Module 5

Business Organizations
and
E-Governance
Business and Owners
A business is defined as an organization or enterprising entity engaged
in commercial, industrial, or professional activities. ... The term
"business" also refers to the organized efforts and activities of
individuals to produce and sell goods and services for profit.
a person who owns something : one who has the legal or rightful title
to something : one to whom property belongs
business/property owners He and his sister are owners of the
restaurant.
 Sole Traders
A sole trader is a self-employed person who owns and runs their own business as an
individual. A sole trader business doesn’t have any legal identity separate to its owner,
leading many to say that as a sole trader you are the
As a sole trader, you have absolute control over your business, its business,assets and
profits after tax. Alongside this control, this business model offers comparative simplicity,
versatility and a number of other advantages. In another article, we look in detail at sole
trader advantages.
Unlike the owners of a limited company, however, a sole trader is personally liable for their
business’s debts and their personal assets may be at risk if creditors cannot be paid.
The best form of ownership is Sole proprietorship, because it gives you complete control
of your business.This unlimited liability and the pressure involved in having to shoulder all
the responsibility can be significant challenges. There are 4 main types of
business organization: sole proprietorship, partnership, corporation, and Limited Liability
Company, or LLC.
 Partnerships
A partnership is a formal arrangement by two or more parties to manage and
operate a business and share its profits.
There are several types of partnership arrangements. In particular, in a
partnership business, all partners share liabilities and profits equally, while in
others, partners have limited liability. There also is the so-called "silent partner,"
in which one party is not involved in the day-to-day operations of the business.
How a Partnership Works
In a broad sense, a partnership can be any endeavour undertaken jointly by
multiple parties. The parties may be governments, non-profits enterprises,
businesses, or private individuals. The goals of a partnership also vary widely.
Within the narrow sense of a for-profit venture undertaken by two or more
individuals, there are three main categories of partnership: general partnership,
limited partnership, and limited liability partnership.
 Companies
A company, abbreviated as co., is a legal entity representing an association of people,
whether natural, legal or a mixture of both, with a specific objective. Company members
share a common purpose and unite to achieve specific, declared goals. A company is a legal
entity formed by a group of individuals to engage in and operate a business—commercial or
industrial—enterprise. A company may be organized in various ways for tax and financial
liability purposes depending on the corporate law of its jurisdiction. The three basic types of
companies which may be registered under the Act are:
Private Companies;
Public Companies; and.
One Person Company (to be formed as Private Limited).
Companies are primarily classified into private and public. Private companies or private
limited companies are those companies that are closely-held and have less than 200
shareholders. Public companies are limited companies that have more than 200
shareholders and are listed on a stock exchange.(Amazon.com, Inc. (/ˈæməzɒn/ AM-ə-zon) is
an American multinational technology company, Google, Apple, Microsoft, and Facebook. )
Companies take various forms, such as:
•voluntary associations, which may include nonprofit organizations
•business entities, whose aim is generating profit
•financial entities and banks
•programs or educational institutions.
A company can be created as a legal person so that the company itself has limited liability as
members perform or fail to discharge their duty according to the publicly declared 
incorporation, or published policy. When a company closes, it may need to be liquidated to
avoid further legal obligations.
Companies may associate and collectively register themselves as new companies; the
resulting entities are often known as corporate groups.
 The best form of ownership:
If you want sole or primary control of the business and its activities, a sole proprietorship or
an LLC might be the best choice for you. You can negotiate such control in a partnership
agreement as well. A corporation is constructed to have a board of directors that makes the
major decisions that guide the company. McDonald's is a large franchise, it is a public limited
company, 
 The Company’s Act
Introduction:
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which
regulates incorporation of a company, responsibilities of a company, directors, dissolution of a
company. The 2013 Act is divided into 29 chapters containing 470 sections as against 658
Sections in the Companies Act, 1956 and has 7 schedules. However, currently there are only
438 (470-39+7) sections remains in this Act. The Act has replaced The Companies Act, 1956
(in a partial manner) after receiving the assent of the President of India on 29 August 2013.
The Act came into force on 12 September 2013 with few changes like earlier private
companies maximum number of members were 50 and now it will be 200. A new term of
"one-person company" is included in this act that will be a private company and with only 98
provisions of the Act notified. A total of another 184 sections came into force from 1 April
2014. rules are there in Companies Act 2013?
The 2013 Act is divided into 29 chapters containing 470 sections as against 658 Sections in
the Companies Act, 1956 and has 7 schedules. However, currently there are only 438 (470-
39+7) sections remains in this Act.
 The features of Company Act 2013
•The features of Company Act 2013?
•Features and advantages of the corporate form
•a) Separate Legal Entity.
•b) Perpetual succession.
•c) Common Seal.
•d) Limited Liability of Members.
•e) Transferability of shares.
•f) Capacity to sue and be sued.
•g) Company, not a citizen.
•Formation procedure.
Companies Amendment Act 2020 is applicable
On 19 September 2020, Lok Sabha passed the Companies (Amendment) Bill, 2020 and on 22
September 2020 it was passed by the Rajya Sabha. On 28 September 2020,
the Companies (Amendment) Act, 2020 (the 2020 Amendment Act) received the assent of the
President of India.
 Formation of a Company
Formation of a Company is a procedure of incorporation of a company. It
includes various factors and legal documents for the purpose of incorporation.
At the time of establishment, there are two documents play a very important
role. Those documents are Memorandum of Association (MoA) and Articles of
Association (AoA).The other necessary document is consent of proposed
directors, agreement, statutory declaration and payment of fee.
Company is formed under the Companies Act 2013
A public company must be formed with seven or more persons (3(1)(a)). A
private company must be formed with two or more persons (3(1)(b)). A one-
person company (OPC) is formed with a single person. It is a
private company with a single member which was introduced for the first time
via the 2013 Act (3(1)(c)).
The formation of a company is a lengthy process. For convenience the whole
process of company formation may be divided into the following four stages:
1. Promotion Stage
2. Incorporation or Registration Stage
3. Capital Subscription Stage
4.Commencement of Business Stage.

