Business Studies 1 New Syllabus C4

7/30/2019 Business Studies 1 New Syllabus C4

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Unit 4

Private, Public and Global Enterprises

Meaning of Private Sector

These undertakings are owned, controlled and financed by private businessmen. There is no

government participation in them. The main motive of private sector undertakings is to earn profits

Characteristics of Private Sectors

(a) Private Ownership and Control: A private sector undertaking is fully owned and controlled bythe private entrepreneurs. It may be owned by one individual or by a group of individuals jointly.

When owned by one person, it is called Sole Proprietorship. A group of persons may jointly own

the firm in the form of joint Hindu family business, partnership, Joint Stock Company or

cooperative society.

(b) Profit Motive: The main objective of private sector undertakings is earning profits. Profitsprovide the reward for the risk assumed and the required return on capital.

(c) No State Participation: There is no participation by the Central or State Governments in theownership and control of a private sector undertaking.

(d) Private Finance: The capital of a private sector undertaking is arranged by its owners. The soletrader contributes the capital of a sole proprietorship. In case of partnership, capital is invested

by the partners. A joint stock company raises capital by the issue of shares and debentures. A

private sector undertaking can also raise loans to meet its long-term and short-term needs for

funds.

(e) Independent Management: A private sector undertaking is managed by its owners. In case ofsole proprietorship and partnership, the owners directly manage the firm. The management of a

joint stock company lies in the hands of directors who are the elected representatives of theshareholders.

Meaning of Public Sector

The public sector refers to the part of the economy concerned with providing basic government

services. The composition of the public sector varies by country, but in most countries the public sector


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includes such services as the police, military, public roads, public transit, primary education and

healthcare for the poor.

Characteristics of Public Sector

a) State Ownership: The enterprise ownership has to be vested with the State. It could be in thenature of Central, State or local government ownership or any instrumentality of the state too

can have the ownership of public enterprise.

b) State Control: Public Enterprise is controlled by the Government both in its management andfunctioning. The Government has the direct responsibility to manage the affairs of the

enterprise through various devices and exercises control over it by means of a number of

agencies and techniques.

c)

Public Accountability: Public Enterprises owe accountability to people as they are fundedthrough public money. This accountability is realised through legislature and its committees,

ministers, audit institutions and other specialised agencies.

d) Autonomy: Public Enterprises function with utmost autonomy under given situations. They arefree from day to day interference in their affairs and management.

e) Coverage: The public enterprise traverses all areas and activities. There is hardly any field ofactivity, which is not covered by the operations of public enterprises.

Types of Public Sector Undertakings


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Department Undertakings

Departmental undertakings are the oldest among the public enterprises. A departmental undertaking is

organised, managed and financed by the Government. It is controlled by a specific department of the

government. Each such department is headed by a minister. All policy matters and other importantdecisions are taken by the controlling ministry. The Parliament lays down the general policy for such

undertakings.

The main features of departmental undertakings are as follows:

a) It is established by the government and its overall control rests with the minister. Which means,control is centralized and only the minister can take decisions in relation to the working of the

business

b) It is a part of the government and is managed like any other government department.Employees are government employees

c) It is financed through government funds. Some departments such as the Railways even have aseparate budget to allot funds

d) It is subject to budgetary, accounting and audit control. Department undertakings, just like anyother company is subject to audits both internal and external.

e) Its policy is laid down by the government and it is accountable to the legislature.f) Revenue earned by the company is retained with the government, and profits made if any are

not given to shareholders.

Statutory Companies

The Statutory Corporation (or Public Corporation) refers to such organisations which are incorporated

under the special Acts of the Parliament/State Legislative Assemblies. Its management pattern, its

powers and functions, the area of activity, rules and regulations for its employees and its relationship

with government departments, etc. are specified in the concerned Act. Examples of statutory

corporations are State Bank of India, Life Insurance Corporation of India, Industrial Finance Corporation

of India, etc. It may be noted that more than one corporation can also be established under the same

Act. State Electricity Boards and State Financial Corporation fall in this category.

The main features of Statutory Corporations are as follows:

a) It is incorporated under a special Act of Parliament or State Legislative Assembly.


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b) It is an autonomous body and is free from government control in respect of its internalmanagement. However, it is accountable to parliament and state legislature.

c) It has a separate legal existence. Its capital is wholly provided by the government.d) It is managed by Board of Directors, which is composed of individuals who are trained and

experienced in business management. The members of the board of Directors are nominated by

the government.

e) It is supposed to be self sufficient in financial matters. However, in case of necessity it may takeloan and/or seek assistance from the government.

