Unit - 1
Introduction to Management and Economics
Concept of Management: Need for Study
Business management refers to functions that aim at the effective use of individuals and resources in a corporation to realize business objectives. So, it's a way to an end. Basically, there are five functions in business management, and that they are:
Planning is that the start line. During this phase, you create your business plan and the way you're getting to achieve it. But it's not as easy because it seems. You would like to form a sensible assessment of your business objectives and map the detailed strategies (with full back up plans just in case those strategies fail) through which your company are able to do its business objectives.
The organization follows the design. Here you organize all of your resources like employees, machines and finances in one well-oiled unit. You would like to urge of these combinations and timing correctly. Organizing helps you define "who goes to try to what". Established well-defined job roles, organizational hierarchies, and streamlined coordination between them.
Staffing cares with acquiring, deploying, and retaining the proper skilled workforce to deliver business results. The goal of staffing is to make the proper positive impacts on the effectiveness of the organization. Through staffing, you get the proper people within the right jobs who do the proper things. In short, this is often a correct delegation.
Leading is that the most vital function of the management process. Without a motivated workforce, you'll never be ready to achieve your business goals. Leading is about how you'll align employee tasks with the general goals of the organization. Leading is how you'll motivate, influence, and encourage your employees to perform at their best at work. Leading is how you'll involve your employees voluntarily within the growth and development of the corporate.
Control is a lively and constant monitoring of the people, processes and other resources of your company. Here you track the performance of all the resources in your company and confirm they're on the proper track. Through monitoring, you'll accurately assess whether all company resources are optimally used for desired business tasks. And make corrections whenever and wherever there are deviations, errors and gaps.
For a nation's economy, business growth is extremely important. However, the processes involved in a company are complex. It is the way in which the administration of a business is managed, which governs the parameters of a business's success. There are numerous factors that must be considered when running a business. It is important that there is a person who has experience.
Today's modern economic units cannot afford to make random decisions like they did in the past. Each economic decision needs to be well-studied and balanced. One wrong decision can have a huge impact on a business unit. As a result, more scientific and logical ways to handle business have evolved over time. This is nothing but "business science".
Meaning of Management
In other words, setting up and running a company using scientifically proven methods and logical and systematic processes is called "management" (or business management).
Management is the philosophy that economic units continue to operate to achieve their goals in a cost-effective manner.
Management is "the power to run a business and take responsibility for its success or failure."
Meaning: -
According to George Terry, "management is a separate process of planning, organization, operation and control that is carried out using humans and other resources to determine and achieve a defined purpose. Increase".
According to Mary Parker Foret, "management is the art of accomplishing things through others."
According to Henry Fayol, "Managing is predicting, planning, organizing, directing, coordinating, and managing."
Nature and Scope of Management
As we have already established, different people have different views on management. Therefore, it is very difficult to define the nature and scope of management. Let's look at each of these terms individually to see how they work in the context of management.
The nature of management
Managing as a systematic process helps identify a group of people who perform a particular activity, thereby improving the efficiency and effectiveness of the organization. Here is a striking feature that emphasizes the nature of management in the business.
- Universal
Management is a universal process and is essential for all organizations. If there's act , there's management. Management principles apply regardless of the size or location of the business. The universal principle also means that management skills are developed and transferable over time.
2. Social process
The nature of management involves organizing and managing people in groups. It requires different levels of empathy, understanding and dynamism. This process involves developing, motivating, and retaining employees, in addition to caring for social and emotional well-being.
3. Purpose
Management always has the ultimate goal of achieving the goals, missions and visions of the organization. Management success can be measured by how well an organization achieves its goals. It has the fundamental purpose of improving efficiency and productivity. Goals need to be realistic, achievable, and time-limited.
4. Intangible
There is no physical evidence of the management process. Its success can be measured by the result of that effort. For example, low turnover indicates high employee engagement and job satisfaction. This further indicates that managers or individuals in management are taking proactive steps to improve employee retention.
5. Adjustment
Administrators coordinate all functions of an organization by bringing together different teams and departments. Without adjustment, there will be ambiguity and confusion. Therefore, by gathering people on the same page, communication is possible and duplication of work is minimized.
6. Creativity
Management consists of individual components and is a complex process. All independent components contribute in their own way. For example, the group's efforts encourage creative ideas and imagination. The sum of the individual efforts creates a synergistic effect and something new is born.
7. Dynamic function
Business must be dynamic in nature, as businesses are often influenced by economic, social, political and technical factors. The flexibility and adaptability allow individuals to function well in stressful situations. Appropriate training and promotion is required within the process.
Scope of Management
Well-defined responsibilities, concepts, theories, and principles associated with management functions define the scope of management.
1. Financial management
All companies prioritize financial management because it can be very unwieldy if it is not properly managed. Effective financial management ensures fair interests to stakeholders, good estimates of capital requirements, and optimal capital setting. This includes preparing and reviewing financial statements, developing appropriate dividend policies, and negotiating with external stakeholders.
2. Marketing management
Marketing control extends to planning, organizing, directing, and managing activities in the marketing department. Identifying customer requirements is important to providing a business solution. Managers achieve better results when they are fully aware of the benefits of the products and services that their organization offers. Marketing management ensures that the available resources are used properly and the best possible results are achieved.
3. Personnel management
HR management, as the name implies, deals with people or individuals in a business environment. This includes hiring, transferring, dismissing, benefits and social security for employees. This aspect of management is very important because employees form a team and the team drives the goals of the organization. Personal productivity also contributes to overall efficiency. Organizations can struggle if they don't meet the needs and desires of their employees.
4. Production control
This type of management refers to the process of creating a utility. Engage in production control when converting raw materials into finished products and overseeing planning and regulation. Without production, there are no finished products or services. Without it, an organization cannot generate profits or profits. The final product must meet the customer's requirements. This process includes quality control, R & D, planning layout, and simplification.
5. Office management
This includes managing and coordinating the goals of the organization and all office activities to achieve those goals. For example, management efficiency has a significant impact on the business. The more organized departments and responsibilities, the more effective the organization.
Management Characteristics:
It is almost impossible to understand the concept of management in a nutshell. The best way to understand the management concept, nature and scope by describing its features
1. Management may be a process: continuous, social and unique:
Management is a continuous process because an organization continues perpetually and needs solutions to problems continuously. A process features a beginning and an end, and management begins with planning and ends with control and restarts with planning. It is a social process because it is managed by people (employees and managers) for people (clients) and by people (investors and society in general).
It is a unique process because it involves group activities; It is integrative in nature since it interlaces different resources in a coordinated way; and intangible in appearance (since the presence of management is felt solely through performance).
2. Management is a science, an art and also a profession:
A science is a systematized body of knowledge, accumulated through the use of the scientific method (through observation and research), has a cause-and-effect relationship, can be formally imparted, and has universal application.
Management has all the makings of being a science, but it is a soft science rather than a hard science (where 2 + 2 may not always be 4) because it is about human beings, whose behaviour is more difficult to predict.
Art refers to practical application, through creative use of the body of knowledge to obtain desired results through personal possession of skill where there is room for personal judgment. In this way, management is definitely an art, since it is a social process.
Two doctors who prescribe the same drugs to two different patients with the same disease may have different results with different doses. Management is rightly called the art of the arts. Since management is both a science and an art, it is correct to call it artistic science (art-based science) or scientific art (science-based art).
A profession is an occupation that requires a significant body of knowledge, which is formally acquired and applied with the ethical standards declared by the main body whose certification is essential for service to society.
Management is not a profession like accounting, law or medicine, which are thousands of years older than management, because no qualification is essential to be a manager, there is a main body, All India Management Association, but its membership it is not mandatory.
However, management is becoming a profession as management education expands and businesses demand managers who are fully professional. With liberalization, globalization and privatization, the demand for professional managers will increase even more.
3. Management influences and is influenced by the environment:
Management does not work in a vacuum. It has to deal with the internal (controllable) and external (non-controllable) environment. The internal environment consists of employees, processes, and systems. The external environment comprises STEEPLE (social, technological, economic, ecological, political, legal and ethical environments).
The internal environment indicates strengths and weaknesses and the external environment indicates opportunities and threats. Management tries to turn threats into opportunities and weaknesses into strengths; but sometimes it changes depending on the environment.
4. The core of management is making decisions:
When Peter F. Drucker said that "everything a manager does, he does through decision making," he was very clear that the core of management was decision making.
Since management is interdisciplinary (management has borrowed concepts from economics, psychology, sociology, anthropology, law, mathematics, statistics, etc.), it makes use of multiple and interdisciplinary knowledge to make decisions and makes use of authority to obtain them. Enforceable decisions.
5. Management is goal-oriented:
The management process is a purposeful activity and begins and ends with goals. All organizations, both for-profit and non-profit, are goal oriented. It is the responsibility of management to achieve these objectives.
Without goals, an organization would be like a ship without rudders. Management always starts with goals and remains aware of their achievement. If there are any gaps in performance and goals, management tries to harmonize them with each other. Management cares as much about efficiency as it is about its effectiveness.
6. Managers bring the organization to life:
"Good managers can propel an organization into unprecedented realms of success, while bad managers can devastate even the strongest companies." It is the management that can give life through its dynamism to the management process in this turbulent business environment. When things go well, the credit goes to management and when it is the other way around, the first victim is management.
7. Management is a multidisciplinary and multifaceted activity:
It is multidisciplinary because it is a young discipline and has borrowed most of the concepts from other disciplines such as economics, sociology, psychology, anthropology, mathematics, law, politics, etc.
However, it has begun empirical research to develop itself. It is multi-faceted because managers have to play different types of roles, many of them at the same time.
Functions – An overview
Regardless of the size, nature and type of organization, all managers must perform some basic functions which are as follows:
(a) Planning:
Planning is always the first function that every manager performs. Planning refers to “deciding beforehand what to try to, the way to roll in the hay, when to try to it, and who goes to try to it. Planning bridges, the gap between where we are today and where we want to go”. Every manager begins by deciding in advance the objectives of a company and how to achieve them. Planning is that the foundation of all other management functions.
(b) Organize:
After establishing the plans, the next role of each manager is to organize the activities and establish an organizational structure to execute the plan. Establishing the organizational structure means deciding the framework how many units and subunits or departments are needed, how many positions or designations are needed in each department, how to distribute authority and responsibility among different people. Once these decisions are made, an organizational structure is established.
(c) Staffing:
Third step or function of a manager is Staffing. It refers to recruiting, selecting, appointing employees, assigning functions to them, maintaining cordial relationships, and handling employee complaints. It also includes training and developing employees, deciding their compensation, promotion, raises, etc., evaluating performance, keeping personal records of employees.
(d) Lead:
Once employees are appointed, they need to be trained and the job done. Leading refers to giving directions or instructions to employees motivating them, supervising the activities of employees, communicating with them. Managers act as leaders and guide them in the right direction, so the management function includes, supervising, motivating, communicating and leading.
(e) Control:
This is the last function of the managers. In this role, managers try to match actual performance with planned performance, and if there is no match between the two, managers try to find out the reasons for the deviation and suggest corrective measures to get on track. Control functions refer to all performance measures and follow-up actions that keep actual performance on track.
Importance of Management
(1) Management is versatile: Management is used not only by businesses but also by non-profit / non-profit organizations. Non-profits use business science to achieve our social goals. Organizations, as well as individuals like us, use management to achieve professional and personal goals. To some extent, management is used by most people in everyday life. The positive force behind successful business, non-business, social or personal activities is effective management. In this way, management can be found in all areas of work and life.
(2) There is no substitute for management. Management is so basic and basic in nature that it cannot be replaced by anything else. The management philosophy when applied to any activity / task gives great results. No other philosophy can replace (alternative) management in its ability to produce the desired results in the most cost-effective way.
(3) Management brings order in the turmoil: many activities need to be performed to achieve a given goal / goal. If they are not properly planned and coordinated, they will only cause confusion and no results. Management is necessary for smooth activity without collisions, dropouts and repetitions. Management streamlines or harmonizes individual efforts. Therefore, when things move in a systematic (orderly) way, we can say that management exists. And when there is unordered and confusing turmoil, we can say that there is a lack of control.
(4) Management is focused on goals, which enhances the effectiveness of our efforts. Management remains focused on the ultimate goal. All activities, large and small, need to bring us closer to our goals. In other words, management has an effect on our efforts. If you don't keep your goals in mind, you can go off the right track and waste your efforts. Management believes in achieving goals by constantly (continuously) setting goals and networking. These goal-oriented efforts are almost always successful. Therefore, management has an impact on our efforts.
(5) Economic and social development requires management: Today's world is plagued by resource shortages, fierce competition and explosive population growth. During these critical times, economic and social development and progress can only occur if the available resources are used in the best possible way. The only way to do this is to use resources wisely. Intelligent management of resource usage can save the world from crisis situations in the near future. This means that business science can be used at the "macro" level to handle economic or country-wide problems.
In other words, developing countries are not necessarily in short supply of resources. They are just "controlled" countries. By wisely managing national resources, we can achieve appropriate and sustainable economic development.
(6) Reduction of waste: Management guarantees reduction of waste within the organization. Today, waste reduction is essential for any organization. By reducing waste, your organization is more productive.
(7) Reduction of absenteeism: Proper management makes it easier to reduce absenteeism in an organization. Absence occurs when an employee remains absent without prior permission. Absenteeism causes some problems for the organization.
(8) Higher efficiency: To produce higher efficiency in an organization, management is required. Efficiency is the relationship between revenue and cost. The more revenue you make at the same or lower cost, the more efficient your organization is said to be.
(9) Better Relationships: Management enables better relationships within an organization. You need to build good relationships across your organization, that is, between the different people and departments within your organization. Good relationships create teamwork and bring success to the organization.
(10) Promote growth and expansion: Successful managers are responsible for the growth and expansion of the company. No organization can grow and expand without the active involvement and commitment of his boss and his subordinates. In many cases, slowing the growth and expansion of an organization is inefficient management.
Difference between Administration and Management.
Management definition:
Management is defined as the act of managing people and their work in order to use the resources of an organization to achieve common goals. It creates an environment in which managers and their subordinates can work together to achieve the group's goals. It is a group of people who use their skills and talents in running the complete system of an organization. It's activity, function, process, discipline, etc.
Planning, organizing, guiding, motivating, managing, coordinating, and making decisions are key activities performed by management. Management brings together the organization's five million people: men, materials, machines, methods, and money. This is a results-oriented activity that focuses on achieving the desired outcomes.
Administration definition:
Administration is a systematic process that manages the management of a corporate organization, an educational institution such as a school or university, a government agency, or a non-profit organization.
Administration defines the basic framework of an organization in which it works.
The nature of the administration is bureaucratic. This is a broader term because it includes the highest level of forecasting, planning, organization, and decision-making capabilities for a company. Management represents the top level of your organization's management hierarchy. The profit is in the form of profits or as dividends.
The main difference between Management and Administration
The main differences between Management and Administration are listed below.
1. Management may be a systematic way of managing people and things within a corporation. Management is defined as the act of managing an entire organization by a group of people.
2. Management is a business and functional level activity, while management is a high-level activity.
3. Management focuses on policy implementation, but policy development is done by the government.
4. Management functions include legislation and decisions. Conversely, the functions of management are enforcement and governance.
5. The administrator makes all the important decisions of the organization, and therefore the administrator makes decisions under the boundaries set by the administrator.
6. A group of people who are employees of an organization is collectively called management. Management, on the other hand, represents the owner of the organization.
7. Management can be seen in a for-profit organization like a company.
8. Management is all about planning and action, but management is about policy building and goal setting.
9. Management plays an executive role within the organization. Unlike the administration, its role is inherently decisive.
10. The manager is responsible for managing the organization, while the administrator is responsible for managing the organization.
Parameter of Comparison | Management | Administration |
Difference by Definition | The management lays out the guidance for different executive officers, heads of the departments, and managing directors to achieve the company’s highest targets by innovative planning, designing, resources, and collaborations. | The Administration defines the managemental outlines of a company to administer the organizational needs and to achieve the organizational objectives. |
Working Area | The Management team works under the guidance of Administration. | The Administration fully controls the overall management and organizational activities of the company with different planning and innovative resources. |
Working Difference | The management team proposes different proposals, ideas, valuable resources, and additional features to the administrative team to get approved. | The administration departments approve the different proposals of the management team. Similarly, they have the authority to reject the newly proposed application in case of necessity. |
Focusing Area | It only focuses on management related activities. | It focuses on formulating ideal resources for the betterment of the company. |
Where to apply? | It applies to different business organizations and marketing places. | It applies to government offices, well-developed organizations, hospitals, educational institutions, and of course, in police and military clubs. |
Key takeaways:
- Business management refers to functions that aim at the effective use of individuals and resources in a corporation to realize business objectives.
- Staffing cares with acquiring, deploying, and retaining the proper skilled workforce to deliver business results.
- Leading is that the most vital function of the management process.
- Control is a lively and constant monitoring of the people, processes and other resources of your company.
- Companies have a tray of activities that must be kept in line for the proper functioning of the business so that it grows in all aspects and achieves a name in the market.
- It is almost impossible to understand the concept of management in a nutshell.
- Regardless of the size, nature and type of organization, all managers must perform some basic functions.