Stage # 1. Promotion Stage:

Promotion is the first stage in the formation of a company. The term ‘Promotion’
refers to the aggregate of activities designed to bring into being an enterprise to
operate a business. It presupposes the technical processing of a commercial
proposition with reference to its potential profitability. The meaning of promotion and
the steps to be taken in promoting a business are discussed in brief here.
Promotion of a company refers to the sum total of the activities of all those who
participate in the building of the enterprise up to the organisation of the
company and completion of the plan to exploit the idea. It begins with the
serious consideration given to the ideas on which the business is to be based.
Stage # 2. Incorporation or Registration Stage:
Incorporation or registration is the second stage in the formation of a company.
It is the registration that brings a company into existence. A company is properly
constituted only when it is duly registered under the Act and a Certificate of
Incorporation has been obtained from the Registrar of Companies.
Documents required for formation of company :
To incorporate their companies in India, Indian Nationals will require the
following documents for DIN (Director Identification Number (DIN) has been
introduced in India by way of the Companies Amendment Act, 2006.):
PAN Card. The proposed Director of the Company should submit a PAN
Card copy for company registration. ...
Address Proof. ...
Residential Proof. ...
Passport. ...
Address Proof. ...
Residential Proof.
(Generally LLP is better than Private Limited Company)
Procedure to Get a Company Registered:
In order to get a company registered or incorporated, the following procedure is to be
adopted
(A) Preliminary Activities:
Before a company is incorporated, the promoter has to take decision regarding the
following:
1. To decide the name of the company
2. Licence under Industries Development and Regulation Act, 1951  
(B) Filing of Document with the Registrar:
1. Memorandum of Association
2. Articles of Association
3. List of directors
4. Written consent of directors
5. Statutory declaration
Certificate of Incorporation:
On the registration of memorandum and other documents, the Registrar will
issue a certificate known as the Certificate of Incorporation certifying under his
hand that the company is incorporated and, in the case of a limited company that
the company is limited.
Stage # 3. Capital Subscription Stage:
A private company or a public company not having share capital can commence
business immediately on its incorporation. As such ‘capital subscription stage’
and ‘commencement of business stage’ are relevant only in the case of a public
company having a share capital. Such a company has to pass through these
additional two stages before it can commence business.
Under the capital subscription stage comes the task of obtaining the necessary
capital for the company.
For this purpose, soon after the incorporation, a meeting of the Board of
Directors is convened to deal with the following business:
1. Appointment of the Secretary. In most cases the appointment of pre-tem
secretary (who is appointed at the promotion stage) is confirmed.
2. Appointment of bankers, auditors, solicitors and brokers etc.
3. Adoption of draft ‘prospectus’ or ‘statement in lieu of prospectus’.
4. Adoption of underwriting contract, if any.
Stage # 4. Commencement of Business Stage:
After getting the certificate of incorporation, a private company can start its
business. A public company can start its business only after getting a’ certificate
of commencement of business’.

