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UNIT‐I CORPORATE ORGANISATION [JOINT STOCK COMPANY,TYPES OF
COMPANIES,FORMATION OF COMPANIES AND MULTINATIONAL CORPORATIONS]
QUESTIONS BANK OBJECTIVE QUESTIONS 1. Define Company. 2. What do you mean by separate legal entity? / Corporate Existence. 3. Explain perpetual succession/why does a co. enjoy perpetual existence? 4. State essential features of private company. 5. What is one man co.? 6. What is meant by limited liability in J.S.Co.? 7. Who are the administrators of co. law? 8. Under which act CO.s in India are registered? 9. Explain common seal. 10. Company has nationality but no citizenship. Explain. 11. List the circumstances under which a limited company may dispense with the word
limited from its name? 12. What is meant by index of members? 13. List any two main privileges of private company. 14. What is the min. and max. Limit of members in private and public co. 15. What is meant by democratic management in J. S. CO? 16. When is a company born? 17. List two advantages of holding company. 18. What are the limitations in Government Company? (any 2) 19. What is important in content to name in private and public company? 20. Explain corporate veil in company form of organization. 21. Differentiate private and public company on the basis of transferability of shares and
right issue. 22. What is the quorum for board meeting in public and private company? 23. Why joint stocks company form of organization so popular. 24. Explain following companies with two examples each. Chartered company company limited by
guarantee private deemed to be public co.
Statutory company foreign company public company Registered company
holding company private company
Indian company Defunct company government company Co. limited by share MNC’s Indian company
25. In what ways co. may be promoted? 26. List the steps for the formation of J.S.Co. 27. Define promoter 28. Explain promotion 29. Mention the steps promotion of co. 30. State main functions performed by promoter 31. What is the role of promoter in co? 32. Explain legal position of promoter 33. Under what circumstances does the liability of promoter ceases 34. What is the maximum ceiling of remuneration to promoter 35. In what different ways promoter remunerated?
36. List the qualities of successful promoter.
37. Mention the documents used for incorporation 38. State the authorized group of people for declaration at incorporation 39. Differentiate certificate of incorporation and certificate of commencement. 40. What is the significance of table A.C.D.E OF A/A 41. Explain significance of subscription clause of MoA. 42. Differ A/A and table A 43. State legal effect of MoA and A/A 44. State ultra vires 45. State the declaration at the time of commencement 46. Explain minimum subscription. 47. What is offer for sale 48. When is statement in lieu of prospectus filed 49. State the content of capital clause of MoA. 50. Discuss briefly relationship of MoA and A/A 51. Define prospectus 52. What happen when minimum subscription is not raised 53. State condition which are essential for grant of commencement certificate 54. State significance of object clause of MoA. 55. Given 2 reasons for issuing a prospectus. 56. Give any 2 legal provisions regarding an issue of prospectus. 57. What are the options available for public Co. regarding its articles? 58. To whom is certificate of commencement issued 59. Who can be a promoter of a company 60. What statutory declaration is required for incorporation. 61. Define Article of association 62. Differentiate prospectus and offer for sale 63. Explain Underwriting of securities 64. What is floatation of company 65. Explain preliminary expenses. 66. What is a misleading prospectus 67. What is lease financing? 68. Explain CIN 69. Mention benefits of joint venture. 70. State additional requirements of a public co. after incorporation to obtain a certificate
of commencement? 71. Explain shelf prospectus 72. What do you mean by red herring prospectus?
SUBJECTIVE 1. Discuss the steps for floatation/stages of formation of a Co. 2. What is the role of promoter a Co. form of organization / Explain steps or stages in
promotion of Co.
3. Explain various functions of performed by promoter 4. Describe various documents of incorporation 5. What are the steps involved in registration/incorporation of a Co. 6. How can a public Co. commence its business discuss the steps 7. Explain M/A with its clauses 8. Diff. M/A and A/A 9. What is A/A state its content 10. Define prospectus with its content 11. Elaborate factors taken into consideration for scanning of prospectus from investor’s
point of view. 12. Define joint stock company explain its essential features 13. Differentiate partnership and J.S.Co. 14. Elaborate reasons for popularity of J.S.Co. In India. 15. What leads to the origin of J.S.Co?. 16. Explain diff. types of companies. 17. Differentiate private and public company 18. Brief out various exemptions to private companies under company law. 19. Explain holding Co. and its advantages 20. Discuss different forms of Transnational Co. working in India with examples 21. Why there is need/objective for government forming company? 22. Explain various reasons for the growth of M.N.C’s 23. Discuss benefits and limitations of government companies. 24. Define private company. Explain its advantages and disadvantages. 25. In What ways transnational companies are harmful for hosts? 26. Comment on public companies/J.S.Co. In reference to its merits and demerits. 27. “Private companies are compromise between partnership and public company” explain. 28. Explain the objectives of a joint stock company. 29. Explain different types of promoters. 30. Explain features of M.N.C’s 31. Give the merits and demerits of multinationals
MANAGERIAL PERSONNEL UNIT II OBJECTIVE QUESTIONS 1. STATE 2 METHODS OF APPOINTMENT OF M.D 2. MENTION 2 DISQUALIFICATIONS OF A DIRECTOR 3. GIVE 2 QUALIFICATIONS OF A DIRECTOR 4. WHAT IS A MAXIMUM TENURE OF A M.D? 5. WHO IS AN ALTERNATE DIRECTOR? 6. UNDER WHAT CIRCUMSTANCES CAN THE CENTRAL GOVERNMENT APPOINT A M.D
7. STATE 2 POINT OF DISTINCTION BETWEEN M.D AND MANAGER 8. EXPLAIN RETIREMENT BY ROTATION 9. HOW CAN THE DIRECTOR OF A COMPANY BE REMOVED FROM HIS OFFICE BEFORE THE EXPIRY
OF THE TERM 10. WHAT IS THE MAXIMUM NUMBER OF DIRECTOR REQUIRED IN A JOINT STOCK COMPANY? 11. MENTION METHODS OF APPOINTMENT OF DIRECTORS OF A COMPANY 12. IDENTIFY THE DIRECTORS WHO CANNOT BE REMOVED BY THE SHAREHOLDERS IN THE AGM 13. GIVE THE LIMITATIONS/RISTRICTIONS ON THE POWERS OF BOARD OF DIRECTORS 14. HOW ARE THE FIRST DIRECTORS OF COMPANY APPOINTMENT 15. WHAT IS THE LIMIT ON THE NUMBER OF DIRECTORSHIP OF A PUBLIC COMPANY? 16. HOW IS AN ADDITIONAL DIRECTOR APPOINTMENT 17. WHEN IS A CASUAL DIRECTOR APPOINTMENT? 18. DEFINE DIRECTOR 19. WHAT IS TENURE OF OFFICE OF A MANAGER? 20. EXPLAIN QUALIFICATION SHARES 21. WHAT IS MAXIMUM AND MINIMUM NUMBER OF DIRECTORS A JOINT STOCK COMPANY CAN
HAVE? 22. WHAT IS THE MAXIMUM REMUNERATION PAYABLE TO A M.D? 23. ELABORATE REMUNERATION TO DIRECTORS/MANAGERIAL PERSONNEL? 24. DEFINE MANAGER 25. DIFFERENTIATE Member AND SHAREHOLDER 26. STATE 2 RIGHTS OF SHAREHOLDERS 27. EXPLAIN BOARD MEETING 28. GIVE 2 DISQUALIFICATION OF M.D 29. EXPLIN WHOLETIME DIRECTOR 30. STATE DIFFERENT TYPES OF MEETINGS 31. EXPLAIN QUORUM 32. DIFFERENTIATE ORDINARY AND SPECIAL RESOLUTION 33. WHAT IS THE LIMIT ON NUMBER OF MANAGING DIRECTORSHIP OF A COMPANY? 34. DEFINE M.D 35. WHAT ARE THE PROVISIONS OF COMPANIES ACT RELATING TO THE APPOINTMENT OF THE
DIRECTORS OF A COMPANY BY THIRD PARTY? 36. WHAT ARE THE LIABILITIES OF A DIRECTOR? ESSAY TYPE QUESTIONS 1. DISCUSS FIVE DUTIES OF DIRECTORS 2. EXPLAIN POWERS OF A PERSON OCCUPYING THE POSITION OF DIRECTOR, BY WHATEVER NAME CALLED. 3. WHAT ARE THE DIFFERENT METHODS OF APPOINTMENT OF A DIRECTOR? 4. HOW DOES THE OFFICE OF A DIRECTOR FALL VACANT 5. EXPLAIN PART TIME DIRECTOR AND FULL TIME DIRECTOR 6. MENTION FEATURES OF M.D’S POSITION 7. DISCUSS THE ROLES AND FUNCTIONS OF DIRECTORS 8. HOW CAN THE DIRECTORS OF A COMPANY BE REMOVED FROM THERE OFFICE? 9. GIVE THE COMPOSITION OF THE BOARD OF DIRECTORS. 10. EXPLAIN THE PATTERN OF COMPANY MANAGEMENT IN INDIA UNIT III [FINANCE‐FINANCING, FINANCIAL INSTITUTIONS, MUTUAL FUNDS AND COMMERCIAL BANKS] SHORT ANSWER QUESTIONS—
1. What is meant by participating preference shares? 2. Why are preference shares so called? 3. Expand the terms ICICI and IFCI. 4. explain underwriting commission
5. Mention two disadvantages of debentures from company’s point of view. 6. Mention 2 advantages of crossing of cheque. 7. State 2 advantages of public deposits from company’s point of view. 8. mention 2 situations when customer may dishonor customer’s cheque 9. what are 2 advantages of ploughing back of profit 10. distinguish between bearer debenture and registered debenture 11. expand IDBI and SFC’s 12. Give 2difference between shares and debentures 13. State 2 advantages of mutual fund. 14. Distinguish between fixed and current account 15. State 2 functions of commercial bank 16. Mention 2 factors affecting requirement of working capital of an organization 17. What are closed ended mutual funds? 18. Mention any two functions of IDBI. 19. Distinguish between overdraft and loan. 20. What are growth funds? 21. Identify 2 sources of variable working capital 22. What are convertible debentures 23. Give 2 sources of long term capital 24. Mention 2 advantages of preference shares from the point of view of shareholders 25. What is circulating capital/working capital? 26. Mention the main objective of ICICI. 27. State the purpose for which the SFC’s were set up. 28. What are retained earnings 29. What is the importance of finance for a business 30. Explain different sources of raising fixed capital 31. What are the objectives of DFC’s 32. Explain right shares 33. Mention different sources of raising permanent working capital 34. What do you mean by bonus shares 35. Differentiate bank 36. Explain cheque 37. Give two advantages of opening a bank account 38. Define mutual fund 39. What are the functions performed by the IFCI 40. When and where was the first SFC set up? Elaborate management of ICICI 41. What is IDBI 42. When and why was the UTI established?
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43. Give the main forms in which financial assistance from a bank may be available 44. Identify two sources of short term capital 45. What is meant by cash credit 46. Explain trade credit 47. Mention four sources of finance for a proprietary form of business organization 48. Explain factoring 49. What is fixed capital 50. Enumerate two factors which bring out the importance of working capital in a
business 51. Mention different types of share capital
52. By what act are mutual funds governed 53. List different types of debt funds 54. Explain public debt instrument 55. Give three points in support of banks role in economic development of the country 56. Describe main features of saving bank account 57. Classify the capital requirement of business 58. What is underwriting commission 59. Differentiate equity and preference shares 60. Differentiate subscribed and paid up capital 61. State different types of share capital which a company may issue under company’s
act 62. Explain share warrant and share certificate 63. How can the shares of company be forfeited 64. Explain fixed and floating charge on assets 65. Define debentures 66. State two advantages of medium term capital 67. Explain fair weather friend 68. Give any two ways when debenture score over shares 69. Can public limited company raise any amount of money by issue o equity shares 70. Distinguish between reserve capital and capital reserve 71. Differentiate owed capital and owned capital 72. Differentiate share and stock 73. What purpose is served by long and short term capital 74. Explain capitalization 75. Can working capital be negative 76. Explain time deposit 77. Explain banker’s liability 78. What is the significance of the word “not negotiable “in cheque 79. Differentiate general and special crossing 80. State steps for opening a bank account. 81. What are the objectives of DFI’s. 82. Differentiate shareholder and stakeholder 83. Bring out the importance of fixed capital. 84. Differentiate bearer cheque and order cheque 85. Differentiate redeemable and irredeemable debentures.
