Author: indiafreenotes

Co-ordination cannot be achieved by force or imposed by authority. Achieving co-ordination through orders is a futile exercise. There are situations or problems that make achieving coordination a very difficult task.

1. Poorly defined and understood objectives:

It will be impossible to achieve co-ordination if the goals of the enterprise are not clearly defined. Every individual and each department must understand what is expected of them by the organisation. Top management must clearly state the objectives for the enterprise, as a whole. The various plans formulated in the enterprise must be inter-related and designed to fit together. Only then the organization can be coordinated.

2. Improper division of work:

Division of work is one of the most important requisites of effective organising. If the tasks are not differentiated and assigned to individuals according to their skills and qualification, it will be quite difficult to coordinate the activities of the enterprise.

3. Structured organization:

When the degree of formalisation, span of control degree of centralisation etc. are not clearly understood and activities are not properly departmentalised a very poorly structured organization will emerge making coordination very difficult.

4. Defined Lines of authority:

Coordination can never be achieved if the lines of authority are not clearly defined. Authority must be delegated in a clear way. The individual must know, what is expected of him by his superior(s). Once authority is accepted, the subordinate must be made accountable for results, in his work area. There should be no room for overlapping of authority and wastage of effort(s).

5. Poor communication:

A smooth flow of two-way communication is pre­requisite of co-ordination, if sound communication networks are not developed, an enterprise can never be co-ordinated. Personal contact is generally considered to be the most effective means of communication for achieving co-ordination. Other means of communication such as records, reports, may also be used in order to supply timely and accurate information to various groups in an organization.

6. Ineffective Leadership:

According to McFarland, real coordination can be achieved only through effective leadership. Top management, to this end, must be able to provide:

(i) a conducive work environment,

(ii) proper allocation of work,

(iii) incentives for good work, etc. It must persuade subordinates, to have identity of interests and to adopt a common outlook.

1. Principle of Objective:

The enterprise should set up certain aims for the achievement of which various departments should work. A common goal so devised for the business as a whole and the organization is set up to achieve that goal. In the absence of a common aim, various departments will set up their own goals and there is a possibility of conflicting objectives for different departments. So there must be an objective for the organization.

2. Principle of Specialisation:

The organization should be set up in such a way that every individual should be assigned a duty according to his skill and qualification. The person should continue the same work so that he specialises in his work. This helps in increasing production in the concern.

3. Principles of Co-ordination:

The co-ordination of different activities is an important principle of the organization. There should be some agency to co-ordinate the activities of various departments. In the absence of co-ordination there is a possibility of setting up different goals by different departments. The ultimate aim of the concern can be achieved only if proper co-ordination is done for different activities.

4. Principle of Authority and Responsibility:

The authority flows downward in the line. Every individual is given authority to get the work done. Though authority can be delegated but responsibility lies with the man who has been given the work. If a superior delegates his authority to his subordinate, the superior is not absolved of his responsibility, though the subordinate becomes liable to his superior. The responsibility cannot be delegated under any circumstances.

5. Principle of Definition:

The scope of authority and responsibility should be clearly defined. Every person should know his work with definiteness. If the duties are not clearly assigned, then it will not be possible to fix responsibility also. Everybody’s responsibility will become nobody’s responsibility. The relationship between different departments should also be clearly defined to make the work efficient and smooth.

6. Span of Control:

Span of control means how many subordinates can be supervised by a supervisor. The number of subordinates should be such that the supervisor should be able to control their work effectively. Moreover, the work to be supervised should be of the same nature. If the span of control is disproportionate, it is bound to affect the efficiency of the workers because of slow communication with the supervisors.

7. Principle of Balance:

The principle means that assignment of work should be such that every person should be given only that much work which he can perform well. Some person is over worked and the other is under-worked, then the work will suffer in both the situations. The work should be divided in such a way that everybody should be able to give his maximum.

8. Principle of Continuity:

The organization should be amendable according to the changing situations. Everyday there are changes in methods of production and marketing systems. The organization should be dynamic and not static. There should always be a possibility of making necessary adjustments.

9. Principle of Uniformity:

The organization should provide for the distribution of work in such a manner that the uniformity is maintained. Each officer should be in-charge of his respective area so as to avoid dual subordination and conflicts.

10. Principle of Unity of Command:

There should be a unity of command in the organization. A person should be answerable to one boss only. If a person is under the control of more than one person then there is a like-hood of confusion and conflict. He gets contradictory orders from different superiors. This principle creates a sense of responsibility to one person. The command should be from top to bottom for making the organization sound and clear. It also leads to consistency in directing, coordinating and controlling.

