Business studies 11

Unit 1 Introduction to Business
1.Concept of Business
2.Characteristics of Business
3.Component of Business
4.Functions and objectives of business
5.Importance of Business
6.Social responsibilities of Business

Concept of Business
Human beings are continuously engaged in some activity or other in order to satisfy their
unlimited wants. Every day we come across the word ‘business’ or ‘businessman’ directly or
indirectly. Business has become essential part of modern world. However, Business is an
economic activity, which is related with continuous and regular production and distribution
of goods and services for satisfying human wants.
All of us need food, clothing and shelter. These needs are the basic human needs. We also
have many other household needs that are to be satisfied in our daily lives. We meet these
requirements from the shopkeeper. The shopkeeper gets from wholesaler. The wholesaler
gets from manufacturers. The shopkeeper, the wholesaler, the manufacturer are doing
business and therefore they are called as Businessman.
Lewis Henry defines business as, “Human activity directed towards producing or acquiring
wealth through buying and selling of goods.”
In short, all those economic activities which are concerned with earning profit and creating
wealth through the production and exchange of goods and services is called business.

Characteristics of Business
1. Human activities:
Business cannot be performed without human efforts. The
main aim of business is to produce goods and services to fulfill
the requirement of human being internally associated in the
production or the consumers.
2. Economic activities:
It is concerned with earning profits and generating wealth,
which are measured in terms of money. Economic activities
include production of goods and services, distribution of goods
and services and the benefits generated from them.

3. Production of goods and services:
The main feature of business is to produce goods and services.
Business is concerned with the production of goods and services to
the society. In this process we get goods from shopkeeper, shopkeeper
gets from wholesaler. The wholesaler gets from manufacturers. The
shopkeeper, the wholesaler, the manufacturer are doing business to
earn profit.
4. Risk and uncertainty:
There is no business if there is no risk but accidents never knock the
door. In future anything may happen. So risk is a possibility that
losses may occur. Introduction of new product, change in government
policies, change in customer taste and preference etc are the risks

5. Profit motive:
Business has the main aim to earn profit. To get maximum profit
revenue of business should be maximized. Profit generation is vital
for business survival and expansion. However, profit should be
earned through legal and fair means and in ethical manner. Profit is
the reward for the investors.
6. Continuous process:
Continuous process means to provide goods and services by the
business to the customers continuously and regularly. In business,
the exchange of goods and services is a regular feature. A
businessman regularly deals in a number of transactions and not just
one or two transactions.

7. Satisfaction of customers:
The aim of business is to satisfy human demands by producing
quality of goods and also to supply right product in right time
at right place to meet the right needs. Quality goods should be
provided at reasonable price.
8. Finance:
Finance is known as “life blood” of business. Business needs
investment of capital and to run smoothly. For regular and
continuous business finance is needed, finance includes
purchase of raw materials, payment of wages, assets of
business and so in.

9. Organizing:
It means integration of all activities. Co-
ordination is very important for organizing.
Allocation of limited resource, assigning job,
authority and responsibility also comes under
organizing.

Components /Scope of business
Business covers wide area and all economic activities. It also includes all types of industry and
commerce. Industries are related to the activities of production of goods and services and commerce
is related to distribution of goods and services from producers (industries) and customers.

Types of industries
1. Genetic industries:
Genetic industries are also called heredity industries that involve
in production of goods from plants and animals to earn profit.
Those industries which produce medicines from herbs, perfume
from flowers, milk and meat form animals are called genetic
industries
2. Extraction industries:
Industries that are involved in extracting the resources from the
sources of nature are called extraction industries. It supplies the
raw material to other industries. These types of industries are
generally based in mining, fishing etc.

3. Construction industries:
Those types of industries which are
related to construction of different
infrastructures are called construction
industries. They basically construct road,
bridges, houses and so on . It helps in
development of country

4. Manufacturing industry:
It is related to produce finished goods. It processes raw materials into
finished goods. There are mainly 4 types of manufacturing industry they are :
A. Analytical industry:
It is a industry which produces goods by analyzing raw materials in
scientific way. In this industry various goods ate purchased by single
material. For example dairy product (milk, ghee, butter, ice cream from
milk).
B. Processing industry:
The industry which is involved for production of goods and services by
using different steps or stage is called processing industry. For example
for processing cotton into thread the processes of spinning, weaving,
dying, bleaching is used.

C. Synthetic industry:
The industry which is involved for using various raw
materials to produce a single good is called synthetic
industry. For example to produce cement limestone, red soil,
chemicals etc are used.
D. Assembling industry:
The industry which is involved for production of goods by
combining different parts which are already
manufactures by different industries is called assembling
industry. For example TV, computer, mobile, watch
manufacturing industries.

Commerce:
It is related with buying, selling and exchanging of goods and
services. It is related to economic activities to earn profit. The
role of bridge between manufacturer and customer is played by
commerce
Types of commerce:
Trade:
Trade is related to buying and selling goods and services for
earning profit. It supplies quality goods with reasonable price.
Those activities which are related to buying, selling and
distributing goods in market is known as trade

Types of trade
1. Home trade:
Home trade means national, domestic or internal trade i.e. Buying and selling within
a nation. In home trade both buyer and seller are from the same nation. In home trade
task is simple than foreign trade. It is classified into two types they are.
A. Wholesale trade:
When trader buy goods in bulk amount and resell to retail in small volume is called
whole sale trade. In this trade goods are bought from manufacturer and are sold to
retail. It acts as a middleman between manufacturer and retailer. It deals with special
product
B. Retail trade:
When trader buy goods in bulk amount and resell to customer in small volume is
called retail trade. In this trade goods are bought from wholesaler and are sold to
customer. It acts as a middleman between wholesaler and customer. It deals with
various types of product.

2. Foreign trade:
Foreign trade means international, global, external trade i.e. Buying
and selling is between two or more nation. In foreign trade buyer and
seller are from different nation. In foreign trade task is difficult than
home trade. It is classified into three types they are.
A. Import:
A good or service brought into one country from another is called
import. Along with exports, imports form the backbone of
international trade. The higher the value of imports entering a country,
compared to the value of exports, the more negative that country’s
balance of trade becomes. Buying goods from India, china is called
import.

B. Export:
A good or service sold to another country from one is called export.
Along with imports, exports form the backbone of international trade.
The higher the value of exports exiting a country, compared to the value
of imports, the more positive that country’s balance of trade becomes.
Exporting herbs, garments to Germany, India is the example of export
C. Entry port:
The trade in which a country purchases the goods from one country and
sells it to another country is called entry port trade. The goods bought
from a country is not used for self benefit but is rather exported to
another country. For example India buys herbs from Nepal and sells it to
china.

Auxiliaries of trade:
It supports or assists the trade activities. It helps to run business
smoothly. It helps for transfer goods from production area to
consumption area. It creates time and place utility.
1. Transportation:
It transfers goods from one place to another. There are many means of
transportation that can assist business and trade activities. They are air
travel. Bus route, sea route, rope route etc. It delivers right product and
right time in right place. It creates time utility
2. Warehouse:
It is one of the auxiliary of trade. It helps to protect and store goods until
customers uses them. It provides the goods hen demand is created. It
also helps to provide unseasonal goods.

3. Insurance:
It acts as nutrition to trading activities. It helps to reduce risk and
uncertainties. It is a contract between organization and their future. The
system that takes the responsibility of compensation of certain risk is
called insurance system.
4. Banking:
Banks are the financial institution that supports for traders. It provides
loan, investment, credits facilities to the trading companies. It helps for
expansion and flexibility of trade.
5. Advertising:
It is a supporter to trade. It provides information to customer about
goods and services. Its aim is for creation of demand. It also acts as a
promotional tool.

Functions of business
1.Organizing function:
It helps to organize all the activities. It organizes men, Machine, materials,
money and methods. It performs different activities and all activities are
organized properly
2.Financing function:
It is related to money. It helps in maximum utilization of resources. Bank is a
financial company. All the activities related to money are defined in this
function.
3.Production function:
The main function of business is to produce goods and commodities and
transfer them to right place at right time. It helps to complete needs of human
beings.