- When the organizational structure is made and departments are designed, managers coordinate the activities of those departments to realize the organization's goals.
- Coordination because the essence of management is, therefore, intrinsic to management.
- When a manager directs his subordinates through motivation, leadership and communication, he tries to coordinate the activities of the organization.
- Senior managers communicate organizational goals to departmental managers and help them perform the design, organizing, staffing, directing, and controlling functions of their respective departments.
- Planning is always the first function that every manager performs. Planning refers to “deciding beforehand what to try to, the way to roll in the hay, when to try to it, and who goes to try to it.
Definition of Economics
The definitions of economics by different economists have different views, but the essence is the same. Below are some general definitions of business economics:
Business economics involves the application of economic concepts and economics to the problems of formulating Mansfield's rational decision-making.
Business economics involves the application of economic principles and methodologies to the decision-making process within a company or organization. It seeks to establish rules and principles to help achieve the desired economic goals of management. Douglas
Business economics applies the principles and methods of economics to analyze the problems faced by the management of a company or other type of organization and find solutions that promote the best interests of such organizations. Davis and Chan
From the definition of business economics above, we can conclude that business economics is a link between the two disciplines of business administration and economics.
Management discipline focuses on several principles that support an organization's decision-making process.
Economics, on the other hand, is related to the optimal allocation of limited resources to achieve the set objectives of an organization.
Alfred Marshall, a pioneer of the neoclassical economist, geared economics to the study of mankind and gave economics a broader definition. Marshall, in his famous book, Principle of Economics, published in 1890, defines economics as follows:
"Political economy or economics is a study of humanity in normal business life. It examines that part of individual and social action that is most closely related to the achievement and use of material requirements for well-being."
This definition clearly states that the economy is, on the one hand, an investigation of wealth and, on the other hand, a more important aspect of "part of the investigation of man". Marshall's followers like Pigou, Cannon, and Baveridge defined economics in terms of material well-being as well.
Economics is described due to the fact the technological know-how that offers with the assembly , distribution and intake of merchandise and offerings. Economics, which developed with inside the nineteenth century, has emerge as one of the maximum essential research of our time. From small stores to countries, economics performs an essential function with inside the green operation of both. Businesses can't thrive without making use of the standards of economics. Economics studies are huge and diverse. The nature and scope of economics relies upon at the interplay of financial marketers and consequently the mechanics of the financial system. Let's examine the character and scope of economics in depth.
The nature of economics
The nature of economics offers with the query of whether or not economics falls into the class of technological know-how or art. While numerous economists are arguing in desire of technological know-how, different economists reserve art.
Economics as science
To recollect some thing as technological know-how, can we first want to realize what technological know-how is? Science offers with systematic research of causality. In technological know-how, records and numbers are amassed and systematically analyzed to attain unique conclusions. For those attributes, economics may be taken into consideration technological know-how. However, economics is handled as a technological know-how because of the following characteristics: It includes a scientific series of records and numbers. Like technological know-how, it's far primarily based totally at the components of concept and regulation. We are coping with causality. These factors show that the character of economics correlates with technological know-how. Like technological know-how, numerous financial theories are primarily based totally on logical reasoning.
Economics as an art
It is stated that "information is technological know-how and movement is art." Economic concept is used to clear up numerous financial troubles in society. Therefore, it may be inferred that now no longer most effective social technological know-how however additionally economics is an art.
Scope of economics
Economists use one-of-a-kind financial theories to clear up one-of-a-kind financial troubles in society. Its applicability could be very vast. From small agencies to multinational corporations, financial regulation is involved. The scope of economics may be understood in subheadings: microeconomics and macroeconomics. Let's give an explanation for those in detail.
Microeconomics
Microeconomics examines man or woman financial activities, industries, and their interactions. It has the subsequent features.
Elasticity: Determines the charge of alternate withinside the ratio of 1 variable to another. For example, the earnings elasticity of demand, the fee elasticity of demand, the fee elasticity of supply.
Production concept: Includes green conversion from enter to output. For example, packaging, shipping, storage, manufacturing.
Production cost: With the assist of this concept, the fee of an item is evaluated via way of means of the fee of a resource.
Monopoly: Under this concept, the prevalence of a unmarried entity is studied in a selected field.
Oligopoly: It corresponds to the domination of small entities withinside the market.
Macroeconomics
It's a take a look at of the financial system as a whole. We describe a extensive variety of aggregates and their interactions "top-down". Macroeconomics has the subsequent characteristics.
Growth: Study the elements that designate financial growth, inclusive of the country's growth in according to capita manufacturing over the lengthy term.
Business Cycle: This concept emerged after the best Depression of the 1930s. It advocates that significant banks and governments increase economic and financial regulations and reveal output in the course of the commercial enterprise cycle.
Unemployment charge: Measured via way of means of the unemployment charge. This is resulting from loads of elements, which includes growing wages and shortage of vacancies.
Inflation and Deflation: Inflation responds to growing commodity prices, and deflation responds to falling commodity prices. These signs are beneficial for assessing the financial state of affairs of a country.
Features of Marshall's definition:
The Marshall definition of economy has the following main characteristics:
(1) Prosperity is not the be-all and end-all of economic activity: The economy does not regard prosperity as the be-all and end-all of economic activity. Wealth is sought in order to promote the well-being of the people. Wealth, therefore, is only a means to the fulfilment of an end which is the good of man. Thus wealth is relegated to a secondary location.
(2) Study of an Ordinary Man: Business is not about what is called an "economic man" in business, that is, a man whose only motive is to gain wealth for his own sake, and who is not influenced by human considerations in the pursuit of wealth. Rather, business is concerned with ordinary men and women who are characterized by love, affection, and compassion, and are not motivated only by a desire to obtain maximum financial gain.
(3) Economics is a social science: Economics is a social science and not one that studies isolated individuals or Robinson Crusoes. Business studies people who live in society, influence other people and are influenced by them.
(4) The economy does not study all human activities: The economy does not study all human activities. These are lawsuits that can be brought directly or indirectly using the measuring stick of money. Marshall makes it clear that economic activity is different from other activity. For example,
When a student visits a sick friend, it is a social activity.
If a person votes in an election, it is a political activity.
When a person goes to church / temple it is a religious activity.
Marshall says that economic activity is different from the above activities. A farmer who goes to the field or a worker who goes to the factory to work is an economic activity - he works to make money. With that money they will buy things to meet their needs. In other words, the economy is about wanting, effort, and satisfaction.
In the words of Marshall, "Man earns money to achieve material well-being." Marshall values welfare and people. As such, this definition has been called the welfare definition.
(5) Study of material well-being: The economy deals with the way in which man applies his knowledge and skills to the gifts of nature in order to satisfy his material well-being. Economics only examine “material conditions of well-being” or causes of material well-being.
Robbins according to Marshall's definition of economics give his own definition of economics. Robins claims that my definition is superior to the earlier definition. It does not suffer from the defect that the earlier definition suffered from. Robbins definition of economics "Economics is a science that studies human behavior as the relationship between multiple goals and terrifying resources that have alternative uses".
To elaborate this definition, we explain the following points of the definition.
Definition of Economics by Robbins
1.Unlimited human desires:
Human needs are unlimited, which means they never end. When one wish is granted, another arises, and so on. All people are always after their desires, but they can never satisfy them. They multiply and sub-multiply over time.
2. Limited resources:
The resources available to meet limited needs are strictly limited. Hence, a consumer must behave rationally while spending the same resource on unlimited needs.
3. Alternative use of resources:
The resources are few, but they can be used alternatively. We can use the resource to fulfil so many of our desires. For example, suppose a student has RS.100 with that amount of money who can buy a book or pen and so many other goods that they cannot buy all of these things for TS100. This means that he can satisfy one wish as an alternative to the rest of the other wants.
4. Wishes are important in different ways:
Although human needs are unlimited, they are not all equally important. Some of them are more important and some are less important. Therefore, a reasonable consumer should first satisfy those who are less important than those who are less important.
5. The existence of an economic problem:
The Robbins economic definition highlights the existence of an economic problem. This means that there is an economic problem if the above tour conditions are present at the same time, i. H. An economic problem exists when human needs are unlimited. They are not labelled as equally important. Resources are limited and are used as an alternate method. So we can say that the economic problem is the problem of choice. So is the problem of scarcity. If either of these four conditions is not an economic problem, we do not exist. This definition clearly shows that economics is a scarcity and choice.
Samuelson's definition is known as the modern definition of economics.
According to Samuelson, "Economics is a social science primarily concerned with the way society uses its resources, which have alternative uses, to produce goods and services for present and future consumption."
The above definition is general in nature. There are many points in common between Robbins and Samuelson's definitions.
Samuelson's definition is that economics is a social science and is primarily concerned with the way society uses its limited resources for alternative purposes. We find all of this in Robbins' definition. However, Samuelson goes a step further and discusses how a society uses limited resources to produce goods and services for the present and future consumption of various people or groups.
An interesting point Samuelson makes is that society may or may not use money.
Key features of Samuelson's definition:
(I) Efficient allocation of resources:
There are many similarities between Samuelson's and Robins' approaches. Both emphasize the problem of lack of means associated with unlimited purposes.
(II) Dynamism:
Samuelson included dynamism in the definition of economics by incorporating a time element. Growth issues are within the scope of the definition.
(III) Choice question:
The greatest feature of Samuelson's definition is that it takes into account the question of choice within the dynamic framework of economics.
(IV) Improved resource allocation:
Economics analyzes the costs and benefits of improving resource allocation patterns. Improving resource allocation and better distributive justice are synonymous with economic development.
(V) Distribution:
The modern definition is also related to the distribution of consumption among different people and groups in society.
Demand and Supply concept
Demand:
It is one of the determinants of business as it can affect business growth and economic growth. Demand is a factor that enables businesses to generate innovative ideas and think proactively to increase market demand. Therefore, understanding demand is very important to your business.
Meaning of demand:
Demand can be defined as an economic principle related to a consumer's desire to purchase a product or service and their willingness to pay for the purchase of a particular product or service.
The definition of demand is the consumer's desire to buy goods and services and the willingness to pay the price required to buy them. Demand is one of the major components of the economy. When we talk about the demand for goods and services, we talk about not only the single quantity requested, but also the complete demand curve.
Demand for products and services is affected by fluctuations in product prices. According to the law of demand, as the price of a product rises, the demand for the product decreases. All other factors remain constant and vice versa.
As a result, companies spend enormous amounts of money determining the demand for products and services in the market. How many items can be sold at a particular price?
Companies need to accurately estimate market demand. A false estimate can leave money on the table if demand is undervalued and can lead to a loss of invested capital if demand is overvalued. Demand is the fuel to keep your business and economy running. If there is no demand in the market, no company wants to produce anything.
There is a close relationship between supply and demand. Consumers try to pay as little as possible for the goods and services they want to buy, while suppliers want to make as much profit as possible. Therefore, the demand for goods and services is directly proportional to the prices of goods and services, and companies need to correctly price goods and services so that they are available to both suppliers and consumers.
If the cost of a product is too high, the demand will decrease as a result of the supplier not selling well, and customers will move to competitors who offer similar products at affordable prices. In contrast, suppliers can attract a large number of customers by keeping the prices of their products and services low. Still, low prices cannot cover the costs of the supplier, so despite the large number of customers, the supplier suffers losses or small profits.
Economists use the term demand to refer to the amount of some good or service that consumers can happily buy at each price demand is based on needs and wants—consumer’s mite differentiate between desires and wants, but from other point of view demand also pays it on terms of ability. If you cannot pay for it, there is no effective demand.
What the buyer pays for a particular unit of goods or services is called the price. The total number of units purchased at that price is called the requested quantity. An increase in the price of a good or service in most cases reduces the amount of demand for that good or service. On the contrary, the fall in price increases the amount requested. For example, when the price of a gallon of gasoline goes up, people look for ways to reduce consumption by combining several errands, commuting in carpool or mass transit, or taking weekend and vacation trips closer to home. Economists demanded the law of demand, which calls for this inverse relationship between price and volume. The law of demand says that all other changes influencing demand (described in the next module) are kept still.
An example from the market of gasoline can be shown in the form of a table or a graph. A table showing the quantity required for each price, as shown in Table 1, is called a demand schedule. The value here is measured in currency as per gallon of gasoline. The amount required is measured in millions of gallons over a period of time (e.g., per day or per year) and over a region (like a state or country). The market curve shows the correlation between price and quantity needed on the graph as shown in Figure 1, with quantity on the horizontal axis and price per gallon on the vertical axis.
The demand schedule appeared in Table 1 and the demand curve below in the diagram in Figure 1 is two ways to describe the same relationship between price and demand. Figure 1. Demand curve for gasoline. Demand schedule these points are then graphed, and the line connecting them is the demand curve (D). The falling slope of the demand curve shows the demand law —the opposite relationship between the price and the volume of demand. The demand curve appears somewhat different for each product. It is relatively steep or flat that a new straight line or curved surface r. Almost all demand curves share the basic similarity that they are tilted from left to right. Thus, the demand curve expresses the law of demand: as the price increases, the amount requested decreases, and, conversely, as the price decreases, the amount requested decreases.
Is the demand the same as the requested quantity?
Price (per gallon) | Quantity Demanded (millions of gallons) |
$1.00 | 800 |
$1.20 | 700 |
$1.40 | 600 |
$1.60 | 550 |
$1.80 | 500 |
$2.00 | 460 |
$2.20 | 420 |
Table 1. Price and Quantity Demanded of Gasoline |
In economic terms, demand is not the same as the required quantity. When economists talk about demand, they mean a certain point on the demand curve, or one amount on the demand schedule, as indicated by the demand curve or demand schedule, when economists talk about the range of prices and the quantity requested at those prices and the quantity requested. In short, demand refers to a curve, and demand refers to a (specific) point on the curve.
Meaning of supply:
Supply is an financial time period that refers to the amount of a selected services or products that a dealer is inclined to provide to a client at a selected fee stage over a selected length of time.
If the fee of the product is low, the deliver may be low. The better the really well worth of the merchandise, the top the availability. This makes feel due to the fact corporations are searching out earnings with inside the marketplace. They are probable to provide merchandise which has the capacity to generate better fees and earnings than otherwise.
When economists speak about supply, it means the sum of certain good or service that producers are willing to provide at each price. The worth is what the producer receives for selling one unit of products or services. A rise in cost always tends to a rise within the supply of that goods or service, while a fall in price results in a decrease within the supply. When gasoline prices rise, for instance, it encourages profit—seeking companies to require some action: expand exploration for oil reserves, invest in additional pipelines and oil tankers, and take oil to factories which will refine it into gasoline, build new oil refineries, and switch gasoline into a gasoline station economist. Mist calls this positive relationship between price and supply—that the upper price are going to be the upper supply and therefore the lower cost are going to be the lower supply-the law of supply. The law of supply assumes that each one other variable that affects supply (described within the next module) is kept constant. Still unclear about the various sorts of supply? See the subsequent Clear It Up feature. Is the supply an equivalent because the quantity supplied? In economic terms, supply isn't an equivalent as supply. When economists ask supply, they will be indicated by the availability curve or supply schedule, the connection between the range of costs and therefore the quantity supplied at those prices. When specialist in economics refers to provide, they mention certain point on the availability curve, or one quantity on the availability schedule. In short, supply refers to a curve, and therefore the amount supplied refers to a (specific) point on the curve.
Figure 2 shows the laws of supply, taking the gasoline market as an example. Like demand, supply is often indicated using tables or graphs. The availability graph may be a bit like Table 2, which shows the quantities supplied in several price ranges. Again, the worth is measured in dollars per gallon of gasoline, and therefore the supply is measured in many gallons. The availability curve graphically shows the connection between the worth displayed on the vertical axis and therefore the quantity displayed on the horizontal axis. The availability graph and provide curve are two alternative ways to display equivalent information. Note that the horizontal and vertical axes on the graph of the availability curve are an equivalent as for the demand curve.
Figure 2. Gasoline supply curve. The availability graph may be a table that shows the availability of gasoline at each price. As prices rise, the quantity of supply also increases, and the other way around. A supply curve is made by charting points from a supply graph and connecting them. The upward slope of the availability curve indicates the law of supply—a higher price results in a better supply, and the other way around.
Price (per gallon) | Quantity Supplied (millions of gallons) |
$1.00 | 500 |
$1.20 | 550 |
$1.40 | 600 |
$1.60 | 640 |
$1.80 | 680 |
$2.00 | 700 |
$2.20 | 720 |
Table 2. Price and Supply of Gasoline |
The Shape of the availability curve varies somewhat counting on the product: steep, flat, straight or curved. But most supply curves share a fundamental similarity: they lean left to right and show the law of supply: because the price rises from$1.00 per gallon to$2.20 per gallon, the availability increases from 500 gallons to 720 gallons. On the contrary, because the price decreases, the quantity supplied decreases.
Demand Analysis
Demand analysis is the process by which management makes decisions about production, cost allocation, advertising, inventory retention, pricing, and more. However, the amount a company produces depends on its capacity, but how much effort do you need to make? The product depends on the potential demand for that product.
Definition:
Demand analysis is the process by which management makes decisions about production, cost allocation, advertising, inventory retention, pricing, and more. However, the amount a company produces depends on its capacity, but how much effort do you need to make? The product depends on the potential demand for that product.