Subjective questions‐ 1. Define capitalization. Explain factors affecting capital plan. 2. What do you mean by fixed capital? Enumerate factors affecting it. 3. Discuss various factors affecting working capital. 4. Discuss various sources of raising short term capital 5. Define shares and differentiate it with debentures 6. Classify different types of preference shares and explain them
7. Write short note on –a)public deposits b)retained earnings/ploughing back of profit
8. Discuss types of debentures 9. Enumerate fund based and fee based services of commercial banks. 10. Mention the conditions for dishonoring of customers cheque 11. Explain specialized financial institutions. Discuss advantages and
disadvantages of borrowing from these institutions. 12. Write short note on‐‐‐a)mutual funds b)underwriting of shares 13. Explain schemes/types of mutual funds 14. Discuss types of deposits. 15. Give merits and demerits of raising capital by issuing shares. 16. Write short note on—a)IFCI b)SFC 17. How does a bank give loans and advances 18. Discuss merits and demerits of raising funds from banks 19. Explain agency and general utility functions of commercial banks 20. Explain advantages and disadvantages of preference shares. 21. Discuss five differences between equity and preference shares 22. Discuss the role/importance of working capital in a business concern 23. What are the rights enjoyed by shareholders. 24. Bring out merits and demerits of raising debenture capital for a company 25. What are the different types of working capital 26. Differentiate fixed and working capital 27. What are the different types of bank 28. Differentiate open ‐end and close ‐end fund 29. Write short note on – a)ICICI b)IDBI 30. A)Write short note on UTI
B) Differentiate equity and preference shares 31. A) Differentiate saving account and current account B) Discuss the objectives of institutional finance
UNIT 4 MANAGEMENT [MANAGEMENT, FUNCTIONS OF MANAGEMENT, PRINCIPLES OF MANAGEMENT] SHORT ANSWER QUESTION 1. Explain functional /scientific school/classical/as a process definition of management. 2. Define neo‐classical /human relation definition of management. 3. Explain decision making and leadership concept of management. 4. Write modern concept/integrated concept of management. 5. List five M’s of management. 6. Explain management as a discipline. 7. Give any two objectives of management. 8. Management is all pervading. Explain. 9. Explain management as a dynamic function. 10. Management is both‐science and an art. Explain.
11. List two features of management. 12. Differentiate administration and management. 13. Classify levels of management. 14. List four functions of middle level management. 15. Define management as an activity. 16. Management is not manipulation. Explain. 17. Briefly explain two importance of management. 18. Co‐ordination is a function of management. 19. What is management in preparation? 20. What is management in action? 21. Explain PODSCORB. 22. Explain two internal limitations of planning. 23. Give two external limitation of planning. 24. Mention steps of organizing. 25. What is manning? 26. Explain actuating. 27. What steps are involved in process of motivation? 28. Differentiate co‐ordination and co‐operation. 29. State two benefits of planning. 30. Classify organization. 31. State the significance of leadership in management. 32. Explain how effective management depends on communication. 33. Management is a group activity. Explain. 34. Define leadership. 35. What are the steps in controlling? 36. Who is known as father of scientific management? 37. Differentiate decentralization and delegation of authority. 38. Explain two features of management principles. 39. Classify business activities as per Henry Fayol. 40. What are the essential qualities of manager? 41. Write needs for management principles? 42. Differentiate unity of command and unity of direction. 43. Explain scalar chain. 44. Who is the father of modern management?
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45. Name management principles stated by Taylor. 46. Define financial administration. 47. Explain personal administration. 48. What are the objectives of budgeting? 49. Enumerate levels of management. 50. Explain management is universal. 51. Why co‐ordination is essence of management? 52. Explain management as a group. 53. Explain reporting. 54. How is principle of ‘stability of tenure’ important to an organization? 55. What is meant by order as a principle in Fayol’s management?
Subjective questions
1. Define management and explain its essential features. 2. Elaborate different concept of management. 3. Discuss management objectives. 4. Explain importance of management in modern business world 5. Management is an art of getting things through and with people. Discuss. 6. Comment on management as a process 7. Management is science as well as an art. Explain. 8. Write a short note on management as a profession? 9. Discuss management as an activity. 10. Elaborate management functions 11. Explain planning with its steps and limitation 12. Planning is looking ahead and controlling is looking backward. Discuss 13. Co‐ordination is an essence of management. Explain 14. Discuss directing as function of management. 15. Write short note on—a)personal management b)organizing function 16. Discuss Co‐ordination as function of management. 17. Discuss universality of management principles 18. Elaborate Taylor management principles. 19. Explain following principles of management‐‐‐a) authority and responsibility b)
division of work c) equity d) espirit de corps e) principle of discipline 20. Discuss significance/importance/need of management principles 21. Differentiate Fayol and Taylor concepts 22. Elaborate Taylor management principles 23. Discuss the nature of management principles 24. Write about management scope 25. Explain following management principles—a) initiative b) centralization 26. Why has management in modern business has become very important 27. Discuss different levels of management [9] UNIT 5 COMMUNICATION OBJECTIVE QUESTIONS 1. What is communication? 2. Define informal communication/grapevine/bush telegraph 3. Classify formal communication 4. What is feedback in the process of communication? 5. Give four forms of verbal communication 6. Explain video conferencing 7. Mention two key objectives of communication 8. Give two point of difference between upward and downward communication 9. Mention two demerits of oral communication 10. State two limitations of written communication 11. What is gestural communication 12. State two importance of communication 13. Enumerate two advantages of oral communication 14. State any two devices developed in recent past for rapid and efficient communication
15. Mention two disadvantages of oral communication 16. State two main features of communication 17. Give two advantages of written communication 18. Explain formal communication 19. Give reason why communication is one of the most vital factors in efficient
management 20. State two methods of communication 21. Mention two reasons why communication is necessary for the development of
commerce 22. Mention any two directions of the flow in communication 23. What are the elements of communication 24. State two barriers of communication 25. State the conditions when written communication is more important 26. When is verbal communication most suitable 27. Differentiate internal and external communication 28. Explain horizontal communication 29. Write about diagonal communication 30. Differentiate upward and downward communication
Subjective questions 1. Explain communication with its importance 2. Differentiate informal and formal communication 3. Differentiate written and verbal communication 4. Find out the usual barriers to communication and methods to overcome 5. Explain principles of effective communication 6. Discuss the reasons for growing importance of communication 7. What are the essentials of an ideal communication 8. Write short note on‐‐‐a)written communication b)downward communication 9. Give characteristics of communication 10. What are the objectives of communication 11. Explain different types of communication and give the merits and demerits of each 12. What are the modes/devices of communication
UNIT 6 MARKETING [MARKETING, ADVERTISING, SALES PROMOTION AND SALESMANSHIP] SHORT ANSWER QUESTIONS 1. Give two importance of packaging 2. State contents of labeling 3. Give advantage of branding 4. Define sales promotion 5. List two objectives of sales promotion 6. Explain two dealer sales promotion methods 7. Mention two customers sales promotion methods 8. Give four characteristics of advertisement 9. What is mural advertising 10. Explain two benefits of advertisement to middlemen 11. What is advertising media 12. Explain media mix 13. State four forms of direct mail advertising
14. Give any two limitations of press advertising 15. What is an advertising agency 16. Explain advertising appeal 17. Give two advantages of advertising agency 18. Define salesmanship 19. Give two characteristics of salesmanship 20. Mention two objectives of personal selling 21. Explain relationship between advertising, personal selling and sales promotion 22. Differentiate advertising, personal selling and sales promotion 23. Give four qualities of salesman 24. Expand AIDCAM 25. Explain film advertising 26. What is collective advertising 27. Explain competitive advertising 28. Differentiate brand and trade mark 29. Differentiate packing and packaging 30. Differentiate standardizing and grading 31. Explain pricing as a function of marketing 32. Explain promotional mix 33. Give two advantage of buying and assembling 34. Give full form of ISI and AGMARK 35. Classify marketing function 36. Differentiate selling and marketing 37. Differentiate advertisement and publicity 38. Give physical function of marketing 39. Classify exchange marketing functions 40. Mention two factors which influence the selection of advertising media
41. What are the two main forms of audio‐ visual advertising 42. Mention two functions of advertising agency 43. Identify two advantages of personal selling 44. Enumerate two vocational qualities of salesman 45. Define marketing 46. Explain traditional concept of marketing 47. Mention two objectives of advertising agency 48. Mention two limitations of direct mail advertising 49. What is meant by post sale activity of salesmanship 50. Define market research
SUBJECTIVE QUESTIONS
1. Discuss the key functions of marketing 2. Examine the functions/objectives of advertisement. 3. Advertising is a social waste. discuss 4. Discuss the objectives and significance of salesmanship 5. What are the desired qualities of salesman 6. Define marketing and examine its key objectives and importance 7. What are the features and significance of advertisement 8. Explain the objectives/functions of sales promotion 9. Elaborate the steps in personal selling process 10. Write a note on advertising agency 11. Discuss different forms of advertisement media 12. Explain factors affecting advertising media 13. Explain facilitating functions of marketing 14. Explain types of advertising 15. Write a brief note on code of advertising practices 16. Discuss techniques of sales promotion 17. Discuss themes of advertising/advertising appeal 18. Discuss concepts of marketing
COMMERCE AT A GLANCE CORPORATE ORGANICATION
Company‐joint stock company—it is an artificial person created by law, having separate legal entity with perpetual succession and a common seal. Features/characteristics‐ 1. Artificial person‐co. is created by law; it does not have physical
existence. It comes into existence by the process of incorporation under companies act.
2. Separate legal entity‐the identity of company is different from its members in the eye of law. Members and directors can be debtors and creditors at the same time. Company can sue, hold property and enter into contracts in its own name
3. Perpetual succession‐Due to free transferability of shares company continuity is not affected. Members may come or go but company goes on for ever. Death, lunacy and insolvency of members and directors does not effects the continuity of the company
4. Common seal‐it is an official signature /substitute to signature of a company. It is a rubber stamp with the name of company and its head office address engraved in it. Every legal document of a company must b witnessed by two directors or a director and a company secretary along with a seal to make it a legal document
5. Limited liability‐liability of members is to the extent of unpaid amount on its nominal value if limited by shares. However the liability of company remains unlimited
6. Democratic management‐ Company is managed by board of directors who are the elected representatives of members.
Voluntary association/corporate finance and corporate existence‐‐‐read it once –from book Advantages/benefits/significance/importance‐[brief explanation of each] 1. Large financial resources‐ 2. Stability 3. Free transferability of shares 4. Professional management 5. Diffused risk 6. Limited liability 7. Scope for growth and expansion 8. Social benefits‐it leads to employment generation, wide choice for
customers, higher standard of living, and quality product at reasonable price, capital formation and source for government revenue
Demerits/limitation/disadvantages‐‐[brief explanation of each] 1. Too many legal formalities 2. Delay in decisions 3. Lack of personal touch/separation between ownership and
management/corporate veil 4. Speculation 5. Oligarchy in management
6. Social evils‐ due to companies’ establishment problems like political interference, industrial unrest, monopoly, pollution and a regional imbalance arises. Objectives of companies‐‐[brief explanation of each] 1. To develop rapid industrialization 2. To undertake large scale operation 3. To utilize resources 4. To mobilize idle resources 5. To make country self reliant 6. To help in the growth of social sector and rural economy 7. To generate employment
Suitability of companies ‐ [brief explanation of each] 1. For basic and key industries like ship building 2. For business involving high risk like airlines concerns 3. To escape unlimited liability 4. The law makes the company organization obligatory like banking
business 5. When large scale business is crucial like construction industries basis partnership Company Meaning Relation between 2 or
more partners who have agreed to share profit of a business carried on by all or any of them acting for all.
An artificial person created by law with separate legal entity, perpetual succession and common seal.
Registration Optional, registered under Indian partnership act 1932
Compulsory, registered under Indian companies act 1956
Liability Partners liability is unlimited
Members liability is unlimited
Management Managed by partners Managed by board of directors
No. of people Min‐2, max‐10 [banking], 20 [non banking]
Private‐ [2‐50] [excluding past or present employees] Public‐ [7‐unlimited]
transferability Partners cannot transfer their interest without the consent of all members
Members can transfer their shares
Types of companies‐‐‐ On the basis of mode of incorporation Chartered company‐cos. Established by royal charter, king, queen or head of the state. Ex. bank of England Statutory company‐cos. Established under a special act passed in the parliament or by state legislature. Ex. LIC, UTI Registered company‐ established under registration under companies act. In INDIA under Indian companies act 1956 or any other previous Indian companies act On the basis of control Holding company‐co. which directly or indirectly through medium of another company holds‐ More than 50% of issued equity capital of the company or More than 50% of voting rights in the company or Right to appoint majority composition of board of directors in the company. Ex. Unilever limited
Subsidiary company‐company whose— More than 50% of issued equity capital is with another company or More than 50% of voting rights is with another company or Right to appoint majority composition of board of directors is with another company. Ex. HUL Government Company: Co. in which not less than 51% of paid up capital is held by Central Government or by one or more state governments. E.g. SAIL On the basis nationality Indian company‐ Co. incorporated under Indian company’s act 1956 or any previous act of India. Foreign company‐ C0. Incorporated in any other nation but has its business unit in India. On the basis of liability‐ Company limited by shares: Liability of members is to an extent of unpaid amount on the face value of shares. Company limited by guarantee: Liability of members is limited to such amount as they agree to contribute to the assets of the company in the event of its winding up. It may or may not have share capital Unlimited company: Liability of every member is unlimited and extends to his personal property. On the basis of public interest Private company: A company which by its articles:‐
(a) Restricts the right of its members to transfer shares. (b) Limits the no. of members to 50 (excluding past or present
employee) (c) Prohibits general public to subscribe for its shares or public
deposits. (d) Min. paid up capital is one lacs.
