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Business
If a man remains busy with an activity which is production oriented is called
Business.
Production means creation of utility. In a word business is a creation of utility.
Man can’t produce anything. Man can only procure resources from nature and
can change its shape, place and time.

Utility: Utility means capacity to satisfy human need or want.

Something which has got the capacity to satisfy human need or want, we say
that it has got utility.

Business organization: All organizations all over the world are engaged in
either producing a product or rendering a service or generating an idea. These
organizations are popularly known as Business organization.

NEED: Need refers to those goods and services which are essential for our
living. We can’t survive without them. Our existence will be at stake (threatened)
without them.
Example:
1. Food
2. Shelter
3. Clothing
4. Medical care
5. Education and Training.

WANT: Want refers to those goods and services which are not essential for our
living but we require them for a better living. They make our life easy and
enjoyable.
Example:
1. Mobile
2. Computer
3. Electricity
4. Television etc.
Need is limited but want is unlimited. Need can’t be created; it already exists but
want may be created.
Definitions of Business

• We all are involved in business in some-way or other.

• Business is something with which we live.
• Business needs people, people also need business.
• Business needs people in the form of owner, manager, employee ands
customer.
• People form the core of business.
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OWNER: Owner is a person who owns the business, he usually provides the
capital. He sets the objectives, makes decisions. His decision is final in regard to
his business. He takes the risk and enjoys the rewards that the business
provides.

MANAGER: Manager is a person who is responsible for the operation of a

business.
Managers may be of two types:
1. Owner Manager
2. Professional Manager.

Owner Manager: An owner when manages his business himself is an owner

manager. He is a self employed person.

Professional Manager: He is employed by the owner. He is made responsible

for the operation of the whole business as per the desire of his employer that is
the owner.

Some dissimilarities between the owner and the professional manager are
given below:
1. An owner manager is a self-employed person on the other hand a
professional manager is employed by the owner.
2. Owner sets the objectives of his business. Professional managers walk to
achieve those objectives.
3. A professional manager is constantly evaluated by the owner. If he can
achieve the objectives set by the owner, then the owner welcomes him.
Unfortunately if a professional manager fails to do so. The owner manager
simply says good bye to him. In other words, he is hired by the owner and
he may also be fired by the owner if he so desires. In fact a professional
manager is always dictated by the owner. His boundary operation is
decided by the owner.

There are also some similarities between a professional manager and an owner
manager which are given below:
1. Both types of managers want to achieve profit, growth. They work for their
survival and in the presented context, they are also aware about their
social responsibilities.

Profit: The difference between business income (revenue) and business

expenses (cost) is called profit.
Profit = Revenue - Cost
Business Profit = Selling – all costs of making and selling a product including
taxes.
Profit may be of two types such as:
1. Business profit
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2. Economic profit

Economic profit: Economic profit is what remains after expenses and

opportunity costs when they are deducted from the income.
Economic profit = Selling – (Expenses + Taxes + Opportunity cost)

Opportunity Cost: Opportunity cost is the cost of choosing to use resources for
a purpose which results in sacrificing the next best alternative for the use of
those resources.

GROWTH: Growth is the development in the range of economic activities, it may

relate to human or other resources. Growth is usually measured by production
and productivity.

Production: Production means the creation of utility.

Productivity: Productivity is the ratio between input and output. Example as
follows:

Jute Mill A Jute Mill B

Raw materials : Tk. 100 Raw materials
: Tk. 100
Direct labor : Tk. 100 Direct labor : Tk. 100
Other expenses : Tk. 100 Other expenses : Tk. 100
Total : Tk. 300 Total : Tk. 300

Here Jute mill A produces 20 yards carpet per year but Jute mill B produces 15
yards carpet every year.
For A: Production Cost per year = 300/20 = Tk. 15
For B: Production Cost per year = 300/15 = Tk. 20

Now if the Maximum Retail Price (MRP) of a carpet in the market is Tk, .17(say)
then the jute mill A makes profit tk. 2 but the jute mill B incurs loss of tk. 3 per
carpet. So the survival of the Jute mill B will be threatened on the other hand Jute
mill A will go on flourishing business in the market.
Low productivity leads to high cost of production which ultimately leads to going
out of business.
Survival: Survival means state of continuing to exist. It is the primary issue of a
business.

Social responsibilities: social responsibility has become a popular term in the

field of business now-a-days. Every business activity has got some positive
impacts as well as some negative impacts. If a businessman is aware of those
negative impacts then we shall say that he is aware of his social responsibility.

EMPLOYEE: Employees supply skill and ability needed to produce a product or

to render a service and thereby to make profit. Employees want fair wages from
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the organization. An organization requires a committed work force to achieve its

objectives. It is said that an organization should try to maintain a satisfactory and
satisfied work force to achieve its desired objectives. Satisfactory is from the
point of skills and abilities but satisfied is from the point of view of remuneration
package that is provided by the employer.

CUSTOMER: Customers are usually known as purchaser or buyer. A consumer

is a person or an organization that purchases goods or takes service for personal
or organizational use.
Customer is the most important factor of every business. So, a business is to be
customer oriented to become successful. In other words, all the activities of an
organization must be centered on its customer.
Note: A research study reads that a satisfied customer talks to at least four (05)
persons about the quality of a product. On the other hand, dissatisfied customer
talks to at least fifteen (15) persons about the quality of products/services.
Buyer/Consumer: A buyer may be a consumer or may not be a consumer. On
the other hand, a consumer may be a buyer and may not be buyer.
Silent Consumer: Silent consumer are those who can’t pass their comment or
opinion about the quality of product or service.
Example:
1. Baby
2. Oppressed group of people.

