Unit 2

Business Structure and Organization

 What in this Unit 2 ???
• Historical view of business development
• Forms of business organization
• Definition, meaning, characteristics, advantages and
disadvantages of
• 1.Sole Proprietorship
• 2.Partnership
• 3.Joint Stock Companies
• 4.Co-operative societies
• 5.Public enterprises
• Role of government in business activity
• Organization charts
 Forms of Organizations
• Forms based on ownership
• Ownership essential for providing the aspects for
controlling and enjoying the profit
• Based on ownership forms are classified as
• 1.Sole proprietorship
• 2.Partnership
• 3.Co-operative Society
• 4.Joint stock company
• 5.Public enterprise and
• 6.Undivided Hindu family
 Characteristics of an ideal form of
Organization
• 1.Ease of formation
• 2.Ease of raising capital
• 3.Limit to liability
• 4.Direct relationship between ownership, control and
management
• 5.Flexibility of operation
• 6.Continuity or stability
• 7.Retention of business secrets
• 8.Freedom from state regulation
• 9.Lighter tax liability
 Entrepreneur’s choice in deciding form of
business
• 1.Type of business viz trading, manufacturing
• 2.Expected volume of business
• 3.Area of operation
• 4.Degree of direct control over management
• 5.Finance required for initial requirements and expansions
6.Willingness of owners to assume personal liability for
business risks
• 7.Arrangement for sharing profits
• 8.Expected life-span of business
• 9.Tax advantage under different types of ownership
• 10.Degree of government regulation and the freedom desired
by the entrepreneurs
 1.Sole Proprietorship
• Sole proprietorship is “ a form of business
organisation in which an individual introduces
his own capital, uses his own skill and
intelligence in the management of its affairs
and is solely responsible for the results of its
operations”
• Oldest
 Features
• Single ownership
• One man control
• Undivided risk
• Unlimited liability
• No government regulation
• No separate entity of the firm
• Useful for a small scale business
 Merits
• 1.Ease of formation and dissolution
• 2.Direct motivation
• 3.Facility of coordination
• 4.Promptness in decision making
• 5.Flexibility in management
• 6.Secrecy
• 7.Credit standing
• 8.Freedom from government regulation
 Social utility of Sole Proprietorship
• 1.Promotes independent living
• 2.Develop social virtues
• 3.Avoids concentration of economic power
 Limitations
• 1.Limited finances
• 2.Limited managerial skill
• 3.Unlimited liability
• 4.Uncertainity of duration
 Conclusion
• Useful where
• 1.The capital required is small
• 2.Risk is not heavy
• 3.Quickness of decisions is very important
• 4.Customers require personal attention
• 5.Special regard has to be shown to the tastes
and fashions of the customers
 2.Joint Hindu Family Firm
• Belongs to the family members of a joint
Hindu family
• Not partitioned
• Three successive generations in the male line
• Hindu Succession Act 1956- Female relative of
the deceased eligible
• Governed by the rules of the Hindu Law
 3.Partnership Organization
• More capital required
• More hands to manage
• Governed by Indian Partnership Act of 1932
• Defined as “ The relation between persons
who have agreed to share profits of a business
carried on by all or any of them acting for all”
 Characteristics of Partnership Organisation

• 1.Existence of business
• 2.Plurality of persons (atleast two persons)
• 3.Contractual relationship
• 4.Profit motive
• 5.Principal- agent relationship
• According to Companies Act 1956, atleast two
persons required to start a partnership firm and the
maximum limit is 20
• For a banking business the maximum is 10 persons
Legal characteristics of a partnership firm

