Management Science II

Dr.T.J.Kamalanabhan

MODULE 7 Business Organizations

Business can be undertaken in various forms
In many instances, ways of doing business are governed by law. In others, they are determined by the preferences of the entrepreneurs involved, such as nature of business, tax and personal considerations.

Purpose Of Organizations
People need to work together to accomplish goals Goals are too large, too complex, too expensive to be achieved without cooperation By working together, people can produce more & better goods and services

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Types Of Organization
Retail outlet Manufacturing Service Government NGO

Retail Organizations
Food world Subhiksha McDonald Lifestyle

Manufacturing Organizations
Tata Engineering Larsen & Tubro Bajaj Auto

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Ashok Leyland Ballarpur Industries

Service Organizations
Infosys HDFC ICICI Appolo Hospitals Ltd. The Indian Hotels Company Ltd.

Government Organizations
National Thermal Power Corporation ONGC MTNL Indian Railways Administrative Staff College of India

Non-Government Organizations

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Indian Wind Turbine Manufacturers Association CRY The Banyan Udavum Karangal

Helpage India

Factors Considered In Forming A Business Organization

Legal restrictions Kind of business operation Need for capital Tax advantages or disadvantages Liabilities assumed Decision-making Intended division of earnings Number of people associated with the venture and their specific roles Perpetuation of the business

Factors In The Creation Of A Business Organization

Costs associated with starting the form of business organization Possibility of transferring the interest in the business organization Management control Initial capital requirements

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Ability of the form of organization to attract additional capital

Types Legal Classification

Entrepreneurship / Sole Proprietorship Partnership Co-operatives / Associations Agencies Trust Corporate bodies

Sole Proprietorship
Business entity owned and operated by one person. This is usually the least costly way of starting a business.

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Dr.T.J.Kamalanabhan

Sole Proprietorship
Advantages
Easiest to get started Greatest freedom of action Maximum authority Income tax advantages in very small firms Problems with isolation

Disadvantages
Unlimited liability Death or illness endangers business Growth limited to personal energies Personal affairs easily mixed or confused Social security advantage to owner with business

Indian Institute of Technology Madras

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Dr.T.J.Kamalanabhan

Partnership
A partnership is an association between two or more persons who have agreed to operate a business. Partnership is where two or more parties cooperate and work together A partnership brings together and uses partners' resources more economically, efficiently and effectively. Partnerships are a means of achieving outputs and outcomes that are important in relation to the needs of the local community Partners develop a commitment to an agenda for joint or co-ordinate action The partnership process involves planning each partner's contribution, what is expected of them and how they will benefit. The partnership involves the formation of effective leadership of the joint or co-ordinate action being taken.

Contents Of Partnership Deed

Type of business Amount invested by each partner Division of profit and loss Compensation for each partner Distribution of assets on dissolution Duration of partnership

Contents Of A Partnership Deed

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Restrictions of authority expenditures Provisions for withdrawals or admission of additional partners Dispute settlement clause Provisions for dissolving Settlement in case of death or incapacitation of any partner

Partnership
Advantages
Two heads are better than one Additional sources of capital Better credit rating than corporation of similar size Ease of formation

Disadvantages
Death, withdrawal, or bankruptcy of one partner Difficult to get rid of bad partner Hazy line of authority. Personally liable for business debts

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Dr.T.J.Kamalanabhan

Divided authority.

Co-Operatives

Cooperative enterprises provide the organizational means whereby a significant proportion of humanity is able to take into its own hands the tasks of creating productive employment, overcoming poverty and achieving social integration. They constitute a model for a people- centred and sustainable form of societal organization, based on equity, justice and solidarity.

Co-Operatives In India

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Co-operative Initiative Panel Transport Co-Operative Society SARADA Amul Cooperative Banks Sugarcane Growers Cooperative Society

Agencies
Under the Indian Contract Act, 1872, agency is a relationship founded upon a contract, either express or implied, by which one of the parties confers on the other the management of some business to be transacted in his name or on his account and by which the other assumes to do business and renders an account of it. A typical agreement would include clauses under the following broad heads:

Contents Of Agency Agreement

1. Appointment 2. Trademark and copyright license and acceptance 3. Term of the agreement

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4. The principal's representation of the agent to its customers 5. Commissions 6. Indemnification

Contents Of Agency Agreement

Quality control Relationship of the parties Excusable delays Assignment Third parties Modifications No waiver Governing law Notices Arbitration agreement Agency termination

Corporation

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Dr.T.J.Kamalanabhan

A voluntary organization of persons, either actual individuals or legal entities, legally bound together to form a business enterprise. A corporate body is an artificial being, invisible, intangible and, existing only in contemplation of the law. In other words, a corporation is a distinct legal entity, separate from the individual who owns it.