After getting the certificate of incorporation:

i. A public company issues a prospectus of inviting the public to subscribe to its
share capital,
ii. A minimum subscription is fixed, and
iii. The company is required to sell a minimum number of shares mentioned in
the prospectus.
 Memorandum of Association
The memorandum of association(MoA) of a company is an important
corporate document in certain jurisdictions.
Memorandum of Association (MoA) consists of the following clauses :
Name Clause: This clause specifies the name of the company. The name of the
company should not be identical to any existing company. Also, if it is a private
company, then it should have the word ‘Private Limited’ at the end. And in case
of public company public company, then it should add the word “Limited” at
the end of its name. For example, ABC Private Limited in case of the private,
and ABC Ltd for a public company.                                                                
Registered Office Clause: This clause specifies the name of the State in which
the registered office of the company is situated. This helps to determine the
jurisdiction of the Registrar of Companies. The company is required to inform
the location of the registered office to the Registrar of Companies within 30
days from the date of incorporation or commencement of the company.
Object Clause: This clause states the objective with which the company is
formed. The objectives can be further divided into the following 3 subcategories:
i. Main Objective: It states the main business of the company
ii. Incidental Objective: These are the objects ancillary to the attainment of main
objects of the company
iii. Other objectives: Any other objects which the company may pursue and are
not covered in above (a) and (b)
Liability Clause: It states the liability of the members of the company. In case of
an unlimited company, the liability of the members is unlimited whereas in case
of a company limited by shares, the liability of the members is restricted by the
amount unpaid on their share. For a company limited by guarantee, the liability of
the members is restricted by the amount each member has agreed to contribute.
Capital Clause: This clause details the maximum capital that a company can
raise which is also called the authorized/nominal capital of the company. This
also explains the division of such capital amount into the number of shares of a
fixed amount each.
 Articles of Association (AoA)
Articles of association form a document that specifies the regulations for a
company's operations and defines the company's purpose. The document lays
out how tasks are to be accomplished within the organization, including the
process for appointing directors and the handling of financial records.
Articles of association often identify the manner in which a company will issue
shares, pay dividends, audit financial records, and provide voting rights. This set
of rules can be considered a user's manual for the company because it outlines
the methodology for accomplishing the day-to-day tasks that must be completed.
While the content of the articles of association and the exact terms used vary
from jurisdiction to jurisdiction, the document is quite similar throughout the
world and generally contains provisions on the company name, the company's
purpose, the share capital, the company's organization, and provisions regarding
shareholder meetings.
 Prospectus
A company's prospectus is a formal legal document designed to provide
information and full details about an investment offering for sale to the public.
Companies are required to file the documents with the 
Securities and Exchange Commission (SEC). The prospectus documents must be
made available to a prospective public investor prior to purchase. Investors are
encouraged to read and understand the terms of the offering before making a
purchase decision.
A prospectus will include the following information at a minimum:
• A brief summary of the company’s background and financial information
• The name of the company issuing the stock
• The number of shares
• Type of securities being offered
• Whether an offering is public or private
• Names of the company’s principals
 Shares
A company’s capital is divided into small equal units of a finite number. Each
unit is known as a share. In simple terms, a share is a percentage of ownership in
a company or a financial asset. Investors who hold shares of any company are
known as shareholders.
For example ; if the market capitalization of a company is Rs. 10 lakh, and a
single share is priced at Rs. 10 then the number of shares to be issued will be 1
lakh. Let’s learn more.

