UNIT - IV
Introduction to Market &
Pricing policies
Introduction to Market
It is a process of Buying and selling about commodity
Its includes various commodities
Its includes goods and services
Meaning & Definition
A place where buying and selling of a products is done.
A certain place where buyers and sellers need and exchange their goods and
services.
Market may be defined as an arrangement of establishing effective relationship
b/w buyers and sellers of the commodities.
Meaning & Definition (contd..)
According to professor. Chapman, “The term market refers to necessarily
to a place but always to a commodity and the buyers & Sellers who are in direct
competitions with one another”.
Features of Market
 Commodity
 Buyers and Sellers
 Area
 Relationship
 Service
Factors governing Market Structure
 Number of Sellers
 Number of Buyers
 Product differentiation
 Conditions of Entry in the Market
Classification of Market
Classification
On the basis of Area
On the basis of Time
On the basis of competition
Local Market
Very Short term
Perfect Competition
National Market
Short term
Imperfect Competition
International Market
Long term
Very Long term
1.Monopoly
2.Monopolisic
3.Duopoly
4.Oligopoly
Perfect Competition Market
 According to Bilas “The Perfect Competition is characterized by the presence of many firm. They
all sell identically same product, that is a price taker”.
 According to Ferguson “ Perfect Competition describes a market in which there is a complete
absence of direct competition among economic groups”.
Perfect Competition Market (Tabular format)
Price per unit
(Rs)
Demand for Sugar
(Kgs)
Supply for Sugar
(Kgs)
5
5000
25000
4
10000
20000
3
15000
15000
2
20000
10000
1
25000
5000
Perfect Competition Market (Diagram)
Y
D
25000
S
20000
15000
10000
D
S
5000
O
5
10 15 20 25
X
Perfect Competition Market (Diagram)
1.Change in Demand
Y
D1
D
E1
D2
P1
E
P
E2
D1
P2
O
D2
M2 M M1
D
X
Perfect Competition Market (Diagram)
1.Change in Supply
S2
Y
E2
S
E
P1
P
S1
S2
P2
E1
S
S1
O
M2
M
M1
X
Features of Perfect competition