Public company: A company which:‐ (a) Minimum paid up capital of five lacs. (b) No. limit on no. of members. (c) Open invitation t general public to subscribe shares or deposit. (d) Free transferability of shares.
Multinational Company: Company has production, distribution and marketing activities in two or more Countries apart from country in which it is incorporated. It can be established in form of branches, subsidiary, franchise, Joint venture, Turn Key Projects.
Sl. No
Basis Private Company Public Company
1 Min. & Max. no. of Min: 2, Max: 50 ( excluding Min: 7, Max:
members past or present employee) Unlimited2 Min Paid up capital One lacs 5 lacs 3 Transferability of
shares Restricted Free
4 Minimum no. Directors
2 3
5 Public Invitation Prohibited Free & Open6 Commencement
formalities Only after obtaining certificate of incorporation
A copy of prospectus or statement in lieu of prospectus and statutory declaration.
7 Last word of name Private Limited Limited Privileges/Legal exemption of Private Company
1. Statutory Meeting and Report: Not compulsory to hold statutory meeting and submit statutory report.
2. Index of Members: Not needed to maintain index of members 3. Quorum: For general meeting 2 members and for board meeting 2 directors. 4. Min. Capital (paid up): Min. paid up capital of 1 lac. 5. Commencement of Business: Not needed to acquire certificates of
commencement. 6. Minimum no. of members: To commence only 2 members needed. 7. Minimum no. of Directors: Only 2 directors needed 8. Prospectus or statement in lieu of prospectus: Not needed
Advantages / Benefits of Private Company ‐[brief explanation of each]
1. Easy formation 2. Secrecy can be maintained 3. Quick Decisions 4. Greater flexibility 5. Personal touch 6. Limited liability
Disadvantages / Demerits of Private Company‐[brief explanation of each] 1. Limited Resources 2. Poor Protection to members 3. No valuation of investment 4. Restriction on transferability of shares 5. Lesser public confidence
Government Company Advantages: ‐ [brief explanation of each]
1. Easy formation 2. Internal Autonomy 3. Flexibility of operations 4. Efficient Management 5. Collaboration 6. Public Accountability 7. Sensitive to consumer needs 8. Development of neglected sector
Disadvantages: ‐ [brief explanation of each] 1. Political Interference 2. Board flooded with yes men 3. Red Tapism 4. Beurocratic Management / Indifferent / inefficient 5. Lack of Accountability 6. Stereo typed method
Objectives of Govt. Company: ‐ [brief explanation of each]
1. To develop basic and key Industries 2. To mobiles Public Savings 3. To generate employment 4. To ensure balanced Economic development 5. To reduce Dependence 6. To control monopoly 7. To provide and fulfill consumer needs
Necessities of Govt. Company: ‐ [brief explanation of each] 1. Rapid Industrialization 2. Capital formation 3. Employment 4. Balanced development 5. Self Reliance 6. Socialistic pattern of society 7. Consumer welfare
Characteristics: ‐ [brief explanation of each] 1. Incorporation 2. Separate legal entity 3. Ownership 4. Mgt. 5. Financial Autonomy 6. Accountability
HOLDING COMPANY‐[brief explanation of each] 1. Avoidance of risk 2. Easy to form 3. Creates Goodwill 4. Economy in operation 5. Financial strength
Private deemed to be public : 1. Where 25% or more the paid‐up share capital of Pvt. Company is held by one
or more bodies corporate. or 2. Where the average annual turnover of a co. for past 3 consecutive year Rs. 25
crore. or 3. Where a private company holds at least 25% of paid up capital of a public co.
FORMATION OF COMPANY
4 steps of formation/ floatation [brief explanation of each] (a.) Promotion (b.) Incorporation (c.) Capital subscription (d.) Commencement Promoter: Any individual, firm, co. or association who performs or identifies business opportunities, ideas, analyses its prospects and assembles various factors for the formation of a company Promotion: First stage in formation which involves conceiving of idea, preliminary and detailed investigation, assembling various factors for commencement of business in a co. Steps of Promotion / Role of Promoter / Functions of Promoter: [brief explanation of each]
a. Discovery of Idea b. Preliminary Investigation c. Detailed Investigation d. Assembling e. Financing of Proposition
Note: If role and functions both are asked state the given points with explanation for role and self explanatory sentences for functions.
Type of Promoters: [brief explanation of each] a. Professional promoters b. Accidental promoters c. Financial promoters d. Technical promoters e. Specialized institutions as promoters f. Government as promoter
Legal position of promoter: Fiduciary position – position of trust and confidence Remuneration: no maximum ceiling, it is as per AOA. Forms of remuneration are as follows‐‐
a. Shares b. Sell his own assets at higher prices to the Co. c. Charge commission on purchase of assets d. No max. Ceiling usually govt. puts a limit.
Qualities: 1. Imaginative 2. Organizing ability 3. Vision 4. Resourceful
Liability of Promoters: Promoter is personally liable for all contracts .It ceases if It is expressed in the preliminary contracts –
a. That the company adopts those contracts b. That either party may rescind it if co. doesn’t adopt the contract.
Incorporation: Steps a. Preliminaries – approval of name, appointment of banker, solicitor
members, directors etc. b. Preparation & filing of documents – MOA, AOA, Form 1 (Statutory
declaration), Form 18 (Registered office details), Form 29 (list of directors) and Form 32 (consent of directors)
c. Payment of Necessary fee: on the basis of authorized capital of the co. d. Registration of a company – scrutinizing of documents by registrar and
recording e. Obtaining certificate of Incorporation: Issue of certificate date mention
on certificate is date of Birth of co. Certificate of incorporation: Conclusive evidence that company is duly incorporated and has become a body corporate with separate entity having perpetual succession and Common Seal. Form 1 (Statutory declaration): that all formalities are duly complied with. Signed by advocate of Supreme Court, high court, a chartered accountant practicing in India or person named as director, MD, CS or manager. Form 18 (Registered office details)‐notice of registered office address to be filed. If not decided only the name of state may be submitted. Within 30 days of the date of incorporation complete address to be filed. M.O.A.: Memorandum of Association‐ a charter document which sets out the constitution of the company. Binds Company with outside world and anything done beyond object stated in object clause is Ultra Vires and thus is null and void. Clauses: 1) Name Clause: name of the co. with word Pvt. Ltd or Ltd. 2) Situation Clause/ Domicile Clause: Address of registered office and name of State 3) Objects Clause: objectives a) Main object b) other objects
4) Liability Clause: Liability of members to an extent of unpaid a/m on face value of shares or guaranteed a/m to be paid at the time of winding up of Co. 5) Capital Clause: Authorized Capital divided into no of units with the face value of shares 6) Association Clause : declaration by subscribers for being desirous of form a Co. with name of members address, no. of share allotted and witness signature Min 2 in Pvt. Co. and 7 in Public co. Ultra Vires : Ultra is beyond Vires is scope: Ultra vires is beyond the scope . anything done beyond the scope of object clause of memorandum is ultra vires and thus is null and void. A.O.A.: Articles of Association‐ bye‐laws of the company containing rules and regulation for the internal affair of the company. Table A: Model set of articles given in schedule I of Indian companies act containing 99 articles. It may be adopted by public co. Ltd. by shares without having its own articles. Table C: Model set of AOA for Co. Ltd. by guarantee not having share capital. Table D: Model set of AOA for Co. Ltd. by guarantee having share capital Table E: Model set of AOA for Co. For Unlimited Company. Content of AOA
1. Rules and Regulations regarding calls on shares 2. Rules and Regulations regarding transfer, transmission and forfeiture of share. 3. Rules and Regulations regarding General Meetings, proceedings of meetings 4. Rules and Regulations regarding Board meetings and its proceedings 5. Rules and Regulations regarding Appointment and removal of directors 6. Rules and Regulations regarding Dividends, reserves, capitalization of profits. 7. Provisions for voting and statutory rights of members. 8. Provisions for voting winding up of company 9. Provisions for voting appointment of M.D. CEO., Manager and Secretary of Co. 10. Provision for voting and Common Seal. 11. Share capital and variation of rights for diff. types of shares.
Legal effects of A.O.A.: Binds‐ Co. To members; members to Co., members inter – se (each other) DISTINCTION BETWEEN MOA AND AOA
BASIS M.O.A A.O.A
Meaning Charter or fundamental document Bye‐laws of company
Content Clauses‐capital, name, object, subscription, liability domicile
Rules and regulation for internal affairs of co.
Binding Binds company to outside world Binds‐co. to members ,
force members to company and members inter‐se
Alteration Not possible in ordinary course, special resolutions needed and approval of Co. law board
can be altered by ordinary or special resolution
Significance Compulsory for every Co. to have its own
Optional for public LTD co. as can adopt table A
Status Supreme and fundamental Document, subordinate to co’s act
Sub‐ ordinate to both MOA and co's act.
Legal effect beyond the scope is ultra vires and thus is null and void
Can be ratified by members if beyond scope.
Capital Subscription: ‐ 3rd stage in formation of public company and not required for pvt. Company. It includes appointment of underwriters, listing of company in Stock Market, opening Bank a/c, fining minimum subscription a/m, drafting of prospectus and allotment of shares. Commencement: steps (1) Filing and preparation of documents‐
a) If prospectus not issued – (i) a copy of statement in lieu of prospects (ii) Statutory declaration for Qualification shares
b) If Prospectus issued :‐ (i) a copy of prospectus (ii) Statutory declaration by director that; minimum subscription is acquired; directors have agreed to pay for qualification shares and no money is liable to be refunded.
(2) Obtaining Certificate of Commencement: Scrutiny and issue of certificate. It is a conclusive evidence of the fact that company has complied with all legal formalities and is entitled to commence business Prospectus: Any document, notice, circular, advertisement inviting general public for the subscription of shares, debentures or other securities. It is needed by public company Ltd. by shares. It must be issued within 90 days of submitting to registrar. Shelf Prospectus: Prospectus issued by Public financial institutions, public sector banks and Scheduled banks. Red‐ Herring Prospectus: prospectus issued by companies raising capital by the process of book‐ building.
Abridged prospectus: memorandum containing features of prospectus. It must accompany every application form issued to the public for subscribing securities Offer for sale or deemed prospectus: Notice for sale of shares or securities published by bulk allot tees like underwriters. Statement in lieu of prospectus: document required by a co. when public is not invited for subscription of shares or securities in place of prospectus. This document is required when capital can be raised internally or privately. It must be filed with registrar at least 3 days before the allotment of securities. Content is same as prospectus. Information memorandum: process undertaken prior to the filing of prospectus by which demand for the securities proposed to be issued by the company is elicited and the price and the terms of issue is assessed by circular or notice. CONTENT OF PROSPECTUS: ‐ (1) Name and address of the company. (2) Nature of business and main objects of Company. (3) Capital structure of the Company. (4) Particulars about underwriters, bankers, promoters etc. (5) Date of opening and closing of subscription list. (6) Information about material contracts with Managerial personnel. (7) Contingent and outstanding Liabilities. (8) Consent and opinion of experts, managerial personnel. (9) Risk factor. (10) Statutory information’s‐ voting rights, transfer and transmission of securities etc. Minimum Subscription: ‐ 90% of issued capital which must be raised by public co. ltd. by shares within 120 days of issue of prospectus. If not raised, it must be refunded to investors with in next ten days‐ 130 days of issue of prospectus. Amount in the opinion of director or promoter is sufficient for preliminary expenses and contracts. Ways of Promoting A Company: ‐ i) converting a sole business or a firm into a company (ii) establishment a new company altogether (iii) Amalgamation‐ Scanning of prospectus :‐ (1) Nature of business: investors should examine‐demand and supply, degree of competition, present value of its assets and scope of expansion. (2) Management: standing position of promoters and directors. Their experience and integrity (3) Capital plan: adequacy of proposed issue, minimum subscription, rights of shareholders. (4) Material contracts: details of contracts with vendors, underwriters, directors etc. (5) Market Comments: study of press reviews and financial circles.
(6) Name of associates: reputation of company bankers, auditors, brokers, financial institutions etc. (7) Property purchased: nature and value of property acquired and mode of payment to be considered.