Economics: Business originated from the economics. Economics is the mother

of business. Understanding economics is essential for understanding business.
But there is also no single definition of economics which can satisfy all of us.
However, economics is the study, how a society (people) chooses to use its
scared resources to produce goods and services and to distribute them to people
for consumption. Resources are very limited and given by nature. Economics
teaches us to use the minimum resources in the maximum field of benefit. The
definition of economics covers the following three basic terms such as;
1. Resources
2. Goods and Services
3. Allocation of Resources.

RESOURCES: Every nation has got some resources. The resources of a nation
may be divided into three main classes as stated below:
1. Natural Resources
2. Capital Resources
3. Human Resources

Natural Resources: Natural Resources are provided by nature in limited amount

such as gas, oil, coal, iron, water, forestry and other mineral resources. Natural
resources are to be processed usually to make it a product or to be used to
produce other goods/products.
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Example: Trees are to be processed into lumber (wood) before using them to
build homes, shopping malls, schools and colleges. Regarding natural resources
man don’t have any control. Man can simply extend its market.

As an example TITAS gas was firstly introduced from Brammanbaria but

nowadays the whole country is consuming it. Man has extended the using field of
TITAS gas usage.

Capital Resource: Capital resources are goods produced for the purpose of
making other types of goods. In other words ‘capital’ is that part of produced
wealth which can be used for further production. Some capital resources are
called current assets. They have got a short life and are used up in the
production process.
For example: Raw material, fuel and money etc.
On the other hand some capital resources are called fixed assets. They have got
a long life. They are not used up in the production process rather they are used
repeatedly in the production process. For example- Land, Building, Machines etc.

Human Resources: The human talent, skill, competence available in a nation is

known as human resources. Human resource is the most important resource of a
country. Without human resource, no productive use of either natural or capital
resources is possible.

How a county will use its resources it depends on the economic system of that
country but the govt. is less prioritized for the proper utilization of resources.
Business in every country is dictated and influenced or guided by its economic
system.

Economic System: An economic system is an accepted process by which

natural resources, capital resources and human resources of a country are
organized to produce products and to render services. It also includes the
process of distribution of those goods and services. The following diagram shows
various economic systems now prevailing in different countries of the world.

Economic System

Planned Economy Capitalism Economy Mixed Economy

Socialism Communism

Planned Economy: Planned economy is an economic system in which the govt.

controls all or most factors of production and makes all or most production
decisions.
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Planned economy may be of two types:

1. Socialism
2. Communism

Socialism: Socialism is a kind of planned economy. In socialism government

owns and operates the main or basic industries while individuals own and
operate less important industries such as govt. may own and operate banking,
transport sector, insurance sector, power sector, public utility sector. On the other
hand individuals may own and operate small business units like a retail store, a
clothing store, a stationary shop, a photography shop and a restaurant.

Communism: Communism is also another kind of planned economy. Here govt.

owns and operates all industries whether it is small or medium or big it does not
matter.
The idea of communism was developed by Karl Marx. He was basically a
German economist.
Communism is a system in which all the economic resource of a country is
collectively – not individually- owned. Here people are to work to the best of their
ability and receive economic benefit according to their need from the state.
In other word, the main message of communism is-“Eat according to your need
and work to the best of your ability”.

*** If we want to achieve communism, we are to go through the process of

socialism.
In other words, socialism is the process and communism is the result. It is said
the apex of socialism is known as communism.

Capitalism: Capitalism is a kind of economic system in which markets decide

what, when, how and for whom to produce. Unlike planned economy capitalism
depends on market, not on Govt. to decide what, when, how and for whom to
produce.
That is why capitalism is also known as market economy. Market economy may
be of two types:
1. Open Market Economy
2. Restricted Market Economy
Note: Open market economy challenges the survival to the fittest.

Characteristics of capitalistic economy:

1. Private owner ship

2. Decentralized decision making and planning
3. Perfect completion among business units.
4. Alternative choice on the part of the customers.
5. Quality products at low price.
6. Business centers on customers.
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Characteristics of Planned Economy:

1. State ownership
2. Centralized decision making and planning.
3. Less significant competition in business unit.
4. No alternative choice on the part of customer.

We can’t think of a circle without its centre. In the same way we can’t think of
capitalism without customer. So if we treat capitalism as a circle then customer is
its centre.

Mixed Economy: Mixed economy is an economic system in which the

elements/characteristics of both market economy and planned economy are
present. Bangladesh, Pakistan, India, srilanka are the examples of following
mixed economy.
In true sense of economic pattern is of mixed economy.

Conclusion: Economic systems differ from one another in terms of their

characteristic. Different countries of the world are following different patterns of
economic system. It is true that every system has got its merits and demerits.
There is no single economic system with only merits.

As a result, the fact is that no country in the world has a purely planned economy
or a capitalistic economy. In practice, virtually countries are following mixed
pattern of economy in which one of the basic economic system dominates but
the characteristics of other systems are present there as well.

In simple words, we can say no country of the world is totally communistic or

capitalistic.