11. Principle of Exception:

This principle states that top management should interfere only when something goes wrong. If the things are done as per plans then there is no need for the interference of top management. The management should leave routine things to be supervised by lower cadres. It is only the exceptional situations when attention of top management is drawn. This principle relieves top management of many botherations and routine things. Principle of exception allows top management to concentrate on planning and policy formulation. Important time of management is not wasted on avoidable supervision.

12. Principle of Simplicity:

The organizational structure should be simple so that it is easily understood by each and every person. The authority, responsibility and position of every person should be made clear so that there is no confusion about these things. A complex organizational structure will create doubts and conflicts among persons. There may also be over-lapping’s and duplication of efforts which may otherwise be avoided. It helps in smooth running of the organization.

13. Principle of Efficiency:

The organization should be able to achieve enterprise objectives at a minimum cost. The standards of costs and revenue are pre-determined and performance should be according to these goals. The organization should also enable the attainment of job satisfaction to various employees.

14. Scalar Principle:

This principle refers to the vertical placement of supervisors starting from top and going to the lower level. The scalar chain is a pre-requisite for effective and efficient organization.

An entrepreneur organizes various factors of production like land, labour, capital, machinery, etc. for channelizing them into productive activities. The product finally reaches consumers through various agencies. Business activities are divided into various functions, these functions are assigned to different individuals.

Various individual efforts must lead to the achievement of common business goals. Organization is the structural framework of duties and responsibilities required of personnel in performing various functions with a view to achieve business goals through organization. Management tries to combine various business activities to accomplish predetermined goals.

Present business system is very complex. The unit must be run efficiently to stay in the competitive world of business. Various jobs are to be performed by persons most suitable for them. First of all various activities should be grouped into different functions. The authority and responsibility is fixed at various levels. All efforts should be made to co-ordinate different activities for running the units efficiently so that cost of production may be reduced and profitability of the unit may be increased.

Definition by Experts

Louis Allen, “Organization is the process of identifying and grouping work to be performed, defining and delegating responsibility and authority and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.” In the words of Allen, organization is an instrument for achieving organizational goals. The work of each and every person is defined and authority and responsibility is fixed for accomplishing the same.

Wheeler, “Internal organization is the structural framework of duties and responsibilities required of personnel in performing various functions within the company. It is essentially a blue print for action resulting in a mechanism for carrying out function to achieve the goals set up by company management”. In Wheeler’s view, organization is a process of fixing duties and responsibilities of persons in an enterprise so that business goals are achieved.

Koontz and O’Donnell, ‘The establishment of authority relationships with provision for co-ordination between them, both vertically and horizontally in the enterprise structure.” These authors view organization as a coordinating point among various persons in the business.

Oliver Sheldon, “Organization is the process so combining the work which individuals or groups have to perform with the facilities necessary for its execution, that the duties so performed provide the best channels for the efficient, systematic, positive and coordinated application of the available effort”. Organization helps in efficient utilization of resources by dividing the duties of various persons.

Spriegel, “In its broadest sense organisation refers to the relationship between the various factors present in a given endeavor. Factory organisation concerns itself primarily with the internal relationships within the factory such as responsibilities of personnel, arrangement and grouping of machines and material control. From the standpoint of the enterprise as a whole, organisation is the structural relationship between the various factors in the enterprise”.

Spriegel has given a wide definition of the organization. He has described it as the relationship among persons, factors in the enterprise. All factors of production are coordinated in order to achieve organisational objectives.

George Terry, “Organising is the establishing of effective authority relationships among selected work, persons, and work places in order for the group to work together efficiently”. According to Terry organisation is the creation of relationship among persons and work so that it may be carried on in a better and efficient way.

C.H. Northcott, ‘The arrangement by which tasks are assigned to men and women so that their individual efforts contribute effectively to some more or less clearly defined purpose for which they have been brought together”. According to Northcott the purpose of organisation is to co-ordinate the activities of various individuals working in the organisation for the attainment of enterprise goals.

L.H. Haney, “Organisation is a harmonious adjustment of specialised parts for accomplishment of some common purpose or purposes”. Organisation is the adjustment of various activities for the attainment of common goals.

Concepts of Organisation:

1. Static concept
2. Dynamic concept,

1. Static Concept:

Under static concept the term ‘organisation’ is used as a structure, an entity or a network of specified relationship. In this sense, organisation is a group of people bound together in a formal relationship to achieve common objectives. It lays emphasis on position and not on individuals.