4.Distributing function:
It helps in the transfer of goods/services from producers
to customers. It transfers right product at right time in
right place.
5.Personnel function:
It deals with human activities. It is related o the
utilization of people to perform different activities. It is
also called staffing function. It helps in management of
resources.

6.Managing function:
It helps in management of business. It includes planning,
organizing, controlling, coordinating, decision making and so
on. It helps making activities of people effective.
7.Research and development function:
It helps in improvement of product. It works under the taste,
desire and preference of the customers. In it various
marketing, strategies, skills, knowledge and experts are used.
Research and development is the main way to achieve profit
with customer satisfaction

Objectives of business
A) Economic objectives
The economic objectives are related to earning profit through customer
satisfaction. It is to provide quality goods with reasonable price. Economic
objectives can be defined in terms of money too. Some of the major economic
objectives are:
1.Earning profit:
The main economic function of business is earning profit. It includes supply of
quality goods and services to gain profit. T is done for the survival of business
and it is also reward for the investors. It is required for expansion if business
2.Production of commodities:
Production of goods and services are to be done according to the customer
demand and desired. Supply of commodities is also to be done according to
needs of customer.

3.Creation of market:
Business can provide service only if demand of customers are fulfilled.
When production is made according to the requirements of the customers
then there is creation of new customer which creates new market. Creation of
market helps in enlargement of production and promotes business expansion
too
4.Technical improvement:
Use of modern technology is the base for successful operation o business.
When modern tools, techniques and technologies are used then there is
production of quality goods. Changes are the basic factor for flexibility and
changes in terms of working methods is the main objective of business
5.Innovation:
New ideas, methods, men, tactics and technology create the ways of better
production and services. It helps in survival of business too.

B) Social objectives
Business is operated in society and use resource available in society. This is
known social objectives. It fulfills social expectation. All business operations are
established in society, grow in society and fulfill all its expectation in society.
Some of the major social objectives of business are:
1.Supply quality food:
It provides better quality of goods and services by charging reasonable price. It
provides right product at right time in right place. It involve in fulfillment of
social objective.
2.Utilizing resources:
A business house can’t continue its operation without utilizing the resources
available in the society. But there must be proper utilization of resources and no
any destruction in name of utilization. Maintenance of environment is must.

3.Providing employment:
There are many people in the society. Human needs are the basic need
for operation of business. Many personnel are require dot fulfill the
job of a business. Therefore a business house without nepotism and
favoritism must employ the human from the society and provide
employment opportunities to the optimum level.
4.Avoiding social stigma:
Big industries are the cause of environmental pollution. Constant
noise, smoke from the industries produces noise and air pollution. This
is the social objective of the business to control pollution and
wastages. There must be establishment of industries far from
residential areas.

C) Human objectives
Human objectives are performed by different human activities. It is related
with satisfaction of employees, investors and other personnel. Some of the
major human objectives are
1.Satisfaction of employees:
The success of business depends on employees’ performance. It provides
better working environment to satisfy the employees. It provides salary, bonus,
provident funds and job security. It also provides financial and non financial
supports.
2.Payment to creditors:
Creditors means supplier who supply goods and services. It is the objective to
make duly payment. Satisfaction of creditors helps in further expansion of
business.

3.Satisfaction of customers:
Production of goods and services are to be done according to the
customer demand and desired. Supply of commodities is also to
be done according to needs of customer. It provides better
quality of goods and services by charging reasonable price
4.Satisfaction of shareholder:
It returns to investors the amount they have invested in business
in the name of profit earn. They should be given reasonable
returns of their investments. The objectives are to provide
reasonable rate of return to shareholder. It also provides the
information about plan of business.

Importance of business:
1. Economic development:
Business is important for economic development. Concept of true business is
used in industries and commerce. Industries use men, money, materials, methods
and machines and help to create employment. Commerce is the concept of
exchange goods/services at national and international levels. It helps to earn
foreign currency by export business too. Therefore, business helps in economic
development
2. Utilizing natural resources
Every country has diverse natural resources. Business must be directed towards
proper and efficient utilization of resources. Business utilizes the resources like
water, minerals, ores and so to achieve its own goals. But resources must be
utilized without exploitation.

3. Creation of utility:
Business creates place and time utility. It helps to satisfy the
needs of human beings. Financial utility is to be maximized.
4. Employment:
Business helps to provide job to people. It provides various
types of managerial or technical job. Many types of
business houses like hotels, industries, and transport
companies are established for business which helps to solve
the unemployment problem.

5. Revenue generation:
Business is the source of revenue generation. It pays
taxes, royalties, fees, custom duties, and other things
which help to generate government revenue.
6. Earning foreign currency:
It is the source of earning foreign currency. Business
can earn foreign currency through exporting the
goods and services.

7. Development of country:
Development of industries helps to utilize natural resources, create time
and place utility, provide employment opportunities, help in revenue
generation and earning foreign currency. All these things help in the
development of the economy of the country and the economic development
is the major factor that can develop the nation to a wider sense.
8. Provide investment opportunities:
Establishment of new industries and commercial fields are the major source
of investment. Further the profit owned by the investors after the successful
operation of business helps to ensure larger amount of saving which can be
invested in the newer future for pension of current business or
establishment of newer business. Thus business helps in providing
investment opportunities.

9. International relations:
Business is the medium for development of national and
international relationship. It helps to maintain harmonious
relation among the various countries. There can be mutual
understanding and better diplomatic relationship among the
countries. Import and export is the major base for international
relationship.
10. Self sufficiency:
It helps in achieving countries and individuals self sufficiency. It
also helps in improving the living standard of people by reducing
the dependency.

Social responsibility of business
The major responsibilities of business are:
A. Employees
I. Provides better working environment to satisfy the employees
Ii. . It provides salary, bonus, provident funds and job security.
Iii. It also provides financial and non financial supports.
Iv. Enriches employees’ performance.
V. Provide training to develop their skills.
Vi listen and handle their complaints and issues
B. Creditors:
I. Make duly payment
Ii .satisfaction of creditors with proper relationship
Iii. Helping them to create their own market.
Iv. Entrusting the right of proper selling of goods and services of their goods
V. Copyright and other legal rights.

C. Customers/consumers:
I. Better quality of goods and services by charging reasonable price
Ii. Supply of commodities is also to be done according to needs of customer
Iii. Helps to achieve needs and wants
Iv. Provide right goods at right place in right time.
V. Provide proper pre-sale and post sale information
Vi. Provide proper information about new products
D. Investors:
I. True information about earning power of business
Ii. The objectives are to provide reasonable rate of return to shareholder.
Iii. Provide the information about plan of business.
Iv. Ensure safe investment
V. Promote utilization of resources without leakage
Vi. Ensure transparency of business activities

E. Government
I. Increase in tax i.e. Increase in government revenue
Ii. Fulfill demand of government
Iii. Non violation of rules and regulation of government.
Iv. Avoid unfair trade
V. Provide essential information to the government.
Vi. Solve national problems like natural calamities.
Vii. Avoid malpractice like black marketing, adulteration, smuggling
F. Society
I. Good environment
Ii. Employment opportunities generation.
Iii. Socio cultural understanding
Iv. Apply anti pollution measures.

Unit 2 Evolution of Business
1.Evolution of industry and commerce
2.Considerations before starting a Business
3.Requisites of business success
4.Business environment : concept and components
(internal and external)

Evolution of business
The historical development of business and its processes of
development up to now is called evolution of business.
Business was not evolved in one or two days. It can be studied
in two ways.
Evolution of industry
It is dated with the evolution of human beings. It is as old as
human civilization. It was developed through various stages.