Large number of buyers & Sellers
Homogeneous product
Freedom of Entry & Exit
Perfect Knowledge about Market
Perfect mobility
Absence of selling & Transport cost
Uniform price
Price / Output determination in perfect competition
1.Shot run
MC
Y
AC
AR=MR=PRICE=AC
C
MC= Marginal Cost
PRICE/COST
F
E
AC=Average Cost
AR=Average Revenue
MR=Marginal Revenue
E=Equilibrium
O
Q
OUTPUT
X
Price / Output determination in perfect competition
1.Long run
LMC
Y
LAC
AR=MR=PRICE=AC
P
MC= Marginal Cost
PRICE/COST
AC=Average Cost
AR=Average Revenue
MR=Marginal Revenue
E=Equilibrium
LMC=Long run Marginal cost
LAC=Long run Average cost
O
Q
OUTPUT
X
Differences b/w Perfect competition and Imperfect competition
Points of Difference
Perfect competition
Imperfect competition
Number of Sellers
Number of sellers is more than
sellers in the imperfect competition
Number of sellers is lesser as
compared to perfect market
Price
There is same price of a commodity
There are different prices of the
same commodity
Average Revenue
AR of all firms are the same
AR Revenue is different firms for
different prices
Factors of production
Factors of production are mobile
Factors of production are not
mobile
AR (price)
AR price is equal to MC
Price is greater than MC
Un limited of capacity In long run full capacity of the firm
is utilized
There is never full capacity of
utilized
Selling cost
Selling costs quite substantial
Selling costs are zero or nil
Differences b/w Perfect competition and Monopoly
Points of Difference
Perfect competition
Monopoly
Number of Sellers
There is large number of firms
There is single firm
Price Taker/maker
Firms are price taker
Firms are price taker
MR AND AR
Marginal revenue is equal to AR
AR is greater than MR
Situation of MR and AR
MR & AR are parallel to x-axis
Both MR & AR down word
sloping
Freedom
There is freedom of entry or exit
for firms
There is no freedom of entry or
exit for firms
MC and AR
MC=AR (Price)
MC<AR (price)
Price discrimination
Same price is charged from every
customer.
There is price discrimination
Monopoly Competition
 Monopoly form of market is most commonly found in public utility services such as transport,
water & electricity supply.
 Monopoly has been derived from the two Greek words “Monos & Polus” in this word
Monos means Single and Polus means Seller (single Seller).
 Monopoly is that market situation in which a firm has the sole right over production or sale of
product & it has no competition in the market.
Types of Monopolies
Basically 2 types
 Simple Monopoly
 Discriminating Monopoly
Another 2 types
 Private Monopoly
 Public Monopoly
Causes responsible for emergence of Monopoly
 Natural factors
 Legal factors
 Social factors
 Cost factors
 Heavy investment
Important features of Monopoly
 Single producer or seller
 No close substitute of the commodity
 No firm can enter the market
 Price Discrimination is possible
 Firm can adopt independent price policy
Price discrimination under Monopoly competition
Y
Revenue
MR
O
Quantity
AR
X
Monopolistic competition
 Monopolistic competition is mixture of monopoly and perfect competition.
 In this market situation both elements of monopoly and perfect competition
 Under this firm produce differentiated products which are close substitute but
not substitute
Features of Monopolistic competition
 Many sellers
 Freedom of entry or exit
 Elements of both monopoly and Perfect competition
 High cross elasticity of demand
 Independent price policy
Curve analysis
 Revenue Curve (under Perfect)
 Revenue Curve (under Monopoly)
 Revenue Curve (under Monopolistic)
Curve analysis (contd..)
Under Monopoly Market
Under perfect Market
Y
Under Monopolistic Market
Y
Y
R
R
R
E
E
E
V
V
V
E
E
E
N
N
U
U
e
e
O
X
Quantity
O
N
AR
U
MR
e
X
Quantity
AR
MR
O
X
Quantity
Oligopoly
 Oligopoly is an important form of imperfect competition
 Oligopoly means few and poly means sellers.
 Oligopoly refers only few sellers or firm.
Types of Oligopoly
 Discriminating oligopoly
 Pure oligopoly
Features of Oligopoly
 Few firms
 Nature of the product
 Inter dependence of firm
 Complex market structure
 Selling costs
Duopoly
 Duo means two and poly means seller
 It’s a two seller market
 It a second important market in the imperfect competition
Pricing methods
 It’s a part of value of commodity
 Price include profit+cost
 Its capacity of a product or commodity in the market
Meaning of Pricing
 Pricing is not an exact science. Pricing decisions, more often, are done by trial
error. Pricing include discount and concession benefit
 Pricing is an important exercise. Under pricing will result in losses.
Objectives of pricing
 To maximize the profit
 To increase sales
 To increase the market share
 To satisfy the customers
 To meet the competition
Pricing policies
 The firm bas to formulate pricing policies, particularly when it deals in multiple
products.
 The pricing policies are intended to bring consistency in the pricing pattern.
Types of pricing methods
 Cost based pricing methods
1. Cost plus pricing
2. Marginal cost pricing
 Competition based pricing
1. Sealed big pricing
2. Going rate pricing
Types of pricing methods (contd..)
 Demand based pricing
1. Price discrimination
2. Perceived pricing
Types of pricing methods (contd..)
 Strategy based pricing
1. Market skimming
2. Market penetration
3. Two part pricing
4. Block pricing
5. Commodity bundling pricing
6. peack load pricing
7. Cross subsidization pricing
8. Transfer pricing
Strategies of pricing
 Pricing matching
 Promoting brand loyalty
 Time- Time pricing
 Promotional pricing
 Target pricing
UNIT I11
INTRODUCTION TO
MARKETS
AND
PRICING STRATEGIES
What is a Market?
Market is defined as a place
or point at which buyers and sellers
negotiate their exchange of welldefined products or services.
Market
Market is any area over which
buyers and sellers are in close touch with
one another, either directly or through
dealers, that the price obtainable in one part
of the market affects the prices paid in
other parts. - Benham
MARKET CLASSIFICATION