Business means creation of utility. Business has two main branches such as-
1. Industry and
2. Commerce

Industry: The manufacturing side of business is known as industry. In other

words business takes the name of industry when it is engaged in production.
Commerce: The distribution side of business is known as commerce. In other
words business takes the name of commerce when it is engaged in distribution.
So in conclusion we can say production and distribution are the two important
functions of business.
Characteristics/Essentials of Business:

1. Creation of Utility: Etymologically business means to be in the world of

busy. If a man remains busy with an activity, we are supposed to call it
business, etymologically. But as a student of business, we are not ready
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to accept this statement. Because a man may remain busy with so many
things which will not come within the scope of business.
For example:
1. Busy in gossiping
2. Busy in thinking usual things.
To be business in our terms, and activity must be production related. And
production means creation of utility. So the essence of business is to create
utility.

2. Exchange: Exchange means transfer. In business exchange involves two

things such as-
(a) Physical Transfer of goods and
(b) Transfer of ownership title.
3. Recurring sale of goods and services: Buying and selling should occur
recurrently that is again and again. For example Mr. X buys a car at Tk.
5lac. And later on he decided to sell it. He got also a customer and the
customer purchased it at Tk. 5 lac 50 thousand. Here Mr. X has made a
profit of Tk. 50 thousand. Still it will not constitute business because he did
it for once only. If he does it again and again only then it will constitute
business otherwise not.

4. Profit motive: The motive of business must be to make profit. But in

attempt to do so there may be a loss. Motive to make a loss does not
constitute business.

5. Risk and Uncertainty: There must be uncertainty and risk in business.

There is nothing certain in this world except uncertainty. Business is a
game of uncertainty. So, it is full of risks. In other words in business risks
are great and rewards are great too. In simple words we say, if there is no
risk, there is no business. Risk = Uncertainty of loss which is miserable in
terms of money.

Components of business orClassification of Business

1. Industry 2. Commerce

Primary Secondary

1. Extractive Industry – 1. Manufacturing-

(Mining, lumbering, hunting) (Iron & Steel, Spinning & Weaving, Machine making.)
2. Genetic Industry – 2. Construction –
(Agriculture, forestry and fish hatchery.) (Building, bridge, road, canal, dam, etc.)
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2. Commerce

Trade Aids to Trade

1. Home Trade 2. Foreign Trade I. Transport

II. Warehousing
III. Banking
IV. Insurance
I. Wholesale Trade I. Export Trade
II. Retail Trade II. Import Trade
III. Re-export Trade

Extractive Industry: These industries are concerned with discovery and

utilization of natural resources like, minerals, animals and forests. Some
examples of extractive industries are mining, farming, fishing, hunting.

Genetic Industry: These industries include breeding of plants, seeds, cattle

breeding farms, poultry farms and fish culture. It is to be noted that these
industries depend on nature mainly. But they require a greater application of
human skill for their development in a planned way.

Manufacturing Industry: These industries are engaged in conversion or

transformation of raw materials or partly finished materials. These industries are
carried on a place which is popularly known to us as factory. When we say
industry, we usually mean manufacturing industry. Some examples of
manufacturing industries are textile industry, Jute Industry, Iron & Steel Industry,
Automobile industry.

Construction Industry: These industries are engaged in the construction of

building, bridge, road, canals, and dams etc. The raw materials used by
construction industry are the products of manufacturing industry like cement,
iron, steel and extractive industry like gas, oil.

Trade: Trade is a branch of commerce. It is concerned with the exchange of

commodities. For conducting trade may be hindrances have to be removed. The
hindrances may mainly relate to place, time and finance.

Hindrance of Place: Place of production and place of consumption are not the
same. They are different. Goods produced in one part of the world and are
consumed in another part of the world. For example: garments manufactured in
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Bangladesh but are consumed by Americans and the Europeans. So goods are
to be transported from its place of production to its place of consumption.
Transport, banking, insurance, packaging have come forward to remove these
hindrances.

Hindrance of Time: Time of production and time of consumption are not the
same. Goods are produced in one part of a season and are consumed
throughout the season. For example, tomatoes, Potatoes, carrots, jute are
produced in a particular part of the season but they are consumed round the
year. This hindrance of time has been removed by warehousing where goods are
stored for future consumption.

Hindrance of finance: Business requires capital. In other words, we can’t think of

a business without money. The problem of finance in business has been solved
by banks and other financial institutions.
Objectives of business:

1. Economic Objective
2. Human Objective
3. Social Objective
Economic Objective:
1. Earning reasonable profit
2. Creation of customers
3. Keeping customers creating goodwill
4. Research & innovation
5. Stability of growth.
Human Objective:
1. Human relation with employees.
2. Provision for employee’s welfare.
Social Objective:
1. Production of quality goods.
2. Charging reasonable prices.
3. Payment of fare wages & other benefits.
4. Provision of employment.
5. Regular payment of taxes & other dues.
6. Fair dealings with suppliers of materials.
7. Contribution to community development.
8. Attaining social power, recognition and thereby business
leadership.

1. Question: “Profit is the sole/absolute motive of business” – do you agree with

this statement? Justify your opinion.

Answer: We can’t agree with the above statement that profit is the sole/absolute
motive of business. It is true; nobody enters into business to regain his lost health
or for the salvation of his soul. Everybody enters into business to make profit. In
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other words, profit is the main incentive for business. Yet, we can’t say that profit
is the absolute motive of business. The arguments in favor of our opinion are
shown below:

1. If we take profit as the only motive of business and then profit

maximization will be our aim. Profit may be maximized by taking nefarious
practices like-
a) Exploiting workers;
b) Deceiving suppliers;
c) Adulterating goods;
d) Passing bad quality goods;
e) Evading taxes;
f) Falsifying utility bills.
The above practices will obviously swell up the profit of a businessman. But can
we call these activities as business activities? – The answer is obviously ‘No’
rather we can call these activities swindling. So, profit should not be the only
motive of business.