Therefore, marketers need to properly analyze the demand for products in the market and keep inventory accordingly. Companies need to hold more inventory, such as when there is potential demand in the future, and when there is no demand, production remains unjustified and less inventory is held.
If production can exceed demand, marketers will need to create new demand using alternative methods such as better advertising.
Demand shows the relationship between two economic variables: the price of a product and the amount of product the consumer is willing to buy for a period of time. Other conditions are the same.
Demand characteristics
The following are the key characteristics or characteristics of demand that marketers should keep in mind when analyzing product demand.
- Demand is a certain amount that consumers are willing to buy. Therefore, it is represented by a number.
- Demand should mean demand per unit time, per month, per week, and per day.
- Demand always comes with a price. When the price of a product changes, there is a certain change in demand.
- Demand is always in the market, where a series of buyers and sellers meet. The market does not have to be a geographical area.
- Therefore, demand plays an important role in the success of any company. And it should be remembered that demand is always at the price and the specific period in which it is produced.
Demand for woollen clothing is higher in winter than in any other season. Therefore, demand analysis is always done in terms of price and related time period.
Types of Demand
Definition: Product demand refers to the amount of goods or services that a consumer is willing to buy at a particular price at a particular time.
- Individual Demand and Market Demand: Individual demand refers to the demand for goods and services by a single consumer, while market demand refers to the demand for goods by all consumers who purchase the product.
- Aggregate Market Demand and Market Segment Demand: Aggregate market demand refers to the total demand for a product by all consumers in the market who purchase a particular type of product. In addition, this aggregate demand can be subdivided into segments based on geographic area, and price sensitivity, customer size, age, gender, etc. are called market segment demand.
- Derived Demand and Direct Demand: When a product / result demand is associated with another product / result demand, it is called a derivative or induced demand. The demand for cotton thread comes from the demand for cotton cloth. On the other hand, if the demand for a product / result is independent of the demand for another product / result, it is called direct demand or autonomous demand. For example, in the example above, the demand for cotton cloth is autonomous.
- Industry Demand and Enterprise Demand: Industry demand refers to the total demand for products in a particular industry, such as the demand for cement in the construction industry. Company demand is the demand for products that are unique to the company and are part of the industry. Demand for Goodyear tires, etc. Therefore, corporate demand can be expressed as a percentage of industry demand.
- Short-term demand and long-term demand: Short-term demand is more elastic. That is, changes in price or income are immediately reflected in demand. Long-term demand, on the other hand, is inelastic and indicates that product demand exists as a result of adjustments associated with changes in pricing, promotional strategies, consumption patterns, and so on.
- Price Demand: Demand is often studied in terms of price, so it is called price demand. Price demand refers to the amount of goods that a person is willing to buy at a particular price. When investigating demand, we often think that other factors such as consumer income, preferences, preferences, and prices of other related products do not change. There is a negative relationship between price and demand Viz. When the worth goes up, the demand goes down, and when the worth goes down, the demand goes up.
- Income Demand: Income demand refers to an individual's willingness to purchase a particular quantity at a particular income level. Here, product prices, customer preferences and preferences, and prices of related products are expected to remain unchanged. The reverse is also true.
- Cross-Demand: This is one of the important types of demand in which the demand for a product depends on the price of other related products rather than its own price, and is called cross-demand. Tea and coffee are alternatives, such as higher coffee prices, which increases tea consumption. Also, as the price of a car rises, the demand for gasoline decreases as the car and gasoline complement each other.
These are some of the key types of demand that companies must meet before deciding on product-related prices and other factors.
Determinants of demand
Some of the key determinants of demand are:
[1] Price of the product
When all other factors remain constant or equal, people make decisions with price as a parameter. According to the law of demand, this means that the increase in demand follows the decrease in price, and the decrease in demand follows the increase in the price of similar goods.
The demand curve and demand schedule help you determine the demand quantity at the price level. Elastic demand implies a robust variation with price changes. Similarly, inelastic demand means that even if there is a change in price, the quantity does not change much.
[2] Consumer income
An increase in income leads to an increase in the number of goods demanded by consumers. Similarly, a decrease in income is accompanied by a decrease in the level of consumption. This relationship between income and demand isn't linear in nature. Marginal utility determines the percentage of changes in demand levels.
3] Prices of related goods or services
Complementary products-an increase in the price of one product causes a decrease in the amount required for complementary products. Example: an increase in the price of bread reduces the demand for butter. This occurs because the product is complementary in nature.
Alternative products-an increase in the price of one product causes an increase in demand for alternative products. Example: an increase in the price of tea will increase the demand for coffee and decrease the demand for tea.
4] Consumer expectations
The expectation of higher income or the expectation of an increase in the price of goods leads to an increase in the required amount. Similarly, the expectation of a decrease in income or a decrease in commodity prices would reduce the amount requested.
5] Number of buyers in the market
The number of buyers has a significant impact on aggregate or net demand. As the number increases, the demand increases. In addition, this is true regardless of the change in the price of the goods.
Law of demand and supply
Law of demand and its exceptions
The law of demand states that all other factors remain constant or equal, an increase in the price causes a decrease in the quantity demanded and a decrease in goods or services price leads to increase in the quantity demanded. Thus it expresses an inverse relationship between price and demand.
For example, at Rs 70 per kg consumer may demand 2 kg of apple. On the other hand, the price rises to 100/- per kg then he may demand 1 kg of apple
Assumption of law of demand
- No change in the income
- No change in size population
- No change in price of related goods
- No change in consumers taste, preferences, etc
- No expectation of a price change in future
- No change in climate conditions
Given these assumption, the law of demand is explained in the below table –
Price(Rs) | Quantity demanded |
10 | 10 |
8 | 20 |
6 | 30 |
4 | 40 |
2 | 50 |
The above table shows that when the price of apple, is Rs. 10 per kg, 10 kg are demanded. If the price falls to Rs.8, the demand increases to 20 kg. Similarly, when the price declines to Rs 2, the demand increases to 50 kg.This indicates the inverse relation between price and demand.
Also, in the above figure the demand curve slopes downwards as the price decreases, the quantity demanded increases.
Exception of law of demand
Under the following circumstances, consumers buy more when the price of a commodity rises, and less when price falls which leads to upward sloping demand curve.
- Giffen goods
Giffen Goods is a concept introduced by Sir Robert Giffen. These products are inferior to luxury products. However, a unique feature of Giffen goods is that as prices rise, so does demand. And this feature is an exception to the law of demand.
The Irish potato famine is a classic example of the concept of Giffen goods. Potatoes are the staple food of Ireland. During the potato famine, when potato prices rose, people spent less on premium foods such as meat and bought more potatoes to stick to their diet. As the price of potatoes went up, so did the demand. This is a complete reversal of the law of demand.
b. Veblen goods
The second exception to the law of demand is the concept of Veblen goods. The Veblen goods are a concept named after the economist Thorstein Veblen, who introduced the theory of "exaggerated consumption". According to Veblen, there are certain products that increase in value as prices go up. When a product is expensive, its value and usefulness are perceived to be higher, and therefore the demand for that product increases.
And this mainly occurs in precious metals such as gold and diamonds, stones, and luxury cars such as Rolls-Royce. As the price of these items rises, so does the demand as they become status symbols.
c. Expectations for price fluctuations
In addition to Giffen and Veblen goods, another exception to the law of demand is the forecast of price fluctuations. The price of the product will rise and the product may become more expensive depending on the market conditions. In such cases, consumers may purchase more of these products before the price rises further. As a result, if prices go down or are expected to go down further, consumers may postpone their purchases to take advantage of the low prices.
For example, the price of onions has risen considerably these days. Consumers began to buy and store more onions for fear of further price increases, resulting in increased demand.
In addition, consumers may purchase and store products for fear of shortages. Therefore, even if the price of a product rises, the demand associated with it may increase as the product is taken off the shelf or no longer on the market.
d. Necessary products and services
Another exception to the law of demand is the required or basic merchandise. As prices go up, you'll continue to buy essentials such as medicine and basic staples such as sugar and salt. The prices of these products do not affect the associated demand.
e. Changes in income
Changes in income may change the demand for goods. Increasing household income can lead to more products being purchased, regardless of rising prices, which increases demand for products. Similarly, if your income goes down, you may postpone your purchase of the product, even if the price goes down. Therefore, changes in consumer income patterns can also be an exception to the law of demand.
Law of supply
Law of deliver states that everyone elements being constant, supplier deliver extra withinside the growing fee and deliver much less while the fee decreases.
Definition “Other matters ultimate unchanged, the delivery of a commodity rises i.e., expands with a upward thrust in its fee and falls i.e., contracts with a fall in its fee.
Assumption
1. No extrade in income
2. No extrade in approach of manufacturing
3. No extrade in shipping cost
4. The fee of different items continue to be constant
5. No extrade in authorities’ policies
6. No hypothesis approximately destiny adjustments withinside the fee of the product
7. Fixed scale of manufacturing Explanation of the regulation Law of deliver defined with the assist of deliver agenda and deliver curve
Supply schedule
Supply schedule is the tabular illustration of fee and amount provided with the aid of using the vendor.
When the fee become Rs 10, amount provided become 1kg. When the fee began out 3ising from Rs 20 to 50 to forty so on, the amount provided with the aid of using the vendor extended from 2kg, three kg to 5kg respectively.
Thus the above desk indicates wonderful relation among fee and amount.
Supply curve
The deliver curve is a graphical illustration of a deliver agenda .
In the above figure, OX axis indicates amount of call for and OY axis indicates fee. When the fee become at OP, dealer become presenting OQ amount. When the fee will increase from OP to OP2 after which deliver additionally will increase from OQ to OQ2. Similarly, if fee decreases from OP to OP1, then deliver additionally decreases from OQ to OQ1.
In the above figure, we are able to see deliver curve is sloping upward. The marketplace deliver rises with the upward thrust in fee.
Limitation of law of supply
- Price expectation in future- the seller expects the price to rise in future, and then he will sell less. In case the price will fall in future, then the seller will sell more which is against law of supply
- Fear of out of fashion – if the seller expects that the goods will be outdated in future, then he will sell the goods at low price.
- Stock clearance sale – when the seller wants to store new stock, then he will sell old stock at discounted price.
- Perishable goods – these goods have short life time. The seller will sell the goods at any price.
Exceptions of law of supply:
The law of supply is not a universal principle that applies in all situations. In fact, there are many important exceptions to the law of supply. Here are some exceptions to the law of supply:
- Business changes
- Exclusive
- Competition
- Perishables
- Law to limit quantity
- Agricultural products
- Art and auction products
- Outdated products
- Economic slowdown
- Immediate request for funds
1. Business changes
The seller may plan to enter a whole new business by withdrawing from the current business. Therefore, when the current business is on the verge of closure, the seller can sell his goods at a lower price to get rid of them. Therefore, the law of supply is not obeyed here either.
2. Exclusive
If a small number of producers control the supply in the market, the law of supply may not work. For example, in the case of a monopoly (single seller), the high price of a product does not necessarily mean that it will provide a large supply. Exclusive market management allows you to set market prices based on market demand.
3. Competition
Other market structures such as oligopoly and monopoly competition may face more competition and therefore propose to sell more quantities at lower prices and the law of supply. I deny it.
4. Perishables
For perishables, the supplier proposes to sell more quantities at lower prices to avoid losses due to product damage.
5. Law to limit quantity
A supplier cannot offer to sell a larger quantity at a higher price if the government imposes some restrictions on the quantity of goods produced or the upper limit of the price at which the goods are sold on the market.
6. Agricultural products
Agricultural production cannot be increased beyond a certain limit, so high prices cannot increase supply beyond this limit. Producers cannot offer any more quantities.
7. Art and auction products
The supply of such goods cannot be easily increased or decreased according to its demand. Therefore, even if the price soars, it is difficult to offer a larger quantity.
8. Outdated products
When a product is in fashion, the seller can sell it at a high price. However, there are some products that have become obsolete and are no longer in fashion. Such items are sold at a low price by the seller to settle these items.
9. Economic slowdown
Businesses go through different phases and sellers need to adapt to these business-related changes. During times of economic downturn, sellers may not enjoy the benefits of price increases, so during these difficult times, sell products without witnessing price increases to recover costs. Increase. Therefore, the law of supply does not apply in this case either.
10. Immediate request for funds
Sellers may face a time when they need money soon. In this situation, he may supply goods on the market even at lower prices.
Elasticity of demand and supply
Elasticity of demand and its measurement
The elasticity of demand is an important variation on the concept of demand. You can classify the demand as Elastic, inelastic, or as single.
The elasticity of demand is the change in the quantity required due to price changes big. . An inelastic demand is one in which the change in quantity demanded due to a change in the price is small.
The formula used here for computing elasticity of demand is:
(Q1 – Q2) / (Q1 + Q2)/ (P1 – P2) / (P1 + P2)
If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic. In other words, quantity changes slower than price. If the number is equal to 1, elasticity of demand is unitary.
Elasticity of demand is illustrated in Figure. Note that a change in price results in a large change in quantity demanded. An example of products with an elastic demand is consumer durables. These are items that are purchased infrequently, like a washing machine or an automobile, and can be postponed if price rises. For example, automobile rebates have been very successful in increasing automobile sales by reducing price.
Close substitutes for a product affect the elasticity of demand. If another product can easily be substituted for your product, consumers will quickly switch to the other product if the price of your product rises or the price of the other product declines. For example, beef, pork and poultry are all meat products. The declining price of poultry in recent years has caused the consumption of poultry to increase, at the expense of beef and pork. So products with close substitutes tend to have elastic demand.
Inelastic Demand
In figure note that change in price results in only a small change in required quantity. In other words, the amount respondent is not very sensitive to changes in price. Examples of these are necessities like food. And fuel. Consumers will not cut down on their food shop if food prices go up, even though changes in the types of food they buy. Also, consumers will not change the way they drive much behaviour if gasoline prices rise.
Unitary Elasticity
If the elasticity coefficient is equal to one, demand is unitarily elastic as shown in Figure. For example, a 10% quantity change divided by a 10% price change is one. This means that a 1% change in quantity occurs for every 1% change in price.
Elasticity can be calculated in two ways. First, it is as the mean over a range of demand functions, in which case it is called the arc elasticity.
Arc price elasticity can be calculated using the following midpoint formula:
Demand arc price elasticity
The formula for calculating the arc elasticity can be expressed as:
Arc elasticity calculation formula
Where Ep is the amount of arc elasticity required for the price.
P1 and Q1 are the original price and quantity,
P2 and Q2 are the final price and quantity,
∆P is an absolute change in price,
∆Q is the absolute change in quantity.
Note that Ep is always a pure number such as 1, 1/2, 1/4, etc., as it is a rate of change of 2 percent.
The demand curve slopes downward, so either ΔP or ΔQ is negative. Therefore, the calculated value of elasticity has a negative sign.
The arc price elasticity can be calculated based on the midpoint formula. If Ep> 1, the demand is said to be elastic. If the demand for Ep = 1 is unielastic and the demand for Ep <1 is inelastic. Consider the following example.
Example 1:
Suppose your income is constant at rupees. 3,000 a year, the current price of the goods is rupees. The current demand for 10 is 125 units per month. Now the price drops to rupees. A large quantity of 150 units may be required in 9 and a month. What is the arc price elasticity in this range of the demand curve?
Solution:
Substituting the value into the arc elasticity equation gives:
What is the importance of the calculated modulus of elasticity? This shows that for every 1% decrease in price in the relevant range of the demand curve, the quantity increases by 1.73%. A negative value of the elasticity coefficient of demand means that as P decreases, the quantity Q increases, and vice versa.
The advantage of this calculation method is that it is a more accurate measurement than using the first or last P and Q bases. This is because when dealing with the range of price fluctuations, it is always better to get an indicator that reflects the average consumer responsiveness.
For discrete (large) or one-time P changes, use the above equation. However, as a special case of arc elasticity, we may use the concept of point elasticity. For small (or continuous) changes in P and Q, Ep can be calculated for points on the demand function, called point price elasticity.
You have the sole authority to sell sandwiches in Eden Gardens during a test Match. Each costs 50 p. (including all relevant costs such as that of your labour).
From previous experience your best estimate of the demand is the following:
Calculate the elasticity of demand on this demand schedule around the price of Re. 1. Explain precisely the concept of elasticity you use.
Solution:
Elasticity of demand around a price of Re. 1:
Elasticity of demand = Proportionate change in quantity demanded/Proportionate change in price
When price increases from Re. 1 to Rs. 1.05, proportionate increase is 5%. At Rs. 1.05 proportionate decrease in quantity demanded, i.e., from 2000 to 1800 is of 10%.
Determinants of supply
Determinants of supply are as follows.
- Price of production factor (C)
An engine supply curve is a curve that represents the lowest price a producer wants to supply a product to.
As the price of the factor of production goes up, so does the lowest price that the producer wants to offer. As a result, the supply decreases and the supply curve shifts to the left.
For example, cocoa tree seeds are used to make chocolate. As the price of cocoa beans goes up, so does the cost of making chocolate. As a result, supply is reduced.
2. Supply determinants: Technology (T)
Technology refers to the methodology of using resources to produce goods. If you find a more efficient technology and use it to manufacture your product, your manufacturing costs will go down.