Classification on the basis of Area covered
or location
Classification on the basis of time &
Classification on the basis of degree of
competition
Classification on the basis of Area covered or
location
Local market
National market
International market
Classification on the basis of time
very short period market
Short period market
Long period market
Classification on the basis of degree of
competition
Perfect market
Imperfect market
Imperfect market take several forms
Monopoly
Duopoly
Oligopoly
Monopolistic competition
Types of competition
Competition is of two types

Perfect competition

Imperfect competition
PERFECT COMPETITION
A market structure in which all
firms in an industry are price takers and
in which there is freedom of entry into
and exit from the industry is called
Perfect Competition.
The market with perfect competition
condition is known as perfect market.
FEATURES OF PERFECT
MARKET









Large number of buyers and sellers
Price taker
Homogeneous products
The firms are free to enter or leave the
industry
Perfect Mobility of factors of production
Perfect knowledge
No publicity cost
Uniform prices
AR curve is parallel to X axis
IMPERFECT COMPETITION
A market structure in which all the
firms in the industry are price makers
and in which there lies restrictions to
enter in to the industry is called
Imperfect Competition.
The market with imperfect competition
condition is known as imperfect market
FEATURES OF IMPERFECT
MARKET








Sellers and buyers
Nature of commodity
No uniform prices (price discrimination)
Entry is restricted
No perfect knowledge
Price maker
Publicity cost
AR curve is downward sloping [MR curve is
always below AR curve]







Features of MONOPOLY
Single seller & large number of buyers
No close substitutes
Entry restricted
Price discrimination
AR curve is downward slowing from left to
right
In monopoly firm & industry are one and
same. i.e., single firm represents the whole
industry.
Features of MONOPOLISTIC
competition



In this market many firms produce
differentiated products. (e.g. Anacin,
Disprin, Saridon)
Goods produced are close substitutes to
each other
No restriction to enter in to the market
Price & out put determination in
MONOPOLY

Monopoly is form of imperfect market.

No uniform prices (price discrimination)

AR curve is downward sloping [MR curve
is always below AR curve]
Cost & out put relationship
Units of
Output
Q
0
Total
Total
fixed
variable
cost TFC cost TVC
60
-
Total
cost
(TFC +
TVC =)
TC
Average
variable
cost
(TVC /
Q) AVC
Average
fixed
cost
(TFC /
Q) AFC
Average
cost
(TC/Q)
AC
Marginal
cost
MC
60
-
-
-
-
PRICE OUTPUT DETERMINATION
UNDER MONOPOLY
PRICING
Pricing is not an exact science, more often,
are done by trial & error.
Pricing is an important exercise, Under
pricing will result in losses and over pricing
will make the customers run away.
To determine price in a scientific manner it
is necessary to understand pricing methods &
procedures.
PRICING OBJECTIVES





Maximize profits
Increase sales
Increase market share
Satisfy customers
Meet the competition
PRICING METHODS
Cost Based Pricing Methods



Cost plus pricing (full cost or mark up)
Marginal cost pricing (break even or target profit
pricing)
Competition Oriented Pricing



Sealed bid pricing
Going rate pricing
Demand Oriented Pricing



Price Discrimination (differential pricing)
Perceived value pricing
PRICING METHODS
Strategy Based Pricing Methods










Market Skimming
Market Penetration
Two part pricing
Block pricing
Commodity Bundling
Peak load pricing
Cross Subsidization
Transfer pricing (internal pricing technique)
Limit pricing
Types of Business
Organizations
What is business?