Multinational Corporation Trans National Company/ MNC/ Multinational Company/ Global grant Meaning: A company or corporation which has production or and distribution units in more than two nations apart from the country in which it is incorporated e.g. Glaxo, nestle etc. Characteristics: ‐ (a) Production or / and distribution units in more than two nations (b) Normally very large in size. (c) It can be in various forms‐ branches, subsidiaries (d) large size turn key projects, joint venture, franchising (e) transfer of resources (f) dispersion integrated structure (g) International management Objectives: ‐‐ [brief explanation of each] (1) To exploit natural resources. (2) To mitigate the impact of home country regulations (3) To take advantage of government Concessions (4) To fight competitions (5) To reduce cost of productive (6) To circumvent reduce tariff walls regulations (7) To take advantage of technological expertise. FORMS: ‐ [brief explanation of each]
1. Branches 2. Subsidiary companies 3. Joint venture
advantages‐ • the resources of local and foreign firms are proved together to
complement each other • For MNC which wants expansion in overseas market where subsidiaries
are prohibited • They can use management skills and market position of local firms • Where local government need not allow MNC for complete control on
the venture • Privileges and influence of local authorities can be utilised
4. Franchise 5. Turn key Projects
Merits Demerits
1 Economies of large scale operations
1 Maximization of Profits
2 Generates Employment 2 Exploitation of resources
3 Transfer of technology 3 Political interference ( threat to national)
4 Managerial Revolution 4 Back‐ dated technology
5 Philip to domestic industries 5 Outflow of financial resources
6 Expansion of market 6 Currency Manipulations
7 Higher standard of living 7 Disturb domestic industry
8 Growth of ancillary units 8 Foreign Monopoly
9 Foreign Capital 9 Adverse balance of payment
10 Developing infrastructure and Agriculture
10 Distortion of culture
11 Improves balance of trade through impost promotion and impost substitution
12 Research and development activities
Brief explanation for each Reasons for the growth MNCs ‐[brief explanation of each]
(a) Financial Superiorities (b) Technical Superiorities (c) Marketing Superiorities (d) Managerial Superiorities (e) Product Innovation
DISTINCTION BETWEEN MNCs, Sole proprietorship, Partnership
Basis MNCs Sole Partnership
Proprietorship
Act Foreign exchange Mgt act
No specific act Indian Partnershipact 1932
Ownership Shareholders individual Partners
Management Board of directors individual Partners
Operational area extends in more than two nations
local area coverage
Larger than sole proprietorship
Scale of operations
Large Scale Small Scale Medium Scale
Liability Limited Unlimited Unlimited
Technical Skills Very high Very limited Moderate
Managerial Personnel Board of Directors: elected representatives of shareholders, top organ of management. Min in public ‐3 directors Min. in Private‐ 2 directors Who can be a director – Only an individual; no body corporate or firm shall be appointed as director Qualification: ‐ (1) Must be an individual (ii) Sound mind (iii) Above the age of 25 yrs. And below 70 yrs. (iv) Solvent (v) should not hold directorship of more than 15 public co. Disqualifications: ‐ 1 Unsound mind 2) an undischarged insolvent 3) a person who has applied for adjudication as an insolvent 4) a person convicted by a court of moral turpitude (5) disqualified to be a director by an order of the court. Limit on no. of directorships: A person can not hold more than 15 directorships at a time. Role:‐
1. Entrepreneurial role: takes initiative, calculates risks etc. 2. Decisional role: policy makers, rules and regulations 3. Development role : enhance facilities, resources etc 4. Leadership role : supervision, instruction, direction etc. 5. Trusteeship role : acts as custodian of company’s wealth 6. Co‐coordinating role: integrate divisions, departments, branches etc.
Appointment:
1. By promoter : first directors ; if not, signatories of memorandum are first directors
2. By Members: Subsequent directors, 2/3 of directors, retire by rotation, Qualification‐share.
3. By third Party: 1/3 of directors, by debenture holders, banks, and financial institutions, not required to hold qualification shares or retire by rotation.
4. By Board : if authorized by articles‐Alternate directors , Casual directors, additional directors
5. By Central government: on application from 100 members or 10% voting right members. Tenure is 3 years Retire by Rotation: Directors appointed by members fall under rotational ring.2/3rd of total director retire by rotation out of which 1/3 rd retire every year.
Legal position of directors: ‐[brief explanation of each] 1. As trustee 2. As Agent 3. As Managing 4. As an employee 5. As officer or administrator
Rights of directors: 1. To attend board meeting 2. To buy Shares 3. To inspect books of Accounts 4. To receive Remuneration, Board fee etc. 5. To exercise power in board meeting‐ voting rights 6. To receive compensation
Functions of directors: 1. Determine the over‐all long term objectives and general policies of co. 2. Approve over all budgets and programme of the co. 3. Design and develop control system for the co. 4. Decides and creates the framework for organization structure of the co. 5. Selects chief executives and other key executives of the co. 6. Makes important contracts for the purchase and sale of property on behalf of
the co. 7. Issues orders and instructions to chief executives 8. Evaluating performance and taking corrective actions 9. Reviewing and revising the plans of the co. 10. Regulating the capital expenditure and financial plans of the company
Powers of Directors: General / Statutory to be exercised in Board Meeting
1. To issue shares, debentures etc. 2. To fill up casual vacancies, additional and alternate directors. 3. To make calls on shares
4. To Transmit or forfeit shares 5. To recommend dividends or issue bonus shares 6. To decide the terms and conditions for issue of securities 7. To borrow money through issue of debentures and public deposits 8. To invest company funds ad make loans 9. To delegate certain power to others 10. To appoint M.D., Manager and other employees
Restricted powers/ limitations on powers 11. To borrow money more than the paid‐up capital of the company 12. To donate for charitable purpose exceeding Rs. 50,000/‐ 13. To issue bonus shares
Duties of Directors: 1. Duty of attend Board Meetings :‐ must attend all Board Meetings 2. Duty to disclose interest : must disclose his interest to the Board 3. Duty to file returns of allotment :‐ must file a return of allotment within a
period of 30 days 4. Duty of reasonable care : Display care in performance 5. Duty of good faith: As trustee to act bonafide in the best interest of the Comp. 6. Duty not to delegate : perform work personally 7. Duly to act within this powers
Remuneration of Directors: Total managerial personnel remuneration is 11/% of net profit or as per company’s articles.
Part time directors, if the co. has a M.D 1%
Part time director in any other case 3%
M.D or whole time director 5%
M.D or whole time director when more than one
10%
Total managerial remuneration 11%
Vacation of office of a Director
1. When a director fails to obtain his qualification shares with in two months of appointment
2. When a director fails to pay the calls due with in six months 3. When a director ceases to hold qualification shares 4. When a director is adjudicated insolvent 5. When a director is found to be of unsound mind by any Court. 6. When a director fails to disclose his interest in any contract of the Board of
Directors. 7. When a director remains absent from 3 consecutive meetings of the BOD 8. When a director is convicted of any offence involving moral turpitude. 9. When he is removed from the post by members
10. When director contravenes any provisions of Law regulating conditions of employment.
11. When a director is debarred by any court from holding office on account of fraud.
Circumstances when central govt. may remove directors 1 Guilt of fraud 2 Misfeasance 3 persistent negligence 4 default in carrying out his obligation and function under the act 5 breach of trust Part time Director‐ is a director who is not an employee of the co. and does not devote much time for the supervision of co's affairs. Such directors are invited to board/ general meetings of the members to face policy decision regarding business or mgt of the co. Removal of Directors: ‐ 1. By Members :‐ giving special notice, passing ordinary resolution in general meeting of members notice at least 14 days before meeting. They cannot remove directors (1) appointed by Central govt. (2) by third party (3) by proportional representation 2. By Central Govt. :‐ on recommendation of company law board on grounds of frauds, breach of duty, breach of trust or negligence, business not conducted on sound business principles. Application from 10% voting rights members or 100 members for removal. 3. By Company Law board: ‐ on application from members for prevention of oppression of minority or mismanagement of affairs of co. Full time Director / whole time Director: Meaning: Who is in whole time employment, appointed by B.O.D. on the approval by shareholders in Annual General meeting by passing special resolutions? Qualification: (1) He must be an individual (2) He must be a member of B.O.D. Appointment: ‐ By B.O.D. on approval by shareholders Term of office: ‐ Till retirement – No fix tenure Power/ Duties: 1. to act as technical Director Marketing Director Etc 2. To act on full time basis for performing administrative activities. 3. To have independent charge of one particular divisions or department.
Managing Director :‐ (M.D.) Meaning: A director/ who by virtue of an agreement with the company or a resolution passed by the co. in general meeting or by its B.O.D. or by virtue of its M.O.A. or AOA is entrusted with substantial power of Management which would not otherwise be exercisable by him and include a director occupying the position of M.D. by whatever name called. Appointment: ‐ 1 by agreement with co. 2.By resolution in general meeting 3. By B.O.D. in board meeting
4. By virtue of MOA or AOA. Term of Office: ‐ 5 yrs. At a time. He can be re‐appointed No. of M. directorship: ‐ one co. at time in ordinary course 2. By approval of B.O.D. and more than two co. on approval of Central govt. more than two companies. No. of M.D.:‐ A company can have more than one M.D. in a Co. Qualification: ‐ 1. Must be an individual 2.Must be a member of board director. Disqualification: ‐ 1. Is undischarged insolvent or has been adjudge insolvent at any time 2. Has been convicted by court of an offence involving moral turpitude at any time. Remuneration: ‐ 5% of net profit –if one M.D .More than one M.D. than 10% of net profit of the co. Appointment, re‐appointment and removal of M.D. require the prior approval of Central govt. A public co. must appoint its first M.D. within 3 months of its incorporation. Powers/Duties/ Functions of M.D
1. He performs Managerial functions 2. Attends board meetings. 3. Exercises substantial powers of management. 4. Allocating resources and organizing activities under the supervisions and
control of the Board. 5. Providing able and dynamic leadership and affixing signature on all co.
documents, contracts binding etc. Role of M.D.:‐
1. Trusteeship role‐ considered as trustee and acts accordingly for money which they receive and which is under there
2. Decisional Role: ‐ M.D. is entrusted with substantial powers of management which would not otherwise be exercisable by him.
3. Leadership Role: ‐ M.D. is the policy member of the co. for its day to day activities and thus he directs supervisors and leaders.
4. Co‐ordination Role:‐ As a coordinator M.D. integrates various divisions and departments which are under his substantial power the managing staff of the co.
5. Agency Role: ‐ M.D. acts as on agent for a co. to carry on its business under directors, supervisors and control of B.O.D.
Board Meeting: ‐ Periodical meeting of B.O.D. where directors can exercise their powers. There must be 4 meeting in a financial yr or one meeting every quarterly. Quorum for Board Meeting: ‐ Private Co.‐2 Directors Public Co. ‐ 2 Directors or 1/3 of total no of directors in a co. which ever in higher ‐ fraction to be rounded of to +1) Quorum for general Meeting: ‐ Private: ‐ 2 Members Public: ‐ 5 Members Rights of Members/shareholders:‐
1. To appoint Directors 2. To vote in general meetings 3. To remove directors 4. To receive dividend 5. To receive notice for AGM 6. To participate in resolutions passed in AGM
BASIS MANAGING DIRECTOR WHOLE TIME DIRECTORPower Substantial powers Power entrusted as per
terms of appointment Tenure 5 years at a time No statutory limit No. of cos 1 co. in ordinary course,
2 with board consent and more than 2 by approval of central govt.
One company at a time
Appointment By virtue of agreement, by resolution, by B.O.D
By B.O.D on approval of shareholders
existence Either M.D or manager WTD and MD or WTD and manager
compensation entitled No such provision BASIS MANAGING DIRECTOR MANAGER appointment Under agreement or
resolutions or MOA or AOA
Under contract of service or otherwise
status Must be a director first May or may not be a director
powers Substantial powers of management
Whole or substantially the whole of the affairs
compensation Entitled to receive for loss of office
No such provision
No of companies Can be of 1 or 2 cos simultaneously by approval of board
One company at a time
BASIS WHOLE TIME DIRECTOR PART TIME DIRECTORMeaning Who is in whole time
employment, appointed by B.O.D. on the approval by
‐ is a director who is not an employee of the co. and does not devote much time for the
shareholders in Annual General meeting by passing special resolutions
supervision of co's affairs. Such directors are invited to board/ general meetings of the members to face policy decision regarding business or mgt of the co.
Appointment appointed by B.O.D. on the approval by shareholders in Annual General meeting by passing special resolutions
Appointed by members in the AGM
Power To act on full time basis for performing administrative activities.
Statutory powers to be exercised at board meeting
Remuneration 5% if one 10% if more than one
1% or 3% or as per cos articles
Term of office No fixed term, till retirement
Retire by rotation
Chief executive: appointed by board of directors for translating the plans and policies of the board into actions. He acts as a link between the board and shareholders. His main functions are—
1. translating the plans and policies of the board into departmental policies 2. finalizing budget proposals for submission to the board 3. allocating resources and organizing activities 4. arranging selection and development of executives 5. providing able and dynamic leadership 6. evaluating performance of departments 7. maintaining public relations and contacts with government and other
agencies Organs of company management:
• board of directors
• managing director
• departmental manager
• secretary
• legal advisor
Composition of board of directors:
• relative proportion between full time executives of the company and part time directors
• specialized directors as well as general directors are also needed
• ideal board should consists of both young persons as well as mature and experience directors
• members of directors should have matching outlook and temperament
• the board must include active as well as nominal directors
MANAGEMENT
Meaning: It is a distinct process consisting of planning, organizing, commanding, coordinating and controlling, performed to determine and accomplish objectives. It is an art of getting things done through and with people. Concepts:
1. As and activity - Art of getting things done through and with people informally organized groups.
2. As a process: To manage is to forecast and plan, to organize, to command, to co-ordinate and to control.
3. As a Discipline: Management is a separate branch of knowledge which is studied as a separate field. It includes several courses - such as financial Management, Marketing management, Personnel Management etc.