As a result, supply increases and the supply curve shifts to the right. Improvements in technology can also help reduce production costs and increase profits.
3. Related product prices (Pn)
The prices of goods and substitutes produced by a company affect the supply of related products. This means that if the price of another good that a company can produce rises, the company will produce more and less than what it was previously producing.
Goods that can be produced using the same resources are called substitutes in the production process.
For example, if the price of mung bean is relatively high, the land used to grow corn can be used to grow mung bean. After that, the supply of corn will decrease.
4. Producer's expectations (example)
Changes in producer expectations affect the current supply of products. It is not clear how price expectations will affect current supply, as they depend on the nature of the product.
For example, producers are expanding their supply, believing that future prices for industrial products will be higher.
Forecasting changes in factors that affect future profitability will affect current supply. Expectations for business taxes and import restrictions are examples.
5. Number of producers in the market (N)
The number of suppliers in the market also affects the supply of the market. As the number of suppliers increases, the supply increases, and when the number of suppliers decreases, the supply decreases.
6. Government Policy (G)
Government policy can be pointed out as a determinant of supply. Various government regulations, taxes and production subsidies also affect supply. For example, taxes on goods increase the marginal cost of production. Production subsidies, on the other hand, reduce marginal costs. Therefore, the minimum price at which the goods are supplied also increases or decreases.
7. Supply determinants: Other factors (O)
Among them, changes in supply due to the influence of nature and the Internet are pointed out. Disasters such as plagues, droughts and floods cause supply changes.
Elasticity of supply
Supply elasticity establishes a quantitative relationship between the supply of goods and their prices. Therefore, the concept of elasticity can be used to represent the numerical changes in supply as the price of goods changes. Note that elasticity can also be calculated for other supply determinants.
The price elasticity of supply is the ratio of the percentage change in the price to the percentage change in quantity supplied of a commodity.
Es= [(Δq/q)×100] ÷ [(Δp/p)×100] = (Δq/q) ÷ (Δp/p)
Δq= The change in quantity supplied
q= The quantity supplied
Δp= The change in price
p= The price
Elasticity from a Supply Curve
Along with the method mentioned above, there are two more ways to calculate the price elasticity of supply, both of which make use of the supply curve. We can either calculate the elasticity at a specific point on the supply curve, known as point elasticity or between two prices, known as arc-elasticity.
The formula for calculating the point elasticity of supply is:
Es= (dq/dp)×(p/q)
Here dq/dp is the slope of the supply curve.
The formula for calculating the arc-elasticity of supply is:
Es= [(q1 – q2)/( q1 + q2)] × [( p1 + p2)/(p1 – p2)]
Types of Elasticity of supply
- Perfectly inelastic supply
A carrier or items, regardless of the fee, may be a very inelastic deliver if a positive amount may be provided. The elasticity of the delivery of such offerings and items is 0. A absolutely inelastic deliver curve is a immediately line parallel to the Y axis. This represents the truth that deliver stays the equal no matter fee.
2. Unitary Elastic
For a product with unit elasticity of deliver, the extrade with inside the delivery of the product is precisely similar to the extrade in its fee. In different words, adjustments in each the fee and deliver of products are proportional and same to every different. To factor out, the pliancy of the deliver in such instances is same to 1. In addition, a unmarried elastic deliver curve passes thru the origin.
3. Perfectly Elastic demand
A commodity with a superbly elastic deliver has an endless elasticity. In this sort of case the delivery will become 0 with even a moderate fall with inside the fee and will become endless with a moderate upward thrust in fee. This is indicative of the truth that the providers of this sort of commodity are inclined to deliver any amount of the commodity at a better fee. A flawlessly elastic deliver curve is a immediately line parallel to the X-axis.
Law of Diminishing Marginal utility
The law of reducing marginal utility is an important concept to understand. It basically falls into the category of microeconomics, but is equally important in our daily decision making. This article describes the definition of the law that reduces marginal utility, a detailed explanation using schedules and diagrams, the assumptions that the law that reduces marginal utility makes, and the exceptions that the law that reduces marginal utility makes. Not applicable.
Let's start with the basic definition of "utility".
Utility:
Utility is that the ability of a product to satisfy human needs.
Law of Reduction of Marginal Utility:
The law of reducing marginal utility is comprehensively explained by Alfred Marshall. According to his definition of the law of reducing marginal utility, the following happens:
"In the process of consumption, as more units of goods are used, all contiguous units give utility at a decreasing rate, as long as others remain the same, but the total utility increases. Increase."
Utility:
"Utility" is considered a measurable "unit" of utility.
Explanation of the law of reduction of marginal utility:
Marshall's theory can be briefly explained using examples. Suppose a consumer consumes six apples one after another. The first apple gives him 20 utility (a unit for measuring utility). When he consumes the second and third apples, the marginal utility for each additional apple is reduced. This is because as apple consumption increases, his desire to consume more apples diminishes.
Therefore, this example proves that every contiguous unit of goods used gives a reduction in utility.
Schedules and diagrams can be used to explain this more clearly.
In the table above, the total utility obtained from the first apple is 20 utils and continues to increase until the saturation point is reached at the fifth apple. Marginal utility, on the other hand, continues to diminish with each additional apple. The limit was exceeded when the sixth apple was consumed. Therefore, the marginal utility is negative and the total utility is reduced.
With the help of the schedule, I created the following figure.
Saturation point: The point at which the desire to consume the same product becomes zero.
Waste:
If the product is still consumed after the saturation point, the total utility will begin to decline. This is known as futile.
When the primary apple is consumed, the utility is 20. When the second apple is consumed, the utility increases by 15 utils. This is less than the marginal utility of the first apple because it slows down. Therefore, we have shown that the utility of consumed apples decreases as more apples are consumed.
Similarly, when we consume the fifth apple, we are at the saturation point. When you consume another apple, the sixth apple, you can see that the marginal utility curve is below the X-axis. This is also called "useless".
Assumptions in the Law of Reduction of Marginal Utility:
Certain assumptions must be made for the law of reducing marginal utility to be true. Each assumption is very logical and easy to understand. If either assumption does not apply, then the law of reducing marginal utility does not apply.
The assumptions of the law that reduce marginal utility are as follows:
- The quality of successive product units should remain the same. If the quality of a product improves or deteriorates, the laws that reduce marginal utility may not prove to be true.
- Goods consumption must be continuous. If the consumption of goods is significantly interrupted, the actual notion of reducing marginal utility changes.
- Consumers' mental outlook should remain the same.
- The unit of goods cannot be very small or small. In such cases, utility may not be measured accurately.
Exception to the Law of Reduction of Marginal Utility:
The law of reducing marginal utility states that consuming all consecutive units of a commodity yields marginal utility at the rate of reduction. However, there are certain things that the law of reducing marginal utility does not apply.
Demand Forecasting – Meaning and Methods
Demand forecasting is the process of estimating future customer demand for a defined period of time using historical data and other information.
Good demand forecasting gives companies valuable information about their current and other market potential, allowing managers to make informed decisions about pricing, business growth strategies, and market potential.
This is a method for estimating the expected demand for future products or services. It is based on an analysis of past demand for that product or service in current market conditions. Demand forecasts should be evidence-based and take into account the facts and events associated with the forecasts.
So, simply put, after gathering information about different aspects of the market and demand based on the past, attempts may be made to estimate future demand. This concept is called demand forecasting.
For example, suppose you sell 200, 250, and 300 units of Product X in January, February, and March, respectively. With this, it can be said that there is a demand for about 250 units. If market conditions do not change, for product X in April.
There are several methods of forecasting that apply from the following perspectives: The purpose of the forecast, the data required, the availability of the data, and the time frame in which the demand is forecast. Each method is different from each other, so the predictor should choose the method that best suits his requirements.
Forecasting methods are often broadly divided into two categories.
- Survey Method: The survey method contacts consumers directly and asks about product intent and future purchase plans. This method is often used to forecast demand in a short period of time. The survey method is as follows.
- Consumer survey method
- Opinion poll method
2. Statistical methods: Statistical methods are often used for long-term demand forecasting. Statistical methods utilize statistic (history) and cross-section data to estimate long-term demand for a product. Statistical methods are used more often and are considered superior to other methods of demand forecasting for the following reasons:
Statistical methods have a minimum element of subjectivity.
The estimation method is scientific and depends on the relationship between the dependent variable and the independent variable.
The quote is more reliable
Also, the cost of estimating demand is minimal.
Statistical methods include:
- Trend prediction method
- Barometric pressure method
- Econometric method
These are the different types of methods you can use for forecasting demand. Forecasters need to choose the method that best meets the purpose of the forecast.
Key takeaways:
- It is one of the determinants of business as it can affect business growth and economic growth.
- Economics is defined because the science that deals with the assembly , distribution and consumption of products and services.
- The nature of economics deals with the question of whether economics falls into the category of science or art.
- Science deals with systematic studies of causality. In science, facts and numbers are collected and systematically analyzed to reach specific conclusions.
- It is said that "knowledge is science and action is art." Economic theory is used to solve various economic problems in society. Therefore, it can be inferred that not only social science but also economics is an art.
- Economists use different economic theories to solve different economic problems in society.
- Microeconomics examines individual economic activities, industries, and their interactions.
- Demand can be defined as an economic principle related to a consumer's desire to purchase a product or service and their willingness to pay for the purchase of a particular product or service.
- The demand function represents the relationship between the quantity required for a product (dependent variable) and the price of the product (independent variable).
- In a linear demand function, the slope of the demand curve remains constant throughout its length.
- The law of demand states that all other factors remain constant or equal, an increase in the price causes a decrease in the quantity demanded and a decrease in goods or services price leads to increase in the quantity demanded.
- Giffen goods are those products where the demand increases with the increase in price. For example, necessities products like rice, wheat. Lower incomes group will spend less on superior foods (like meat) to buy more rice, wheat etc.
- When the price of goods and services goes up, the demand for quantity goes down, and when the price of goods and services goes down, the demand for quantity goes up. Also known as the law of demand.
- Product demand can change based on buyer preferences and preferences, and brand advertising plays an important role in changing buyer preferences and preferences.
- Higher expectations for future income and wealth increase consumption, and lower expectations for future income decrease consumption.
- The elasticity of demand is an important variation on the concept of demand. You can classify the demand as Elastic, inelastic, or as single.
- Demand forecasting is the process of estimating future customer demand for a defined period of time using historical data and other information.
- Law of supply explained with the help of supply schedule and supply curve
- Supply is an economic term that refers to the quantity of a particular product or service that a supplier is willing to offer to a consumer at a particular price level over a particular period of time.
- The law of supply is not a universal principle that applies in all situations.
- A supplier cannot offer to sell a larger quantity at a higher price if the government imposes some restrictions on the quantity of goods produced or the upper limit of the price at which the goods are sold on the market.
- Sellers may face a time when they need money soon
- An engine supply curve is a curve that represents the lowest price a producer wants to supply a product to.
- Technology refers to the methodology of using resources to produce goods.
- Supply elasticity establishes a quantitative relationship between the supply of goods and their prices.
- Perfect competition is a market structure in which each company is a price taker and the price is determined by the market power of supply and demand.
- Buyers will want to pay as low as possible and sellers will want to charge as high as possible.
Meaning of organizing:
Organizing can also be a "method of defining the important relationships among humans, responsibilities and sports in such how that all the employer's sources are incorporated and coordinated to apprehend its targets correctly and effectively". - Pearce and Robinson
Organizing is thus:
(i) A shape, and
(ii) A method.
As shape:
The employer is a hard and fast of relationships that defines the vertical and horizontal relationships among folks that carry out diverse responsibilities and duties. The organizational venture is split into gadgets, the humans in every unit (departments) are assigned unique responsibilities and their dating is described in a manner that maximizes organizational wellbeing and character dreams. The dating among humans is each vertical and horizontal.
As vertical relationships, the authority-obligation shape of humans at distinctive degrees withinside the identical branch is described and as horizontal relationships, the authority-obligation shape of folks that paintings in distinctive departments on the identical degrees is described.
The organizational shape specifies the department of exertions and suggests how the diverse capabilities or sports are linked; to a selected quantity it additionally suggests the quantity of specialization of exertions sports. It additionally suggests the hierarchy and authority shape of the employer, and suggests its subordinate relationships. - Robert H. Miles
The employer as a shape is a community of relationships (authority-obligation shape) amongst all folks who are a part of the employer, running at any stage in any branch. It defines the relationships among jobs at diverse degrees and the folks that paintings in the ones positions. Emphasize positions extra than humans.
As a method:
While the shape designs the gadget and its subsystems, the method defines the manner this shape is designed. The shape is the static idea that establishes relationships among diverse additives of the employer. You first layout the issue after which set up relationships among those additives.
These relationships are typically permanent. They do now no longer extrade regularly except hampered via way of means of outer environmental forces. Process is the dynamic idea that redefines the shape every time necessary. Defines the extrade withinside the gadget over time.
While the shape defines how the paintings of the employer might be divided into diverse positions, agencies and departments, the method defines the collection from which the shape is designed. Define relationships among humans in the sort of manner that organizational dreams are carried out correctly.
As a method, the employer includes processes:
1) Differentiation
2) Integration.
Differentiation method the department of exertions into smaller gadgets and its task to people in keeping with their competencies and capacities. Integration refers back to the coordination of various sports in the direction of a not unusual place goal. Provides harmony of movement in the direction of organizational sports.
- It implies:
- Job identification,
- Grouping of labor into smaller agencies,
- Assign paintings to every character in any respect degrees in every branch,
- Define the authority and obligation thereof, and
- Establish relationships among humans so they make a contribution to the targets of the employer in an incorporated manner.
The shape and method of the employer isn’t impartial concepts. They are complementary to every other. Once the organizational method is described, the organizational shape is the give up end result or the end result of that method. The employer shape is that the effects of the employer method. The employer is, in fact, a based and non-stop method that defines the way to acquire the described dreams.
Organization method:
The organizing method entails the subsequent steps:
(i) Determination of targets:
Every employer is hooked up via way of means of a few goal or goal. Various responsibilities are decided to acquire this goal. For example, if the employer is hooked up to export items, it determines the character and sort of items to be exported, the reasserts from which the uncooked cloth might be obtained, the nation’s wherein the products might be exported, it's going to coordinate with overseas buyers, etc. Organizing workload is step one withinside the organizing method.
(ii) Division of Activities:
Since one character can not manipulate all sports, the entire venture is break up into smaller gadgets and assigned to members. Work is assigned in keeping with the qualification and capacity of everybody.
The department of exertions results in specialization which has the subsequent benefits:
(a) Higher manufacturing:
Adam Smith illustrated a take a look at wherein someone ought to fabricate
Carry 20 pins an afternoon if she labored alone. The manufacturing of pins become divided into sub-sports wherein everybody finished the subsequent specialised responsibilities: Stretching the wire - straightening the wire - reducing the wire - grinding the point - sharpening it - setting the top of the pin and so on. It become located that in comparison to the 20 pins produced via way of means of one character in an afternoon, the department of exertions and their specialization allowed 10 humans to supply 48,000 pins in a single day. See the wonders of specialization!
(b) Efficiency:
Performing the identical venture again and again once more will increase the talent and performance of employees.
(c) Facilitates the schooling of much less certified employees:
Since the complicated venture is break up into smaller gadgets, much less professional employees are regularly educated to preserve out the ones sports.
(iii) Grouping of sports:
Once work is split to human beings, the ones who've identical sports are divided into branches. Various departments like sales, finance, accounting, etc. are packed with human beings who've exclusive talents and experience, however carry out comparable sports. departmentalization is grouping of sports into departments and every branch is managed through a hard and fast of rules, procedures, and standards.
(iv) Define authority and duty:
Each branch is headed through someone chargeable for its green operation. The branch heads are certain to perform the sports in their respective departments. The competence of the branch head is assured to in shape the process necessities of the branch.
Each boss has the authority to do the paintings of the departmental contributors of him. He divides paintings to be accomplished and instructions to contributors of his branch. This creates a courting shape wherein every man or woman is aware of his superiors and subordinates and their subordinate relationships.
(v) Coordination of sports:
When departments paintings in the direction of their goals, conflicts can increase among departments which could hinder the success of organizational desires. For example, the finance branch desires to lessen costs, however the advertising branch desires extra finances to marketplace its products; This warfare may be resolved through coordinating so that each one departments proportion not unusual place sources optimally. Work may be coordinated through defining relationships among diverse departments and those operating in exclusive positions.
(vi) Review and reorganization:
There is a steady assessment of the organizational method in order that adjustments may be made withinside the shape because of adjustments in environmental factors. Constant assessment and reorganization are an critical a part of the organizing method.
Importance of the agency:
Organization is vital for the subsequent reasons:
(i) Facilitates administration:
Senior managers cannot carry out all organizational duties as they may be overloaded to attention on strategic topics. It is important that part of the workload is shared through center and lower-degree managers. Senior executives could be relieved of ordinary commercial enterprise control and could attention on powerful administration.
The fundamental factors of agency (department of hard work, grouping of sports, distribution of authority and coordination) facilitate higher control through senior control.
(ii) Growth and diversification:
A nicely-prepared organization adapts to alternate and responds to increase and diversification. You can multiply your operations.
