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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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

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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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• 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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• 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

Subsidiary 1
Holding/
Subsidiary
Companies Subsidiary 2

Subsidiary 3

Private Corporate Organizations

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Management Science II Dr.T.J.Kamalanabhan

• 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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CEO/ PRESIDENT

PRODUCTION ADMINISTRATION

FINANCE PURCHASE

DEBT1 DEBT2 DEBT3

ZONE1 ZONE2 ZONE3

C.O.O

TECHNOLOGY SERVICES BUSINESS

RESOURCES DEVELOPMENT

ASSISTANT GENERAL MANAGER(Tech)

CLIENT COLLABORATIVE MANAGER(B.D)

COMPUTING INTERNET
SERVER

MANAGER
(RESOURCE) PROJ.MANAGER PROJ MANAGER PROJ MANAGER

CONSULTANTS CONSULTANTS CONSULTANTS

BUSINESS BUSINESS BUSINESS
ANALYST ANALYST ANALYST
HR
EXECUTIVE
FACILITY OFFICE ASST.
SOFTWARE SOFTWARE SOFTWARE MANAGER
EXECUTIVE COORDINATOR ENGINEERS ENGINEERS ENGINEERS (B.C)

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Complex Structure Of Organizations

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BUREAU

ADVISORY EXECUTIVE
COMMITTEES COMMITTEE

STANDARDS
CERTIFICATION
LABORATORY
PLANNING & DEVELOPMENT
LEGAL
CONSUMER POLICY

DIRECTOR
GENERAL

DIRECTOR
GENERAL

ADGM ADGT DDGA DDGF CVO

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ADGM

DDG DDG DDG DDG DDG

CENTRAL NORTHER SOUTHE EASTE WESTERN
N RN RN

−CMD-I −MDD-I −MDCH-I −MDM-I −NDC-I

−CMD- −MDD-II −MDCH-II −MDM-II −NDC-II
II −NDC-III
−MDD-III −MDCH-III −SROLAB
−CMD- −BHOPAL −NROLAB −BANGALORE −EROLAB
III
−QSD − GHAZIABA −FARIDABA−COIMBATORE −BHUBANESHWA
D D −HYDERABAD R
−KANPUR − −GUWAHATI
−

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ADGT

DOGT-I DOGT-II DOGL

−CED
−P&C −ETD −TISC −CLCHEM
−HRD −MTD −SPD −CLELECT
−IRD −BPD −CAD −CLMECH
−BS −LTD −BMP −CLQA
−WRD −TI −LABP &PUR
−TED −CC
−FAD −FL
−PCD
−TXD
−MHD
−CHD
−MSD

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ADGM

DODG DOGF CVO

−ESIT −FINANCE −VIGILANCE

−GAD & −ACCOUNTS
SECURITY
−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.

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Management Science II 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 case-
by-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 export-
oriented.

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