• 1.Unlimited liability
• 2.Utmost good faith
• 3.Implied agency
• 4.Restriction on transfer of interest
 Features of Partnership
• 1.Formation
• Partnership Deed – Lays down the terms and
conditions of the partnership and the rights,
duties and obligations of partners is drafted
• Lawyer to draft the deed
• This to be registered because the firm cannot
fight legally.
• Registrar of firms
• 2.Financing
• Contribution in terms of money
• Some in terms of skills also
• Borrowing by pledging the property as
security
• 3.Control
• Control with all the partners
• 4.Management
• Depends on the partners
• Some will be dormant
• Specific areas will be assigned to specific partners depending on their
skill/capability
• 5.Duration
• Ends when a partner dies or becomes insolvent
• If every other partners agree to work in the same way, they can do so
• The Indian Partnership Act says a firm can be dissolved if it is found illegal
or its partners become insolvent
• A court also can do so
• 6.Taxation
 Types of Partners
• 1.Sleeping or Dormant Partners
• 2.Nominal Partners
• Do not invest. Only they lend their names
• 3.Partners by estoppel
• Behaves mistakenly
• 4.Partners by holding out
• Declared to be a partner by another person
• 5.Minor partners
 Requisites of an ideal partnership
• 1.Mutual understanding
• 2.Common approach
• 3.Good Faith
• 4.Balancing of skills and talents
• 5.Adequate long term capital
• 6.Long duration
• 7.Written agreement
• 8.Registration
 Partnership Deed
• Must for partnership
• A form of agreement among the partners
• All mutual rights, powers and obligations after
discussion are incorporated in the deed
• Service of a lawyer
• Stamped in accordance with Indian Stamps
Act
 Points to be covered in the deed
• 1.Nature of the business
• 2.Name of the business with address
• 3.Capital to be contributed by each partner
• 4.Loans from partners ?If yes rate of interest
• 5.Duties, powers and obligations of partners
• 6.Method of preparing accounts and arrangement for audit
• 7.Appropriation of profit
• (a) Whether interest allowed on capitals
• (b) Whether a partner allowed salary or commission for the work
• (c) Profit sharing ratio
• 8.Amount to be allowed as private drawings and the interest
• 9.Method by which a partner retires, settlement for the retired partner
and settlements for a deceased partner
• 10.Valuation of goodwill on admission or death or retirement of a partner
• 11.Method of revaluation of assets on admission or
retirement or death
• 12.Whether a partner can be expelled and if yes the
procedure for expulsion
• 13.Circumstances when the firm will stand
dissolution and method of dissolution
• 14.Arbitration in case of dispute among partners
• 15.Arrangement in case a partner becomes insolvent
 Registration of firms
• Name of the firm
• Place of the business
• Other places where the firm will have its
business extended
• Name and address of the partners
• Dates where the partners joined
• Duration of the firm
• Registration very much essential
 Rights of a partner
• Right to participate in the management
• Right to enjoy interest on loan given by him
• Right to inspect the account records
• Right to retire
• Right to continue in the firm
• Right towards share in the profit
 Duties and Obligations
• To diligently carry the business of the firm
• To act in a just and faithful manner towards other partners
• To maintain correct records and accounts and allow other
partners to inspect them
• To protect the firm from loss
• Not to carry a business that will bring loss to the present firm
• Not to use the property of the firm to his personal interests
• To share the losses with others equally
• To act within the scope of his authority
• Not to assign or transfer his interest in the firm to others
 Dissolution
• Dissolution of the firm takes place in the following
circumstances
• 1.When all concerned agree that the firm has to be
dissolved
• 2.When all the partners become insolvent
• 3.When the business becomes illegal
• 4.When a partner gives a notice of dissolution
• 5.When the court orders the firm to be dissolved
 Dissolution by court
• 1.When a partner becomes of unsound mind
• 2.When a partner becomes permanently
incapacitated
• 3.When a partner is guilty of misconduct affecting
the business
• 4.When a partner or partners disagree or disregard
the agreement
• 5.When a partner assigns or transfers his interests to
a third person
• 6.When the business cannot be carried on
 Advantages of a partnership firm
• 1.Facility of formation
• 2.Larger resources
• 3.Promptness in decisions
• 4.Balanced judgement
• 5.Personal supervision
• 6.Flexibility
• 7.Protection of minority interests
• 8.Reduced risk
• 9.The wholesome influence of unlimited liability
 Disadvantages of a partnership firm
• 1.Lack of harmony
• 2.Limited resources in terms of number of
partners (10 in case of banking 20 in case of
others)
• 3.Limited risk taking
• 4.Instability
• 5.Risks of implied authority
• 6.Lack of public confidence
 4.Joint Stock Company
• Company – Definition : “A company may be
defined as an artificial person (being an
association of natural persons) recognised by
law with a distinctive name, a common seal, a
common capital comprising transferable
shares of fixed value carrying limited liability
and having a perpetual succession”
 Distinctive characteristics of a company