A. Hunting stage
In ancient times people lived in caves and fulfilled their basic needs
of food an clothes through hunting the wild animals in forest. They
were not civilized and hovered here and there. Their needs were
also limited.
B. Pastoral stage
The stage of further development of human from barbarism is
called pastoral stage. This stage is basically called the age of
keeping animals. Animals were used for milk, meat, wool, skin and
so on beyond food and clothes. The wants went on increasing and
development also started.

C. Agriculture stage
Slowly, human beings became a little bit
civilized and got idea about farming and keeping
cattle. This stage was the major stage of
development of industry. In this stage people
started to do agriculture and live in river banks.
They started to cultivate crops and domesticate
the animals. Development of agriculture is
divided into 5 stages they are

I. Handicraft stage:
It is the beginning of industrial era. It is the stage of development of
industry. Simple hands made tools were also developed. Local resources
were the major source of raw materials. In the beginning of this stage
people were only limited to their own needs but later own surplus
products were used to exchange the goods with the roods basically called
barter system. Products were exchanged with product and market was
starting to develop. Capital invested was minimized.
II. Guild stage:
It was the beginning of organized activities. Organized groups of traders,
craftsmen, artisans used to collect various resources from the local areas
and produced goods using them.

III. Age of domestic system
After the stage of guild the age of domestic system
was initiated. Crafts men were not able to fulfill the
unlimited and increasing wants of people by using the
limited resource. So, use of hands and tools for
producing quality goods was introduced. People were
employed and were paid according to the units of
goods produced. However salary was very low
because the value of money was much higher at that
time.

IV. Industrial revolution:
It began with the replacement of old system. It is the turning point of modern
industrialization. Domestic system of production was replaced by large scale
factory system. There was invention, innovation .development of scientific
techniques which encouraged mass production and distribution. There were
numerous job opportunities. Salary was increased and quality was maintained.
V. Present age:
Today’s modern era with industrialization, use of technology, computerization,
modernization robotizing is the most developed stage of industries. Goods are
being produced meeting the demand of large number of people. There are huge
number of industries producing large number of goods to meet large amount of
needs and wants by providing many jobs and salaries.

5. E-commerce stage
This is the current stage of development.
In this stage, electronic commerce has
developed. Commerce is getting on-line
through computers and internet. Sellers
and consumers are linked electronically.

Evolution of commerce:
It is related with the distribution and exchange of
goods and services. It is related with
transportation, communication, Banking,
warehousing import export, trade and so on. It
links between producer and consumer. It
gradually develops along with the development of
human and society. There are many stages of
evolution of commerce

A. Self sufficiency stage
It is the initial stage of commercial
evolution. The wants are very limited. In this
stage people produced goods themselves to
satisfy their own basic needs. They survived
through hunting and gathering foods. There
was no market. There was thus no exchange
of goods. They were independent.,

B. Barter system:
The wants of people increased with development
of society. There was both advancement and
civilization of market. Self sufficiency stage didn’t
remain with advancement. They started to
exchange the goods they produced with goods that
other people produced to fulfill other requirements.
This is called barter system. There was exchange
of goods and services with goods and services.

C. Origin of money:
From the beginning of barter, people felt that there was
difficulty in deferred payment, commerce, divisibility and
place of exchange .That’s why money was originated.
People developed coins but there was difficulty in large
payment. So paper money was introduced. Money was
used as medium of exchange, Measurement of value,
deferred payment, redistribution of income and wealth,
credit system and many more. After the origin of money,
national and international trade started.

D. National economy:
In this stage, buying and selling of goods and
services was done within the country. The local
market converted into regional and city market.
There was division of work and specialization. Then
goods were produce not only for local people but
also for national market. There was also
development in banking, advertising, insurance,
warehouse and other auxiliaries,.

E. International economy:
International economy s called global economy. The
globalization of trade introduced to speed up the activities
of trade in the international level. It is not possible for a
country to produce all demanded goods according to needs
and wants. Therefore the countries started to import the
goods and other countries exported. Slowly, import and
export was introduced in all counties. Trade started to
extend in world market. WTO (world trade organization)
was also established to control the level of import, export
and evils associated with them.

Consideration before starting the business
Business means the art of being busy. The aim
of business is to earn profit. The higher number
of industries has increased competition among
the investors. Before starting the business,
promoters must consider following factor in
order to survive and expand the business.

1. Identification of business
The first factor that businessman must consider
before starting a business is the identification of
business. He has to decide about what type of business
he wants to start. Identification and selection of
particular business is very important for proper
involvement and profit. It helps to give personal
knowledge, interest, reduced level of risk, size and other
values. It helps in expansion of business and earning the
maximum profit.

2. Detailed investigation and research
Business cannot be started only by imagination.
Proper and detailed study about the scope of
business is very vital. It must consider present
and future risks and competition. Market survey
must be maintained. Investigation and study
about raw material, finance, customer, market,
employees and interest must be done.

3. Forms of business organization
There are different natures of business. The
types of business vary with the differences in
capital, interest, merits, demerits, risk sizes
size and so on. It must be chosen from
various different forms of organization like
sole proprietorship, partnership firm, joint
stock and so on.

4. Provision of capital
Capital means finance. Finance is the blood of business.
Business cannot be established without sufficient
capital. Volume of capital to be invested is dependant
upon size of business firm. Source of capital must be
properly taken into consideration. Capital is categorized
into two groups.
I. .Fixed capital i.e. Land, building, furniture etc.
Ii. Working capital i.e. Raw material, transactions
etc.

5. Location of business
Location means place where the business establishes.
It is very difficult to migrate from location of
business after it has been set up. Location of business
where it has been established must have better
transportation. Communication, water, electricity and
other utilities. Production and distribution must have
low cost and sales must be high to maximize the
profit. Selection of location must be perfect.

6. Selection of staff.
Business deals with human activities. It is related to the
utilization of people to perform different activities. It is
also called staffing function. It helps in management of
human resources. Human activities are the major source
to determine the efficiency of business. Staff should be
selected according o the nature of business. Success of
business depends upon selection of staff. Capable,
skilled, experienced and honest employees must be
selected.

7. Office equipment:
Office is the place from where all
administrative work of business has to
be done. Therefore, office needs proper
equipment's, machines and resources.
For accurate, speedy performance
office setup must be good.

8. Government policy:
Government makes business policy
for the welfare of people. It must
follow the policy of government. It
must know all the legal rules and
regulation formulated by the
government.

Requisites of business success:
A. Establishment of objectives:
There must be proper establishment of objectives.
Objectives are the aim of business. It determines
the scope of future work. Objectives must be
clearly defined. It provides guidelines for doing
work. Objectives are defined for long term and
short term.

B. Proper planning and policy:
Proper planning classifies the works
done. Planning and policy formation
should be done in efficient way. There
must be clear set of policies and
programs to complete the work. It helps
in minimizing risk and maximizing profit.

C. Proper location layout and size of business:
Proper location layout and size of business is
needed for progress of business. Layout means
planting the business in such a way that
production work can be carried out with
efficiency and true manner. It helps in
determination of proper size of business.
Location also should be suitable. It must attract
the market.

D. Sound organization:
There must be division of work among
employees. There must be effective use of
human sills and knowledge. Organization
should help to answer various business
problems. It ensures team work. It must
ensure best communication channels for
proper decision making.

E. Separate finance:
Finance is the blood of business. Business
can’t be established without sufficient capital.
Volume of capital to be invested is dependant
upon size of business firm. Source of capital
must be properly taken into consideration. It
must be flexible. It should be suitable for both
long term and short term business.

F. Efficient management:
Its main objective is to manage all
activities of human and other
resources. It must perform right job
at right time in right place. It must
use effective management technique.

G. Employees morale:
The success of business depends upon employee’s
morale. The business should be used with intensity of
employees. Employee should be encouraged, motivate.
They could complete their work heartedly,
H. Modern technology:
It brings/ uses modern technology. It provides new idea
and methods in production process. There should be
proper labor and capital adjustment.