4. As A group: Management technically indicates all the people who carry out managerial activities. It indicates top management of the organization. Thus B.O.D., C.E.O., Board of Trustees, M.D. etc. constitute management.
5. As Leadership: Management is the art and science of decision making and leadership. It includes guiding, leading, motivation, co-coordinating.
6. As integration concept: to achieve coordination of the human and material resources essential in the effective and efficient attainment of objectives
Characteristics / features: [brief explanation] 1. It is goal oriented 2. It is universal 3. It is a group activity 4. It is science as well as an art 5. It is all pervading 6. It is intangible 7. It is a district entity.
Nature of Management: [brief explanation] (1) As a science -
a. Systematic body of knowledge b. Cause and effect c. Universal Validity d. Experiments and universal application
(2) As an art - a. Practical knowledge b. Creativity c. Personal skill d. Practice and experience
(3) As a profession - a. Specialized body of knowledge b. Formal education and training c. Professional Association d. Restricted entry e. Code of conduct
Note: - Thus the true nature of management is it is a soft science or an inexact science, pure art and an on growing profession.
Objective of MANAGEMENT: [brief explanation] • To utilize resources to its optimum • To secure growth and prosperity • To promote research and development • To improve discipline and morale • To facilitate correct decision making • To minimize uncertainties • To ensure quality goods at reasonable price.
Reasons for growing imp of Mgt. [brief explanation] o Growing size and complexities of business o Increasing competition in the market
o Growing specialization of work o Development of trade unions o Use of capital initiative technology o In govt. Interference in business o Scarcity of resources o Social obligation
Difference between Administration and Management
Basic Management Administration 1 Meaning Creating an internal environment
of planning, organizing, directly, staffing and controlling to achieve desired goods.
Determination of objectives and policies
2 Nature Executive function or doing function
Decision making function thinking function
3 Level of authority
Concerned with top middle and Lower level
Concerned with top level.
4 Use of term generally in business enterprises Usually in govt. officer, Social, cultural, military organization
5 Relative importance
Element of mgt. as one descends to lower levels of mgt.
Element of administration as one progress to higher levels of mgt.
Levels of Management : 1) Top level (T.L)- B.O.D, C.E.O., M.D. – To established overall long term goals
- To lay down overall policies 2) Middle level (M.L) – Departmental Managers, - To transmit order, suggestions, policies
etc - To inspire operation managers towards better performance. 3) Lower level (L.L)- Supervisors, section officers superintendents etc
- To assign jobs to subordinated - To assist and advise subordinate - To arrange resources
Importance of Management [brief explanation] 1. Accomplishment of objectives and group goals – Max. production at min. cost 2. Optimum utilization of resources 3. Cost Reduction 4. Co-ordinate human efforts 5. National development- Beneficial to business and society 6. Higher standard of living 7. Maintain dynamic equilibrium
Scope of Management: It has very wide scope as comprise various functional areas like production Management, Marketing Mgt, financial Mgt, Personnel Mgt. Purchasing Mgt, office Mgt. etc. Functions of Management:
1. Management in preparation – It refers to all those functions of mgt. which involves preparation for actual work. It includes- Planning and organizing.
2. Management in Action: - It refers to functions of mgt. involving getting the actual work done. It includes – direction, staffing, co-coordinating, controlling.
PODSCORB- P-Planning, O-Organizing, D-Directing, S-Staffing, Co-Co-coordinating, R-Reporting, B-Budgeting. 1- Functions of Management:
Planning – To assess the future and make provisions for it. Basic function of mgt. which involves thinking or looking ahead. It includes- what is to be done, how it is to be done, when it is to be done, where it is to be done and by whom it is to be done. Steps- Collecting information’s- Defining objectives- Discovering alternative course of action- evaluating alternatives- choosing best alternative-periodic review Advantages- Focuses attention on mgt. objectives minimizes uncertainties. Avoids wastage and saves time. Promotes co-ordination and effective control. Limitations- Internal- non- availability of information, uneconomical, time consuming, External- Govt. policies, natural calamities, technological changes, competitor actions.
2- ORGANISING: Meaning: The process of developing or creating harmonious structure of authority responsibility relationships for achievement of organization goals.
Steps- Identification of activities- Grouping of activities- Assigning of activities- delegating of authority-co-ordination.
Advantages- Facilitates growth, permits optimum use of human resources, encourages team work, initiative and creating thinking.
3- Staffing- It is also known as manning or personnel mgt. It is a process of matching jobs with individual to ensure right man for right job at al levels in the enterprises to achieve organizational goals.
Steps:- Manpower planning- Recruitment and selection- Training and development –Placement and orientation- appraisal, promotion and transfer-Remuneration. Advantages: Improves quality and quantity of output. Improves job satisfaction, Manpower planning and depth helps in finding and employing suitable persons for various positions. Optimum utilization of human resources.
4- Directing- It is also known as commanding or actuating. It is the process of guiding, supervising, motivating and leading the subordinates to contribute for the achievement of organizational goal. Steps- Supervision-Communication – leadership- Motivation. Supervision: overseeing subordinate at work by superiors. Steps- Scheduling of work- instructing and guiding the workers- providing necessary technical guidance to workers- maintaining discipline.
Advantage: Secures better work. Co-operation and goodwill of the sub-ordinates. ensures effective delegation of authority. Communication: Process of passing information between two or more persons to achieve desired organization goals. Advantage: Life blood of modern business. Promotes managerial efficiency. Develops spirit of co-operation. Motivation: Act of stimulating someone or oneself to get desired course of action. It involves providing effective leadership- inspiring people to co-operate- effective communication and providing climate for sub-ordinates development. It can be in form of monetary or non-monetary incentives, bonus promotions etc. Advantage: Core of mgt, increase in efficiency and productivity. Faster team spirit. job satisfaction to sub ordinates to make the best utilization of then talent and other resources.
Leadership: Process of influencing the behaviors of the people in one's own way. It is basically a process of motivation.
Steps: Interprets objectives - suggests right course of action - stimulating and guiding. Significance: assists in achievement of organizational goals, base for motivation, actuates sub-ordinates to work with zeal and enthusiasm. 5 CONTROLLING: It is the process of measuring performance, comparing it with standards and taking corrective actions wherever necessary. Steps: Setting standards - measuring performance- finding cause of division - taking corrective actions. Advantages: Ensures satisfactory performance- ensures proper Implementation of plans. facilitates delegation of authority and co-ordination. 6 CO-0RDINATION : Process of harmonizing, synchronizing and unifying individual efforts towards common objectives. Elements / Characteristics - 1. It is orderly arrangement of group effort 2. It is continuous and dynamic process 3. it secures unity of action 4. It is created through deliberate efforts 5. it is a managerial responsibility Importance: 1. Eliminates conflicts between different groups and departments Provides balance between persons having different abilities and interests Combines different resources to secure better results, Integrates needs & interests of government, customer and employees NOTE: -
1. Co-ordination is an essence of management 2. Planning is looking ahead and controlling is looking backward 3. Management as an activity 4. management as process
All the above discuss statements must be prepared from notes already given.
PRINCIPLES OF MANAGEMENT A fundamental statement of basis truth that provides a guide to thought and action which establishes cause and effect relationships originated as a result of past experience and accomplishments. Features: BRIEF EXPLANATION
1. Universal 2. It is Dynamic 3. It deals with human limitations 4. It is Relative not absolute 5. It has cause and effect relationships 6. All principles are of equal importance
Need: BRIEF EXPLANATION
1. To increase efficiency 2. To crystallize the true nature of management 3. To improve research
4. To attain social goals 5. To Train Managers
Significance: BRIEF EXPLANATION 1. Increases efficiency 2. Crystallizes true nature of management 3. Improves research 4. Attains social goals 5. Trains Managers 6. Evaluates managerial behaviors
F.W. TAYLORS SCIENTIFIC MANAGEMENT PRINCIPLES Father Scientific mgt. is the art of knowing exactly what you want your men to do and then seeing that they do it in the best and cheapest way.
1. Science not Rule of thumb 2. Harmony not Discord 3. Minimum not Restricted Output 4. Division of work and responsibility 5. Scientific Selection, Training and Development of workers.
Statement and cause and effects from notes Fayol's MODERN Principles Of Mgt- Henry Fayol Classification of Business activities-Technical, Commercial, Financial, Security,
Accounting, Managerial. Elements of Mgt function- Planning, Organizing, Commanding, Co-coordinating,
controlling Managerial Qualities and Training- Physical, Mental, Moral, Educational, Technical,
Experience. Principles: - (14) – Statement and cause and effects from notes
• Division of work
• Authority and responsibility • Discipline • Unity of Command • Unity of direction • Remuneration • Centralizations • Sub-ordination of individual interest to general interest • Scalar Chain • gang plank • Order • Equity • Stability of tenure • Initiative • Esprit de corps
Comparative study between Taylor and Fayol concepts Basics Taylor Fayol 1 Personality Scientist Practitioner 2 Techniques Scientific observations General principles of mgt.
and measurement 3 Perspective Operative levels Top level of mgt. 4 Focus Productivity Improving overall
Note: Explanation of principles of mgt. as statement and cause and effect to be prepared from notes.
Universality of management principles
Henri Fayol reveals that formal training in management and co operation between employers and employees has been helpful in developing professional management. It is said that Henry Fayol’s theory is too formal takes too broad a view of management process But his principles have stood the test of five and are still accepted as he care of management theory.
Universality of management principles means of principles of management are applicable in all types of organizations
1. Managerial knowledge and skills can be transferred from one organisation or country to another.
2. There must be some general principles observed common for all organizations which require coordination of human and physical resources.
3. Fundamental management principles are applicable in all kinds of human activities from simplest work to great corporation involving group.
4. Application of management principles however differ from one organisation to another depending upon the culture and needed of particular organisation.
5. The concept of universality has been supported by many managerial experts like full taylor, knoontz and Dennell etc.
6. According to Taylor, fundamental management principles are applicable everywhere.
7. Management is viewed broadly as human activity is universal, management principles are necessary to obtain and to prepare resources, the resources needed for human survival.
8. All undertakings require planning organizing commending, controlling and coordinating and to function properly all must observe. The same general principles.
9. As a manager each must at one time or another carry out all the duties characterized of managers. This is the principle of universality of managerial functions.
10. A specific technique or approach of management may differ from culture to culture or form country to country but management fundamentals are universally applicable.
While practices and applications will vary widely from one situation to another, fundamental concepts and principles of management and of human relations will remain much the some even when they take effect in different combinations. For e.g.:‐ An experienced military officer move to a senior position in business indicates that here are general skill and principles of management of work.
FINANCING Capitalization: ‐ It comprises ownership capital and borrowed capital of a company for its long term indebtedness. The process of determining the capital structure of a business includes determination of total capital requirement and selection of methods of raising it. Need for Capital:‐
1. To promote and operate the enterprise economically 2. To operate efficiently 3. To acquire fixed assets and purchase raw material 4. To adopt modern technology and meet contingencies. 5. To expand existing operations and avail business opportunities.
Types of Capital:‐ 1. Long term Capital: funds required for long period of time for more than 5 yrs.
Objectives: 1. To acquire fixed assets like land, building etc. 2. To finance permanent working capital
Sources: ownership capital – shares, Retained earnings, preference share capital Borrowed Capital‐ Debentures, Loans, from financial Institutions 2) Medium Term Capital: ‐ funds required to be invested in the business for a medium period (exceeding 1 yrs but not exceeding 5 yrs.) Objectives or purpose: 1) To meet expenses on modernization of plant and machinery and adoption of new methods etc. 2. To meet expenses for change in technology or increasing competition Sources: Loans from commercial Banks, Public deposits, Retained earnings, Redeemable debentures, Loans from financial institutions.
3) Short term capital: funds required to be invested in the business for a short period usually for one year.
Purpose: To meet day to day operating expenses 1. For holding stocks of raw materials, spare parts, work in progress etc. 2. To convert cash into inventory of finished goods, receivables into cash.
Sources: Cash credit installment credit, factoring, Loans from commercial bank, Bank overdraft, discounting bills of exchange trade credit.
4) Fixed Capital: ‐ funds required for acquisition of fixed assets Land and Buildings. Plant and machinery, furniture and fixture etc. It is raised through Long term sources of finance such as shares, debentures etc.
