Partners can determine their mutual rights and duties by a contract called a partnership deed. The partnership deed determines aspects of general administration, distribution of work among partners, the extent of share in profits, etc. Such a deed can be expressly made or implied by a course of dealing. The Rights of partner are specified in the Indian Partnership Act, 1932.

Rights of Partner:

Right to participate in business: 

Each partner in a partnership has the right to take part in the business proceeding. But this right is subject to a contract to the contrary. However, this right may be waived by a partner himself. Partners can curtail this right to allow only some of them to contribute to the functioning of the business if the partnership deed states so.

If a particular partner’s management power is interfered with or he has been wrongfully prevented from participating in the partnership business, the Court of Law can intervene under such circumstances.  The Court can, and will, restrain the other partner from doing so by injunction. Other remedies for such partner include a suit for dissolution, a suit for accounts without seeking dissolution. This provisions of the law will be applicable unless there is no existing contract to the contrary among the partners.

Right to be Consulted:

In case of a difference of any sorts arises between the partners of a firm concerning the business of the firm and is not very important for the business, it shall be decided by the views of the majority among the partners. Every partner in the firm shall have the right to express his opinion before the decision is made. However, there can be no change in the nature of business of the firm without the consent of all the partners involved.

Right to Inspect Books of Accounts:

Every partner (active or sleeping) has a right to have access to and to inspect and copy any of the books of accounts of the firm and take a copy of the same if required. However, this right must be exercised in a bonafide manner. This right can be exercised either by the partner himself or by his authorized agent. Other partners cannot object to the inspection of books by the partner or the agent of a partner unless they have a reasonable ground for believing that the trade secrets might be leaked out.

Right to Share Profit:

Every partner has a right to share profits, equally unless otherwise mentioned, in the partnership deed. At the same time, the partners are equally liable to all the losses sustained by the firm unless otherwise agreed upon as per the partnership agreement. If there is no agreement about the profit or loss in the partnership deed, then it can be presumed that the share of profit is equal and the burden of proving that the shares are unequal, will lie on the party alleging the same.

Right to Oppose Entry of New Partner:

All the partners of a partnership firm have the right to prevent the introduction of a new partner in the firm. No new partner can be admitted into a partnership without the consent of all partners. They have the right to object such admission unless there is an express contract allowing such introduction.

Right to Get Interest on Capital:

In a general rule, no interest is payable to the partners because it is assumed that, the partner is not a creditor of the firm but an adventurer. However, if it is allowed by an express or implied agreement or by the custom of trade, a partner or by any special statutory provision can charge interest on capital.  The following points must be ensured before a partner can be entitled to interest on the capital brought by the partner in the business. If it is allowed by an express or implied agreement or by the custom of trade, a partner can charge interest on capital. In such a case also, interest shall be paid only out of profits.

Right to Get Indemnified:

All the partners of the firm have the right to be repaid by the firm in respect of the payments made and the liabilities incurred by him in the ordinary and proper conduct of the business of the firm. This also includes the performance of an act in an emergency for protecting the firm from a loss. They can claim indemnity from each other for these decisions. Such decisions must be taken in situations of emergency and should be of such nature that an ordinarily prudent person would resort to under similar conditions.

Right to Get Remuneration:

Generally, no partner of the firm is entitled to receive any remuneration along with his share in the profits of the business by the firm as a result of taking part in the business of the firm. But such remuneration may be allowed by an express agreement between the partners. Where it is customary to pay remuneration to a partner for conducting the business of the partnership firm, the partner may claim it even in the absence of a contract for the payment of the same. It is common practice for partners to agree that a managing partner will receive over and above his share, salary or commission for the efforts that he will take while conducting the business of the firm.

Right to Get Interest on Advances:

A partner has a right to get interest at rate 6 percent per annum on advances he has made in addition to the amount of capital to the firm. It is to be noted that while the interest on capital account ceases to run on dissolution, the interest on advances keeps running even after dissolution and up to the date of payment. As per the Indian Partnership Act, 1932, the advance by the partner is regarded as loans which should bear interest while the capital interest takes an interest only when there is an agreement to this effect.

Right to Retire:

Every partner of a partnership firm has the right to withdraw from the business. A partner can retire from the partnership with the consent of all the partners, or as per the agreement between the partners, or in case of a partnership- at-will, by giving prior notice to the other partners regarding the intention of his retirement.

Right not to be Expelled:

Every partner has a right not to be expelled from the firm unless there is a clause in the partnership agreement that gives power to the majority of the partners to expel him in good faith.

Right of Outgoing Partner to Carry on a Competing Business:

Outgoing partners cannot be restricted to carry on a competing business as they are not bound by the partnership agreement.  The partner may even advertise such activity but has to do so without using the firm’s name or representing himself as carrying on the business of the firm or soliciting the clients who were dealing with the firm before the partner ceased to be a part of the partnership firm. However, he may agree with the partners that he will not carry on any competing business.

Right of Outgoing Partner to Share Subsequent Profits:

If a partner has died or ceased to be a partner and the existing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate (legal heir), the outgoing partner or his estate has, at his or his representative’s option, the right to such share of profit made since he ceased to be a partner.  It is attributable to the use of the share of the ceased partner of the property of the firm. The outgoing partner or his estate has right to get their proportionate share of the profit and interest at 6 per cent per annum on the amount of the partner’s share in the property of the firm.

Right to Dissolve the Firm:

A partner of a partnership firm has the right to dissolve the partnership with the consent of all the other partners. However, where the partnership is at will, the firm may be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm.

Right to the Use of the Partnership Property

In the absence of any contract to the contrary, each partner is presumed to have an equal share in the property of the partnership and is entitled to have them held and used only for the purpose of the business. Partners should not use it as their own property. When at any point of time, a partner uses the property of the business firm to his own benefit either directly or indirectly, the profits thus earned are accountable to the firm.

Right to Have No Liability before Joining the Firm:

Unless there is a contract to the contrary, the new partner will not have any liability for any act of the firm done before he becomes a partner.

Power in an Emergency

As per the Indian Partnership Act, a partner is vested with the powers to initiate action to safeguard the firm from loss.

Previous Topic: Types of Partnership

Next Topic: Cooperative Society

Management > General Management > Forms of Business Organizations > Rights of Partners

The post Rights of Partner in Partnership appeared first on The Fact Factor.

The cooperative societies are classified on the basis of the nature of their operations. The types of cooperative societies are as follows:

Consumer’s Cooperative Societies:

They are the oldest form of cooperatives. The consumer cooperative societies are formed to protect the interests of consumers. The members comprise of consumers of a particular area desirous of obtaining good quality products and daily necessary commodities at reasonable prices. The aim of such societies is not to maximize the profit but to provide services to the consumers. The society aims at eliminating middlemen to achieve economy in operations. It purchases goods in bulk directly from the wholesalers and sells goods to the members, thereby eliminating the middlemen. They also ensure a steady supply of goods to members. Profits, if any, are distributed on the basis of either their capital contributions to the society in the form of a dividend. There are Primary societies at the local level, Central or wholesale societies at the district level, State Consumer Co-operative Federation at the State level and National Co-operative Consumer Federation at the National level.

Sahakari Bhandar one of the largest chain of consumer cooperative society stores in India.

Producer’s Cooperative Societies:

These societies are set up to protect the interest of small producers and artisans. The members comprise of producers (farmers, land owners, fishermen, milk producers, etc.) desirous of procuring inputs (raw materials, components, tools, and equipment) for production of goods to meet the demands of consumers and sell their output (finished goods). The society aims to fight against the big capitalists and enhance the bargaining power of the small producers. Profits among the members are generally distributed on the basis of their contributions to the total pool of goods produced or sold by the society. Such societies perform several activities like procuring, processing, marketing, and distributing their own products. This helps in lower costs and strains in each area with a mutual benefit to each producer. AMUL started as milk producers cooperative society.