An activity which is initiated with an
objective to earn profit is called business.
Business activity involves production,
exchange of goods and services to earn
profits
Business may be defined as “human
activities directed towards acquiring wealth
through buying & selling goods”.
L.H.Haney
Features of business
Entrepreneur
 Exchange of goods and services
 Profit motive
 Risk and uncertainty
 Creates utility
Utility may be
Form utility
Place utility
Time utility

Forms of business organizations
The following are forms of business
organizations Based on ownership
1.
Sole trader or proprietorship
2.
Partnership
3.
Joint stock company
4.
Cooperative society
Factors affecting the choice of form of business
organization


Before we choose a particular form of
business organization, let us study what
factors affect such a choice?
The following are the factors affecting the
choice of a business organization:



Easy to start and easy to close: The form of
business organization should be such that it should
be easy to start & close. There should not be hassles
or long procedures in the process of setting up
business or closing the same.
Division of labour: There should be possibility to
divide the work among the available owners
(specialization).
Large amount of resources: Large volume of
business requires large volume of resources. Some
forms of business organization do not permit to
raise larger resources. Select the one which permits
to mobilize the large resources.



Liability: The liability of the owners should
be limited to the extent of money invested in
business. It is better if their personal
properties are not brought into business to
make up the losses of the business.
Secrecy: The form of business organization
you select should be such that it should
permit to take care of the business secrets.
Transfer of ownership: There should be
simple procedures to transfer the ownership
to the next legal heir.



Continuity: The business should continue forever
and ever irrespective of the uncertainties in future.
Quick decision-making: Select such a form of
business organization, which permits you to take
decisions quickly and promptly. Delay in decisions
may invalidate the relevance of the decisions.
Personal contact with customer: Most of the
times, customers give us clues to improve business.
So choose such a form, which keeps you close to
the customers.



Flexibility: In times of rough weather, there
should be enough flexibility to shift from one
business to the other. The lesser the funds
committed in a particular business, the better
it is.
Taxation: More profit means more tax.
Choose such a form, which permits to pay
low tax.
These are the parameters against which we
can evaluate each of the available forms of
business organizations.
Factors affecting the choice of form of business organization
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Ease of formation and closure
Specialization/division of labor
Scope to raise large finances
Extent of liability
Transfer of ownership
Continuity
Pace of decision making
Personal contact with customers
Degree of flexibility
Degree of taxation
Sole trader
“ a sole trader is a person who carries on
business exclusively by and for himself, he is
not only the owner of the capital of the
undertaking, but is usually the organizer and
manager, takes all profits or responsible for all
losses”.
James Stephenson
Features of sole trader








Easy to start & close
Unlimited liability
High degree of flexibility
Quick decisions
Limited area of operations
Direct access with customers
No continuity
Business secretes can be guarded well
Advantages of sole trader form of business








Easy to start and easy to close
Personal contact with customers directly
Prompt decision-making
High degree of flexibility
Secrecy
Low rate of taxation
Minimum interference from government
Transferability
Disadvantages of sole trader form of business







Unlimited liability
Limited amounts of capital
No division of labor
No continuity
Inadequate for growth and expansion
More competition
Low bargaining power
Partnership


According to section 4 of Indian
partnership act 1932
“The relation between two or more persons,
who have agreed to share profits of the
business carried on by all or any one of
them acting for all”.
Features of partnership








Unlimited liability
Number of partners
Division of labor
Joint and several liability
Transfer of ownership
Dissolution
Implied authority
Utmost good faith and mutual trust
Partnership Deed


The written agreement among the partners
is called partnership deed.
Partnership deed contains terms &
conditions governing the working of
partnership
Contents of partnership
1.
2.
3.
4.
5.
6.
7.
8.
9.
Names and addresses of the firm and partners
Nature of the business proposed
Duration
Profit sharing ration of partners
The amount of salary or commission payable to the
partners
Procedure to value good will of the firm at the time of
admission of a new partner, retirement of death of a
partner
Allocation of responsibilities of the partners in the firm
Procedure for dissolution of the firm
Rights, Obligations and Liabilities of partners.
Kinds of partners






Active partner or working partner:
Sleeping partner
Nominal partner
Partner by estoppels
Partner by holding out
Minor partner


Active Partner: Active partner takes active
part in the affairs of the partnership. He is
also called as working partner.
Sleeping
Partner:
Sleeping
partner
contributes to capital but does not take part in
the affairs of the partnership.


