Business

Business Note Things to Remember Videos Exercises Quiz

Introduction

Business is the most important activity for a human being. It is the means of livelihood. Almost all the people engage themselves in making, buying, selling and distributing goods and services for generating income. Almost every business involves risk and uncertainty. The successful business operation in the economy reflects the prosperity of the nation. It provides larger employment opportunities and utilizes available resources economically. It brings comfort and satisfaction for the people and ensures peace, prosperity and progress of the country. It helps in earning foreign currency and strength foreign relation. The development of the business increases the prestige of the people and nation.

Meaning and Definition

The term 'business' refers to all the economic activities carried by people and organizations for generating incomes. It is concerned with producing and distributing goods and services for earning a profit. It is a regular process of exchanging goods and services which involve risk and uncertainty. It is the mutual effort of industry and commerce. In fact, business is an economic activity aimed at fulfilling the needs and wants of customers through the supply of goods and services for their satisfaction.

The following are the main definitions of business:

"Business may be defined as a human activity directed towards producing or acquiring wealth through buying and selling of goods."- L.H. Haney

"Business may be defined as an activity in which different persons exchange something of value, whether goods or services for mutual gain or profit." - Peterson and Plowman

"All the activities included in the production and sale of goods and services may be classified as a business activity." - W.F. Spiegel

Characteristics of Business

The following are the characteristics of Business:

1. Economic activityBusiness is an economic activity which involves in exchange of goods and services for money. It does not include non- economic activities which are not directed for generating income.

2. Production and distributionBusiness involves in production and exchange of goods and services. The production and distribution of goods and services are carried for the satisfaction of the customers.

3. Profit motiveProfit is the essence of a business. The activities relating to the production of goods and services are carried on with the aim of earning profit.

4. Risk and UncertaintyEvery business activity involves risk and uncertainty to some extent. The risk of loss is ever- present in every business activity and hence there is no certainty that the business activity always results into profit.

5. Regular transactionsEvery business performs its transactions on a regular basis. It makes production and distribution of goods and services to the society continuously.

Importance of Business

Business equally contributes to the individuals, society, and nation as a whole. The business is important due to following reasons:

1. Means of livelihoodBusiness is the source of livelihood of many people. Every person lives in society by generating incomes through the production and distribution of goods and services.

2. Increases the living standardBusiness increases earning of a person and a family. It increases purchasing power and develops life standard of a family, which makes life full of comfort and happiness.

3. Utilizes resourcesBusiness utilizes natural, human, physical and financial resources for the production and distribution of goods and services. The proper utilization of these resources helps to generate large employment opportunities and uplift economic development of the country.

4. Generates the employment opportunityBusiness is the means of overcoming unemployment problem of the society. Due to the establishment and operation of a number of industrial and trading units, a large number of people get employment opportunities.

5. Enhances international relationshipBusiness is the strong basis for maintaining and developing an international relationship. Business dealings between the people of two countries bring them into close contact which enhances the better relationship in government and public level.

6. Earns foreign currencyBusiness is the main source of earning foreign currencies. Manufacturing industry, tourism industry and other services business export their products and services to the foreign markets and earn foreign currencies for the nation.

7. Maintains peace and prosperityBusiness increases earning the capacity of the people and makes their life comfort and happy. As a result, it maintains economic stability and prosperity in the society.

Types of Business Note Things to Remember Exercises Quiz

Different business activities are carried on by the people generating incomes. On the basis of the nature of these business activities, the business can be classified as follows:

Industry

Industry refers to the act of producing raw materials and finished goods. It is the process of converting raw materials into finished goods. It is the activity relating to extraction, reproduction, manufacturing and construction of products. On the basis of production, an industry can be classified as follows:

1. Primary industry: The Primary industry is concerned with extracting raw materials from the soil or beneath the surface of the earth and reproducing certain species of plants and animals. The final products of primary industry are used as raw materials by secondary industry. The primary industry can be divided as follows:

1. Extractive industry: The Extractive industry is concerned with taking out products from beneath the surface of the earth, soil, water and air. Mining, agriculture, fishing, and lumbering are some of the examples of the extractive industry.

2. Genetic industry: The Genetic industry is concerned with reproducing or multiplication of different species of plants and animals. Bee- keeping, poultry farming, cattle- breeding, nurseries and animal husbandry are some of the examples of manufacturing industry.

2. Secondary industry: The Secondary industry is concerned with converting raw materials into finished goods and constructing different assets. The final products of secondary industry can be directly consumed by final customers. The secondary industry can be divided as follows:

1. Manufacturing industry: Manufacturing industry is concerned with converting raw materials into final products. The sugar industry, cement factory, soap industry, are the some of the examples of manufacturing industry.

2. Construction industry: Construction industry is concerned with conducting a construction work at a particular site. Construction of buildings, roads, bridges, canals and dams are some of the examples of the construction industry.

Commerce

Commerce refers to the act of buying, selling and distributing of goods and services. It is the process of connecting the producer of goods with their final consumers. It is the activity related to buying, insurance, transportation, warehousing and communication. It can be divided into two classes as follows:

Trade

Trade is concerned with buying and selling of goods. It is the process of exchanging goods with money for mutual benefits of the buyer and seller. It is the act of transferring the ownership of goods from the seller to the buyer. It can be classified as follows:

1. Home trade

Home trade is the act of buying and selling goods within the boundary of the country. It can be classified as following:

Wholesale trade: The act of buying goods in a larger quantity and selling them in a smaller quantity to a number of retailers is called wholesale trade. It is the connecting link between producer and retailer. The person who involves in wholesale trade is called wholesaler who acts as a middleman between producer and retailer.