2. Dynamic Concept:

Under dynamic concept, the term ‘organisation’ is used as a process of an on-going activity. In this sense, organisation is a process of organising work, people and the systems. It is concerned with the process of determining activities which may be necessary for achieving an objective and arranging them in suitable groups so as to be assigned to individuals. It considers organisation as an open adoptive system and not as a closed system. Dynamic concept lays emphasis on individuals and considers organisation as a continuous process.

Characteristics of Organisation:

Different authors look at the word ‘organisation’ from their own angle. One thing which is common in all the viewpoints is that organisation is the establishment of authority relationship among persons so that it helps in the achievement of organisational objectives.

Some of the characteristics of organisation are studied as follows:

1. Division of Work:

Organisation deals with the whole task of business. The total work of the enterprise is divided into activities and functions. Various activities are assigned to different persons for their efficient accomplishment. This brings in division of labour. It is not that one person cannot carry out many functions but specialisation in different activities is necessary to improve one’s efficiency. Organisation helps in dividing the work into related activities so that they are assigned to different individuals.

2. Co-ordination:

Co-ordination of various activities is as essential as their division. It helps in integrating and harmonising various activities. Co-ordination also avoids duplications and delays. In fact, various functions in an organisation depend upon one another and the performance of one influences the other. Unless all of them are properly co­ordinated, the performance of all segments is adversely affected.

3. Common Objectives:

All organisational structure is a means towards the achievement of enterprise goals. The goals of various segments lead to the achievement of major business goals. The organisational structure should build around common and clear cut objectives. This will help in their proper accomplishment.

4. Co-operative Relationship:

An organisation creates co-operative relationship among various members of the group. An organisation cannot be constituted by one person. It requires at least two or more persons. Organisation is a system which helps in creating meaningful relationship among persons. The relationship should be both vertical and horizontal among members of various departments. The structure should be designed that it motivates people to perform their part of work together.

5. Well-Defined Authority-Responsibility Relationships:

An organisation consists of various positions arranged in a hierarchy with well defined authority and responsibility. There is always a central authority from which a chain of authority relationship stretches throughout the organisation. The hierarchy of positions defines the lines of communication and pattern of relationships.

Trade:

1. Trade is that branch of commerce which deals with exchange or transfer of goods and services.
2. The origin and development of trade is the result of the prevalence of barter system.
3. It includes sale and purchase of products only.
4. In trade, a small amount of capital is required.
5. The element of risk is also there in the trade.

Commerce:

1. Commerce comprises of all those activities which are concerned with the distribution of goods and services so they may reach the consumers with a minimum of inconvenience.
2. The origin and development of commerce is the result of continuous development of trade and industries.
3. It includes ‘Trade’ and ‘Aids to Trade’.
4. The amount of capital required is comparatively less.
5. The risk is comparatively less in commerce.

Industry:

1. Industry is concerned with raising producing processing or fabrication of goods and services.
2. The origin and development of commerce is the result of continuous development of trade and industries.
3. It includes ‘Trade’ and ‘Aids to Trade’.
4. A large amount of capital is required for the establishment of an industry.
5. The higher risk is there in the industry.

Major differences between industry, commerce and trade are as follows:

Industries are part of the secondary activity. Secondary activities or manufacturing converts raw material into products of more value to people. Industry refers to economic activities concerned with the production of goods, extraction of services and provision or services. Hence we can say that Industries are concerned with:

• Production of good (steel energy)
• Extraction of minerals(coal mining)
• Provision for services (tourism)
• There are also Emerging Industries: ‘Sunrise Industries’

Classification of Industries

1. Raw material

• Agro-based industries: These industries use plantsand animal-based products as their raw materials. Examples, food processing, vegetable oil, cotton textile, dairy products, and leather industries.
• Mineral based industries: Mineral-based industries are based on mining and use ‘mineral ore‘ as raw material. These industries also provide to other industries. They are used for heavy machinery and building materials.
• Marine-based industries: Marine-based industries use raw materials from sea or ocean. Examples, fish oil.
• Forest-based industries: These industries use raw materials from the forest like wood. The industries connected with forestare paper, pharmaceutical, and furniture.

2. Size

Size of industries are measured by how much money is invested, employee count and goods produced.

