Month: December 2020

Private Ltd. Company

A Private Limited Company is a joint stock company, incorporated under The Indian Companies Act, 2013 or any other previous act. The maximum number of members is 200, excluding the current employees and the ex-employees who were the members during their employment or continues to be the member after the termination of employment in the company.

The company restricts the transfer of shares and prohibits invitation to the public for the subscription of shares and debentures. It uses the term ‘private limited’ at the end of its name.

Public Ltd. Company

A Public Limited Company or PLC is a joint stock company formed and registered under The Indian Companies Act, 2013 or any other previous act.

There is no defined limit on the number of members the company can have. Also, there is no restriction on the transferability of the shares. The company can invite the public for the subscription of shares or debentures, and that is why the term ‘Public Limited’ gets added to its name.

Difference Public Company:

1. Ownership: Owned by the State Government or Central Government or both.
2. Objective/Motive: To promote public welfare.
3. Social Objectives: They are launched to achieve social objectives like development of backward regions, creation of employment opportunities, etc.
4. Forms of Organisation: Departmental undertakings, Statutory Corporation and Government Companies.
5. Management: Managed by bureaucrats; hence efficient.
6. Financial Resources: Huge financial resources; no problem in expansion and growth.
7. Accountability: Accountable to the public through Parliament.
8. Political Interference: Comparatively more Political Interference.
9. Government Control: They are subject to strict financial control by the government.
10. Distribution of Income: Equitable distribution of income.

Difference Private Company:

1. Ownership: Owned by private individuals.
2. Objective/Motive: To maximize profits.
3. Social Objectives: Social objectives are not very important.
4. Forms of Organisation: Sole proprietorship, partnership, joint Hindu family business, cooperative societies and joint stock company
5. Management: Managed by professional managers; hence efficient.
6. Financial Resources: Limited financial resources; less scope for expansion.
7. Accountability: Accountable to the owners.
8. Political Interference: Less political interference
9. Government Control: They are not subject to strict financial control by the government.
10. Distribution of Income: Concentration of wealth in few hands.

A private company is owned by either a small number of shareholders, company members, or a non-governmental organization, and it does not offer its stocks for sale to the general public. Instead, its stock is offered, owned, or exchanged privately among a small number of shareholders or even held by a single individual. Private companies are also referred to as privately-held companies, limited companies, limited liability companies, or private corporations, depending on the country where they’re incorporated and how they are structured.

Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the basic criterion that differentiates private companies from public companies.

The Section further says private companies can have a maximum of 200 members (except for One Person Companies). This number does not include present and former employees who are also members. Moreover, more than two persons who own shares jointly are treated as a single member.

This definition had previously prescribed a minimum paid-up share capital of Rs. 1 lakh for private companies, but an amendment in 2005 removed this requirement. Private companies can now have a minimum paid-up capital of any amount.

Features of Private Companies

• No minimum capital required: There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now.
• Minimum 2 and maximum 200 members: A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.
• Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies.
• “Private Limited”: All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.
• Privileges and exemptions: Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.

Privileges of Private Companies

The Companies Act has provided certain privileges and exemptions to private companies that public companies do not possess. These privileges accord them greater freedom in conducting their affairs. Here are some examples of them:

• No need to prepare a report for annual general meetings.
• Only 2 minimum directors required.
• No need to appoint independent directors.
• They can adopt additional grounds for the disqualification of directors and vacation of their office.
• They can pay greater remuneration to their directors than compared to some other types of companies.

Merits

Owning Property

A company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.

Free & Easy transferability of shares

Shares of a company limited by shares are transferable by a shareholder t any other person. The transfer is easy as compared to the transfer of interest in business run as a proprietary concern or a partnership. Filing and signing a share transfer form and handing over the buyer of the shares along with share certificate can easily transfer shares.

Limited Liability

Limited Liability means the status of being legally responsible only to a limited amount for debts of a company. Unlike proprietorships and partnerships, in a limited liability company the liability of the members in respect of the company’s debts is limited. In other words, the liability of the members of a company is limited only to the extent of the face value of shares taken up by them. Therefore, where a company is limited by shares, the liability of the members on a winding-up is limited to the amount unpaid on their shares.

Borrowing Capacity

A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.

Dual Relationship

In the company form of organization it is possible for a company to make a valid and effective contract with any of its members. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director and also an employee of the company.

Capacity to sue and be sued

To sue means to institute legal proceedings against or to bring a suit in a court of law. Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and also be sued in its own name.