Retail trade: The act of buying goods from the wholesaler in a large quantity and selling them in a smaller quantity of final consumers for their personal use is called retail trade. It is the connecting link between the wholesaler and final consumers. The person who involves in retail trade is known as a retailer who acts as a middleman between the wholesaler and the final consumers.

2. Foreign trade

Foreign trade is the act of buying and selling goods outside the boundary of the country. It is carried on between the citizens of two or more countries. The payment of goods in foreign trade is made in foreign currencies. It can be classified as follows:

Import trade: The act of buying goods from a foreign country is called import trade. The person who involves in import trade is known as an importer.

Export trade: The act of selling goods to a foreign country is known as the export trade. The person who involves in export trade is known as an exporter.

Entrepot trade: The act of buying goods from foreign countries and selling them to another foreign country is called Entrepot trade.

Aids to trade

In the process of distributing goods to different markets, the seller has to face a number of problems. These problems are related to finance, insurance, transportation, warehousing, and communication. To remove such problems and facilitate for distribution of goods and services, certain organization are established. This organization do not involve in production and distribution of goods but facilitate the distribution of goods and services, certain organizations are established. These organizations does not involve in production and distribution of goods and services. These organizations assists or support in the process of buying and selling to make the distribution effective. Hence, aid to trade refers to the facilities provided by different organizations to remove the problems of distributions. Banking, insurance, transportation, communication, etc. are the examples of aid to trade which facilitate the effective distribution of goods and services.

Introduction of Business Organization Note Things to Remember Videos Exercises Quiz

Introduction

The human society requires different types of economic activities. Such economic activities are performed to fulfill the needs and wants of individuals and families as well as to uplift their living standards. The nature and volume of the economic activities largely depend on the economic prosperity of the society. These economic activities should be performed in an organized way and efficient manner for the optimum utilization of scarce resources. In order to make optimum utilization of available resources, an appropriate form of business organization

with available resources should be selected. The development of the forms of business organization is connected with the development of industry and commerce.

Meaning and definition

The term 'business' refers to all the economic activities, which are carried on by individuals and organizations for generating incomes. It is concerned with the production and distribution of goods and services for earning the profit. It is centered on the service and satisfaction of the customers by fulfilling their needs and wants. It involves risk and uncertainty and committed to fulfilling its responsibilities.The term 'organization' refers to the act of bringing necessary resources for the production and distribution of goods and services and utilizing them in the best possible manner for achieving the definite objectives. The production and distribution of goods and services require a number of resources like men, materials, money, machine, and management. The organization is a means for bringing cooperation among these resources for continuous production and distribution of goods and services for fulfilling needs and wants of the customers.The term 'business organization' is composed of two terms as 'business' and 'organization'. Hence, the term business organization refers to the act of bringing resources and utilizing them in the best possible manner for the production and distribution of goods and services in order to earn profit through the service and satisfaction of the customers. It is concerned with the proper management of available resources for achieving the specified objectives of the business. The resources can be managed either by an individual or by the government. The following are some of the main definitions of business organization:

"Business organization is the act of bringing into effective cooperation the available resources for production and distribution of goods with a view to earn the profit. " - Dr. A.N. Agarwala

"Business organization is a concern, company or enterprise which buys and sells, is owned by one group or group of persons and is managed under a specific set of operating policies." - Wheeler

Form of Business organization

Business can be established in various forms. It can be established and managed by an individual, group, government and other parties. so, on the basis of ownership and management, business organizations can be classified into the following forms:

1. Sole trading Concern2. Partnership Organisation3. Joint Stock Company4. Public Enterprises5. Co-operative Society6. Multinational Company

Sole Trading Concern

Note Things to Remember Videos Exercises Quiz

Meaning and definition

Sole trading is the oldest and simplest form of business organization. It is a business organization, in which an individual contributes the whole amount of capital, manages the business himself or herself, bears all the risks alone, enjoys all the profits and suffers all the loss. He alone plays a role of manager, owner, controller, decision maker, and risk bearer. He uses his own skills, intelligence, knowledge and capability for successful operation and management of the enterprise. He is free to hire and fire his employees and looks after the daily activities of the business. The following are some of the main definitions of a sole trading concern:

"A person who establishes and manages a business for his own account and risk is known as a sole proprietorship business." - A.N. Agarwala

"A sole proprietorship is a business with whose ownership and management are vested in one person. The individual assumes all risk of losses and failure of the enterprise and receive all profits from its successful operation." -Peterson and Plowman

Characteristics

Following are the main characteristics of a sole trading concern:

1. Sole investmentThe owner contributes the whole amount of capital in his business. He invests the entire capital either from his private property or by borrowing from the relatives, friends and financial institutions.

2. Sole managementThe owner manages whole activities of the business. He makes plans for his business, implements them and controls the daily activities for the attainment of the organizational goal. He is the supreme judge of the business in which nobody interferes his decisions.

3. No profit sharingThe owner enjoys the whole amount of profit and bears the whole amount of losses of the business. The owner alone bears the entire risk of the business.

4. Limited operationThe resources of the sole trading concern are limited. Due to the limited resources, it cannot produce goods in a large scale. Its business activities are restricted to limited geographical areas.

5. IndependenceThe sole trading concern is an independent organization. The owner of the business is free to make all sorts of decisions as per his judgment. He is the supreme judge for all the matters relating to the business. Such independence of the owner enables to make quick decisions necessary for exploiting business opportunities.