• Small-scale industries: Small-scale industrieshave less capital and technology invested in them. There is often manual labour noticed here. Example, Basket weaving, pottery, and handicrafts.
• Large-scale industries: Largescale industries are the exact opposite of small-scale industries. Here the capital invested is large and advanced technology is in use here. Example, Automobiles and Heavy Machinery.

3. Ownership

• Private sector: Private industries are businessesthat are owned and operated by an individual or group of individuals.
• Public sector: Public industries are owned and managed by the government. Example, Hindustan Aeronautics Limited (HAL)
• Joint sector industries:These industries are jointly operated by the state and individuals. Example, Maruti Udyog.
• Cooperative sector industries: Cooperative industries are operated by the suppliers, producers or workers of raw material. Example, Amul India.

Industrial Systems

Industrial systems are made up of input, processes, and output. The input of raw materials, labour, land, power, and other infrastructure. The process is the plan the manufacturer has of how to turn raw materials into finished products of value. And finally, the output is the end of the product from which the income earned it.

Industrial Clusters

Industrial clusters occur when many industries are located close to each other and share the benefits of their closeness. Major industrial clusters in India are:

• Mumbai-Pune cluster
• Bangalore-Tamil Nadu region
• Hugli region
• Ahmedabad-Baroda region
• Chottanagpur industrial belt
• Vishakhapatnam-Guntur belt
• Gurgaon-Delhi-Meerut region
• Kollam-Thiruvananthapuram industrial cluster

Distribution of Major Industries

As we learned how industries were classified according to raw material, size, and ownership. Here we will learn the distribution of some major industries, which are iron and steel industry and textile industry are the oldest industries that have had their role in Indian industrialization. Information technology is an emerging industry.

Iron and steel industries have their firm hold in countries like Germany, USA, China, Japan, and Russia. While textile industries are flourishing in India, Hong Kong, and South Korea. The new emerging information technology has their concentration in Silicon Valley of California and Banglore of India.

Iron and Steel Industry

Iron and Steel industries are famously known as the feeders of all the other industries. The products of these industries are used as raw materials in other industries. As we learned the industrial system, this industry comprises of various inputs, processes, and outputs. The input includes raw material such as iron ore, labor, capital, and other infrastructure. Iron ore is then converted into steel by various processes like smelting and refining.

Finally, the output is steel. Steel and iron can be called as the basic material needed in every other industry. No doubt, they are the backbone of the modern industry. In a developing country like India, Iron and Steel industry has taken the advantage of the cheap labor, raw material, and the ready market.

Textile Industry

Textile is a fabric that is woven from fibres. It takes raw material like cotton or wool and the process called spinning turns it into yarn that is later used to create the fabric. Fibres can be natural or are man-made. Natural fibres are – cotton, jute, linen, wool, and silk. Man-made fibres are – nylon, rayon, and polyester.

The man has been wearing and using fabric since ancient times. The textile industry is one of the oldest industry in the world. And until the industrial revolution, the textile industry used wheels and looms to weave fibre. During the revolution, power looms were introduced first in Britain.

After that, textile industry expanded in Mumbai because of its warm, moist climate, facility of port for importing machinery and exporting the output and above all the availability of cheap labour. Some of the well known and highly demanded fibres are, Muslins from Dhaka Chintzes from Masulipatnam and Calicos of Calicut, Gold wrought cotton from Surat, Burhanpur, and Vadodara.

Information Technology

Information technology deals with the storage, processing and distribution of information. During the decade, the industry has gained global attention due to a series of political, technological and socioeconomic events. India is witnessing the emergence of information technology hubs in Bangalore, Mumbai, Hyderabad and Chennai.

The Silicon Valley and Bangalore both share many same aspects in the development of Information technology such as pleasant climate, skilled workforce, presence of high quality educational, technological and scientific centers and access to markets.

The Companies Act, 2013 completely revolutionized corporate laws in India by introducing several new concepts that did not exist previously. On such game-changer was the introduction of One Person Company concept. This led to the recognition of a completely new way of starting businesses that accorded flexibility which a company form of entity can offer, while also providing the protection of limited liability which sole proprietorship or partnerships lacked.

Several other countries had already recognized the ability of individuals forming a company before the enactment of the new Companies Act in 2013. These included the likes of China, Singapore, UK, Australia, and the USA.

Section 2(62) of Companies Act defines a one person company as a company that has only one person as its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.

Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the several advantages that OPCs offer.

Difference between OPCs and Sole Proprietorships

A sole proprietorship form of business might seem very similar to one person companies because they both involve a single person owning the business, but there actually exist some differences between them.

