Unit – II

Types of Business Organizations:

When organizing a new business, one of the most important decisions to be made is
choosing the structure of a business.

a) Sole Proprietorships

➢ These firms are owned by one person, usually the individual who has day-to-day
responsibility for running the business.

➢ Sole proprietors own all the assets of the business and the profits generated by it.

➢ They also assume "complete personal" responsibility for all of its liabilities or debts. In the
eyes of the law, you are one in the same with the business.

Merits:

• Easiest and least expensive form of ownership to organize.

• Sole proprietors are in complete control, within the law, to make all decisions.

• Sole proprietors receive all income generated by the business to keep or reinvest.

• Profits from the business flow-through directly to the owner's personal tax return.

• The business is easy to dissolve, if desired.

Demerits:

• Unlimited liability are legally responsible for all debts against the business.

• Their business and personal assets are 100% at risk.

• Has almost been ability to raise investment funds.

• Are limited to using funds from personal savings or consumer loans.

• Have a hard time attracting high-caliber employees.

b) Partnerships

➢ In a Partnership, two or more people share ownership of a single business.

➢ Like proprietorships, the law does not distinguish between the business and its owners.

➢ The Partners should have a legal agreement that sets forth

✓ How decisions will be made, profits will be shared,

✓ How disputes will be resolved,

✓ How future partners will be admitted to the partnership,

 ✓ How partners can be bought out,

✓ What steps will be taken to dissolve the partnership when needed.

➢ They also must decide up front how much time and capital each will contribute, etc.

Merits:

• Partnerships are relatively easy to establish; however time should be invested in developing the
partnership agreement.

• With more than one owner, the ability to raise funds may be increased.

• The profits from the business flow directly through to the partners' personal taxes.

• Prospective employees may be attracted to the business if given the incentive to become a partner.

Demerits:

• Partners are jointly and individually liable for the actions of the other partners.

• Profits must be shared with others.

• Since decisions are shared, disagreements can occur.

• Some employee benefits are not deductible from business income on tax returns.

• The partnerships have a limited life; it may end upon a partner withdrawal or death.

c) Corporations or Corporate Companies:

➢ A corporation, chartered by the state in which it is headquartered, is considered by law to be

a unique "entity", separate and apart from those who own it.

➢ A corporation can be taxed; it can be sued; it can enter into contractual agreements.

➢ The owners of a corporation are its shareholders.

➢ The shareholders elect a board of directors to oversee the major policies and decisions.

➢ The corporation has a life of its own and does not dissolve when ownership changes.

Merits:

• Shareholders have limited liability for the corporation's debts or judgments against the
corporations.

• Generally, shareholders can only be held accountable for their investment in stock of the company.

• Corporations can raise additional funds through the sale of stock.

• A corporation may deduct the cost of benefits it provides to officers and employees.

Demerits:
• The process of incorporation requires more time and money than other forms of organization.

• Corporations are monitored by federal, state and some local agencies, and as a result may have
more paperwork to comply with regulations.

• Incorporating may result in higher overall taxes.

• Dividends paid to shareholders are not deductible form business income, thus this income
can be taxed twice.

List of Top 10 Companies in India:

Here is the list of the top 10 companies in India according to their market capitalization

1. Tata Consultancy Services (TCS):

2.Reliance Industries Limited (RIL):

3.Oil and Natural Gas Corporation (ONGC):

4.HDFC Bank (Housing Development Finance Corporation)

5.ITC

6.Coal India

7.Infosys

8. Sun Pharma:

9. SBI:

10. Hindustan Unilever

d) Joint Stock Company:

➢ Limited financial resources & heavy burden of risk involved in both of the previous forms of
organization has led to the formation of joint stock companies these have limited dilutives.

➢ The capital is raised by selling shares of different values. Persons who purchase the shares
are called shareholder.

➢ The managing body known as; Board of Directors; is responsible for policy making important
financial & technical decisions.

There are two main types of joint stock Companies.