Nominal Partner: Nominal partner is
partner just for namesake. He neither
contributes to capital nor takes part in the
affairs of business. Normally, the nominal
partners are those who have good business
connections, and are well placed in the
society.
On the strength of his name business may get
more credit in the market.

Partner by Estoppel: Estoppel means
behavior or conduct. Partner by estoppel gives
an impression to outsiders that he is the partner
in the firm. In fact he neither contributes to
capital, nor takes any role in the affairs of the
partnership.

Partner by holding out: If partners declare a
particular person (having social status) as
partner and this person does not contradict
even after he comes to know such
declaration, he is called a partner by holding
out and he is liable for the claims of third
parties. However, the third parties should
prove they entered into contract with the firm
in the belief that he is the partner of the firm.
Such a person is called partner by holding
out.

Minor Partner: Minor has a special status in
the partnership. A minor can be admitted for
the benefits of the firm. A minor is entitled to
his share of profits of the firm. The liability
of a minor partner is limited to the extent of
his contribution of the capital of the firm.
Right of partners








To take part in the management of business
To express his opinion
To inspect books of accounts
To share profits as per agreement
To receive interest on capital at an agreed rate of
interest from the profits of the firm
To receive interest on loans, if any, extended to the
firm.
To be indemnified for any loss incurred by him in the
conduct of the business
To receive any money spent by him in the ordinary
and proper conduct of the business of the firm.
Duties of the partners




To act honest and be faithful to other
partners.
To give correct information and true
accounts to fellow partners
Not to engage in any activity which
competes the firms business
Not to transfer share with consent of all
other partners.
Joint stock company


According to section 3 (1) of the Indian
companies act 1956 “a company means a
company formed and registered under this act.
It is like a artificial person created by the law
with perpetual succession and common seal.
Features of joint stock company











Artificial person
Separate legal existence
Voluntary association of persons
Limited Liability
Capital is divided into shares
Transferability of shares
Common Seal
Perpetual succession
Ownership and Management separated
Winding up
The name of the company ends with ‘limited’
1.
2.
Artificial person: The Company has no
form or shape. It is an artificial person
created by law. It is intangible, invisible and
existing in the eyes of law.
Separate legal existence: it has an
independence existence, it is separate from
its members. It can sue other if they are in
default in payment of dues, breach of
contract with it, if any. Similarly, outsiders
for any claim can sue it.




Voluntary association of persons: The Company is
an voluntary association of persons who want to
carry on business for profit.
Limited Liability: The shareholders have limited
liability i.e., liability limited to the face value of the
shares held by him.
In other words, the liability of a shareholder is
restricted to the extent of his contribution to the
share capital of the company.
The shareholder need not pay anything, even in
times of loss for the company, other than his
contribution to the share capital.



Transferability of shares: In the company form of
organization, the shares can be transferred from one
person to the other. A shareholder of a public
company can sell his holding of shares at his will.
However, the shares of a private company cannot be
transferred. A private company restricts the
transferability of the shares.
Common Seal: As the company is an artificial
person created by law has no physical form, it
cannot sign its name on a paper, so, it has a
common seal on which its name is engraved.
Every document or contract should be affixed by
the common seal, otherwise the company is not
bound by such a document or contract.