I. Research:
It helps in improvement of product. It works
under the taste, desire and preference of the
customers. In it various marketing,
strategies, skills, knowledge and experts are
used. Research and development is the main
way to achieve profit with customer
satisfaction

Business environment
Business establishes, grows or operates and dies in environment. It
exchanges resources I environment. It collects inputs i.e. Man money,
materials, machines etc. And provides output i.e. Goods and services in
the environment. Environment means surrounding. Business environment
defines as a force that affects on organizational performance. It includes
internal an eternal factors. It provides opportunities and threats.
1. Internal environment
It is defined as all the forces or conditions that are available within an
environment that affects on organization and business. It is also known as
controllable factors because business can control them. It includes

I. Employees
Business hires employees. It is the major internal factor. It works inside the
business. It can be controlled by the business. Employees differ in skill,
knowledge, morality, and attitude and so on. When managers and employees have
difference in goals an beliefs then conflict may arise. The task of management is to
divide the work and assign the work to the suitable employee and handle the
conflict.
Ii. Shareholders:
Management deals with many shareholders. Shareholders have the right of
ownership, power of management and voting right. The actual management of
organization is carried out by elected representative of shareholders jointly known
as boar of directors. Boards of directors have the responsibility of overseeing the
management of organization. It plays the major role in formation of objectives,
policies, strategies of the organization as well as their implementation.

Iii. Organization structure:
It is located inside the organization. The arrangement of
various facilities, pattern of relationships among the various
department, responsibility, authority and communication is the
organization structure. It also included specialization and span
of control.
Iv. Organization culture:
The sets of values that help the members to understand what
organization stand for how it does work, what it considers,
cultural values of business forces of business and so on. It
helps in direction of activities.

2. External environment (PEST)
All the forces and condition that cannot be controlled by the business is
called external environment. . It is also known as uncontrollable factors
because business can’t control them. It is located outside the business. It
affects on organizational performance.
It includes:
I. Economic environment.
It indicates the condition of economy in which business organization
operates. It has continuous and great impact on business. It includes
national income, production, inflation, savings, investment, price,
government activities. Business person must have constant watch on this
factor.

Ii. Political or legal environment
It is defined as rules and regulations determined
by the government. Business must fulfill demand
of government. There should be non violation of
rules and regulation of government. Business
should avoid unfair trade and should provide
essential information to the government.

Iii. Social environment.
Business must have good environment where a business can be
established neatly. Business also helps in employment opportunities
generation. There should be socio cultural understanding and
application of anti pollution measures.
Iv. Technological environment:
It defines about the methods available for converting resources into
product or services. It transforms inputs into output. Inputs means
material, capital, man, machine. It affects on business. It helps to
change the level of job, skill, and product and so on. There can be
innovation, development of scientific techniques which encouraged
mass production and distribution.

Unit 3 Forms of Business
Organizations
Sole trading concern
1.Concept of sole trading concern
2.Characteristics of sole trading concern
3.Merits and demerits of sole trading concern
4.Registration and renewal of sole trading
concern in Nepal

Sole trading concern
Sole proprietorship or individual proprietorship is the simplest,
oldest and In some respect, the most natural form of business
organization in private sector. In this form a single individual is
solely responsible for providing the capital, for bearing the risk
and for overall management and control of the enterprise. In is
the one man show owned, managed and operated by one person.
According to professor Henry, ” the individual proprietor is the
form of business organization at the head of which stands an
individual as one who is responsible, who directs its operations
and who alone runs the risk of failure.”

Characteristics
1. Single ownership:
A sole proprietorship is wholly owned by one individual. The individual supplies the
total capital from which his own wealth or from borrowed funds.
2. One man control:
The proprietor alone takes all the decisions pertaining to the business. He is not
required to consult anybody. Ownership and management are vested in a person.
3. No legal entity:
A sole proprietorship has no legal entity separate from its owner. The law makes no
distinction between the proprietor and the business. The assets and liabilities of the
business and its proprietor are not different.

4. Unlimited liability
Proprietor is liable for all the debts of the business. In case the assets are
insufficient to meet the debts, the personal property of the proprietor can
be attached.
5. No profit sharing:
The proprietor is all alone entitled for all the profits and the losses of the
business. He bears the compete risk and there is nobody to share the
risks, workload or any profit or losses.
6. Small size
The scale of operation carried out by sole proprietor is generally small.

Merits
1. Easy to start and dissolve:
A sole proprietorship can be setup easily and quickly. No legal formalities and
expenditures are involved in the establishment of a proprietorship. There is no
need to associate others or to enter any agreement. Only a license may be needed
in special cases. The owner can start business operations as and when he desires.
Similarly, a sole proprietorship can be closed down very easily and quickly.
2. Motivation to work:
The proprietor is all alone entitled for all the profits and the losses of the
business. He bears the complete risk and there is nobody to share the risks,
workload or any profit or losses. There is direct relationship with efforts and
reward. There is an incentive to work hard. The proprietor is motivated to make
the best possible use of his skills and resources to maximize the profits.

3. Quick decisions:
The sole proprietor is completely free to take all decisions
and to implement the. He doesn’t need to consult or seek
others approval. Quick decisions and prompt actions are
helpful to improve the efficiency of business operations.
4. Independent control:
The proprietor alone takes all the decisions pertaining to
the business. He is not required to consult anybody.
Ownership and management are vested in a person. There
is no governmental intervention in day to day activities.

5. Business secrets:
The sole proprietor can keep the secrets to himself and
these secrets are not known to competitors or others.
6. Personal contact:
A sole proprietor is in a position to maintain intimate
contacts with his customers and employees. He can
enter to the requirements of each and every customer.
Close personal touch increases the competitive strength
of the business.

7. Flexibility:
A sole proprietorship is small in size and has a simple management functions.
Therefore, it can be adapted easily to suit the changing conditions of the market.
The line of business can be easily changed or modified.
8. Economy:
The management of sole proprietorship is inexpensive. As sole proprietor himself
is the manager, the cost of management is very low. Borrowing capacity is high
owing to the unlimited personal liability of the owner.
9. Social utility:
Sole proprietorship provides an opportunity for gainful self employment for the
people with limited money. It offers a way of earning an honorable living for
those who do not want to work under other. It also facilitates equitable
distribution of income and wealth.

Demerits
1. Sole proprietorship has limited capital
2. Sole proprietor only uses his ideas and innovation capacity. So
there is limited managerial ability
3. Sole proprietor must work more to earn more profit.Higher
profit generation is important. So, there is dull and
monotonous work.
4. Death of sole proprietor causes death of sole proprietorship.
5. There is no specialization in decision taking. So there can be
chances of taking wrong decisions
6. There is low investment resulting in limited areas of operation.

Registration and renewal of sole trading concern in Nepal
Sole trading concerns are registered under private firm registration act 2014.
Procedures of registration
1. Apply for registration.
Application form is needed to be filled up and apply for registration. The application
must include the following things
A. Name of firm
B. Address of the firm
C. Objective of the firm
D. Name and address of owner including father’s and grandfather’s name.
E. Other particular things.
Rs. 5 and attached citizenship are required.

Capital Registration fee Renewal fee Registration fee
Up to 1,00,000 Rs 700 Rs 100 Rs 700
From 1,00,001 to
3,00,000
Rs 2100 Rs 125 Rs 2100
From 3,00,001 to
5,00,000
Rs 4100 Rs 150 Rs 4100
From 5,00,001 to
10,00,000
Rs 7600 Rs 200 Registration fee
Up to 10.00,001 to
50,00,000
Rs 10100 Rs 250 Rs 700
Above 50,00.000 Rs 15100 Rs 300 Rs 2100
2. Deposit registration fee:
Registration fee may or may not be deposited in the Nepal Rastra Bank. Voucher is needed for the deposit
of registration fee. It should be enclosed in application form.

3. Receiving the certificate of registration
Concerned department receive the application. Then an authorized
officer will examine. It satisfied then the form is approved and legal
business can be operated.
Procedure of renewal
The entire registered firm should be renewed each year within 35 days
of time period. He should fill application for renewal with renewal fee
to the concerned department. This amount is dependent upon the
capital invested.