6. Unlimited liabilityThe liability of the owner is not limited to his investment. If the business suffers from losses and its properties are insufficient to meet its debts, the owner has to sell his private property to clear his business debts. The owner bears entire risks of the business.

Advantages

The following are the main advantages of a sole trading concern:

1. Easy to start and dissolveA sole trading concern can be established and dissolved easily. There are limited and simple legal formalities to start and close the business. The owner can start his business after getting it registered and close the business at his will by giving written information to the concerned authorities or office of Government of Nepal.

2. Quick decisionThe sole trader is the supreme judge of the business and makes all types of decisions immediately. He is free to make decisions in matters relating to the objectives, capital, price, product and employees as per the situation. Quick decisions are very important to grab business opportunities.

3. SecrecyA sole trading can maintain the secrecy of the business completely. The owner of the business is not required to share the secrets of the business. The business is not required to publish financial statements like profit and loss account and balance sheet. Secrecy is a strong tool to meet and beat the competitors in the market which ultimately leads the business to achieve its goal.

4. IncentiveA sole trader enjoys the whole amount of profit of the business alone. It can motivate him directly to work hard and to manage the activities of the business efficiently. He always tries to maximize profit with his best efforts. There is a direct relationship between efforts and rewards.

5. Personal relationA sole trader plays the role of an owner as well as a manager. He can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees and government. Such sound personal and business relation helps

for increasing the goodwill of the business. Such personal relation is the key for the success of the business of the business.

6. EconomyThe owner himself act as the manager as well as employees, which helps to keep the office and administrative expenses at the minimum. It is an economical form of business organization.

Disadvantages:

The following are the main disadvantages of a sole trading concern:

1. Limited capitalThe capital of a sole trading concern is limited due to the investment of savings and borrowings of the owner. Such limited capital is insufficient for large-scale production and distribution of goods and services.

2. Loss in absenceA sole trading concern may suffer due to the absence of the owner. Due to the personal and business matters, the owner may remain absent frequently. The representative and employees may not take care of the customers seriously. They may not carry out the daily activities of the business honestly, consequently, it results in loss to the business.

3. Unlimited liabilityThe liability of a sole trader is not limited up to his invested capital. The owner must pay the liability of the business even by selling his private properties if the assets of the business is not enough.

4. Limited managerial skillsA sole trading concern is managed by the single owner who may not have adequate managerial skills and technical abilities. A combination of capital, managerial skills and technical ability may not be found in one person. Further, due to limited resources, it cannot appoint the professional managers. Hence, the management of a sole trading concern may be ineffective.

5. Absence of separate legal statusA sole trading concern has no legal status. It has no corporate life. The business and the owner are inseparable from one another due to which the life of the business is not permanent. The life of the business is directly connected with the life of the businessman. The death or lunacy or insolvency or disability of the owner leads the business to an end.

Uncertain lifeThe life of a sole trading concern is not permanent due to the lack of separate legal status. The life of the business is closely connected with the life of the owner. The business can terminate at anytime due to death, lunacy, insolvency of the owner. The termination of the business brings negative impact in the society. Due to the uncertain life the business loNote

Things to Remember Videos Exercises Quiz

Meaning and Definition

As long as the sole trading concern remains small in size, the owner does not face growing pressure for its capital and management. When it becomes large in size or when it requires to be expanded, the owner faces strong pressure for the larger amount of capital, expert management, and technical skills. The owner may not have this entire requirement himself. Hence, he requires associating with another person or persons to meet their requirements in order to operate the firm competitively. Such requirements give birth to the partnership organization.Partnership organization has been developed to overcome the major limitation of a sole trading concern. When the business grows, the capital, managerial and technical skills of the owner in a sole trading concern are too limited to fulfill the growing needs of the business.

The partnership is an agreement between two or more than two persons for carrying on a lawful business for earning the profit. It is a form of business in which two or more than two persons make an agreement to contribute capital, manage the business and share the profit or loss. It is the business carried on by two or more than two persons for their mutual benefits.

The following are the main definitions of a partnership organization:

"Partnership means any business registered in the books of Government of Nepal, which is carried on by some persons under one or name for sharing the profits and with the agreement of participation in the transactions by all partners or a single partner acting for all." - Nepal Partnership Act, 2020

"A partnership is the relation between persons who agree to carry on a lawful business in common with a view to private gain."- L.H. Haney

Characteristics

The following are the main characteristics of a partnership organization:

1. Agreement: An agreement is a basis for forming a partnership. An agreement is made in a written form signed by all the partners to carry on a business for earning and sharing the profit or loss. Such agreement contains all the matters relating to business necessary for its smooth operation. It includes the matters relating to capital, profit sharing ratio, duties and responsibilities of the partners, accounting system, etc.

2. Joint ownership: A partnership has two or more than two owners. It is established with the joint investment of all the partners. The amount of capital of the partners may differ from one another depending upon the agreement.

3. The role of principal and agent: A partnership is managed by all the partners or anyone of them acting for all. Each partner can play, simultaneously, the role of a principal as well as an agent of the firm. Hence, every partner plays the role of principal for outside and an agent for other partners.

4. Unlimited liability: Every partner has unlimited liability. A partner is jointly as well as individually liable to pay all the debts of the business even by selling his private properties if the assets of the business are insufficient to meet all its debts.

5. Joint ownership: A partnership has two or more than two owners. It is established with the joint investment of all partners. The amount of capital of the partners may differ from the one another depending upon the agreement.