Marketing Cooperative Societies:

Such societies are established to help small producers in selling their products and ensuring a steady market for their output. The members consist of producers who wish to obtain reasonable prices for their output. Their aim is to protect producers from being exploited by the middlemen. The society aims to eliminate middlemen and improve the competitive position of its members by securing a favourable market for the products. It pools the output of individual members and performs marketing functions like transportation, warehousing, packaging, advertising, etc., to sell the output at the best possible price. The sale proceeds are distributed among the members according to their contribution to the pool. They also provide credit, storage facilities, information about market price, demand and supply, etc.  Profits are distributed according to each member’s contribution to the pool of output in the form of a dividend. Marketing Co-operatives are especially suitable for the marketing of agricultural products. The National Agricul­tural Cooperative Marketing Federation (NAFED) is an example of a marketing cooperative in India.

Farmer’s Cooperative Societies:

These are voluntary associations of small farmers who join together to obtain the economies of large scale farming. Due to financial constraint and smaller land holding, such farmers are no able to use modern tools, machinery, and methods of agriculture. In the case of co-operative farming societies, land holdings of members are consolidated, modern methods of cultivation adopted and good quality of seeds and fertilizers are used. Since the purchase of seeds and fertilizers and the hiring of equipment is done in a centralized and bulk manner, the costs are lower.  The aim of such societies is to gain the benefits of large scale farming and increase productivity. This helps not only in improving the yield and returns to the farmers but also solves the problems associated with the farming on fragmented landholdings.

Credit Cooperative Societies:

Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members comprise of persons who seek financial help in the form of loans. The formalities are much simpler when compared to availing of a bank loan. Credit cooperatives are found in both urban and rural areas.  The aim of such societies is to protect the members from the exploitation of lenders who charge high rates of interest on loans. Such societies provide loans to members out of the amounts collected as capital and deposits from the members and charge low rates of interest. The co-operative credit societies are of two types. They are:

• Agricultural credit societies and
• Nonagricultural credit societies.

Agricultural credit societies are formed in rural areas to provide loans to agriculturists and rural artisans. Nonagricultural credit societies are formed in urban areas to provide loans to people living in urban or semi-urban areas. In India, co-operative credit societies operate in a three-tier structure. At the lowest tier are the Primary Agricultural Co-operative Credit Societies which are organized at the village level. At the second tier are the Central Co-operative Banks organized at the district level. At the uppermost tier are the State Co-operative banks organized at the State level.

In India, several national federations of cooperative societies have been formed. National Cooperative Consumers Federation, National Federation of Cooperative Sugar Factories, National Agricultural Cooperative Marketing Federation, National Cooperative Dairy Federation, National Cooperative Housing Federation, All India State Cooperative Banks Federation are some examples.

Cooperative Housing Societies:

Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs. The aim is to solve the housing problems of the members by constructing houses and giving the option of paying in installments. These societies purchase land, obtain government approvals, develop the site, construct flats, allot them to members or simply provide plots to members on which the members themselves can construct the houses as per their choice. The Stamp duty to be paid when the property is purchased from a co-operative society is waived off. Therefore members are benefited by the lower cost of the property. They also arrange loans from financial institutions and government agencies. 

Management > General Management > Forms of Business Organizations > Types of Cooperative Societies

The post Types of Cooperative Societies appeared first on The Fact Factor.

Cooperation is the process of groups of individuals working or acting together for common, mutual, or some underlying benefit or purpose, as opposed to working in competition for selfish benefit. The cooperative society is a voluntary association of persons, who join together with the motive of the welfare of the members. The aim of a cooperative society is to protect the economic interests of members in the face of possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits. The working of a cooperative society is governed by the Cooperative Societies Act, 1912.

Features of Cooperative Society:

• Easy Formation: The process of setting up a cooperative society is simple.  A voluntary consent of at least ten adult persons is required to form a cooperative society. The capital of a society is raised from its members through the issue of shares. The society acquires a distinct legal identity after its registration. Document required for registration of a cooperative society is easy to compile and comply.
• Voluntary Membership: This is the first cardinal principle of co-operation. The cooperative society itself is a voluntary association, hence the membership of a cooperative society is voluntary. A person is free to join a cooperative society, and can also leave anytime as per his desire. There cannot be any compulsion for him to join or quit a society. As per the procedure, a member is required to serve a notice before leaving the society, there is no compulsion to remain a member. Membership is open to all, irrespective of their religion, caste, and gender. On leaving the society, shares are not transferable to other persons, although they are automatically transmitted to heirs on the death of a member. The right of membership, however, is not absolute. This can be denied if it is likely to be prejudicial to the interests or the existence of society. Similarly, any member can be expelled by the managing committee for similar reasons, and this will not be considered a breach of the principle of open membership.
• Legal Status: The setting up and working of a cooperative society is governed by the Cooperative Societies Act, 1912. Registration of a cooperative society is compulsory. Hence a cooperative society has a separate identity and it is distinct from its members. Due to separate identity, the society can enter into contracts and hold property in its name, sue and be sued by others. Similarly, it is not affected by the entry or exit of its members.
• Finances: The finances of a cooperative society are contributed by members through the purchase of shares. Generally, cooperative societies are formed by the weaker and poorer sections of the society, their capital collections are meager. The government also lends financial support in the form of loans from the State and Central Co-operative Banks under some schemes.
• Limited Liability: The liability of the members of a cooperative society is limited to the extent of the amount contributed by them as capital. This defines the maximum risk that a member can be asked to bear.
• Control: Co-operation is democracy in action.  In a cooperative society, the power to take decisions lies in the hands of an elected managing committee. Since most of the co-operatives operate on a local scale, the meetings of the members are well attended, and this puts the managing committee under a lot of close supervision.  The right to vote, the concept of one man one vote and no proxies at the time of election give the members a chance to choose the members who will constitute the managing committee and this lends the cooperative society a democratic character. Again, to strengthen democracy, some issues are not decided by a bare majority alone, but by two- thirds or three-fourths majority. Regular training programs and frequent meetings of all members, managing committee, and subcommittees are conducted so that the maximum number of members is to be associated.
• Service Motive: The main objectives of the formation of a cooperative society are mutual help and welfare and not of maximizing profit. This motive of service dominates its working and provide useful services like credit, consumption goods, or input resources to its members and society. If any surplus is generated as a result of its operations, it is distributed amongst the members as a dividend in conformity with the bye-laws of the society.
• Education and Training: Many cooperative societies arrange education and training programs for its members with the purpose of developing co-operation into a well-organized movement.

Merits of Cooperative Society:

• Easy Formation: The process of setting up a cooperative society is simple compared to the formation of a company.  A voluntary consent of at least ten adult persons is required to form a cooperative society. The capital of a society is raised from its members through the issue of shares. The society acquires a distinct legal identity after its registration. Document required for registration of a cooperative society is easy to compile and comply. Similarly, it does not involve long and complicated legal formalities.
• Equality in Voting Status: The principles of ‘right to vote’ and ‘one man one vote’ govern the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights. This gives a democratic nature to the cooperative society.
• Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, therefore, safe from being used to repay business debts. This defines the maximum risk that a member can be asked to bear.
• Stable Existence: As a cooperative society has a separate identity, it is not affected by the entry or exit of its members. Death, bankruptcy or insanity of the members do not affect the continuity of a cooperative society. A society, therefore, operates unaffected by any change in the membership. Thus cooperative society has perpetual existence.
• Economy in Operations: The members generally offer honorary services to the society. As the focus is on the elimination of middlemen, this helps in reducing costs. The customers or producers themselves are members of the society, and hence the risk of bad debts is lower.
• Tax Advantage: Unlike other forms of business ownership, a co­operative society is exempted from income-tax and surcharge on its earnings up to a certain limit. Besides, it is also exempted from stamp duty and registration fee.
• Government Assistance: Cooperation is an effective tool of socio-economic change and it exemplifies the idea of democracy. Hence, the Government offers a number of grants, loans and financial assistance to the cooperative societies to make their working more effective.