(iii) Create synergies:
The department of hard work presents the blessings of synergies, that is, the entire project completed through a collection of human beings is extra than the sum overall in their man or woman achievements. People coordinate their duties withinside the identical branch and in exclusive departments that's beneficial.
(iv) Establishes duty:
When absolutely everyone is aware of his superiors and subordinates, the agency can feature efficiently. Establishing obstacles withinside the vicinity of operations defines human being’s duty to their on the spot boss, which publications the agency in the direction of its broader goals.
(v) Optimal use of era:
It is the generation of technological developments. Organizations that don't have a nicely-evolved era will now no longer be capable of compete withinside the marketplace. Well-prepared systems permit businesses to optimally use and improve their era and stay aggressive in dynamic marketplace conditions.
(vi) Facilitates verbal exchange:
Communication is the essence of the agency. The performance of the agency relies upon on how nicely the contributors of the agency speak with every other. A nicely-designed verbal exchange machine (vertical and horizontal) is facilitated thru the powerful organizational efforts of senior executives.
(vii) Facilitates creativity:
Creativity manner developing something new. Develop new methods of doing matters. A robust agency permits pinnacle control to enhance the methods of doing matters through delegating ordinary topics to human beings withinside the scale chain. C
(viii) Improve interpersonal relationships:
An organizational shape guarantees that the workload is split into nicely-described jobs and assigned to human beings consistent with their capabilities and talents. Placing the proper character withinside the proper process guarantees process delight and elevated worker morale. This improves interpersonal relationships among those who paintings withinside the agency.
Ix) Facilitates Coordination:
Well-described desires and plans can fail if the agency's sports aren't coordinated in a unified direction. A nicely-designed organizational shape promotes order and machine to your sports. Coordinate the paintings of human beings at exclusive degrees in exclusive departments.
People paintings in predefined dimensions and harmonize man or woman goals with the goals of the agency, the inner organizational surroundings with the outside surroundings, and monetary sources with non-monetary sources.
(x) Facilitates teamwork:
Although human beings are chargeable for the unique duties assigned to them, they paintings together as a group and optimize the usage of scarce organizational sources to obtain organizational desires. The agency, therefore, helps teamwork. Rather than viewing the agency's desires from private perspectives, they view them from organization perspectives. Organizational desires fulfil man or woman desires.
Different varieties of Authority
Authority is that the right to execute or order. It additionally lets in its proprietor to allocate the agency's assets to apprehend organizational goals.
Authority at Work:
Barnard defines authority due to the fact the person of verbal exchange with the aid of using which a non-public accepts an order as governing the movements the man or woman takes in the device.
Barnard keeps that authority is going to be widely wide-spread simplest beneath the following situations:
- The man or woman can apprehend the order being communicated.
- The man or woman believes that the order is regular with the purpose of the agency.
- The man or woman sees order as well matched alongside facet his non-public interests.
- The man or woman is mentally and bodily able to complying with the order.
- The much less of those four situations are present, the much less in all likelihood authority are becoming to be widely wide-spread and obedience are becoming to be required.
Barnad gives a few hints for what managers can do to boom the chance that their orders are becoming to be widely wide-spread and obeyed. He keeps that an increasing number of orders from a long-time period supervisor are becoming to be widely wide-spread if:
- The supervisor makes use of formal channels of verbal exchange and those are acquainted to any or all or any individuals of the agency.
- Each member of the agency is assigned a accurate channel thru which orders are received.
- The street of verbal exchange among the supervisor and for that reason the subordinate is as direct as possible.
- The complete chain of command is used to problem orders.
- The supervisor possesses the best verbal exchange skills.
- The supervisor makes use of formal traces of verbal exchange simplest for organizational business.
- A command is authenticated as coming from an administrator.
Types of authority:
There are regularly three major sorts of authority inside an agency:
- Line authority
- Staff authority
- Functional authority
Each kind exists simplest to permit human beings to perform the various sorts of obligations which might be entrusted to them.
The maximum essential authority inside an agency, displays the winning relationships among superiors and subordinates. It includes the right to shape selections and affords order on behaviour related to production, income or budget of subordinates.
Line authority
In general, line authority refers to subjects that at once contain production, income, finance, etc. of the control device and, as a result, with the fulfillment of objectives.
People at once liable for those regions in the agency have delegated line authority to assist them carry out their required sports.
Personnel authority:
Staff authority includes the proper to recommend or help the ones in line authority, additionally as different team of workers employees.
Personnel authority permits managers to enhance the effectiveness of pressure to carry out required tasks.
Line and team of workers employees have to paintings intently collectively to stay the agency green and effective. To shape positive that pressure and team of workers paintings collectively productively, control have to verify that each corporations apprehend the agency's mission, have particular goals, and comprehend that they're companions in assisting the agency acquire its goals. Objectives.
Size is possibly the most vital accept as true with figuring out whether or not or now no longer an agency could have team of workers. The large the agency, the more the need and ability to apply team of workers.
Functional authority:
Functional authority includes the right to offer orders inside a section of the agency for the duration of which this proper would not generally exist.
This authority is normally assigned to people to complement the street or non-public authority they already possess.
The practical authority normally covers simplest particular project regions and is operational only for detailed intervals of a while. It is given to parents that, so on fulfil obligations of their very own regions, have to be capable of exercising a few manipulate over individuals of the agency in different regions.
Decentralization
Decentralization way decentralizing decision-making authority to rock backside stages of the marginal hierarchy. In different words, while the ability to shape selections and formulate regulations is not for the duration of a unmarried character at the best, however is transmitted to specific human beings at numerous stages, it is referred to as decentralization. However, the selection to shape at a decrease degree must be vital, in any other case it will now no longer be a case of decentralization.
Advantage of decentralization
i. Reduces the weight of the senior government:
Decentralization frees the satisfactory government from the border to perform several functions. This moreover reduces the time available to senior executives to pay attention on one of a kind important managerial function. So, the simplest manner to pay attention his burden is to decentralize his decision-making electricity to subordinates.
Ii. Facilitates diversification:
Under decentralization, products, sports activities and markets, etc., are facilitated, a centralized corporation with the neutralization of authority on the satisfactory diploma may want to have troubles in diversification after a particular diploma because of the reality decision-making is taken once more with the useful resource of the use of one man. The business enterprise will become increasingly more complete with the addition of new products and therefore the installed order of greater units. Therefore, the decentralized tool are going to be greater suitable for growing companies.
Iii. Quick selections:
In the decentralized tool, decision-making powers are delegated to the unique execution diploma. Therefore, it's far now not important to ask the satisfactory diploma for a number of the paintings. Quickens the decision-making process.
Iv. Risk division:
The agency is split into several departments’ underneath decentralization manipulate in an attempt to check with new mind in a unmarried department without mistrusting the others. This could reduce your hazard if topics turn bad.
v. Effective control and supervision:
With the delegation of authority, the scope of control are going to be effective. Under decentralization, decrease-diploma executives absolutely have entire authority to form important selections. So, they may be going to advocate rewards or punishments everyday with their performances. This could decorate supervision and control.
Disadvantages of decentralization: -
Decentralization suffers from a number of drawbacks and some of them are discussed below: -
i. Lack of coordination: -
Under decentralization, each department, section, or unit enjoys substantial powers. They have the power to formulate their own policies and programs. This is why it is sometimes difficult to coordinate the activities of various departments.
Ii. Difficult to control: -
Under decentralized conditions, different units operate independently, making it difficult to control their activities. Senior management will not be able to exercise effective control because; does not stay in touch with the daily activities of various departments.
Iii. Expensive: -
The decentralization system involves large overhead costs. Each department in decentralization has to be self-sufficient for its activities such as production, marketing, accounting, personnel, etc. For this reason, the decentralized system is suitable for large-scale organizations.
Iv. Qualified Manager Lake: -
Decentralization will only be successful if qualified or competent people are employed to manage various jobs in different departments. Sometimes competent people are not available as required. The system will fail if competent people are not available.
Delegation of authority
Have you ever wondered why one restaurant fares so much better than another even if they serve the same quality of food and provide a similar dining experience?
The answer lies in better customer service that often sets a restaurant apart from the rest. So, what is the core of that?
Restaurant staff known for their customer service are often able to serve each customer with the same attention. Often times, this is because the managers of these restaurants delegate responsibilities so that none of the customers feel left out.
Delegation helps divide the workload and encourages employees to be more productive because they are not overloaded. Let's see how delegation of authority makes teamwork more efficient.
Meaning of delegation of authority
To define delegation of authority, we must understand the meaning of the term. Delegation of authority is a process that allows one person to assign a task to others. As a manager or leader, you are expected to multitask and meet various deadlines. To make sure you achieve your goals on time, you delegate responsibility to your team members. In short, the meaning of delegation of authority is to entrust tasks to someone and share the overall responsibility.
Elements of delegation of authority
There are three core elements involved in the delegation of authority process.
1. Authority
In the context of business organizations, authority is the right and power of an individual to efficiently allocate resources, make decisions, and give instructions to achieve organizational goals. This authority must be well defined and must not be misused. There is a co-dependent relationship between authority and responsibility, so authority must always be accompanied by an equal amount of responsibility to complete tasks successfully. However, the ultimate responsibility always rests with the person with the highest authority.
2. Responsibility
Responsibility refers to the scope or duty of an individual to complete the task assigned to him. Someone entrusted with responsibility must take responsibility for her tasks. It is better not to make excuses or give explanations if tasks are not completed. Responsibility without the proper authority can lead to dissatisfaction and discontent. It is best not to give someone too much authority and too little responsibility. Ultimately, managers and leaders may be held accountable for overall performance, but the most important responsibilities are in the hands of the employees.
3. Accountability
What is a delegation of authority without accountability? It is a component that differentiates between the performance of an individual and the expectations that were established in advance. Unlike authority and responsibility, accountability cannot be delegated to others. Anyone who sets out to complete a task is responsible for the efforts and results of it. For example, if Madan is assigned a task with the appropriate authority and delegates the task to Mohan, the responsibility rests with Mohan, but Madan remains responsible for the task.
Project Organization
A temporary organization designed to achieve specific results using a team of experts from different functional areas is a project organization. The team concentrates all energy and skills on the assigned project. When the project is complete, the team will be disbanded and its members will be reassigned to their normal location within the organization or to other projects.
- The project organization is a purely temporary structure. A project is a one-time task and can be defined for a single specific goal. By definition, a project ends at an objective point.
- A team of experts with the necessary skills, knowledge and experience related to the task will come together to produce results in a time frame. When the project is complete, the project team will be disbanded and members will move on to the next team.
- The project manager here acts as a facilitator, mentor, and coach. Because they have a good workforce, all team members need good interpersonal skills to work together on a project.
- The project team enjoys a lot of flexibility in that all the resources, people, information, etc. needed to complete the project are available.
- Great for organizations like this (according to Stewart)-
- Handles complex assignments that require a high degree of interdependence between members.
- Take on important tasks that have a significant impact on your organization.
- Undertake work that requires support, expertise, and close coordination among a large number of specialists working in different functional departments within the organization.
The nature of Project Management:
A. Project Manager:
The project manager wants to appoint a project manager who will be responsible for completing the project. He runs the show, produces results on time and plays a particular important role –
- The project manager ensures that the project is not lost in the shuffle of organizational activities.
- He specifies what to do, when to complete, and where to get the necessary resources and carefully deploy them. The feature manager then decides who in the unit will perform the task and how.
- The project manager is an integrated agent and the center of project activity.
- He is always there to put out the fire among the members of the project team. He is expected to show restraint, emotional balance, and good interpersonal skills while trying to take people to a common platform.
- He is responsible for the performance of the team and is expected to produce results on schedule.
- Finally, project managers are expected to:
- Listen to others and help them get feedback and valuable suggestions forward
- Choose the right person for your project
- Delegate tasks and manage your team effectively
- Build trust and trust among members
- Know what you need and when
- Track the health of your project and make it easier for members to address risks and challenges that can sometimes surprise you.
- You need to pool your resources and get the most out of them
- Conduct the orchestra in a competent way
- Negotiate effectively with project teams, clients and suppliers
B. Team members:
Various functional departments or external members participate in this project. Team members report directly to the project manager. Membership is temporary. The size of the group can vary depending on the different phases of work. As soon as the project is complete, the team members move to another project.
C. Project authority:
The project has vertical and horizontal dimensions. It crosses the normal organizational structure. Project managers are expected to work with a variety of functional managers by seeking support through compelling negotiations. He must lend the manager the support he needs to complete a given task in time and convince them that he needs to help the project. In reality, project managers are facing an "authority gap." They do not have the authority to promote or reward staff.
They lack full authority over the team and have what is known as "project authority". Moreover, in the project structure, the recognition of roles is unclear and lacks concreteness. The relationship between the project manager and the functional manager is very vague. His authority is more fluid than a stable organization consisting solely of line and staff relationships. Project managers are expected to work with external organizations as well as the company's functional groups to achieve their goals. “There are no individual boundaries throughout the project organization. This is a complex structure that facilitates coordination and integration of many project activities.”
Advantage:
1. Project management maximizes the expertise that all projects have equally available. Knowledge and experience can be transferred from one project to another.
2. The project manager owns a functional home when it is no longer needed for a particular project. In the meantime, it provides an exciting opportunity to participate in the decision-making process.
3. The project structure reduces the complexity of the environment. This facilitates the rapid collection and processing of new information.
4. Project structure is one way to promote and maintain organizational flexibility. Throughout the project, experts with the expertise needed to achieve the goals will no longer be gathered, as long as necessary.
5. Project organization, most importantly, allows professionals to focus their attention on complex projects for a period of time without interfering with their normal day-to-day operations.
Problem:
i. The structure of the project creates feelings of anxiety and uncertainty among the members. The relationship with the functional members is unknown. Double loyalty creates anxiety and tension.
Ii. The structure of the project is an extraordinary arrangement and has a limited lifespan. When the project is complete, the project team will be disbanded. In other words, project managers and project staff are working on their own. Some people get lost without a permanent department they can identify. The security of such people is threatened if the organization's sole commitment to such people appears to be a temporary project. They are afraid that the completion of the project will mean the end of their work. This can slow down your project.
Iii. Project management violates the principle of unified command. The prescription for the role is unclear. Ambiguity and conflicts occur because the relationship between feature managers and project managers is not well defined.
Iv. The structure of the project creates anxiety and fear of unemployment as the project nears completion. Members can even create works to avoid the risk of dismissal.
v. Contact with the mainstream of organizational life is cut off. Members may be diverted if there is an opportunity to advance their career in their area.
Vi. The project manager must perform a tightrope walk. He needs to build a team right away. A battle to meet the schedule with the cooperation of other departments. Work on cost numbers and make decisions quickly. The decision to sacrifice time for cost, sacrifice cost for quality, or sacrifice quality for time is common in most projects, and project managers don't panic. Must be able to do.
Vii. The project organization creates a privilege gap for project managers whose responsibilities outweigh their privileges. Most projects are not self-sufficient. They need help from many different angles. Top management can easily jeopardize the success of a project due to lack of awareness. Getting functional cooperation can be difficult. All of these factors seriously hinder project performance.
Matrix organization:
A permanent organization designed to achieve specific results using a team of experts from different functional areas within the organization is a matrix organization. This is actually a hybrid structure that combines both functional and product structures within the same organization. In the matrix structure, specialists from various functional departments work on projects led by project managers.
The project manager has authority over the functional manager who is part of the team in areas related to the project goals. However, decisions regarding promotions, compensation, and annual performance evaluation are usually the responsibility of the functional manager. To work effectively, both managers need to keep in touch with each other on a regular basis. They need to work closely together to resolve disputes smoothly.
Let's examine these in detail.
Hybrid Structure-Has a hybrid structure that combines both a functional organization and a project organization structure. On the right side of the photo is a functional head running the show. On the left is a project manager who leads a team of specialists. Employees need to work under two bosses at the same time.
Matrix organization:
i. Top leadership:
Top leaders maintain a balance of power. He must be willing to delegate the decision. He needs to emphasize direct contact and group problem-solving at lower levels to facilitate effective communication throughout the organization. He also needs to make sure that the power balance is properly maintained.
Ii. Function head:
The feature manager handles feature-related issues such as promotions, salary recommendations, and annual reviews. It is mainly related to the operational aspects of the department.
Iii. Matrix Boss:
The Matrix Boss / Project Manager has authority over project employees in relation to project goals. They share a common subordinate with other bosses. They don't have a perfect control. Dominate your subordinates. Functional manager responsibilities relate to functional rules and standards (what to do, how to do it, when to do it, etc.) and regularly check performance.
The project manager acts as an integrator. He needs to accomplish a particular project while balancing time, cost and performance. The Matrix bosses must also be willing to face each other about disagreements. Managing highly qualified professional employees requires a great deal of time, patience and skills for project managers.
Committee organization:
Many people come together to make decisions, decide on a course of action, and advise the office on some issues. This is a committee-style organization. It's a method of collective thinking, corporate judgment, and common decisions. The committee may be assigned some administrative functions or may expect some advice or exploratory services from the committee.
According to Allen, "a committee is a group of people appointed or elected to meet systematically to consider previously raised issues."
According to Hicks, "a committee is a group of people who come together with a plan to discuss a particular subject."