2. If we say profit is the only motive of business, it is just like saying eating is
the only motive of living, or blood circulation is the only cause of living. It is
true only blood circulation can’t keep us alive. Breathing, digestion, and
proper functioning of the nervous system are vitally required for our living.

From these facts of live, we can draw a calculation that only profit can’t keep a
business alive. So, profit should not be the only motive of business.

3. If eating is taken as the only motive of living then we shall obviously go for
over eating and overeating may even lead to death. Similarly impious
profit may bring an end to the life of a business. Certain minimum food is
required for our living and work; so certain minimum profit is also
necessary for the survival of a business.
So, in conclusion we can say that profit can’t be the only motive of business.
Profit may be the main motive of business but obviously not the only motive. The
only motive of business should be to create customer and to keep customer. So,
it should be the only objective of business.

2. Question is how to do it?

Answer: In an attempt to create and to keep customers, a business unit should
do the following three things-
1. Produce goods or render services that your customers want.
2. To create a good employment condition so that a business can
attract competent managers.
3. We usually think that organizations are competing with each other
in terms of their quality of products. But in real life situation they are
not competing in terms of their quality of products. They are rather
competing in terms of their quality of managers. It is because better
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managers develop better employees and the two together develop

better products. Business should be acceptable to the community in
which it is operating.

Requisites of a successful business:

Business today is very competitive. It has taken the shape of cut throat
competition. There has been a race among business units to improve efficiency
and to reduce cost of production. Because existence and prosperity of business
depend on the cost at which the goods are produced. Further as the customers
for whom goods are meant are scattered over a wide area. It is difficult to
estimate the demand for products. In addition, demands are ever changing due
to the influence of fashion and the introduction of substitutes. So, Business
today is not a bed of roses rather it is a bed of thorns. The problem has become
very acute because most the factors are not within the control of the
businessmen. A business man must be ready to accept these challenges.
However, the requisites for success in a modern bushiness the following issues
may be considered.
1. Objective
2. Planning
3. Sound Organization
4. Adequate finance
5. Proper location and lay out.
6. Research and innovation
7. Efficient and effective management.

Objective: Objective indicates where we are and where we want to go. Objective
bridges the gap between the points where we are and where we want to be.
Objective is a target what we want to hit. Objective is a mission or a destination
where we want to reach. Objective is a result what we want to achieve. Examples
of objectives:
1. A business man wants to make 25%profit on his capital
employed in the coming financial year.
2. A student wants to get Grade A+ in his coming term final exam.
Objective should be realistic. Realistic means which is not too easy and not
impossible to achieve. It should be understandable to those people who are
responsible for their implementation.
Planning: Planning is decided in advanced that are to be done. It is a projected
course of action. Planning is a design for tomorrow’s action. Planning answers
the following three basic questions:
1. Where we are now
2. Where do we want to go?
3. How can we go there from here?
Sound organization: The firm/organization must be staffed with sufficient
number of people with required talents and skills. It means right man should be
selected for the right job.
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Adequate finance: Finance is the life blood of a business. Business depends on

the availability of the adequate finance. So a business man must correctly
estimate the financial requirements and makes necessary arrangement for
securing the finance.
Proper location and lay out: Location is an important factor for every business.
Customers are very seriously concerned about the location of a business. Choice
of a location depends on multifarious factors.
Lay out mainly involves interior decoration of a business including machine,
furniture, electrical outlets.
Research and Innovation: Research means systematic search for new
knowledge. For the keen competition among businessmen and the changing
characters of demand, there is a need for continuous improvement in quality and
quantity. It is possible through research.
Efficient and Effective management: Efficient means ability to get things done
correctly and effective means ability to choose correct objective. It is to be noted
that a manager can do a wrong thing rightly.
A manager should not give more importance either on efficiency or on
effectiveness. He should rather try to bring a balance or he should give equal
importance on efficiency and effectiveness.

Social responsibility of business:

Social Responsibility: Business organizations conduct many activities to

produce product or to render service or to generate ideas and thereby they
generate profit. The activities of a business firm greatly affect our socioeconomic
structure. Social responsibility is the awareness of the business activities that
have got impact on society and the consideration of that impact by business firms
in making decisions. Social responsibility may relate to:

- customer
- employee
- environment
- and investors.

Social Responsibility of business in regard to customers:

I. The right to safety

II. The right to be informed.
III. The right to choose
IV. The right to be heard.

Right to Safety: the most basic consumer right is the right of safety in regard to
the product or the service, they are going to procure. The product or services
must be produced meeting the government guidelines and regulations. The
product and services should be safe to possess and use.
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Right to be informed: Consumers have the right to receive information about

the product or service they are going to buy. It is regulatory in many counties that
the manufacturer put the product information like ingredients along with the
ingredients percentage in the product level.

Right to choose: Consumers have the right to choose to purchase from a

variety of products. Producer off course market their product through
advertisement or any other way, but under any circumstances they can not force
the consumers to buy their product. Consumers may also expect quality service
at a fair price.

Right to be heard: Consumers have also their right to have their opinions
considered in the formation of government policies or decisions taken by the
business firms. The governmental body should communicate with consumers
association in order to get the customer`s concerns while preparing products
standard.