The main difference between the two is the nature of liabilities they carry. Since an OPC is a separate legal entity distinguished from its promoter, it has its own assets and liabilities. The promoter is not personally liable to repay the debts of the company.

On the other hand, sole proprietorships and their proprietors are the same persons. So, the law allows attachment and sale of promoter’s own assets in case of non-fulfilment of the business’ liabilities.

Features of a One Person Company

Here are some general features of a one-person company:

1. Private company: Section 3(1)(c) of the Companies Act says that a single person can form a company for any lawful purpose. It further describes OPCs as private companies.
2. Single member: OPCs can have only one member or shareholder, unlike other private companies.
3. Nominee: A unique feature of OPCs that separates it from other kinds of companies is that the sole member of the company has to mention a nominee while registering the company.
4. No perpetual succession: Since there is only one member in an OPC, his death will result in the nominee choosing or rejecting to become its sole member. This does not happen in other companies as they follow the concept of perpetual succession.
5. Minimum one director: OPCs need to have minimum one person (the member) as director. They can have a maximum of 15 directors.
6. No minimum paid-up share capital: Companies Act, 2013 has not prescribed any amount as minimum paid-up capital for OPCs.
7. Special privileges: OPCs enjoy several privileges and exemptions under the Companies Act that other kinds of companies do not possess.

Formation of One Person Companies

A single person can form an OPC by subscribing his name to the memorandum of association and fulfilling other requirements prescribed by the Companies Act, 2013. Such memorandum must state details of a nominee who shall become the company’s sole member in case the original member dies or becomes incapable of entering into contractual relations.

This memorandum and the nominee’s consent to his nomination should be filed to the Registrar of Companies along with an application of registration. Such nominee can withdraw his name at any point of time by submission of requisite applications to the Registrar. His nomination can also later be cancelled by the member.

Membership in One Person Companies

Only natural persons who are Indian citizens and residents are eligible to form a one person company in India. The same condition applies to nominees of OPCs. Further, such a natural person cannot be a member or nominee of more than one OPC at any point of time.

It is important to note that only natural persons can become members of OPCs. This does not happen in the case of companies wherein companies themselves can own shares and be members. Further, the law prohibits minors from being members or nominees of OPCs.

Conversion of OPCs into other Companies

Rules regulating the formation of one person companies expressly restrict the conversion of OPCs into Section 8 companies, i.e. companies that have charitable objectives. OPCs also cannot voluntarily convert into other kinds of companies until the expiry of two years from the date of their incorporation.

Privileges of One Person Companies

OPC enjoy the following privileges and exemptions under the Companies Act:

• They do not have to hold annual general meetings.
• Their financial statements need not include cash flow statements.
• A company secretary is not required to sign annual returns; directors can also do so.
• Provisions relating to independent directors do not apply to them.
• Their articles can provide for additional grounds for vacation of a director’s office.
• Several provisions relating to meetings and quorum do not apply to them.
• They can pay more remuneration to directors than compared to other companies.

Partnership companies/firms are created with a sole objective of bringing together 2 or more people (referred as partners), with a legally bound agreement that denotes the partners share in the entity and their co-operation to advance in a business objective.

Limited Partners and General Partners

1. Limited Partner: Limited partners serve as investors.
2. General Partners: The general partners own and operate the business and assume liability for the partnership.

According to the Oxford Dictionary for the Business World. “Partner is a person who shares or takes part in activities of another person. Partnership is an association of two or more people formed for the purpose of carrying on a business”

According to Prof. L. H. Haney, “Partnership is the relation existing between persons competent to make contracts, who agree to carry on a lawful business in common, with a view to private gains.”

In the words of Prof. Macnaughton, “Partnership results from the desires of business to take advantages of complementary ability and to raise more capital”

“Partnership is the relation which subsists between persons, who have agreed to combine their property, labour or skill in some business and share the profits thereof between them” :Indian Contract Act, 1872.

“It is the relation between persons who have agreed to share the profits of a business carried on by all or anyone acting for all”. Section 4 of Indian Partnership Act, 1932.

“Partnership is an association of two or more persons who carry on as co-owners, a business for profit” :Uniform Partnership Act, U.S.A

Advantages of Partnership

(i) Ease of Formation

Any two persons capable of entering into contract can start partnership. The partnership deed can be oral or written. Registration is not compulsory. Thus, partnership is very easy to form. However, business conditions or requirements may force partnerships to be formed through a partnership deed, which is in writing. For example, banks may not allow a partnership firm to open a banking account unless there is a written partnership deed.