Therefore, a group of talented and interested people pool their thoughts to facilitate the decision-making process.
Purpose of the committee:
Committees have become an important means of control in modern organizations.
These can be used for the following purposes:
1. Ensure the perspectives and consultations of different people within the organization.
2. Participate and represent different groups or interests.
3. Coordinate the activities of various departments.
4. To check the performance of a particular unit
5. Promote communication and cooperation between diverse groups.
Advantage:
The advantages are:
1. The committee will provide an opportunity to pool ideas and lead to integrated group decisions. Personal prejudice and prejudice have been excluded from such decisions.
2. Through brainstorming and other group creativity, the community can generate creative ideas that help the functioning of all organizations.
3. The committee organization encourages group cooperation and team spirit within the organization.
4. The committee facilitates the coordination of various activities of the company.
5. Committees are a great way to communicate information and ideas to members of an organization of interest.
6. By participating in the discussions and decisions of the committee, the members are naturally more motivated.
7. Committees can be a great way to collect and combine the powers of multiple individual members.
8. The committee can often be a meeting place where differences are resolved and a compromise is reached.
9. If an executive wants to avoid action on a particular issue, can he assign it to a committee to avoid action?
10. In some circumstances, it may be desirable for the Commission to be responsible for actions that individuals do not want to be held responsible for.
11. The Commission trains members to address a variety of issues, ensuring continuity and stability as some members may remain on the Commission and others may retire.
12. Managers can seek advice and advice before making a decision.
13. The decisions made by experienced liberal group members are never narrowed. They are a blend of various excellent properties such as balance, adjustment, inclusiveness and freedom.
Cons: Disadvantages:
The Commission suffers from the following restrictions:
1. Committee meetings are a costly issue, both in terms of money and time.
2. The function of the committee is slow and it is not possible to make quick decisions. Convening meetings, discussing issues, discussing, etc. takes a lot of time.
3. While reaching a decision, the committee tends to adopt the path with the least resistance. Compromise or unanimity is required to address the opposite perspective.
4. Very often, a small number of local members dominate the committee's deliberations.
5. Responsibility for incorrect decisions made by the Commission cannot be fixed to one individual.
6. Committees may be abused to avoid actions, make offensive decisions, or delay decisions.
Make the committee effective:
Management can take the following steps to make the committee a useful tool for management:
- The committee must be large enough to facilitate deliberations and extensive experience.
- Committee members should be carefully selected with due consideration of competence, commitment, temperament, and status.
- The purpose and authority of the committee must be clearly defined.
- The chair of the committee must be effective in guiding group thinking towards the purpose of the committee.
- Committee meetings should be well planned.
- The minutes of the committee should be recorded and carefully circulated for correction.
Type of Committee:
Committees can be divided into the following categories based on their composition and function:
1. Standing Committee or Extraordinary Committee:
Permanent or permanent committees exist indefinitely and continuously. Extraordinary or extraordinary committees, on the other hand, are organized for specific purposes. It will dissolve when the purpose is achieved.
2. Executive Committee or Advisory Board:
The Executive Committee has the authority to make enforcement decisions. On the contrary, it is also known as "multiple executives" and the advisory board has the power to make recommendations.
3. Line or Staff Committee:
A line or staff committee is multiple executives who coordinate and manage the activities of their subordinates. However, the staff committee simply disseminates information, advice and support to line managers.
4. Formal or informal committee:
The formal committee is formally composed of management in accordance with the policies and rules of the organization. They are part of the organizational structure and are shown in the organizational chart. Informal committees, on the other hand, are not organized and are not assigned specific responsibilities. Occurs when some employees informally meet and discuss common issues due to the desire for group thinking. They have crossed the line of formal authority.
Key takeaways:
- Authority is that the right to execute or order. It also allows its owner to allocate the organization's resources to realize organizational goals.
- An organizational structure describes how certain activities are directed to achieve the objectives of an organization.
- Successful organizational structures define each employee's job and how it fits into the overall system.
- A centralized structure has a defined chain of command, while decentralized structures give almost all employees receiving a high level of personal agency.
- An organization chart graphically represents the structure of an organization, highlighting the different jobs, departments, and responsibilities that connect the company's employees to each other and to the management team.
- Organizational charts can be broad-based, representing the overall company, or they can be department or unit specific, focusing on a wheel radius.
- Most organizational charts are structured using the "hierarchical" model, which shows management or other senior officials at the top and lower-level employees below them.
- Other types of charts include the flat org chart, in which all individuals are placed equally, and the matrix chart, in which people are grouped by skill, department, or some other type of sub-category.
- Barnad offers some guidelines for what managers can do to extend the likelihood that their orders are going to be accepted and obeyed.
- In general, line authority refers to matters that directly involve production, sales, finance, etc. of the management system and, as a result, with the achievement of objectives.
- Staff authority consists of the proper to advise or assist those in line authority, also as other staff personnel.
- Functional authority consists of the right to supply orders within a segment of the organization during which this right doesn't normally exist.
- Decentralization means decentralizing decision-making authority to the lowest levels of the marginal hierarchy.
- Delegation helps divide the workload and encourages employees to be more productive because they are not overloaded.
- The delegation of authority process is to ensure a productive and well-functioning workplace.
- The process can benefit you, your employees, and the overall organization, if done correctly.
- When managers are completing the organizing process, as a result of the organizing process, an organizational structure is made to realize systematic work and efficient use of resources.
- In the formal organizational structure, individuals are assigned various jobs. While working in those jobs, people interact with one another and develop some social and friendly groups within the organization.
Types of Business Ownership: Sole Proprietorship
Introduction
The only trade is that the oldest and most ordinarily used sort of business . It's as old as civilization. Historically, business seems to possess started with this type of organization. With the event of science and technology, business needs have increased and new sorts of organizations are developed. This organization is additionally referred to as sole proprietorship, sole proprietorship, and single entrepreneurship. Within the only trade association, the individual is on top of things. He makes all the investments, shares all the risks, receives all the profits and manages and controls the business himself.
Businesses are generally small-scale, as sole proprietors rely totally on their own resources. The business is typically run with the assistance of a loved one, but he may hire people to require care of the day-to-day activities of the business. As far as his responsibilities are concerned, it's unlimited.
The creditor also has the proper to say his personal property. Sole proprietors are shaping the fate of concern. It's the power of the management to work out the longer term of the business. His power is unlimited and his decision is final. In fact, he's the sole organizer, manager, controller, and master of his business.
However, the only proprietor must be someone who has the power to conclude a contract. Business conduct should even be permitted by law. In some cases, you'll be expected to get a license from the competent authority before starting a business. These procedures must be completed beforehand. Usually, as within the case of companies and co-operatives, no other legal form is required to start out one trade business.
Anyone can start or end the sole trading business at any time. This type of business may be a show for one person, which person's abilities may certainly be limited. He might not be ready to handle all situations himself. Therefore, he can make mistakes. He must take a cautious approach, as his responsibilities are unlimited and can depend upon one person.
Definition:
To give you a transparent picture of your organization's only sort of trade, here are some important definitions.
(I) L.H. Haney:
"Individual entrepreneurship may be a sort of business that takes responsibility, directs the business, and puts the individual in danger of failure alone in its head." consistent with Haney, the business isn't only its management, but its management. It's within the hands of 1 one that is additionally liable for the risks.
(II) James Stephenson:
A sole proprietor may be a one that runs a business on his own, not only the owner of the capital of the business, but also usually organizes, manages and assumes responsibility for all profits or losses. James Stevenson emphasizes that the only trade business is funded by himself and is administered alone consistent with his management capabilities. He's also liable for the success or failure of this business.
(Ill) S.R. Davor:
"A sole proprietor is someone who runs his own business without the assistance of a partner. He brings in his own capital and uses all his workforce. He also pays as a gift. I’m being helped by others. "
According to Davar, the only proprietor uses only his resources and doesn't get the assistance of his partner. With the rise in jobs, he may hire some people to assist him get purchased their jobs. Adding a partner changes the form of the organization because it becomes a Partnership issue.
A sole proprietor is someone who uses mm's resources to start out a business, hire people to manage the business on their own, and bear all the advantages and risks of the business on its own.
Characteristics of Personal Business:
(I) Individual Initiatives:
This business starts with the initiative of 1 person. He prepares a blueprint for the venture and coordinates various factors of production. He may hire others to assist, but he has ultimate authority and responsibility. All profits and losses are taken by one individual.
(II) Unlimited Liability:
In a single trade, business liability is unlimited. The owner is liable for all losses arising from the business. Responsibility isn't only the investment in his business, but also his personal property is liable for his business obligations.
(III) Management and Control:
The owner manages the whole business on his own. He makes various plans and executes them under his own supervision. Someone may help him, but the last word control lies with the owner.
(IV) Motivation:
One is the only owner of the business. He receives all profits and suffers losses, if any. There is a direct relationship between effort and reward. The more he works, the more he will earn. He is eager to expand his business activities. He doesn't want to enter the speculative business because of the high risk.
(V) Secret:
All important decisions are made by the owner himself. He keeps all business secrets only to him. Business secrets are very important for small businesses. By keeping the business secret, he prevents competitors from entering the same business.
(VI) There is one sole proprietor and one sole proprietor.
Legally, sole proprietorships and their businesses are not separate entities. The loss of his business is his loss and the debt of his business is his debt.
(VII) Owners and businesses coexist:
In a single trade business, there is no independent business with the owner. Business and owner exist together. If the owner dies, goes bankrupt, or is removed from the scene, the business will be dissolved.
(VIII) Limited Business Area:
The sole proprietorship generally has a limited business area, because of the limited resources and management capabilities of the sole proprietor. He can only arrange limited funds and can oversee small businesses. All decisions are to be made by the owner, so the area of business is limited by his management ability.
(IX) No legal Proceedings:
You can start a stand-alone trading business without any legal proceedings. No formation or registration is required.
(X) Any start and end:
The sole proprietor may start the business at his will and may dissolve it at his discretion as well.
(XI) Freedom in trade choices:
Sole proprietors are free to decide what type of business they want to start. He is not supposed to consult anyone to make such a decision.
(XII) Profit Sharing:
The sole proprietor is the single owner of the business and he receives all the benefits himself. He puts all his efforts into the business and enjoys all the fruits of his work.
Purpose of Independent Trade Business:
A single trade business is established by one person with his or her own resources.
This form of organization is set up for the following purposes:
(I) Channel Individual funds:
Individuals have a small surplus with them. These funds are not enough to set up a large company. People may not like to risk their money in businesses that have no say or control. Instead of keeping your money idle, it's better to set up a small business. Therefore, a single trade business provides a channel for the productive use of individual funds.
(II) Strengthening Distribution Channels:
The only trading business is generally small-scale. People have set up small retail stores under the sole proprietorship. Retailers are an important link in the distribution chain. He is in direct contact with consumers. Without the active involvement of only one trader, the distribution channel from producer to consumer cannot be successful.
(III) Serving Consumers:
Small traders come into direct contact with consumers. Consumers want to buy their daily requirements from the nearest location. The only trader has a store wherever it is available to consumers. Consumers save time by purchasing daily necessities from the nearest retail store.
(IV) Create self-employed Opportunities:
By launching the only trading business, the owner created jobs for himself. Instead of looking for a job outside, this is a form of organization that helps people create their own jobs.
(V) Avoid Concentration of Wealth:
To avoid the concentration of wealth in a small number of funds, a single trading business helps its distribution among many people. When a large number of people enter different businesses, it may be small, but it helps to distribute economic wealth.
(VI) Supporting Large Companies:
The success of large businesses is also related to the support provided by small business units. Smaller units provide ancillary services to larger units. Larger units require many smaller components, from smaller units. As such, a single trade business serves large units by providing everything they do not want to manufacture in-house. In Japan, all large units rely on supply from small units.
Purpose of Independent Trade Business:
A single trade business is established by one person with his or her own resources.
This form of organization is set up for the following purposes:
(I) Channel Individual Funds:
Individuals have a small surplus with them. These funds are not enough to set up a large company. People may not like to risk their money in businesses that have no say or control. Instead of keeping your money idle, it's better to set up a small business. Therefore, a single trade business provides a channel for the productive use of individual funds.
(II) Strengthening Distribution Channels:
The only trading business is generally small-scale. People have set up small retail stores under the sole proprietorship. Retailers are an important link in the distribution chain. He is in direct contact with consumers. Without the active involvement of only one trader, the distribution channel from producer to consumer cannot be successful.
(III) Serving Consumers:
Small traders come into direct contact with consumers. Consumers want to buy their daily requirements from the nearest location. The only trader has a store wherever it is available to consumers. Consumers save time by purchasing daily necessities from the nearest retail store.
(IV) Create Self-Employed Opportunities:
By launching the only trading business, the owner created jobs for himself. Instead of looking for a job outside, this is a form of organization that helps people create their own jobs.
(V) Avoid concentration of wealth:
To avoid the concentration of wealth in a small number of funds, a single trading business helps its distribution among many people. When a large number of people enter different businesses, it may be small, but it helps to distribute economic wealth.
(VI) Supporting large companies:
The success of large businesses is also related to the support provided by small business units. Smaller units provide ancillary services to larger units. Larger units require many smaller components, from smaller units. As such, a single trade business serves large units by providing everything they do not want to manufacture in-house. In Japan, all large units rely on supply from small units.
The Only Trade Business Formation:
A single trade business is such a form of organization that does not require any procedures to establish it. Anyone can start a business whenever they want. There are no legal requirements to form a single trading business. However, if some businesses require prior government sanctions, such procedures must be completed.
The usual decisions to launch all businesses are also made in single trade businesses. The first decision is the choice of a particular business area. To make this decision, you must first assess the potential demand for the product if it is in the manufacturing sector, or the presence of the consumer if it is in the retail industry.
Next, you need to evaluate the resource requirements and availability. In general, the only trader relies on family resources to start a business. With the expansion of banking facilities in most places, single companies are now beginning to use credit lines to expand their jobs. Choosing the right site is very important in a single trade business.
Choosing where to start a business is very important, as most retailers are in the hands of single merchants. Customer requirements must be taken into account when choosing a business site.
Customers want to buy their personal necessities at the nearest location, but they want to go to the main shopping center to buy durable consumer goods such as TVs, refrigerators, washing machines, and music systems. The business is set up with various factors in mind. The stand-alone trading business can be closed by the owner at any time. As with other forms of organization, no legal process is required to liquidate this business. Setting up and liquidating a single trade business is both easy.
Legal Status of a Single Trade Business:
The following points explain the legal position of a single trade business.
(I) There is no specific law that requires registration, etc. for this business. The joint-stock company must be established under the Companies Act of 1956, the Partnership company is subject to the Partnership Act of 1932, and the only trading business is not subject to anything. Such a decree. Therefore, this business may be started and dissolved at the discretion of the owner, regardless of statutory provisions.
(II) Single trade business is subject to general land law. If there is a provision to obtain a license to start a specific business, the sole proprietor also obtains a license before starting such a business. Those who want to start a wine shop are expected to get a license from the state government. Sole proprietors who want to enter this business are certainly expected to comply with this law.
(III) The sole proprietor and her business are the same. Business exists only with sole proprietors. If he dies or otherwise disappears from the scene, the business will be dissolved. The owner and his business have one personality.
(IV) The sole proprietorship's liability is unlimited. When a business is dissolved, there is no distinction between business assets and private assets of a sole proprietor, and business loans and personal loans.
Self-Employed Suitability:
The amount of capital and management skills required for a particular business influences decisions about the shape of the organization. Smaller businesses have fewer capital requirements and sole proprietorships are the most appropriate form of organization.
The need for capital is increasing due to the improvement of industrial technology and the devising of new production methods. Other forms of organizations such as Partnerships and corporations have also become popular. There are certain types of companies where the sole proprietorship is still the most appropriate form of organization. This type of organization is also suitable for certain situations.
These situations are as follows:
(I) If the market is local:
If the market for products is confined to a particular location, the scale of business operations will be small. The amount of capital required is low and normal management skills are sufficient. In this situation, the sole proprietorship is best. Most retailers are managed by only one trader.
(II) If you need personal contact with the customer:
Personal contact with the customer may be required. Customers may have preferences or preferences for certain things. In this situation, a self-employed organization is suitable. Doctors and lawyers need to be in direct contact with patients and clients. Customers may like to sew their clothes together. Therefore, in all of these cases, the sole proprietor will be more useful.
(III) Speculative Business:
In a speculative business, product demand and prices change rapidly. Businessmen need to make quick decisions. Sole proprietors can make immediate decisions depending on the situation. He doesn't have to talk to anyone else. So, he can decide things for himself. No other organization is as speculative as the sole proprietorship.
Social Desirability of Private Business:
Sole proprietorship restrictions have necessitated the development of other forms of organization. The widespread use of other forms of organization does not mean that sole proprietorships have been excluded. Rather, it continues to be the most popular form of organization in all countries. This form of organization also has social desirability.
Its social need is due to the following reasons.
(I) Employment of a large number of people:
This form of organization can be started alone, but he takes others to help. The number of only traders is very large in all countries and they employ many as their helpers. Therefore, sole proprietors can provide employment to a large number of people.