Government Companies

As per the provisions of the Indian Companies Act, a company in which 51% or more of its capital is held

by central and/or state government is regarded as a Government Company. These companies areregistered under Indian Companies Act, 1956 and follow all those rules and regulations as are applicable

to any other registered company. The Government of India has organized and registered a number of its

undertakings as government companies for ensuring managerial autonomy, operational efficiency and

provides competition to private sector.

The main features of Government companies are as follows:

a) It is registered under the Companies Act, 1956.b) It has a separate legal entity. It can sue and be sued, and can acquire property in its own name.c) The annual reports of the government companies are required to be presented in parliament.d) The capital is wholly or partially provided by the government. In case of partially owned

company the capital is provided both by the government and private investors. But in such a

case the central or state government must own at least 51% shares of the company.

e) It is managed by the Board of Directors. All the Directors or the majority of Directors areappointed by the government, depending upon the extent of private participation.

f) Its accounting and audit practices are more like those of private enterprises and its auditors areChartered Accountants appointed by the government.

g) Its employees are not civil servants. It regulates its personnel policies according to its articles ofassociations.


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Changing Role of Public Sector in India

The Public Sector emerged as the driver of economic growth consequent to the industrial revolution in

Europe. With the advent of globalization, the public sector faced new challenges in the developed

economies.

No longer the public sector had the privilege of operating in a sellers market and had to face

competition both from domestic and international competitors. Further, in the second half of the 20th

century in the developed economies, the political opinion started swinging towards the views that the

intervention as well as investment by Government in commercial activities should be reduced to the

extent possible.

Today, both Public Sector & Private Sector have become an integral part of the economy. There may not

be much difference in working of these sectors in advanced countries, but in developing countries, the

performance of Public Sector has considerable scope for improvement. It is also observed that Pay

packages are almost similar in both sectors in developed countries, but large differences exist in

remuneration in the two sectors in developing countries, like ours.

Multinational Companies (MNC)

A multinational corporation/company is an organization doing business in more than one country. 'In

other words it is an organization or enterprise carrying on business in not only the country where it is

registered but also in several other countries. It may also be termed as International Corporation, global

giant and transnational corporation.

Characteristics of Multinational Companies (MNCs)

The distinctive features of multinational companies are as follows.

1. Large Size: A multinational company is generally big in size. Some of the multinationalcompanies own and control assets worth billions of dollars. Their annual sales turnover is more

than the gross national product of many small countries.

2. Worldwide operations: A multinational corporation carries on business in more than onecountry. Multinational corporations such as Coco cola has branches in as many as seventy

countries around the world.


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3. International management: The management of multinational companies are international incharacter. It operates on the basis of best possible alternative available any where in the world.

Its local subsidiaries are managed generally by the nationals of the host country. For example

the management of Hindustan Lever lies with Indians. The parent company Unilever is in The

United States of America.

4. Mobility of resources: The operation of multinational company involves the mobility of capital,technology, entrepreneurship and other factors of production across the territories.

5. Integrated activities: A multinational company is usually a complete organisation comprisingmanufacturing, marketing, research and development and other facilities.

6. Several forms: A multinational company may operate in host countries in several ways i.e.,branches, subsidiaries, franchise, joint ventures. Turn key projects.

Joint Ventures

A temporary kind of business activity carried on by more than one company with a view to earning profit

in a pre-agreed manner without giving a firm name to the business is known as joint venture. It is a

temporary partnership between two or more companies. The relationship between them is ceased as

soon as that particular venture is completed.

Features of Joint Venture

1. Joint venture is a special partnership without a firm name.2. Joint venture does not follow the accounting concept 'going concern'.3. The members of joint venture are known as co-ventures.4. Joint venture is a temporary business activity.5. In joint venture, profits and losses are shared in agreed proportion. If there is no agreement

regarding the distribution of profit, they will share profit equally.

6. Joint venture is an agreement for polling of capital and business abilities to be employed insome profitable venture.

7. At the end of venture, all the assets are liquidated and liabilities are paid off: if necessary theassets and liabilities could be shared by co-ventures.

8. Joint venture always follows cash basis of account

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Business Studies 1 New Syllabus C4