Effect of non-registration and non renewal
If the sole trading concern is operated without
registration and renewal then it is considered illegal. It
can’t get loan from any financial institution. This
department will charge from Rs 5 to Rs 50 as fee. The
effect of non-registration and non renewal is if the is
not registered and renewed then fee is charged. If same
crime is done for 3 times, additional Rs 10 is to be paid.
If it is committed gain hen sol trading concern is closed
and no any concern can be established under his name.

Partnership firm
1.Concept of partnership firm and partners
2.Characteristics of partnership firm
3.Differentiate between sole trading and partnership
4.Merits and demerits of partnership firm
5.Types of partners
6.Types of Partnership
7.Rights and duties of partners
8.Partnership deed : meaning and contents
9.Registration and renewal of partnership firm in Nepal
10.Dissolution of partnership firm in Nepal

Concept of partnership
Partnership is a form of business organization which as
evolved to overcome the shortcomings of sole proprietor.
As the size of business expands, one person is unable to
provide the necessary capital and managerial skills.
Therefore, two or more than two persons form a
partnership to carry on business by pooling their financial
resources and managerial skills. Thus, partnership is an
extension of sole trading concern.

Characteristics of partnership firm
1.Unlimited liability
insufficient to meet the debts, the personal property of the proprietor can be
attached.
2.Difficulty in transfer of shares
Partners cannot transfer their share without the consent of other partners. There
may be conflict when done otherwise.
3.Higher capital
Many partners invest capitals and there is higher flexibility in capital because
new partner can be agreed to be associated and investing can be increased.

4.Reduced risk
Partners have right to take part in management. They have the duty to
bear risk with proportion too.
5.Association of two or more persons
It must be two or more person to enter into contract. Association of
two or more persons can only create partnership. In association of two
or more persons, maximum and minimum number of persons is not
mentioned.
6.Agreement
It is set up by agreement between partners. It must be written and
legal agreement so that it will reduce dispute.

Sole trading concern Partnership firm
1. low capital 1.high capital
2. one man management 2. two or more partners
3.quick and prompt decisions 3. delay in decisions
4. business secrets can be maintained 4. difficulty in maintaining business secrets
5. risk and losses are to be born by a single person 5. there is reduction of risk and losses because they
are shared with proportion of capitals by partners
6.no chances of conflict 6. higher chances of conflict
7. lack of managerial ability 7. harmonization of managerial ability
8.chances of wrong decisions 8. specialization in decision making
Differences between sole trading and partnership firm

Merits of partnership firm
1.Easy to start and dissolve
A partnership firm can be setup easily and quickly. There is not much legal
formalities and expenditures are involved in the establishment of a partnership.
Similarly, a partnership firm can be closed down very easily and quickly.
2.Higher capital
Many partners invest capitals and there is higher flexibility in capital because
new partner can be agreed to be associated and investing can be increased.
3.Higher innovation
Many partners use their own ideas and innovation capacity. So there is unlimited
managerial ability

4.Reduction of work load
Partners mustn’t work more to earn more profit. Higher profit generation
is important. So, there is no dull and monotonous work. In case of
monotony, health problem to any partner then other partners can help
and reduce absenteeism.
5.Better decision
There is specialization in decision taking. So there can be less chances of
taking wrong decisions
6.Harmonization of different ability
There are many partners in this firm and many partners have different
skills, knowledge and capacity

7.Credit facility
In this liability of partners becomes unlimited. It will help to arrange more capital.
And that’s why it has more credit. It improves more financial function
8.Close supervision
There is effective management and effective supervision. They look the business
themselves.
9.Flexible
There can be change in management, capital and production. This change can be
made by mutual agreement of partners
10.Reduced risk
Partners have right to take part in management. They have the duty to bear risk with
proportion too.

Demerits of partnership firm
1.No Business secrets
The partner can keep the secrets to himself but these secrets can
be known to competitors or others when there is conflict among
the partners
2.Uncertain existence
Death of any partner can sometime cause death of entire firm.
Dishonesty, conflict and lack of resource also can collapse the
firm

3.No Personal contact
A partner can’t be in a position to maintain intimate contacts with his customers and
employees. He cannot be able enter to the requirements of each and every
customer. Then there is no close personal touch which decreases the competitive
strength of the business.
4.Unlimited liability
insufficient to meet the debts, the personal property of the proprietor can be
attached.
5.Delay in decisions
The partnership firm is completely not free to take all decisions and to implement
the. The partners need to consult or seek others approval. Delay in decisions
reduces the efficiency of business.

6.Danger of conflict
Many persons are the owners of partnership firm. There can be
misunderstanding and jealousy among them and these cause problems in
operation of business and profit making
7.Difficulty in transfer of shares
Partners cannot transfer their share without the consent of other partners.
There may be conflict when done otherwise.
8.Limited resources
There is low investment, may be higher than in sole trading but not
sufficient for large scale production resulting in limited areas of
operation.

Types of partners:
1.General partners
They provide capital and play active part in business
2.Inactive partner:
They provide capital to business and share profit and loss to firm but do not take part in management and day to
day activities.
3.Nominal partners:
They act only as a partner and give their name to the firm. They do not take part in management and day to day
activities and share profit and loss to firm
4.Secret partner:
Their membership is kept secret to the outside world. They can take part in management
5.Partner in profit only:
They share profit only but no loss is shared. They are generally inactive but have relation in money and
goodwill.

6.Minor partners:
They do not enter into contract and can’t be made partner in real sense but if
there is consent of all partners then their partnership can be taken into
consideration
7.Retrieval partners:
Even if this partner leaves the firm other partners continue to operate business.
They are liable for all debtor and share profit too. But they do not take part in
management and day to day activities.
8. Incoming partners:
If there is consent of all partners then their partnership can be taken into
consideration. They aren’t held liable for debt before approval of all partners.

Types of partnership
1. General partnership
Partners have equal rights and all of them participate in management. It is jointly
involved to operate the business. There are the types of general partnership.
A. Partnership at will
It continues up to time of partner. It is dissolved when all partners want
dissolution. They can leave the firm at will. There is no fixation of duration of
firm
B. Particular partnership
It is established for definite workers at definite period. When task is finished
partnership is dissolved in particular partnership.

2. Limited partnership
A limited partnership is that type of partnership in
which there is one or more partners having limited
liability. The liability of limited partners is limited
to their capital invested. They can’t participate in
the managerial activities but they can advice. They
also don’t have right to make decision and close
the firm

Rights and duties of partners
Rights of partners
1.Every partner has right to take part in planning, implementation and control activities of the
firm
2.Every partner has right to express his opinion, give advices and view on any subject
3.Every partner has right to inspect and enquire about the account and ask for the duplicate
copy
4.Every partner has right to share the profit according to the agreement
5.Every partner has right to get interest on loan and advances
6.Every partner has right to use the properties of the firm but only for the benefit of the firm
not or personal use
7.Every partner has right to leave the firm with consent of remaining partner
8.Every partner has right to have interest on the property but should not sell the property to
anyone without the consent of other partners
9.Every partner has right to dissolve the firm with the consent of other partners

Duties of the partners
1. It is the duty of every partners to share the loss occurred in a firm
2.It is the duty of every partners to work honestly and faithfully and
work for common benefit of all partners and firm
3.It is the duty of every partners to work and make decisions within
the authority
4.It is the duty of every partners to maintain the financial status of
the firm.
5.It is the duty of every partners to stop the leakage in firm. There
should not make any secret profit.
6.It is the duty of every partners to compensate on the loss and
damage of firm.

Partnership deed
The written agreement duly signed by the partners is
known as partnership deed. It is also known as
agreement or article of partnership. It is the document,
which mentions the rules and regulations, way o
operation of management and way of control of
activities of the firm. It is also required at the time of
registration. It helps to minimize conflict and
misunderstanding among the partners.