Limitations

No valuation of investment:

Shares of a private company are not listed on stock ex­change. There are no regular dealings in these shares. A shareholder cannot, therefore, know the real value of his investment in a private company.

Lack of public confidence:

Public has little confidence in a private company because its affairs are unknown and it is not subject to strict control under the law.

Smaller resources:

A private company cannot have more than fifty members. Its credit standing is lower than that of a public company. Therefore, the financial and managerial resources of a private company are comparatively limited.

Poor protection to members:

A private company enjoys several exemptions from various provisions of the Companies Act. Minority members may suffer at the hands of the majority members. Dissatisfied members cannot cut off their connection with the company except at a loss.

Lack of transferability of shares:

There are restrictions on the transfer of shares in a private company. As a result a shareholder cannot leave a private company easily and quickly.

Sole trade is the oldest and most commonly used form of business organisation. It is as old as civilization is. Historically, it appears that business first started with this form of organisation. With the development of science and technology the needs of the business also increased and new forms of organisation developed. This organisation is also known as Sole-Proprietorship, Individual-Proprietorship, and Single Entrepreneurship. In sole trade organisation, an individual is at the helm of affairs. He makes all the investments, shares all risks, takes all profits, manages and controls the business himself.

The sole-trader mainly depends up to his own resources, so the business is generally on a small-scale basis. The business is normally run with the help of family members but he may employ persons to look after the day-to-day activities of the business. So far as his liability is concerned, it is unlimited.

Features of Sole Proprietorship:

Individual Initiative:

This business is started by the initiative of a single person. He prepares the blue prints of the venture and arranges various factors of production. He may employ other person for assistance but ultimate authority and responsibility lies with him. All the profits and losses are taken by the single individual.

Management and Control:

The proprietor manages the whole business himself. He prepares various plans and executes them under his own supervision. There may be some persons to help him but ultimate control lies with the owner.

Unlimited Liability:

In sole trade business liability is unlimited. The proprietor is responsible for all losses arising from the business. The liability is not limited only to his investments in the business but his private property is also liable for business obligations.

Business Secrecy:

All important decisions are taken by the owner himself. He keeps all the business secrets only to himself. Business secrets are very important for small business. By retaining business secrets he avoids competitors entering the same business.

No sharing of profits:

A sole trading concern is established and managed by the single person. Profit is not required to share with another. Sole trader individually enjoys the profit and bears the risk by himself.

Limited area of operation:

Since the sole trading concern is invested by the single person, there is less scope for expansion and growth of it. Sole trader individually can’t manage the big size of a business and he can’t manage the big size of a business and he cannot invest for this as well.

Independent Decision:

The sole trader can freely make the decision. He or she does not need to take consent of others while making the decision. Therefore, in this form of business decision making is fast.

Undivided risk and responsibility:

In this business, risk and responsibility can be shared with another person. The sole trader individually takes all kinds of risk. A sole trader is personally responsible for accomplishing all activities of a business.

Objectives of Sole-Trade Business:

Channelise Individual Funds:

Individuals have small surplus funds with them. These funds are not enough to set up big business. People may not like to risk their funds in those businesses where they have no say and control. It is better to set up a small business instead of keeping the funds idle. So sole-trade business provides a channel to make productive use of individual funds.

Serve Consumers:

A small trader comes in direct contact with the consumers. A consumer wants to buy his day-to-day requirements from the nearest place. Sole-traders set up their shops wherever the consumers are available. A consumer saves time by purchasing daily necessities from the nearest retail outlet.

Strengthen Distribution Channel:

Sole-Trade business is generally on a small scale basis. People set up small retail outlets under sole-proprietary organisation. A retailer is an important link in the chain of distribution. He is in direct contact with the consumers. No distribution channel from the producer to the consumer can be successful without the active involvement of sole-traders.

Avoid Concentration of Wealth:

In order to avoid concentration of wealth in a few funds, sole trade business helps in its distribution among large number of people. When large number of people enter into different businesses, may be at a small scale, it helps in distribution of economic wealth.

Help Large Business:

The success of large-scale business is also linked to the help provided by small business units. Small units provide ancillary service to big units. Large units require a number of small components from small units. So sole-trade business provides service to large units by providing them all those things which they do not want to manufacture themselves. In Japan, all large scale units depend upon the supplies from small units.

