Handouts MGT211 - Updated.pdf

Introduction to Business –MGT 211 VU
Lecture 1
INTRODUCTION
CONCEPT OF BUSINESS
Literally, the word “business” means the state of being busy. Generally, the term
business includes all human activities concerned with earning money. In other words,
business is an activity in which various persons regularly produce or exchange goods
and services for mutual gain or profit. The goods and services produced or purchased
for personal use are not included in “business”. DEFINITION 1.
According to L. H. Haney
“Business may be defined as human activities directed toward providing or acquiring
wealth through buying and selling of goods.”
James Stephenson says that:
2. “Every human activity which is engaged in for the sake of earning profit may be
called business.”
In the words of B. W. Wheeler
“An institution organized and operated to provide goods and services to the society,
3. under the incentive of private gain” is business.
Structural Diagram
Business
Buying and Buying and

Selling Selling
Wealth
© Copyright Virtual University of Pakistan 1

9.
Regular Transaction
Business has a nature of regular dealings and series of transactions. So, in business, only
those transactions included which have regularity and continuity.
10.
Risks and Uncertainty
Business involves a large volume of risk and uncertainty. The risk element in business keeps
a person vigilant and he tries to ward off his risk by executing his policies properly.
11.
Sale or Transfer for value
Another characteristic of business is the sale or transfer of goods for value.
12.
Social Welfare
Business does not only satisfy the producer, but also the consumer when products are
offered for sale at low prices in markets.
NATURE OF BUSINESS
The following points state the nature of business in brief:
1.
BusinessEconomic Activity activity as it is concerned with creation of wealth through the

is an economic
satisfaction of human wants.
2.
BusinessHuman
is an Activity
economic activity and every economic activity is done by human beings.
Thus, business is one of the most important human activities.
3.
BusinessSocial
is run by owners and employees with the help of professionals and customers.
Process
Thus, business is a social process.
4.
BusinessSystem
is a systematic arrangement of various elements, which leads to the attainment of
particular objective, according to a well‐established plan.

CHARACTERISTICS
Following are the essential characteristics of a good business: 1. Capital is the lifeblood
of every business. It is the most essential and important element of
business. In case of deficiency, loans can be taken from various financial institutions. 2.
Utility is an economic term referring to that characteristic of a certain commodity,
which canCapital
satisfy any human need. Business creates utility, which gives benefit to the
entire society as well as the businessmen. 3.
Every business deals with sale, purchase, production and exchange of goods and services for
some consideration. 4. Business is a good source of employment for its owners as
well as for other people, for example, employees, agents, transporters etc. 5. Business
Creation
is an Islamic of Utility
way of earning living. Income from business is known as profit, which
is Rizq‐e‐Halal. The Holy Prophet Muhammad (SAWW) himself did prosperous business. 6.
The motive of business is to earn profit. Otherwise it will not be termed as business. 7.
Every business needs an organization for its successful working. A proper organization
is helpful in the smooth running of business and achieving the objectives. 8. A
businessman deals in production or purchase of goods. These goods are supplied to
the people.
DealingSo, it is necessary
in Goods that more goods should be produced so that demand
and Services
of people
Employment
Islamic Process
Motive
Organization
Productions or Purchase of Goods
may be fulfilled.

COMPONENTS AND SCOPE OF BUSINESS

BUSINESS The word “Business” includes all human activities concerned with earning
money. In other words, business is an activity in which various persons regularly
produce or exchange goods and services for mutual gain or profit.
COMPONENTS OF BUSINESS
Business bears the following components:
 Industry
 Commerce
INDUSTRY Industry is connected with the production and preparation of goods
and services. It is a place where raw material is converted into finished or semi‐
finished goods, which have the ability to satisfy human needs or can be used in
Business
another industry as a base material. In other words, industry means that part of
business activity, which is concerned with the
extraction, production and
I n fabrication
d u s tof rproducts.
y Commerce
KINDS OF INDSTRY
1. Primary Industry
2. Secondary Industry
Industry
Primary Industry Secondary Industry

(a) Extractive (a) Construction
(b) Genetic (b) Manufacturing
(c) Services

1.
PRIMARY INDUSTRY
Primary industry is engaged in the production or extraction of raw materials, which are used
in the secondary industry. Primary industry can be divided into two parts: (a)
Extractive industries are those industries, which extract, raise or produce raw material
from below or above or above the surface of the earth. For example, fishery,
extraction of oil, gas and coal etc. (b) Genetic industries are those, which are
engaged(a)in reproducing
Extractive Industry
and multiplying certain species of animals and plants. For
example,(b)poultry
Genetic
farm,Industry
fishing farm, diary farm, plant nurseries etc.
2.
Extractiveuse
These industries Industry
raw materials and make useful goods. Raw material of these industries
is obtained from primary industry. Secondary industry can be divided into three parts:
a) Constructive Industry
All kinds of constructions are included in this industry. For example, buildings, canals, roads,
bridges etc. b) Manufacturing Industry In this industry, material is converted into
some finished goods or semi‐finished goods. For example, textile mills, sugar mills etc.
c) TheseGenetic Industry
industries include those industries, which are engaged in providing services of
professionals such as lawyers, doctors, teacher etc.
SECONDARY INDUSTRY
(a) Constructive Industry

(b) Manufacturing Industry
(c) Services Industry
Services Industry

COMMERCE
Commerce is the second component of business. The term “commerce” includes all
activities, functions and institutions, which are involved in transferring goods, produced
in various industries, from their place of production to ultimate consumers.
In the words of Evelyn Thomas:

“Commercial occupations deal with the buying and selling of goods, the exchange of
commodities and distribution of the finished goods.”
In simple words, “trade and aids to trade” is called commerce.
SCOPE OF COMMERCE
The scope of commerce can be explained as:
1. Trade
2. Aids to Trade
Commerce
Trade
Aids to trade
1. TRADE
Trade is the whole procedure of transferring or distributing the goods produced by
different persons or industries to their ultimate consumers. In other words, the
system or channel, which helps the exchange of goods, is called trade. TYPES OF TRADE
There are two types of trade:
(a) Home trade

(b) Foreign Trade

Trade
Home Trade Foreign Trade

(i) Wholesale
(a) The purchase Tradeof goods inside the country
and sale (i) Import
is called
Trade
home trade. It is
also known as(ii) Retail Trade
‘domestic’, ‘local’ or ‘internal trade’. Home trade
(ii) Export
has two
Trade
types: (i) It
involves selling of goods in large quantities to shopkeepers, in order to resale them
to the Home
consumers.
Trade A wholesaler is like a bridge between the producers and retailers. (ii)
Retailing means selling the goods in small quantities to the ultimate consumers. Retailer is a
middleman, who purchase goods from manufacturers or wholesalers and provide these
goods to the consumers near their houses. (b) Trade or exchange of goods and
services between two or more independent countries for their mutual advantages is
called foreign
(i) trade.
WholesaleIt is also called international trade. Foreign trade has two types:
Trade
(i) (ii)
When goods or services
Retail Trade are purchased from other country it is called import trade.
(ii) When goods or services are sold to any other country it is called export trade.
Wholesale Trade
Retail Trade
Foreign Trade
(i) Import Trade

(ii) Export Trade
Import Trade
Export Trade

2.
AIDS TO TRADE
Trade mans biting and selling of goods, whereas, aids to trade mean all those things which
are helpful in trade.
a) Banking
b) Transportation
c)
Insurance
d) Warehousing
e) Agents
f) Finance
g) Advertising
h) Communication
In daily business routine, commercial banks and other financial institutions help the
(a) andBanking
seller the buyer in receiving and the buyer in receiving and making payments. The
goods which are manufactured in mills and factories, reach the consumers by different
means of transportation like air, roads, rails, seas etc. The transfer of goods from one
place to another is not free from risk of loss. There is a risk of loss due to accident,
fire, theft etc. The insurance companies help out the traders with
this
(b) problem through
Transportationinsurance policy. The manufacturers today, produce goods in
large quantity. Therefore, a need for
warehouses arises in order to store the manufactured goods. They are the persons who
act as the agents of either buyer or seller. They perform these
activities for commission. A large amount is needed to set up an industry. Financial
institutions
(c) provide long‐term finance to the producers. The producers alone are
Insurance
unable to manufacture goods without financial help.
(d) Warehousing
(e) Agents
(f) Finance

(g) Advertising
The consumer may sometimes, not know about the availability of goods in the
market. The producer must sell his goods in order to remain in business.
Advertisement is an easy way to inform the large number of customers about the
goods. This can be done through TV, newspapers, radio etc. The producers,
wholesalers, retailers, transporters, banks, warehouse‐keepers, advertisers and
consumers live at different place. This post office, telephone and other similar media
is (h)
very useful for promotion of trade and industry.
Communication
FACTORS OF PRODUCTION:
Factors of production are the resources or inputs that are required for the production
of goods or services. The components of factors of production are:
i. Labor
ii. Capital
iii. Entrepreneurship
iv. Physical resources
Labor is the most important factor of production. Labor are the people who work in
an i. organization
Labor and provide physical and mental efforts in production process.
Capital is the amount or property which is invested by investor(s) in the business to produce
goods and services.
Entrepreneurship is the management ability of the people to run the business. It involves:‐
(a) Identification of opportunity (b) Allocation of resources
(c)ii.Creation of
Capital wealth by assuming the necessary risk Physical resources include land,
natural resources, building, vehicles and machinery that are
used in the production process.
iii. Entrepreneurship
iv. Physical resources

ECONOMIC SYSTEM
Economic system is defined a system for allocation of resources. Commonly, it has following
two types as below:
a) Planned economy
b) Free market economy
a) Planned economy In planned economy the government decides that how many
resources are to be generated and how these resources will be allocated. In this
system government determines the key economic functions. How the factor of
production will be utilized and how much will be the
economy’s output is decided by the government. b) Free market economy In free
market economy demand and supply in the market determines the allocation for
resources with little or no government intervention. In this economy market
mechanism decides the key economic functions (what, for whom and how to produce).
Free market economy increases the efficiency and productivity, firms and organizations
with better quality products and low costs (produced efficiently) will survive in the market.
ENVIRONMENTAL FORCES
Forces that influence the performance of organizations can be divided into two
categories as under:
1) External Factors (External Environment)

2) Internal Factors (Internal Environment)
External Factors: External factors are the factors which are found outside the
organization. These factors are not controllable by the organization. External factors
bring the opportunity or threat for the organization. External factors include
technological factors, economy of the country, political and legal factors, socio‐
cultural factors and demographic factors. Internal Factors: Internal factors are the
factors within the organization that affect the performance of business. Strengths or
weaknesses of the organization are the internal factors. Strengths may include
experienced and trained workers, strong financial resources, strong brand name, good
reputation and organizational culture and weaknesses of an organization may

include lack of sufficient capital, weak brand name, poor reputation, inexperienced and
untrained workers.
SWOT Analysis:
SWOT analysis is an analysis of an organization’s strengths, weaknesses, opportunities,
and threats. Strengths and weaknesses are the part of internal environment and
opportunities and threats are the part of external environment. SWOT analysis helps
an organization to focus on strengths, to reduce weaknesses, to exploit the
opportunities and to neutralize
threats. Strengths: Strengths are the capabilities of an organization that enable it to

perform efficiently. Strengths may include skilled manpower, strong financial resources,
strong brand name,
good reputation and organizational culture, well established distribution network etc.
Weaknesses: Weaknesses are the internal characteristics of an organization that
prohibit it to perform well. Organization’s weakness may include lack of sufficient
capital, weak brand name, poor
reputation, unskilled manpower, inefficient management, poor distribution channels etc.
O p p o r t u n i t i e s :
O p p o r t u n i t i e s a r e t h e e x t e r n a l e n v
g r o w t h a n d h i g h e r p e r f o r m a n c e . F o r
d e v e l o p m e n t s , c h a n g e s i n l i f e s t y l e ,
b u s i n e s s .
T h r e a t s :
T h r e a t s a r e t h e e x t e r n a l e n v i r o n m e
p e r f o r m a n c e . F o r e x a m p l e , n e w r e g u
c o n s u m e r t a s t e s , i f a n o r g a n i z a t i o n
i t w i l l b e b e c o m e a t h r e a t f o r t h e o r g
QUALITIES OF A GOOD BUSINESSMAN
The modern business is very complex. Due to scientific and technological development,
changes are taking place very fast in every business field. Following are the basic personal
skills or qualities which a good businessman must possess:

1. A businessman, if he wants to shine in business, must have the ability to plan and
organizeAbility to Plan it. 2.
He had to activate his workers. If he activates his workers then this is good for business. 3.
Courage is a great asset of a businessman. A good businessman should be a courageous and
bold person. May be his some angry decisions gave him loss in future, so he has to
be courageous and be bold. 4. A good businessman should have to cooperate with his
workers.Activator
With the help of cooperation with his workers he can run his business well. 5.
Courtesy is to business what oil is to machinery. It costs nothing but wins a
reputation. So businessman has to win the heart of everyone with his polite manners. 6.
A good businessman should be a good and quick decision maker. Quick decision of a
businessman
Bold orisCourage
an important asset of businessman. And businessman has to know
that his quick decision will give him benefit or not. 7. A good businessman should have
to care about the discipline of the business. If he doesn’t care about the discipline
then nobody (who concern to his business) obeys the discipline
and business can’t go well. 8. A businessman has to check himself that how he is
working. This thing can make the business good in progress.
Cooperation
Courtesy
Decision Making
Discipline
Evaluator

9. A good businessman must have the quality of foresight. He must keep in touch
with theForesight
business world. He should move about and see what is going on for he has
to estimate new wants and new inventions for creating fresh demands. 10. A
businessman should be honest in dealing with others. Honesty of a businessman helps
him in his business. 11.
A businessman must be hard working. Without have working no business can be successful.
If the owner is not hard working then other workers of the business can’t be hardworking.
12. The business world is moving at a very fast speed. A businessman should have
Honesty
the ability to take initiative by producing new things and new methods of marketing
the products and services. 13. A good businessman should have knowledge of his
business. It should be supplemented by
the knowledge of trade, finance, marketing, income tax, etc. 14. Leaders are not made,
they are born; but the businessman has to get some qualities of a
Hardworking
leader. With the help of leadership a businessman can control his business and workers. 15.
If a businessman is a good negotiator, then he can run his business well, because
without good communication he can’t impress his consumer. 16. A businessman should
have a graceful personality because it can impress his customers. If
his personality is
Initiation not good or not graceful then his business can’t go well.
Knowledge
Leadership
Negotiator
Personality

17. A businessman has decision‐making power. He decides on all matters in the best
interestQuick Decisions
of the business. A businessman must have technical knowledge, judgment
power and intelligence to take sound and quick decisions. 18. A successful businessman
should have to realize his responsibilities. If he doesn’t do his
duty then his business can’t go well. 19. A good businessman has to review his
mistakes, which he committed in the past, and try his best never to do it again in his life.
20. Sound financial management is an important factor for successful business.
WithoutResponsibility
it no business can go well. So a business must possess good financial position. 21.
A good businessman should have self‐confidence. Without self‐confidence he can’t
make quick decisions and business suffers a lot. 22. A good businessman should be a
tactful person. He has to handle persons or his customers
very tactfully. It helps to earn profit in future. 23. A good businessman must have the
knowledge
Reviewer about technical skills. He should have
complete command of specialized knowledge in his field, which he has to perform.
Sound Financial Management
Self‐Confidence
Tact
Technical Skills