Social responsibility of business in regard to employee:

I. Safety in work place

II. Equality in work place
III. Fair compensation
IV. To be informed regarding the happenings of the organization.
V. Managers are to be responsive in regard to problems.

Safety in work place: It is the primary responsibility of business to ensure a

safe working place for its employees. Business should be aware that workers
should not suffer from any health hazards. In addition, business should also
provide safety devices to workers.

Equity in work place: Equality comes from kindness and justice. There should
not be any discriminatory treatment in an organization. It is expected that all the
members of the organization should be treated equally in work place.

Fair compensation: Fair wages is to be given to the workers and they should
not be deprived of their dues. Management should always try for maximum
satisfaction of employees.

Right to be informed: It is the responsibility of business to inform the personnel

regarding the happenings of the organization. It has got both positive and
negative impact. It develops sense of belongingness among the personnel of the
organization. On the contrary, it affects the secrecy of the business. Managers
should be responsive to the problems raised by the personnel of the
organization. If a management is responsive to problems, grievance will not be
developed and the employees will not be frustrated at the end of the day.
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Social Responsibility to Environment: Three important issues for environment

are such as – Water
Air
Land

These three elements of the environment are polluted by business activities. So,
businessmen must be aware regarding the pollution of the environment.

Water pollution: Water pollution is caused by dumping of toxic chemical,

sewerage and garbage into rivers and streams. Use of chemical fertilizer and
pesticides are the other causes of water pollution. Chemical fertilizer and
pesticides has seriously affected our fish industry.

Air pollution: Air pollution is caused by carbon mono-oxide and hydrocarbons

that comes from motor vehicles and by smoke and pollutants from manufacturing
plants.

Land Pollution: Industrial wastes, chemical fertilizer, disposal of garbage, forest

fire are some of the causes of land pollution.
Land pollution and water pollution are very closely related. It is because land
pollution ultimately results in water pollution. It is because toxic wastes are
ultimately drained to water sources.

Responsibility to investors:

1. Proper management of firm.

2. Reasonable return to investors
3. Access to information

Forms of business organization (based on ownership.)

1. Sole trader ship
2. Partnership
3. Cooperative society
4. Company
5. State enterprise

Sole trader ship: Sole trader ship is the oldest, simplest and most common form
of business organization. Probably it came into existence, when people first
realized the need or exchange. From the very dawn of our civilization, sole trader
ship form of business has been in operation. And even today, it has remained as
much important as it was earlier. The individual proprietorship is a business unit
which is completely owned and controlled by one person. He is one and alone in
formation, management, taking responsibility, providing capital and also in
sharing profits. It is represented by an individual who is in business by and for
himself. In plain, words, he is the monarch of all he owns. He is the supreme
judge of all matters in regard to his business. That means his decision is final in
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regard to his business matters. In fact, he owns all and risks all. The other names
of sole trader ship are-
1. Sole proprietorship
2. Individual entrepreneurship
3. Single proprietorship
Professional like solicitors, accountants, auditors, physicians, hair dressers,
photographers are some of the examples which fall within this category.

Merits/Strong points of Sole Trader ship:

1. Easy to form
2. Minimum cost
3. Direct motivation
4. Absolute control
5. Promptness in decision making
6. Flexibility in operation.
7. Maintenance of business secrecy
8. Good training ground
9. Matching of efforts and rewards
10. Independent way of life
11. Opportunity for self-employment
12. Elimination of wastage.
13. Diffusion of ownership
14. Ease of dissolution
Demerits/weak points of sole trader ship:
1. Limited financial resources
2. Difficulty in Management
3. Unlimited Liability
4. Uncertainty of continuity
5. Passing into incompetent hands.
6. Restricted growth
7. Difficulty in personal contact
8. Social life is lost
9. No proprietorship for employees

Difficulty in Management: Today business is very competitive and difficult.

Diversified knowledge and experiences are required to run a business. Being
alone, the sole trader must give his fingers on everything, but in real life situation
it is not an easy job. He carries a staggering load of responsibility which may
crush him under its eight unless he is a giant.

Unlimited Liability: Unlimited liabilities mean availability of personal properly of

a business to beat the liabilities of business in case of need. In other word, when
a businessman is required to pay business liability from his personal property.
This situation is known as unlimited liability. A man in business for him has
everything to loose if his efforts are not successful. This makes him committed to
give his best for the success of his business. The concept of unlimited liability
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becomes a driving force for the sole trader. So, he always works carefully to
avoid the burden of unlimited liability.

Partnership is formed with the following four things such as partner, partnership,
Firm, Firm Name.
Partner: Persons forming a partnership are individually known as partners.

Firm: Persons forming a partnership are collectively known as firm.

Partnership: Partnership is the relation between partners who have formed a

partnership. In other word, the relationship that exists between partners is known
as partnership. This relationship is created by a contract. So, contract is the
essence of partnership. In simple word, if there is no contact, there is no
partnership. In other word, partnership is contractual relationship. Contract may
take the following forms-
1. Oral contract
2. Written contract
3. Written and registered contract according to the partnership Act.

To avoid future chaos and confusion it is wise to have a written and registered
contract. It is to be noted that written and registered contract is enforceable to the
eye of law.

Firm name: The name under which business of the partnership is carried on is
known as firm name.

