the creation of a new company by a complete consolidation of the combining units two or more companies working as a group or otherwise may liquidate themselves under the law and sell their assets and transfer their liabilities to a new company which issues its own stock in exchange for the worth of property received from the amalgamating companies.

Sign up to vote on this title
UsefulNot useful