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Business undertaking
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- 2. Meaning A businessundertaking is an institutional arrangement to conduct any type of business activity. The undertaking may be run by one person or association of persons. It may be based on formal or informal agreement among persons who undertake to run the concern.
- 3. Definition According toWheeler, a business undertaking is “a concern, company or enterprise which buys and sells, is owned by one person or a group of persons and is managed under a specific set of operating policies.” The persons join together and pool their resources and conduct the activities of the undertaking for the benefit of all.
- 4. Characteristics of aBusiness Undertaking 1. Separate Entity: A business undertaking has a separate entity. Every undertaking has its own working and conducts its own business. It has its own assets and liabilities. The debts owned by one undertaking cannot be recovered from any other undertaking.
- 5. 2. SeparateOwnership An undertaking is owned by the persons who contribute towards its capital. There is a direct link between capital contribution and ownership. If capital is contributed by a private individual, it will be a private undertaking. If the capital is contributed by the government or by the institutions owned by the government then it will be a public undertaking.
- 6. 3. Separate Management Everyundertaking has its separate management. It does not mean that same persons cannot be on the management of other concerns. In India same persons may be on the Board of Directors of a number of companies. Separate management implies independent decision-making. Every management decides about the utilisation of its resources, type of products to be produced, volume of output, marketing channels etc. The levels of management will be decided on the basis of the scale of operations.
- 7. 4. IndependentRisk Bearing Every business involves many risks. Some risks can be insured but others will have to be borne by the owners. An undertaking may earn profits but it may incur losses too. All types of losses or risks have to be borne by the owners of the undertaking and none else.
- 8. 5. Exchangeof Goods and Services A business undertaking deals in exchange of goods and services. The goods to be exchanged may either be produced or procured from other sources. The exchange is generally for money or money’s worth.
- 9. 6. Dealingin Goods and Services: All business undertakings deal in goods and services. The goods may be consumers’ goods or producers’ goods. The consumers’ goods are those which are purchased by them for consumption or day-to-day use. These goods include food products, clothes, tooth paste, soap, etc. The producers’ goods are those which are meant for further use in production. These goods may be machines, plants, tools, equipment’s, etc. The services, on the other hand, may be water supply, electricity supply, transport facilities etc.
- 10. 7. ProfitMotive All business undertakings are run to earn profits. An undertaking started for social service will not be called business undertaking because the aim is not to earn profit. The incentive of earning profit keeps the undertaking going. The aim is to get back more than what has been invested.
- 11. 8. Continuityof Transactions The transactions in business undertakings are continuous or regular. They are engaged in a series of successive transactions over time and space.
- 12. 9. Riskand Uncertainty Every business undertaking is exposed to risks and uncertainties. Business is influenced by future events and future is always uncertain. There are chances of price fluctuations, demand changes, consumer likings and disliking’s, etc. There may be a fire, earthquake, strike by workers etc. All these factors make a business undertaking risky and uncertain
- 13. 10. SocialResponsibility The only aim of business undertakings is not to increase profits. They own some responsibility to the society also. The society expects business undertakings to provide cheap and better quality goods to consumers. They are also expected to contribute towards social amenities by opening schools, hospitals, parks, etc. not only for the employees but also for people living in those localities. Business undertakings should also avoid water and air pollution by their wastes.
- 14. Classification of Business Undertakings Business is a wider word. It includes both industry and commerce. Industries may further be classified into genetic, extractive, construction and manufacturing industries. Commerce comprises of trade and aids to trade. Aids to trade deal in warehousing, financing, advertisement and salesmanship. All business undertakings are related to industrial or commercial activities.
- 15. Business undertakings maybroadly be classified as 1. Industrial undertakings 2. Marketing undertakings 3. Financial undertakings 4. Service undertakings.
- 16. 1. IndustrialUndertakings: Industrial undertakings are concerned with production or manufacturing of goods. Manufacturing processes convert raw materials into products or goods. Thus a form utility is added to the goods by industrial undertakings. Industrial undertakings cover industries such as: primary and genetic, extractive, construction and manufacturing. Manufacturing industries may further be divided into analytical, processing and synthetic industries.
- 17. 2. MarketingUndertakings: Marketing undertakings are concerned with buying and selling of goods.These undertakings may be in the form of trading firms, agency firms or warehouses. Trading firms purchase goods either from manufactures or from other intermediates. The goods are purchased for resale purpose. The wholesalers, retailers or other concerns dealing in goods are called trading concerns.The importers and exporters of goods are also a part of trading undertakings. The other categories of people connected with marketing are brokers, commission agents, auctioneers etc. They do not buy goods themselves but bring buyers and sellers together and help them in agreeing to a deal. They charge commission from both the sides. The concerns dealing with facilitating activity are called agency firms. Warehouses are used to store goods when these are not required and supply them when needed. Warehousing firms indirectly help the marketing activities.