Demerits of Cooperative Society:

• Limited Resources: The finances of a cooperative society are contributed by members through the purchase of shares. Generally, cooperative societies are formed by the weaker and poorer sections of the society, their capital collections are meager. Therefore the funds available with the co-operatives are limited. The low rate of dividend offered on investment and one man one vote principle act as a deterrent in attracting membership or more capital from the members. Therefore the funds available with the co-operatives are limited.
• Inefficiency in Management: Co-operative societies are managed by the managing committee elected by its members. The members of the managing committee who offer honorary services may not have the required qualification, skill or experience.  They may not able to give time to the organization. Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries. The lack of managerial skill results in inefficient management, poor functioning and difficulty in achieving objectives.
• Lack of Secrecy: A cooperative society has to submit its annual reports and accounts with the Registrar of Cooperative Societies.  Similarly, open discussions in the meetings of members as well as disclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy about the operations of a cooperative society.
• Government Control: Co-operative societies are subject to excessive government regulation which affects their autonomy and flexibility. In return of the privileges offered by the government, cooperative societies have to comply with several rules and regulations related to auditing of accounts, submission of accounts, etc. Interference in the functioning of the cooperative organization through the control exercised by the state cooperative departments also negatively affects its freedom of operation. Adhering to various regulations takes up much of the management’s time and effort.
• Differences of Opinion: Cooperative societies are based on the principles of co-operation and therefore harmony among members is important. Internal quarrels arising as a result of contrary viewpoints may lead to difficulties in decision making. Personal interests may start to dominate the welfare motive and the benefit of other members may take a backseat if the personal gain is given preference by certain members. Such disputes affect the functioning of the co-operative societies.
• Lack of Interest: The members of the managing committee who offer honorary services may not have much interest in the functioning. The paid office-bearers of cooperative societies do not take an interest in the functioning of societies due to the absence of profit motive. Thus there is no motivation and accountability. As a result, the cooperatives become inactive and ultimately cease to work.
• Corruption: Due to the lack of profit motive there is a possibility of fraud and corruption in management. If the members of the managing committee are corrupt they can swindle the funds of the co-operative society. There may be misappropriations of funds by the committee members for their personal gains. Many cooperative societies closed down because of corruption and misuse of funds.

Previous Topic: Rights of Partner

Next Topic: Types of Cooperative Societies

Management > General Management > Forms of Business Organizations > Cooperative Society

The post Cooperative Society appeared first on The Fact Factor.

Types of Partnership on the Basis of Duration:

On the basis of the duration of the partnership, the types of partnership are a partnership at will, a partnership for a fixed term, and a particular partnership.

Partnership at will:

If a partnership deed does not include a clause about the expiration of such a partnership, then the partnership is called a partnership at will.  This type of partnership exists at the will of the partners. It can continue as long as the partners want and are terminated when any partner gives notice of withdrawal from partnership to the firm. According to Section 7 of the Indian Partnership Act 1932, there are two conditions to be fulfilled for a partnership to be a partnership at will. These are

• There is no agreement about a fixed period for the existence of a partnership.
• No provision with regards to the determination of a partnership

Partnership for a Fixed Term:

If the partners agree on the duration of the partnership during the formation of the partnership, then the partnership so created is called a partnership for a fixed duration of time. After the expiration of such a duration, the partnership ends. If a partnership was entered into a fixed term and continues to operate beyond this term it becomes a partnership at will from the expiration of the specified term.

Particular Partnership:

A partnership can be formed for carrying on continuous business, or it can be formed for one particular venture or undertaking. A partnership formed for the accomplishment of a particular project say construction of a building is called a particular partnership. It dissolves automatically when the purpose for which it was formed is fulfilled. However, the partners can come to an agreement to continue the said partnership.

Types of Partnership on the Basis of Liability:

On the basis of the duration of the liability, the types of partnership are a general partnership, limited partnership, and Limited liability partnership.

General Partnership:

When the purpose of the formation of the partnership is to carry out the business, in general, it is said to be a general partnership. In general partnership, the liability of partners is unlimited and joint. Unlike a particular partnership in a general partnership the scope of the business to be carried out is not defined.  The partners enjoy the right to participate in the management of the firm and their acts are binding on each other as well as on the firm. Registration of the firm is optional. The existence of the firm is affected by the death, lunacy, insolvency or retirement of the partners.

Limited Partnership:

In a limited partnership, the liability of at least one partner (general partner) is unlimited whereas the rest may have limited liability. Such a partnership does not get terminated with the death, lunacy or insolvency of the limited partners. In many cases, the general partner manages the business and the limited partners do not participate in the day-to-day management of the business and their acts do not bind the firm or the other partners. The liability of limited partners is limited to their investment in the business. Thus the limited partners are merely investors (passive partners) who do not wish to participate in the partnership other than to provide capital and to receive a share of the profits. Limited partners can’t take partnership losses off their income tax return if they don’t have other income to offset it. Registration of such partnership is compulsory. This form of partnership was not permitted in India earlier. The permission to form partnership firms with limited liability has been granted after the introduction of New Small Enterprise Policy in 1991. The idea behind such a move has been to enable the partnership firms to attract equity capital from friends and relatives of small scale entrepreneurs who were earlier reluctant to help, due to the existence of unlimited liability clause in the partnership form of business.

Limited Liability Partnerships:

A limited liability partnership (LLP) is different from a limited partnership or a general partnership but is closer to a limited liability company (LLC). An LLP gives limited liability to every owner, which means that each partner is protected from financial and legal mistakes of the other partners. Thus Limited liability partnerships allow for a partnership structure where each partner’s liabilities are limited to the amount he puts into the business. In LLP, if the partnership fails, creditors cannot go after a partner’s personal assets or income. Any partner of LLP involved in the wrongful or negligent act is personally liable, but other partners are protected from liability for those acts. Thus, an LLP has some elements of both partnerships and corporations.

Professionals like law firms, accounting firms, and wealth managers, who use LLPs tend to rely heavily on reputation. Most LLPs are created and managed by a group of professionals who have a lot of experience and clients between them. By pooling resources, and sharing office space, employees, the partners lower the costs of doing business while increasing the capacity for growth of the LLP. Due to the sharing of resources and employee the profit margin of LLP increases.

Advantages of LLP:

• It gives the benefits of limited liability of a company and the flexibility of a partnership. Hence LLP is called a hybrid between a company and a partnership.
• It can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
• It is a separate legal entity, is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP.
• In LLP no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
• Mutual rights and duties of the partners within an LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be.

Previous Topic: Types of Partners

Next Topic: Rights of Partner

Management > General Management > Forms of Business Organizations > Types of Partnerships

The post Types of Partnership appeared first on The Fact Factor.

The sole proprietorship form of the organization suffers from certain limitations such as limited resources, limited skill, and unlimited liability. To expand business more capital, more time and managerial skills are required. There may involve more risk. This disadvantage of sole proprietorship call for more persons come together, with different knowledge, skills, and financial resources and start a partnership firm.