Disadvantages of Sole Trading Concern

• Limited capital
• Limited managerial ability
• Unlimited liability
• Loss in absence
• Uncertain life
• Limited scope for expansion
• Limited scope for opportunity

Limited managerial ability:

It is managed by a single owner who may not have adequate managerial skills and technical abilities. So, it may face various managerial deficiencies.

Limited capital:

Its capital is limited due to the investment of a single owner. Such limited capital is insufficient for large-scale production and marketing of goods and services.

Unlimited liability:

The sole trader does not have limited liability to his business capital. The owner must pay the liability of his business even by selling his private properties if the assets of the business are not sufficient to meet such liabilities.

Loss in absence:

It may come to close if the proprietor remains absent from his business due to his illness or other reasons. So, if the owner or proprietor is absent, the business may face the loss.

Uncertain life:

Its life is closely connected with the life of the owner. So, it can be terminated any time due to death, lunacy, insolvency or disability of the owner.

Limited scope of expansion:

It has a limited scope for expansion and development. Due to the limited amount of capital and managerial skills, its activities cannot be diversified.

Limited scope for opportunity:

It offers limited opportunities to his employees. Due to the limited scope of expansion and development of business, its employees get limited opportunities for training, higher studies, career development, attractive salaries, and other benefits.

1. Ethnocentric Approach:

Here the MNC simply transfers HR practices and policies used in the home country to subsidiaries in foreign locations. Expatriates from the MNCs home country manage the foreign subsidiaries and the MNCs headquarters maintain tight control over the subsidiaries policies.

2. Polycentric Approach:

In this case, the subsidiaries are basically independent from headquarters. HR policies are developed to meet the circumstances in each foreign location. Local managers in the foreign sites are hired to manage HRM activities.

3. Region-Centric Approach:

This approach represents a regional grouping of subsidiaries. HR policies are coordinated within the region to as much an extent as possible. Subsidiaries may be staffed by manager from any of the countries within the region. Coordination and communication within the region are high, but quite limited between the region and the MNCs headquarters.

4. Geocentric Approach:

In this case, HR policies are developed to meet the goals of the global network of home country locations and foreign subsidiaries. This may include policies which are applied across all subsidiaries, as well as policies adapted to the needs of individual locations depending on what is best to maximize global results.

The firm is viewed as a single international business entity rather than a collection of individual home country and foreign business units. HRM and other activities throughout the MNC are managed by individuals who are most appropriate for the job regardless of their nationally. Thus, one may find a British manager handling HRM activities in the New York office of a Dutch MNC.

Practices of International Human Resource Management

An organization needs to consider the purpose for which it needs to send the employees for international assignments. For example, an organization may send its employees aboard to set up or explore a new market, or prepare them for top management positions. After the purpose of the international assignment is specified, the organization can initiate the process of selecting the best employees for the international project.

The following are the aspects of concern in IHRM:

1. International staffing
2. Pre-departure training for international assignments
3. Repatriation
4. Performance management in international assignments
5. Compensation issues in international assignments.

International Staffing:

International staffing refers to the selection of the most appropriate employees for international operations of an MNC.

The selection of the most appropriate employees can be done by using the following three sources:

• Home Country or Parent Country Nationals (PCNs):

Refer to the citizen of the country in which the headquarters of the MNCs is located. PCNs are not the citizens of the country in which they are working. For instance, an Indian citizen who is posted to an overseas subsidiary of an organization that has its headquarters in India is a PCN. In addition, PCNs are termed as expatriates.

Generally, PCNs are hired to occupy key and top-level management positions because they possess sound knowledge about the operations of parent organization. The knowledge about parent organization helps the PCNs in ensuring proper linkage between foreign subsidiaries and the headquarters. However, hiring PCNs is a costly affair for an organization as it has to bear the relocation cost for them.

• Host Country Nationals (HCNs):

Refer to the employees of an organization, who are citizens of the country in which the foreign subsidiary is located. An Indian manager working in an Indian subsidiary of a US organization is an HCN. For example, IBM normally hires HCNs. In addition, HCNs generally occupy middle and lower management level positions. The recruitment of HCNs is not a costly affair for an organization because it does not need to incur extra cost in cross-cultural training of employees.

• Third Country Nationals (TCNs):

Refer to the citizens of a country, other than the country where the organization is headquartered and the country that is hosting the subsidiary. Staffing is done on the basis of ability and not on the basis of nationalism. For example, a British citizen working in the Indian subsidiary of an organization whose headquarters is located in the US, is termed as a TCN. You should note that a TCN has substantial international experience and exposure that is quite advantageous for an organization.