- 18. 3. FinancialUndertakings: Financial undertakings provide financial help to those who need it. The industrial, marketing and service undertakings are helped by financial institutions like banks, investment trusts, stock exchanges, stock brokers, underwriters etc. Some institutions like banks accept deposits from public and extend loan facilities to other business undertakings.
- 19. 4. ServiceUndertakings: These undertakings support services required for uninterrupted production and exchange of goods. They provide services such as transportation, insurance, communication, electricity, eating house, etc. The expansion and development of business depends upon the facilities provided by service undertakings.
- 20. Forms ofBusiness Undertakings: A number of forms of organisation exist to suit requirements of different business undertakings. There are three types of business undertakings: 1. Private Undertakings 2. Public Undertakings 3. Joint Sector Undertakings.
- 21. Private Undertakings: Theseundertakings have the following types of organisation: (i) Sole Proprietorship (ii) Partnership (iii) Joint Hindu Family Business (iv) Joint Stock Company (v) Co-operative Societies.
- 22. (i) SoleProprietorship: This organisation is as old as civilisation. In this form of organisation a single individual promotes and controls the business undertaking and bears the whole risk himself. He supplies the entire capital for starting and running the business. He takes all the profits and bears all the risks alone. This is the simple form of organisation requiring no formalities to set it up.
- 23. (ii) Partnership: A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. The partnership may come into existence either as a result of the expansion of the sole trading concern or by means of an agreement between two or more persons desirous of forming a partnership. This form of organisation grew essentially out of the failures and limitations of sole proprietorship. This represents the second stage in the evolution of the form of business organisation.
- 24. (iii) JointHindu Family Business: This form of organisation is prevalent only in India and that too among Hindus as the name is indicative. The business of Joint Hindu Family is controlled under the Hindu Law instead of Partnership Act. The membership in this form can be acquired only by birth or by marriage to a male person who is already a member of Joint Hindu Family. All the officers of the undertaking are controlled by a person known as Karta or Manager.
- 25. (iv) JointStock Company: This form of organisation was first started in Italy in the thirteenth century. A company is an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business, and who share the profit and loss arising therefrom. A company is an artificial person created by law with corporate personality, limited liability, perpetual succession and transferable shares. These undertakings are managed by elected representatives of shareholders. Companies may be public or private and registered by shares or by guarantee.
- 26. (v) Co-operativeSocieties: Co-operative societies are voluntary associations started with the aim of service to members. The aim of societies is not to increase profits as in other undertakings but service to members is their important goal. It is a joint enterprise of those who are not financially strong and cannot stand on their legs and, therefore, come together not with a view to get profits but to overcome disability arising out of the want of adequate financial resources. Like joint stock companies, societies also enjoy the benefits of corporate personality, limited liability and perpetual succession. The societies are registered under the Co-operative
- 27. Public Undertakings: Business undertakings owned or operated by public authorities are known as public or state undertakings. In these undertakings, either whole or most of the investment is done by the government. The aim of these undertakings is to provide goods and services to the public at a reasonable rate though profit earning is not entirely excluded. These undertakings have the following forms of organisation: (i) Departmental Organisation (ii) Public Corporations (iii) Government Companies.
- 28. (i) DepartmentalOrganisation: Departmental form of organisation for managing enterprises is the oldest form of organisation. In this form, the enterprise works as a part of government and management is in the hands of civil servants. The Secretary of the Department acts as Chief Executive under the control and direction of Minister. The minister is accountable to Parliament for the working of the department. Departmental form of organisation is suitable for public utility services and strategic industries. In India, railways, post and telegraph, radio and television are working as government departments.
- 29. (ii) PublicCorporations: Public corporations are created by a special statute of a state or central government. A legislative act is passed by defining the sphere of work and mode of management of the undertakings. It is a separate legal entity created for a specific purpose. In India, the Reserve Bank of India, Bank of India, Industrial Finance Corporation are some of the corporations created by special Acts of Parliament.
- 30. (iii) GovernmentCompanies: The company owned by central and/or state government is called a government company. Either whole of the capital or majority of the shares are owned by the government. Government companies are registered both as public limited and private limited companies but the management remains with the government in both the cases. Government companies enjoy some privileges which are not available to non government companies. No special statute is required to form government companies.
- 31. Joint SectorUndertakings: Joint sector is a form of partnership between the private sector and the Government where management will generally be in the hands of private sector and overall supervision will lie with the Board of Directors giving adequate representation to Government representatives. According to the guidelines of the Central Government, the capital is to be shared as to State Government 26%, Private Enterprise 25 % and Investing Public 49%. No single private party shall be allowed to hold more than 25 % of the paid up capital without the permission of the Central Government. Joint sector undertakings ensure the use of developmental technology and resources of government and private sector.