L H Haney defines partnership as it is the relation between persons competent to make contracts who have agreed to carry on a lawful business in common with a view to private gain.

According to J. L. Hanson, “a partnership is a form of business organization in which two or more persons up to a maximum of twenty join together to undertake some form of business activity”. 

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

The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”

The entity formed by such partnership is collectively called a “Partnership Firm” and all the individual members are called the “Partners” of the firm. The name under which partnership business is carried on is called ‘Firm Name’. A partnership business solely rests on utmost good faith and trust among the partners.

Feature of Partnership:

• Formation: The partnership form of business organization is governed by the Indian Partnership Act, 1932. It comes into existence through a legal agreement wherein the terms and conditions governing the relationship among the partners, sharing of profits and losses and the manner of conducting the business are specified. Thus a contract between the partners must be created to form a partnership firm. A partnership firm is not a separate legal entity. The business carried out by partnership firm must be lawful and should have the motive of profit. If two or more people come together for charitable or social purposes, then it does not constitute a partnership.
• Liability:
• The partners of a firm have unlimited liability. The partners are all individually and jointly liable for the firm and the payment of all debts.  Personal assets may be used for repaying debts in case the business assets are insufficient. All the partners are responsible for the debts jointly and they contribute in proportion to their share in the business and as such are liable to that extent. Individually too, each partner can be held responsible for repaying the debts of the business. If the money is recovered from a single partner, then such a partner can later recover from other partners an amount of money equivalent to the shares in liability defined as per the partnership agreement and has the capacity to sue other partners.
• Risk Bearing: The partners bear the risks involved in running a business as a team. The reward comes in the form of profits which are shared by the partners in an agreed ratio. However, they also share losses in the same ratio in the event of the firm incurring losses.
• Continuity:
• A partnership cannot carry out in perpetuity.  The death, retirement, bankruptcy, insolvency or insanity of any partner can bring an end to the business. In such a case, the remaining partners may if they so desire to continue the business on the basis of a new agreement. Similarly, the partnership of a father cannot be inherited by his son. If all the other partners agree, he can be added on as a new partner.
• Restrictions on Transfer of Share: No partner can transfer his share to any outside person without seeking the consent of all other partners. Even the partnership of a father cannot be inherited by his son. If all the other partners agree, he can be added on as a new partner.
• Decision making and control: The partners share amongst themselves the responsibility of decision making and control of day to day activities. Decisions are generally taken with mutual consent. Thus, the activities of a partnership firm are managed through the joint efforts of all the partners.
• Principal-Agent Relationship: The partnership firm may be carried on by all partners or any of them acting for all. While dealing with the firm’s transactions, each partner is entitled to represent the firm and other partners. In this way, a partner is an agent as well as the principal of the firm and agent of the other partners.
• Membership: The Partnership Act itself is silent on this issue, but the Companies Act, 2013 provides clarity about the membership in a partnership firm. The minimum number of members needed to start a partnership firm is two, while the maximum number, in case of the banking industry, is ten and in case of other businesses, it is twenty. If the number of partners increases beyond the prescribed limit, then it will become an illegal entity or association.

Merits of Partnership:

• Ease of Formation and Closure: Partnership is a contractual agreement between the partners to run a firm. Hence, it relatively eases to form due to minimal legal requirements. The registration of a partnership is desirable, but not obligatory. Hence a partnership firm can be formed easily by putting an agreement between the prospective partners into place whereby they agree to carry out the business of the firm and share risks. Closure of the firm is also an easy task.
• Balanced Decision Making and Judgment: As it is said that combined abilities and judgment, when properly integrated produce a result that becomes appreciably greater than the sum of all individual capacities. As there are more than one owners in partnership, all the partners may be involved in decision making. The partners can oversee different functions according to their areas of expertise. Because an individual is not forced to handle different activities, this not only reduces the burden of work but also leads to fewer errors in judgments. This gives the firm advantage of collective expertise for taking better decisions. As a consequence, decisions are likely to be more balanced.
• More Funds: The greatest advantage of partnership over sole proprietorship is that the partnership enjoys large resources than a sole proprietorship.  In a partnership, the capital is contributed by a number of partners. The partnership firms can also arrange money from the outside sources. This makes it possible to raise a larger amount of funds as compared to a sole proprietor and undertake additional operations when needed. Thus the advantage of economies of scale can be taken.
• Sharing of Risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden, and stress on individual partners.
• Secrecy: Such a firm is not legally required to publish its accounts and submit its reports. Hence it is able to maintain the confidentiality of information relating to its operations.

Demerits of Partnership:

• Unlimited liability: The liability of the partners for the debts of the business is unlimited. Partners are liable to repay debts even from their personal resources in case the business assets are not sufficient to meet its debts. The liability of partners is both joint and several which may prove to be a drawback for those partners who have greater personal wealth. They will have to repay the entire debt in case the other partners are unable to do so.
• Limited resources: There is a restriction on the number of partners in a firm. There can be a minimum two and maximum of 20 partners in a partnership firm. In order to secure harmony amongst the members of the firm, generally, the number of partners is kept smaller than allowed by the law.  Hence contribution in terms of capital investment is usually not sufficient to support large scale business operations. As a result, partnership firms face problems in expansion beyond a certain size.
• Possibility of Disharmony and Conflicts: Partnership is run by a group of persons wherein decision-making authority is shared. The difference in opinion on some issues may lead to disputes between partners and may lead to disharmony and lack of management in the business. Decisions of one partner are binding on other partners. Thus an unwise decision by anyone partner may result in financial ruin for all others. When differences arise, each partner tries to blame the other partner about his dishonest dealings and working against the interest of the firm. This may result in disruption and ultimate dissolution of the firm.
• Transferability: Absent an agreement to the contrary, the default rule in partnerships is that one person’s stake cannot be transferred to another without prior consent from all of the remaining partners. This inflexibility is especially undesirable when the parties have existing disagreements. In case a partner desires to leave the firm, this can result in termination of partnership as there is a restriction on the transfer of ownership. This restricts the liquidity of his investment.
• Lack of Continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any partner. The partnership may come to end if a single partner expresses his desire to dissolve the partnership or to get it dissolved by the order of the court on account of the wrongful act of one or more other partners. The lack of trust among the partners may lead to the dissolution of the firm. It may result in a lack of continuity. However, the remaining partners can enter into a fresh agreement and continue to run the business.
• Unclear Authority: In partnership, there may be a potential vagueness of each person’s responsibilities, both to those in the partnership and to those outside it. A traditional partnership is an equal stake with equal authority distributed between the members. There is no hierarchy of authority. To third parties, this means that all partners act on behalf of the partnership, can enter into contracts, and by the same token, bind the partnership into unwanted agreements.
• Lack of Public Confidence: A partnership firm is not subject to any regulation and no legal formation and functioning.  It is not legally required to publish its financial reports or make other related information public. Hence it is difficult for any member of the public to ascertain the true financial status of a partnership firm. Similarly, the public listen to too many stories regarding frauds by partners and dissolution of partnership firms. Hence the confidence of the public in partnership firms is generally low.
• Burden of Implied Authority: Each partner is an agent for the firm and for remaining partners. When anyone partner who is lazy, negligent or creates some blunder, guilty of corrupt practices or playing foul, then other partners are equally liable financially and without limit for his act. It puts a heavy financial burden on remaining partners which lead to the closure of the firm.
• Liability After Retirement: In this form of business organization, the retiring partner continues to be liable for all acts done when he was a partner. Retiring partner must give a public notice of his retirement otherwise he would be held responsible for the acts of other partners even after retirement.