• 1.Separate legal entity

• 2.Limited liability of members
• Shareholders cannot be held liable
• 3.Perpetual (uninterrupted) existence
• 4.Common seal as a substitute for signatures
 Features of Company Organization
• 1.Formation
• By law
• Two stages
• (a) Promotion
• Process of exploration, investigation and the organisation of
necessary resources with the object of initiating business
under corporate ownership
• (b) Incorporation
• Is the legal process through which the separate corporate
entity of a company is given recognition by law
• The following documents have to be filled with the Registrar
of Joint Stock Companies by the promoters
• 1.Memorandum of Association- Charter of the
company laying down the objects and capital of the
company
• 2.The Articles of Association-Rules and By-laws
governing the company
• 3.Written consents of persons who have agreed to
serve as Directors of the company
• 4.Notice of the registered office of the company
• 5.Statutory declaration by the Secretary of the
company
• 2.Financing (Private & Public)
• 3.Control
• 4.Management (Board of Directors)
• 5.Duration
• 6.Taxation
Distinction between a company and a
Partnership Firm
 Kinds of Companies
• 1.From the point of view of incorporation
• (a) Companies incorporated under a special charter
• Not in use in India, but rarely in England
• Called chartered companies
• (b) Companies established by a special act of Parliament
• Special cases
• LIC, Air India etc
• (c) Companies incorporated under the provisions of the
Companies Act
• The Companies Act 1956
• Large numbers
• Called as Registered companies
• 2.From the point of view of liability
• (a) Companies with unlimited liability
• (b) Companies with liability limited by guarantee
• (c) Companies with liability limited by shares
• 3.From the point of view of Nationality
• (a) National companies
• (b) Multi National Companies MNCs
• 4.From the point of view of public interest
• (a) Private Company
• (b) Public Company
• (c) Government Company
 Private Company
• A private company is defined as a company which by
its articles
• (a) Limits the number of its members to 50
• (b) Prohibits invitation to the public for subscription
to its shares and debentures and
• (c) Restricts the transfer of its shares
• Minimum number of members is 2
• A private company combines the advantage of
limited liability and the facilities of the partnership
organisation
• Preferred by many businessmen
 Public Company
• A public limited company does not limit the number
of its members to 50,is not prohibited from inviting
the general public to subscribe its shares and does
not restrict the right of its members to transfer their
shares freely
• Minimum 7 persons
• No limit to maximum persons
• Offers its shares to the public at large
• Shares can be transferred without any restrictions
• Transfer takes place through stock exchanges
 Government Company
• Called so when the Government (state or
central) has a minimum of 51 % share
 Also to read
• 1.Memorandum of Association
• 2.Articles of Association
• 3.Difference between the above two
• 4.The prospectus
 Merits of Joint Stock Companies
• 1.Financial strength
• 2.Scope for expansion
• 3.Transfering of ownership
• 4.Limited liability
• 5.Diffused risk
• 6.Stability
• 7.Tax relief
• 8.Bold management
 Drawbacks of Joint Stock Companies
• 1.Difficulty and cost of formation
• 2.Possibilities of fraudulent management
• 3.Lack of personal incentive
• 4.Oligarchic management
• 5.Excessive regulation by law
• 6.Delay in decisions
5.Co-operative Organisations – Cooperative
Societies
Organisational Structures/Charts
 Why Have a Structure?
• All businesses have to organise
what they do