Perpetual succession: ‘Members may comes and
members may go, but the company continues for
ever and ever’ A. company has uninterrupted
existence because of the right given to the
shareholders to transfer the shares.
Ownership and Management separated: The
shareholders are spread over the length and breadth
of the country, and sometimes, they are from
different parts of the world.
To facilitate administration, the shareholders or
promoters elect Board of directors, which looks
after the management of the business.


Winding up: Winding up refers to the
putting an end to the affairs of the company.
Because law creates it, only law can put an
end to it.
The name of the company ends with
‘limited’: it is necessary that the name of the
company ends with limited (Ltd.) to give an
indication to the outsiders that they are
dealing with the company with limited
liability.
Formation of Joint Stock company

1.
2.
There are two stages in the formation of a
joint stock company. They are:
To obtain Certificates of Incorporation
To obtain certificate of commencement of
Business




Certificate of Incorporation: The certificate
of Incorporation is just like a ‘date of birth’
certificate. It certifies that a company with
such a name is born on a particular day.
The promoters have to file the following
documents, along with necessary fee, with a
registrar of joint stock companies to obtain
certificate of incorporation:
Memorandum of Association
Articles of association



(i)
(ii)
(iii)
(iv)
(v)
(vi)
Memorandum of Association: The Memorandum
of Association is also called the charter or
constitution of the company.
It outlines the relations of the company with the
outsiders.
If furnishes all its details in six clause such as
Name clause
Situation clause
Objects clause
Capital clause and
Liability clause
Subscription clause.


Articles of association: Articles of
Association furnishes internal rules
procedures governing the internal conduct of
the company.
The registrar of joint stock companies
verifies whether all these documents are in
order or not. If he is satisfied with the
information furnished, he will register the
documents and then issue a certificate of
incorporation, if it is private company, it can
start its business operation immediately after
obtaining certificate of incorporation.


Certificate of commencement of Business:
A private company need not obtain the
certificate of commencement of business. It
can start its commercial operations
immediately after obtaining the certificate of
Incorporation.
A public limited company can start its
operations only when the certificate of
commencement of Business is obtained
The following formalities have to be full filled
to obtain
certificate of commencement of Business
 Seek permission from SEBI (to issue
prospectus)
 File the prospectus with the registrar
 Collecting the minimum subscription

Allotting shares.

Advantages of Joint Stock Company







Mobilization of larger resources
Separate legal entity
Limited liability
Transferability of shares
Economics of large scale production
Continued existence
Institutional confidence
Professional management
Disadvantages of Joint Stock
Company