Conclusion:

From the above discussion, we can conclude that the partnership form of organization is suitable where the size of the business is relatively small and the capital requirements are not high. In spite of inherent limitations, the partnership still might prove to be a superior option for many due to its flexibility and informality. This form of business organization is most popular among retail traders, lawyers, chartered accountants, doctors, solicitors, and estate agents.

Previous Topic: Joint Hindu Family Business (HUF)

Next Topic: Types of Partners

Management > General Management > Forms of Business Organizations > Partnership

The post Partnership appeared first on The Fact Factor.

The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”  In partnership, two or more people work together and share the profits from the business or profession. Each member is called a partner. It is to be noted that it is not always that all partners participate in the work or profits or even liabilities of the firm equally. Depending on the extent of their liability, or their participation in the firm they are classified into different types. Thus a partnership firm can have different types of partners with different roles and liabilities. An understanding of these types is important for a clear understanding of their rights and responsibilities.

Types of Partners:

Active or Managing Partner:

An active partner is one who contributes capital, participates in the management of the firm, shares its profits and losses, and is liable to an unlimited extent to the creditors of the firm. These partners take actual part in carrying out the business of the firm on behalf of other partners. i.e. he acts as an agent of all the other partners on a day to day basis and with regards to all ordinary business of the firm. If the active partner wants to retire, he has to give public notice of his retirement; otherwise, he will continue to be liable for the acts of the firm even after his retirement.

Sleeping or Dormant Partner:

Partners who do not take part in the day to day activities of the business are called sleeping partners. A sleeping partner, however, contributes capital to the firm, shares its profits and losses, and has unlimited liability. He is bound by the action of all the other partners. If such a dormant partner retires he need not give public notice of the same. He will not be liable to third parties for the acts done after his retirement.

Secret Partner:

A secret partner is one whose association with the firm is unknown to the general public. Other than this distinct feature, in all other aspects, he is like the rest of the partners. He contributes to the capital of the firm, takes part in the management, shares its profits and losses, and has unlimited liability towards the creditors.

Nominal Partner:

A nominal partner is also known as Ostensible Partner. A nominal partner is one who allows the use of his/her name by a firm but does not contribute to its capital. He does not have any real or significant interest in the partnership. He does not take an active part in managing the firm, does not share its profit or losses but the nominal partner will be liable to outsiders and third parties for acts done by any other partners. A nominal partner is admitted with the purpose of taking advantage of his name or reputation.

It should be clear that a nominal partner is not the same as a sleeping partner, because a sleeping partner contributes capital and shares profits and losses, but is not known to the outsiders. Similarly, the nominal partner does not contribute capital and does not share profit and losses, but is known to outsiders.

Partner by Estoppel or Holding Out:

A person is considered a partner by estoppel if, through his/her own initiative, actions, conduct or behaviour, he/she gives an impression to others that he/she is a partner of the firm, then such a partner cannot deny that he is not a partner. Such partners are held liable for the debts of the firm because in the eyes of the third party they are considered partners, even though they do not contribute capital or take part in its management. He becomes partner by estoppel or partner by holding out.

There are two essential conditions for the principle of holding out:

1. the person to be held out must have made the representation, by words written or spoken or by conduct, that he was a partner; and
2. the other party must prove that he had knowledge of the representation and acted on it, for instance, gave the credit.

Partner in Profits Only:

When a partner agrees with the others that he would only share the profits of the firm and would not be liable for its losses, then he is known as a partner in profits only. Even when dealing with third parties he will be liable for all acts of profit only, he will share none of the liabilities.

Minor Partner:

A partnership is based on a legal contract between two or more persons who agree to share the profits or losses of a business carried on by them.  According to the Indian Contract Act, 1872, a minor (a person who has not attained the age of 18 years) cannot be a partner of a firm. The agreement with minor is void ab initio. But under section 30 of the Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of partnership’, with the consent of all partners. He will share profits of the firm but his liability for the losses will be limited to his share in the firm. He can have access to the accounts of the firm for purposes of inspection and copy. He will not be eligible to take an active part in the management of the firm. He cannot file a suit against the partners of the firm for his share of profit and property as long as he remains with the firm. His liability in the firm will be limited to the extent of his share in the firm, and his private property cannot be attached by creditors.

On his attaining majority, he has to decide within six months whether he will become a regular partner or withdraw from the partnership. He must then declare his decision via public notice. So whether he continues as a partner or decides to retire, in both cases he will have to issue a public notice, failing which he will be treated to have decided to continue as partner, and he becomes personally liable like other partners for all the debts and obligations of the firm from the date of his admission to its benefits (and not from the date of his attaining the age of majority). He also becomes entitled to file a suit against other partners for his share of profit and property.

Outgoing Partner:

Outgoing partner is a partner who retires voluntarily without causing a dissolution of the firm. Outgoing partner has to give public notice about his voluntary retirement from the partnership. An outgoing partner is liable for all debts and obligations as are incurred before his retirement. 

Previous Topic: Partnership

Next Topic Types of Partnership

Management > General Management > Forms of Business Organizations > Types of Partners

The post Types of Partners appeared first on The Fact Factor.

When starting a business or is interested in expanding an existing one, an important decision relates to the choice of the form of organization. By weighing the advantages and disadvantages of each form of organization, the most appropriate form is determined. The decision of selection also depends on the form which satisfies the need of the entrepreneur. Various forms of business organizations from which one can choose the right one include:

• Sole proprietorship,
• Joint Hindu family business,
• Partnership,
• Cooperative societies, and
• Joint-stock company.

Joint Hindu Family Business

Joint Hindu family business is the oldest and specific form of business organization found only in India. It refers to a form of organization wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). It is governed by the Hindu Law, which is one of the several religious laws (personal laws) prevalent in India. The firm is created by the operation of law. It does not have any separate and distinct legal entity from that of its members. When two or more families agree to live and work together, throw their resources and labour with joint-stock and share profits and the losses together, then this family is known as composite family.

The basis of membership in the business is birth in a particular family. Any person born into the family (boy or girl) up to the next coming three successive generations can be members of the business. The business is controlled by the head of the family who is the eldest member and is called karta or ‘Manager’. Karta is the main person responsible for business and finances. All members have equal ownership right over the property of an ancestor and they are known as co-parceners.

There are two systems which govern membership in the family business, viz., Dayabhaga and Mitakashara systems. Dayabhaga system prevails in West Bengal and Assam and allows both the male and female members of the family to be co-parceners. Mitakashara system, on the other hand, prevails all over India except West Bengal and allows only the male members to be co-parceners in the business.

Features of Joint Hindu family business:

• Formation: For a joint Hindu family business, there should be at least two members in the family. There must be some assets, business or ancestral property that they have inherited or will eventually inherit. The HUF business does not require any agreement or documentation as membership is by birth. It is governed by the Hindu Succession Act, 1956.
• Liability: The liability of all members except the karta is limited to their share of the co-coparcenary property of the business. Thus their liability is limited. The karta, being the head of the family, however, has unlimited liability. Thus the Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and amount of debt can be recovered from his separate property.
• Control: The control of the family business lies with the karta. He takes all the decisions and is authorized to manage the business. His decisions are binding on the other members. He may choose to confer with the co-parceners about various decisions, but his decision can be independent. His actions will be final and also legally binding. The members of the family have full faith and confidence in Karta. Only Karta is entitled to deal with outsiders. But other members can deal with outsiders only with the permission of Karta. Only Karta has the implied authority to contract debts and pledge the credit and property of the firm for the ordinary purpose of the businesses of the firm.
• Continuity: The HUF business can be continued perpetually.  The business continues even after the death, lunacy or insolvency of the karta or any other member, as the next eldest member takes up the position of karta, leaving the business stable. The business can, however, be terminated (dissolved) with the mutual consent of all the members.  Any single member has no right to get the business dissolved.
• Minor Members: The inclusion of an individual into the business occurs due to birth in a Hindu Undivided Family. Hence, minors can also be members of the business. But they will enjoy only the benefits of the organization.