• A clear structure makes it easier to see which part of

the business does what

• There are many ways

to structure a business
 Some Key Terms
• Flat or tall structure
• Span of control
• Chain of command
• Hierarchy
• Delegation
• Empowerment
 Ways to Structure a Business
• By function: arranging the business according to
what each section
or department does

• By product or activity: organising according to the

different products made

• By area: geographical or regional structure

 Ways to Structure a Business
• By customer: where different customer groups have
different needs

• By process: where products have to go through

stages as they are made

• What are the advantages/disadvantages of different

types of business structure?
 Pros and Cons of Different Structures
• This depends on the business type, size and
structure used
• Let’s look at a functional structure:
Chief Executive

Board of Directors

Production Marketing Accounts Personnel IT

 Functional Structure

Advantages Disadvantages
• Specialisation – each • Closed communication
department focuses on its could lead to lack
own work of focus
• Departments can become
• Accountability – someone
resistant
is responsible for the to change
section • Coordination
• Clarity – know your and may take too long
others’ roles • Gap between top and
bottom
 An Example of Organisation by Product/Activity

Hewlett Packard

Imaging and Personal Enterprise HP Financial

HP Services
Printing Group Systems Group Systems Group Services
Organisation by Product/Activity
Advantages Disadvantages
• Clear focus on market • Duplication of functions
segment helps meet (e.g. different sales force
customers’ needs
for each division)
• Positive competition
• Negative effects of
between divisions
• Better control as each competition
division can act as • Lack of central control
separate profit centre over each separate
division
 Organisation by Area
Hewlett-Packard’s Headquarters
Worldwide

Hewlett Packard

Americas Europe, Middle East, Africa Asia Pacific

Houston, Texas Geneva, Switzerland Hong Kong
 Organisation by Area
Advantages Disadvantages

• Serve local needs better

• Conflict between local
• Positive competition
and central
• More effective
communication between
management
firm and local customers • Duplication of resources
and functions
 Other Organisational Structures
• By Customer:
Similar effects to structuring
by product

• By Process:
Similar to structuring by function
 DfT – New High Level Structure Christopher
Muttukumar
u Legal

Robert Devereux
Non- Brian Collins
Ann Permanent
Executiv Chief
Deborah Hemingwa Secretary (from 1
e Scientific
Williams y Non- June)
Advisor
Non- Executive DFT BOARD
Executiv Strategy
e Planning & performance
Capability
Archie
DG Robertson Chief
Corporate Executive
Highways
- City & Resource
Agency
Regional
Networks
- Accessibility DG City &
Regional
- National Networks
Networks Mike Mitchell
- International DG Rail &
Networks National
- Environment Networks Simon Webb
- Safety DG International
- Logistics Networks &
- Service Environment
transformation Stephen Hickey
DG Safety, Service Delivery &
 Safety, Service Delivery &
Logistics Group Structure

Stephen Hickey
DG Safety, Service Delivery &
Logistics

To be confirmed Vivien Bodnar Clive Bennett Stephen

Rosemary
Road & Vehicle Transformation, Driver & Vehicle
Thew Driving Tetlow
Safety & Standards Licensing, Licensing Agency Vehicle &
Standards
Logistics &
Agency Operator
Sponsorship
Services
Agency

Paul Markwick Roy Burke

Vehicle Certification Government Car & Despatch
Agency Agency
 Transformation, Licensing,
Logistics & Sponsorship
Directorate Structure

Vivien Bodnar
Director

Helen Morris Stephen Fidler John Poynton Leslie Gilbert

Licensing, Freight & Service Resources,
roadworthiness & Logistics Transformation Planning &
Insurance Sponsorship
 FREIGHT & LOGISTICS DIVISION – Current Composition of Teams