6. Joint management: A partnership is generally managed by all the partners jointly. However, a particular partner can also be entrusted with the responsibility of managing the daily activities on behalf of other partners. The partners divide the duties and responsibilities as per the partnership agreement for the smooth share the profit equally.

7. Restriction in transferring interest: The interest of a partner in a partnership is nontransferable. No partner is permitted to sell or transfer his interest or share to an outsider without the consent of all the partners. Hence, there is a restriction in transferring the interest of a partner freely.

Types of Partnership:

1. Unlimited Partnership: An unlimited partnership is also known as a general partnership. It is that type of partnership in which the liability of all the partners is unlimited. If the firm's properties are not sufficient to meet all its debts, the partners are liable, individually and jointly, to pay all the debts out of their private properties. Hence, the liability of a partner is not limited to his invested amount in the partnership. The liability of each partner is not definite or predictable. In a general partnership, all the partners have an equal right to participate. A partner for an uncertain period is also called as a partnership at will it is that type of partnership firm in which the time duration of the firm is not specified. A partnership for a certain period is also known as a particular partnership it is that type of partnership firm, which is established for a particular period of time. It can also be established for performing and completing a particular venture or job.

2. Limited Partnership: A limited partnership is that type of partnership in which there are one or more partners having limited liability. The liability of the limited partners is limited to their invested capital in the partnership. The liability of the firm cannot be met out of their private properties. A limited partner is like a passive partner who cannot actively participate in the management and day to day activities of the firm. The death, insolvency, lunacy, disability or imprisonment of such partner does not affect the activities and life of the firm. He has no right to make decisions and close the firm. In a limited partnership, there must be at least one unlimited partner who controls the whole activities of the firm. A general partner is also known as an unlimited partner. He is the most common type of partner whose liability is unlimited. Such a partner is liable to clear

the debts of the firm even by selling his private property in case the firm's property is insufficient. He plays an active role in the decision-making process.A limited partner is one whose liability is limited up to the invested amount of the capital in the business. The private property of such a partner cannot be used to pay the debts of the firm. At least the firm must have one unlimited partner. An active partner is one who actively participates in the management and daily operation of the firm. He is also known as a working partner who actively takes part in all the matters of the business. He makes all the decisions actively on behalf of all the other partners.A passive partner is one who does not take an active part in the management and daily operation of the firm. He is also known as a sleeping or dormant partner. Such partner contributes the capital, shares the profit or loss, bears the liabilities, but does not look after the activities of the business actively.An incoming partner is one who is newly admitted to an existing firm. Such a partner brings his shares of capital and agrees to share the profit or loss of the firm after his admission. He cannot be made responsible for the activities and liabilities of the firm before the admission.

Advantages

The following are the advantages of a partnership organization:

1. Easy to start and dissolve: A partnership organization is easy to dissolve and establish a sole trading concern. Only a written agreement is necessary for getting the partnership registered. A written application and partnership agreement should be a field in the concerned office for dissolving the firm. Due to the limited legal procedures, the partnership can be started and dissolved with least time and cost.

2. Scattered risk: A partnership organization is less risky than a sole trading concern. The risk of loss in the firm is scattered among the partners. If the firm suffers from a loss, each partner has to bear a nominal share of the loss.

3. Larger capital: The capital of a partnership firm is larger than the capital of a sole trading concern. All the partners contribute capital as per their agreement. Due to the contribution of all the partners, the firm accumulates a larger amount of a capital. Such larger amount of capital helps for large-scale production and distribution of goods and services.

4. Better management: A partnership is a combination of partners with varying managerial skill and technical skills. Due to such combination of managerial and technical skills, its management is better than the management of a sole trading concern. The partners divide and perform work as per their ability and experience. All the important decisions are made after making discussion and getting the consent of all the partners. Such collective participation in the management helps to know and correct the mistakes committed by any partner.

5. Secrecy: A partnership organization is not required to publish financial statements like profit and loss account and balance sheet. The partners do not leak out the weakness of the firm and other business secrets. Such secrecy maintains the competitive strength of the firm. It also supports to maintain the goodwill of the firm.

6. Flexibility: A partnership organization has the benefit of flexibility like a sole trading concern. The objective, size and capital can be changed easily with the consent of all the

partners. Such flexibility helps to exploit business opportunities and to avoid possible loss.

7. Incentive: In a partnership organization, there is a direct relationship between efforts and rewards. The greater the profit of the firm, the greater the share of partners. Hence, all partners are always encouraged to work hard for maximizing the profit of the firm.

Disadvantages

The following are the disadvantages of a partnership organization:

1. Chances of conflict: In a partnership organization, there is always a chance of misunderstanding among the partners. Such misunderstanding arises in matters relating to decisions, incomes, expenses, accounts, credit- transactions, withdrawal, rights, duties, responsibilities, etc. such conflict may lead to the organization to the end.

2. Uncertain life: A partnership organization is not a permanent organization. Due to frequent misunderstanding among the partners, death, insolvency, lunacy and imprisonment of any partner or partners, the partnership organization may come to the end. Such uncertain life brings negative impact in the society.

3. Unlimited liability: In a partnership organization, the liability of all the partners is unlimited. The liability of each partner towards the debts of the firm is not limited to his invested capital. All the partners, individually and jointly, are responsible for clearing the debts of the firm even by selling their private property.

4. The absence of legal status: A partnership organization has no separate legal status. The life of a partnership is connected with the life of the partners. Due to the lack of corporate status, its life is uncertain and the liability of the partners is unlimited.