Lecture 2
ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS

All businesses, regardless of their size, location, or mission, operate within a larger external
environment.
External environment:
Everything outside an organization’s boundaries that might affect it.
a. Organizational Boundaries: that which separates the organization from its

environment. Today boundaries are becoming increasingly complicated and
hard to pin down.
b. Multiple Environments: include economic conditions, technology, political‐

legal considerations, social issues, the global environment, issues of ethical
and social responsibility, the business environment itself, and numerous
other emerging challenges and opportunities.
THE ECONOMIC ENVIRONMENT
Economic environment—Conditions of the economic system in which an organization operates.
c. Economic Growth
i. Aggregate Output and Standard of Living
1. Business cycle—Pattern of short‐term ups and downs
(expansions and contractions) in an economy
2. Aggregate output—Total quantity of goods and services

produced by an economic system during a given period
3. Standard of living—Total quantity and quality of goods and

services that a country’s citizens can purchase with the
currency used in their economic system
ii. Gross Domestic Product—Total value of all goods and services

produced within a given period by a national economy through
domestic factors of production

Gross national product (GNP)—Total value of all goods and

services produced by a national economy within a given period
regardless of where the factors of production are located
1. Real Growth Rate—the growth rate of GDP adjusted for

inflation and changes in the value of the country’s currency.
2. GDP per Capita—GDP per person and reflects the standard

of living.
3. Real GDP—GDP calculated to account for changes in

currency values and price changes versus Nominal GDP, GDP
measured in current dollars or with all components valued at
current prices.
4. Purchasing Power Parity—Principle that exchange rates are

set so that the prices of similar products in different
countries are about the same.
iii. Productivity—Measure of economic growth that compares how

much a system produces with the resources needed to produce it.
There are a number of factors which can inhibit the growth of an economic system
including:
1. Balance of Trade—the economic value of all the products

that a country exports minus the economic value of imported
products.
a. Trade Surplus —A positive balance of trade results

when a country exports (sells to other countries)
more than it imports (buys from other countries).
b. Trade Deficit—A negative balance of trade results

when a country imports more than it exports.
c. National Debt—Amount of money that a government

owes its creditors.
d. Economic Stability
Condition in an economic system in which the amount of money available
and the quantity of goods and services produced are growing at about the
same rate.
Factors which threaten stability include:

i. Inflation—Occurrence of widespread price increases throughout an

economic system
Measuring Inflation: The CPI—Measure of the prices of typical products purchased by

consumers living in urban areas
ii. Unemployment—Level of joblessness among people actively seeking

work in an economic system. Unemployment may be a symptom of
economic downturns.
1. Recessions and Depressions

Recession—Period during which aggregate output, as
measured by real GDP, declines
2. Depression—Particularly severe and long‐lasting recession
e. Managing the Economy
i. Fiscal policies—Government economic policies that determine how

the government collects and spends its revenues
ii. Monetary policies—Government economic policies that determine

the size of a nation’s monetary supply
iii. Stabilization policy—Government policy, embracing both fiscal and

monetary policies, whose goal is to smooth out fluctuations in
output and unemployment and to stabilize prices
iv. Three Major Forces

1. The information revolution will continue to enhance
productivity across all sectors of the economy, most notably
in such information‐dependent industries as finance, media,
and wholesale and retail trade.
2. New technological breakthroughs in areas such as

biotechnology will create entirely new industries.
3. Increasing globalization will create much larger markets while

also fostering tougher competition among global businesses;
as a result, companies will need to focus even more on
innovation and cost cutting.
v. Projected Trends and Patterns—there are a number of projections for

the near future. Sudden changes in environmental factors, such
as war, can alter these projections.

DEMOGRAPHIC ENVIRONMENT
Demographic environment is the study of characteristics of population such as size of

population, population growth rate and population distribution on the basis of gender,
age, income level, level of education, geographic location, family structure, etc. these
factors
influence the size of demand, buying pattern, liking and attitude of customers. Demographic
factors are important to managers as the changes in these demographic factors affect
the businessmen’ planning.
Total population determines the size of market, huge population size and growth rate brings
a large number of customers, more consumption and more opportunities for business,
cheap and abundant labor supply will also be available. It affects the business
positively.
Another demographic factor that affects the business is education level. If education level of
public is high then the supply of skilled labor will increase and supply of unskilled
labor will decrease. In case of low education level supply of skilled labor will decrease.
Education level also affects the buying pattern of customers; if they are highly
educated then the business enterprise must be careful about the quality of its
products and services. In the same way, gender and age composition, income level,
geographical location etc are also important demographic factors.
POLITICAL AND LEGAL ENVIRONMENT
Legal and political factors include legal and governmental system organizations operate.
Political and legal environment strongly affect the business decisions. Aspects which are
considered in political and legal environment are the preferences and priorities of the
government, political stability in the country, laws/rules and regulations, taxation policy
and attitude of the government towards business.
Government decides that what sort of economic activities the country should have, in which
areas the private sector should be encouraged, also defines the areas where foreign
companies may enter. Laws and regulations influence the decision making and limit the
businesses for the country’s wellbeing.
THE TECHNOLOGICAL ENVIRONMENT

Technology has a variety of meanings, but as applied to the environment of business,
it generally includes all the ways by which firms create value for their constituents.
f. Product and Service Technologies—the technologies employed for creating
products (both physical goods and services) for customers. Although many
people associate technology with manufacturing, it is also a significant force
in the service sector.
g. Business Process Technologies—are used not so much to create products as
to improve a firm’s performance of internal operations (such as accounting,
managing information flows, creating activity reports, and so forth). They

also help create better relationships with external constituents, such as

suppliers and customers.
i. Enterprise Resource Planning—Large‐scale information system for

organizing and managing a firm’s processes across product lines,
departments, and geographic locations
SOCIO‐CULTURAL ENVIRONMENT
Social and cultural factors affect the working of business enterprises significantly. Socio‐
cultural factors include the societal values, attitude, customs, religion; beliefs, habits
and preferences etc. socio‐cultural trends have considerable effect on the demand for
products
e.g., dominant religion of any society has influence over the buying behavior of that society.
NATURAL ENVIRONMENT
Geographical and ecological factors such as changes in weather and climate,

earthquake, floods, storms and natural resources are considered in natural
environment. Natural factors are not in control of any business unit however while
considering natural factors managers will develop their product, production planning,
marketing planning etc. For example, weather conditions influence the buying pattern,
demand for heaters; sweater and woolen cloths will be more in winter while in
summer there will be more demand for air conditioners, fans and cold drinks etc.

Lecture 3
BUSINESS ORGANIZATION & SOLE PROPRIETORSHIP

Business organization is an act of grouping activities into effective cooperation to obtain the
objective of the business.
In the words of L. H. Haney
“It is more or less independent complex of land, labour and capital, organized and
directed for productive purposes but entrepreneurial ability.”
SCOPE OF BUSINESS ORGANIZATION
The scope of business organization can be defined as under:
Scope of Business Organization
Sole
Proprietorship Partnership Joint Co‐operative Combination
Stock Societies
Company
1. SOLE PROPRIETORSHIP
According to D.W.T. Stafford
“It is the simplest form of business organization, which is owned and controlled by
one man”
Sole proprietorship is the oldest form of business organization which is owned and
controlled by one person. In this business, one man invests his capital himself. He is all in all
in doing his business. He enjoys the whole of the profit. The features of sole proprietorship
are:
 Easy Formation
 Unlimited Liability
 Ownership
 Profit
 Management
 Easy Dissolution

2.
PARTNERSHIP
According to Partnership Act, 1932
“Partnership is the relation between persons who have agreed to share the profits of
a business carried on by all or any of them acting for all.”
Partnership means a lawful business owned by two or more persons. The profit of
the business shared by the partners in agreed ratio. The liability of each partner is
unlimited. Small and medium size business activities are performed under this organization.
It has the following features:
 Legal Entity
 Profit and Loss Distribution
 Unlimited Liability
 Transfer of Rights
 Management
 Number of Partners
3. JOINT STOCK COMPANY

According to S. E. Thomas
“A company is an incorporated association of persons formed usually for the pursuit

of some commercial purposes”
A joint stock company is a voluntary association of persons created by law. It has a
separate legal entity apart from its members. It can sue and be sued in its name. In the
joint stock company, the work of organization begins before its incorporation by promoters
and it continues after incorporation. The joint stock company has the following feature:
 Creation of Law
 Separate Legal Entity
 Limited Liability
 Transferability of shares
 Number of Members
 Common Seal
4. COOPERATIVE SOCIETIES
According to Herrik
“Cooperation is an action of persons voluntarily united for utilizing reciprocally

their own forces, resources or both under mutual management for their
common profit or loss.”

Cooperative Societies are formed for the help of poor people. It is formed by
economically weak persons of the society. In this form of organization, all members
enjoy equal rights of ownership. The features of cooperative society are as under:‐
 Easy Formation
 Protection of Mutual Interest
 Limited Liability
 Equal Distribution of Wealth
 Equal Rights
5. COMBINATION
According to J. L. Hanson
“Combination is the association, temporary or permanent, of two or more firms.”

Business combinations are formed when several business concern undertaking units
are combined to carry on business together for achieving the economic benefits. The
combination among the firms may be temporary or permanent. The salient features of
business combination are:
 Economy in Production
 Effective Management
 Division of Labour
 Destructive Competition
IMPORTANCE OF BUSINESS ORGANIZATION
The following points elaborate the role of business organizations:
1. Distribution
Another benefit of business organization is that it solves the problems of marketing and
distribution like buying, selling, transporting, storage and grading, etc.
2. Feedback
An organization makes possible to take decisions about production after getting the
feedback from markets.
3.
Finance Management
It also guides the businessman that how he should meet his financial needs which is very
beneficial for making progress in business.

4.
Fixing of Responsibilities
It also fixes the responsibilities of each individual. It introduces the scheme of internal
check. In this way chances of errors and frauds are reduced.
5.
Minimum Cost
It helps in attaining the goals and objectives of minimum cost in the business.
6.
Minimum Wastage
It reduces the wastage of raw material and other expenditures. In this way the rate of profit
is increased.
7.
Product Growth
Business organization is very useful for the product growth. It increases the efficiency of
labor.
8.
Quick Decision
Business organization makes it easy to take quick decisions.
9.
Recognition Problems
Business organization makes it easy to recognize the problems in business and their
solutions.
10.
Reduces the Cost
Business organization is useful in reducing the cost of production as it helps in the efficient
use of factors of production.
11.
Secretariat Functions
It also guides the businessman about the best way of performing the secretarial functions.
12.
Skilled
It is also Salesmen
a benefit of the business organization that it provides the skilled salesmen for
satisfying various needs of the customers.

13.
Transportation
It is another benefit is that it guides the businessman that what type of transport he should
utilize to increase the sales volume of the product.
PRE‐REQUISITES OF BUSINESS
Following are the main pre‐requisites of a successful business:
1.
The firstSelection
and most important decision before starting a new business is its selection. If
once
a business is established, it becomes difficult to change it. One should make a
detailed
investigation in the selection of business.
2. Feasibility Report
A person should prepare the feasibility report about the business to be started. This
report
will provide the facts and figures whether business is profitable or not.
Nature of Business
3.
There are various types of business like manufacturing, trading and services. The
businessman should decide that what type of business he would like to start.
4. Demand of Product
The businessman also keeps in view the demand of the product which he wants to
sell. If
the demand is inelastic, the chances of success are bright. If the demand of a product
is
Size
irregular, of Business
seasonal and uncertain, such business should not be started.
5.
The Size of business means the scale of business. The size of business depends upon
the
demand of commodity in the market and organizational ability of entrepreneur. The
determination of size of business is an important decision of a person.

6.
Availability of Capital
Availability of capital is an important factor in the business. Capital is required for the
purchase of land, machines, wages and raw materials. A businessman must decide that
how much capital he can arrange.
7.
A businessman has to select the place where he wants to start his business. He should select
that place where raw material, cheap labour and transportation facilities are available.
Business
He should Location
also check the location of business competitors.
8.
The businessman should also carefully consider the policies of government before starting a
new business. Some areas are declared as ‘tax free zones’ and for some particular
businesses the loan is provided without any interest.
Government Policy
9.
Availability of Raw material is essential to produce the goods at low cost. Sometimes
the
raw material is to be imported which may create problem for him. So a businessman
must Availability of Raw Material
keep this factor in mind.
10.
Availability of new machines is also an important factor for a business. A businessman

must
Availability of Machines
see whether these machines are easily available inside the country or not. If these are
to be
imported then it may create the problems for him.
11.
Availability of Labor
Skilled and efficient labor is essential to run the business in profit. But if efficient and
skilled
labor is not available where business is going to be started then it will not be profitable.
12.
Means of Transportation
Quick and cheap means of transportation are essential for low cost of production and
high
profit rate. A businessman must keep in view this factor.
13. Power Resources
There must be availability of power resources like water, oil, coal and electricity. So
businessman must keep in view this factor.

14.
Hiring Employees
A businessman must hire the efficient and competent employees in the business. The
proper training must be given to employees.
15.
A businessman must decide the price of his product. In the beginning the price must
be low. He must keep in view that whether he will cover cost of his product and
Productwith
other expenses Pricing
such price.
FUNCTIONS OF BUSINESS
Following are the main functions of a business:
1.
Production of goods and services is the first main function of the business. The
production
must be regular. The goods and services must be produced in such a way which can
satisfy Production
human needs.
2.
The sale is another important function of the business. Sales are of two types:
Sales
 Cash sales
 Credit sales
The sale must be regular and at reasonable price. It is very difficult job because there is hard
competition in each market.
3. Finance
It is also an important function of the business to secure finance. Finance is required for
establishment and expansion of business. There are two sources of raising funds:
(a) Owner’s Capital

(b) Borrowed Funds

4.
Management Function
“To do things efficiently and effectively” is known as management. The functions of
management are:
 Planning
 Organizing
 Leading
 Controlling
 Staffing
The management also provides direction for all subordinates. 5. In this era of
competition, for the survival of business, innovation is essential. The businessman must
try to find new techniques of production because the business may not
sell present output in future. 6. Another function of the business is to maintain its
Innovation
records properly. To record the business activities is called accounting. With proper
accounts, the owner can know the actual
performance of business and chances of fraud are reduced.
7. According to Harry Henser

Accounting
Marketing
“Marketing involves the design of the products acceptable by the consumers

and the conduct of those activities which facilitate the transfer of ownership
between seller and buyer.”
Through marketing, goods are moved from producers to consumers. It is an
important function of the business. This function includes buying, selling,

transportation, product designing and storage, etc. The concept of marketing mix is
very important in marketing. It includes four Ps:
 Product
 Price
 Place
 Promotion

8. Quality of product must be improved to increase the sale. If quality of product is

Quality
poor then Improvement
business may suffer a loss. 9. Motivation is very essential for increasing the
efficiency of employees. Motivation
encourages the employees to give their best performance. 10. Research Research is also
an important function of any business. Research is a search for new knowledge. By
research, business becomes able to produce improved and new goods. The
researchMotivation
is of two types:
 Basic Research
 Applied Research
11. It Public
is very
Relation
important function to make friendly relations with public, in this way
sales volume is increased.
SOLE PROPRIETORSHIP
Sole Proprietorship and its Characteristics
Sole proprietorship is a simple and oldest form of business organization. Its
formation does not require any complicated legal provision like registration etc. It is a
small‐scale work, as it is owned and controlled by one person, and operated for his
profit. It is also known as
“sole ownership”, “individual partnership” and “single proprietorship”. DEFINITION
Following are some important definition of sole proprietorship:
1 . According to D.W.T. Staffod

“It is the simplest form of business organization, which is owned and controlled by
one man.”