Factors affecting fixed capital:‐ brief explanation 1. Nature of Business 2. Size of Business 3. Nature of Products 4. Diversity of Products lines 5. Mode of acquiring fixes assets 6. Method of Production 7. Intangible assets (investment in acquiring goodwill etc)
Working Capital: ‐ Liquid funds required for the day to day operations of an enterprises. It is the excess of current assets over current liabilities also known as circulating capital or revolving capital. Types :‐ (1) Permanent Working Capital: a/m of working capital required permanently to operate the minimum level of business activity. It is locked up permanently in current assets.
a) Initial working capital: part of permanent working capital required at the time of commencement of business.
b) Regular working capital: part of permanent working capital required for continuous business operations
(2) Variable Working Capital (VWC): Working capital required meeting seasonal or special needs of business or in addition to permanent working capital. a) Seasonal working capital: VWC required during particular season to buy bulk raw material or pay extra labours. b) Special working capital: VWC required meeting contingencies or emergencies like strikes, change in demand or fashion etc. Importance:‐
1. High Credit worthiness 2. Smooth working of enterprises 3. Goods relations with employees 4. Timely payment of dues and dividends 5. Obtaining cash and trade discounts
Factors affecting working capital:‐ brief explanation 1. Nature of business 2. Size of Business 3. Rapidity of Turnover 4. Terms of Purchase and sale 5. Cyclical fluctuations 6. Business cycle or manufacturing cycle/ gestation period 7. Seasonal variation and regular income
Factors affecting Capital Requirement (capital plan):‐ brief explanation 1. Size of Business 2. Nature of Business 3. Basic capital needs of business 4. Capital gearing 5. Trading on equity 6. Control of enterprise 7. Cost of financing
Ownership capital or owned capital: ‐ Funds contributed by the owner which is generally limited and cannot be raised beyond certain limit, It includes share capital, Retained earnings etc for company. Owed Capital or Borrowed Capital: ‐ Funds obtained in a business concern from external sources which involves periodical payments of interest of specific rate and payment of a/m (principal sum) as well. It includes debentures, public deposits, discounting bills of exchange etc Source of finance‐ For sole proprietorship business‐‐‐ Ownership capital Friends and relatives Commercial banks Financial institution For partnership firm Contribution of partners Loans from partners Friends and relatives Commercial bank Financial institutions For joint stock company— Shares , debentures , commercial banks, financial institutions, trade credit, cash credit, bank overdraft, discounting bills, factoring, installment credit, customer advances, public deposits, retained earnings, bank loans. SHARES: ‐ it is one of the units into which the share capital of a co. can be divided. it is a share in the share capital of co. Types:‐
1. Preference shares 2. Equity shares 3. Deferred shares Equity shares: ‐ Shares which carry no preference right, and is repaid at last. they bear maximum risk and enjoys voting right and control over the mgt of the co.
Merits from the point of view of co.‐
Brief explanation
Demerits from co's point of view
1 Source of permanent capital 1 Risk of loss of control/ manipulation of control by powerful group
2 No charge on assets 2 No trading on equity
3 No fixed obligation 3 Danger of over capitalization
4 mass appeal 4 Costly
5 No burden on earnings
6 Source of strength
Merits from investors point of view :‐
Brief explanation
Demerits from investors point of view
1 Voting rights 1 Uncertainty of earnings
2 High Dividends 2 High Risks
3 High Liquidity 3 Unhealthy speculation
4 Limited Liability 4 No security
5 Right issue of shares
Preference shares: share which carry certain privileges or preferential rights‐‐‐ 1. Right to receive dividend at stipulated rate before any dividend is paid to
equity shares 2. Right to receive payment of capital on winding up of the company before the
capital of equity shareholders is returned Types:
1. Cumulative Preference shares: arrears of dividend accumulate. 2. Non‐ Cumulative Preference shares: no accumulation of dividend 3. Participating Preference shares: in addition to preferential rights right to
participate in surplus profits and surplus assets 4. Non‐participating Preference shares: no participation on surplus profits or
assets
5. Redeemable Preference shares: which can be repaid after stipulated period 6. Irredeemable Preference shares: which cannot be redeemed or repaid before
winding up 7. Convertible Preference shares: can be converted into equity shares 8. Non convertible Preference shares: can not be converted into equity shares
Merits of preference share to company
Demerits of preference shares to company
• Appeal to cautious investors • burden • No interference in management • Not a permanent source • No charge on assets • Low appeal • Trading on equity possible • Costly source • No burden
Merits of preference share to investors
Demerits of preference shares to investors
• Stable and regular dividend • Lack of voting rights • Less risk • No capital appreciation • Preferential rights • No increase of dividend • Good for cautious investors • Accumulation of dividend
brief explanation for each basis Preference shares Equity shares Degree and rate of risk Low and fixed High and fluctuatingrights Limited voting rights Full voting rights Nominal value high Lowdividend Prior to equity
shareholders After preference shares
Appeal to investors Cautious and conservative
Bold and adventurous
Market value Does not fluctuates Fluctuates refund of capital Prior to equity capital at
winding up Refund after every obligations
Deferred Shares: shares carrying disproportionate voting rights. This type of shares can not be issued by public company. Dividend and return of capital is after all classes of shares are paid. Debentures: it is an acknowledgement of debts. A written instrument as an undertaking to repay the specified sum with interest on or before the prescribed date. It is issued under common seal. Types:
1. Secured debentures: no security on any asset 2. Unsecured Debentures: assets mortgaged on its issue‐fixed or floating
3. Redeemable Debentures: repayable on a pre determined date 4. Irredeemable Debentures: repayable only at the time of winding up of the
company 5. Registered Debentures: recorded in the register .can only be transferred by
transfer deed 6. Bearer Debentures: no records in the register, can be transferred by mere
delivery 7. Convertible Debentures: can be converted into equity shares 8. Non‐convertible debentures: can not be converted into equities
Merits of debentures to company Demerits of debentures to company• Trading on equity possible • Permanent burden of interest • Freedom of management • Reduction on credit
understanding • Economical • Charge on assets • Tax benefit • Limited resource • flexibility
Merits of debentures to investors Demerits of debentures to investors
• better security • no voting right • Regular fixed return • High price • Appeal to cautious investors • unattractive
brief explanation for each basis shares Debentures meaning That is a share in the share
capital of co. it is an acknowledgement of debts
Status Owners and owned capital Creditors and borrowed capital
Yield Fluctuating dividend Fixed interest irrespective of profit
Voting rights Enjoy voting right No voting rights Order of repayment Unsecured Usually secured Terms of repayment Usually irredeemable Redeemable Risk High risk, no security Low risk Terms of issue Subject to legal restriction No legal restrictions Public deposits: ( fair weather friend)‐when general public was invited by the company to deposit their savings for a period of not less than six months and not exceeding 3 years at a time. Permission from R.B.I is necessary where total deposits should not exceeds paid up capital Merits to company Demerits to company
• no security needed • fixed obligation • Trading on equity possible • Uncertain(fair weather friend) • No interference in management • uneconomical
• Availability of public money for industrial growth
• Elasticity in capital structure brief explanation Merits to investors Demerits to investors
• Easy invitation • High risk • Relatively higher return • No voting right
brief explanation Loans from Specialized institution Advantages disadvantages
• Low cost /economical • Charge on assets • Advantage of trading on equity • Lengthy procedure • Larger funds • Sharing in management • Long term • Convertibility • Managerial assistance • Nepotism and favoritism to big
industrial concerns • Developmental assistance • Easy repayment • Underwriting facility
Retained earnings: ploughing back of profit: process of retaining a part of profit year after year and re‐investing the same in business. It is a source of self financing. advantages DisadvantagesNo interference in management UnreliableNo obligation/no legal formalities Unfair to shareholders Tax benefits Ill balanced industrial growth Increases creditworthiness Economical Independence of market brief explanation Bank loans: source of medium and short term finance. advantages DisadvantagesFlexibility Charge on assetsWide choice UncertainEasy repayment Too many legal formalities No interference in management costlybrief explanation Short term sources:
1. Cash credit: agreement under which a borrower is allowed to borrow up to a certain limit, where borrower has to pay interest only on a/m actually withdrawn or utilized. Source of capital by commercial bank
2. Bank overdraft: Source of short term finance by commercial bank. Customer having current a/c is allowed to overdraw his account up to a specified a/m. interest is charged on a/m actually overdrawn.
3. Bank loans: lump sum a/m credited in the name of customer (borrower) to be repaid in number of installments where interest is charged on the whole a/m from the date of sanction. It is also termed as outright loan and is a source of medium term loan
4. Discounting bills of exchange: Source of short term finance by commercial bank. Where bank charges some commission for this service and pay less than the face value of credit instrument (bill of exchange). In case of bad debts seller remains liable.
5. Factoring: source of short term capital and is also known as accounts receivable financing. Raising capital through the sale or mortgage of book debts. The bank or financial institutions make advance upto60% of accounts receivable. Bad debt losses, if any are borne by the company itself.
6. Installment credit: source of short term finance where the business concern has to pay a part of price of goods or assets purchased at the time of delivery and the balance is to be paid in number of installments. The interest is charged on the balance due and is included in installment.
7. Trade credit/ mercantile credit: credit extended by suppliers to the buyers at all levels of production and distribution process for period ranging from 15 days to three months where buyer/company receives supplies without paying immediately. Simple, convenient method with no formalities to reputed firms. flexible and economical Terms related to financing: 1. Capital gearing: determination of some proper ratio between two or more
methods of raising capital. It may be high or low geared according to the small or high proportion of equity capital over total capital resp.
2. Trading on equity: it is the additional profit earned by the equity shareholders over other sources of raising funds. Priority should be given to debts over equities to keep the channel of issuing further shares always open in case of growth of the company.
3. Underwriting of shares: an agreement between the company and underwriter like financial agency under which underwriter agrees to buy that part of the issue which is not subscribed to by the public in consideration of a specified commission.
4. Bonus shares: shares issued by company directors at the time of payment of dividend. When company declares dividend but not pays in cash, rather in form of equivalent shares are issued.
5. Right shares: shares issued by public limited companies at the time of further issue of shares, such new shares are to be offered to the existing equity shareholders on pro rata basis.
6. Stock: fully paid share are converted into stocks 7. Capital market: concerned with long term finance, mobilizing individual
and corporate savings for industries, trade and government. 8. Money market: it deals with supply of short term financial requirements of
trade and industry comprising commercial banks, cooperative banks and exchange banks
9. Hybrid security: it means any security which has a character of more than one type of securities. E.g. preference shares as they carry features of equities as well as debentures
10. Transfer and transmission of shares: buying and selling of shares in secondary market amongst shareholders is transfer whereas automatic transfer of shares to legal representatives of existing shareholders in the event of death, insolvency or lunacy is transmission
11. Forfeiture of shares: extinction of membership as a sort of penalty for the non payment of calls on fixed dates can be forfeited by directors, if authorized by articles.
12. Share capital‐the max. Amount of ownership capital which the company is authorized to raise by way of public subscription.
13. Issued capital—the amount of capital which is actually issued to the public for the subscription in the form of shares
14. Subscribed capital‐ that part of issued capital for which applications are received from the public
15. Called‐up capital‐the amount on the shares which is actually demanded by the company to be paid by the subscription
16. Reserve capital‐ that part of uncalled capital which is not callable by the company, except in the event of winding up of the company
17. Paid up capital‐ that part of called up capital which is actually paid by the members
18. Calls in arrears‐ that part of called up capital which represents the total payment yet to be paid by the members on calls
19. Methods of determination of capital requirement 1. Estimation method–assessment of total capital requirement of a business by detailed investigation .this is done on the basis of reports of specialists and experts 2. Comparison method‐ calculation of capital requirement on the basis of analysis and results based on statistics of other similar nature business concern. Cost theory Earning theory 20. Public debt instruments: instrument issued by government to its short term and medium term financial requirements. They are the borrowings of government and the instrument issued for procuring funds are monitored by RBI or other agencies of government like financial institutions, post offices etc.
income earned on such instruments by investors is exempted from income tax and wealth tax etc. up to certain limit. E.g. national defence gold bonds, national plan certificates, post office cash certificate, relief bonds, capital investment bonds, treasury savings deposit certificates etc
Specialized financial institutions—from notes Mutual fund Association or trust which collects savings from investors in form of units for common financial goals, to invest in diversified corporate securities portfolio. Organization structure [brief explanation of each] Sponsor Mutual fund trust Asset Management Company Types Open‐ end‐units are sold and purchased perpetually on the basis of NAV Closed end‐ schemes having stipulated maturity period Balanced fund‐ invests in both – bonds, debentures and equities to provide growth and income Equity fund‐ mutual fund scheme investing in equity shares of various companies Gilt fund‐ invests in government securities Debt fund‐ investment in bonds and debentures Growth fund‐ scheme dealing in capital appreciation securities Income fund‐schemes dealing in securities which yield regular income to investors Domestic fund – schemes which mobilize funds within nation Offshore fund‐ schemes which mobilize funds from foreign investors advantages Disadvantages
• Reduced risk • High cost • High liquidity • Suppressing information • High return • Restricts investment opportunities • Tax relief • Restricted liquidity • Transparency • Professional management
Brief explanation for each COMMERCIAL BANK Functions of commercial banks
• Accepting Deposits: (fund based activity) Current‐Money can be deposited or withdrawn at any time, over draft facility, no interest paid, for current account holders. Recurring‐ amount paid every month in regular installments &specified time period. Withdrawl only after maturity including interests. Interest rate is higher than saving but less than fixed de
Saving‐interest paid on minimum monthly balance. With cheque facility. Money can be deposited any no. of time but withdrawn restricted. Low rate of interest. Fixed‐ lump sum is deposited for specified time. Withdrawal only after maturity. Highest interest provided
• Granting loans and advances‐(fund based activity) Outright loans/bank loans Discounting bills of exchange Overdraft Cash credit
• Agency function‐(fee based activity) Collection of cheque, bills etc Realizing dividend interest house rent etc Payment of insurance premium, taxes, telephone bills etc Buying and selling of securities, bonds etc Remittance facilities like bank draft Serves as guarantor
• General utility function (fee based activity): Issuing circular notes, draft, travelers cheque Receiving valuables for safe custody Underwriting securities Advice on financial matters Issuing letter of credit Providing credit information Dealing in foreign exchange Banker’s liability‐ relationship between banker & its consumer is that of a debtor & creditor & thus banks are expected to act in good faith, without negligence. If bank wrongfully refuses to honour cheque than the banker is liable for loss to the consumer. Cheque: An order given by the consumer to make payment of certain amount of money to specified person. It is an unconditional order & negotiable instrument. Types: open cheque: It is also known as bearer cheque & can be presented for payment by any holder at bank counter. It can be transferred by mere delivery. Order cheque: payable only to the person whose name is mentioned. It can be transferred by endorsement. Crossed cheque: payable only through collecting bank with two transversal parallel lines drawn across its face with with or without any word. Payment only to the account of the person named therein General crossing: drawing two parallel transversal lines with or without words on the face of the cheque Special crossing: when the name of banker is mentioned within the two parallel lines with or without any other word.