Content of partnership deed
1.Name and address of the firm
2.Name and address o the partners
3.Nature of rim’s business
4.Duration of partnership
5.Amount of capital invested by the partners.
6.Interest on capital
7.Division of profit
8.Salary and commission
9.Right and duties of partner
10.Admission and removal of partnership
11.Valuation of capital and goodwill at the time of admission, death and
retirement of partners
12.Accounts and audits
13.Dissolution of partnership.

Registration and renewal of partnership firm in Nepal
Partnership concerns are registered under partnership act 2020.
Procedures of registration
1. Apply for registration.
Application form is needed to be filled up and apply for registration. The application must include the
following things
A. Name of firm
B. Address of the firm
C. Objective of the firm
D. Name and address of partners and address of the partners
E. Type of partnership
F. Amount of capital invested by each partner
G. Method of sharing profit and loss
H. Duration of business.
I. Other particular things.: necessary documents, registration fees, copy of citizenship

Capital Registration fee Renewal fee
Up to 1,00,000 Rs 700 Rs 100
From 1,00,001 to
3,00,000
Rs 2100 Rs 125
From 3,00,001 to
5,00,000
Rs 4100 Rs 150
From 5,00,001 to
10,00,000
Rs 7600 Rs 200
Up to 10.00,001 to
50,00,000
Rs 10100 Rs 250
Above 50,00.000 Rs 15100 Rs 300
2. Deposit registration fee
Registration fee should be deposited in the Nepal Rastra Bank. Voucher is needed for the deposit of registration fee. It should be
enclosed in application form. If the firm is commercial then recommendation letter from Nepal chamber of commerce is
required.

3. Receiving the certificate of registration
Concerned department receive the application. Than an
authorized officer will examine. It satisfied then the form is
approved and “certificate of registration” is issued and then
legal business can be operated.
Procedure of renewal
The entire registered firm should be renewed each year
within 35 days of time period. He should fill application for
renewal with renewal fee to the concerned department. This
amount is dependant upon the capital invested.

Effect of non-registration and non renewal
If the partnership firm is operated without registration and
renewal then it is considered illegal. It can’t get loan from any
financial institution. This department will charge from rs 5 to
rs 50 as fee. The effect of non-registration and non renewal is
if the is not registered and renewed then fee is charged. If same
crime is done for 3 times, additional rs 10 are to be paid. If it is
committed gain then partnership firm is closed and no any
concern can be established under any partners’ name.

Dissolution of partnership firm in Nepal
1.Existing partners can dissolve the firm by another agreement
2.Dissolution by notice, any partner can dissolve the firm by giving notice to all
the partners
3.If any partner is unable to take responsibility of partnership deed.
4.If partner do not pay the amount payable to the firm
5.If shares are transferred without consent of other partners
6.If right of partners is taken over by the court of compensation
7.Liable for negligence
8.Death of partner
9.Dissolved by concerned department
10.Commits illegal work or violate the rules of the firm
11.If not renewed in given time.

Joint stock company
1.Concept of joint stock company
2.Characteristics of joint stock company
3.Merits and demerits
4.Types of company
5.Differentiate between public and private company
6.Main documents for incorporation of joint stock company :
memorandum, articles, prospectus
7.Incorporation of joint stock company in Nepal
8.Company meeting : preliminary general meeting, annual general
meeting, extra ordinary general meeting
9.Agenda and Resolution
10.Winding up of company

Meaning of Joint Stock Company
Joint stock companies first came into being in the 18th century in Britain, and were mainly
concerned with foreign trade. Initially, the organizational form was viewed with suspicion, it
being supposed that it encouraged managerial efficiency and corruption. A corporation,
chartered by the state in which it is headquartered is considered by law to be unique entity,
separate and apart from those who own it. A corporation can be taxed; it can be sued; it can
enter into contractual agreements. The owners of a corporation are its shareholders. The
shareholders elect a board of directors (BOD) to oversee the major policies and decisions.
The company has a life of its own and does not dissolve when ownership changes.
A company is a voluntary association, an incorporated association, an artificial person
created by law, having a common seal and perpetual succession. Shareholders are owners of
the company but management lies in the hands of BOD. Company means a company
registered under an act.
According to L.H. Haney: “A joint company is a voluntary association of individual for
profit, having its capital divided into transferable shares the ownership of which is the
condition of membership.”

Characteristics of Joint Stock Company
1.Compulsory incorporation:
A company is a voluntary association of persons formed and incorporated
under the existing Corrine law. Only when it gets certificate o
incorporation it comes into existence as a body corporate.
2.Artificial person:
A company is an artificial person created by law. It is created by legal
process and not by natural birth. Even though it has no natural personality,
it has legal personality. Therefore, it can enter into contracts, sue and can
be sued, own property, appoint employees and borrow money like any
other natural person.

3.Common seal:
Since a company is an artificial person having no
physical features like a natural person, it cannot sign.
Hence every company by law must have a common
seal in which its name is engraved. The common seal
can serve as its signature. The common seal is fixed on
all important documents and contracts which is
witnessed by signature of two directors and
countersigned by secretary where ever required. The
common seal is kept under the custody of directors.

4.Perpetual succession:
Since every company has separate existence from its members,
directors and employees, their death, insolvency or insanity will
not affect its life and existence. Men may come and they may go
but a company remains forever. It can be wound up under the
provision of the act.
5.Limited liability:
Usually the liability of members of a company is limited to the
extent of uncalled or unpaid shares held by them. Their personal
property cannot be seized to meet the company’s liability beyond
the above mentioned liability.

6.Share capital:
The capital required by the company is raised by the issue of its shares. The
share is a document that acknowledges the ownership of the company. The
members who hold the share of a company can transfer its ownership to
any other person, without the company’s permission.
7.Separation of ownership and capital:
In company organization the ownership and management are separate. The
shareholders who are the owners do not take active part in the everyday
affairs of the company. Instead they elect their representative known as
directors, who with the help of managers and employees manage the
company. Thus, there is division of labor and specialization.

8.Legal entity:
Since the company is created by law, it has separate legal
existence compared to its members. Therefore the members
cannot be personally held responsible for the acts of company
and company cannot be held liable for the acts of the members.
9.Large membership:
The Company is owned by a large number of members-
maximum of 50 in the case of private limited company and
unlimited number of member in the case of public limited
company.

Advantages of joint stock company
1.Large capital:
A company can collect huge capital for the business through
shares and debentures, public deposits, loans etc. Due to huge
capital the company can conduct business on a large scale.
2.Limited liability:
Usually the liability of members of a company is limited to the
extent of uncalled or unpaid shares held by them. Their personal
property cannot be seized to meet the company’s liability beyond
the above mentioned liability.

3.Continuity and stability:
Death, insolvency or insanity of any member of the
company will not affect its life and existence. Men may
come and they may go but a company remains forever.
It can be wound up under the provision of the act.
4.Professional management:
The Company appoints experienced, competent and
expert to manage the business. Their services lead to
managerial and administrative efficiency and accuracy.

5.Economies of scale:
A company operates on a high scale and so it
enjoys economies in production, distribution,
management and financing.
6.Bargaining power:
Compared to other forms of organization, a joint
stock company is a strong power in buying as
well as in selling of goods because of its large
scale production.

7.Legal status:
Since the company is created by law, it has separate legal
existence compared to its members. Therefore the members
cannot be personally held responsible for the acts of company
and company cannot be held liable for the acts of the members.
8.Large membership:
The Company is owned by a large number of members-
maximum of 50 in the case of private limited company and
unlimited number of member in the case of public limited
company.

9.Transferability of shares:
Shares of Joint Stock Company, especially public companies, are freely
transferable. A member who wants to sell his shares can easily do so in the stock
market. This encourages the public and other to invest in shares.
10.Employment:
Joint Stock Company provides employment to a large number of people directly
and indirectly. This leads to higher national income for the country and higher
living standard of living for the people.
11.Government revenue:
Joint Stock Companies provide revenue to the government in the form of taxes
charged directly and indirectly.