Partnership: Partnership is a relation between persons who have agreed to

share the profits of a business carried on by all or any of them active for all.
(Indian partnership Act-1932)

Essence of partnership:
1. Plurality of persons
2. The persons forming a partnership must carry on some business.
3. The persons carrying on a business must enter into a contract.
4. The contract must be to share profits of a business.
5. An agreement to share losses does not constitute a partnership.
6. The business must be carried on by all or any one of them active for all.
7. Partnership is a contract of utmost good faith.
8. One partner can bind the other partner by his deeds.

Partnership Deed:
A document which contains the terms and conditions of a partnership is known
as partnership deed. Some important contents of a partnership deed:
1. Name and address of partners
2. Firm name of place of business
3. Objective of business
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4. Amount of total capital

5. Proportion of capital provided by partners
6. Distribution of profit.
7. Partners salary
8. Accounts of partnership
9. Drawings of partners
10. Division of work
11. Admission of a new partner.
12. Retirement or death of a partner.
13. Duration of partnership business.
14. Mode of arbitration in case of need.
15. Dissolution of partnership.

Mode of dissolution of partnership:

1. Dissolution by agreement
2. compulsory dissolution
3. Dissolution on the happening of certain contingency
4. Dissolution by notice by a partner in case of partnership at will.
5. Dissolution by the court.

Advantages of partnership:
1. Easy to form
2. Greater capital
3. Combine ability and judgment.
4. Matching of efforts & rewards
5. Matching of ownership and control
6. Protection of minority interest
7. Flexibility in operation
8. Better public relations
9. Promptness in decision making
10. Sharing of loss
11. Benefits of divisional of labor
12. Indirect advantage of unlimited liabilities.

Demerits/Short comings of partnership:

1. Difficulty ion choosing a partner
2. Lack of good faith and harmony
3. Onerous /precarious/deplorable liability
4. Risks from the activities of co-partners
5. Non-transferability of interest
6. Lack of public confidence
7. Instability of business.

Position of a minor as a partner: A minor can’t become a partner because he

is not eligible to ent4r into a contract and without contract a partnership can’t be
formed. But a minor may be admitted to the benefits of a partnership firm, with
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the consent of all other partners. A minor may inspects the books of accounting.
His liability is not unlimited. His liability is limited to extent of interest; he has got
in partnership business. In case of need, creditors can simply claim his interests
in the partnership. On attaining maturity, within six months, he is to serve a public
notice specifying his opinion whether he ant to continue as a partner or not. If he
fails to do so within the specified time, it will be assumed that he wants to
continue as a partner. Under such a circumstance, he will be held liable for debts
and obligations of the partnership firm from the date of his admission to the
benefits of partnership. In other words, his liability will be given a retrospective
effect.

Dissolution by the court may happen on the following grounds-

1. Insanity of a partner
2. If a partner becomes permanently incapable to perform hi duties as a
partner.
3. If a partner is found guilty of misconduct in carrying on the business.
4. If a partner willfully commits breach of contract repeatedly and his conduct
is such that it not possible for other partners to carry on the business with
him.
5. If a partner transfers his interests in the firm to a third party.
6. If the court finds that the business of the partnership firm can’t be carried
on except at a loss.
7. Court can dissolve the partnership firm on any other grounds if it thinks fit.

Company form of organization

Or
Joint stock company

There are three basic and mostly common limitations in sole trader ship and
partnership. To remove these limitations, the idea of company/Joint stock
company has been introduced. The following steps are required to form a
company-
1. Discovery of an idea
2. Investigation and planning particularly financial planning.
3. Assembling resources
4. Preparation of documents like-
i. Memorandum of association
ii. Articles of association
iii. Prospectus
iv. Statement in lieu of prospectus

5. List of directors
6. Written consent of director to act as directors
7. Certificate from an advocate or from a Chartered
Accountant
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8. Submission of papers and documents to the Registrar of

Joint Stock Company.
9. Obtaining certificate of incorporation
10. Obtaining certificate of commencement (In case of public
Ltd. Company)

After all the above process is done properly then the company will get a birth cry.

Types of a company

1. Chartered company
2. Statutory company
3. Registered company

Chartered company: Before enactment of the company Act, the procedure of

forming a company was by a means of a royal chartered. At that time, promoters
had to apply to the king/Queen through the parliament for the necessary
permission/Approval. Company formed in this way was known as chartered
company. East India Company is an example of chartered company.

Statutory company: Statutory Company is formed by a special act of the

legislative body that is the parliament. Usually companies of these types are
formed for public utility services. The company is organized and managed by the
act which created. In our country this types of companies are popularly known as
corporation.
Registered company: Registered companies are those organizations which are
formed according to the company Act. In our country registered companies are
formed according to the company act of 1994. Registered companies may be of
two types such as-
1. Private Limited Company
2. Public Limited Company

It is to be noted that registered companies are popularly known as joint stock

companies.
A private limited company can start its business as and hen it gets certificate of
incorporation. But a public limited company can’t do sol. It is required to obtain
another certificate from the registrar of Joint Stock Company which is known as
certificate of commencement.
To obtain certain certificate of commencement a public limited company is to
ensure the following conditions such as-
1. Ensuring minimum subscription
2. Issuing prospectus
3. Issuing statement in lieu of prospectus

Minimum Subscription: Ensuring minimum subscription is the minimum amount

of capital required to start a business. A public limited company must be able to
 Page 21 of 27

collect minimum subscription. If it can’t collect minimum subscription it will not be

given the certificate of commencement by the registrar of the joint stock
companies. And it will not be allowed to start it business.