5. Delay in decisions: In a partnership organization, decisions cannot be made quickly as in sole trading concern. In order to arrive at a decision, consent of all the partners must be obtained. Due to the different views and options on a subject, the decision cannot be often be made in time. Such delay in making decisions hampers in exploiting business opportunities.

6. Lack of public confidence: A partnership organization does not publish its information, accounts and financial statements. The outsiders do not know what is going on in the partnership. Due to frequent misunderstanding, lack of separate legal existence and uncertain life, the public has no faith on partnership firm.

Joint Stock Company Note Things to Remember Videos Exercises Quiz

Meaning and Definition:

The joint stock company has come into existence over the limitations of sole trading and partnership firms. The major limitations of sole trading and partnership are limited capital and unlimited liability. Such limitations are the main obstacles for large-scale production and distribution of goods and services. A joint stock company is a voluntary association of persons for establishing a business under the company act, 2053. It is a distinct legal person created by law. Its capital is divided into a large number of parts with equal value. Each part is called share. The company collects capital by selling the shares to individuals and organizations.

The following are the meaning of Joint Stock Company:

"A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal." - L.H. Haney

"A joint stock company is an incorporated association which is an artificial person created by law having a common seal and perpetual succession." -Sherlekar

Characteristics

The following are the main characteristics of a joint stock company

1. Separate legal existence: A company is an artificial person created by law. Like a real person, it can buy or sell the property in its own name and enter into business contracts. It can sue and can be used. It is distinct from its members and enjoys an independent legal existence.

2. Transferable shares: A company collects its capital by selling shares. The shares are freely transferable. A shareholder can convert his shares into cash easily either by selling or transferring without the consent of other members or the board of directors.

3. Limited liability: The liability of shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the property of the company is not sufficient to pay its debts, the creditors suffer themselves.

4. Perpetual succession: A company has a permanent life. Due to separate legal existence, the life of a company is not affected by the death, insolvency, lunacy, disability or

imprisonment of the shareholders. Hence, it is said that "members may come, members may go, but the company goes on for ever."

5. Common Seal: Despite being an artificial person, a company cannot sign like a natural person. It uses a common seal as its official signature. It affixes the common seal on all official documents for their validity.

6. Democratic management: A joint stock company is a democratic organization. All the decisions are taken in annual general meeting and board meeting on the basis of the majority. The board is elected and dismissed according to the interest of a majority of shareholders.

Advantages

The following are the main advantages of a joint stock company:

1. Huge capital: A joint stock company can raise a huge amount of capital by selling shares. Due to the unlimited membership, limited liability of the shareholders and transferable share, it can easily collect much more capital than a sole trading concern or partnership organization. Its capital is enough for the production and distribution of goods and services in a large scale.

2. Effective management: In a joint stock company, there is a separation between ownership and management which ensures effective planning, implementation and control of the activities of the company. The shareholders elect experienced and capable directors for all the overall management of the company. The board appoints professional managers for the effective management of production, finance and accounting activities of the company.

3. Limited liability: In a joint stock company, the liability of the shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the properties of the company are not sufficient to clear its debts, the creditors suffer themselves.

4. Public faith: A joint stock company is a corporate organization. Its activities are transparent. It publishes its financial statements in the newspaper for the knowledge of concerned parties. The people have much faith in its activities, position, and long-term existence.

5. Perpetual succession: The life of a joint stock company is permanent. Being a distinct legal entity, its life is not connected with the life of the shareholders. The death, insolvency, lunacy, disability or imprisonment of the shareholders does not affect the life of the company.

Disadvantages:

1. Neglect of a majority: In a joint stock company, all the major decisions are made by the shareholders holding a majority of shares. Hence, the voice of a minority of shareholders is neglected by the company.

2. Inflexibility: A joint stock company is a less flexible organization than a sole trading concern and partnership firm. It cannot change its objectives, capital, decisions and major

activities easily. To bring changes on such matters, it has to change the clauses of the memorandum and articles of association.

3. Lack of secrecy: A joint stock company cannot maintain business secrets like a sole trading concern and a partnership organization. The company is managed by a large number of directors and managers due to which business secrets are leaked out easily. It publishes financial statements regularly. As a result, its weakness is known by its competitors and other concerned parties.

4. Delay in decision: In a joint stock company, there is a considerable delay in the decision-making process. Important decisions can only be made in the meetings of the board of directors or shareholders. Such meetings are held only after certain intervals. Such delay in decisions does not help to grab business opportunities and to avoid losses.

5. Chances of frauds: In a joint stock company, there is a great chance of frauds by the directors and managers. Frauds are committed by showing false payments, omitting to record incomes, presenting the profit and position of the country wrongly. Such frauds are committed for the personal benefits of the directors and managers at the cost of the company and shareholders.

Types of Company in Nepal Note Things to Remember Videos Exercises Quiz

Statutory Company

A company which is established under a special act passed by the parliament is known as a statutory company. The scope, objectives, power, rights and functions are defined by the act under which it is established. All the activities of the company are governed by the act. Such company is established by the government for promoting a special sector of the economy which is of national importance. It is also known as a public enterprise.