Significance/advantage of crossing: • Prevents payment to a wrong person. • Facilitates tracing of the recipient of the money. • Assures safety in circulation.
Significance of word ‘Not negotiable’ It does not restricts the transferability but the transferee of the cheque will not get the better title than that of a transferor Dishonoring of cheque
1. When balance is insufficient in customers cheque 2. When the cheque is stale 3. When money deposited cannot be withdrawn on demand. Eg. In case of fixed
deposit 4. When account is in joint name and cheque is not signed by all 5. When customer has countermanded payment of the cheque 6. When the banker has received prohibitory order from court 7. When the cheque is post dated 8. When customer has informed about the loss of cheque to the bank 9. When notice of customer’s death, insolvency has been received 10. When customer closes account before the cheque is presented
Opening of bank account • Form to be filled • Specimen signature and photograph‐in case of co. signatures of
authorized persons,in case of partnership—signatures of partners • References • Initial deposit • Issue of pass book
• Enclosure of documents—addresss proof, Age proof In case of company‐‐‐copy of memorandum , AOA, balance sheet, auditors report, In case of partnership – partnership deed Types of banks Central bank Commercial bank Exchange bank Industrial bank Agricultural bank Cooperative bank
COMMUNICATION Meaning: Process of transmitting or exchanging of information message, ideas opinion or emotions between two or more persons to obtain elicit action and feedback. Characteristics: brief explanation for each
1. Two or more persons. 2. Continuous process 3. Pervasive function 4. Flows in all direction 5. It involves several media 6. It is a two way process 7. It includes feedback 8. It establishes in the personal relationship
Elements: Sender, Receiver, Message, encoding, decoding, channel, feedback Objectives: brief explanation for each
1. To exchange information 2. To motivate employees 3. To educate people 4. To change people’s attitude, behaviors and action 5. To fill up gaps between levels of decisions and levels of implementation 6. To obtain feedback 7. To promote efficiency
Importance: brief explanation for each 1. Acts as Basis of decision making and planning 2. Efficient and smooth running of an enterprise 3. Facilitates Co‐ordination 4. Motivation and morale building 5. Creates mutual trust, harmony, peace and confidence 6. Democratic Management/ Effective Leadership. 7. Binds People together/Public relations
Principles:
1. Principle of Clarity: a great deal of clarity is needed about objectives of communication and message to be communicated. It must contain clarity of expression and clarity of thought.
2. Principle of Completeness: In business communication, completeness of facts is absolutely necessary. Checking of who, what, when, where, why and how helps to make message complete
3. Principle of Conciseness: message should be as brief as possible without affecting the appropriateness, clarity, correctness, completeness or courtesy
4. Principle of Correctness: business communication should give correct facts in correct language at correct time and in correct style.
5. Principle of Courtesy: message must show friendly behavior towards others. This can be done by prompt answers, apologize sincerely for an omission, thank generously for a favour and avoid irritating expressions
6. Principle of Consideration: sender must show consideration for the receiver. This can be done by emphasizing on the positive and pleasant facts, imparting integrity to messages.
7. Principle of correct channel: communicator must know which medium will prove to be the most suitable for this purpose.
Need: brief explanation for each 1. Huge Business Organizations 2. Globalizations and MNC’s establishments 3. Public relations 4. Govt. formalities & contacts with other stakeholders 5. Co‐ordination 6. Job prospect
TYPES/Channels
1. FORMAL COMMUNICATION: Flow of information which follows officially established chain of command. It can be upward or downward or horizontal and diognal. Advantages:
1. Orderly and systematic 2. Possible to fix responsibility 3. Facilitates functions 4. No distortion of Message 5. Facilitates co‐ordination
Disadvantages/Limitations: 1. Time consuming 2. Lack of personal involvement 3. Rigidity
2. INFORMAL COMMUNICATION: Grapevine / bush telegraph:‐ Flow of Communication through social interactions or inter personal relations without following chain of command. Advantages:
1. Serves social needs 2. Faster or less time taking 3. Provides emotional relief 4. Provides Psychological and moral support 5. Helps to know employees attitudes and reactions.
Disadvantages: 1. Great chance of distortion 2. Leads to rumors 3. Erratic and unsystematic 4. Difficult tracing the source 5. Chances of leakage Sl. No.
Basis Formal Informal
1 Meaning Following chain of command
Independent off the official line of command
2 Speed Slow Fast3 Nature Well planned, systematic
and authorized Unplanned, erratic, unauthorized
4 Flexibility Rigid Flexible5 Content Work related matters Work related or social
matters 6 Accuracy Accurate Often distorted 7 Method Usually written Usually verbal
3. VERTICAL COMMUNICATION : Communication which takes place between persons occupying superior and subordinate positions in organization hierarchy. It may be upward or Downward. (a.) Downward Communication: Which takes placer from higher level to lower level
M.D. Manager Departmental head employees. This is to communicate plans, policies, rules, procedures, orders, instructions. Advantages:
1. Basis of supervision of communication 2. Helps in explaining plans & policies 3.
Disadvantages: 1. Looses the very objective of communication 2. May be distorted
(b.) Upward Communication : Flow of information from lower levels (subordinates) to higher level
: Flow of information from lower levels (subordinates) to higher level
(Superiors). This is to communicate Reports, suggestions, appeal etc. Workers Supervisor Factory Manager Departmental head G.M. M.D.
Advantages: 1. Provide s feedback 2. Creates confidence and trust in superiors
3. Reveals what employees think of org.and mgt. Disadvantages:
1. Prone to distortion 2. It is caused by status differences
4. HORIZONTAL COMMUNICATION: flow of information between two or more persons holding equal ranks in the same or different departments. This is done to co‐ordinate the activities of different departments. This is done to Co‐ordinate activities of different departments and to resolve interrelated problem of different departments. Purchase Manager Sales Manager
Merits: 1. Facilitates co‐operation and co‐ordination 2. Resolves problem of wastage of time, money, labour and materials.
Demerits: 1. Differences in opinion, approach and vision 2. Inter group rivalry becomes potential conflicts
DIAGONAL COMMUNICATION: Transmission of information between persons holding different ranks in different departments.
Cost Accountant Sales Representative
Merits: 1. Speed up the flow 2. Must at times (inseparable)
Demerits:
1. Creates confusion and conflict 2. Contradicts unity of command
METHODS OF COMMUNICATION: (Media)
Written Communication: Flow of communication in black and white i.e. in written form. It includes letters, notices, reports, manuals etc.
Advantages: 1. Facilitates Verification
2. Ensures Uniformity 3. Permanent Record 4. Economical for lengthy messages 5. Message can be transmitted to large no. of people at same time.
Disadvantages: 1. Time consuming 2. Lacks personal touch 3. Secrecy difficult 4. Immediate feedback not possible
Suitability: 1. When message is lengthy 2. When reliable record for future reference is to be maintained 3. When information is to be sent to large no. of people at same time 4. When specific instructions are to be given and it is necessary to fix
responsibility 5. When information is to be retained for repeated use in future
Verbal Communication / Oral: Transmission of message is verbally or spoken words. It includes direct personal talk, direct collective talks, And Telephonic etc.
Advantages: 1. Permits clarifications and doubts 2. Faster and saves time 3. Secrecy maintained 4. Gives personal touch 5. Permits immediate feedback
Disadvantages: 1. Less reliable 2. No verification 3. No record for future 4. Greater chance of distraction 5. Not for length messages
Suitability: 1. When time available is less 2. When prompt and quick reaction is required 3. To instruct or counseling of subordinates is required 4. When problems are to be discussed in groups 5. When dealing with trade unions
Sl. No.
Basis Written Verbal
1 Forms Letters, notices etc. Meetings, interview etc.2 Meaning Flow of message in black
and white Flow of message in spoken words
3 Effectiveness Less as lacks personal touch
More, has personal touch
4 Time More and expensive Less and economical 5 Secrecy Lack Ensures6 Record Provides No evidence 7 Flexible Less, Rigid more8 Feedback Spot not possible Prompt possible
Gestural Communication: Communication through body language. It includes silence, shaking of hands etc. It is useful in inter‐personal communication and supplements oral communication. BARRIERS TO COMMUNICTION brief explanation for each
1. Physical barriers 2. Personal barriers 3. Semantic barriers 4. Status barriers 5. Inattentiveness
6. Premature evaluation OVER COMING BARRIERS: brief explanation for each
1. Well drafted Message 2. Appropriate Language 3. Control over emotions 4. Two‐way communication 5. Open door policy 6. Selecting effective communication channel
TOOLS IN COMMUNICTION: brief explanation for each 1. Cellular Phone (Mobile) 2. Electronics mail (e‐mail) 3. Telex and Fax 4. Video conferencing 5. Internet surfing (e‐marketing, e‐commerce) 6. Audio and computer conferencing.
MARKETING
PRODUCT ORIENTED/TRADITIONAL CONCEPT: Performance of those marketing activities that directs the flow of goods or/and services from producers to consumers or users Factory‐‐‐‐‐ products‐‐‐‐‐selling and promotion‐‐‐‐‐‐profits through sales volume CONSUMER ORIENTED MODERN CONCEPT: process of discovering and translating consumer need into goods or /and services and to create exchanges with potential consumers and users that satisfy customers and organizational objective. Target market‐‐‐‐discovery of idea‐‐‐‐ integrating marketing‐‐‐‐‐profits through customer satisfaction Features:
1. It is customer oriented 2. It is an integrated approach as harmonizes various departments 3. An ongoing programme of marketing research is necessary 4. It requires marketing planning and control 5. It starts from discovery of idea and ends after customer satisfaction
Sl. No.
Basis Marketing (Modern Concept)
Selling ( Traditional concept)
1 Meaning Performance of those marketing activities that directs the flow of goods or/and services from producers to consumers or users
Process of discovering and translating consumer need into goods or /and services and to create exchanges with potential consumers and users that satisfy customers and organizational objective.
2 Nature Aims at achieving organization goals through satisfaction of customers
Promotional efforts
3 Orientation Consumer oriented Product oriented 4 Begging Begins before production
and ends after customer Begins after production ends with sale
satisfaction5 Objective Profit through consumer
satisfaction Profit through sales volume
6 Scope Wide Narrow OBJECTIVES: brief explanation for each
1. To Secure customer satisfaction 2. To bring organization integration & co‐ordination 3. To earn profit 4. To serve the society 5. To enhance goodwill or Promote reputation
IMPORTANCE: brief explanation for each 1. Source of revenue 2. Foundation of all Business activities 3. Satisfaction of consumer needs 4. Imprudent of standard of living 5. Employment opportunities 6. Development of nation 7. Basis of decision‐Making
FUNCTIONS: Exchange functions
1. Buying and Assembling: procurement of raw materials, components and finished goods through inspection, by sample, by description and by grade. advantages 1. It assists in production through purchase of raw materials. 2. It facilitates traders for fulfilling requirement of consumers Assembling involves collection of goods already purchased from different sources at one common place. advantages 1. Reduces cost of transportation and handling. 2. Permits large scale selling. 3. Reduces warehousing cost. 4. Facilitates standardization and grading. 5. Regularizes supplies
2. Selling & Distribution: process of finding customers, creating demand and transferring the goods for value or money. It includes negotiating terms for sale, sales forecasting, choice of channel of distribution etc.