(ii) Flexibility of Operations

There is considerable freedom in carrying out business operations. There is no need for taking approvals from Government or any other authority, to change the nature, scope or location of the business.

(iii) Greater Financial Resources

Partnership combines the financial strength of all partners, as the liability of partners is joint and several. Not only is the ability to contribute capital greater, it also enhances the borrowing capacity of the firm.

(iv) Greater Managerial Resources

Partnerships are often formal by people looking for advantages of synergy. If one partner has technical knowledge, other could be marketing or finance expert. Thus, the managerial resources of the firm are enhanced. The financial resources available with the firm enables the firm to employ a good manager on salary basis for taking care of the business in a professional manner.

(v) Greater Creditworthiness

When a lender evaluates the proposal for loan, he looks at the creditworthiness of the borrower. A partnership firm, by definition, has more than one person responsible for the business. All partners are jointly and severally liable for the debt taken by the firm. The personal assets of all the partners can be used for repayment of the loan. All this gives greater confidence to the lenders. Thus, a partnership firm enjoys greater creditworthiness and therefore raise more debt for the business.

(vi) Balanced Judgement

In a partnership, the day to day management might be taken care of by one or few partners. However, in case of major issues, partners are likely to discuss the circumstances and arrive at a balanced judgement. Decisions are unlikely to be taken in haste, or in emotion.

(vii) Specialization

Partnership can benefit from division of labour. Partners may choose to specialize in an area of interest. Partners can clearly define responsibilities and duties amongst themselves. This will result in expertise in management, apart from increase in efficiency, thereby maximizing profits.

(viii) Maintenance of Secrecy

A partnership firm is a closely held business. It is not required by law to share its performance and position with others. Thus, all knowledge about the firm is restricted to only the partners of the firm.

(ix) Personal Contacts with Staff and Customers

A partnership concern is a relatively small organization, whose activities can be managed by a group of people. Thus, partners keep in close contact with customers and staff. They are thus able to note the changing tastes and attitudes and react faster to such changes.

(x) Economies in Management

Partners have a stake in the profits of the business. They ensure that wastage is kept at the minimum. All expenses are closely supervised. Thus, expenses of management are controlled.

(xi) Conservative Management

Partners have unlimited liability. Unlimited liability prevents the partners from taking reckless decisions. They not only ensure that the decisions taken by them are acceptable to all, but also confirm that no other partner is acting needlessly aggressive.

(xii) Protection of Minority Interest

A partner being jointly and severally liable for any action of the firm, he has a right to stop the firm from taking action that is not in the interests of the firm. Such a partner cannot be ignored even if majority of partners feel otherwise. Decisions of partnership need the consent of all partners.

(xiii) Incentive to Hard work

Partners have share in the profits of the firm. Partners put in hard work and try to increase profits of the firm. A sincere and committed effort brings in extra rewards.

(xiv) Risk Reduction

The profits and losses are shared by all partners. Similarly, if the firm is unable to meet any of its payment obligations, all partners are responsible. Thus, partnership offers risk reduction as the risk is spread across partners.

(xv) Greater Scope for Expansion

As number of partners is larger, the firm can plan for faster expansion. It can also have geographical expansion, as a partner can be mobile and sufficiently experienced to handle the organizational activities from a new place.

(xvi) Easy Dissolution

It is very easy to dissolve the partnership firm. Any partner can ask for dissolution of firm by giving a 14 day notice. The firm can be dissolved on death, insolvency or lunacy of any partner. No legal formalities are required.

(xvii) Taxation

The Income Tax Act, 1961 treats a Partnership as a separate ‘person’ and its tax is calculated separately. This allows scope for partners to do tax planning and reduce total tax payable to minimum.

Disadvantages of Partnership Firm

(i) Unlimited Liability

Partners become fully liable for all claims against the firm to an unlimited extent. The partner might lose all the savings of his life on account of a loss or a mistake in business. This is one of the reasons that the selection of a partner or association with a like-minded partner is the most important thing in forming a partnership business.

(ii) Restriction on Transfer of Interest

One of the golden rules of any investment is that there must be an easy exit. If partner needs money, or is not in agreement with others, he cannot transfer his interest in the firm to outsiders without the consent of outsiders. A partner will not be able to reduce or increase his stake in the partnership.