Limited Company

A company which is established in Nepal under 'Nepal Company act, 2053' is known as a limited company. It is also known as a registered company. It is incorporated and operated under the provision of the company act. In a limited company, the liability of the shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed by the creditors of the company to recover their debts. A limited company can be classified into two types:

1. Public limited company: A public limited company is one which requires at least 7 members for its incorporation. There is no limitation for the maximum number of shareholders. It can invite people by issuing a prospectus to subscribe to its shares. Its shares are freely transferable. It requires at least three directors for the management of the company. It has to hold statutory meeting. It has to obtain a certificate of commencement of business to start its business.

2. Private limited company: A private limited company is one which can be established by a single member. Its maximum number is limited to 50. It cannot invite people by issuing a prospectus to subscribe its shares. It restricts the rights of its members to transfer its shares. It does not require to hold statutory meeting.

Differences between Public and Private Limited Companies

Bases of difference Public company Private company

The number of shareholders

It required at least 7 members for its incorporation, but its maximum number is unlimited.

It can be established by a single member and its maximum number is limited to 50.

Transfer of share It does not restrict the transfer of its share. It restricts the transfer of its share.

Prospectus It issues a prospectus for inviting people to subscribe to its share.

It can not issue a prospectus for inviting people to subscribe to its share.

Commencement of business

It required the certificate of incorporation and the certificate of commencement of business to start its business.

It required only the certificate of incorporation to start its business.

Use of words It uses Ltd. It uses Pvt Ltd.

Publication It requires publish its annual financial statement.

It doesn't require to publish it's annual financial statement.

Statutory meeting It requires statutory meeting. It does not require statutory meeting.

Public Enterprises Note Things to Remember Videos Exercises Quiz

Example of Public Enterprises in Nepal

Public enterprise is a business organization established by the government holding more than 50% of the total share with the aim of producing and distributing goods and services at a reasonable price to the public. Public enterprises are established by the government contributing total or majority capital. The government invests at least 51 percent of the total amount of paid up capital. It is managed by the government nominating board of directors or representatives. It is an industrial or commercial undertaking, which involves in the production and distribution of goods and services in order to meet its expenses. It maintains its accounts independently. It is a distinct legal entity having a corporate status. It has a perpetual life with limited liabilities. It uses a common seal as its official signature. It is established for the public service and welfare, sound industrial and commercial base and upliftment of economy of the country.

The following are some of the main definitions of a public enterprise:

"Public enterprises are established, controlled and operated by the government to produce and supply goods and services to the society."- A.N. Agrawal

"State-owned enterprises are finally autonomous and legally distinct entities wholly or partly owned by central or sub- national governments." - World Bank Report- 1998"

"Public enterprises are established, control and operated by the government to produce and supply goods and services to the society." - A.N Hansen

The following are the main characteristics of a public enterprise:

1. State ownership: A public enterprise is owned by the government. The government holds total or least 51 percent shares of the enterprises. In most of the enterprises in Nepal, the government has full ownership.

2. State government: A public enterprise is managed by the government. The government manages the public enterprises by the nominating board of directors and chief executives.

3. Service motive: The primary aim of the public enterprises is to render service to the society. It works for the public service and welfare of the society. It produces and distributes qualitative goods and services at reasonable price.

4. Public accountability: A public enterprise is accountable to the general people. It is responsible for its performance and achievement towards the government, parliament, and general people. The performance of the public enterprise is evaluated by the committees of the parliament and the state legislature.

5. Perpetual succession: A public enterprise has a permanent life. Being a separate legal entity, its life is not affected due to changes in the government and management.

6. Separate legal entity: A public enterprise is a distinct legal entity. It has a corporate status with a common seal. It can be sued and used against the unfair trade practices. It performs all business transaction in its own name.

Objectives:

1. To help the economic development of the country in planned manner by establishing different industrial and commercial enterprises.

2. To provide the qualitative goods and services of daily necessities at a reasonable price.3. To control monopoly and unfair trade practices in the supply of goods and services.4. To provide import substitution and to save foreign currencies.5. To increase the revenue of the government by paying taxes.

Need and Importance

1. It increases the rate of economic growth.2. It develops the infrastructure like electricity, communication, banking, transportation etc.3. It provides qualitative goods and services of daily necessity at a reasonable price.4. It maintains balanced economic development.5. It creates greater employment opportunities in the society.6. It increases the revenue of government by contributing tax.7. It helps to earn foreign currencies by exporting goods and services and increase the

foreign exchange reserve.

Privatization of Public Enterprises Note Things to Remember Exercises Quiz

Privatization is the process of transferring the ownership and control from public to private sector. It is the movement towards market economy for achieving greater productivity, efficiency and competitiveness.Public enterprises came into existence with the aim of producing and distributing products and services of daily necessities at a reasonable price. During various planning periods, more than five dozens public enterprises were established to uplift the economy and different sectors of the nation. Most of the public enterprises become unable to operate their activities successfully as per their objective. These enterprises were adversely affected due to corruption, overstaffing, favoritism and hiring the non-professional employees. All of the reason lack of self-supporting and self-dependent to the enterprises. So, the government felt the need of reformation of these enterprises which lead to the privatization.Privatization is an approach to stabilizing and developing the national economy by strengthening the participation of private sector in nation building. It is the process of reducing the financial burden of the government transferring the ownership to the private sector. It aims to give the opportunity to the consumer to choose goods and services, according to their taste and requirements in terms of quality and price in open markets.

The policy of privatization in Nepal was specified for the first time in the sixth plan (2037 - 42). Such policy has been incorporated in all the subsequent development plans. The Nepal government followed the policy of privatization and economic liberalization to involve the private sector in the activities of different economic sectors. In according to plan the privatization program effectively, the government has regulated a privatization cell at the ministry of finance in 1989. Till now, 24 public enterprises have been privatized like Harisidhhi brick & shoe factory, Nepal film industry, Biratnagar jute mills, Raghupati jute mill, Hetauda textile industry, Butwal power company, Bhaktapur brick factory, Balaju textile industry, Bansbari leather & shoe factory etc.