Divisional Manager (DM)

Stephen Fidler
Deputy Divisional Manager

Cathy Jenkins (from 23 April)

FLD A FLD B FLD C FLD D FLD E FLD F

Operator Licensing Road Haulage International Sustainable Sustainable Sustainable

& Road Haulage Employment Freight Distribution: Distribution: Distribution:
Liaison Negotiations Strategy Mode Shift Efficiency &
Research

David Meredith Andrew Angel Paul Hayes Duncan Buchanan David Glinos Ian Corfield

Hamid Tavassoly Andrew Kelly Geoff Finch Peter Bligh Hayley Bowen Ian Turner
(until 31 May)
Steve Blackmore Tim Ward John Robinson Khaleda Khatun
(from 30 April) Laura Stokes
Richard Ah So Leen Chris Gemmel
Matt Hammond Steve Oliver (From 10 April)

Francis Liston
ORGANIZATION CHART OF BOILER GROUP (MECHANICAL) AS ON 26.11.08

AGM, Boiler, Safety & C&I

Sh. H C Madan

Sr. DGM, Boiler DGM, Boiler

Sh. Anil Verma Sh. Jagjit Singh
 Functions carried out by Boiler Group
• Imparting advanced technical education to internal/ external customers.
• Suggestions to MUs/ PEM/ Region/ Site/ TS(HQ) for improvement in products/ systems
• Development of expertise within the Group to meet the current and future needs in identified areas.
• Technology and Process Improvements for Erection/ Commissioning/ Troubleshooting/ PG/ PE
Tests/ Servicing/ R&M/ Performance Monitoring.
• Conduction of program/ workshop for knowledge sharing.
• Preparation of Technical papers/circulars on the basis of site experiences (Inhouse/ National/
International forum).
• Assistance to sites for Erection/ Commissioning/ Overhauling/PG/PE Tests.
• Assistance to customers based on performance monitoring reports/ feedbacks.
• Conductance of Pre-outage survey / health monitoring / condition assessment of ESP.
• Planning/ Conducting of Milestone for Boiler Light-up.
• Providing technical expertise to attend critical problems referred by Regions , MUs, Higher
Management and internal customers.
• Generating failure analysis reports for incorporating improvement in the processes, products and
systems.
• Responding to Queries by Power Sector/ Industry Sector/ International Operation Marketing
Division w.r.t. order booking.
• Addressing technical issues w.r.t. contract closing.
 Role of Government In Business
• In economics, laissez-faire describes an environment in which transactions
between private parties are free from state intervention, including restrictive
regulations, taxes, tariffs and enforced monopolies.
• Totalitarianism (or totalitarian rule) is a political system where the state, usually
under the control of a single political person, faction, or class, recognizes no limits
to its authority and strives to regulate every aspect of public and private life
wherever feasible.[2] Totalitarianism is generally characterised by the coincidence
of authoritarianism (where ordinary citizens have no significant share in state
decision-making) and ideology (a pervasive scheme of values promulgated by
institutional means to direct most if not all aspects of public and private life).[3]
• Totalitarian regimes or movements maintain political power through an all-
encompassing propaganda disseminated through the state-controlled mass media,
a single party that is often marked by personality cultism,
control over the economy, regulation and restriction of speech, mass surveillance,
and widespread use of state terrorism.
Leaders who practiced Totalitarianism
• Doctrine of Laissez Faire
• State to concentrate only on Law and Order
• Era of free enterprise
• Every individual while enjoying the benefits of
the position/life should also contribute to the
society
• Mixed Economy
• State to play an active role in the economic affairs of
the country
• State – Regulator of economic activity
• State takes over the control and ownership of
strategic points in the economy and leaves the rest to
private enterprise which works under proper
regulation by the state in public interest
• India
• Totalitarianism
• Collapse of USSR and East bloc countries
• All control in the hands of the state
 Forms of Government Regulation
• 1.General direction and regulation of investment activity in
the private enterprise
• This is achieved through economic planning at the national
level and through industrial policy