The approach of internal staffing differs from organization to organization.

Competency management as a business lever for hiring, development, mobility, and promotion started more than 40 years ago. It continues as essential today in the effective management of human capital. To implement competency management to drive employee development and performance excellence, let us align on four key definitions.

1. Competencies are abilities, behaviors, knowledge, and skills that impact the success of employees and organizations. Some common competencies are analytical thinking, communication, flexibility, integrity, and teamwork.
2. A competency model is a set of key competencies, ideally seven to 10, carefully selected in alignment with an organization’s business goals. High-performance models include four types of competencies: core competencies, leadership competencies, functional competencies, and career competencies
3. A competency proficiency scale is a defined rating or measurement that assigns an expected level of competence on a given competency. Leading practice scales have behavioral indicators as their building blocks with related behaviors organized under each competency. Scale ratings range from three to seven mastery levels, with five levels being the most common.
4. Competency management is the set of management practices that identify and optimize the skills and competencies required to deliver on an organization’s business strategy. Competency management provides the foundation to manage strategic talent management practices such as workforce planning, acquiring top talent, and developing employees to optimize their strengths.

Benefits of Competencies

Effective and automated competency management creates a real-time and predictive inventory of the capability of any workforce. By defining and automating job roles and associated competency proficiency, leadership can readily identify strengths and skill gaps. Competency management then informs targeted skills development learning solutions improving individual and organizational performance, leading to better business results.

High-performance organizations describe the following benefits of effective and automated competency management:

• Enriched understanding of expected behaviors and performance. Of course, the quickest path to improving performance starts by knowing the target performance. Organizations that take the time to define the short list of competencies and expected proficiency level for each competency, by job role, essential for the achievement of business goals, have taken the first step toward giving employees and leaders the best shot at performance excellence.
• Improved talent planning. Competency assessment results inform leadership about current and future talent capability. To be assessed as competent, the employee must demonstrate the ability and experience to perform a job’s specific tasks. Data and analytics about employees’ skills and knowledge are essential for performance risk mitigation that leadership would otherwise be blind to.
• Optimized development and mobility strategy. High-performance organizations realize that organizational success depends on how capable their people are. They also recognize that formal training does not necessarily equip employees with the appropriate skills to thrive in the workplace. This is where competency management and competency-based development comes in. Competency-based development is created around the competency standards that have been identified for a specific role in an organization.
• Enhanced talent pipeline. Automated competency management enables on-demand information about employees’ and leaders’ competency mastery and readiness to move into next-level or other critical roles. In this fashion, organizations are better prepared with development planning and, as a result, yield healthier talent pipelines regardless of business cycle or economic conditions.
• Improved operational efficiencies. Competency management automation facilitates business-driven learning and development, eliminates non-value-add training, highlights strengths to be further developed, flags critical skill gaps for mitigation, and generates higher levels of employee and leader satisfaction with their overall experience with the organization.
• Integrated talent processes. Serving as the standard for expected performance by job role, competency management becomes the standard by which the highest-performing organizations talk about and manage all phases of the employee lifecycle: from talent acquisition to development, to retention and reward.

The Competency Based Human Resources Management is an approach that standardizes and integrates all HR activities based on competencies that support organizational goals.

Competency-based HRM is about using the concept of competency and the results of competency analysis to inform and improve the processes of performance management, recruitment and selection, employee development and employee reward. The language has dominated much of HR thinking and practice in recent years.

Competencies are any observable abilities, skills, knowledge, motivations or traits defined in terms of the behaviors needed for successful job performance.

From the competency framework, the main types of competencies are created, and they consist of core, functional and leadership competencies.

Core Competencies, are fundamental to the organizational success and are applied across the whole organization from the board of directors, and middle management, down to fresh graduates and juniors. These competencies decide how organizations want to shape their employees, the company’s image and its professional characteristics. They are one of the company’s strengths, competitive advantage and could affect its profitability and growth.

Competency-based HR is primarily based on the concepts of behavioural and technical competencies as defined in the first section of this chapter. But it is also associated with the use of National and Scottish Vocational qualifications (NVQs/SNVQs) as also examined in the first section. The next five sections of the chapter concentrate on the application and use of behavioural and technical competencies under the following headings:

• Competency frameworks;
• Reasons for using competencies;
• Use of competencies;
• Guidelines on the development of competency frameworks;
• Keys to success in using competencies.