12.Research and development:
Joint Stock Companies undertakes R&D continuously thus
bringing about new and improved products which benefits
people.
13.Economic development:
Because of Joint Stock Companies there is all round
development of trade, commerce and industry. The society in
general gains the benefit of the industrial development. Large
capital, government revenue, economic development etc. are
the advantages of Joint Stock Companies.

Types of companies
On the basis of incorporation:
•Chartered company
A chartered company is established by the royal charter
or a special sanction granted by the head of the state. East
India company, Hudson’s bay are the examples of this
type of company. This type of company is no more
popular today.

•Statutory company
A company created by the special act of the parliament is called
statutory company. Its objectives, powers and activities are
defined by the act. Nepal Rastra Bank, Agriculture
Development Bank, Nepal Industrial Development Corporation
are some examples.
•Registered company
It is formed under company act of the country. The working of
registered company is governed by the provision of the
company act. Himal Cement Company, Gorkha Biscuits Pvt
Ltd is some of the examples.

On the basis of liability:
•Unlimited company
It is a company in which the liability of the
members is unlimited like that of partnership firm.
If the assets of the company are not sufficient for
satisfying the claims of the creditors, the
shareholders are liable to pay more than the face or
nominal value of shares held by them even form
their personal property.

•Company limited by shares.
A company limited by shares is registered under the provisions of the
Company act with a specific amount of share capital divided into a
definite number of shares. The liability of shareholders is limited to the
extent of face value of the shares they have paid for. This type of
company is quite common these days.
•Company limited by guarantee:
The company, under which each shareholder promises to pay a specific
sum as guarantee at the time of winding up of company, is called
company limited by guarantee. Such guarantee is specified in the
Memorandum of Association of the company. The amount of such
guarantee may differ from member to member.

On the basis of ownership
•Government companies
A government company is a company in which no less than 51
% of the paid up share capital is held by the government
•Non government companies:
A company which is not a government undertaking is called
non government company. Generally, company owned,
managed and controlled by the private sector come under this
category.

On the basis of number of members
Private company
A private company is a company which, by its Memorandum Of Association,
limits the number of its members not exceeding 50 and prohibits the sales of its
shares to the general public. A private company must use the words ‘private
limited (Pvt. Ltd.) in its name.
Privileges of private company
•Established by single person
•Does not need to publish prospectus at the time of issue of its shares
•It can refuse transfer of shares form one member to another.
•It is not necessary for such a company to obtain the certificate of
commencement of business before starting its business activities
•It is not necessary to held statutory meeting.

Public company
A public company is a company which, by its Memorandum of Association, limits the
number of its members not to be at least 7 and to open the boundary of having the
maximum number of shareholders to the fullest. It doesn’t prohibit the sales of its shares
to the general public but rather it allows collecting major capital by offering shares to the
public. The public company is governed by the authorized capital with which is registered.
The shares are transferable. A public company must use the word ‘limited (Ltd.) in its
name.
Privileges of public company
•Established by at least 7 promoters
•Needs to publish prospectus at the time of issue of its shares
•It cannot refuse transfer of shares form one member to another.
•It is necessary for such a company to obtain the certificate of commencement of
business before starting its business activities
•It is necessary to held statutory meeting.

Bases of difference Private company Public company
Number of members It needs at least 1 member for its
formation. The maximum number can be
50.
It needs at least 7 members for its
formation. The maximum number is not
limited.
Invitation for capital It cannot invite the public to buy its shares It is free to invite the public to buy its
shares
Commencement of business It can commence the business
immediately after the incorporation
It can commence the business after
receiving the certificate of commencement
of business.
Issue of prospectus It does not need to issue prospectus It must issue prospectus
Statutory meeting It does not need to hold statutory meeting
and file statutory report.
It must hold statutory meeting and file
statutory report
Transfer of shares The transferability of share is not allowed
and hence its ownership cannot be
transferred
The transferability of share is allowed and
hence its ownership can be transferred
Use of word It must use the word Pvt. Ltd. at the end of
its name.
It must use the word Ltd. at the end of its
name
Difference between private company and public company

Main documents for incorporation of Joint Stock Company
Memorandum of association
It is the main document of the company. It defines the objectives,
powers and its relationship with the outside world. The company
works within the framework of the memorandum. The
memorandum of association sets out the constitution of the
company. It is so to speak, the charter of the company and provides
the foundation on which the structure of the company is built. It
enables persons who deal with the company to know its permitted
range of activities.

The main content of memorandum of association are:
•Name clause:
It includes about the name of the company. Name of the company should end
with word ‘limited’ or ‘private limited’. Care should be taken while enclosing
name of the company. The names that already registered should not be used.
Change in name of the company requires special resolution and approval from
the concerned department.
•Situation clause:
It is also dominant clause. It must have registered office. All the official
communication may be sent by concerned office or other organizations in a
specified location. Therefore there is need to maintain registered office
location. Once the location is set then it is very difficult to change the location.

•Object clause:
It is important part of memorandum. It must clearly state the objective of the
company foe which it was established. It informs the members about the objectives.
It can carry out only those activities which meet the objectives in the memorandum.
•Functional clause:
It includes the functions of the objectives of the company. It should be within the
objectives.
•Capital clause:
It includes the amount of authorized capital which can be utilized by the company. It
includes the amount of share capital and the considerations of issuing and
subscribing the share capital. It must include the nature of shares and face value of
share with the prices of shares.

•Liability clause:
Memorandum must clearly state that the liability of
shareholders up to the extent of face value of shares. In
company limited by guarantee it must state the guarantee sum
too.
•Association and subscription clause:
It states that the member themselves agreed to organize and
carry out business. In case of private company at least one
signature from promoter and in case of public company at least
7 signatures is needed.

•Agreement clause:
According to company act 2063, clause 18 .p., public
company is desired to do following things.
1.If promoter or any other partner is entitled to
subscribe share, they must pay in each.
2.If Company is to enquire any property from
promoter at the time of commencement of its
transaction.
3.If Company itself is to bear expenses incurred on
the corporation.

Articles of association
It is another important document of company. The document which defines the rights,
powers and duties of the management, the modes and manners of carrying the company’s
business, is called articles of association. It shows the relation between the company and its
members and relation among the members. It is subordinate to memorandum. The
information related is:
1.Director related
1. Number of directors
2. Provision of alternative directors
3. Minimum number of shares to be directors of the company
4. In case of public company, qualification and number of independent directors
5. Power and duties of BOD
6. Authorities of directors
7. Delegation of authority
8. Provisions relating salary, allowances and facilities of directors

2.Meeting related
•Procedure for conducting general meeting and notice for such meeting
•Provision relating to decisions of general meeting and BOD and duplicate copies and
inspection
•Quorum for meeting of BOD, notice and proceeding of meeting.
3.Share related
•Right, powers and restriction attached to share
•Provision relating to transferability of share
•Matters on altering the authorized share capital
•Matter of forfeiture and reissue of share.
4.Other particulars
•Appointment of company’s secretary
•Account books and audits of the company
•Provision on power to raise the loans

Prospectus
It is an invitation to the public to purchase shares or debentures of the company. Any
circular, advertisement, offer or any other document by which a company gives invitation to
the public to subscribe to its shares and debentures is known as prospectus. According to the
company act 2063, the prospectus contains the following matters.
•Information related to management and the objectives of the company
•The number of shares to the subscribed by directors and the cash to be received from
them.
•Capital structure of the company divided into authorized, issued, subscribed and paid
up share capital.
•Terms and mode of payment, issue of shares on discount or premium
•Details about brokerage, underwriting commission and preliminary expenses.
•Estimated expenditures for the company and estimated income at least for coming 3
years.
•Other necessary particulars.