(iii) Inadequacy of Capital

The number of partners in a firm is restricted to a maximum of twenty persons. Thus, a partnership firm may not be in a position to raise the required capital to finance its expansion plans. Hence, businesses that need large amounts of capital are generally organized as Joint Stock companies. For example, an oil refining business like Reliance Industries Limited or a car manufacturing business like Tata Motors Limited, cannot be imagined as Partnership firms.

(iv) Mutual Conflicts

Partnership requires close cooperation and a lot of understanding amongst partners. If there is a serious difference of opinion amongst partners, with different partners trying to pursue different goals then it is not good for the health of the business. Friction between partners will eventually lead to closure of business.

(v) Uncertain Continuity

Partnership may be dissolved on account of death, insolvency, insanity or incapacity of any of the partners. There is always a serious threat to continuity of business in its existing form. Hence, partnership firms are not suited to businesses requiring long term capital and plans.

(vi) Delay in Decision Making

While day to day management is handled by one or more partners independently, any major decision requires the consent of all partners. A discussion and consensus on decision to be taken might be time consuming, resulting in the firm losing out on prompt action.

(vii) Risk of Implied Authority

A partner can bind all other partners of the firm by his actions. This is a great risk to the other partners, as any hastily taken action may result in wiping out the life savings of all partners. It is seen that mistrust and wrong decisions by managing partners usually lead to dissolution of partnership firms.

(viii) Lack of Public Confidence

The affairs of the firm are not subject to public scrutiny. The performance and position of the firm is not published. Hence, the firm does not enjoy any public confidence.

(ix) Aversion to Risk

The liability of all partners is unlimited. Also, the partners are jointly and severally liable. In other words, a wrong step taken by one partner can result in all or some of the partners becoming bankrupt. Keeping this in mind, partners have a very high aversion to risk.

(x) Limited Scope for Expansion

A partnership firm can have only a limited number of partners. The liability of these partners is unlimited. Therefore, their ability to take risk is limited. This limits the ability of the firm to expand and grow.

(xi) Continuation of Responsibilities

Normally, the responsibilities pertaining to a business end with closure of the business. However, in case of Partnership firms, unless the liability of the firm is limited (LLP or Limited Liability Partnership), the responsibility of partners continues even after the firm is closed down (dissolved). This continues till the claims of all outsiders are completely settled.

(xii) No Independent Legal Status

Partnership firm is not separate or distinct from its members. It does not have a separate legal entity of its own. Partners enter into contracts on behalf of each other.

The joint sector represents a new ideology of economic management geared to sub serve a new economic system.

The term is applied to an under­taking only when both its ownership and control are effectively shared between public sector agen­cies on the one hand and a private group on the other.

The basic idea underlying the concept is com­bination of joint ownership, joint control and pro­fessional management.

The joint sector would include units in which both public and private investments have taken place and where the state takes an active part in direction and control.

According to JRD Tata a joint sector enterprise is intended to form a partnership between the pri­vate sector and the Govt. in which the govt. par­ticipation of the capital will not be less than 26 p.c., the routine management will be normally in the hands of the private sector partner and control and supervision will be duly exercised by a governing board on which Government is adequately repre­sented.

The Tata concept of joint sector is heavily pri­vate sector oriented, whereas the Dutt Committee concept of the joint sector was public sector ori­ented and aimed at curbing concentration of indus­tries in the private sector.

Features of Joint Sector:

Joint sector enterprises may be brought into being by any of the following ways:

(i) The Central Govt. and private entrepre­neurs may jointly set up new enterprises. Sometimes the Central Govt. and one or more State Govts, together may set up enterprises in partnership with the pri­vate sector.

(ii) The State Govt. or their industrial devel­opment corporations may set up new companies jointly with private partners, involving equity participation by both the partners.

(iii) Public financial institutions may, through equity participation or conver­sion of loans or debentures into equity, transform enterprises promoted by pri­vate entrepreneurs into joint sector com­panies.

(iv) The existing private enterprises may be transformed into joint sector enterprises by the govt. or govt. companies acquir­ing a part of the equity or converting debt into equity or by contributing to an increase in the share capital.

(v) The existing public sector companies may be transformed into joint sector en­terprises through the sale of some eq­uity shares to private entrepreneurs or the general public.

The concept of the joint sector is a product of certain evolutionary forces of which two seem to be most important:

(i) A drastic change in the pattern of financ­ing big industries in India with the ad­vent and process of State-owned finan­cial institutions; and

(ii) An increasing demand to nationalize big business in order to curb the concentra­tion of economic power.