2. CHARACTERISTICS Following are the main characteristics of sole proprietorship: 1.

In sole According to G. the
proprietorship, Baker
capital is normally provided by the owner himself. However, if
“Sole proprietorship
additional capital is required,is a business operated
such capital canbybe
oneincreased
person to earn profit.”
by borrowing. 2.
The sole proprietorship can be easily dissolved, as there are no legal formalities involved in it.
3.
Such type of business can easily be transferred to another person without any restriction. 4.
In sole proprietorship, single owner is the sole master of the business; therefore, he has full
freedom to take action or decision. 5.
Formation of sole proprietorship business is easy as compared to other business, because it
dos not require any kind of legal formality like registration etc.
Capital 6.
In sole proprietorship, the business has no separate legal entity apart from the sole traders.
7.
There are no legal restrictions for sole traders to set up the business. But there may be legal
restrictions for setting up a particular type of business. 8.
The continuity of sole
Easy Dissolution proprietorship is based on good health, or life or death of the sole
owner.
Easily Transferable
Freedom of Action
Formation
Legal Entity
Legal Restriction
Limited Life

9.
Management
In sole proprietorship, the control of management of the business lies with the sole owner.
10.
Ownership
The ownership of business in sole proprietorship is owned by one person.
11.
Profit
The single owner bears full risk of business, therefore, he gets total benefit of the business
as well as total loss.
12.
Size
The size of business is usually small. The limited ability and capital do not allow the
expansion of business.
13.
Success of Business
The success and goodwill of the sole proprietorship is totally dependent upon the ability of
the sole owner.
14.
Secrecy
A sole proprietorship can easily maintain the secrecy of his business.
15.
Unlimitedhas
A sole proprietor Liability
unlimited liability. In case of insolvency of business, even the personal
assets are used by the owner to pay off the debts and other liabilities.
ADVANTAGES OF SOLE PROPRIETORSHIP
Following are the advantages of sole proprietorship:
1.
In sole proprietorship
Contacted witha businessman
the Customers has direct contact with the customer and keeps in
mind the like and dislikes of the public while producing his products.
2.
In sole proprietorship a businessman has direct relationship with workers. He can better
Direct Relationship with Workers
understand their problems and then tries to solve them.

3.
Easy Formation
Its formation is very easy because there are not legal restrictions required like registration
etc.
4.
Easy Dissolution
Its dissolution is very simple because there are no legal restrictions required for its
dissolution and it can be dissolved at any time.
5. Easy Transfer of Ownership
A sole proprietorship can easily be transferred to other persons because of no legal

restriction involved.
6.
Entire Profit
Sole proprietorship is the only form of business organization where the owner enjoys 100%
profit.
7.
Entire Control
In sole proprietorship the entire control of the business is in the hands of one person. He
can do whatever he likes.
8.
There isFlexibility
great flexibility in sole proprietorship. Business policies can easily be changed
according to the market conditions and demand of people.
9.
The soleHonesty
master of the business performs his functions honesty and effitively to make the
business successful.
10.
It is an independent form of business organization and there is no interference of any other

Independence
person.
11.
As all the BusinessSatisfaction

Personal activities are accomplished under the supervision of sole owner, so he
feels personal satisfaction that the business is running smoothly.

12.
Prime Credit Standing
A sole proprietor can borrow money more easily because of unlimited liability.
13.
Quick Decisions
Sole proprietor can make quick decisions for the development and welfare of his business
and in this way can save his time.
14. Personal Interest
A sole proprietor takes keen intere4st in the affairs of business because he alone is
responsible for profit and loss.
15.
Saving in Interest on Borrowed Capital
Sometimes, a sole proprietor borrows money to increase his capital, from his relatives,
without interest.
16.
Saving in Legal Expenses
As there are no legal restrictions for the formation of sole proprietorship so it helps in
increasing savings as legal expenses are reduced.
17.
Saving
The owner in Management
of the Expenses
business himself performs most of the functions so it r educes the
management expenses.
18.
The tax Saving in very

rates are Taxeslow on sole proprietorship because it is imposed on the income of
single person.
19.
It is an important
Secrecy factor for the development of business. A sole trader can easily maintain
the secrecy about the techniques of production and profit.
20.
It is helpful in solving
Social Benefitsmany social problems like unemployment etc.

DISADVANTAGES OF SOLE PROPRIETORSHIP
The disadvantages of sole proprietorship can be narrated as under:
1.
Continuity
The continuity of sole proprietorship depends upon the health and life of the owner. In case
of death of the owner the business no longer continues.
2. Chances of Fraud
In sole proprietorship, proper records are not maintained. This increases the chances of
errors and frauds for dishonest workers.
3.
Expansion Difficulty
In sole proprietorship, it is very difficult to expand the business because of the limited life of
proprietor and limited capital.
4.
Lack of Advertisement
As the sources of single person are limited so he cannot bear the expense of advertisement,
which is also a major disadvantage.
5.
Lack of Capital
Generally, one‐man resources are limited, so due to financial problems he cannot expand
his business.
6.
Lack of Inspection
In sole proprietorship thereand Audit
is lack of inspection and audit, which increases the chances of
fraud and illegal operations.
7.
Lackofofsuffering
Due to fear Innovation
from loss, a sole proprietor does not use new methods of
production. So, there is no invention or innovation.
8.
The public
Lackshows less confidence
of Public Confidencein this type of business organization because there is no
legal registration to control and wind up the business.

9.
Lack of Skilled Persons
One person cannot hire the services of qualified and skilled persons because he has limited
resources. It is also a great disadvantage.
10.
Management Difficulty
One person cannot perform all types of duties effectively. If he is a good accountant, he
may not be a good administrator. Due to this, business suffers a loss.
11.
Much Strain on Health
In this type of business organization there is much strain on the health of the businessman
because he alone handles all sorts of activities.
12.
Not Durable
This type of business organization is not durable because its existence depends upon the life
of sole proprietor.
13.
Permanent Existence
In this type of business there is a need of permanent existence of a businessman. In case of
absence from business for few days may become the cause of loss.
14.
Risk of Carelessowner
In sole proprietorship, Drawings
himself is a boss. There is no question to his decisions or
actions. So, there is a risk of careless drawings by him.
15.
Risk
In case of of proprietorship
sole Loss a single person bears all the losses, whereas in the case of
partnership or Joint Stock Company all the partners or members bear the loss.
16.
In sole proprietorship there is unlimited liability. It means, in case of loss personal property
Unlimited Liability
of the owner can be sold to satisfy the claimants. It is a great disadvantage.

CONCLUSION
From the above‐mentioned detail, we come to the point that despite the above
disadvantages, sole proprietorship is an important form of business organization. This
is due to the fact that its formation is very easy and due to unlimited liability the
owner takes great care and interest in the business, because in case of loss, he is
personally responsible. As he enjoys entire profit, this factor also encourages him to
work with great efficiency which promotes his business.
PARTNERSHIP
Partnership and its Characteristics
Partnership is the second stage in the evolution of forms of business organization. It
means the association of two or more persons to carry on as co‐owners, i.e. a
business for profit. The persons who constitute this organization are individually
termed as partners and collectively known as firm; and the name under which their
business is conducted is called “The Firm Name”. In ordinary business the number of
partners should not exceed 20, but in case of banking business it must nor exceed 10.
This type of business organization is very popular in Pakistan. DEFINITION 1.
According to Section 4 of Partnership Act, 1932

“Partnership is the relation between persons who have agreed to share the profits of
a business carried on by all or any of them acting for all.”
According to Mr. Kent
“A contract of two or more competent persons to place their money, efforts, labour
2. and skills, some or all of them, in a lawful commerce or business and to divide the
profits and bear the losses in certain proportion.”

Structural Diagram:
Association
Profit & Loss PARTNERSHIP Money, Labour

And Other Skills
Lawful Business
CHARACTERISTICS
The main characteristics of partnership may be narrated as under:
1.
Agreement
Agreement is necessary for partnership. Partnership agreement may be written or oral. It is
better that the agreement is in written form to settle the disputes.
2.
Audit
If partnership is not registered, it has no legal entity. So there is no restriction for the audit
of accounts.
3.
Agent
In partnership every partner acts as an agent of another partner.
4.
Business
Partnership is a business unit and a business is always for profit. It must not include club or
charitable trusts, set up for welfare.
5.
Cooperation
In partnership mutual cooperation and mutual confidence is an important factor.
Partnership cannot take place with cooperation.
6.
Dissolution
Partnership is a temporary form of business. It is dissolved if a partner leaves, dies or
declared bankrupt.

7.
Legal Entity
If partnership is not registered, it has no legal entity. Moreover, partnership has no
separate legal entity from its members and vice versa.
8.
Management
In partnership all the partners can take part or participate in the activities of business
management. Sometimes, only a few persons are allowed to manage the business affairs.
9.
Number of Partners
In partnership there should be at least two partners. But in ordinary business the partners
must not exceed 20 and in case of banking business it should not exceed 10.
10.
Object
Only that business is considered as partnership, which is established to earn profit.
11.
Partnership Act
In Pakistan, all partnership businesses are running under Partnership Act, 1932.
12.
Payment
In partnership, of Tax
every partner pays the tax on his share of profit, personally or individually.
13.
Profit and
The distribution ofLoss Distribution
profit and loss among the partners is done according to their agreement.
14.
Many problems are created in case of unregistered firm. So, to avoid these problems
Registration
partnership firm must be registered.
15.
Partnership business can be carried on by all partners or any of them can do the business
Relationship
for all.
16.
According to the
Share agreement, every partner contributes his share of capital. Some partners
in Capital
provide only skills and ability to become a partner of business and earn profit.

17.
Transfer of Rights
In partnership no partner can transfer his shares or rights to another person, without the
consent of all partners.
18.
Unlimited Liability
In partnership the liability of each partner is unlimited. In case of loss, the private property
of the partners is also used up to pay the business debts.
ADVANTAGES OF PARTNERSHIP
Following are the advantages of partnership:
1.
Simplicity in Formation
This type of business of organization can be formed easily without any complex legal
formalities. Two or more persons can start the business at any time. Its registration is also
very easy.
2.
Simplicity
Partnership in Dissolution
Business can be dissolved at any time because of no legal restrictions. Its
dissolution is easy as compared to Joint Stock Company.
3.
Sufficient
Partnership Capital
can collect more capital in the business by the joint efforts of the partners as
compared to sole proprietorship.
4.
As thereSkilled Workers
is sufficient capital so a firm is in a better position to hire the services of qualified
and skilled workers.
5.
As thereSense
is unlimited liability in case of partnership, so every partner performs his duty
of Responsibility
honestly.
6.
In this type of business

Satisfaction organization each partner is satisfied with the business because he
of Partners
can take part in the management of the business.

7. In partnership it is not compulsory to publish the accounts. So, the business secrecy
remainsSecrecy
within partners. This factor is very helpful for successful operation of the business.
8. Two or more partners with their resources can build a strong business. This factor is very
helpful in solving social problems like unemployment. 9.
In this type of business organization, it is very easy to expand business volume by admitting
new partners and can borrow money easily. 10.
Social business
It is flexible Benefit and partners can change their business policies with the mutual
consultation at any time. 11.
Every partner pays tax individually. So, a firm is in a better position as compared to Joint
Stock Company. 12.
Public shows more confidence in partnership as compared to sole proprietorship. If a firm is
registered, peopleof feel
Expansion no risk in creating relations with such business.
Business 13.
The liabilities of partners are unlimited, so the banks and other financial institutions provide
them credit easily. 14.
In partnership all policy matters are decided with consent of each partner. This gives
protection to minority partners. 15.
Partnership is the best business for small investors. It promotes moral courage of partners.
Flexibility
Tax Facility
Public Factor
Prime Credit Standing
Minority Protection
Moral Promotion

16.
Distribution of Work
There is distribution of work among the partners according to their ability and experience.
This increases the efficiency of a firm.
17.
Combined Abilities
Every partner possesses different ability, which helps in running the business effectively,
when combined together.
18.
Absence of Fraud
In partnership each partner can look after the business activities. He can check the
accounts. So, there is no risk of fraud.

Lecture 4
PARTNERSHIP
DISADVANTAGES OF PARTNERSHIP
The disadvantages of partnership are enumerated one by one as under:
1. Unlimited Liability
It is the main disadvantage of partnership. It means in case of loss, personal property of the
partners can be sold to pay off the firm’s debts.
2. Limited Life of Firm

The life of this type of business organization is very limited. It may come to an end if any
partner dies or new partner enters into business.
3.
Limited Capital
No doubt, in partnership, capital, is greater as compared to sole proprietorship, but it is
small as compared to Joint Stock Company. So, a business cannot be expanded on a large
scale.
4.
Limited Abilities
As financial resources of partnership are limited as compared to Joint Stock Company, so it
is not possible to engage the services of higher technical and qualified persons. This causes
the failure of business, sooner or later.
5.
Limited number of Partners
In partnership, the number of partners is limited, so the resources are also limited. That’s
why business can not expand on large scale.
6.
Legal Defects
There are no effective rules and regulations to control the partnership activities. So, it
cannot handle large‐scale production.
7.
Lack of Interest
Partners do not take interest in the business activities due to limited share in profit and
limited chances of growth of business.

8.
As thereLack ofneed
is no PublicbyConfidence
law to publish accounts in partnership, so people lose confidence and
avoid dealing and entering into contract with such firm. 9.
In partnership all decisions are made by mutual consultation. Sometimes, delay in decisions
becomes the cause of loss. 10.
In case of misunderstandings and disputes among the partners, business secrets can be
Lack of Prompt Decision
revealed. 11.
In partnership there are much chances of dispute among the partners because all the
partners are not of equal mind. 12.
Partnership business may not be expanded due to limited number of partners, limited
capital and unlimited liability. 13.
It is easy to invest
Lack of Secrecy money in partnership but very difficult to withdraw it. 14.
There is a risk of loss due to less qualified and less experienced people. 15.
In partnership no partner can transfer his share without the consent of all other partners.
CONCLUSION
From the above‐mentioned findings, we come to this point that despite the above
disadvantages,
Chances partnership is anPartners
of Dispute among important from of business organization. This is
because its formation is very easy and due to unlimited liabilities, partners take great
interest in business, because in case of loss they are personally responsible.
Expansion Problem
Frozen Investment
Risk of Loss
Transfer of Rights

PARTNERS
KINDS OF PARTNERS
“The individuals who comprise a partnership are known as partners.”
Partners can be classified into different kinds, depending upon their extent of liability,
participation in management, share of profits and other facts. 1.
A partner who takes active part in the affairs of business and its management is called active
partner. He contributes his share in the capital and is liable to pay the obligations of the firm.
2.
A partner who takes active part in the affairs of the business but is unknown to the public as
a partner is called secret partner. He is liable to the creditors of the firm. 3.
Active
A partner whoPartner
only contributes is the capital but does not take part in the management of
the business is known as sleeping partner. He is liable to pay the obligations of the firm. 4.
Secret Partner
Sleeping Partner
Silent Partner
A partner who does not take part in the management of business but is known to the public
as partner is called silent partner. He is liable to the creditors of the firm.
5. Senior Partner
A partner who invests a large portion of capital in the business is called senior partner. He
has a prominent position in the firm due to his experience, skill, energy, age and other facts.
6. Sub‐Partner
A partner in a firm can make an agreement with a stranger to share the profits earned by
him from the partnership business. A sub‐partner is not liable for any debt and can not
interfere in the business matters.
7.
Junior Partner
A person who has a small investment in the firm and has a limited experience of business is
called junior partner.