Merits of Joint Hindu Family Business:

• Easy to Start: It is very easy to start the Joint Hindu Family Business. No legal formalities are required to be faced, such as registration. It requires no agreement.
• Effective control and Prompt Decision Making:
• Like any other organization, there is scope for disagreements and conflicts. But since the karta has absolute decision making power. it will lead to prompt, flexible and effective decision making. The. This avoids conflicts among members as no member can interfere with his right of karta to take a decision. The prompt decisions help the business to grab opportunities.
• Secrecy: In Joint Hindu Family Business, all the decisions are taken by the ‘Karta’ himself. He is in a position to keep all the affairs to himself and maintains perfect secrecy in all matters.
• Continuity: The HUF business can be continued perpetually.  The death, lunacy or insolvency of the karta or any member will not affect the business as the next eldest member will then take up the position. Hence, operations are not terminated and continuity of business is not threatened.
• Limited Liability of Members:
• The liability of all the co-parceners except the karta is limited to their share in the business, and consequently, their risk is well-defined and precise. This keeps the balance between power and responsibility.
• Freedom Regarding Selection of Business: The Karta is at freedom to select any business of his choice. He has not to depend on others.
• Increased Loyalty and Cooperation: Since the business is run by the members are relatives and members of the same family, there is a greater sense of loyalty and cooperation towards one other. Pride in the growth of the business is linked to the achievements of the family. The trust among members is also there and leads to overall cooperation.

Demerits of Joint Hindu Family Business:

• Limited Resources: The capital is limited only up to the resources of one family. No outside members other than family members can be introduced to the HUF.  Thus the joint Hindu family business faces the problem of limited capital as it depends mainly on ancestral property. This limits the scope for expansion of the business. The Karta cannot take advantage of economies of large size due to limited finance.
• Unlimited Liability of Karta: The karta has power but he is burdened not only with the responsibility of decision making and management of the business, but also suffers from the disadvantage of having unlimited liability. His personal property can be used to repay business debts. This may make him overly cautious and timid in his business dealings. Another factor is that he may even be held responsible for the actions of other members.
• Dominance of Karta: The karta individually manages the business and takes all the decisions which may at times not be acceptable to other members. This may cause conflict amongst them and may even lead to breaking down of the family unit.
• Limited Managerial Skills: The position of karta is given to the senior-most family member, whether he is the most qualified or not is not taken into consideration. Since the karta cannot be an expert in all areas of management and he may not be able to perform all managerial functions because of the limitation of time and energy. the business may suffer as a result of his unwise decisions. His inability to decide effectively may result in poor profits or even losses for the organization. Due to the limited scale of operations and financial resources, it may not be feasible for HUF to secure the services of experts in different fields like purchasing, production, and marketing.
• Misuse of Power: The karta is the only decision-maker of such organization. No other member can interfere in his management. This may lead to the misuse of power and the Karta may use the power for his personal interest.

The joint Hindu family business is on the decline because of the diminishing number of joint Hindu families in the country.

Previous Topic: Sole Proprietorship

Next Topic: Partnership

Management > General Management > Forms of Business Organizations > Joint Hindu Family Business (HUF)

The post Joint Hindu Family Business (HUF) appeared first on The Fact Factor.

When starting a business or is interested in expanding an existing one, an important decision relates to the choice of the form of organization. By weighing the advantages and disadvantages of each form of organization, the most appropriate form is determined. The decision of selection also depends on the form which satisfies the need of the entrepreneur. Various forms of business organizations from which one can choose the right one include:

• Sole proprietorship,
• Joint Hindu family business,
• Partnership,
• Cooperative societies, and
• Joint-stock company.

In this article, we shall understand the simplest form of the business organization i.e. Sole Proprietorship.

Sole Proprietorship:

A sole proprietorship is the most popular form of business organization which is the most suitable form for small businesses, particularly in their initial years of operation. It is a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. This form of business is particularly common in areas of personalized services such as beauty parlours, hair saloons and a retail shop in a locality.

Features of Sole Proprietorship:

• Less Legal Formalities: It has less legal formalities. It is the form of business organization which does not have a separate law to govern it. It does not require incorporation or registration of any kind. In most of the cases, only a license is required to carry out the desired business. In the absence of any legal provision, it is easy to close down also.
• Unlimited Liabilities: There is no separation between the owner and the business, hence the liabilities of the owner are unlimited. If the business fails to meet its own liabilities, the burden of liabilities falls upon the proprietor to pay them through his personal assets.
• Ease of Management: The owner can make all decisions and carry out his plans without any interference from others.
• Sole Risk Bearer and Profit Recipient: As the owner is investing money and responsible for everyday management of the business, he is the only risk bearer (in case of losses) and profit recipient (in case of profit).
• No Separate Identity: As the business and owner are one and the same, there is no separate identity of the sole proprietorship.
• Continuity of Business: As the owner is responsible for all the activities of the business, the death, retirement, bankruptcy, insanity, imprisonment, etc. will have an effect on the sole proprietorship.
• Maintenance of Secrecy: The owner is not bound by law to publish his business accounts. It enables him to keep all the information related to business operations confidential and maintain secrecy.

Merits of Sole Proprietorship:

• Quick Decision Making: As the owner is the sole decision-maker in the business, he will have complete control of the entire business, this will facilitate quick decisions and freedom to do business according to his wishes. He is only one who is the risk bearer and the profit recipient. This provides a maximum incentive to the sole trader to work hard.
• Ease of Formation and a Closure: This form of business has less legal formalities. It is the form of business organization which does not have a separate law to govern it. It does not require incorporation or registration of any kind. In most of the cases, only a license is required to carry out the desired business. In the absence of any legal provision, it is easy to start and close down also.
• Confidentiality of Information: In this form of business organization there is no separate law to govern it. Thus the owner is not bound by law to publish business’s accounts or any such documents to any members of the public. Thus it enables the owner to keep all the information related to business operations confidential and maintain secrecy which is sometimes important in the business.
• Direct Incentive: The owner derives the maximum incentive from the business. The owner directly reaps the benefits of his efforts as he is the sole recipient of all the profit. So the work he puts into the business is completely reciprocated in incentives. This reciprocality provides a maximum incentive to the sole trader to work hard.
• Sense of Accomplishment: Here the owner is his own boss. Hence there is personal satisfaction and sense of achievement involved in working for oneself. He need not answer anybody because he is answerable to himself. The knowledge that one is responsible for the success. It boosts self-worth and self-respect for the owner.

Demerits of Sole Proprietorship:

• Unlimited liability: One of the biggest limitations of a sole proprietorship is that the owner has unlimited liability. If the business fails, the creditors can recover their dues not merely from the business assets, but also from the personal assets of the proprietor. Thus if the business fails it can wipe out the personal wealth of the owner. A wrong decision or in unforeseen unfavorable circumstance can create a serious financial problem for the sole proprietor. Hence a sole proprietor is less inclined to take risks in the form of innovation or expansion.
• Limited Resources: Resources of a sole proprietor are limited to his personal savings and borrowings from friends and relatives. Thus the capital for the business is limited. Less capital is available for diversification and expansion of the business. Lack of resources is one of the major reasons why the size of the business rarely grows much and generally remains small. Banks and financial institutions are reluctant in lending to proprietorship firms.
• Limited Life of a Business: The life cycle of a sole proprietorship firm is undecided and attached to its owner.  As the owner is responsible for all the activities of the business, the death, retirement, bankruptcy, insanity, imprisonment, etc. will have an effect on the sole proprietorship and can lead to the closure of the business.
• Limited Managerial Ability: A sole proprietor is taking all the decisions in the business and has to perform the responsibility of varied managerial tasks such as planning, purchasing, selling, financing, etc..  He cannot be an expert in all the fields of the business. Due to limited resources, he cannot hire and retain competent and talented people to help him out. This may lead to the business suffering from mismanagement and poor decisions.