• 2.Regulation of investment, location, size and expansion of
individual enterprises and specific industries through
industrial licensing
• 3.Regulation of prices of commodities and industrial products
through legislative authority and systematic investigations
into cost structure and mark-ups
• 4.Regulation of monopolies and unfair or restrictive trade
practices through legislation
• 5.Regulation of wages and bonus for
employees in the private sector to minimise
exploitation, ensure reasonable standards of
living and maintain peace and harmony in
industry
• 6.Regulation of corporate management
• 7.Regulations of specific forms of business
activity like speculation in shares and
commodities or imports/exports etc
 General Regulation of Business Activity –
Economic Planning
• In totalitarian economies the state is responsible for complete
and detailed planning of production and patterns of
consumption
• Inn democratic mixed economies the government assumes an
active role in determining the broad objectives of economic
and industrial activity
• Prioritizes the industrial development
• Defines the role that the private and public sectors shall play
in implementing industrial programmes
• FIVE YEAR PLANS
 Industrial Policy in India
• Pre independence period
• Post independence period
• Industrial Policy Resolution, 1948
• New Industrial Policy, 1991
 Public Enterprise
• In certain countries all activities pertaining to the
economic and commercial carried over by the state
• In countries like ours, the government selects certain
areas where it has its control and leaves the other
areas to the private players
• The enterprises owned , managed and controlled by
the state on behalf of the public at large collectively
constitute the public enterprise or the public sector
 Rationale/Uses/Advantages/Roles of Public
Enterprise
• Public ownership and control
• Government takes over, it becomes nationalisation
• 1.Abolition of monopoly
• 2.Promotion of public welfare
• 3.Greater economy and coordination
• 4.Balanced regional development of the industry
• 5.Assistance in economic development
• 6.Fuller employment
• 7.Better deal to workers
 Objectives of the Public Enterprise
• 1.Assissting in accelerating the pace of economic
growth
• 2.Increasing opportunities for employment
• 3.Improving the standard of living
• 4.Contributing to reduction in disparities in income
and wealth
• 5.Preventing monopolies
• 6.Paving the way for diffusion of economic power
• 7.Mobilising and canalizing public savings
 Limitations/Weaknesses of the Public
Enterprise
• 1.Lack of efficiency
• 2.Political interference
• 3.Exposure to public censure
• 4.Rigid financial control
 Organisation of Public Enterprise
• Public enterprise in the manufacturing field
have been organised in three forms :
• 1.As departments of Government
• 2.As public corporations
• 3.As mixed ownership corporations or
government companies set up under the
Companies Act
 Departmental Organisation
• Run by a Govt department with a minister at the top
• Ex : Railway
• ICF
• Produce for the government
• Manned by the civil servants
• Financed by the govt
• Disadvantages
• 1.At the mercy of the political parties
• 2.Civil servants lack business acumen
• 3.Workings always subjected to scrutiny
• 4.Lacks flexibility
• 5.Red tapism, delay and inadequate delays
 Public Corporations
• Combines public interest with the flexibility of operation
characteristic of a company in the private sector
• Features
• 1.Corporate body created by special statute of the parliament
• 2.Owned wholly by the state
• 3.It has its own legal entity
• 4.Enjoys financial autonomy
• 5.Exempted from regulations
• 6.Management entrusted to a board appointed by the
minister
• 7.Works as service as the motive, not the profit
Mixed ownership corporation or government
companies
• 51 % share held by the government
• Ownership with the government and
participation by the public also
 Problems of administration
• 1.Form of organisation
• 2.Autonomy of management
• 3.Composition of board of directors
• 4.Public accountability
 Problems of public sector enterprise
• 1.Poor project planning
• 2.Heavy overheads
• HPF
• 3.Over capitalisation
• 4.Faulty production planning
• 5.Poor man power planning