8.
Major Partner
A major partner is a person who is over 18 years of age. A person is allowed to make
contract when he has attained the age of majority.
9.
Minor Partner
A person who is minor cannot enter into a valid contract. However, he can become a
partner with the consent of all other partners. A minor can share profits of a business but
not the losses.
10.
Nominal Partner
A partner who neither contributes in capital nor does he take part in the management of
the business but allows his name to be used in the business is known as nominal partner.
He is individually and jointly liable for the debts of the firm along with other partners.
11.
Deceased Partner
A partner whose life has expired is known as deceased partner. The share of capital and
profit of such partner is paid to his legal heirs in lump sum or in installment.
12.
Limited Partner
A partner whose liabilities are limited to his share in business is called limited partner. He
cannot take active part in the management of the firm.
13. Unlimited Partner
A partner whose liabilities are unlimited is known as unlimited partner. He and his personal
property both are liable to clear the debts of the firm.
14. Incoming Partner

A person who is newly admitted in the firm with the consent of all the partners is called
incoming partner. He is not liable for any act of the firm performed before he became the
partner unless he agrees.
15.
Retired Partner
A partner who leaves the firm due to certain reasons is known as retired partner or
outgoing partner. He is liable to pay all the obligations and debts of the firm incurred
before his retirement.

16.
Partner
If a partner in Profits
is entitled toonly
receive certain share of profits and is not held liable for losses is
known as partner in profits only. He is not allowed to take part in the management of the
business. 17.
A person, who was the partner of a firm but has now retired from active participation in
business and has left his capital in the business as a loan, receiving interest on it, is known
as quasi partner. 18.
A person whoPartner
Quasi holds himself out as a partner of a firm, before a third party or allows other to
do so, though he is not a partner of that firm, is called partner by estoppel or
holding out partner. He is not entitled to any right like other partners of the firm. He
is not entitled to any right like other partners of the firm. He is personally liable to
the third party for the credit given to the firm, on the faith of his representation.
KINDS OF PARTNERSHIP
There are threebykinds
Partner of partnership which are described as under:
Estoppel
PARTNERSHIP AT WILL
If the partnership is formed for an undefined time, it is called partnership at will. Any
partner can dissolve it at any time by giving the notice.
1. Partnership at will
2. Particular partnership
3. Limited partnership
According to Partnership Act, 1932:

“If no provision is made in the agreement regarding the partnership, it is called
partnership at will.”
Partnership at will may be created under the following circumstances:
Indefinite Period
1.
If partnership has been formed for an indefinite period, it is called partnership at will.

2.
Existence after Completion of Venture
If partnership has been formed for a particular venture and after completion such venture it
remains continue, it becomes a partnership at will.
3.
Existence after Expiry of Period
If partnership has been formed for a definite time period, so after the expiry of this period,
it becomes partnership at will.
PARTICULAR PARTNERSHIP
If the partnership is formed for a particular object of temporary nature, it is called particular
partnership. On completion of a particular venture, it comes to an end. Under this no
regular business is done. For example: Partnership for the construction of a building and
partnership for producing a film.
LIMITED PARTNERSHIP
Limited partnership is that in which liabilities of some partners are limited up to the amount
of their capitals. In this partnership, there is at least one partner who has unlimited liability.
In Pakistan, this type of partnership is not formed. There is a separate partnership act for it.
MAIN FEATUTRES
Main features of partnership are:
1.
There isLimited
at least Partner
one partner who has limited liability.
2.
There isUnlimited
at least one partner who has unlimited liability.
Partner
3.
There are at leastoftwo

Number partners or maximum 20 in an ordinary business and not more than
Partners
10 in banking business.
4.
New partners may be admitted in this partnership without the consent of limited partners
Admission of New Partner
but with the consent of unlimited partners.

5. The registration of this partnership is compulsory by law. 6.

Limited partner can transfer his shares to any other person with the consent of all other
partners.Registration
7. Limited partner has a right to inspect the books of accounts. 8.
Limited partner has a right to give suggestions to others who manage the business. 9.
A limited partner cannot take part in the management of the business. 10.
A limited partner cannot withdraw his capital until he remains in partnership business. 11.
Transferability
It is enrolled under theofLimited
SharesPartnership Act, 1907, instead of Partnership Act, 1932.
TERMINATION OF PARTNERSHIP
All forms of partnership under Islamic law may be terminated as: 1.
In all the above forms of partnership each partner has a right to terminate the partnership
by giving notice to other partners.
2. Inspection of Books
Partnership is also terminated on the death of a partner.
Rights of Suggestions
Participation in Management
Withdrawal of Capital
Separate Legislation
Notice
Death

PARTNERSHIP DEED
Partnership deed is a document that contains the terms and conditions of the business.
CONTENTS OF PARTNERSHIP DEED
 Date on which the agreement was made.

 Name of the business
 Nature of the business
 This clause will cover the scope of the business.
 Names, addresses, telephone Numbers and emails of the partners.
 Capital of the business
 If duration is attached with any business that should clearly be mentioned in the
partnership deed.
 Duties of the partners
 Whether any partner is entitled to salary. If yes, how much amount should be given
to him as salary
 Profit distribution ratio
 Whether partners are entitled to withdraw money from the business. If yes,
procedure of withdrawals should also be written in the partnership deed.
 Arbitration
 In case of a conflict, how that conflict would be resolved before going to the
court.
The partner should read the partnership deed carefully, add as much clauses as possible and
never take anything for granted.
RIGHTS OF THE PARTNERS

 Every partner has the right to:
 Participate in all the affairs of the business.

 Get his/her share of profit from the business.
 Leave the partnership according to the terms and conditions of the
partnership deed.
 Claim the salary against his/her services.
 Participate in the management of the business.

Lecture 5
JOINT STOCK COMPANY

DUTIES OF THE PARTNERS
 Partners have to maintain accounts which describe the true picture of the business.
 Partners should use their powers within limits specified in the partnership deed.
 Partners are responsible to provide accurate information to Government bodies.
 Partners are responsible to pay their share in case of loss to the business.
 It is duty of every partner to obey the decision that has been made in the
partnership.
 Partners should not disclose any secret information about the business to any other
person.
 It is a moral obligation and legal responsibility of the partners not to use firm’s
forum to take any advantage without intimating to other partners.
JOINT STOCK COMPANY
Joint Stock Company is the third major form of business organization. It has entirely
different organizational structure from sole proprietorship and partnership. There are two
advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital.
Secondly, the company offers the protection of limited liability to the investors.
The law relating to Joint Stock Company has been laid in Companies Ordinance, 1984, which
came into force on January 1, 1985 in Pakistan. DEFINITIONS
Following are some important definition of Joint Stock Company: 1. Simple Definition
“A company may be defined as an association of persons for the purpose of making profit.”
2. According to Kimball,
“A corporation by nature is an artificial person, created or authorized by a legal statue for
some specific purpose.” 3. According o S.E. Thomas,
“A company is an incorporated association of persons formed usually for the pursuit of
some commercial purpose.”

Structural Diagram
FEATURES OF JOINT STOCK COMPANY

Following are the main features of a Joint Stock Company.
1. Creation of Law
A joint stock company is the creation of law or special ‘Act’ of the state. It is formed and
governed by the Companies Ordinance or by a special Act of the legislature. Pakistani
companies are incorporated under the Companies Ordinance, 1984.
2. Capital Borrowing
The company can borrow capital in its own name to expand the business.
3. Separate Legal Entity
A Joint Stock Company has separate legal entity, apart from its members. It can sue in a
court of law in its own name.
4. Legal Person
A Joint Stock Company, as a legal person, has the usual rights of any person to carry on the
business in its own name, to own property, to borrow or lend money and to enter into
contract.
5. Long Life
A joint stock company has long life as compared to other forms of business organizations.
6. Limited Liability
The liability of the shareholder is limited to the extent of the face value of the shares they
hold.
7. Large Scale Business

Because of more members, a company has larger capital as compared to sole trade ship and
partnership, which helps in doing business on large scale.

8. Management of Company
The shareholders elect the Board of Directors in the Annual General Meeting and all the
management is selected by the Board of Directors. 9. Number of members
In case of private limited company, minimum number of shareholders is ‘2’ and maximum is
‘50’; but in case of public limited company, minimum number is ‘7’ and there is no limit for
maximum number. 10. Transferability of Shares
A shareholder of a company can easily transfer his shares to other persons. There is no
restriction on the purchase and sale of shares. 11. Trade Agreement
A joint stock company enjoys separate existence, so it can join the trade agreements with
other firms in its own name. 12. Purchases and Sale of Property
A joint stock company can purchase and sale the property in its own name.
13. Payment of Taxes A joint stock company pays double taxes to the government.
14. Object
The basic object of a joint stock company is to earn profit. Whole profit is not distributed
among the shareholders. Some portion is transferred to General Reserve for emergencies.
15. Government Control
A joint stock company has to comply with the rules of the government. It has to audit its
accounts. 16. Easy Mode of Investment
The capital of a joint stock company is divided into the shares of small value. So, every
person can purchase these shares according to his income and saving. 17. Common Seal
Since a company is an artificial person created by law, therefore, it cannot sign documents
for itself. The common seal, with the name of the company is used as a substitute for its
signature.

ADVANTAGES AND DISADVANTAGES OF JOINT STOCK COMPANY
ADVATNAGES OF JOINT STOCK COMPANY

Following are the advantages of Joint Stock Company:
1. Expansion of Business
A joint stock company sells the shares, debentures and bonds on large scale. So, a joint
stock company can collect a large amount of capital and can expand its business.
2. Easy Access to Credit

A joint stock company can get a huge amount of capital from banks and other institutions.
3. Easy to Exit
It is easy to separate oneself from a joint stock company by selling his shares.
4. Experts’ Services
Because a joint stock company has a strong financial position, so it may hire the service of
qualified and technical experts.
5. Employment
Joint stock companies are also playing very important role to provide employment to
unemployed persons of the country.
6. Flexibility
There is flexibility in such business organizations.
7. Limited Liability
The liability of the owner is limited. In case of loss, the shareholders are not required to pay
anything more than the face value of the shares.
8. Large Scale Production

Availability of huge amounts of capital makes possible for a joint stock company to produce
goods on very large scale, at a lower cost.
9. Larger Capital
There is no problem of capital in a joint stock company because there is not limit for
maximum number of members. So, a joint stock company collects capital from many
people.
10. Long Life

A joint stock company has a permanent life. If one or more than one shareholder die, or sell
their shares, it makes no difference to the company. New shareholders take their place.
11. Long‐term Projects

A joint stock company has a permanent and long life and huge capital. Such organizations
can undertake the projects, which may give profit after many years.

12. Spread of Risk

In joint stock company, the risk of business is spread over a large number of people. Such
organizations can undertake risky projects, which other types or organization do not take.
13. Transfer of Shares

In joint stock company, the shares of public limited company can be easily transferred or
disposed off. There is no restriction on the transfer of shares in a joint stock company.
14. Increase in Saving and Investment

The shares are in large number but their value is small. The shares of a company may have a
value of Rs. 10, Rs. 100 etc. So, rich as well as poor can purchase the shares of a company.
This leads to increase in savings and investment.
15. Better Management

Such organization is administered by the elected directors. These directors are generally
experienced and qualified in business field. This increases the efficiency of the company.
16. Beneficial Advices

A joint stock company can take beneficial advices from the government at the time of need
which reduces the chances of its failure.
17. Public Confidence

A joint stock company is created by law and is supervised by legal authority. So, a joint stock
company can easily win the public confidence.
18. Higher Profits

With the help of larger capital and technical skill, the cost of production is reduced, which
increases the rate of profit.
DISADVANTAGES OF JOINT STOCK COMPANY

Some of the disadvantages of the joint stock company are given below:
1. Initial Difficulties
It is more difficult to establish a joint stock company as compared to other business
organizations.
2. Lack of Interest
Most shareholders become relaxed and leave all the functions to be carried out by the
directors. This usually encourages the directors to promote their own interest at the cost of
the company.
3. Labor Disputes
In such organization there is no close contact of the workers with the owners or the
shareholders. This leads to formation of labor unions to fight against the company’s
management.

4. Lack of Responsibility
There is lack of personal interest and responsibility in the business of a joint stock company.
If any mistake occurs, everybody tries to shift or transfer his responsibilities to other
persons and he remains safe. 5. Lack of Secrecy
A joint stock company cannot maintain its secrecy due to the reason that a company has to
submit various reports to the registrar. 6. Lack of Freedom
A joint stock company cannot perform its functions freely because it has to submit various
reports to the registrar form time to time. 7. Monopoly
Due to larger size and resources, a joint stock company is in a position to create monopoly.
Sometimes a few customers make agreement and exploit the consumers. 8. Speculation
Due to free transfer of shares and limited liability, speculation in the stock market takes
place, which may affect the economy of the country. 9. Corruption
The directors of the company do not show the picture of the company to the public and
encourage corruption by changing the policies for their personal interest.
10. Complicated Process
The formation of a joint stock company is a complicated process due to many legal
formalities. 11. Centralization of Power
In joint stock Company, all the powers have in a few hands and due to this; an ordinary
shareholder cannot participate in the affairs of a company. 12. Double Taxes
A joint stock company has to pay double taxes to the government. Firstly, company pays tax
on the whole profit of the company. Secondly, every shareholder pays tax on his individual
income. 13. Exploitation
Ordinary shareholders do not have full information about the affairs of their company. So,
they are exploited. 14. Problem of Large‐Scale Production
Since joint stock company produces on large‐scale, so many problems arise in the economy.

15. Nepotism
In a joint stock company, the directors of company employ their inefficient and incapable
relatives and friends and give key jobs to them. As a result, the company suffers a loss.
16. Late Decision

In joint stock company, the decision making process in time consuming because a meeting is
necessary to solve the business problems and matters.
DIFFERENCE BETWEEN PUBLIC LIMITED COMPANY AND PRIVATE LIMITED COMPANY
1. Number of members
 For a public limited company, minimum number of members is seven
 For a private limited company, minimum number of members is two
2. Issue of shares
 Public limited company is bound to promote issue of shares to general public
through media.
 There is no such provision for private limited company.
3. Name of the company
 Public limited companies add the word “Ltd.” with their name.
 Private limited companies add the word “(Pvt) Ltd.” with their name.
4. Annual report
 Public limited companies have to present their data to general public.
 There is no such provision for private limited company.
5. Transfer of shares
 It is easy to transfer shares in public limited companies.
 In private limited company, shareholder cannot transfer the shares without
the consent of other members.
6. Statutory meeting
 It is obligatory for the public limited company to hold statutory meeting.
 There is no such obligation for private limited company
7. Submission of annual report
 It is obligatory for the public limited companies to submit their annual report
to registrar Corporate Law Authority.
 It is not necessary for private limited company.
8. Taxation
 Public limited company pays double taxation at different income tax rates.
 Private limited company pays tax only once at different income tax rates.