Privatization of public enterprises is getting strong support from a business professional, government, general people, world bank and donors in the context of its goal of economic

development and reduction of poverty. The majority privatized enterprises have been facing a serious problem in investment, production, income generation, employment, security and management. The privatized enterprises are lacking qualitative products due to inefficient production methods, inefficient manpower, and poor technology. Majority privatized enterprises are suffering from losses in their operation further these enterprises are facing a serious problem of security, corporate culture, and professional management.

Co-operative Organization Note Things to Remember Videos Exercises Quiz

Introduction of Co-Operative Organization

A cooperative organization is the form of organization which is established by the people of weaker society to uplift their social and economic condition. It is formed with the idea of living together and working together. It is a voluntary association of people who join together for carrying on a business with the principles of equality and mutual help. It is a democratic organization which is operated for the service of its members. It works with the motto of each shall work for all and all for each. A cooperative organization prefers services instead of profit maximization, joint actions instead of cut- throat competition, self help and self reliance instead of undue and unwanted dependence, development of morality of members instead of emphasis on earning money. Co-operative started in Nepal in 2010 B.S. The co-operative department was established that year with a view to developing cooperative through people's participation and mobilization. While this department was attempting to closely study the activities carried out in the cooperative sector in different parts of the world, the people of Nepal had to face the devastation of floods in 2011 B.S. The following are the main definitions of a co- operate organization:

"A co- operate is a form of organization, where persons, irrespective of caste, caste and religion, voluntary associate together, as human beings, on the basis of equality for the promotion of their common economic interests. - Sherlekar

"A cooperative is an association of the weak who gather for a common economic need and try to lift themselves from a weakness into strength through business organization." -Talmaki

" A co-operative is an organization wherein person voluntarily associate together as human beings on the basis of equality for the promotion of the economic interest of themselves." -Prof. E.H Calvert

Characteristics:

The following are the main characteristics of a cooperative organization are:

1. Open membership: In a cooperative, membership is open to all adults without any distinction of caste, color or creed, and religion. A person can join the society by contributing a small amount in the shares of the cooperative.

2. Democratic management: A cooperative organization is democratic. It is managed by a management committee or a board of directors. The members of the management committee or board of directors are elected in annual general meeting by the members on the principles of one- member one- vote.

3. Limited liability: In a cooperative organization, the liability of the members is limited up to their invested amount. The members are not required to clear the debts of the cooperative out of their private properties.

4. Service motive: In a cooperative organization, service is the primary objective. It works for providing services to its members instead of maximizing profit. It provides qualitative goods and services to its members at a minimum cost.

5. Separate legal existence: A cooperative organization, has a co-operate status which is established under the Co- operative Act, 2048. It performs all transactions and makes contracts in its own name. Due to its separate legal status, it has a permanent life.

6. Cash transactions: In a cooperative organization, cash, and carry is the basic system. It sells goods and services to its members and outsiders on a cash basis only. Due to the cash transaction system, it performs its business successfully even with a limited capital.

Types of Co- operate Organizations:

1. Consumers cooperative: A consumers' cooperative is established for selling consumer goods to its members and outsider. It buys qualitative goods in bulk from a producer or wholesaler and sells them to its members at a reasonable price. Its objective is to avoid the cost and profit of the middleman by establishing a direct link with the producers.

2. Producer's cooperative: A producers' cooperative is established by small-scale procedures for supplying raw materials, tools, equipment and other items of production to its members. It buys qualitative raw materials, tools, equipment and other items of production in large quantity and sells them to its producer members at a reasonable price.

3. Multipurpose cooperative: A multipurpose cooperative is established by the people of a lower income class who require different services in the field of finance, production, marketing, housing, health, and education. Such cooperative performs various functions are not limited to a specific area, it is known as a multi-purpose cooperative.

4. Marketing cooperative: A marketing cooperative is established by farmers and small-scale producers for selling their products at a fair price. It stores agriculture

products in its go- down and provides a loan to the farmers against the deposit of their products. Marketing Co-operatives also provide the facilities of transportation, warehousing, processing and packing to its members.

5. Miscellaneous cooperatives: Besides the cooperative mentioned above, other types of cooperatives can also established for performing different functions for the service of their members. Co- operative farming, cooperative poultry farming, dairy cooperatives and retailer's cooperatives are some examples of miscellaneous cooperatives.

Co- Operative Organization in Nepal and Its Importance

Note Things to Remember Videos Exercises Quiz

Co- Operative Organization in Nepal

Co- operative started in Nepal in 2010 B.S. The cooperative Department was established that year with a view to developing cooperatives through people participation and mobilization. While this Department was attempting to study the activities carried out in the cooperative sector in different parts of the world, the people of Nepal had to face the devastation of floods in 2011 B.S. The devastating floods that occurred all over the country- in the Terai, the inner Terai and the Hills caused huge destruction of people and property. People were compelled to leave their homes in search of safer places. The newly established Cooperative Department had played a key role to help people face the adversely with courage and patience.