The Dutt Committee used the former as a means to achieve the latter objective. It envisaged the concept of joint sector as an important means of curbing the increasing concentration of economic power and to achieve this objective, the Commit­tee recommended the total conversion of the loans to equity by the Central Financial Institutions in their assisted projects.

This measure also provided two other advantages:

(i) It will help obviate the difficulties likely to be faced organising large public sec­tor enterprises from scratch and

(ii) It would also help the Govt. by provid­ing the nuclei for a healthy growth of certain important industries making the best possible use of available technical and managerial experience in the exist­ing enterprises without enabling such growth to add to private concentration of economic power.

Since then, the concept as well as the rationale underlying the concept has undergone a change with the result that today the concept of joint sec­tor refers to a new undertaking in which the State holds 26 p.c. of the equity and controls the man­agement of the company along with the private collaborator.

Problems of the Joint Sector:

Apart from other problems common to all in­dustrial activity, three specific problems to the joint sector have been identified:

1. While in principle the concept appears ac­ceptable, guidelines in terms of the roles of the Govt. and private partners in managing and controlling joint sector enterprises still remain to be spelt out. From the point of view of private investors, uncer­tainty about their role in management and control has been a major inhibiting factor.
2. The rationale for setting up joint sector projects was mainly for developing backward areas, reducing concentration of economic power and to accelerate industrial development. But in reality, often the purpose for which the joint sector projects were set up was unrelated to these basic objectives.

The joint sector enabled private entre­preneurs to promote large projects with less of eq­uity participation; it also enables them to obtain cer­tain concessions which were denied to projects in the private sector. Similarly, the main motive for the State in setting up joint sector projects was to

3. The inter-facing between a purely Govt. agency whose commitment and accountability are vastly different and a private group whose main motivation is likely to be commercial profitability is not always smooth.

There is always the dilemma between “over control” of a unit to satisfy the rig­our of Govt. audit on the one hand which, over time, stifles initiative and makes it difficult to op­erate; on the other, there is a well-recognised ac­countability to the public and legislature where Govt. funds are invested that they are expended wisely.

One, therefore, has to steer clear of these two extremes and ensure that the right “mix” of freedom and interference which will make the unit grow and expand is achieved.

Government Policy:

The Govt. accepted the concept of joint sector in its industrial policy decision in 1970 and 1973. The concept of joint sector became very popu­lar after the Report of the Industrial Licensing Policy Inquiry Committee was submitted in 1969.

How­ever, this is not a new idea. The industrial policy pronouncements even before the Dutt Committee Report had conceived the idea of joint sector. In­deed, the joint sector as a form of business existed in India even before Independence.

The idea of the joint sector was implicit in the Industrial Policy Resolutions of 1948 and 1956. The Industrial Policy Resolution of 1948 indicated the possibility of the state securing the cooperation of private enterprise for the establishment of new units even in the 6 industries where only the state was to have the right to set up new units, subject to such control and regulation as the Central Govt. might prescribe.

The Industrial Policy Resolution of 1956 indicated the possibility of the state securing the cooperation of private enterprises in the establish­ment of new units when the national interest so requires in the industries listed in Schedule A (i.e., industries the future development of which had been exclusively reserved for the state).

When­ever cooperation with private enterprise is neces­sary, the state will ensure, either through majority participation in the capital or otherwise, that it has the requisite power to guide the policy and control the operations of the undertaking.

It was stated that when the state granted financial assistance to the private sector, such assistance will preferably be in the form of participation in equity capital though it may also be, partly, in the form of debenture capi­tal.

The concept of the joint sector received greater attention after the Dutt Committee. The Commit­tee viewed the joint sector as an important means of curbing the increasing concentration of economic power. The Committee also felt that the joint sector is likely to be more effective than licensing for real­ising this objective.

The Dutt Committee recommended that pub­lic financial institutions should have the option to convert their financial assistance to private enter­prises into equity so as to bring such enterprises in the joint sector.

The govt. has accepted the joint sector concept taking into consideration the recommendation of the Dutt Committee. The joint sector was expected to function in two broad areas—the core sector and the heavy investment sector. With investment ex­ceeding Rs. 5 crore joint sector projects will be wel­come in industries from which the private sector has been excluded.

Joint sector offers a middle path between out­right nationalisation and private enterprise. It is an instrument to be used to reduce the evils of mo­nopoly and concentration of industries in large business houses. It can ensure optimum use of scarce financial and other resources. It can assure public control and social accountability.