LESSON 6
JOINT STOCK COMPANY
JOINT STOCK COMPANY
Secondly, the company offers the protection of limited liability to the investors.
came into force on January 1, 1985 in Pakistan. DEFINITIONS
Following are some important definition of Joint Stock Company: 1. Simple Definition
“A company may be defined as an association of persons for the purpose of making profit.”
2. According to Kimball,
“A corporation by nature is an artificial person, created or authorized by a legal statue for
some specific purpose.” 3. According o S.E. Thomas,
“A company is an incorporated association of persons formed usually for the pursuit of
some commercial purpose.”
PROCEDURE OF FORMATION OF A JOINT STOCK COMPANY IN PAKISTAN
Secondary, the company offers the protection of limited liability to the investors.
came into force on January 1, 1985 in Pakistan.
Following are the important stages or steps for the formation of a joint stock company:
Formation of joint Stock Company

PROMOTION STAGE
The promoters do the basic work for the start of a commercial or an industrial business on
corporate basis. Promotion is the discovery of ideas and organization of funds, property and
skill, to run the business for the purpose of earning income. Following steps are involved in
the stage of promotion.
1. Idea about Business

Before starting the business, promoters have to think about the nature and production of
company’s business.
2. Investigation
After deciding the nature of business, promoters go in preliminary investigation and make
out plans as regard to the availability of capital, means of transportation, labour, electricity,
gas, water etc.
3. Assembling various Factors

After making initial investigation, the promoter starts accumulating various factors in order
to assemble them. They arrange license, copyrights, employment of necessary employees
etc.
4. Financial Sources
The promoters also decide the capital sources of the company and they work out the ways
through which capital can be generated.
5. Preparation of Essential Documents

In addition to above discussed matters, the promoters also prepare following essential
documents for the formation of company:
 Memorandum of company
 Articles of company
Prospectus of company
The promoters carrying out these various activities give the company its physical form in the
shape of:
 Giving a name to the company
 Sanctioning of Capital Issue
INCORPORATION STAGE
The second stage for establishment of a company is to get it incorporated.
1. Filling of Document
Following documents are to be submitted by the promoters in the Registrar’s office.
(a) Memorandum of Association
A document indicating name, address, objects, authorized capital etc. of a company.

(b) Articles of Association

A document containing laws and rules for internal control and management of a
company
(c) List of Directors
A list of the names, occupations, addresses, along with the declaration of directors.
(d) Written Consent of Directors
A written consent showing their willingness to act at directors, to be sent to the
Registrar
(e) Declaration of Qualifying Shares
A declaration certificate showing that the directors have taken up qualifying shares and
have paid up the money or pay it in near future to the registrar.
(f) Prospectus
Promoters have to file a prospectus with the registrar.
(g) Statutory Declaration
A statutory declaration is to be sent to the Registrar that all legal formalities have been
completed.
2. Payment of Registration Fee

For the registration of company, the registration fee is also paid to the Registrar. For
example
 Application and documents filing fee
 Registration fee
 Stamp fee on Memorandum and Articles
3. Certificate of Incorporation
If the registrar finds all the documents right and thinks that all formalities have been fulfilled
then he issues the certificate of incorporation to promoters.
CAPITAL SUBSCRIPTION STAGE

After getting certificate of incorporation, the next stage is to make arrangement for raising
capital. For any kind of business, the company raises its capital through following sources:
 By Issuing Shares
 By Issuing Debentures
 By Savings
CERTIFICATE OF COMMENCEMENT
For the commencement of business, every public company has to obtain the certificate of
commencement, which requires the fulfillment of following conditions:
1. Issue of Prospectus
A company has to issue prospectus for selling shares and debentures to public.
2. Allotment of Shares
The shares and debentures are allotted according to the pro visions of memorandum, when
applications are received from the public.

3. Minimum Subscription
It is also certified that the shares have been allotted up to an amount, not less than the
minimum subscription. After verifying the foregoing documents, the registrar issues a
certificate of commencement of business to public company.

Lecture 7
WHAT IS A “MEETING”
“A gathering of two or more persons by previous notice or by mutual arrangement for the
discussion and transaction of some business is called meeting.”
SHAREHOLDERS’ MEETINGS
AND COMPANY’S MEETING
“When the members of a company gather at a certain time and place to discuss the
business and managing affairs it is called meeting of the company.”
Kinds of Company’s Meeting
Shareholders’ Directors’
Meetings Meeting
Statutory
Meeting Annual Extra‐
General ordinary
Meeting Meeting
SHAREHOLDERS’ MEETINGS
The meetings, which are called to discus the affairs of the company with shareholders, are
called shareholders’ meetings. These meetings have following three kinds:
STATUTORY MEETING
According to section 157, this meeting is held only once in the life of a public company. It is
the first meeting of the members of a public limited company. Its main objective is to
provide the shareholders with first hand information about the exact position of company’s
affairs.

1.
By whom and when held
Section 77 of the Companies Ordinance, 1984, makes it compulsory for:
 every public company limited by shares,

 every public company limited by guarantee, and
 every private company converted into public company
that statutory meeting must be held within a period of not less than 3 months and not more
than 6 months from the date at which the company is entitled to commence business.
2. Objects
Its main object is:
 To provide exact and latest information about the affairs of the company,
 To win the confidence of shareholders of the company, and
 To discuss the statutory report.
3. Notice
At least 21 days before the meeting, a notice must be sent to each shareholder along with
the statutory report, by the secretary.
4. How the meeting is called
Under section 157(2) of Companies Ordinance, the directors should send a notice of
statutory meeting, to all the shareholders, at least 21 days before the meeting. Directors
also send statutory report, duly certified by at least 3 directors – one of them should be the
chief executive of the company.
5.
Privileges to the members
The members of the company in meeting have the liberty to discuss any matter relating to
company’s affairs.
STATUTORY REPORT
The report prepared by the secretary, certified by at least 3 directors – one of them being
the chief executive of the company is called statutory report. The statutory report contains
the following information:
1.
Share Allotment
Total number of shares allotted and their consideration for allotment

2. Summary of cash received in respect of shares allotted. 3.

List of basic expenses of the company 4. Detail of commission for the sale of shares, if any.
5. SummaryThe of Cash received
particulars of contract and their modifications, if any, 6.
The names, addresses and occupations of the directors and other officers of the company 7.
The particulars of underwriting contract, if any. 8.
The arrears, if any, due on calls from director or managing agents
ANNUALExpenses GENERAL MEETING
According to section 158 of Companies Ordinance, every company must hold an annual
general meeting of its shareholders, once in a year. The meeting provides an opportunity to
evaluate and measure the efficiency of the directors and other officers in carrying out the
company’sCommission affairs. 1.
A notice of annual general meeting should be sent to the shareholders, at least 21 days
before the date of the meeting. 2.
In case of listed company, annual general meeting should be held in town where the
registered office of of
Particulars theContract
company is situated.
Particulars of Directors
Underwriting Contract
List of Arrears
Notice
Place of Meeting

3.
Role of shareholders
The shareholders can criticize the policies of the directors and other officers and can offer
suggestions for their improvement.
4.
Occasion
The first meting of this nature must be held within 18 months from the date of
incorporation. The gap between two annual general meetings must not be more than 15
months.
5.
Objects
The main objective of this meeting is to check that ordinary business is being done
according to the rules laid down in articles of association of the company. The directors
submit their report about the affairs of the company during the proceeding year. This
report is known as director’s report. Other objectives are:
 Election of Directors
 Appointment of auditors
 Declaration of dividend
 Fixation of director’s, auditor’s and managing agent’s remuneration
 Auditor’s report and balance sheet are presented in the meeting
6. Winding up
According to section 305(b), a company may be wound up by the court if it does not hold
the two consecutive annual general meetings.
EXTRAORDINARY GENERAL MEETING
All the general meetings other than annual general meeting and statutory meeting shall be
called extraordinary general meetings. There is no time limit for it. It may be held from
time to time
1. Right to Call Meeting
(a) The directors of the company may call extraordinary general meeting for
doing some urgent business.
This meeting can also be called by the directors, on the request of
(b) shareholders, having not less than one tenth of the voting power.

(c) In case the directors fail to call the extraordinary general meeting within 21
days, the shareholders themselves may call the meeting. In such, case,
meeting must be held within 3 months.
2. Notice
To call the extraordinary meeting, 21 days notice is served.
3. Procedure
The shareholders have to submit their demand to the secretary of the company. With the
consultation of directors, he will arrange to call the meeting. The company bares the
expenses of the meeting.
4. Objects
 To issue the debentures
 To alter the memorandum and articles
 To alter the share capital of the company
The members of the company electDIRECTOR’S

their representatives
MEETINGSto run the business and
management of the company. These representatives are called the directors of the
company and they are different in numbers in different companies. All the business affairs
are settled with mutual consultation of all directors. So, the meeting called for directors to
discuss the policies or to take the decisions is called directors’ meeting.
1.
This meeting
Whenmust be held at least once in three months and at least four times in a year.
is it held?
2.
Notice of every meeting must be sent to each director, otherwise the proceedings of the
Notice
meeting may be declared void.
3.
Objects
 To allot shares
 To invest company’s fund
 To recommend dividend
 To keep reserve out of profit
 To make loans
 To appoint officers or committee
 To discuss the contracts of the company
 To determine the date of next meeting

WINDING UP OF COMPANY
A company is created by law and when the legal existence of company abolishes or comes
to an end it is called winding up of a company or liquidation of company.
A company can be wound up in the following three ways:
MODES OF WINDING UP
Winding up of Joint Stock Company
Compulsory Voluntary Under the

Winding up Winding up Supervision
by Court of Court
By Members By Creditors
C O M P U L S O R Y W I N D I N G U P B Y C O U
R T
A c c o r d i n g t o S e c t i o n 3 0 5 o f C o
m p a n i e s O r d i n a n c e , a c o m p a n y
m a y b e w o u n d u p b y c o u r t
u n d e r t h e f o l l o w i n g c i r c u m s t a n
c e s Special
: Resolution 1 .
I f a s p e c i a l r e s o l u t i o n h a s b e e
n p a s s e d b y t h e c o m p a n y f o r w i
n d i n g u p 2 .
I f t h e c o m p a n y f a i l s t o s u b m i t
Statutory Meeting
s t a t u t o r y r e p o r t t o t h e R e g i s t r
a r f o r f a i l u r e t o h o l d s t a t u t o r
y
m e e t i n g w i t h i n s p e c i f i e d t i m e
3 .
I f Commencement
a c o m pofaBusiness
n y f a i l s t o s t a r t i t s
b u s i n e s s w i t h i n o n e y e a r f r o m t
h e d a t e o f i n c o r p o r a t i o n o r
p o s t p o n e s i t s b u s i n e s s f o r o n e
y e a r

4.
Reduction in Members
If the number of members fall below seven in case of public company and below two in case
of private company.
5.
Satisfaction of Court
If the court is not satisfied with the working, management and business affairs of the
company
6.
Payment of Loans
If a company is unable to pay its debts
7.
Unlisted
If a company declares itself unlisted due to any reason
VOLUNTARY WIDNIGN UP
A joint stock company may be wound up voluntarily in following two ways:
1.
By to
According Members
section 362 of Companies Ordinance, 1984, the members can wind up a
company voluntarily under following circumstances:
(i)
Expiry
A company mayofbe
Period
wound up voluntarily by the members, after the expiry of period, by
passing resolution in the general meeting.
(ii)
If majority of directors
Statutory makes a statutory declaration to registrar that the company will be
Declaration
able to pay its debts in full within one year.
(iii)
After submitting
Special orthe statutory
Ordinary declaration to the registrar, the company, in general meeting
Resolution
passes an ordinary or special resolution to wind up the company.
(iv) Appointment of Liquidators
In general meeting, the company appoints liquidators to wind up the company’s affairs.
Within ten days after the appointment must be sent to registrar.

(v)
Final Meeting
After winding up the affairs of company, the liquidators call the general meeting of the
shareholders. In this meeting, the liquidators must submit the final accounts of company’s
affairs to the members.
(vi)
Dissolution
Within one week of general meeting, liquidators must file a copy of full accounts to the
registrar. At the end of 3 months from the date of registration of return, the company shall
be dissolved and its name will be struck off by the Registrar of Joint Stock company.
2.
By Creditors
The Members can wind up a company voluntarily under following circumstances:
(i)
Statutory Declaration
In case of creditors voluntary winding up, it is not necessary for the company to make a
statutory declaration regarding its solvency.
(ii)
Special
A general meetingResolution
of the company’s shareholders is called to pass an extra ordinary
resolution for the dissolution of the company because it cannot continue its business due to
heavy liabilities.
(iii)
Creditors’
On the same Meeting
or next day, a meeting of creditors must be called by the company. A notice of
meeting must be sent to each creditor.
(iv) Statement of Affairs
In the creditors’ meeting, the directors must submit a statement of affairs of the company,
together with a list of creditors of the company and estimated amount of their claims.
(v)
The information regarding

Intimation the notice of passed resolution must be sent to the registrar
to Registrar
within ten days after the date of creditors’ meeting.
(vi)
The creditors and shareholders nominate the persons to act as liquidators in their
Appointment of Liquidator
respective meetings and the opinion of the creditors is preferred.

(vii) The creditors and shareholders, in their respective meetings can appoint the inspection
committee Inspection Committee
consisting of five persons in each case. (viii)
The inspection committee fixes the remuneration, rights and duties of the liquidators. (ix)
In the final meeting, the liquidators place before them the full accounts of the company’s
affairs and a copy of these accounts is also sent to registrar within 7 days. (x)
The registrar registers the documents, sent by the company, after 3 months from the date
Liquidators’
of registration, the Remuneration,
company will Rights and Duties VOLUNTARY WINDING UP UNDER
be dissolved.
THE SUPERVISION OF COURT
According to section 396 of Companies Ordinance, a voluntary winding up of a company can
also be carried under the strict registration of the court. 1.
At first, Final
company has to pass special resolution for the voluntary winding up of the company.
Meeting
2.
Dissolution
Resolution
Supervision Order
Following are the common grounds on which the court issues the supervision order:
1. The liquidator performs his duty in partial manner.

2. The winding up resolution is obtained by fraud.
3. The liquidator does not strictly observe the rules of winding up the company
3. Power of the Court

The court has the power to appoint an additional liquidator, or to remove any liquidator.

4.
Dissolution
After the supervision order is made, the liquidator may exercise his powers in winding up of
a company. On completion of winding up, the court will make an order that the company is
dissolved. SHARE CAPITAL
In simple words, the term “capital” means the particular amount of money with which a
business is started.
In company, share capital means the amount contributed by the shareholders. DEFINITION
1.
According to Alan Issacs

“Share capital is that part of the capital of a company that arises from the issue of
shares”
L. B. Curzon says
"Share capital is the total amount which a company’s shareholders have contributed
2. or are liable to contribute as payment for their shares.”
KINDS OF SHARE CAPITAL
According to Companies Ordinance, 1984, the following are the kinds of share capital:
1. Authorized Capital
This is maximum amount of capital with which a company is registered or authorized to

issue. It is divided into shares of small value.
For example, the authorized capital of the company Rs. 10, 00,000 divided into
1, 00,000 shares of Rs. 10 each
2. Issued Capital
It is a part of authorized capital which is offered to the general public for sale.
For example, a company has an authorized capital of Rs. 10, 00,000 dividend into
1, 00,000 shares of Rs. 10 each. It offers 20,000 shares of Rs. 10 each to general public. So
it means issued capital is Rs. 2, 00,000.