Conclusion:

Though sole proprietorship suffers from various shortcomings, many entrepreneurs opt for this form of organization because of its inherent advantages. It has less legal formalities. Decision making is easy. It requires less amount of capital. It is best suited for businesses which are carried out on a small scale and where customers demand personalized services.

Next Topic: Joint Hindu Family Business (HUF)

Management > General Management > Forms of Business Organizations > Sole Proprietorship

The post Sole Proprietorship appeared first on The Fact Factor.

• The process is a series of inter-related functions.
• George R. Terry defines it as a distinct process consisting of planning, organizing, actuating and controlling performed to achieve stated objectives.
• In this perspective, management is creation, operation, and direction of the organization through systematic, coordinated and cooperated efforts of human and machine resources.
• Under this perspective, its functions are planning, organizing, staffing, coordinating and directing to achieve the goal of the organization.
• As a process, management consists of four aspects:
• As a social process – Human resource is an important factor in an organization. It is concerned with developing a healthy relationship among people. It is the duty of the manager to create between people, which is productive and supportive of organizational goals.
• As an integrating process – Men, money, and material are resources of an organization. Manager brings together human, physical, and financial resources so as to achieve the organizational purpose.
• As a continuous process – Management is a never-ending process. It is concerned with constantly identifying the problem and solving them by taking adequate steps. The manager should be innovative and up to date.
• A universal Process – Management is not restricted to corporate offices or boardrooms, but it is applicable everywhere in daily life for e.g. human relations, parenting, education etc.

Management as a Function:

• Management includes a set of duties, responsibilities, and relationships to set up an organization. Some scholars see them as functions to be performed by the manager.
• Using these functions manager can decide objectives, prioritize them, prepare an action plan and expedite it to achieve the goals of the organization.
• As a function, management consists of five aspects:
• Planning – According to KOONTZ, “Planning is deciding in advance – what to do when to do & how to do. It bridges the gap between where we are & where we want to be”. A plan is a future course of actions and it is the basic function of management. Strategic management sets the goals of the organization. Planning chalk out the action plan to achieve these goals. Planning is necessary to ensure proper utilization of human & non-human resources. Planning avoids confusion, uncertainties, risks, wastages etc.
• Organizing – According to Henry Fayol, “To organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”. Organizing is the process by which the physical, financial and human resources are brought together to develop a productive relationship amongst the resources so that the goals of the organization can be achieved. Organizing as a process involves: Identification and classification of activities, assignment, and delegation of duties and creating responsibility and coordination between authority and responsibility.
• Staffing- The main purpose of staffing is to put right man on right job According to Kootz & O’Donnell, “Managerial function of staffing involves manning the organization structure through the proper and effective selection, appraisal & development of personnel to fill the roles designed in the structure”.  Staffing gained importance due to the advancement of technology, increase in size and nature of the business, the complexity of human behaviour etc. Staffing involves manpower planning, recruitment, selection, placement, training and development, remuneration, appraisals, promotions, transfers, layoffs, retrenchment etc.
• Directing – This is a very important function of management because it actuates the organizational methods to work efficiently for achieving the goal of the organization. The direction is an inert-personnel aspect of management which deals directly with influencing, guiding, supervising, motivating sub-ordinate for achieving the goal of the organization. Directing involves supervision (directing and overseeing the work of subordinates), motivation (inspiring and encouraging subordinates through monetary or non-monetary methods), Leadership (manage, influence and guide activities of subordinates) and communication (transferring information, experience, suggestions and opinions from one person to another verbally or written).
• Controlling – According to Koontz & O’Donnell “Controlling is the measurement & correction of performance activities of subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being accomplished”.  According to Theo Haimann, “Controlling is the process of checking whether or not proper progress is being made towards the objectives and goals and acting if necessary, to correct any deviation”.  The purpose of control is to make sure that everything in the organization occurs in accordance with the standards and plans. Controlling involves Establishment of standard performance, measurement of actual performance,  comparison of actual performance with the standards and finding out deviation if any and taking corrective action.

Management as an Activity:

• According to Koontz, “Management is what a manager does”. As management is an activity it can be studied, mastered and practiced. Management as an activity cannot be studied in isolation. The management is an activity because a manager is a person who accomplishes the objectives of the organization by directing and controlling the efforts of others. Management as an activity includes three aspects:
• Informational activities – These activities involve transferring information, experience, suggestions, and opinions from one person to another verbally or in written form. The manager maintains a communication link between the subordinates and superiors. It guarantees the effective functioning of an enterprise.
• Decisional activities – Basically management is decision making. Therefore, managers are continuously involved in decisions of different kinds. These decisions become the basis for the actions of subordinates and associated departments
• Inter-personal activities – The managers have to interact with superiors as well as the subordinates.  He must maintain good relations with them and between them.

Management as a Team:

• Management is a task carried out by a group of people who share the responsibility of guiding and coordinating the efforts of other team members. Managers have the responsibility of guiding and directing their respective teams from the different hierarchical position. Considering a team there are three types of managers
• Patrimonial / Family Manager: Those who have become managers by virtue of their being owners or relatives of the owners of the company.
• Professional Managers: Those who have been appointed on account of their specialized knowledge and qualifications.
• Political Managers / Civil Servants / Military Personel: Those who manage have been appointed by virtue of training and experiences.

Management as a Science:

• Science is a systematic body of knowledge pertaining to a specific field of study that contains general facts which explain a phenomenon. Management satisfies following criteria of science
• Cause & Effect Relationship – Principles and laws of science put cause and effect relationship between various variables. e.g. Under the action of gravity (the cause), the apple falls down (the effect). All the outcome (effects) in management can be explained with reasons (cause) behind it. Similarly, the outcome (effect) can be predicted by studying the action (cause).
• Universally acceptance principles – Principles of science can be applied in all situations, at all time & at all places without any anomalies. E.g. – the law of gravitation which can be applied universally. Some principles of management like the Principle of Unity of Command (one man, one boss) is true everywhere.
• Experimentation & Observation – In science new principles can be discovered, studied and implemented in laboratories on a smaller scale. Observations are made during experimentation. Its merits, demerits, and applications are studied. Then this principle can be applied on a large scale. The Same thing is true for management.
• Test of Validity & Predictability – Validity of scientific principles can be tested at any time or any number of times. Similarly, the principles of management can be verified.

Management as an Art:

• Art has the following characteristics
• Practical Knowledge: Every art requires practical knowledge, therefore, learning of theory is not sufficient. It is very important to know the practical application of theoretical principles. In the management, mere knowledge of management is not essential but to apply effectively so as to achieve organizational goal economically.
• Personal Skill: Every artist has his or her unique style of working or performing. The level of success and quality of performance depends on this uniqueness. Every manager has his own way of managing things based on his knowledge, experience, and personality. This personal skill decides the success of the manager.
• Creativity: Creativity is the basis of art. Using their intuition, imagination, and intelligence they produce something which is unique and may not be present before. Successful manager combines this creativity to combines human and non-human resources in a useful way to achieve desired goals.
• Perfection through practice: Practice makes a man perfect. After achieving success artist never stop practicing. Similarly, managers learn through the method of trial and error initially but by practice becomes perfect in the job of managing.
• Goal-Oriented: Every artist has a clear idea of what he is going to create and achieve. In the same way, the management also directed towards the accomplishment of pre-determined goals.

