BUSINESS BASICS
Types of Business
BUSINESS MAY BE UNDERTAKEN BY DIFFERENT TYPES OF
ORGANISATION WHICH IS BRIEFLY DESCRIBED BELOW
• SOLE PROPRIETORSHIP UNDER WHICH AN INDIVIDUAL
CONTRIBUTES CAPITAL. HE EARNS PROFIT OR BEARS THE
LOSSES HIMSELF AND HIS LIABILITY IS UNLIMITED.
• PARTNERSHIP FIRM:
PARTNERSHIP IS AN AGREEMENT BETWEEN TWO OR MORE
PERSONS WHO HAVE AGREED TO SHARE PROFITS AND LOSSES
OF THE BUSINESS CARRIED ON BY ALL OR ANYONE ACTING
UPON ALL
FEATURES OF PARTNERSHIP FIRMS
• THERE SHOULD BE AN AGREEMENT BETWEEEN TWO OR MORE
PEOPLE WHO WILL BE CALLED AS PARTNERS.
• CAPITAL WILL BE INVESTED IN THE AGREED PROPORTION.
• PROFIT/LOSS WILL BE SHARED IN THE AGREED PROPORTION.
• LIABILITY OF THE PARTNERSHIP FIRMS WILL BE UNLIMITED.
• THE RELATION OF PRINCIPAL AND AGENT WILL BE EXISTING
AMONG THE PARTNERS.
COMPANY
A company can be defined as “an artificial person created by law,
having a separate legal entity, with perpetual succession and
common seal.“
Features of a Company
• Separate legal existence
• Perpetual succession
• Limited liability
• Transferability of shares
• Common seal
• Separation of ownership and control
• Voluntary association
• Artificial legal person
Kinds of Company
• Statutory Company: These companies are formed by a
special Act passed either by Central or State Legislatures.
Eg: RBI, SBI, IDBI
• Government Companies: A company which not less than
51% of the share is held by Central or State Government.
• Foreign Companies: A company which is incorporated
outside India and has a place of business in India
• Registered Company: Companies formed by registration under
the Companies Act as known as the Registered Company.
Types of registered companies are
Company Limited by shares,
Company limited by guarantee
Unlimited company.
• Registered Companies can be further divided into
• Private Companies: Private Company can be defined as
company which has a minimum paid up capital of Rs.1 lakhs
or such higher capital as may be prescribed and which by its
articles:
• Restricts the right of its members to transfer shares
• Limits the number of members to fifty, excluding present
and past employees of the company who are the members
of the company .
• Prohibits any invitation to the general public to subscribe
for its shares or debentures.
• Prohibits any invitation of acceptance of deposits from
other than members, directors or their relatives.
Public Company means a company which
.
is not a private company
• has a minimum paid up capital of Rs. 5 lakhs or such
higher paid up capital as may be prescribed.
• is a private company which is a subsidiary of a company
which is not a private company .
A Public Company needs minimum seven persons for its
registration.
Incorporation of company
Steps involved
• Ascertainment of availability of the proposed names of the
company.
• Application for license.
• SEBI’s approval to the draft of prospectus.
• Preparation of Memorandum of Association.
• Preparation of Articles of Association.
• Preparation of prospectus.
• Fixation of underwriters,brokers,solicitors, auditors and
bankers to the issue.
• Obtaining Certificate of incorporation
• Obtaining of Certificate for commencement of business.
SHARE CAPITAL
Share Capital
Share capital of the company is the capital contributed by
the shareholders. This is the real capital of the company.
The share capital is divided into shares which is normally
at Rs.10 per share.
Types of Share Capital
• Authorized Capital
• Issued Capital & Subscribed Capital (Under-subscribed /
Over-subscribed)
• Called up Capital
• Paid Up Capital
Types of Shares
Preference shares: these are the shares which carry the following
preferential rights over other classes of shares:
Preferential right in respect of fixed dividend.
Preferential right to repayment of capital in the event of
company’s winding up.
Types of Preference shares
• Cumulative Preference shares
• Non Cumulative Preference shares
• Participating Cumulative Preference shares
• Non Cumulative Preference shares
•
•
•
•
Convertible Cumulative Preference shares
Non Convertible Cumulative Preference shares
Redeemable Preference shares
Non Redeemable Preference shares
ISSUE/SUBSCRIPTION OF SHARES
• Oversubscription of shares: When a company receives
application for a larger number of shares than offered by it to
public for subscription.
• Undersubscription of shares: When a company receives
application for a lesser number of shares than offered by it to
public for subscription.
• Calls in advance: When the call amount is received in
advance.
• Calls in arrears: When the call amount is not fully received.
• Issue of shares at a discount: when the shares are issued at a
price less than the face value
• Forfeiture of shares: means termination of membership and
taking away of shares because of default in payment of
allotment and/or call money by a shareholder.
• Surrender of shares: means the return of shares voluntarily by
the shareholder to the company for cancellation.
• Rights shares refer to the first option given to the existing
shareholders to purchase additional issues of shares.
Underwriting of shares
Underwriting responsibility that the shares or debentures offered
to the public for subscription will be fully subscribed for and
in the even of any failure, the underwriter will subscribe for
the un subscribed shares or debentures. The underwriter is
paid a commission which cannot exceed 5% of the issue price
in case of the shares and 2.5% of the issue price in case of the
debentures
• Buyback of shares: means that the buying of shares by the
company from its existing shareholders. This is subject to
certain condition that the company may purchase out of the
following :
• Free reserves.
• Securities premium account.
• Proceeds of any shares or other specified securites.