3.
Un‐Issued Capital
It is a part of authorized capital which is not offered to the general public for sale.
For example, a company has an authorized capital of Rs. 10, 00,000 divided into 1, 00,000
shares of Rs. 10 each. It offers 20,000 shares of Rs. 10 each to general public. So it means
un‐issued capital is Rs. 8, 00,000 consisting of 80,000 shares of Rs. 10 each.
4.
Subscribed Capital
That part of issued capital for which applications are sent by the public and which are
accepted is called subscribed capital.
For example, out of 20,000 shares offered by the company, the general public takes
up only 10,000 shares. So subscribed capital, is Rs. 1, 00,000.
5. Called up Capital
A company may require payment of the par value either in installments or in lump sum. So
amount of shares demanded by company is known as “called up capital”.
For example, out of 10,000 shares taken by public, company requires a payment of 6
per share. So “called up” capital of the company is Rs. 60,000 (10,000 share @ Rs. 6).
6. Un‐Called up Capital
A company may require payment of the par value either in installments or in lump sum. So
amount of shares not demanded by company is known as “un‐called up capital”.
For example, out of 10,000 shares taken by public, the company requires a payment
of 6 per share. So “un‐called up” capital of the company is Rs. 40,000 (10,000 shares @ Rs.
4). 7. It is that part of called up capital which is actually received by the company. If some
shareholders could not pay all the money of called up capital, such money is called as “calls
in arrears”
Paid up Capital or “calls unpaid”. 8.
The capital which is reserved for unexpected events or for future needs is called reserve
capital. Company decides not to call up some part of uncalled up capital until winding up. It
is normally kept for the payment of debts at the time of winding up.
Reserve Capital

9. A company can obtain redeemable capital by issue of:

Redeemable Capital
(a) Participation Term Certificates

(b) Musharika Certificate
(c) Term Finance Certificate

Lecture 8
COOPERATIVE SOCIETY
Cooperative Society its advantages and disadvantages COOPERATIVE SOCIETY A
cooperative society is formed by the people of limited means for self help through
mutual help. It is set up to protect economically the poor sections of the society. It
is set up for cooperation, not for competition. The motto of a society is self help,
without dependence on other business units. DEFINITION 1.
According to Herrik “Cooperation is an action of persons voluntarily united for

utilizing reciprocally their own forces, resources or both under mutual
management for their common profit or loss.” According to Mr. Plunket
“The cooperation is self help made effective by organization.”
2.
Diagram
Cooperative Society
Welfare Number of persons
Business Pool Resources

ADVANTAGES OF COOPERATIVE SOCIETY

Following are the important advantages or merits of cooperative society: 1. Farmers can
get fertilizers and seeds at low prices from such cooperative societies. Farmers
can also self their production at high rate or prices through cooperative societies. 2. The
formation of cooperative society is very easy. the formalities for registration are
simple Advantage for Farmers
and formation expenses are also normal. The registration of a society is not compulsory but
it is desirable to have its registration. 3. All members of cooperative society enjoy equal
right of vote and ownership. Each
shareholder has only one vote in the management of cooperative societies. 4. The profit
of middlemen is also distributed among the workers. These societies remove the
Easy Formation
unequal distribution of wealth. 5. Cooperative society is a domestic form of
organization. Every member is allowed to participate in the management of the
business. Each member has the right to cast vote. The decision of majority is honored.
6. Cooperative society eliminates the profit of middlemen. These societies purchases
goods directly from the producers for members and provide them on wholesale rate to
society Equal
members.
Rights 7. These societies also provide financial assistance to its members.
In case of house building
cooperatives housing society provides loan for the purchase of inputs. 8. A cooperative
society is a mean of developing friendly relations among the members. A
society provides a platform for the introduction of members with each other.
Equal Distribution of Wealth
Economic Democracy
Elimination of Middlemen
Financial Assistance
Friendly Relations

9.
Improve the Standard of Living
Such societies provide the goods and services to the members of the society at low prices.
Due to this, the purchasing power of the people increases and their standard of living
improves.
10. The Increase

cooperative
in Employment
societies also increase the employment opportunities for people.
Thousands of people are engaged in different types of cooperative societies. 11. The
liability of each member in cooperative society is limited to the share capital, which he
invested. His remain safe. 12.
It is worthwhile to mention here that cooperative society is very useful for creating the spirit
of friendship
Limitedand brotherhood among the members. Cooperative society is the basic
Liability
need of human being in modern era.
Mutual Cooperation
13. No Monopoly
A start of the society is the end of monopoly. The monopoly eliminates the competition and
controls the market and prices. The society tries to restore competition and to
eliminate control over market and prices. 14. the membership of a cooperative society
is open for all people living in the same area. It is
a voluntary association of persons of any caste, color and creed. 15. In cooperative
societiesOpen
its Membership
members take an advantage of mutual interest and cooperate
with each other achieve the common interest. 16. A society is a training centre for the
members to feel their responsibility. A cooperative society is an ideal place for building
up the moral character and development of personal qualities of the members. 17.
Such societies purchase the goods according to the demand of members. The
question of surplus does not arise.
Protection of Mutual Interest
Responsibility
Supply according to Demand

18. The cooperative societies, as compared to other business organization like sole‐
proprietorship or partnership, exists for a longer period. It has a fairly stable life. 19. In
Stablesocieties,
cooperative Life most of offices bearers work voluntarily. So, there are no heavy
expenditures on management. It also reduces the cost of production. 20. Government
provides certain concessions to cooperative societies, i.e. exemption from
stamp duty, super tax, income tax and registration fee etc.
DISADVANTAGES OF COOPERATIVE SOCIETY
Following are the
Saving disadvantages of cooperative societies: 1.
in Expenditure
Tax Concession
Lack of Capital
Generally the members of cooperative societies are related to poor group and they
cannot provide the capital on large scale. External financial resources are also limited.
So,
cooperative society faces the shortage of capital, which is a handicap to their development.
2. TheUntrained
government has sufficient control over the movement of these societies.
Supervision
These
societies cannot prosper because the staff appointed for supervision is mostly untrained. 3.
The organizations of cooperative societies are defective and these cannot operate
efficiently to fulfill their objectives. 4. In our country, the villagers are generally
illiterateDefective
andOrganization
ignorant. So, they are not familiar
with the basic concept of the cooperative societies. 5. The members of societies have
less experience of business. Due to lack of capital, they
cannot hire the services of experts.
Illiterate and Ignorant
Lack of Experience

6. Every member of the cooperative society considers himself as the owner of the
LackDue
business. of Discipline
to lack of discipline, business suffers a loss. 7. It is our common
observation that the management of society remains in the hands of selfish and
dishonest persons or members who obtain undue advantage form their powers.
So, business suffers a loss. 8. It is not a profit earning institution. Due to absence of
profit incentive, the progress of cooperative society is very poor. 9.
There isLack
no of Sincere
secrecy inManagement
the business of cooperative societies. 10. The members of
cooperative society do not know the principles and rules of society. So,
they create great problem for society. 11. In the absence of proper education and
training, it is useless to think about unity. The lack
of unity leads towards the destruction of the business. 12.
The cooperative societies cannot use the latest technology in production. As a result of this,
demandLackandofprofit
Profitremains low. 13. A cooperative society is not bound to publish
Incentive
annual financial statements for the
information of general public. Due to this public shows less confidence in them. 14.
The main cause of failure of cooperative societies is delayed in decisions.
Lack of Secrecy
Lack of Knowledge
Lack of Unity
No use of New Technology
No Public Confidence
Delay in Decision

15. The cooperative department of the provincial government supervises the work of
Government
all cooperative Control The business of a society is not free like other forms of
societies.
business, so it cannot earn maximum profit.

Lecture 9
CONCEPT OF ENTREPRENEURSHIP
Entrepreneurship is that ability in which an individual tries to find the opportunity, take risk
and avail these opportunities.
Who are Entrepreneurs?

People have more entrepreneurial abilities who:
 Have aspiration
 Have more practical strategies to be implement
 Have the vision
 Understanding the environment
 Being visionary and flexible
 Creating management options
 Encourage teamwork while employing a multi‐disciplined approach
 Encouraging open discussion
 Building a coalition of supporters.
Characteristics of Entrepreneurs
 Personal Interest
This personal interest can be of two common types:
 Interest for their own personality development

 Interest of their financial growth at market place
 Customer Relationship building
There can be two types of customer relation ship building as under:
 Transactional Marketing
This type of marketing is based on only one transaction, just to get the
financials & provide products in return to customers. (Its some how a
traditional approach of customer relationship management)
 Relationship Marketing
This type of marketing based on long term service provision for the
customer, to get order once from your customer, fulfill that order in
best possible manners, provide after sales services in order to retain
that
customer for longer period of time (it is based on modern customer

relationship management techniques)
Entrepreneurs strongly follow the second type of relationship building with this
customer to get long run benefit in order to enhance their business. For example,
doctors in a specific community, Mechanics, Hair dresser etc.
 Desire to establish own business

Some persons have strong & dominant personality traits & they want to establish
their own business instead of working under supervision of any one else so this
leads them towards entrepreneurship establishment. They have strong decision
making power & risk taking ability which helps them a lot to be an entrepreneur.
 Need of control
Some people want them to be involved in every decision making of their business
prospects so this aspect leads them be an entrepreneur.
 Ability to deal with uncertainties
Some persons are daring enough in their professional attitude; they feel they can
easily deal with uncertainties while designing best strategies for crunch situations
so they move for entrepreneurship.
BUSINESS PLAN FOR ENTREPRENEURS

Business plan is a written document which contains the objectives of the business
and the ways to achieve these objectives.
A good business plan must be developed in order to exploit the opportunity defined. A good
business plan is important in developing the opportunity and in determining the
resources required, obtaining those resources and successfully managing the venture.
The term business plan is made of two words “business” and “plan”. By understanding each
we will try to arrive at some usable definition of business plan
 Business: “Any economic activity undertaken on regular basis to earn profit by

combining resources and delivering value to society/market in response of whose
unmet need it is started and run”.
 Plan: “Simply it is the product or result of planning or it can be defined as it is a
document or piece of thought which answers the basic questions of planning”.
 If plan is so then what is planning?

Situations for Entrepreneurial business
 There are two situations:
 Buying a business
 Starting from the scratch
Most of the entrepreneurs always like to start their business right from scratch & develop
their own strategies to run the business so our discussion will move around those
entrepreneurs who start their businesses from scratch.
COMPONENTS OF BUSINESS PLAN
Since every business organization either small medium or large always have business plan so
same is true for entrepreneurial business as well. Basic theme of business plans is always
“ways to go & how to go”. All areas of SWOT analysis are also covered in the business plan.
 Objectives of the business

The basic purpose of any business plan is to answer following questions:
 Name of the business
 Name should indicate the type of business
 Name should be simple
 Uniqueness of name
 Location of the business
 Legal considerations
Avoid the names not encouraged by the law. e.g. National Heroes, religious personalities
etc.
Marketing Component of the business
This part of business plan covers following aspects:
 Who will be the target customers for those products

 Where are they located?
 What would customers like to pay for the product or service?
 What are the benefits, the customers are expecting from the product or
service?
 What type of products & services we are going to offer
 What will be the basis for targeting the customers (age, gender, educational
status, social classes & behavioral aspects)
Analysis of competitors:
One important consideration here is competitors’ analysis, while clarifying
following in the business plan.

 What is the nature of competition in the market?

 Who are the competitors of the business?
 How product of the business is different from product of the
competitors?
 Analysis of Promotional Activities
 How will the message of the business be promoted in the general public?
 How will the business be launched?
Financial Analysis

 What will be the investment of the business and how much should be
 borrowed?
 What are going to be expected revenues in a given period of time?
 What would be the expected expenses of the business in a given period of
 time?
What would be net income or net profit in a given period of time?
Is the business feasible or not?
 Administrative Rights & provisions
 What would be the structure to handle the business?

Lecture 10
It is defined as: FRANCHISING

“An agreement between two parties in which one party passes on the rights to the
other
party”
Or
“A contractual license granted by one person (the franchisor) to another (the franchisee).”
Rights of franchisee includes
3. Right to use the trade mark.
4. Right to use the name.
5. Right to use systems, methods and researches.
6. Right to use packing material.
Parties to Franchise agreement

There are two parties involved in a franchise agreement
d) Franchiser
Party or person, who grants the right to sell/offer its products &
services under its own trade name,
e) Franchisee
Franchisee is being granted from franchiser to provide representational rights to
sell or manufacture goods or to provide service or to undertake any process identified with
franchiser against an agreed fee or consideration including royalty, whether or not a trade
mark, service mark, trade name or logo or any such symbol , as the case may be is involved.
Advantages of Franchising
 Franchiser gets a large amount of money from franchisee as fee while using its
name.

Franchisee gets access to big business.

Failure rate of franchise business is lower than any other business.

Franchisee uses world wide tested brand and tested procedures that is why failure
 rate is lower in this type of business.
Franchiser provides guidance to franchisee in all affairs of the business.

 Choice of location
 Franchiser is always there to support the franchisee in all kinds of matters.
Disadvantages of Franchising
 High cost.
 Proportionate profit is given to franchiser by franchisee every year.
 There are too many restrictions from franchiser on the franchisee.
NEW TRENDS IN THE BUSINESS

 E‐Commerce or E‐Business
E‐commerce, (electronic commerce), is online commerce verses real‐world commerce. E‐
commerce includes retail shopping, banking, stocks and bonds trading, auctions, real estate
transactions, airline booking, movie rentals, nearly anything you can imagine in the real
world. Even personal services such as hair and nail salons can benefit from e‐commerce by
providing a website for the sale of related health and beauty products, normally available to
local customers exclusively.
 Women in business
So many women have come in so many areas of business.
Business will be better displayed, well mannered staff, more knowledge of the needs of
customers and more market oriented.
GLOBAL OPPORTUNITIES
People have the awareness of global market. Internet has played major role in accessing
global markets.
In Pakistan, people got huge success globally but could not make a brand name in global
market.
Factors for lower failure rate

 Government’s preferences and priorities.
 Government is convinced to support corporate sector.
 Businesses are now being set up on more professional grounds.
 Support from financial institutions.
 General economy of the country.
 People are acquiring professional knowledge about business.
 Government has developed many training centre to train people related to business.
 Skills development.
 Institutions to develop man power.