Corporation
Advantages
Limited liability for stockholders (While true for big business, may not be true for small business) Continuity Transfer of shares Easier to raise capital Possible to separate business functions into different corporations Transfer of shares

Disadvantages
Gives owner a false sense of security Heavier taxes Power limited by charter Less freedom of activity Legal formalities Expensive to start Increased accounting

Corporate Forms Of Organizations

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PRIVATE

PUBLIC

GOVERNMENT

Types Of Corporate Organizations

The principal forms of business enterprises in India are as follows

Limited by shares
Private Company

Limited by guarantee

Unlimited

Limited by shares
Public Company

Limited by guarantee

Unlimited

Holding/ Subsidiary Companies

Subsidiary 1

Subsidiary 2

Subsidiary 3

Private Corporate Organizations

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Roop polymers Ltd. Sundaram Finance Ltd. ANL Parcel

Public Corporate Organizations

Reliance Industries Hindustan Lever ITC ACC SPIC Philips India

Government Organizations
Indian Railways Air India Indian Airlines Road Transport Corporations

Structure
The organizational structure defines the formal communication relationship in the organization The organizational structure links various activities of the business through job profiles The organizational structure is represented through the organizational chart

Organization Structure

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COMMUNICATION LINK

BUSINESS ACTIVITY LINK

Simple Organizational Structure

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Dr.T.J.Kamalanabhan

CEO/ PRESIDENT

PRODUCTION

ADMINISTRATION

FINANCE

PURCHASE

DEBT1 DEBT2

DEBT3 ZONE1 ZONE2 ZONE3

C.O.O
RESOURCES TECHNOLOGY SERVICES BUSINESS DEVELOPMENT

ASSISTANT GENERAL MANAGER(Tech)

CLIENT SERVER

COLLABORATIVE COMPUTING

INTERNET

MANAGER(B.D)

MANAGER (RESOURCE)

PROJ.MANAGER

PROJ MANAGER PROJ MANAGER

CONSULTANTS BUSINESS ANALYST

CONSULTANTS BUSINESS ANALYST

CONSULTANTS BUSINESS ANALYST

HR EXECUTIVE
FACILITY OFFICE EXECUTIVE COORDINATOR
SOFTWARE ENGINEERS

SOFTWARE ENGINEERS

SOFTWARE ENGINEERS

ASST. MANAGER (B.C)

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Complex Structure Of Organizations

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BUREAU

ADVISORY COMMITTEES

EXECUTIVE COMMITTEE

STANDARDS CERTIFICATION LABORATORY PLANNING & DEVELOPMENT LEGAL CONSUMER POLICY

DIRECTOR GENERAL

DIRECTOR GENERAL

ADGM

ADGT

DDGA

DDGF

CVO

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ADGM

DDG CENTRAL

DDG NORTHER N

DDG SOUTHE RN

DDG EASTE RN

DDG WESTERN

CMD-I MDD-I CMD- MDD-II II MDD-III CMD- BHOPAL III QSD GHAZIABA D

NDC-I MDCH-I MDM-I NDC-II MDCH-II MDM-II NDC-III MDCH-III SROLAB NROLAB BANGALORE EROLAB FARIDABACOIMBATORE BHUBANESHWA D HYDERABAD R GUWAHATI KANPUR

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ADGT

DOGT-I

DOGT-II

DOGL

P&C HRD IRD BS

CED ETD MTD BPD LTD WRD TED FAD PCD TXD MHD CHD MSD

TISC SPD CAD BMP TI CC FL

CLCHEM CLELECT CLMECH CLQA LABP &PUR

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Dr.T.J.Kamalanabhan

ADGM

DODG

DOGF

CVO

ESIT GAD &

SECURITY

FINANCE ACCOUNTS

VIGILANCE

HINDI PID PUB PR LIBRARY SALES &

DISTT

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Organization Structure Of Government Ministry

Foreign Entry Into India

A Foreign business organization has its corporate head office located outside the boundaries of India. All foreign investment and collaboration ventures in India need government approval.

Indian Institute of Technology Madras

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Dr.T.J.Kamalanabhan

Restrictions In Foreign Entry Into India

Ownership & Management
The major interest in ownership and management of companies falling in the industry list reserved for the public sector should be in Indian hands. However, the government of India, in exercise of its discretion, may not object to foreign capital having control of a concern in such areas for a limited period in the national interest.

Restrictions An Foreign Entry Into India Investment Ceiling

Normally, foreign equity capital participation is limited to 51% of the total paid up capital. However, a higher foreign contribution towards equity can be considered in the priority industries by the Foreign Investment Promotion Board or the Secretariat for Industrial Approvals on a caseby-case basis.

Restrictions In Foreign Entry Into India Royalty:

The rate of royalty is normally limited to 5% on internal sales and 8% on export sales for a period of 5 years depending on the nature of the technology, etc., but a higher rate of royalty for a longer period may be considered in exceptional cases where technology is sophisticated or is exportoriented.

Indian Institute of Technology Madras

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Dr.T.J.Kamalanabhan

Indian Institute of Technology Madras