(i) Private limited company.

(ii) Public limited company

(i) Private limited company:

 ❖ This type company can be formed by two or more persons.

❖ The maximum number of member ship is limited to 50. In this transfer of shares is
limited to members only.

❖ The government also does not interfere in the working of the company.

(ii) Public Limited Company:

❖ Its is one whose membership is open to general public.

❖ The minimum number required to form such company is seven, but there is no
upper limit.

❖ Such company’s can advertise to offer its share to general public through a
prospectus.

❖ These public limited companies are subjected to greater control & supervision by the
Government.

Merits:

• The liability being limited the shareholder bear no Rick & therefore more persons are encouraged
to invest capital.

• Because of large numbers of investors, the risk of loss is divided.

• Joint stock companies are not affected by the death or the retirement of the shareholders.

Disadvantages:

• It is difficult to preserve secrecy in these companies.

• It requires a large number of legal formalities to be observed.

• Lack of personal interest.

e) Public Corporations:

➢ A public corporation is wholly owned by the Government centre or state. It is established

usually by a Special Act of the parliament.

➢ Special statute also prescribes its management pattern power duties & jurisdictions.

➢ Though the total capital is provided by the Government, they have separate entity & enjoy
independence in matters related to appointments, promotions etc.

Merits:

• These are expected to provide better working conditions to the employees & supported to be
better managed.

• Quick decisions can be possible, because of absence of bureaucratic control.

• More flexibility as compared to departmental organization.

• Since the management is in the hands of experienced & capable directors & managers, these ate
managed more efficiently than that of government departments.

Demerits:

• Any alteration in the power & Constitution of Corporation requires an amendment in the particular
Act, which is difficult & time consuming.

• Public Corporations possess monopoly & in the absence of competition, these are not interested in
adopting new techniques & in making improvement in their working.

IMPORTANT PUBLIC CORPORATION ESTABLISHED BY CENTRAL GOVERNMENT:

➢ Reserve Bank of India

➢ Damodar Valley Corporation,

➢ Indian Airlines Corporation,

➢ Air India,

➢ Life Insurance Corporation,

➢ Central Warehousing Corporation,

➢ Food Corporation of India,

➢ Industrial Finance Corporation

➢ Oil and Natural gas Commission

IMPORTANT PUBLIC CORPORATION ESTABLISHED BY STATE GOVERNMENT:

➢ State financial Corporation

➢ State Road transport Corporation

➢ State Electricity Board

f) Government Companies:

➢ A government company is any company in which of the share capital is held by the central
government or partly by central government & party by one or more state governments.

➢ It is managed by the elected board of directors which may include private individuals.

➢ These are accountable for its working to the concerned ministry or department & its annual
report is required to be placed ever year on the table of the parliament or state legislatures
along with the comments of the government to concerned department.

Merits:
• It is easy to form.

• The directors of a government company are free to take decisions & are not bound by certain rigid
rules & regulations.

Demerits:

• Misuse of excessive freedom cannot be ruled out.

• The directors are appointed by the government so they spend more time in pleasing their political
masters & top government officials, which results in inefficient management.

SOME OF THE IMPORTANT GOVERNMENT COMPANIES ARE:

➢ Hindustan Machine Tools Limited

➢ Bharath Electronics Limited

➢ Bharath Heavy Electricals Limited

➢ Hindustan Cable Limited

➢ Indian Telephone Industries Limited

➢ Maruthi Udyog Limited

➢ Hindustan Shipyard Limited

➢ Hindustan Antibiotics Limited

➢ Hindustan Housing Factory Limited.

MANAGING GLOBAL ENVIRONMENT

➢ The management functions are planning and decision making, organizing. leading, and
controlling — are just as relevant to international managers as to domestic managers.

➢ International managers need to have a clear view of where they want their firm to be in the
future; they have to organize to implement their plans: they have to motivate those who
work lot them; and they have to develop appropriate control mechanisms.

a) Planning and Decision Making in a Global Scenario

❖ To effectively plan and make decisions in a global economy, managers must have a broad
based understanding of both environmental issues and competitive issues.