Management as a Discipline:

• Any branch of knowledge that fulfills the following two requirements is known as a discipline: a) There must be scholars & thinkers who communicate relevant knowledge through research and publications. and b) The knowledge should be formally imparted through education and training programs. Management satisfies both the conditions.

The post Management in Different Perspectives appeared first on The Fact Factor.

• The core meaning of management is the act of managing human, technical and financial resources. The person who performs these tasks is called the manager,
• It can be considered as an organized group (team) effort to achieve the set goals and targets of the organization.
• The various other definitions are as follows

Peter Drucker:

• Peter Drucker in his book “The Principles of Management” defines management as  “It is a multi-purpose organ that manages the business and manages the managers and manages the workers and the work.”. According to him management consists of the interlocking functions of creating corporate policy and organizing, planning, controlling, and directing the organizational resources (Men, Money, and Machines) in order to achieve the objective of that policy.

Harold Koontz:

• It is the art of getting things done through and with people in formally organized groups.

Henry Fayol:

• To manage is to forecast and to plan, to organize, to command, to coordinate and to control.

Mary Cushing Nile:

• It is that which achieves a social objective with the best use of human, material, energy, and time with satisfaction for the participants and the public.

Effectiveness versus Efficiency:

•  For management, it is important to be both effective and efficient. Effectiveness and efficiency are two sides of the same coin. These two aspects need to be balanced and sometimes management has to compromise with the efficiency.  Many times to achieve targets (effectiveness) the efficiency of the system is compromised. 
• It is important for management to achieve goals (effectiveness) with minimum resources i.e.,(optimum efficiency). Generally, high efficiency is associated with high effectiveness which is the aim of all managers. But it is to be noted that undue emphasis on high efficiency without being effective is not desirable.
• Poor management is due to both inefficiency and ineffectiveness

Characteristics of Management:

Management is a Goal-oriented Process:

• Every organization has a set of basic goals which are the basic reason for its existence. These goals should be simple and clearly stated.  
• Management coordinates and leads the efforts of different individuals in the organization towards achieving these goals.
  

Management is all pervasive:

• A process of management is carried out in all enterprises small, medium and large. Governments, schools, hospitals need good management for their optimal performance. It is carried out around the globe in all the countries. Methods may be different but management is required everywhere. The difference in methods depends on political set up, social culture, traditions and history of that region.
  

Management is multidimensional:

• Management is a complex activity it consists of management of work, people, and operations.

Management of work:

• The main aim of the organization is to get work done in the form of manufacturing or service. Management converts this work in terms of achievable goals. These goals are assigned to individuals or team or bath.
• Necessary decisions are made, planning is done, the budgetary allocation is done and responsibilities are finalized. After this responsibility and authority are delegated.

Management of people:

• Human resources or people are the greatest assets of any organization. Automation has reduced the dependence on the human resource but still, people are important factors of any organization. Hence their effective management is necessary.
• During the management of people, the manager has to deal with individual and group of individuals. The people may have different natures, different likes, and dislikes, different behaviours. So managing them is a very difficult task. The manager has to create a rapport with people to achieve the goal of the organization.

Management of operations:

• During manufacturing or providing services, certain operations are to be performed. The flow of input material and the technology at the right time and right place is required for transforming the input into the desired output for consumption.  It involves coordination between man, machine, and money to achieve the goal at minimum cost.

Management is a continuous process:

• The process of management is a series of continuous, composite, but separate functions (planning, organizing,  directing, staffing and controlling). These functions are simultaneously performed by all managers all the time.
• When one goal is achieved another goal is set and thus process continues.

Management is a group activity:

• Every member of the organization has a different purpose for joining the organization. But all of them work together to achieve organizational goal. The achievement of this common organizational goal depends on the teamwork and coordination between these individuals.
• At the same time manager has to see that the personal goals of individuals are also achieved an individual can foresee their growth in the organization. 

Management is a dynamic function:

• Management is not a stagnant process, it has to change and adapt itself as per changing environment which is influenced by the political, cultural and economic factors. Due to advancement in technology the environment changes continuously, hence management has to change and review their strategies as per the change in environment.

Management is an intangible:

• We cannot see the management but we can feel its presence in the organization, through the different processes carried out in the organization. Presence of management can be felt in successful organizations where the goals of the organization are met, targets are achieved, employees are happy and satisfied. Every function of the organization is clearly defined. Necessary responsibility and authority are delegated to the right people at the right level. Thus the function of the organization is smooth without any chaos.

Effective Management or Objectives of Management:

To meet the challenges of changes:

• In the era of Globalisation, Computerization, Privatisation, and entry of multinationals the changes are inevitable. These changes are critical and intense. Hence effective and professional managerial techniques can handle them successfully in order to stay afloat amidst intense competition. Complex nature of modern business can be handled only by scientific, professional and effective managerial techniques. It adapts the organization to changing demand of market/changing needs of societies.

Achievement of Group Goals:

• Organizational goals cannot be achieved individually. It requires several people to come together and work as a group (team) and every member of the group possesses some specialization of doing something to accomplish the task. Manager arranges the resources, integrate them in an effective manner to achieve goals.
• By defining objectives of the organization clearly, there would be no wastage of resources like time, manpower, money and effort. Managers plan to convert disorganized resources of men, machines, money etc. into a useful enterprise. To achieve the group goal these resources are coordinated, directed and controlled.

Optimum Utilization of Resources:

• By defining objectives of the organization clearly, there would be no wastage of resources like time, manpower, money and effort. The manager uses smart ways and converts disorganized resources of men, machines, money etc. into a useful enterprise. This way the productivity of the organization increases.
• Alternate use of idle resources is found

Minimization of Cost:

• Minimization of the cost and maximizing production is one of the ways to increase the profitability of the organization. At the same time, it may help the organization to offer its product at a lower cost to beat the competition.
• The idea of minimization of the cost is minimum input by proper planning and getting maximum output. Physical, human and financial resources are used in such a manner with the best combination to achieve cost reduction.

Survival and Growth:

• In the era of Globalisation, Computerization, Privatisation, entry of multinationals, and Government policy, the changes are inevitable. These changes are critical and intense. Hence effective and professional manager can handle them successfully in order to stay afloat amidst intense competition.
• Complex nature of modern business can be handled only by scientific and professional managerial techniques.

 Sound Organizational Structure:

• Effective management on the basis of clear organizational structure effectively delegates the work and finalize responsibility. Due to smooth and coordinated efforts, no overlapping of efforts takes place.
• Proper organizational structure establishes effective authority & responsibility relationship. Manager fills up various positions with the right persons, having the right skills, training, and qualification.

Generation of Employment:

• Good and innovative management results in the expansion and diversification of the business. It opens many job opportunities for people of society.

Essentials for Prosperity of Society:

•  Efficient management avoids wastage of scarce resources. By generating job it improves the standard of living of the people in the society. Organization comes with new innovative products and researchers which are beneficial for society.

Improvement in Corporate Image:

• Good management results in the quality of products and services. As the corporate image (Goodwill) is directly proportional to the quality, by improvement of quality the corporate image of the organization improves.

Employee Motivation:

• Effective management encourages initiative among its subordinates. It also encourages innovation. Incentives monetary or other improve willingness and efficiency of the employee.

The post Management – Perspective, Objectives and Effectiveness appeared first on The Fact Factor.