Incorporation of joint stock company in Nepal
Following things are to be observed for incorporation of Joint Stock Company in Nepal:
1. File an application
It is the first step. In any company registration, promoters have to file application in company
registrar office. The application has to be signed by at least 1 promoter in case of private company
and at least 7 in case of public company. Along with application, following document should be
submitted,
•Memorandum of association
•Article of association
•Copy of agreement (public company)
•Copy of consensus agreement (private company)
•License
•Promoters certified copy of citizenship (Nepalese)
•Permission letter obtained under law to make investment or run business in Nepal
(foreigner)
•Citizenship of concerned country

Incorporation of joint stock company in Nepal
Following things are to be observed for incorporation of Joint Stock Company in Nepal:
1. File an application
It is the first step. In any company registration, promoters have to file application in company
registrar office. The application has to be signed by at least 1 promoter in case of private company
and at least 7 in case of public company. Along with application, following document should be
submitted,
•Memorandum of association
•Article of association
•Copy of agreement (public company)
•Copy of consensus agreement (private company)
•License
•Promoters certified copy of citizenship (Nepalese)
•Permission letter obtained under law to make investment or run business in Nepal (foreigner)
•Citizenship of concerned country

4. Certificate of commencement of business
A report of proof about the full payment of shares by
the promoters with signature by at least 1 director and
7 promoters must be filled. The registrar examines all
the documents. If it gets satisfied then it issues
certificate of commencement of business. Then only
public company is legally able to run business and it
can issue prospectus also.

5. Allotment of shares
After receiving certificate of commencement of business, public company
can issue prospectus. It helps to attract investors for investing the money in
the company. Then they send application with application money.
Generally application form is attached with prospectus. The time of
subscription must be kept open for at least 7 days. After receiving
application shares are allotted. The BOD makes the allotment. There can
be full allotment or pro-rata allotment. Shares must be allotted within 3
months after application is called. There must be more than 50% o share
allotment. If allotment couldn’t be made within 3 months then promoters
must apply application for extending time with reasons. The time is again
extended for 3 months. If company couldn’t allot the share for extended
period then the company must return all the money with interest.

Company meeting
Company is an artificial legal person. It is not capable
to think or decide any important matter. But through
meeting it can think and easily make any decisions.
Meeting means gathering of people who are connected
with the company for discussion in certain place. It can
be defined as assembly of number of person for
predominated purpose and by previous notice for
discussion and decision on the same business matter.

Types of meeting
General meeting
The meeting of shareholders is known as general meeting. The types of general meeting are
1. First or preliminary general meeting
First official meeting of shareholder is known as first general meeting. It is also known as preliminary general
meeting. It must be conducted within one year after receiving certificate of commencement of business. It
occurs only once in the lifetime of public company. Its main aim is to give details of company to all
shareholders about the number of shares issued. Share holders must be pre-noticed about place, time, date and
agenda in advance of 21 days of conducting the meeting. Following things are discussed in the meeting.
•Authorized capital
•Number of share
•Issued share capital of company
•Paid up capital
•Total amount of installment paid
•Loan borrowed from any bank
•Financial institution
•Name and address of current director

2. Annual general meeting
It is held in each financial year within six months from the date of expiry of its
financial year. It is held to inform shareholders about progress of the company, about
the ongoing performance and future plan of company. . Share holders must be pre-
noticed about place, time, date and agenda in advance of 21 days of conducting the
meeting. Following things are discussed in the meeting
•Annual financial statement
•Audit and directors report
•Matter related to the distribution of dividends
•Appointed of any directors
•Appointment of any auditor
The information and report may be printed in newspaper too. If any shareholder
request for the copy of annual financial statement, director’s repost and auditor
report then company should provide it.

3. Extra ordinary general meeting:
If any important matter arise and it should be discussed sooner and cant be
waited till the annual general meeting then this meeting is held. It is also called
special circumstances and is held when special and urgent decisions have to be
made. . Share holders must be pre-noticed about place, time, date and agenda in
advance of 15 days of conducting the meeting. This meeting is conducted by
a. By board of directors
In case of emergency
b. By auditor
•In auditing the account there can be need of shareholder’s idea and so auditor
calls this meeting with a reasonable cause
•In case BOD fail to call meeting then auditor may submit application to
company registrar offices for stating reasons about not conducting meeting.

c. By shareholder
10% of paid up capital or at least 25% of total shareholders demand
to call this meeting with reasonable cause. They request to board
and submit application. If there is no meeting within 30 days then
application is submitted to company registrar with reasonable
reason. Then registrar office can call a meeting.
Extra ordinary general meeting is called for following purposes
•Increasing authorized capital of the company
•Decreasing the share capital of the company
•Altering name or objective of the company
•Issuing bonus shares
•Selling shares at discount
•Converting private company into public company or vice versa

2. Board of directors (BOD) meeting
It is also called meeting of directors. Board means collective name
for directors. When directors of company come together to
determine its policy and to take decisions according to its act then
the meeting of BOD is called. It is held at regular interval. In
public company it is held when there is attendance of 51% of total
number of directors. Its main agenda are management of company
about share, recommendation of dividend, appointment of officers
and fixation of data. Decisions are taken by passing resolution. If
any director is not satisfied with decision then s/he can write the
note of dissent of proof of his rejection.

Agenda
It is the most important base for all meeting. It includes the
subjects to be discussed in the meeting. It is prepared with
consultancy of chairman. Its main objective is to conduct
meeting in a systematic way without missing any item. It is
the deal about the subject mater of the meeting and is
informed to all meeting members. It allows the member to
have sufficient time in preparation of their own matter of
discussion on the topic of the agenda before the meeting.

Resolution:
Resolution is all the activities of company which are
conducted after the resolution is passed in various
meeting of shareholders and directors. All the decisions
that are taken in the meeting are in the form of
resolution. It can be defined as the resolve to do or not
to do things. When any proposal is accepted by required
majority in the meeting then the proposal becomes
resolution. There are two types of resolution. They are

1. Ordinary resolution
It is passed by simple majority of member present a general meeting.
Majority is taken by voting. For this purpose, in this meeting, in the
public company, there must be presence of 50% share with at least 3
shareholders are presented. It cannot be held due to quorum
They are passed for following purpose
•Profit and loss account
•Balance sheet of previous years
•Declaration of dividends
•Appointment of directors and auditors
•Salary and facility for directors and auditor

2. Special resolution
The resolution requires passing 75% majority of members. It
must be submitted to take decisions for following matters
•Increasing authorized capital of the company
•Decreasing the share capital of the company
•Altering name or objective of the company
•Issuing bonus shares
•Selling shares at discount
•Converting private company into public company or vice
versa

Winding up of Joint Stock Company
Winding up of Joint Stock Company is the process of bringing the existence of the
company to the end. It refers to the closure of business forever. In this time company
being a legal person created by law can dissolve its own business in the following
way
1. By company registrar office
According to company act, registrar office may order to wind up company under
following condition:
•If promoters of the company makes application showing reasons for failure to
commence the business of company
•If company is in default in submitting office return notice, information and
facts to pay fine as required by the act

2. By voluntarily
In the following condition company can wind up;
•Company has become insolvent with accordance with law
on insolvency
•Shareholders of company can wind up the company either
by adopting special resolution in general meeting
•If company is able to pay its debts and other liabilities in
fault.
•If directors of company have after due, company makes
declaration in written form that the company is able to pay
its debts or other liabilities in full.

Cooperative organizations
1.Concept of cooperative organization
2.Features of cooperative organization
3.Types of cooperative organization
4.Role of cooperative organization in developing
countries
5.Registration of cooperative organization in Nepal
6.National cooperative development board :
formations and functions

Public enterprises
1.Concept of public enterprises
2.Characteristics of public enterprises
3.Importance of public enterprises
4.Types of public enterprises
Multinational companies
1.Concept of multinational companies
2.Characteristics of multinational companies
3.Merits/Importance of multinational companies
4.Defects of multinational companies

Business support agencies in Nepal
1.Nepal chamber of commerce :
formation and functions
2.Federation of Nepalese chamber of
commerce and industries: formation and
functions
3.Trade and export promotion center :
functions

Business studies 11

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