❖ They need to understand local market conditions and technological factor that will affect
their operations.

❖ At the corporate level, executives need a great deal of information to function effectively.

✓ Which markets are growing?

✓ Which markets are shrinking?

✓ Which are our domestic and foreign competitors doing in each market?

❖ They must also make a variety of strategic decisions about their organizations.

For example, if a firm wishes to enter market in France, should it buy a local firm there, build
a plant, or seek a strategic alliance?

❖ Critical issues include understanding environmental circumstances, the role of goals and
planning in a global organization, and how decision making affects the global organization.

b) Organizing in a Global Scenario

➢ Managers in international businesses must also attend to a variety of organizing issues.

For example,

✓ General Electric company has operations scattered around the globe. The firm has
made the decision to give local managers a great deal of responsibility for how they
run their business.

✓ In contrast, many Japanese firms give managers of their foreign operations relatively
little responsibility. As a result, those managers must frequently travel back to Japan
to present problems or get decisions approved.

➢ Managers in an international business must address the basic issues of organization

structure and design, managing change, and dealing with human resources.
c) Leading in a Global Scenario

➢ We noted earlier some of the cultural factors that affect international organizations.

➢ Individual managers must be prepared to deal with these and other factors as they interact
people from different cultural backgrounds.

➢ Supervising a group of five managers, each of whom is from a different state in the United
States, is likely to be much simpler than supervising a group of five managers, each of whom
is from a different culture.

➢ Managers must understand

✓ How cultural factors affect individuals.

✓ How motivational processes vary across cultures,

✓ How the role of leadership changes in different cultures,

✓ How communication varies across cultures, and

✓ How interpersonal and group processes depend on cultural background.

d) Controlling in a Global Scenario

➢ Finally, managers in international organizations must also be concerned with control.

➢ Distances, time zone differences, and cultural factors also play a role in control.

For example, in some cultures, close supervision is seen as being appropriate, whereas in
other cultures, it is not Likewise, executives in the United States and Japan may find it difficult to
communicate vital information to one another because of the time zone differences.

LEVELS OF MANAGEMENT

Management is a group activity, which means that every organization has a number of individuals
placed at different positions and are provided with different responsibilities according to their skills,
education, etc. For the fulfillment of the responsibilities given to the members of an organization, they
are also provided with the required authority. Based on the amount and extent of responsibility and
authority given to these members, a chain of superior-subordinate relationships is formed. This chain
of superior-subordinate relationships is known as the Levels of Management. There are three levels of
management; viz., Top Level Management, Middle Level Management and Operational Level
Management.
Three Levels of Management

1. Top Level Management

The senior most executives of the organization are found at the top level of management. The top level
of an organization’s management consists of the Board of Directors, Managing Director, Chairman,
Chief Executive Officer, Chief Operating Officer, Vice-President, President, General Manager, and other
Senior Executives. The managers at the top level of management of an organization are responsible
for its survival and welfare. These managers perform stressful and complex work that demands long
hours and commitment towards the company.

Functions of the Top Level Management

1. Determination of the objectives for the organization: The managers at the top level management
formulates the goals or objectives for an organization along with the strategies to achieve those goals.

2. Framing of plans and policies: For the achievement of the pre-determined goals or objectives of an
organization, it is essential to formulate proper strategies, plans and policies within the organization.
The top level managers are responsible for the formulation of these plans and policies.

3. Coordination and control of the performance: Based on the overall pre-determined objectives of
the organization, the top level managers coordinate and control different activities of different
departments of the organization.

4. Analysis of the business environment: Business environment of an organization plays a crucial role
in its success and survival. The managers at the top level of management of an organization carefully
analyze the business environment and its implication and make necessary decisions for better results.

5. Setting up an organizational framework: For the success and survival of an organization, it is

essential to form a proper framework or structure within the company. The top level managers are
responsible for the determination of the organizational framework for the proper and successful
execution of its plans and policies.

