Business Studies - Study Material B.com 2017 (Final)

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(A Complete Cell of Commerce Education)

BHU/B.com/B.St/SM Since-2002
CONCEPT OF BUSINESS:-
The term business is derived from the word busy. Thus, business means being busy. However, in a specific
sense, business refers to an occupation in which people regularly engage in activities related to purchase,
production and/ or sale of goods and services with a view to earning profits. The activity may consist of
production or purchase of goods for sale, or exchange of goods or supply of services to satisfy the needs of
other people.
CHARACTERISTICS OF BUSINESS ACTIVITIES:-

1. An economic activity: business is considered to be an economic activity because it is undertaken with
the object of earning money or livelihood and not because of love, affection, sympathy or any other
sentimental reason.
2. Production or procurement of goods and services: Before goods are offered to people for
consumption, these must be either produced or procured by business enterprises. Thus, every business
enterprises either manufactures the goods it deals in or it acquires them from producers, to be further
sold to consumers or users.
3. Sales or exchange of goods and services: directly or indirectly. Business involves transfer exchange of
goods and services for value. If goods are produced not for purpose of sale but say for personal
consumption. It cannot be called a business activity.
4. Dealing in goods and services on a regular basis: business involves dealing in goods or services on a
regular basis. One single transaction of sale or purchase, therefore, does not constitute business.
5. Profit earning: one of the main purposes of business is to earn income survive for long without earning
profit.
6. Uncertainty of return: uncertainty of return refers to the lack of knowledge relating to the amount of
money that the business is going to earn in a given period.
7. Elements of risk: risk is the uncertainty associated with en exposure to loss. It is caused by unfavorable
or undesirable event the risk related with certain factors like changes in consumer tastes and fashion,
changes in methods of production, strike or lockout in the work place.
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COMPARISON OF BUSINESS, PROFESSION AND EMPLOYMENT:-
Basic Business Profession Employment
Mode of Entrepreneurs Membership of a appointment letter and

establishment decision and other professional body and service agreement
legal formalities, if certificate of practice
necessary
Nature of Provision of goods Rendering of personalized, Performing work as per

work and service to the expert services service contract or rules of
public services
Qualifications No minimum Qualifications, expertise Qualification and training as

qualification is and training in a specific prescribed by the employer
necessary field as prescribed by the
professional body is a
must
Reward or Profit or earned Professional fee Salary or wages

return
Capital Capital investment Limited capital needed for No capital required

investment required as per size establishment
and nature of
business
Risk Profits are uncertain Fee is generally regular Fixed and regular pay; no or
and irregular; risk is and certain: some risk little risk
present
Transfer of Transfer possible Not possible No possible

interest with some formalities
Code of No code of conduct is Professional code of Norms of behavior laid

conduct prescribed conduct is to be followed down by the employer are to
be followed
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BUSINESS ACTIVIES
Industry Commerce
Primary Seconda Tertiary

Industry ry Industry Trade Aids to
Industry Trade
TRNSPOR
Internal External T
Primary Trade Trade
Industry Transpor
Retailers Communica
Export tion
Banking
Genetic
Industry Import Banking
Wholesale and
Communicat r
ion Entrep
Manufacturi oodoto
Insurance
ng Industry
Insurance
Advertising Advertising
Constructiv
e
Industry
INDUSTRY:- Industry refers to an activity which converts raw materials into useful and final products .
These include activities relating to production , processing of goods as well as breeding and raising of
animals.
Industry may be further classified into following categories
1. Primary Industry
2. Secondary Industry
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3. Tertiary Industry
Primary Industry:- includes all those industries which are concerned with extraction of natural resources
and reproduction of living organism. Eg farming ,mining ,lumbering hunting and fishing, cattle breeding
farms, poultry farms, fish hatchery etc.
Secondary Industry makes use of product of primary industry as raw materials and produce finished
production. Eg manufacturing of steel, production of cars etc.
Secondary industry may further divided as Manufacturing Industry which are engage in production of
goods. It may be
(a) Analytical Industry (Oil refinery )
(b) Synthetically Industry (cement industries)
(c) Processing Industry (Sugar industry)
(d) Assembly Industry (computer ,car, television industry)
Construction Industry:- which are involved in the construction of building, dams, bridge ect.
Tertiary Industry is concerned with providing services which facilitate a smooth flow of goods and
services. It helps to primary and secondary industries. It is also known as auxiliary to trade also. Eg.
transport, banking, insurance, warehousing, communication, advertising etc.
COMMERCE :- Commerce refers to all those activities which help directly or indirectly in the distribution
of goods to ultimate consumers. commerce provides link between producers and consumers.
It contains two types of activities as
Trade and Auxiliaries to trade.
Trade- Selling and buying of goods is termed as trade. Trade may be of internal trade or external trade.
Internal trade may be wholesale trade and retail trade.
External trade may be export, import or interpot.
Auxiliaries to trade. The activities which help in smooth flow of trade are known as aids to trade or
auxiliaries to trade. Auxiliaries to trade are as
(a) Transport and communication- help to solve the distance hindrance and provide information about trade
and business.
(b) Banking and Finance- help in providing finance and many banking facilities which are essential for
smooth flow of trade.
(c) Insurance- it reduce the risks associated in business.
(d) Warehousing- it solves time hindrance.
(e) Advertising- it helps in promoting trade and business. It helps to communicate business information with
people.
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Objectives of Business
The businessmen always have multiple objectives. They cannot follow only one objective. All objectives are
important but the important objective of every business is earning profit.
Earning profit is very important and the prime objective of every business but it cannot be the sole or only
objective of business. The business objectives may be classified broadly into three categories. These are:
Economic Objectives
Social Objectives
Human or Individual
Economic Objectives
1) Survival
2) Profit
3) Growth
Social Objectives
1) Supply of Desired Quality of Products
2) Avoidance of Unfair Trade Practices
3) Employment Generation
4) Social Services or Community Service
5) Avoidance of Pollution
Human or Individual Objectives
1) Providing good working conditions
2) Payment of competitive and satisfactory wages and salaries
3) Personal growth and development of employee by imparting training to employees and keep
updating their knowledge
4) Peer recognition and respect by encouraging employees to take initiative and participating in
decision-making
5) Providing special benefits such as housing facility, medical facility, free education.
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FORM OF BUSINESS ORGANIZATION:-