Lecture 11
SUCCESS AND FAILURE OF BUSINESS
Causes of Failure in Business

Normally, following are the common causes of failure of any business:
 Lack of market knowledge
 Start of any business without having proper experience in the field
 Lack of control over procedures
 Lack of understanding customer’s demand
 Poorly designed Production Processes
 Cost
 Wastage
 Complaint handling
 Quality
 Insufficient capital
 Bad Luck
 Natural Disaster
Reasons for Success in Business (controllable factors)

 Response of Market
 Competence – The ability to work
 Knowledge of Market
 Knowledge of Product
 Knowledge of Systems
Reasons for Success in Business (uncontrollable factors)

 Luck and Act of God
 Law of Government
 State Laws

 Climate change
 Using disaster (if any) as an opportunity)
Joint Venture
Two or more people or organizations join hands and decide to do a combine business.
In a joint venture, there is equal sharing or capital resources by each firm. Instead of
expanding the business at broader level or to start a new business with very high
cost, joint venture
shares the financial burden in order to gain new opportunities at diversified level.
Advantages of Joint Venture
 Provide opportunities to acquire new expertise
 Allow to enter in new geographic markets
 Gain new technological knowledge
 Sharing of specialized staff and technology
 Sharing of risks
Strategic Alliance
In strategies alliances, two or more than two organizations collaborate for mutual profits. In
strategic alliances, Pool of resources occurs such as products of both firms, distribution
channels used by every firm, manufacturing capabilities of firms, future projects
funding,
both firm are the basic out come

capital equipment sharing, knowledge, expertise and intellectual property sharing among
One good e.g. of strategic alliances is commonly seen in Air Lines industry around the world
Merger and Acquisition

Merger is a new trend in market in which two or more organizations combine together and
form a new organization.
Acquisition
Slightly differ from Merger; here one business acquires the other business instead of
combining. Ownership moves more towards the acquiring partner.

Common Advantages of Merger & Acquisition

 Expansion of size
 Minimize the operational cost
 To reduce competition
ACTIVITY After studying the all the concepts mentioned above, you as a student of
Introduction to
business studies is required to acquire knowledge about practical organizations who are
performing their activities under any business form mentioned above and if they are
successful, what are the core strengths of their success & if they are failure, (at any
part)
where were the weaknesses?

Lecture 12
FOREIGN TRADE & FOREIGN BUSINESS

Imports
International trade is exchange of capital, goods, and services across international
borders or territories. In most countries, it represents a significant share of gross
domestic product (GDP).
It is also defined as:
Goods produced somewhere else and sold domestically. Such as Chemicals Technology
(Machinery, Software & Hardware, Expertise)

Import ‐ commodities (goods or services) bought from a foreign country
Factors to be considered while importing

Identification of products to be imported

Procedures
 Methodologies
 Technical processes
 Documents for imports
Exports
In economics, an export is any good or commodity, transported from one country to
another country in a legitimate fashion, typically for use in trade. Export goods or services
are provided to foreign consumers by domestic producers.
It is also defined as:
Goods produced domestically and sold in some other country.
Export ‐ sell or transfer abroad; "In Pakistan we export less than we import and have a
negative trade balance"
Advantages of Exports
 Support of Government.
 High Profits.
 Pride for the country.
 Utilization of production capacity.
GATT (General Agreement on Tariff & Trade)

A multilateral treaty intended to help reduce trade barriers between signatory countries
and to promote trade through tariff concessions.
WTO – World Trade Organization and its scope
The WTO is an international organization and a forum of multilateral negotiations of its
Members on global trade liberalization rules, their administration and application. Mainly,
the WTO system is understood as the set of external trade rules or "traffic rules" in external
trade, which all Members must follow. The WTO was established in 1995, as the result of
the Uruguay round negotiations. With the establishment of the organization, a set of WTO
agreements was also concluded – with regard to goods, services, intellectual property,
dispute settlement, multilateral agreements. Until the establishment of the WTO
multilateral trade relations were governed by General Agreement on Tariffs and Trade
(GATT), concluded on 1947 and which opened the trade liberalization and reduction of tariff
barriers. The main goal of the WTO is a free and facilitated trade, governed by equal rules,
while similarly taking into account also the potential of developing countries. In the WTO
are represented almost all countries of the world – currently the WTO has 147 Members
Per Capita Income
Per capita income means how much each individual receives, in monetary terms. It is the
measure of the amount of money that each person earns in the country, of the yearly
income generated in the country.
Per Capita = Total income of the country

Total population
Tools for measuring economies of the world
World can be divided in to three major categories on the basis of per capita income.
 High income countries
Those countries where people are earning US $9000 or more
 Middle income countries
Those countries where people are earning between US $765 and $9000
 Lower income countries
Those countries where people are earning below US $765
Pakistan lies in middle income countries because per capita income during the fiscal year
2012‐13 has risen to $1365. Pakistan is exporting Sports items Agricultural products (rice),
Textile products (Bed Sheets, T‐Shirts, Towels etc.)

Import and Export Balance

Gap between imports and exports is called surplus and deficit and it varies from country to
country.
Balance of Payment
Balance of payment = Total receipts ‐ Total payments
If receipts are greater, balance of payment is favorable.
If payments are greater, balance of payment is unfavorable.
Level of involvement in international business

Imports or Exports
We can be importer and exporter.
We try to see opportunity in international market to consume surplus products.
This is called exports.
International Firms
International firms have operations world wide. These firms are also called multinationals.
Multinationals design products separately for each country
Global Organizations
Those organizations which consider the whole country as single market are called global
organizations.
These organizations have standardized products all over the world.
International Organizational Structure

 Independent Agent
A person or an organization that works for an exporter or importer
 Appointment of representative abroad
 Licensing agreement
 Independent Branch Office
 Strategic Alliance
 Direct Foreign Investment
Study Links:
 www.offshoredealers.com
 www.mfa.gov.lv/en/policy/economic/WTO/WhatIsWTO

Lecture 13
BARRIERS TO INTERNATIONAL TRADE
Trade barriers are a general term that describes any government policy or regulation that
restricts international trade. The barriers can take many forms, including the following
terms that include many restrictions in international trade within multiple countries that
import and export any items of trade
 Social and Cultural Changes
Different countries have different life styles.
 Religion
Every religion has its own set of rules for its followers. Religion asks for spending on certain
things and stops from spending on certain things.
 Climate
 Laws
There are different laws in different parts of the world.
These include laws related to:
 Health
 Safety
 Customer Relationship
 Pricing
 Packing
 Environment
 Economic Differences
o Per Capita Income is different in different countries.
o Different people have different economic systems.
o People preference for a particular product
 Political System
 Tariff
o Tax levied on goods entering into a country.
o It is also used as a measure to reduce imports in a country.

 Quota
Limit imposed by one country on importing commodities from another country.


Subsidies
Concessions provided by a country to its producers in order to protect economy.

Business Ethics
Ethics are basic beliefs, a company decides to pursue and implement during a course of
action.
Ethical Behavior
 A system that confirms the beliefs of the society
 Business is being run within that system.
 Corporate Citizenship is a practice of the company confirmed by the society.
Ethical Behavior in Managerial Practices includes:
 Responsibility towards employees.

 Relationship with other organizations.
 Interaction with Government.
 Plans to initiate ethical behavior towards people.
 To initiate ethical programs.
Corporate Social Responsibilities

To think about benefiting the society and avoid harmful activities for the society is called
Corporate Social Responsibilities.
These include:
 Ethical attitude towards customers.

 Dealing with employees.
 Ethical communication with Government and local bodies.
 Ethical behavior towards stake holders.
Study Link:
www.absoluteastronomy.com/topics/Free_trade

Lecture 14
STAKE HOLDERS
Definition
People who are interested in the affairs of the business in one way or the other are called
stakeholders.
Stake holders include:

 Customers
 Employees
 Suppliers
 Bankers
 Government
 Society at large
RIGHTS OF CUSTOMERS
Consumerism
 Protecting the rights of customers
 To get a product that is up to the expectations of the customers
 Customer Safety
Right to get information about:


Product

Supplier

System

Procedures

Standards

Ingredients of the product

Origin of the company
 Method of manufacturing
 Quality standards

 Right to be heard
 Right to choose
 Quality Service
Responsibilities of the Organization towards Environment

 Reprocessing of waste water.
 Recycling of waste material.
 Processing of smoke.
 Reprocessing of heat.
Ethics for Advertising

 Truthful or Truth less Communication
 Objectionable Products
 Objectionable Appeals
 Fear Factor
 Sexual Connotations
 Objectionable Timings
 Smoking
 Selling product to underage customers
 Legal Commitments
 Discriminations
 Health and Safety of Employees
Whistle Blowers
Whistle Blowers are the people who see irregularities and bring them in the knowledge of
the management. Although these people bring in to account positive actions required to be
taken in to account by the management but even then most of the times, organizations
never liked these persons.

Management
Getting things done through others. OR
We define management as the process of coordinating and integrating work activities

so that they are completed efficiently and effectively with and through other people.
Manager
A person who practices the functions to achieve management’s objectives
Functions of Managers
 Planning
Thinking for the future
 Organizing
Decision about activities performed by the workers
1. Grouping the activities
2. Delegation of authorities
 Staffing
Filling out the vacant positions
 Coordination
 Communication
 Receiving information from various sources
 Processing of information
 Dissemination of information
 Distribution of information
 Conflict handling
 Negotiation
 Resource Allocation
 Controlling
 To make sure that organization is moving towards the right direction.

Lecture 15
SETTING GOALS AND FORMULATING STRATEGY
Setting goals is the starting point of effective management. Every business needs
goals, and the program for guiding decisions to achieve those goals is called a
strategy. Goals are objectives that a business hopes and plans to achieve.
TYPES OF STRATEGY
I. Corporate strategy—Strategy for determining the firm’s overall attitude toward

growth and the way it will manage its businesses or product lines.
II. Business (or competitive) strategy—Strategy, at the business‐unit or product‐line

level, focusing on a firm’s competitive position.
III. Functional strategy—Strategy by which managers in specific areas decide how best
to achieve corporate goals through productivity
SETTING BUSINESS GOALS
Goals are performance targets–the means by which organizations and their managers
measure success or failure at every level.
Purposes of Goal Setting
1. To provide direction and guidance for managers at all levels

2. To help firms allocate resources
3. To help define corporate culture
4. To help managers assess performance
Kinds of Goals
Goals differ from company to company depending on the firm’s purpose and mission. A
firm’s basic mission is usually easy to identify. Businesses often have to rethink their
missions as the competitive environment changes.
Three kinds of goals for every firm are:
I. Long‐term goals—goals set for an extended time, typically 5 years or more into the
future

II. Intermediate goals—goals set for a period of 1 to 5 years into the future
III. Short‐term goals—goals set for the very near future, typically less than 1 year
Mission Statement
Organization’s statement of how it will achieve its purpose in the environment in
which it conducts its business.
THE MANAGEMENT PROCESSES
The management process is the process of planning, organizing, directing, and
controlling an organization’s resources to achieve its goals. The four functions of
management are not discrete. They overlap and influence one another. To transform a
vision into a successful business, managers must perform the functions of planning,
organizing, leading, and controlling.
a. Planning—management process of determining what an organization needs to

do and how best to get it done. Yahoo’s creation of partnership
agreements with firms like Reuters, Standard & Poor’s, and the Associated
Press for the new coverage it provides it users represent a form of
operational planning.
b. Organizing—management process of determining how best to arrange an
organization’s resources and activities into a coherent structure.
Hewlett‐ Packard’s recent realignment into an integrated, centralized
firm, rather than a corporate confederation of individual businesses, has
served its comeback strategy well.
c. Directing—management process of guiding and motivating employees to meet
an organization’s objectives. Gordon Bethune, CEO of Continental Airlines,
has turned around morale and performance through his leadership skill,
listening to and rewarding employees to guide the company back on track.
d. Controlling—management process of monitoring an organization’s

performance to ensure that it is meeting its goals. Bethune of Continental
instituted a variety of performance indicators including on‐time arrivals,
baggage‐handling errors, number of empty seats per plane, and surveys of
customer and employee satisfaction.
TYPES OF MANAGERS
Not all managers have the same degree of responsibility for planning, organizing, directing,
and controlling.
Levels of Management
i. Top Managers—managers responsible to the board of directors and

stockholders for a firm’s overall performance and effectiveness.

They set strategic goals, make long‐range plans, establish major

policies, and represent the company to the outside world.
ii. Middle Managers—managers responsible for implementing the
strategies, policies, and decisions made by top managers. In more
innovative management structures, they may function as team
leaders, acting as consultants who must understand every
department’s function and are granted more decision‐making
authority, previously reserved for high‐ranking executives.
iii. First‐line Managers—managers responsible for supervising the work
of employees
Areas of Management
iv. Human Resources Managers—managers responsible for hiring and
training employees, evaluating performance, and determining
compensation.
v. Operations Managers—managers responsible for the production
system, inventory and inventory control, and quality control.
vi. Marketing Managers—managers responsible for the development,
pricing, promotion, and distribution of goods and services.
vii. Information Managers—managers responsible for designing and
implementing systems to gather, organize, and distribute
information.
viii. Financial Managers—managers responsible for the firm’s accounting
functions and financial resources.
ix. Other Managers—some firms also employ other specialized
managers, such as public relations managers, research &
development managers, etc.
BASIC MANAGEMENT SKILLS
Whatever the type or size of the organization, managers employ basic kinds of skills. As
they rise through the hierarchy, they may need to strengthen one or more of these
skills.
 Technical Skills—skills needed to perform specialized tasks such as writing computer

code, drawing animated characters, or auditing a company’s records.
 Human Relations Skills—skills in understanding and getting along with people, such
as communicating and motivating.
 Conceptual Skills—abilities to think in the abstract, diagnose and analyze different
situations, and see beyond the present situation to recognize future market
opportunities and threats.

THE FOUNDATIONS OF HUMAN RESOURCE MANAGEMENT
The ability to attract and retain talented and motivated employees often marks the
difference between success and failure in today’s competitive business environment.
Human Resource Management—set of organizational activities directed at attracting,

developing, and maintaining an effective workforce.
The Strategic Importance of HRM
i. Human resources are critical for effective organizational functioning.

ii. The effectiveness of the HR function has a substantial impact on a
firm’s bottom‐line performance.
iii. The chief human resource executive of most large businesses is a vice
president directly accountable to the CEO, and many firms develop
strategic HR plans that are integrated with other strategic
planning activities.
Scope of HRM
I. To locate, type of people required

II. When required
III. How many required
IV. Job Analysis
V. Selection
VI. Training
VII. Appraisal
VIII. Compensation
IX. Health & Safety
X. Labor Union Area
Job Analysis
Job analysis is the process to collect all information related with one specific job.
It has two further portions:
a. Job Description‐covers job title, job location, job duties, working environment &
Supervision
b. Job Specification‐ Covers areas like, human skills required to perform a specific
job, Qualification, Gender, Age, Experience, Special Skills & attitude.