Ownership and management are separated
Very difficulty in formation of a company
High degree of government interference
Delay in decision making
Higher taxes
Cooperative societies
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A cooperative society is a society registered under the
cooperative societies act.
It is an association of the weak who come together to
uplift themselves from weakness to strength through
organized efforts.
The philosophy of the cooperatives movement is to
improve their economic conditions through collective
efforts.
The cooperative societies Act 1904, provided a legal
basis for the formation of cooperative credit societies
in the villages and urban areas for granting loans to
their respective members.
Features of cooperative societies
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It is a voluntary association
Separate legal existence
Compulsory registration
Open membership irrespective of caste,
religion etc
Service motive, the objective is not to make
profits.
Public enterprise
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It is a form of organization where government
participates in the business.
when the government takes part in the business
public enterprise is set up.
There are certain areas such as defense,
infrastructure, heavy industries and so on
where private participation is not possible, and
hence government had to enter in the business.
Objectives of Public enterprise
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To accelerate the rate of economy growth
To speed up industrialization
To increase infrastructural facilities
To promote balanced regional development
To increase employment opportunities
To promote economic welfare.
Forms of Public enterprises
Departmental undertaking
Public corporation
Government company
Departmental undertaking
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This is the earliest from of public enterprise.
Under this form, the affairs of the public enterprise
are carried out under the overall control of one of the
departments of the government.
The government department appoints a managing
director (normally a civil servant) for the
departmental undertaking. He will be given the
executive authority to take necessary decisions
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The departmental undertaking does not have a budget
of its own. As and when it wants, it draws money
from the government exchequer and when it has
surplus money, it deposits it in the government
exchequer.
Examples for departmental undertakings are Indian
Railways
Department of Posts
All India Radio
Doordarshan
Defense undertakings like DRDL, DLRL, ordinance
factories, and such.
Features of Departmental undertaking
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Under the control of a government department: It is
subject to direct ministerial control.
More financial freedom: The departmental undertaking can
draw funds from government account as per the needs and
deposit back when convenient.
Like any other government department: The departmental
undertaking is almost similar to any other government
department
Budget, accounting and audit controls: The departmental
undertaking has to follow guidelines underlying the budget
preparation, maintenance of accounts, and getting the
accounts audited internally and by external auditors.
Public corporation
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A public corporation is defined as a
‘body corporate created by an Act of Parliament or
Legislature and notified by the name in the official
gazette of the central or state government. It is a
corporate entity having perpetual succession, and
common seal with power to acquire, hold, dispose
off property, sue and be sued by its name”.
Examples of public corporation are
Life Insurance Corporation of India,
Unit Trust of India
Industrial Finance Corporation of India,
public corporation
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It is also called as statutory corporation
It can formulate its own budget
It can recruit staff at different levels based on
the necessary specialization
It has total freedom in planning,
management, & control of its operations
Government company
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Section 617 of the Indian Companies Act1956
defines a government company as
“any company in which not less than 51 percent of
the paid up share capital is held by the Central
Government or by any State Government or
Governments or partly by Central Government and
partly by one or more of the state Governments and
includes a company which is subsidiary of
government company as thus defined”.
Features of government company
1.
Like any other registered company: the
government company has separate legal
existence. Common seal, perpetual
succession, limited liability, and so on.
The provisions of the Indian Companies
Act apply for all matters relating to
formation, administration and winding up.
2. Shareholding: The majority of the shares are held by
the Government, Central or State, partly by the Central
and State Government's, in the name of the President of
India.
3. Directors are nominated by the government.
4. Subject to ministerial control: Concerned minister
may act as the immediate boss. the minister issue
directions for a company and he can call for information
related to the progress and affairs of the company any
time.
UNIT - V
BUSINESS &
NEW
ECONOMIC ENVIRONMENT
Introduction to Business
It’s Should be a economic activity
It’s a Process of commodities
It’s Relating to society
It’s Concerned production, purchases, sales, goods and services
It must have profit motive
Meaning and Definition
Business units have their own separate & Independent entity.
It may be managed & controlled by private entrepreneur.
According to w.o wheeler Business unit is a concern company or a enterprise