Different primitive forms of cooperatives such as Dharma Bhakari, prama, and Guthi have been known to be since in operation since antiquity. Right at the beginning of planned development in Nepal 2013 B.S. Cooperative loan committees were formed by an executive order to provide the loan to farmers as a part of the multipurpose projects implemented to develop the Rapti Valley. In 2017, the cooperative development fund was set up. In 2016, the cooperative organization act and in 2018 B.S. the cooperative organization regulations were promulgated. In 2018, Sajha Publications, Sajha Travels, Sajha Health Service were formed under the Central Cooperative Sajha Organization.According to the king's Address of Baishakh 1, 2031, which envisioned the implementation of effective cooperative programs throughout the country in the form of a

campaign, such programs were started in 27 districts in the Baishakh of that year. After the restoration of democracy, Sajha Organization Act 2041 was dissolved and Cooperative Act 2048 and Cooperative Regulations 2048 were passed by the parliament. These two laws are still in effect.

Importance of Cooperatives in Nepal

Nepal is an agriculture based economy. Most of the people are farmers who live in the rural areas. The income level of the country is very low. They are not getting the basic facilities of life like education, health, finance, housing facilities, electricity, telephone, water supply and other basic goods and services. In such a context, cooperative can be the best economic means to uplift the economic standards of the people of the lower income class living in rural and urban areas.

The followings are the importance of cooperative in Nepal:

1. They provide financial assistance to the farmers for buying improved seeds, chemical fertilizers and agricultural tools and equipment at a low-interest rate in order to increase agricultural output.

2. They provide financial assistance to the people of rural areas for poultry farming, bookkeeping, fisheries, horticulture, animal husbandry and promoting cottage and small scale industries.

3. They provide the facilities of warehousing, transportation, processing, grading, packing, financing, and marketing the products of their members.

4. They develop a feeling of mutual help, co-operation, democracy, unity, brotherhood and equality which ultimately brings peace and prosperity in the society.

5. They protect their members from the exploitation of capitalist organizations, money leaders and middlemen which ultimately helps for the betterment of the living standards of people.

Multinational Company Note Things to Remember Exercises Quiz

A multinational company is a large business organization which is established in one country as the parent company and which performs its manufacturing, trading and service business in other countries its subsidiaries or branches. The terms 'multinational' is created of two words, "multi" and "national". The word multi refer to many and the world national refers to the country. Hence, the terms of the multinational company refer to that business organization which operates its business activities in many countries. It is a large scale business organization, which carries on its production and distribution of goods and services at least in two or more than two countries. It is incorporated in one country as the parent company and carries its business in different countries through its branches or subsidiaries. It involves in mass scale production and distribution of a standard and specific line of product and services by using sophisticated technology. Coca-Cola Company, Pepsi, Unilever, Panasonic Corporation, Asian Paint, Nepal Lever Ltd, Standard Chartered Bank, Nepal Arab Bank, Surya Tobacco Co. Pvt. Ltd, Hotel Holiday Inn, Kwality Ice cream etc. are the example of a multinational company.

"A multinational corporation owns and manages a business in two or more countries." -Jacoby

"A multinational company is any firm which performs its main operation either manufacturing or the provision of service, in at least two countries." -Brook and Remmers

From the given definition, it is clear that multinational company is established in one country and operates its business in two or more countries through branches or subsidiaries for the production and distribution of quality goods and services for earning a profit.

Characteristics Of Multinational Company

1. Large scale business: The capital of a multinational company is very large, its assets and sales are also quite large. The turnover of some multinational company is much more than the annual budget of many developing countries.

2. Global operation: Multinational company operates its production and distribution activities in two or more countries. The Parent company manufactures and sells its products and services through its subsidiaries or branches established in different countries. Hence, it performs its business in the global market.

3. Productive organization: Multinational company is a productive organization, which is involved in the production and distribution of standard goods and services at international level.

4. Advanced technology: Multinational company used advanced and sophisticated technology for the production and distribution of goods and services at competitive prices.

5. Mass production and distribution: Multinational company produces and distributes goods and services in a large scale. In order to produce and distribute goods and services in mass scale, multinational companies invest huge capital, hire expert manpower, use advanced technology and implement aggressive promotional strategies.

6. Monopolistic market: A Multinational company produces high-quality products by using advanced technology and expert personnel, Its marketing strategies and distribution channel are very effective. hence, it occupies a competitive position and creates a monopolistic market.

Advantages:

1. A multinational company transfers a huge amount of capital, advanced technology, and professional management to a developing country like Nepal through its branch or subsidiary.

2. Through the multinational company people of developing country get the opportunity of consuming standard products at affordable prices.

3. A multinational company offers excellent pay scale and career opportunities to managers, technical and clerical staff.

4. A multinational company makes a large volume of sales in national and international markets, which enables it to generate a huge amount of revenues.

5. A multinational company earns foreign currencies by exporting its products in the international markets.

6. A multinational company maintains and develops good international relation among the countries.

Disadvantages:

1. A multinational company invites its capital in the most profitable sectors and developed regions disregarding the national interest, priorities, and goals.

2. Due to huge financial resources, advanced technology, professional management, aggressive promotion and standard product, it creates monopoly market.

3. A multinational company promotes and sells the product in conformity with its value, custom, culture, and practice. It makes the people addict to consume such products. Ultimately, it spoils the cultural heritage of local people.

4. In multinational company order to maximize profit, it tends to give low prices for materials and labor. Further, it is also responsible for the rapid depletion of natural resources.

5. A multinational company produces goods at a lower cost by using local resources and manpower. But, it charges higher prices for its products to the consumer.

6. A multinational company increases the dependence of the developing countries for the production and distribution of goods and services on foreigners.

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