(II) Need for less capital:
This form of organization can be undertaken by anyone by any means. Even people with few resources can start a business on a small scale. Vegetable sellers can start a business for hundreds of rupees and regain capital at the end of the day. Therefore, this type of form encourages people to do independent business.
(III) Low risk:
In general, the sole proprietorship is started on a small scale and less investment is made. Because of the low risk, you can change your business if it is not appropriate.
(IV) Offering low-priced products:
In this way, we provide consumers with products at low prices. The only number of traders is large, they are in fierce competition with each other, and consumers are offered products at competitive rates. In general, business expenses are low. This allows the only trader to sell their products at a lower price.
(V) Equal Distribution of Income:
This form of organization acts as a constraint on the monopoly tendencies of other forms of organization. Many people enter the business. Therefore, this results in an equal distribution of income. Everyone can invest their savings and get a fair return on it. When a business is in the hands of a few, it brings a concentration of wealth in the hands of only some.
(VI) Useful for small producers:
The only trader buys goods from small producers and sells them to consumers. Many intermediaries are excluded from distribution channels. Some of the profits that the intermediary earns in the form of commissions are left to the producers and some are passed on to consumers in the form of low prices.
(VII) Helping Consumers:
Consumers are helped by some traders in making their purchases. The only trader opens a store on the street so that consumers can buy from nearby stores. Merchants supply products even at the front door.
(VIII) Functions as a training center.
The only trading business offers the opportunity to learn business techniques. With less investment, you can afford to learn by trial and error. You can expand it later by bearing the various strengths and weaknesses of your business. Therefore, this is a good organizational form for receiving business training.
Advantages
1. Easy to form: Forming and organizing a sole proprietor's business is very easy and easy. There is no legal procedure.
2. Easy to manage: A small organization. The owner can easily manage it.
3. Profit incentives: Sole proprietors enjoy all the benefits for themselves. The motivation for this profit is an incentive to work hard.
4. Quick decision: He is the only organizer, so he can make quick decisions. He can act swiftly in response to changes in the market.
5. Customer contact: He is the owner and manager of concern. By building good relationships with our customers, we will be in a position to personally study their tastes and needs.
6. Business secrets: He can keep business secrets for himself. Keeping confidential is an important issue for all types of corporate organizations.
7. Smooth operation: Since he is a sole proprietor, there is no disagreement or controversy. It helps the smooth execution of concerns.
8. Efficiency and economy: Organizations are small. He can be a close director. He can reduce the cost of management and all sorts of waste. He can run his business efficiently.
9. Flexibility: Business changes can be adopted at any time. Flexibility is promoted with a small investment. It can be moved from place to place very easily.
10. Family Training: He gets the help of his family members in maintaining business. His children are trained in business activities.
11. Self-Employed: Easy to get started with small units. Nationalized banks are also supporting this direction.
12. Social Benefits: It offers many individuals an opportunity. Many can become entrepreneurs with limited resources.
13. Tax Benefits: Income tax is levied on the sole proprietor's personal income, not on the interests of concern. Therefore, it is advantageous.
Restrictions or Disadvantages of Sole Proprietors
The Sole Proprietorship also suffers from certain serious limitations (weaknesses).
1. Limited Capital: The use of limited capital means only limited profits. If you need to grow your business, you may not have enough resources.
2. Limited Skills: Since there is only one man, management ability is limited.
3. Limited Borrowing Capacity: The sole proprietor's borrowing capacity is limited to the extent of his financial position.
4. Unlimited liability: The creditor can withdraw the loan amount not only from the assets of the business, but also from his personal assets. Therefore, his liability is unlimited.
5. Make Hurry Decisions: The sole proprietor makes all the decisions himself. So, there may be a hasty and thoughtless decision
6. Short-lived: If the sole proprietor has no children, or if his children are not interested in continuing the business, the business will be terminated. We do not guarantee a continuous presence in this type of business.
7. No division of labor: Since it is a small unit, it is not possible to introduce a division of labor into management.
8. Employee reliance: With business expansion, it is inevitable that owners will rely on paid managers.
9. Limited Business Area: The business is small. Therefore, the activity cannot go beyond a specific area.
10. Lack of Economies of Scale: Sole proprietors have only small businesses. He is unable to do a large business due to lack of financial resources. Therefore, he cannot enjoy the economy of large-scale production, buying and selling.
Key takeaways:
- A private business is an unincorporated business with only one owner who pays personal income tax on profits.
- Sole proprietors are easy to set up and dismantle because of the lack of government involvement and are popular with small business owners and contractors.
- Many sole proprietors will be rebuilt in LLC in sync with the expansion of the company.
- For example, the debt of a sole proprietor is also the debt of the owner. However, the profits of the sole proprietor are also the profits of the owner, as all profits flow directly to the business owner.
- The main advantages of sole proprietorship are the benefits of pass-through tax mentioned above, ease of creation, and low rates of creation and maintenance.
- The disadvantages of sole proprietors are the unlimited liability of owners across businesses and the difficulty of raising capital through established channels, especially through the issuance of shares and the acquisition of bank loans and credit lines. Is.
- Therefore, an entrepreneur begins as an entity with unlimited liability.
- As your business grows, you often move to limited liability companies such as LLCs and LLPs, or companies such as S Corp, C Corp, and Benefit Corp.
- A sole proprietor is very different from a company (corp.), a limited liability company (LLC), or a limited liability Partnership (LLP) in that no separate legal entity is created.
- As a result, sole proprietorship owners are not exempt from the debt borne by the entity.
Partnership (Act 1934)
What is a Partnership?
A Partnership is a type of business in which a formal agreement is reached between two or more people who agree to be co-owners, share the responsibility of running the organization, and share the income or loss generated by the business.
In India, all aspects and functions of the Partnership are managed under the 1932 India Partnership Act. This particular law is a Partnership between two or more individuals or parties that accepts to share the benefits generated by the business under the supervision of all members or on behalf of other members. It explains.
Partnership Features:
Some of the features of the Partnership are:
1. Agreement between partners: It is a group of two or more individuals, and a Partnership arises from an agreement or contract. Agreements form the basis of associations between partners. Such an agreement is in writing. Oral agreements are fair and legal. To avoid controversy, it's always good if the partner has a copy of the written agreement.
2. Two or more: At least two people must have a common goal in order to articulate the Partnership. In other words, the minimum number of partners in a company is two. However, there is a limit to the maximum number of people.
3. Profit Sharing: Another important element of Partnership is that agreements between partners must share the benefits and losses of trading concerns. However, the definition held by the Partnership law is clear. Partnerships are associations between people who have agreed to share business interests, and loss sharing is implicit. Therefore, it is important to share profits and losses.
4. Business Motivation: It is important for a company to run any business and should have a motivation to make a profit.
5. Mutual Business: Partners are both owners and agents of the company. Actions taken by one partner can affect other partners and companies. We can conclude that this serves as a test of Partnership for all partners.
6. Unlimited Liability: All partners in the Partnership have unlimited liability.
Types of Partnership
Partnerships can be divided into different types by state or place of business. Here are some general aspects of the three most common types of Partnerships.
General Partnership
A Partnership is made up of two or more owners who run the business. In this Partnership, each partner represents a company with equal rights. All partners have the right to participate in management activities, decision making and manage the business. Similarly, profits, liabilities, and liabilities are evenly shared and evenly divided.
In other words, the definition of a Partnership can be described as a Partnership in which rights and responsibilities are equally shared in terms of management and decision making. Each partner must take full responsibility for the debts and responsibilities incurred by the other partners. If one partner is sued, all other partners are considered responsible. The creditor or court holds the personal assets of the partner. Therefore, most partners do not choose this Partnership.
Limited Partnership
This Partnership includes both general and limited partners. The General Partner has unlimited liability and manages the business and other limited liability partners. A limited liability company has limited control over its business (limited to his investment). They have nothing to do with the day-to-day operations of the company.
In most cases, Limited Partners only invest and share profits. They are not interested in participating in management or decision making. This non-involvement means that they do not have the right to compensate for the loss of Partnership from the income tax return.
Limited Liability Partnership
In a limited liability Partnership (LLP), all partners have limited liability. Each partner is protected from the legal and financial mistakes of the other partners. Limited liability Partnerships are similar to limited liability companies (LLCs), but not limited liability Partnerships or Partnerships.
Voluntary Partnership
A voluntary Partnership can be defined as if the expiration of the Partnership company is not mentioned. Under Section 7 of the Indian Partnership Act of 1932, the two conditions that a company must meet in order to become a voluntary Partnership are:
- Partnership agreements must not have a fixed expiration date.
- No special Partnership decisions should be mentioned.
Therefore, if the term and decision are stated in the contract, it is not a voluntary Partnership. Also, if the expiration date of the company is initially set, but the operation of the company continues beyond the above date. It is free to be considered a Partnership.
Indian Partnership Act,1932
Since most businesses in India employ partnership businesses, the India Partnership Act was enacted on October 1, 1932 to monitor and manage such partnerships. Under this partnership law, an agreement is reached between two or more people who agree to operate the business. Together, they share the profits they earn from this business.
Partnership Benefits:
- Easy Formation-The contract can be made verbally or printed as a contract to enter as a partner and set up a company.
- Large Resources – Unlike sole proprietors, where all donations are made by one person, partnerships allow company partners to donate more capital and other resources as needed.
- Flexibility – Partners can start making changes when they think they need to achieve the desired result or change the situation.
- Risk sharing – All losses incurred by the company are evenly distributed among each partner.
- Different Skill Combinations – Partnerships have the benefits of different partners' knowledge, skills, experience and talent.
Partnership Example:
Below are some examples of brand Partnerships.
- Red Bull and GoPro
- Spotify and Uber
- Levies and Pinterest
- Maruti Suzuki
- Hindustan Oil
Key takeaways:
- A Partnership is a type of business in which a formal agreement is reached between two or more people who agree to be co-owners, share the responsibility of running the organization, and share the income or loss generated by the business.
- At least two people must have a common goal in order to articulate the Partnership
- A Partnership is made up of two or more owners who run the business.
- In other words, the definition of a Partnership can be described as a Partnership in which rights and responsibilities are equally shared in terms of management and decision making.
- The General Partner has unlimited liability and manages the business and other limited liability partners.
- In a limited liability Partnership (LLP), all partners have limited liability. Each partner is protected from the legal and financial mistakes of the other partners. Limited liability Partnerships are similar to limited liability companies (LLCs), but not limited liability Partnerships or Partnerships.
- A voluntary Partnership can be defined as if the expiration of the Partnership company is not mentioned.
- The contract can be made verbally or printed as a contract to enter as a partner and set up a company.
Limited Liability Partnership (Act 2008)
Limited Liability Partnerships, known as LLPs, are one of the latest types of partnership companies. In this type of partnership, the partner's responsibility to the business is less than in a typical partnership.
Definition:
This type is evident from the name of the partnership type. This means that with this type, the responsibilities of all partners are limited to the scope of the investment. This type of court cannot hold the personal property of a partner. That's why most people and businesses chose this type of partnership.
A major feature of limited partnerships is that not all partners are liable for any misconduct by their partners. He is responsible for anyone who cheats.
Limited Partnership Act 2008: –
In India, the types of partnership businesses are governed by the Limited Partnership Act 2008. LLPs are different from partnerships, but they operate like partnerships, but LLP law protects all partners from personal liability. You don't have to sell your assets to meet the partnership's debt. All partners are obliged to take responsibility within their capital. In other words, all responsibilities of the partnership are met within the scope of all assets of the partnership.
LLP Benefits for Partners: -
LLP offers many benefits to partners compared to partnerships. Some of these are displayed as follows: –
- Limited liability
- We are not responsible for the actions of other partners.
- Individual corporation
- Managed by company registrant
- Unlimited Partners
1. Limited liability: –
One of the main benefits of LLPs for partners is that their debt is limited to the range of capital invested in their business. They need to sell out their personal assets to meet the company's debt.
2. We are not responsible for the actions of other partners: –
In this type of partnership, Partner A is not responsible for any misconduct committed by other partners. For example, if A exists, then B and C are company partners. If B cheats on the company's vendor about the company and the company gets more than 30 days, the company pays him a certain percentage of interest. However, in the company AOA or MOA did not have such a provision. Therefore, if the vendor claims the amount of interest, B will be liable to the vendor or other partner.
3. Individual legal entity: –
Sperate Legal Entity means that the company is treated differently than its partners.
4. Management by company registrant: –
The limited partnership business is registered and managed by the company's registrar.
5. There is no limit to the maximum number of partners: –
Under the Limited Partnership Act 2018, there is no limit to the maximum number of partners. The minimum limit is two partners.
One Person Company
The Indian Companies Act was revolutionized by the 2013 Companies Act, introducing a variety of new concepts that did not exist before. The introduction of the One Person Company concept was one of the game changers. A whole new way of starting a business has been recognized, giving the flexibility that an entity like a company can offer. It also protected the limited liability that partnerships and sole proprietors lacked.
Prior to the enactment of the new Companies Act of 2013, the ability of individuals to set up a company had already been confirmed by various other countries such as the United States, China, Singapore, the United Kingdom and Australia.
Definition of one company
A one-person company is a company with only one member based on Article 2, Paragraph 62 of the Companies Act 2013. One Person Company (OPC) is functionally a company with only one shareholder, as members of the company are recognized as shareholders of the company or members of the Memorandum of Understanding.
OPCs are usually formed when a business has only one founder or promoter. Because of the many benefits of OPC, entrepreneurs in the early stages of their business prioritize creating OPCs over sole proprietors.
Differences between One Person Company and sole proprietors
OPC and personal business forms may look similar because both business forms involve one person who owns the business, but in reality, they are quite different from each other. Increase. The nature of the debt carried by both of them is the main difference between the two forms.
OPC, a unique and independent legal entity that is different from the promoter, has its own liabilities and assets. Promoters cannot be personally responsible for paying off the company's debt.
On the other hand, sole proprietors and their owners are the same. Therefore, if the business's liabilities are not fulfilled, the promoter's assets will be attached and sold by law.
Characteristics of a one-man company
The outline of One Person Company is as follows.
- Private enterprises
Sections 3 (1) (c) of the Companies Act 2013 states that one person can set up a company for any purpose permitted by law. OPC is further described as a private sector.
2. Single-Member
Unlike other private companies, OPC can only have one shareholder or member.
3. Candidate
The only member of the company nominates candidates when registering the company. This is a unique feature of OPC and unlike all other types of enterprises.
4. There is no permanent inheritance
Due to the death of the only member of the company, the candidate can choose to refuse or become the only member. Other types of companies have adopted the concept of permanent inheritance.
5. At least one director
There must be at least one OPC director in this case. There can be up to 15 directors.
6. No minimum paid-up capital
For OPC, the minimum paid-up capital is not stipulated by the Companies Act 2013.
7. Special privilege
OPCs under the Companies Act enjoy many privileges and tax exemptions not granted to other types of companies.
8. A company's financial statements consist of an income statement, a balance sheet, and account notes. The cash flow statement may not be included in the financial statements.
9. Only one director is required to sign the financial statements / board report.
10. One company must submit a copy of its financial statements to the registrar within 180 days of the end of the fiscal year.
11. The annual report of a one-person company shall be signed by the company secretary or, in the absence of the company secretary, the directors of the company.
12. You must notify the registrar of all contracts entered into. It must also be recorded in the minutes of the meeting within 15 days of the approval date of the board of directors.
13. An individual shall not be eligible to establish more than one private company or be a candidate for more than one such company.
14. Minors cannot be members or candidates of the One Person Company. You can also hold shares with beneficial profits.
15. One Person Company may not engage in non-bank financial investment activities, including investment in corporate securities.
16. All business traded by the Board of Directors shall be recorded in the minutes maintained under Article 118.
17. A single company may not voluntarily convert to any type of company until two years have passed since its establishment. However, this does not apply when the paid-up capital exceeds 50 Raku or when the average sales for the period exceeds 2 crores.
18. The Memorandum of Understanding of a one-person company shall indicate the names of other persons / candidates who will be members of the company until the date of transfer of shares to the statutory heir in the event of the death or non-contract of the subscriber.
19. Written consent, along with the Articles of Incorporation and Articles of Incorporation, shall be submitted to the registrar at the time of establishment of the One Person Company.
20. Candidate / others may withdraw his consent at any time.
21. Candidates are subject to change at any time by notifying others and staying intimate with the company. Next, the company needs to do the same intimately with the registrar.
Formation of a one-man company
An OPC can be created by registering your name on the Memorandum of Understanding of the Association by yourself and satisfying other prerequisites stipulated in the Companies Act 2013. The MoA must also declare all the candidate details. The only member of the company if the former member dies or if the former member is unable to sign a contract.
The consent of the MoA and the nominee to its nomination shall be submitted to the Company Registrar in addition to the application for registration. The candidate can revoke his name at any time by submitting the required application to the registrar. The member also has the right to cancel his nomination later.
Membership of one company
In India, only natural persons who are citizens and residents of the country are eligible to create an OPC. Candidates for OPC are also guided by the same directive. Also, such a natural person is not allowed to be a member or candidate for more than one OPC at any given time.
One of the important points is that only natural persons can be members of OPC, which does not apply in the case of businesses. The company itself becomes a member and can own shares in the company. In addition, minors are prohibited by law from becoming members or candidates for OPC.