Types of Shares
1. Preference Shares
2. Equity Shares
3. Differential Voting Right (DVR) Shares
1. Preference Shares
As the name suggests, this type of share gives certain preferential rights as
compared to other types of share. The main benefits that preference shareholders
have are:
• They get first preference when it comes to the pay out of dividend, i.e. a share
of the profit earned by the company
• When the company winds up, preference shareholders have the first right in
terms of getting repaid
Further, there are three sub- types in preference shares:
a. Cumulative Preference Shares : Cumulative shareholders have the right to
receive arrears on dividend before any dividend is paid to equity
shareholders. For example, if the dividends on preference shares for the year
2017 and 2018 have not been paid due to market downturns, preferential
shareholders are entitled to receive dividend for all preceding years in
addition to the current one.
b. Non-Cumulative Preference Shares : Non-cumulative shareholders cannot
claim any outstanding dividend. These shareholders only earn a dividend
when the company earns profits. No dividends are paid for the prior years.

c. Convertible Preference Shares : As the name suggests, these shares are

convertible. Convertible shareholders can convert their preference shares
into equity shares at a specific period of time. However, the conversion of
shares will need to be authorized by the Articles of Association (AoA) of the
company.
2. Equity Shares
Equity shares are also known as ordinary shares. The majority of shares issued by the
company are equity shares. This type of share is traded actively in the secondary or stock
market. These shareholders have voting rights in the company meetings. They are also
entitled to get dividends declared by the board of directors. However, the dividend on these
shares is not fixed and it may vary year to year depending on the company’s profit. Equity
shareholders receive dividends after preference shareholders.
3. Differential Voting Right (DVR) Shares
The DVR shareholders have less voting rights compared to equity shareholders. To dilute the
voting privileges, companies provide extra dividend(Dividend refers to that amount which
company pays to its shareholders, in simple words out of the total earning made by the
company the shareholders get part of that earning in the form
of dividend while profit refers to that amount which the company earns after paying all
operating as well as non-operating expenses .. to DVR shareholders. )As DVR shares have
less voting rights, their prices are also low. The price gap between equity shares and DVR
shares is almost 30-40%.
 Directors
Director of a company is a person elected by the shareholders for managing the
affairs of the company as per the Memorandum of Association (MOA) and Articles
of Association (AOA) of a company. Members of the Company do not manage the
affairs of the company on regular basis, thus, they appoint Directors to look after
the business. Since a company is an artificial judicial person created by law, it can
only act through the agency of natural persons. Thus, only living persons can be
Directors of a company and the management of a company is entrusted to the
Board of Directors. Appointment of Directors can be required for a company from
time to time based on the requirements of the shareholders of the business.
To appoint a director, the person proposing to become a Director must obtain a
Digital Signature Certificate (DSC) and Director identification number (DIN). The
nationality or residency status of the DIN applicant does not matter. Hence, Indian
Nationals, Non-Resident Indians and Foreign Nationals can obtain DIN and be
appointed as Director of a company in India.
Types of Directors in a Company

•Managing Director
Managing Director is a Director, who by virtue of Articles of Association of a
company or an agreement with the company or a resolution passed in its general
meeting, or by its Board of Directors, is entrusted with substantial powers of
managed of affairs of the company. He is the person who has substantial decision
making power to take decisions related to business of a Company.