Lecture 16
HUMAN RESOURCE PLANNING
JOB ANALYSIS
Systematic analysis of jobs in an organization:
a. Job Description—systematic evaluation of the duties, working conditions, tools,

materials, and equipment related to the performance of a job.
b. Job Specification—description of the skills, abilities, and other credentials required

by a job.
Forecasting HR Demand and Supply
Forecasting the supply of labor is two tasks:
c. Forecasting internal supply—the number and type of employees who will be in the
firm at some future date.
d. Forecasting external supply—the number and type of people who will be available for
hiring from the labor market at large. Large organizations use extremely
sophisticated models to forecast staffing levels.
Replacement Chart
Listing of each managerial position, who occupies it, how long that person will likely
stay in the job, and who is qualified as a replacement. Replacement charts are used
at higher levels of the organization to plan developmental experiences for people
identified as potential successors to critical managerial jobs.
Skills Inventories (or Employee Information System)
Computerized system containing information on each employee’s education, skills,
work experiences, and career aspirations

Matching HR Supply and Demand
After comparing future demand and internal supply, managers can make plans to manage
predicted shortfalls or overstaffing. If the organization needs to hire, the external labor‐
supply forecast helps managers plan how to recruit.
Recruiting Human Resources
Process of attracting qualified persons to apply for open jobs.
Internal Recruiting
Practice of considering present employees as candidates for job openings.
External Recruiting
Practice of attracting people outside an organization to apply for jobs. By early 1998,
unemployment had dropped to a 23‐year low of 4.6 percent, making recruiting a more
difficult task.
Advantages of external Recruiting
 Variety of Talent
 Variety of Abilities
 Variety of Qualifications
Equal Employment Opportunity
The basic goal of all equal employment opportunity regulation is to protect people from
unfair or inappropriate discrimination in the workplace. Legally mandated
nondiscrimination in employment on the basis of race, creed, sex, or national origin
SOURCES TO FIND PEOPLE
Organizations used various sources in order to find suitable people for their organization
following sources are mostly used in this regard
Informal search
On the basis of references organizations finds peoples suitable for the post or for the nature
of the work.

Job posting
By putting notices for job on various places in the organization such as Cafeteria, Fair
Price shop, Sports field, Reception desk, Notice Board, Union office etc
Educational institutions
To consult with educational institutions for suitable candidates for the job is also
helpful for the organization to find suitable persons. Usually organizations consult with
educational institutions when fresh graduates are required.
Professional Associations
This source is used when an organization wants to appoint people on senior posts.
Recruitment Agencies
Recruitment agencies have expertise in selecting people.

These agencies are used when
 Time span for selection is short.

 Jobs are highly technical in nature.
 Employer and employee are at a distant place.
Advertisement
Sources are find by giving advertisement in media, this sources is used when large
number
of jobs are available. Most common media is the print media worldwide.
SELECTING HUMAN RESOURCES
Application Blank
Application form provided by the organization for fill in as per requirement order of
the
firm. It’s a form of CV but prepared as per organizational point of view.
Tests
Organizations conduct various tests to judge the overall capabilities of the
professionals including:
a. Achievement tests
b. skill Tests
c. knowledge tests

Interviews
Interviews are sometimes a poor predictor of job success although they remain a
popular means of screening candidates. Validity can be improved by training employees
to be aware of potential biases created in the interview situation and by using
structured interviews, in which questions are written in advance and all interviews
follow the same list of questions for each candidate.
Other Techniques
Polygraph tests are declining in popularity, although some organizations require physical
exams. More organizations are using drug tests, particularly in which drug‐related
performance problems could create serious safety hazards for customers or employees.
Validation
Validation is the process of checking appropriateness of any method or tool up to what

extent it can satisfy the actual requirement or it fits in practical realities other than
statements.
There are three forms or validity in general:
a. Content Validity
b. Context Validity
c. Face Validity

Lecture 17
INFRASTRUCTURE FOR TEST

INFRASTRUCTURE FOR TEST
Space: The place where the test in to be conducted should have enough space with a proper
sitting arrangement. Proper Temperature: Proper adjustment of temperature is
required along with proper light so that candidate may be able to draw a clear picture
of their mind to answer the interviewer’s questions. Enough quantity of stationary:
Stationary includes papers, pencils, calculators, graphs,
diagrams and answer sheets, the stationary should be in enough quantity for the ease of the
candidates. Evaluation of Test: At the end candidate’s answers are compared with the
benchmark answers in order to evaluate the test. After evaluating the tests, interviews
are conducted of those candidates who have qualified the test.
Interview: Any verbal interaction is called interview. JOB INTERVIEW
A method of selection in which we interact with the candidate verbally
Types of Job Interview
1. Telephonic Interviews
2. Preliminary Interviews
3. Selection Interviews
Telephonic interview
Telephonic interview means to make a call to the candidate on the telephone to
know the answers of the candidates; normally telephonic interview is not conducted
for final selection. It helps to know about candidate’s preliminary information like
qualification, communication skill or competency, and a little exposure of the candidate
before calling him for a face‐to‐face interview.

Preliminary Interview
Organizations which don’t conduct telephonic interview adopt the method of
preliminary interview. For preliminary interview organizations call the candidate for a
short and basic interview for a little judgment about the appearance, manners and
personality of the candidate.
Selection Interview
These are the final interviews and longer in duration to know about the candidate in
detail. There may be one or two more interviews before these final interviews. Final
interview are
conducted in the most professional manner so that there may not be any wrong selection.
TECHNIQUES FOR FINAL INTERVIEWS
1. Pattern Interview
In pattern interview pre‐decided questions are asked in a pre‐defined sequence.
2. Non Pattern Interview

In non‐pattern interview questions are asked according to the situation.
3. Shortcoming of Pattern Interview

Interviewer can not ask any question other than pre‐defined questions.
4. Shortcoming of Non Pattern Interview

In non pattern interview there is more possibility of non‐professional and irrelevant
questions.
5. Mix Interview:
It is an interview in which some questions are pre‐defined and some are situational.
WAYS TO CONDUCT INTERVIEW
1. One person interview
 Panel Interview: Panel interview consists on a group of people related to the job
conduct interview. In panel interview specialists from different fields are called
who have some relevancy to the job in order to judge the competency of the
candidate’s competency.
Arrangements for conducting Interview

Proper place: The place where the interview is to be conducted should be peaceful and
quiet so that interviewer and interviewee may listen each other easily.

Preparation for questions: To ask the required or relevant questions from the
candidate, the questions should be properly planned and prepared. Read out the
resumes of candidates. It is necessary to read the resumes of the candidates
before conducting the interview in order to know the education and
experience of the candidates. At the end the whole and required information about
the candidate is noted down on the paper in order to recall the memory while
taking the final decision about the selection.
HUMAN RESOURCE DEVELOPMENT
After the selection the next step is to develop the employees. Human Resource
Development is done through training. Before the employees start the work they are
provided training to learn and know the
nature of the work. Training may be of six months or of a year
METHODS FOR TRAINING
On job Training: It refers to learn while working in the organization.
Off job Training: A commonly used way in off the job training is lecture method
1. Lecture method: It is a method in which one person speaks and others listen this is
also called class room training .It is an efficient way to train the people. It is a
cheaper method of training and for some jobs it is an appropriate method of
training.
2. Vestibule Training: In this method artificial situation is created for training

people.
3. Role Playing: In this method people play and act on different roles, by this way
people make a fake bank or any department and performing different roles
people may learn a lot.
4. Business Games: Some computerized games also help people to learn.

5. Case Studies: In this hypothetical situation is created and put the specific person
in that situation the person learns to take decisions while keeping him in that
particular scenario.

Performance Appraisal: Performance appraisal is the evaluation of the performance that

people are working according to the expectations or not.
Reasons for performance appraisals:
 Validation of Human Resource Program

 Pay for performance
Compensation
Compensation can be:

1. Monetary reward
2. Non Monetary reward
Incentives include the plans for encouragement of employees in the organization.
Types of Incentives
1. Organizational Level Incentives: Organizational Level Incentives includes paid to

everyone in the organization.
2. Individual Incentives: Individual Incentives includes paid to individual employees

who have done good job.

Lecture 18
COMPENSATION AND BENEFITS
Set of rewards that organizations provide to individuals in return for their willingness to
perform various jobs and tasks within the organization. Compensation includes base salary,
incentives, bonuses, benefits, and other rewards.
Wages and Salaries
Wages—compensation in the form of money paid for time worked.
Salary—compensation in the form of money paid for discharging the responsibilities of a

job.
Incentive Programs
Special compensation program designed to motivate high performance.
1. Individual Incentives—incentive‐based pay plan that rewards individual

performance.
2. Bonus—Individual performance incentive in the form of a special payment made

over and above the employee’s salary
Merit Salary Systems—Individual incentive linking compensation to performance in non‐

sales jobs
Pay‐for‐performance (or variable pay)—Individual incentive that rewards a manager for

especially productive output
Company‐wide Incentives
Profit‐sharing plan—Incentive plan for distributing bonuses to employees when company

profits rise above a certain level
Gain‐sharing plan—Incentive plan that rewards groups for productivity improvements
Pay‐for‐knowledge plan—Incentive plan to encourage employees to learn new skills or

become proficient at different jobs

Benefit Programs—compensation other than wages and salaries. Some may be

required by law, such as, workers’ compensation insurance (insurance for
compensating workers injured on the job)
Retirement Plans—prearranged company pensions provided to retired employees.

Containing the Costs of Benefits
Cafeteria Benefit Plan—benefit plan that sets limits on benefits per employee, each
of whom may choose from a variety of alternative benefits. It allows employees to
choose those benefits they really want.
Equal Employment Opportunity
The basic goal of all equal employment opportunity regulation is to protect people
from
unfair or inappropriate discrimination in the workplace. Legally mandated
nondiscrimination in employment on the basis of race, creed, sex, or national origin
iv. Protected Classes in the Workplace
1. Protected Class—set of individuals who by nature of one or

more common characteristics are protected by law from
discrimination on the basis of any of those characteristics.
v. Enforcing Equal Employment Opportunity
1. Equal Employment Opportunity Commission (EEOC)—Dept.

of Justice agency created by Title VII to enforce
discrimination‐related laws.
2. Affirmative Action Plan–practice of recruiting qualified

employees belonging to racial, gender, or ethnic groups who
are underrepresented in an organization.
COLLECTIVE AFFAIRS OF EMPLOYEES
Labor Union—Group of individuals working together to achieve shared job‐related goals,

such as higher pay, shorter working hours, more job security, greater benefits, or better
working conditions
Labor Relations—Process of dealing with employees who are represented by a union
Collective Bargaining—Process by which labor and management negotiate conditions of

employment for union‐represented workers.

Collective Bargaining agent (CBA) is a person who has been elected by all the workers in the
organization through legal procedures.
Collective bargaining is an ongoing process involving both the drafting and the administering
of the terms of the labor contract. It begins as soon as the union is recognized as the
exclusive negotiator for its members.
Reaching Agreement on Contract Terms—Law requires that union leaders and

management representatives must sit down at the bargaining table and negotiate in
good faith. Sessions focus on identifying the bargaining zone.
CONTRACT ISSUES
 Compensation—Unions generally want their members to earn higher wages;

compensation is the most common contract issue.
1: Cost‐of‐living adjustment (COLA)–labor contract clause tying
future raises to changes in consumer purchasing power.
2: Wage reopener clause–clause allowing wage rates to be
renegotiated during the life of the labor contract.
 Benefits (e.g., health insurance, retirement benefits, paid holidays, working

conditions)—Unions typically want employers to pay all or most of the costs of
benefits.
 Job Security—In some cases, demands for job security entail the company’s promise
not to move to another location, or a stipulation that if workforce reductions must
occur, seniority will be used to determine which employees lose their jobs.
Other Union Issues (e.g., working hours, overtime policies, rest period

arrangements, differential pay plans for shift employees, the use of temporary
workers, grievance procedures, and allowable union activities)
 Management Rights—Management wants as much control as possible over hiring

policies and work assignments. Unions try to limit management rights by specifying
hiring, assignment, and other policies.
MOTIVATION IN THE WORKPLACE
Motivation is a force that forces people towards a task. Employee motivation is even more
critical to a firm’s success than job satisfaction and morale.

Classical Theory
Theory holding that workers are motivated solely by money.
1. Scientific Management–an approach to employee motivation incorporating the

classical theory of motivation.
2. Frederick Taylor (Principles of Scientific Management, 1911) reasoned that if workers

were motivated by money, paying the more should prompt them to produce more.
At the same time, firms that analyzed jobs and found better ways to perform
them would be able to produce goods more cheaply, make more profits,
and be able to pay and motivate workers better than its competitors.
3. Time‐and‐motion studies–industrial‐engineering techniques applied to each facet of

a job in order to determine how to perform it most efficiently
Objections on Fredrick Taylor’s Theory of Scientific Management
 ThisTheory
Behavior theory considers human beings as machines.
The Hawthorne Studies—a set of experiments aimed at examining the relationship
between changes in the physical environment and worker output.
1. In 1925 Harvard researchers studied Hawthorne Works of Western Electric, outside

Chicago. Their experiment with increasing lighting levels to examine the relationship
between changes in the physical environment and worker output showed the
surprising result that both higher and lower levels increased productivity, while
increased pay failed to do so.
2. The answer proved to be that workers were reacting to the attention they were
receiving, leading to the conclusion that productivity rose in response to almost
any management action that workers interpreted as special attention.
3. Hawthorne Effect—tendency for productivity to increase when workers believe they

are receiving special attention from management.

Decline Stage
This the last stage of any product. Product loss market share as well as profits for the firm.
At this stage, product will disappear from the market.
Following important steps become very necessary for the firm to be taken in order to bring
product back in market:
 More & more D & R & innovation in order to add more feature in the
product
 Searching of new target markets for the product
 Evolution of new co‐product
At this stage product called as “Dog” as production & development costs are more & more
but no profits at all.
USE OF PRODUCT LIFE CYCLE IN DECISION MAKING PROCESS
 Introduction Stage
 Marketers can dictate more of their policies.

 At this stage, customers of the product are venturesome (Who like to try
new ideas).
 Marketers can keep the prices high because, Customer can afford to spend
more money on a new product.
 There will not be much profit at this stage.

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Introduction to Business –MGT 211 VU

Buying and Buying and

© Copyright Virtual University of Pakistan 1

The following points state the nature of business in brief:

BusinessEconomic Activity activity as it is concerned with creation of wealth through the

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Productions or Purchase of Goods

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COMPONENTS AND SCOPE OF BUSINESS

Primary Industry Secondary Industry

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(a) Constructive Industry

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In the words of Evelyn Thomas:

The scope of commerce can be explained as:

(a) Home trade

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Home Trade Foreign Trade

(i) Import Trade

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iv. Physical resources

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1) External Factors (External Environment)

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threats. Strengths: Strengths are the capabilities of an organization that enable it to

QUALITIES OF A GOOD BUSINESSMAN

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Sound Financial Management

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ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS

Everything outside an organization’s boundaries that might affect it.

a. Organizational Boundaries: that which separates the organization from its

b. Multiple Environments: include economic conditions, technology, political‐

THE ECONOMIC ENVIRONMENT

Economic environment—Conditions of the economic system in which an organization operates.

2. Aggregate output—Total quantity of goods and services

3. Standard of living—Total quantity and quality of goods and

ii. Gross Domestic Product—Total value of all goods and services

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Gross national product (GNP)—Total value of all goods and

1. Real Growth Rate—the growth rate of GDP adjusted for

2. GDP per Capita—GDP per person and reflects the standard

3. Real GDP—GDP calculated to account for changes in

4. Purchasing Power Parity—Principle that exchange rates are

iii. Productivity—Measure of economic growth that compares how

1. Balance of Trade—the economic value of all the products

a. Trade Surplus —A positive balance of trade results

b. Trade Deficit—A negative balance of trade results

c. National Debt—Amount of money that a government

© Copyright Virtual University of Pakistan 16

i. Inflation—Occurrence of widespread price increases throughout an

Measuring Inflation: The CPI—Measure of the prices of typical products purchased by

ii. Unemployment—Level of joblessness among people actively seeking

1. Recessions and Depressions

2. Depression—Particularly severe and long‐lasting recession

e. Managing the Economy

i. Fiscal policies—Government economic policies that determine how