which buyer & seller, it own by one person or group of persons & it managed
under specific self or operating policies.
Choices of Business Organizations
Easy to start Easy to close
Division of labor
Large amount of resources
Liability
Secrecy
Transfer of ownership
Management & Control
Continuity
Quick decision making
flexibility
Factors of Business Organization
Availability of Raw materials
Transport facilities
Communication facilities
Financial facilities
Insurance facilities
Ware house facilities
Forms of Business Organization
PRIVATE SECTOR
PUBLIC SECTOR
JOINT SECTOR
Forms of Business Organization
PRIVATE SECTOR
Sole trader
Partnership firm
Joint Hindu family
Co operative society
Joint stock company
Forms of Business Organization
PUBLIC SECTOR
Departmental organizations
Public corporation
Government companies
Forms of Business Organization
JOINT SECTOR
Private sector
Public sector
Characteristics of Private sector
Profit motive
No state participation
Private ownership
Independent Management
Characteristics of Public sector
Government control
Service motive
Separate owner
Accountability
Characteristics of Joint sector
Joint share capital
Combined Management
Mixed ownership
Sole proprietorship
According to Peterson “Ti has no legal existence a part from the proprietor
himself he is the firm.
It s also called sole trade, single ownership, individual ownership one man
business.
Features of Sole proprietorship
Easy formation
Limited Resources
Un limited liability
Freedom of choices of the business
Prompt decisions
Advantages of Sole proprietorship
Easy formation
Prompt decisions
Secretary
Economy
Personal touch
Freedom of good will
Disadvantages of Sole proprietorship
Limited resources
Limited managerial efficiency
Unlimited liability
Hasty decisions
Temporary existence
Evaluation of Sole proprietorship
Merits
Maintain the control of the business
Services of all specialists
Independent decisions
Demerits
Lack of responsibilities
Increase in expenses
Risk will not to be shared
Partnership Firm
According to Indian partnership act 1932- It is relation between persons
who have agreed to share the profit of the business carried on by all or any one
of them acting for all.
Features of Partnership firm
Agreement b/w two & more persons
Legal business
Profit motive
Unlimited liability
Utmost good faith
Mutual agency
Evaluation of Partnership firm
Merits
Easy formation
More resources & Talents
Legal protection to minor
Personal relation
Lesser risk
flexibility
Evaluation of Partnership firm
Demerits
Unlimited liability
Limited resources
Lack of quick decisions
Temporary life
Slackness
Lack initiative
Registration of partnership firm
The Name of the firm
Place & address of the firm
Names of those places where the firm intends to work
The names & full address of the all partners
The duration of the firm
Dates of which various partners joined the firm
Status of Minor partner
Right to share profit to the firm
Right to share the assets of the firm
Right to understand the books of accounts
Right to file suit in the court
Co-operative Societies
According to Seligman – “Co-privation in its technical scene means
abandonment of competition in distribution & production & elimination of
middleman of all kind”.
According to Horace – “Co-operative is an association of person as usually of
limited means, who have voluntary joined together to achieve a common
economic end through the formation of democratically controlled business
organization”.
Features of Co-operative Societies
Registered society
Membership
Capital
Transfer of shares
Reserve fund
Mutual help
Government facilities
Equality of vote
Voluntary organization
Service motive
Types of Co-operative Societies
Consumer co-operative societies
Producers co-operative societies
Credit co-operative societies
Miscellaneous co-operative societies
Types of Co-operative Societies
Merits
Easy formation
Limited liability
Voluntary membership
Democratic management
Permanent life
Demerits
Limited capital
In efficient management
Mutual conflict
Absence of secrecy
No govt. control
Joint Stock Companies
According to Hancey – “A Joint stock company is a voluntary association of
persons for profit, whose capital is divided in to transferable shares and ownership
is required for its membership”.
Types of Joint Stock Companies
On the basis of
Incorporation
On the basis of
Liability
Charted companies
Un limited
On the basis of
Ownership
 Public
 Private
Limited
Statutory companies
 Government
 Holding
Registered companies
1.
By shares
2.
By Guarantee
 Subsidiary
 Foreign collaboration
 Deemed
 Other
Evaluation of Co-operative Societies
Merits
Permanent existence
Limited liability
Availability of large capital
Transferability of shares
Economies of large scale
Tax relief
Demerits
Excessive legal formalities
Fraud by promotes
Speculation by shares
Lack of secrecy
Evils of large scale business
Public Enterprise
Public enterprises or Public sector enterprises are owned, managed &
controlled by the government.
If may be central government, State government or local body individually or
Jointly.
The whole or major part of capital is contributed by the govt.
Forms of Public Enterprise
Departmental undertaking
Statutory Corporations
Government Companies
Features of Govt. Departmental undertaking
Department of the government
Government Treasury
Staff from services
Full Government control
Meeting government needs
Features of Statutory companies
Separate entity
Government control
Appointment of employees
Free from government budgeting
Managed by board of directors
Features of Government companies
Formation
Separate legal entity
Source of capital
Management
Autonomy
Changing business environment to post liberalization scenario
Attention to world market
Improvement in work culture
Focus on capital / investment
Downsizing and right sizing
Awareness and stress on quality and R&D
Scale economies
Brand building
Focus on business