Issuing Prospectus: A prospectus is an open invitation done by a company to

the public at a large to purchase the share of that company. In other words,
prospectus is an open invitation done by a company to the general public to
purchase its shares. It is to be noted that prospectus should be informative, so
that it can attract the prospective investors. Any misrepresentation in the
prospectus is a punishable offence.

Statement in lieu of prospectus: It is to be noted that prospectus and

statement in lieu of prospectus are issued by a public limited d company. It is to
be noted that a private limited company can’t issue a prospectus or a statement
in lieu of prospectus. Because it can’t invite public to subscribe for it shares.
A public limited company issues a statement in lieu of prospectus when it
decides to collect its minimum subscription from it promoters.

Memorandum of Association: Memorandum of Association is the most

important document of a company. It is the charter of the company. It is a basic
document of the company. It defines the limits power of a company. In other
word, Memorandum of Association describes the permitted range of activities of
a company. It is a public document. It is the constitution of the company. It is the
foundation on which the structure of the company is based. It defines the relation
of the company with the outside world and its scope of activities. A company
can’t do any activity which is not mentioned in its memorandum of
Association. If a company does an activity which is not mentioned in its
memorandum of Association, it is known as ultra virus (beyond permission)
which is a punishable offence.

Contents of Memorandum of Association

Usually Memorandum of Association contains five clauses which are as follows:

1. Name Clause
2. Location Clause
3. Objective Clause
4. Liability Clause
5. Capital Clause

Name Clause: It contains the name of the company. The name should not be
similar to those companies which are already in existence that is registered in the
register of the registrar. Usually private Ltd. Company should use the word
private ltd and public ltd company should use the word ltd as the last part of their
names.
 Page 22 of 27

Location Clause: It should be the place where it will be operating. In other

words, the address under which it has been registered with the registrar of the
Joint Stock Company.

Objective Clause: The objective of a company should be broad and

comprehensive. It should cover its present and future plan. It is to be noted that a
company can’t do any activity which is not mentioned in its objectives. Moreover,
it is very difficult to change the objectives of a company.

Liability Clause: A company must mention its position in regard to its liability.
The liability of a company is limited usually to the extent of shares owned by a
share holder.

Capital Clause: The amount of capital should be mentioned clearly in the

memorandum of association. It is to be noted that capital of a company is divided
into various divisions. These divisions must also be mentioned clearly in the
capital clause.

Articles of Association: It is the second important document of a company.

Articles of Association contain information regarding internal Administration of a
company. Articles of association are subordinate to Memorandum of Association.
It can not contain anything which is contradictory to the Memorandum of
association. In case of conflict, between these two documents memorandum of
association will prevail.

Some contents of Articles of association

1. Number and values of shares.

2. Types of shares
3. Rules as to call of shares.
4. Rules as to transfer of shares
5. Benefit and rights associated with the shares
6. Forfeiture of shares
7. Rules as to dividend
8. Rules as to borrowing
9. Rules as to reserve
10. Rules as to Accounts and Audit.
11. Appointment of directors
12. Duties and responsibilities of directors.
13. Rules as to meeting of the company
14. Voting of the company
15. Winding up of a company

Difference between Memorandum of Association and Articles of

Association
 Page 23 of 27

The memorandum of Association defines and establishes relationship between

the company and the outsider. On the other hand, Articles of Association defines
the relationship between the members and the management of the company. Its
main purpose is to provide Rules and Regulations in regard to the internal
administration of the company.
It is to be noted that a public ltd. Company can use Table-A of the companies Act
as its Articles of Association. Table-A of companies Act contains Rules and
Regulations in regard to the internal administration of a company. But a private
ltd company can’t use Table-A as its Articles of
Association.

Saline features of a company

1. Voluntary Association
2. Creation of law
3. Separate legal entity
4. Perpetual Succession
5. Limited Liability
6. Transferability of shares
7. Rigidity of objectives
8. Diffusion of ownership
9. Separation of ownership from control

Voluntary Association: Company is an autonomous body which means it is a

self governing or self controlling body within the framework of companies Act.

Creation of law: It is not easy to form a company like that of sole trader ship or
partnership. Formation of a company requires many legal formalities and
obtaining of certificates according to the company Act. In short, a company is
created by law within the framework of company Act.

Separate legal entity: Company has got a legal existence apart from the
persons forming it. Company is like a person in the eye of law. It can hold
property, incur debts and can sue and can be sued as an individual. In short,
company is a person in the eye of law but it is mute and dumb. It is not an
ordinary person with flesh and blood. It can’t walk, it can’t talk, it can’t marry, it
can’t divorce, and it is imbecile but it is honest and innocent.

Perpetual Succession: Company has got a permanent life. Death, retirement,

insolvency of share holders doesn’t affect the life of the company. It can only be
dissolved by going through legal formalities according to the company Act.

Limited Liability: The most important feature of the company and its highest
advantage lies in the fact that the liability of the company is limited. In other
words, a share holder is liable usually to the extent of shares owned by him.
 Page 24 of 27

Transferability of shares: The shares of a company are easily transferable. It is

like a river which flows continuously without losing its identity.

Rigidity of objectives: The objective of a company is very much rigid, that

means they can’t be changed easily. A company must run according to the
objectives set in its Memorandum of Association.

Diffusion of ownership: A company invites public at a large to buy it shares. As

a result, people from all walks of life, for example- rich and poor, pessimist and
optimist, people residing far and near can become an owner of a company by
purchasing its shares.