Physical functions 3. Transportation: Physical means of carrying goods from one place to another.
advantages 1. Removes barriers of distance. 2. Helps to stabilize prices
4. Storage or warehousing: Holding and preservation of goods from the time of production to time of consumption. advantages 1. Creates time utility. 2. Equalizes demand and supply
Facilitating functions 5. Advertising: from chapter 6. Sales Promotion: from chapter 7. Salesmanship: from chapter 8. Branding & Trade mark: process of assigning name, symbol, etc to a product
to differentiate it from other products. advantages 1. Helps to create loyalty to the product. 2. Gives separate identity to products. Trademark is the registered brand. advantages 1. It protects product from imitations
9. Standardizing and grading : Process of setting up basic measures or standards to which products must conform. It reflects features of products in terms of design, weight, colour, etc. advantages 1. Fetch better price to sellers. 2. Easily valued and price fluctuations are reduced Grading is the process of sorting products into well defined standards. advantages 1. Enables to direct the goods towards the market best suited.
2. Facilitates trade as buying can be done by grade. 10. Market research : Systematic and scientific investigation of all marketing
activities to find answers to various marketing problems. It includes gathering, recording and analyzing of data to facilitate decision making through trade journals, consumer associations, wholesalers and retailers. advantages 1. Potential demand for a product can be estimated. 2. Competitive strength and brand image can be judged. 3. New market can be developed for sale. 4. Necessary improvements can be made in product designing; package etc. 5. discovery of unsatisfied needs can be established.
11. Packing and packaging & labeling : Packing refers to wrapping, crating or compressing into appropriate containers for protection and convenient handling during storage and transportation. advantages 1. Handling of goods easier.
2. Protect goods from damage during transportation. Packaging refers to designing of case, container etc. for making products convenient. Protective, economical and attractive for customers. advantages 1. Means of self advertising. 2. Increases durability of product and helps to attracts the attention of
customers. Labeling refers to putting information about product on packages. 1. Indicates brand, grade, quality, etc. carry instructions for customers.
12. Pricing : Process of fixing the price or money value of a product. It is influenced by‐cost of production, degree of competition, nature of product, policies of firm etc. advantages 1. Satisfies customers. 2. Yields profit
13. Product planning and development : Designing and developing the right type of products.
advantages 1. Offers maximum satisfaction to consumers. 2. Introduction of new products. 3. Improvement of existing products. 4. Dropping of unprofitable items.
14. Risk taking: Financial risks inherent in the ownership of goods held for sale in anticipation of demand. It arises due to changes in demand, fall in prices, spoilage in storage etc. advantages 1. Protects the business men against many risks like loss due to theft,
dishonesty of employees etc. 2. develops the risk taking ability.
SALES PROMOTION Meaning: those marketing activities other than personal selling, advertising and publicity that stimulates consumer purchasing and dealer effectiveness with various non current selling efforts not in an ordinary routine. It includes displays, discounts, shows and exhibitions etc. Features
1. It consists of non‐recurring promotion efforts 2. It comprises non‐routine activities 3. It covers short term incentive schemes 4. It is directed at both customers and dealers 5. It seeks to achieve immediate increase in sales
Objectives 1. To stimulate demand 2. To stablise sales 3. To secure response in desired manner 4. To maintain relations 5. To facilitates marketing control
Function/role 1. Stimulates demand 2. Stabilizes sales 3. Secures response in desired manner 4. Maintains relations 5. Facilitates marketing control METHODS
1. Dealer’s sales promotion methods 1. Advertising allowances: Free display materials, banners, signboards are
distributed to dealers 2. Free training and seminars: train dealers in the techniques of operating and
handling the product 3. Special trade discounts: free deals and discounts are allowed to dealers for
boosting sales during off season. 4. Displays and demonstration: special displays are held in dealer shops 5. Incentives: bonuses, expensive prizes and gifts are offered to encourage
dealers to take specific interest so as to increase their product sales. Prize contests may be organized to promote sales
2. Customer’s sales promotion methods 1. Free samples 2. Coupons 3. Prize contest 4. Exchange offer 5. Premium or prizes 6. Clearance sales or discounts 7. Fairs and exhibitions 8. Trading stamps
Salesmanship (Personal Selling)
Meaning: ‐ It is the marketing activity which involves direct and personal contact of the seller or his representatives with prospective buyer. It is face to face persuasive communication between seller and buyer to achieve marketing objectives. Features:
1. It is a face to face and oral communication 2. It is an art of persuasion that conveys human needs into demand 3. It is both science and an art 4. In involves contact with limited buyers 5. It requires flexible approach
Objectives:‐
• To handle objections and queries
• To provided feedback
• To explore hidden wants
• To promote sales
• To educate customers. Importance:‐ To consumers
• Provides knowledge to customers
• Assists in selecting products
• It communicates grievances and suggestions of consumers to producers
• It enables consumers to get quality products To businessmen/dealers
• Helps in Sales and profits
• Helps to face cut‐throat competition
• Provides valuable feedbacks
• Build Goodwill
• Locates prospective customers and creates demand To society
• Stimulates consumption and accelerate production
• Creates employment opportunity
• Helps to raise standard of living
• Generates revenue for government
• It is the basis of commerce Steps:‐
• Locating customers
• Pre sale preparation • Sales presentation • Convincing customers • Sale • Additional sale
AIDCAM_ attention, interest, desire, convincing customers, action and more sales
Qualities:‐ • Physical attribute – Sound health , Cheerful disposition • Mental attribute – Aptitude, patience • Social attribute – Sincere & courteous , Tact & confidence • Vocational attribute – Leadership, optimism • Technical–knowledge of product, of customers, of company, of competitors
and of selling techniques ADVERTISING
Meaning ‐ Any paid form of non‐personal presentation and promotion of ideas, goods and services, by an identified sponsor. Features:‐
• Paid form • Non‐personal presentation • Identified sponsor • Can be written, oral or visual • Can be done by various media
Objectives:‐ brief explanation for each • To create demand • To widen market • To build goodwill • To overcome completion • To educate customers • To assist sales persons • To introduce new product
Importance: ‐ To Manufactures‐ • Steady demand (Minimizes seasonal fluctuation) • Higher sales volume • Good will creation • Supports sales men • Introduction of new products
To Consumers ‐ • Educates customers • Fair prices • Improves quality • Convenience
• Unproduced new products To Dealers –
• By creating awareness of advertised products • By Providing ready market • By reducing sales efforts • By encouraging repeated buying of advertised goods • Increases sales volume
To Society – • Generates employment • Standard of living • Encourages research and development • Supports press / media • Nation development
Function – brief explanation for each • Creates demand • Eliminates middlemen • Improves good will • Competition strategy • Introduction of new products • Supports sales men
Demerits / Disadvantages – brief explanation for each • Price • Artificial leaving • Deceptive advertising • Growth of monopolies • Unethical • Changes, preferences without demand • Wastage of national recourse
basis Advertising Sales man shipmeaning Any paid form of non‐
personal presentation and promotion of ideas, goods and services, by an identified sponsor
It is the marketing activity which involves direct and personal contact of the seller or his representatives with prospective buyer
Cost and time Less costly and less time consuming
more
flexibility Less , common message More, specific message feedback Not available immediately Immediate feedback objective To create demand To make salescoverage Mass selling technique Individual selling technique
Advertising Media (Different forms) media newspap
er magazine Direct mail radio televisio
n outdoor
forms press Press, journal
Catalogues,brochures
Audio
Audio & Visual, films
Muralposters
meaning Advertising done through printing
Advertising done through printing
Advertisement through letters etc. to residences of customers
Advertisement through spoken words
Short advertising films made and shown
Advertisement in forms of bill‐boards, electric signs at public places
Circulation
wide limited Very limited
wide limited local
Life short Long Long Very short Very short
Longest
Cost Moderate
High Moderate to High
Higher Higher Moderately high
Timeliness
Use of current events possible
Lack of timeliness, and absence of news‐value
Maximum timeliness, selection of right message and time
Limited timeliness
Timeliness at a higher cost
Little timeliness
Selectivity
Regional and linguist selectivity
Higher selectivity
Higher selectivity
Same as in news papers
Local selectivity
Local selectivity
Audience
Limited to the literate
Limited in scope
Very limited
Universal appeal
Limited to local people who own TV and go to cinema
Limited to local population
Flexibility
High Low Highest Limited Higher High
Repetitive value
Daily repetition possible
Weekly, fortnightly or monthly repetition same audience
Depends on frequency of mailings
Frequent repetition possible
Repetition in every show but not to the same audience
Prospect sees it whenever he or she passes by it
secrecy No secrecy
No secrecy Complete secrecy
No secrecy due to universal appeal
No secrecy possible
No secrecy maintained
effectiveness
Effective in locating prospects and supporting sales force
Effective for technical goods and consumer durables
Most effective due to personal touch undivided attention and full explanation
Not every effective because of short life, short message and short memory
Very effective due to combination of sound and picture
High memorizing value
suitability
Suitable for goods having wide market
Suitable for specialty products
Suitable for products with well defined market
Very suitable for articles of daily use
Most appropriate for goods of local consumption
Very suitable for popularizing a brand
basis Advertising Sales promotionmeaning Any paid form of non‐
personal presentation and promotion of ideas, goods and services, by an identified sponsor
Those marketing activities other than personal selling, advertising and publicity that stimulates consumer purchasing and dealer effectiveness with various non current selling efforts not in an ordinary routine.
regularity Repetitive and routine Non‐Repetitive and non‐routinetechniques Cinema, hoardings etc. Free samples, contests etc necessity Essential and basic
ingredient of marketing Additional and supplementary ingredient
control By media By companyfocus Inform, persuade and
remind customers Supplements advertising and personal selling
Type of Advertising:
1. On the basis of purpose Persuasive advertising: advertising intended to persuade customers to buy the product or services of the advertiser. It describes its superiority over competitive products. Ex. Surf excel Informative advertising: advertising to make consumers of the existence of certain products or services and their basic properties. Ex. Reduce fuel expenditure by PCRA
2. On the basis of sponsorship Competitive advertising: advertisement on individual basis in order to increase their individual shares in the market. Ex. Soft drinks Collective advertising: when producers of different brands of the same product jointly sponsor advertising of the product. Ex. Buy wool carrying wool mark as trade mark
Advertising theme/appeal: central idea intended to trigger desired action from customers. It is heart of advertising copy. Theme of comfort: the appeal to customer is that use of the product will make life comfortable. Theme of prestige: possession of such items will provide distinctive status and a sense of pride Theme of health: use of such items will bring good health. Usually taken for food products or drugs. Theme of beauty: this instincts appeal to young men and women, usually taken for cosmetics. Theme of fear: this theme is used for insurance, safety values etc Theme of affection: this is used to advertise products meant for children, friends etc. Code of advertising practice ASCI‐advertising standards council of India has formulated code of conducts to check misleading advertisements which are as follows:
1. Should not offend against morality and religious susceptibilities of people 2. No advertisement should be permitted which is against any provision of the
constitution of India 3. No advertisement should be permitted which would adversely affect friendly
relations with foreign states. 4. No advertisement should be permitted which will tend to incite people to
crime 5. No advertisement should be permitted for betting tips and guide books 6. Advertisers or their agents must be prepared to produce evidence to
substantiate any claim or illustrations 7. Advertisements should not contain disparaging reference to another product
or services
8. Visual and verbal representation of actual and comparative prices and costs must be accurate.
Sl. No.
Basis Advertisement Publicity
1 Scope Wide Narrow2 Meaning Paid form of publicity Non‐paid form of advertising3 Sponsor Identified sponsor May or may not have
identified sponsor 4 Control Sponsor exercises direct
control over length and frequency of message
Control lies with media
5 Approach Limited information Greater versatility than advertisement
Advertising Media – Factors affecting
• Nature of product • Extent of Market • Objective of advertisement • Cost • Media used by competitors • Type of audience
Scientific advertising: ‐ Well planned, organized, co‐ordinate and controlled advertising based on factors, likely to affect the success of business and promote its sales effectively and economically. Advertising copy: advertisement which advertiser wants to convey. Copy writers prepare advertising copy. Advertising Agency: ‐ Meaning: specialized service organization which plans, designs and executes advertising campaigns for and on behalf of its clients in return for a fee or commission. E.g. Lintas, clarion Organization structure Account management group: planning and controlling advertising campaign Creative department: designing and preparing the advertisement Production department: selection of model, shooting and picture is done to produce advertisement Media department: selection of appropriate medium for transmitting message economically and effectively Marketing department: merchandising and public relation activities Research department: marketing research and data maintenance Administrative department: office work including correspondence, financial and accounting
Functions: brief explanation for each 1. Creating advertisement 2. Producing advertisement 3. Placing 4. Market research 5. Expert advice 6. Publicity Advantages: 1. Provides expert and specialized advice 2. Better quality advertisements 3. Timely presentation of advertisements due to close association with media
owners 4. Helps in allocation of advertising funds efficiently 5. Various services like‐ package designing, market research etc.
Marketing Mix: ‐ Arrangement of various marketing activities in systematic manner so as to achieve marketing objectives. Promotional Mix: ‐ Blending various sales activities like product planning & development, personal selling, advertising, sales promotion etc. in proper proportion so as to produce co‐ordinates sales program is known as Promotional Mix. It helps to accomplish selling objectives Media Mix: ‐ Selection of particulars advertising medium or two or more advertising media to accomplish advertising objectives. Transit advertising: advertisement painted on metal sheets which are fixed on buses, railways or other moving vehicles. It is a form of outdoor advertising