6. Assembling of the resources: Achievement of the organizational goals requires different resources
of materials, machines, men, money and materials. It is the duty of the managers at the top level
management to arrange these resources.

2. Middle Level Management

The next level of management is the Middle Level, which serves as a link between the Top Level
Management and the Lower Level Management. The middle level management is superior to the
lower or operational level management and subordinate to the top level management. The middle
level of an organization’s management consists of different functional department heads, such as
Departmental Managers including Production, Purchase, Finance, Personnel, Marketing Managers,
and other executive officers for different departments such as plant superintendent, etc. The
employees or members of the middle level management are responsible to the top level management
for their performance.

Functions of the Middle Level Management

1. Interpretation of the policies framed by the Top Level Management: As the middle level
management acts as a subordinate to the top level management, the managers at this level have to
clearly interpret the plans and policies framed by the managers at the top level management to the
managers at the lower or operational level management.

2. Selection of suitable operative and supervisory personnel: To perform any function properly, an
organization needs the required personnel. It is the duty of the Middle Level Managers to make sure
that the organization has sufficient personnel with them to perform the functions and duties better.
For the fulfillment of this duty, the middle level managers recruit and select suitable employees for
different departments based on the applicant’s skills, etc., and the firm’s requirements.

3. Assigning of duties and responsibilities to the Lower Level Management: The middle level
managers acts as superior to the operational level managers. These managers have to assign respective
duties and responsibilities to the lower level managers and coordinate with them regarding the
activities of different work units.

4. Motivating employees to get desired objectives: An organization can effectively and efficiently
achieve its desired goals only when its employees are motivated enough to work towards the
betterment of the organization. Therefore, the managers at the middle level management motivate
the employees towards the achievement of the organizational goals and improvement of their
performance.
5. Cooperating with the entire organization: As middle level management serves as a link between
the top level management and the lower level management, the managers at this level have to
cooperate with every other department for the smooth functioning of the organization.

3. Lower Level Management

The last level of management is the lower level management and is also known as the Supervisory or
Operational Level Management. The managers at the lower level of management play a crucial role in
the proper management of an organization, as they directly interact with the actual work force and
interpret the instructions of the middle level managers to them. The responsibility and authority of
the lower level managers depend upon the plans and policies formed by the top level management.
The lower level management consists of foremen, supervisors, section officers, superintendents, and
other managers who have direct control over the operative employees of the organization.

Functions of the Lower Level Management

1. Issuing of orders and instructions: The managers at the operational level management issue orders
to the workers and supervisors and instructs them on their roles, responsibilities, and authority.
Besides, these managers also control the functioning of the workers.

2. Preparation of plan for activities: The lower level managers plan the day-to-day activities of the
organization. Besides, these managers also assign work to the subordinates, guide them for the same,
and take corrective measures wherever and whenever necessary.

3. Assigning and assisting in work: The job or responsibility of the lower level managers includes
assigning work to the subordinates and assisting them with the work. They do so by explaining the
work procedure to the employees and solving their problems for better performance.

4. Representing workers’ grievances: As the managers at the lower level management are in direct
contact with the managers at the middle level management, they listen to the grievances of the
workers and report those issues to the middle level managers.

5. Ensuring a safe and proper work environment: The lower level managers are responsible for
providing the work force with a safe and proper work environment. They also have to maintain proper
discipline and a good atmosphere within the organization, as it motivates the employees to work
towards the accomplishment of the organizational goals.

6. Helping the middle level management: The managers at the operational level management helps
the middle level managers in selecting, training, placing, and promoting the workers of an organization
as they can give a direct insight as to what is required for the achievement of the organizational goals
and about the performance of the workers.

7. Encourage initiative of employees: The best way to motivate employees and make them feel an
important part of the organization is by encouraging them to take initiative. The lower level managers
do so by welcoming their suggestions and ideas and by rewarding them for the good ones.