Converting from one company (OPC) to another
Regulations that monitor the formation of OPCs clearly prevent the conversion of OPCs into enterprises under Article 8 of philanthropic purposes. OPC cannot voluntarily convert to another type of company until two years have passed since its establishment.
One company privilege
- One company benefits from the following privileges and exemptions under the Companies Act:
- OPC does not need to hold an annual meeting.
- The cash flow statement does not need to be included in the financial statements.
- Directors can also sign annual reports. The company secretary is not compulsorily needed.
- The provisions regarding independent directors do not apply to OPC.
- Directors can bring back more compensation than other companies.
Procedure for establishing a one-man company
- Obtain the proposed director's Digital Signature Certificate (DSC).
- Obtain the director identification number (DIN) of the proposed director.
- Select the appropriate company name and use FORM INC-1 to apply to the Ministry of Corporate Affairs for the availability of the name.
- After approval of the name, FORM INC-2 shall apply for the establishment of One Person Company within 60 days of submission of FORM INC-1.
- Draft Memorandum of Understanding and Articles of Incorporation.
- Electronically sign various documents such as the basic articles of incorporation and articles of incorporation and submit them to the company registrar.
- Payment of necessary fees and stamp duty to the Ministry of Internal Affairs and Communications.
- Scrutiny of documents by company registrar.
- Receipt of registration certificate or corporation establishment certificate from company registrar.
- Please enjoy the status of One Person Company.
Key takeaways:
- As the name implies, One Person Company is a form of privately held company with a separate legal entity formed by only one member. These companies have only one member and therefore enjoy certain privileges or exemptions compared to other companies.
- One Person Company can only be established as a limited liability company.
- There is only one member / shareholder.
- At least one director is required and only one shareholder can be the only director.
- If the Articles of Incorporation do not include the name of the first director, a member of the One Person Company will be considered the first director until the director is officially appointed.
- The minimum amount of paid-in capital is 10,000 rupees.
- The word "One Person Company" must appear in parentheses below the company name to distinguish it from other forms of company.
- There is no need to hold an annual meeting (AGM) every year.
- The provisions of the Board of Directors or the court for convening an extraordinary general meeting do not apply to one-person companies.
- All provisions regarding the Annual General Meeting of Shareholders, such as notice period, notice content, description, quorum requirements, agents and votes, do not apply to the One Person Company.
Joint Stock Company: Public Limited and Private Limited, Public-Sector Undertaking (PSU)
Introduction
Our corporate law consulting services are specially designed to help the board of directors and key stakeholders in the company address concerns about increasing complexity.
The 2013 Companies Act, which came into force on April 1, 2014, has brought about a fundamental change in the field of corporate governance. It introduced a stricter regime for unlisted companies and had serious consequences for non-compliance. The Ministry of Corporate Affairs (MCA) issues various amendments and clarifications on the law and the corresponding rules to eliminate the practical challenges companies face in implementing certain provisions of the law.
EY's Corporate Law Consulting Services are specially designed to help the board and key stakeholders of the company address concerns about increasing complexity. This provides a robust corporate governance framework and enables continuous modification.
This is a solution that helps enterprises identify key areas of exposure and allows them to build an implementation roadmap to address the changes they need.
Formation of company
Important Stages in the formation of a company
The whole process of company formation can be divided into four stages as given below.
- Promotion of a Company
- Registration of a Company
- Certificate of Incorporation; and
- Commencement of the Business.
1. Company promotion:
A company cannot be established by itself. It is the result of the efforts of individuals or groups of people or institutions. That is, it must be promoted by some people. The process of promoting a business begins with the idea of an idea and ends when the idea is put into action. That is, the establishment of a company and the start of a business.
Who is the promoter of the company?
Successful promoters are wealth creators and economic prophets. People who are involved in the promotion of a company are called promoters. He came up with the idea of starting a business and took all the steps necessary to make a company a reality.
For example, Dhirubhai Ambani is the promoter of Reliance Industries.
Promoters find ways to raise money, research business ideas, arrange funding, raise resources, and establish a going concern.
The Company’s Act does not give promoters legal status. He is in the position of a trustee.
Promoter type
There are various types of promoters, including professional promoters, temporary promoters, promoter companies, financial promoters, entrepreneurs, lawyers and engineers.
2. Company registration
It is registration that gives birth to a company. A company is only properly formed if it is officially registered under the Companies Act.
Registration Procedure
The important documents that you need to submit to the company registrar to register your company are:
a. Basic Articles of Incorporation: A minimum of 7 people must sign a public company and 2 people must sign a public company. Must be stamped properly.
b. Articles of Incorporation: This document is signed by everyone who has signed the Articles of Association.
c. List of Directors: Make a list of directors' names, addresses and occupations and submit them to the company's registration body.
d. Written Consent of Directors: Written consent of a director who has agreed to act as a director must be submitted to the Registrar with a written commitment to acquire and pay qualified shares.
e. Notification of registered office address: It is also customary to submit a notification of the address of the company's registered office when the company is established. It will be issued within 30 days from the date of establishment.
f. Legal Declaration: Legal Declaration by Defender of the Supreme Court or high court or a lawyer or counsel qualified to appear in the High Court. Practicing a certified accountant in India, engaged in the establishment of a company, or
It is mentioned that the legal requirements and the rules below are being observed by the person listed in the article as a director, managing director, secretary or manager of the company. This must be submitted to the company's registration authority.
Once the required documents have been submitted to the registrar with a prescribed fee, the registrar will scrutinize the documents. When the registrar is filled, the name of the company is entered in the register. The registrar then issues a certificate called the Certificate of Incorporation.
3. Establishment certificate
Upon registration of the Articles of Incorporation, Articles of Incorporation and other documents, the registrar issues a certificate called the "Certificate of Establishment". Issuing a certificate is proof of the fact that the company has been established and is in compliance with the requirements of the Companies Act.
4. Business start certificate
Private companies can start their business as soon as they obtain a proof of establishment. A public company can only start a business after obtaining a "business start certificate". After the company obtains the certificate of establishment, the public company issues a prospectus to invite the general public to join its equity capital. Modify the minimum subscription. Next, you need to sell the minimum number of shares listed in the prospectus.
Once the required number of shares have been sold, a proof of receipt of all the money will be sent to the registrar along with a letter from the bank.
The registrar then scrutinizes the document. If he is happy, he will issue a certificate known as a "business start certificate". This is the definitive proof of starting a business.
Meaning of Joint Stock Company:
Businesses owned by investors or shareholders are known as joint-stock companies. A joint-stock company is a voluntary organization of individuals who provide money or monetary value for a common purpose. No one can enter this business without his / her interest.
You can raise public funds by issuing shares. To make large investments, public funds are used for operations such as the production, expansion and purchase of assets.
Definition of Company:
"A corporation is intended as an organization of many people who donate money or the value of money to common stock and use it for some common purpose."
-Justice Lindley
"A corporation is an artificial person who is invisible, intangible, and exists only from a legal point of view."
-Chief Justice Marshall
"A joint-stock company is a voluntary association of individuals for profit that divides capital into transferable shares and whose ownership is a condition of membership."
Features of the Company:
To clarify more about a corporation, let's move on to the following characteristics.
1. Corporate joint-stock company:
The company and its members are separate individuals. All business of the company is done under its own name and you can buy and sell assets under your own name. In the corporate form, the board of directors can use the stamp of a company that cannot use its name instead of the company name to control all operations of the business.
2. Artificial person:
The company is an artificial person created by law. It can be said that all business activities are carried out by all human resources, but that does not mean that the company is a natural person. When doing business, we use the company name.
3. Registration:
This is the legal form required to establish a company. If you do not register your company, you will not be able to proceed smoothly.
Under the Companies Act of 1956, all companies are required to register in order to do business without problems.
4. Common seal:
The company cannot sign itself. All activities are carried out through a group of people associated with the company. Therefore, anyone who acts on behalf of the company can use a common stamp instead of the company's signature.
Documents without stamps or common seals are not considered legal documents of the company.
5. Transferability of shares:
Members can freely transfer the shares of the company. Any member who wants to sell their shares is free to sell and cancel their membership from the company.
In the case of a public company, the transfer of shares is easy, but in the case of a private company, members cannot sell or easily transfer their shares.
6. Ownership and management:
The company and its members are separate from each other, and when it comes to ownership, shareholders are the owners who own and invest in the company. When talking about control, shareholders elect a board of directors that controls the overall operation of the business.
Therefore, ownership and management are different. The company is owned by shareholders and the management of the operation of the company is in the hands of the board of directors elected by the owner of the company.
7. Responsibility:
In the company, members have limited liability within the scope of the stock capital provided by the members.
Example: If a person buys 2000 shares each worth 10 rupees, that person's liability is limited to 20,000 Rs only.
8. Continuous existence:
The company survives and is independent of its members. Members can enter and leave, but it does not affect the operation of the company. The company can only be dissolved through legal proceedings.
Public Limited and Private Limited
The fundamental difference between a public company and a private company is the ability to raise funds from the general public. Public companies can raise public funds by issuing equity capital on the stock market, while private companies do not by issuing equity capital on the stock market, but by personally issuing capital to new partners. Only can raise funds. From the public. To understand the difference between the two, we need to clarify the meaning of these terms and explain them as follows:
Meaning of Public Company:
It looks like this:
- Not a private company
- Those with the specified minimum paid-up capital
- Is a privately held company and has a public company as a holding company.
- You need at least 7 members to set up a company.
- The prospectus is issued to encourage the general public to share a capital subscription.
- The number of directors must be 3 or more and 15 or less.
- Shares can only be assigned when a minimum subscription is received.
- It can invite and accept deposits from the general public.
- The word "limited" is used as part of its name.
Some examples:
- Indian Oil Corporation Limited
- Bharat petroleum Corporation Limited
- Petroleum Natural Gas Co., Ltd.
- State Bank of India
Meaning of Private Sector:
It has the minimum paid-up capital stipulated in the Articles of Incorporation.
Characteristic:
- The Articles of Incorporation do not allow the transfer of shares.
- You need at least two members to set up a company.
- We limit the number of members to 200, excluding current or past employees.
- Shares held by two or more people are treated as a single member.
- In accordance with Article 2 (68) of the Companies Act, the general public may not be invited to join the company's stock capital.
- The number of directors must be 2 or more and 15 or less.
- Shares may be allotted as determined by the Directors.
- Public deposits cannot be invited and accepted.
Some examples
- American Express (India) Private Limited
- Lifestyle International Private Limited
- Microsoft Corporation Private Limited
- PayPal Payment Private Limited
Chart of Difference Between Public Company and Private Company:
Basis of Difference | Public Company | Private Company |
Meaning | A Public company is the one that is registered in the share market of the country to issue shares for the public to subscribe to them. | A private company is the one that has the minimum paid-up share capital as prescribed in the Articles of Association. |
Number of Owner/ Members | It has a minimum of 7 and no maximum limit on the number of owners/ members. | It has a minimum of 2 and a maximum of 200 owners/ members. |
Share Capital | Rights of share capital and profits are distributed among all owners/members are per article of association and the number of shares owned by one person. | Rights of share capital and profits are distributed among all owners/members are as per the article of association. |
Transfer of Share | Owners/Members are free to transfer their share to the other person in the market. | As per the terms and conditions decided in the article of association. Many types of restrictions are imposed by the AOA. |
Share Prospectus | The prospectus must be issued to invite the public to subscribe to shares of the company. | The prospectus does not need to be issued. |
Number of Directors | It must have at least 3 Directors and it can have a maximum of 15 Numbers of Directors. | It must have at least 2 Directors and it can have a maximum of 15 Numbers of Directors. |
Name of Company | The word ‘Limited’ is used as part of the name of the company. | The word ‘Private Limited’ is used as part of the name of the company. |
Funds Raising | For public companies, it is very easy to raise funds by issuing shares to the public in the share market. | Possible to raise funds by issuing shares of the company with the mutual consent of all members of the company. |
Who can Subscribe the Share Capital | The public can easily subscribe to the share of the company. | The public can’t subscribe to the share of the company. |
Conclusion:
Therefore, both types of businesses are very different from each other. This means that public companies have a large or innumerable number of owners, and another type is limited to a maximum of 200 owners.
Public Sector Undertaking (PSU)
State-owned enterprises in India are called Public Sector Enterprises (PSUs) or Public Sector Enterprises. These companies are wholly or partially owned by the Government of India, or one or both of many state and territorial governments, in part together. The officers who work for these entities and their subsidiaries are the officers published in the official bulletin. Employees subordinate to officers working in each of these entities and their subsidiaries are full-fledged civil servants. The majority of the company's shares are owned by the government at PSU. PSU is a central public sector business (CPSU, CPSE) wholly or partially owned by the Government of India, or a state-level public sector business (SLPSU, SLPSE) wholly or partially owned by a state or quasi-state government. In 1951, there were only five companies in the Indian public sector, but in March 2019 this increased to 348. These companies had a total investment of approximately Rs. 1.641 billion as of March 31, 2019. As of March 31, 2019, the total paid-up capital was approximately Rs. 276 million. CPSE generated approximately Rs 25.43 during the 2018-19 fiscal year.
Governance
Certain public sector businesses are given additional financial autonomy. These companies are "public sector companies with comparative advantage" and give them greater autonomy to compete in the global market to "support their willingness to become global giants. Financial autonomy was initially awarded to nine PSUs as Navratna status in 1997. Originally, the term Nabalatna meant a talisman made up of nine precious gems. The term was later adopted by the courts of the Gupta Emperor Viclamaditya and the Mughal Emperor Akbar as a collective term for the nine extraordinary courtiers of each court.
In 2010, the government established a higher category of Maharatona. As a result, the investment limit of companies has been raised from 1,000 crores to 5,000 crores. Maharatona companies can now decide to invest up to 15% of their net worth in a project, while Nabalatna companies can invest up to 1,000 crores without explicit government approval. The two categories of Miniratnas do not offer that wide range of economic autonomy.
Public sector business. Sector Business (PSU) means a company in which at least 51% of the paid-in equity capital is held by the central government, state government, or partly central government and partly by the central government. Companies that are by one or more state governments and are subsidiaries of central government companies defined in this way. Alternatively, a PSU is a company in which the central government or one or more state governments exercise the authority to control management or appoint a majority of directors, alone or together.
Examples of public sector businesses in the text Blacklisted by the state government, central government, other public sector businesses, or companies, or other central government or state government autonomous bodies on the date of submission of the bid. In addition, the provisions of this rule may not apply to central / state government public sector businesses, companies under DGS & D / DS & D Haryana rate contracts, companies registered with the Haryana State Industry Director or National SMEs government. Public sector businesses registered with the Central / State Government / MSEs / MSME / Central Purchasing Organization are exempt from providing Ernest Money along with bidding, subject to the submission of valid evidence. Bidder documents / certificates / contracts certifying his experience in security work in at least the last three fiscal years, namely 2014-15, 2015-16, and 2016-17, to the satisfaction of CRCC. Must be enclosed. Central / state government organizations, co-operatives, including public sector businesses or companies registered under the Companies Act. Work performed by bidders of government or semi-government / public sector businesses shall only be considered for eligibility.
Key takeaways:
- Our corporate law consulting services are specially designed to help the board of directors and key stakeholders in the company address concerns about increasing complexity.
- Important Stages in the formation of a company.
- Private companies can start their business as soon as they obtain a proof of establishment.
- MOA (Memorandum of Association) is a legal document that must be submitted to the company's registration body when the company is established.
- A company's MOA contains the objects from which the company is formed. It identifies the range of its operation and determines the boundaries that it cannot cross.
- There are two important business documents of the company: the Basic Articles of Incorporation (MOA) and the Articles of Association (AOA).
- The AOA contains the company's articles of incorporation. .
- The alteration cannot be made so as to increase the liability of any member without his written consent.
- Successful promoters are wealth creators and economic prophets.
- Private companies can start their business as soon as they obtain a proof of establishment
- Businesses owned by investors or shareholders are known as joint-stock companies.
- A joint-stock company is a voluntary organization of individuals who provide money or monetary value for a common purpose.
- A corporation is intended as an organization of many people who donate money or the value of money to common stock and use it for some common purpose.
- The company is an artificial person created by law.
- The company and its members are separate from each other, and when it comes to ownership, shareholders are the owners who own and invest in the company.
- The fundamental difference between a public company and a private company is the ability to raise funds from the general public.
- Public companies can raise public funds by issuing equity capital on the stock market, while private companies do not by issuing equity capital on the stock market, but by personally issuing capital to new partners.
- The companies a wholly or partially owned by the Government of India, or one or both of many state and territorial governments, in part together.
- Certain public sector businesses are given additional financial autonomy.
- Sector Business (PSU) means a company in which at least 51% of the paid-in equity capital is held by the central government, state government, or partly central government and partly by the central government.
References:
- O. P. Khanna, industrial engineering and management, Dhanpat Rai and sons, New Delhi.
- E. H. McGraw, S. J. Basic managerial skill for all.
- Tarek Khalil, Management of Technology Tata McGraw Hill Publication Pvt. Ltd.
- Prabuddha Ganguli Intellectual Property rights Tata McGraw Hill Publication Company
- Management Accounting and financial management by M. Y. Khan and P.K. Jain, Tata McGraw Hill-Tata-ISBN.