Separation of ownership from control: A company is owned by a group of

people known as shareholders. It is not managed directly by the shareholders. It
is managed by a group of people who are popularly known as “Board of
Directors”. So it is clearly observed that in company form of organization there is
separation of ownership from control

Strength/Merits of a form of company organization:

1. Limited Liability
2. Huge capital accumulation
3. Efficient and effective management.
4. Better possibility of growth
5. Higher public confidence
6. Diffusion of risks
7. Economy of large scale operation
8. Combined ability and judgment
9. Stimulus to savings
10. Transferability of shares
11. Providing Job Opportunity
12. Continuous existence

Weak points/limitations of a form of company organization:

1. Formation is difficult
2. Sham democracy
3. Separation of ownership from control
4. Fraudulent Management.
5. Neglect of minority
6. Remote personal contact between management and workers
7. Nepotism and favoritism
8. Lack of initiative and motivation
9. Lack of prompt decision
10. Monopolistic control.

Cooperative society
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Cooperation means to get together to bring about a result. The other members of
the human body could not like the luxurious life of the belly and they entered into
a conspiracy to cut of its supplies. The hand refused to carry food, mouth to
swallow it, teeth to chew it. As a result, all of them began fake and fail. And entire
body started to pine away. The other members of the body then realized their
foolishness and they could understand the truth that we must cooperate with
each other for our survival.
Getting together may be of two types-
1. conscious cooperation
2. unconscious cooperation

It is to be noted that cooperative society always relates to conscious cooperation.

Cooperative society is an association of human being wherein persons of limited
and moderate means, voluntarily associate on a basic of equality for the
promotion of their common economic, social, moral interest. In other words,
cooperative society is formed by persons voluntarily for their mutual benefits.

Types of Cooperative Society

Cooperative Society may be divided into different classes from the point of view
of their formation. Some examples are shown below:

1. Cooperative Society according to functions-

a. Productive society
b. Auxiliary society

2. Cooperative Society according to legal status-

a. Registered Cooperative Society
b. Unregistered Cooperative Society

3. Classification on the basic of area of operation-

a. Urban Cooperative Society
b. Rural Cooperative Society

4. Classification on the basic of sector of economy-

a. Agricultural Cooperative Society
b. Small scale industry/ Cooperative Society
c. Retail and whole sale trade Cooperative Society
d. Service Trade Cooperative Society (Banking,
Insurance, Transportation)

5. Classification on the basis of its members***

a. Producers Cooperative Society
b. Consumers Cooperative Society
6. Classification on the basis of level-
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a. Primary Cooperative Society (Local)

b. Secondary Cooperative Society (Regional)
c. Tertiary Cooperative Society ( National)
d. Apex Cooperative Society ( International)

***Producers Cooperative Society: It is an association of the workers in a

locality for collecting production of goods. Usually society produces goods for the
consumption of its own members. It may also produce for sale at a profit to the
outsiders. Members provide the capital and they also manage the society.
Example: Society formed by Jute producers of Mymensingh
Society formed by Tobacco producers of Rangpur
We can also say that MILK vita is also an example of producer Cooperative
Society.
***Consumers Cooperative Society: It is an association of consumers. It
ensures the daily requirement of its members. The main purpose of consumers
Cooperative Society is to reduce the role played buy the middleman.
Example: Society formed by DU students
Consumers Cooperative Society formed by DU personnel.

Features/Principles of Co-operative Society:

1. People join Co-operative Society as human being. In a company, people join

as a capitalist.
2. Equality: Members of Co-operative Society join together on the basis of
equality. Let us recollect here, the worth saying of Mahkima Ghandi, he said
“There is swiftness in cooperation, no one is big or small here, it is equal to
the other”.
3. Voluntary Association of Co-operative Society: Co-operative Society is a
voluntary Association because members form such a society voluntarily.
4. Mutual Benefit: The main objective of a Co-operative Society is the mutual
benefit of its members. Members join together consciously for their mutual
benefits in a Co-operative Society.
5. Open membership: The membership of a Co-operative Society is open to
all. People from all walks of life can form such a society for their mutual
benefits.
6. One man one vote policy: In a company, number of votes depends on
number of shares. But in a Co-operative Society it does not depend on
number of shares. Here one man one vote policy is followed. Capital is not
allowed to have a controlling voice.
7. Patronage rebate: The rebate depends on the amount of use of society by
its members. It means if a member purchases more from a society, he will get
more discount. All for each and each for all is the sprit of Co-operative
Society. The driving force of Co-operative Society does not depend on any
individual interest rather it depends on group interest. Every member is very
much careful to protect the interest of the group members.
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Strength of Co-operative Society:

1. It renders services to its members only.

2. There is economy in operation as it is usually run by its
members.
3. It provides goods at cheap price, because the middle man
is not present there.
4. More selling is possible because its members are its
customers. It helps to solve unemployment problem to some extent.
5. Harmonious labor management relationship is there
because no servant master relationship is there. Members are equal on the
basis of their status.
6. It increases savings and consumption. It speaks for
democracy.
7. It is a platform for the weaker section of the community.
8. It teaches us virtues like self help, self confidence, honesty
and fellow feeling.

Weak point of Co-operative Society:

1. Lack of financial strength

2. Lack of business experience and managerial skills of members
3. Lack of sprit of cooperation in the long run.
4. Internal conflict and rivalry.
5. The area of operation of a Co-operative Society is very limited.
6. Large scale of business is difficult to organize under a Co-operative Society.
7. Co-operative Society cant face price fluctuations
8. Principles of Co-operative Society sound very high theoretically but practically
it is very difficult to implement.