Behavioural competencies

Behavioural competencies define behavioural expectations, ie the type of behaviour required to deliver results under such headings as teamworking, communication, leadership and decision-making. They are sometimes known as ‘soft skills’. Behavioural competencies are usually set out in a competency framework.

The behavioural competency approach was first advocated by McClelland (1973). He recommended the use of criterion-referenced assessment. Criterion referencing or validation is the process of analysing the key aspects of behaviour that differentiate between effective and less effective performance.

Technical competencies

Technical competencies define what people have to know and be able to do (knowledge and skills) to carry out their roles effectively. They are related to either generic roles (groups of similar jobs), or individual roles (as ‘role-specific competencies’). The term ‘technical competency’ has been adopted fairly recently to avoid the confusion that existed between the terms ‘competency’ and ‘competence’. Competency, as mentioned above, is about behaviours, while competence as defined by Woodruffe (1990) is: ‘A work-related concept which refers to areas of work at which the person is competent. Competent people at work are those who meet their performance expectations.’ Competences are sometimes known as ‘hard skills’. The terms technical competencies and competences are closely related although the latter has a particular and more limited meaning when applied to NVQs/SNVQs, as discussed below.

NVQ/SNVQ competences

The concept of competence was conceived in the UK as a fundamental part of the process of developing standards for NVQs/SNVQs. These specify minimum standards for the achievement of set tasks and activities expressed in ways that can be observed and assessed with a view to certification. An element of competence in NVQ language is a description of something that people in given work areas should be able to do. They are assessed on being competent or not yet competent. No attempt is made to assess the degree of competence.

Functional Competencies are the Business’ Front Wheel Competencies, no vehicle can function or move forward without its front wheels; the same goes for business, no organization can perform without its Functional or its Job Specific Competencies. These competencies drive high performance and quality results for each function in the organization. It can be technical or non-technical knowledge, skills, and abilities required to fulfill job tasks, duties or responsibilities.

Leadership competencies are basically leadership skills and behaviors that contribute to superior performance, used to assess an individual’s ability and skills to be a leader. By using a competency-based approach to leadership, organizations can better identify and develop their next generation of leaders.

Finally, applying the Competency Based HRM in any organization is the most effective approach nowadays; as competencies act as an effective benchmark for measuring employees’ qualifications and suitability of filling a specific position.

Applying the approach across the organization, should lead to more fairness in evaluation, proper career development, improve hiring decision, increase operating effectiveness and most important to supporting the achievement of strategic and business goals.

Some of the benefits are:

• Providing feedback more regularly improves communication and employee engagement.
• Potential problems are addressed sooner.
• The time to address performance issues and get them corrected is lessened.

Proactive Approach

HR managers must anticipate the challenges or problems before they arise. Prevention is better than cure.

The proactive approach will save companies considerable time and money in the short and long run. P. F. Drucker (1997) highlighted the importance of a proactive approach very rightly.

He argues,” In a perfect world every startup would take the proactive approach and build their company from the beginning by identifying not only the mission, vision, values, goals, objectives, etc., but will determine where they want to go in the short and long-term and build a holistic, aligned organization beginning at the founder level where they can attract, hire, and retain the top talent to get them where they want to go.”

Human Resource Approach

People are human beings with a lot of potentials and intellectual abilities. It is important to treat people with respect and dignity.

Commodity Approach

People are a commodity. They are viewed as a cog of a machine. People can be hired and fired through money. It is money that matters most. There is a saying, “money is sweeter than honey.” This approach views people as an economic man.

Strategic Approach

People are the strategic asset of an organization. People have core competencies, the basis of competitive advantage.

Human resources are the combination of talent and skills; some of them are inborn and other skills they have acquired through learning and education. The strategic HRM approach focuses on people management programs and long-term solutions.

It stresses organizational development interventions, achieving employee organizational fit, and other aspects that ensure employees add value to the organization.

Management Approach

HRM is a part of general management. Management is nothing but managing people in the workplace. Managers at all levels are responsible for managing their employees or subordinates.

Reactive Approach

It occurs when decision-makers respond to problems. If efforts are reactive only, problems may be compounded, and opportunities may be missed, and organizations may suffer loss.

Companies may lose time and money if they take a reactive approach.

System Approach

A system is a set of interrelated but separate elements or parts working together for a common goal.

For example, HRM is a system that may have parts such as procurement, training, performance appraisal and reward, etc. One part affects and is affected by the other.