•Ordinary Director
Ordinary Director means a simple Director who attends the Board Meetings of a
company and participates in the matters put before the Board of Directors. These
Directors are neither whole-time Directors or Managing Directors. The are not
regularly involved in day to day operations of a Company.
•Additional Director
Additional Director is someone appointed by the Board of Directors between
two Annual General Meetings (AGM) subject to the provisions of the Articles of
Association of a company. Additional Directors can hold office only up to the
date of next annual general meeting of the Company.
•Alternate Director
Alternate Director is someone appointed by the Board of Directors in a general
meeting to act for a Director called the original director during his/her absence
for a period of not less than three months. Generally, alternate Director are
appointed for a person who is a Non-Resident Indian or Foreign Collaborators of
a company.
•Executive Director
Executive Director is a Director, who is in full-time employment of the
company. Hence, executive directors are regularly involved with the
management of the company and managing affairs of the company.
 General Meetings and Proceedings
A general meeting is a meeting of a company's shareholders (unlike a board
meeting, which is a meeting of the directors). Companies Act 2006, Part 13
(comprising 80 sections) provides the statutory framework for the calling and
conduct of general meetings. Note, too, that resolutions can also be passed as 
written resolutions (without having a general meeting) and there is now no
statutory requirement for a private company to hold an Annual General
Meeting, unless the articles make provision for one to be held.
For any particular company, the statutory rules are supplemented by that
company's articles. Many companies have the provisions of the Model Articles
 (articles drafted from 1.10.2009) or Table A (older companies), either
completely or with some amendment.
Types of General Meetings
Annual General Meetings
There is no requirement for a private company to hold an AGM, though some
companies' articles, drafted when there was a statutory requirement to hold an
AGM, will still provide for one to be held. In such cases the company must
continue to comply with its articles until they are amended. There is nothing to
stop a company to hold an AGM even if it is not required to do so.
Extraordinary General Meetings
An Extraordinary General Meeting (EGM) is any meeting other than an Annual
General Meeting (AGM). The directors may call general meetings when they
wish (CA 2006, sec302) and must call a meeting of members holding one-tenth
of the voting shares or one-tenth of the voting rights request one (sec303 -
sec304). If the directors do not call a meeting when so required, the members can
call one themselves (sec305). If all else fails, the court can call a meeting
(sec306).
 Proceedings
These vary from company to company and are determined by the interplay of
the Companies Act and the articles.
There are statutory rules governing the period of notice that must be given for a
meeting (sec307 - sec313). The minimum statutory period for any type of
meeting is now 14 days (sec307), though a company's articles may require a
longer period, and a meeting can be held on short notice with the written
consent of a majority (90 or 95%, depending on the articles) of the members.
The Act provides rules on the right of members to distribute statements (sec314
- sec317), the quorum (sec318), chairman (sec319 – sec320), voting procedures
(sec321 - sec322), corporate representatives (sec323), proxies (sec324 -
sec331), adjournment (sec332) and electronic communications (sec333). The
statutory provisions must be read in conjunction with the company's articles,
which in many cases will be based on either the Model Articles or Table A,
depending on whether the aryocles were drafted before or after 1.10.2009.
 Auditor
An auditor is a professional who is qualified to conduct an audit of the
company. Such a person evaluates the validity of the company’s 
financial statements. This is undertaken to report if the company adheres to the
established set of standards or procedures.
Thus, an auditor can render auditing services either as an independent
professional or employee. If an auditor works for an organization, he is typically
referred to as an internal auditor. Whereas, an auditor rendering auditing
services to a company independently is referred to as an external agency.
The very purpose of hiring an external auditor is to undertake an audit that is
free of any bias. And the same is not influenced by any internal relationships
existing within the company.
Duties of an Auditor
1. Provide an Audit Report
2. Make Proper Enquiry
3. Assist in Branch Audit
4. Compliance With Auditing Standards
5. Reporting of Frauds
6. Provide Assistance in Investigation
7. Adhere Principles of Auditing
8. Provide Negative Opinion
 Winding Up (liquidation)
The winding up or liquidation of a company is the process by which a
company’s assets are collected and sold in order to pay its debts. Any money
remaining after all debts, expenses and costs have been paid off are distributed
amongst the shareholders of the company. When the winding up has been
completed, the company is formally dissolved and it ceases to exist.
Broadly speaking, a company can be wound up in one of two ways. First, the
Court can compulsorily wind up a company. Secondly, the shareholders or the
creditors of the company can themselves apply to wind up the company in
proceedings known as “voluntary winding up”.  The following is a brief
overview of compulsory winding up.
 Compulsory Winding Up
There are certain grounds upon which a company can be wound up
compulsorily by the Court. A company’s inability to pay its debts is a common
ground for presenting an application for compulsory winding up. A company is
deemed to be unable to pay its debts if:
•A creditor having a claim against the company exceeding S$15,000.00 has
served a written demand requiring payment of the sum so due, and the company
has for 3 weeks after the service of the demand neglected to pay the sum, or to
secure or compound for it to the reasonable satisfaction of the creditor;
•Execution of a judgment obtained by a creditor against a company remains
unsatisfied in part or in whole; or
•It is proved to the Court’s satisfaction that the company is unable to pay its
debts.
An application to wind up a company compulsorily may be filed by:

•The company itself;

•Any director of the company;
•A creditor of the company;
•A contributory;
•A liquidator of the company;
•A judicial manager of the company;
•Where the company is carrying on or carried on banking business, the
Monetary Authority of Singapore; or
•Various Ministers on grounds specified under the law.
 E-Governance
Electronic governance or e-governance is the application of IT for
delivering government services, exchange of information,
communication transactions, integration of various stand-alone
systems between government to citizen (G2C), government-to-
business (G2B), government-to-government (G2G), government-to-
employees (G2E) as well as back-office processes and interactions
within the entire government framework. Through e-governance,
government services are made available to citizens in a convenient,
efficient, and transparent manner. The three main target groups that
can be distinguished in governance concepts are government, citizens,
and businesses/interest groups. In e-governance, there are no distinct
boundaries finance and support.
 Role of Engineers in E-Governance
• One of the most common approaches of E-Governance is digitizing
government services. Converting every government activities in digital
form and delivery these activities in terms of services to the citizen or
stakeholders with the proper use of ICT is E-Governance best engineered.
• Today, e-Governance has become most-talked technology among
governments but it is equally challenging in unifying the services and
system as a complete e-Government system.
• From initiation to the deployment and to the sustainability of the e-
Government system requires multi-disciplinary engineering. It is not only
about using technologies but also about various aspects of citizen’s service
domains like social art and science, management, policy and economy to
deliver services in the best practice unlike traditional approach.
• Engineering a proper e-Governance architecture for third world countries and emerging
economies utilizing cloud computing and existing telco infrastructure build up a suitable
and sustaining system. Such system, thus, achieved is favorable for developing countries
in many aspects:
• 1) Cost: For developing countries, cost is a key factor even when they wish to
implement e-Government system. However, the e-Governance model proposed here can
help lower the cost of developing and implementing a complete e-Government system.
• 2) Resources: Availability of ICT resources from all local, to national level government
organizations assist in designing, deploying, scaling and post-deployment assessment of
the e-Government system in this model.
• 3) Expertise: This is a hidden part in realizing most of the eGovernment system.
Expertise of all domains associated with the e-Governance model are critical thru out the
life cycle of the e-Government system. Generally, not all always available experts are
found in developing countries.
• 4) Sustainability: To realize sustainability of the proposed architecture, it can be scaled
during deployment for better understanding of how the government is going to function
electronically.
 Role of IT Professionals in Judiciary
The main business of the judiciary is to hear and determine cases in a fair and timely
manner at reasonable cost. In doing so there are processes that lead to the conclusion of the
cases before the courts. These processes must be efficient, effective, and equitable.
The process must be equitable in that all those who ought to have access to the justice
system and seek access to it do have access to it. The process must not lock out sections of
the community. Neither should it be discriminatory, or show partiality to a class of litigants
or some areas of subject matter.

IT can be  a useful tool in the following areas:

• (1) text creation, storage and retrieval;
• (2) Improved Access to the Law;
• (3) Recording of Court Proceedings;
• (4) Case Management and producing data for administrative purposes;
• (5) Continuing Education;
• (6) Communication
• Information technology is now a tool essential for modernization of a
judiciary or judicial system. But it is only a tool, and if not handled
with skill and commitment, it may instead frustrate efforts at
modernization. The process of adoption of IT is as important, or,
probably even more important, than just the purchase and installation
of IT hardware and software itself. If the process is flawed, it is
unlikely that the expected benefits will flow from the IT acquired. It
could easily turn out to be a waste of scarce resources with equipment
left to gather dust, as its life comes to an end, for IT equipment does
have a short lifespan in terms of obsolescence.
• Information Technology creates both opportunities and challenges.
These opportunities and challenges need to be fully grasped, and
mastered, if the institutions that you lead are  to take full benefit of
what Information Technology offers.