Introduction:- various forms of business organizations from which one can choose the right one include:
a. Sole proprietorship,
b. Joint Hindu family business,
c. Partnership,
d. Cooperative societies, and
e. Joint stock company.
Sole proprietorship:-
Sole proprietorship is a popular form of business organization and is the most suitable form for small
business, especially in their initial years of operation. Sole proprietorship refers to 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 is evident from the term itself. The world sole implies only, and
proprietor refers to owner. Hence, a sole proprietor is the one who is the only owner of a business.
Features:- salient characteristics of the sole proprietorship form of organization.

i. Formation and closer:- hardly any legal formalities are required to start a sole proprietary business, though
in some cases one may require a license. There is no separate law that governs sole proprietorship.
Closure of the business can also be done easily. Thus, there is ease in formation as well as closure of
business.
ii. Liabilities:- sole proprietors have unlimited liability. This implies that the owner is personally responsible
for payment of debts in case the assets of the business are not sufficient to meet all the debts.
iii. Sole risk bearer and profit recipient:- the risk of failure of business is borne all alone by the sole
proprietor.
iv. Control:- the right to run the business and make all decisions lies absolutely with the sole proprietor. He can
carry out his plans without any interference from others.
v. No separate entity:- in the eyes of the law, no distinction is made between the sole trader and his business,
as business does not have an identity separate from the owner. The owner is, therefore, held responsible
for all the activities of the business.
vi. Lack of business continuity:- since the owner and business are one and same entity, death, insanity,
imprisonment, physical aliment or bankruptcy of the sole proprietor will have a direct and deter mental
effect on the business and may even cause closure of the business.
Merits:-
1. Quick decision making
2. Confidentiality of information
3. Director incentive
4. Sense of accomplishment
5. Ease of formation and closure
Limitations
1. Limited resources 2. Limited life of a business concern
3. Unlimited liability 4. Limited managerial ability
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Joint Hindu Family Business:- joint Hindu family business Is a specific form of business organization
found only in India. It is one of the oldest forms of business organisation in the country. It refers to a form of
organisation wherein the business is owned and carried on by the members of the Hindu Undivided family
(HUF). It is governed by the Hindu Law. The business is controlled by the head of the family who is the
eldest member and is called karta. All members have equal ownership right over the property of an ancestor
and they are known as co-parceners. There are two system which govern membership in the family
business. Dayabhaga and Mitakshara systems. Dayabhage system prevails in west Bengal and allows both
the male and female members of the family to be co-parceners. Mitakshara 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: - the following points highlight the essential characteristics of the joint Hindu family business.
a. Formation: - it is governed by the Hindu Succession Act, 1956.
b. Liability:- the liability of all members except the karta is limited to their share of co-parcenery property of
the business.
c. Control:- the control of the family business lies with the karta. He takes all the decisions and is authorized to
manage the business.
d. Continuity:- the business continues even after the death of the karta as the next eldest member takes up the
position of karta, leaving the business stable.
e. Minor members:- the inclusion of an individual into the business occurs due to birth in a Hindu Undivided
family.
Merits :-
a. Effective control:- the karta has absolute decision making power. This avoids conflicts among members
as no one can interfere with his right to decide.
b. Continued business existence:- the death of the karta will not effective the business as the next eldest
member will then taken up the position.
c. 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.
d. Increased loyalty and cooperation:- since the business is run by the members of a family, there is a
greater sense of loyalty towards one other.
Limitation
a. Limited resources b. unlimited liability of karta
c. Dominance of karta
d. Limited managerial skills

since the karta cannot be an expert in all areas of management, the business may suffer as a result of his
unwise decisions.
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Partnership:- 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
Features
a. Formation:- the partnership from 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.
b. Liability:- the partners of a firm have unlimited liability. Personal assets may be used for repaying debts
in case the business assets are insufficient.
c. Risk bearing:- the partners bear the risk 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.
d. Decision making and control:- the partners share amongst themselves the responsibility of decisions
making and control of the day to day activities.
e. Continuity:- partnership is characterized by lack of continuity of business since the death, retirement,
insolvency or insanity of any partner can bring an end to the business.
f. Membership:- the minimum number of members needed to start a partnership firm is two, while the
maximum numbers, in case of banking industry is ten and in case of other businesses it is twenty.
Merits
Ease of formation and closure: - 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.
Balanced decision making:- the partners can oversee different functions according to their areas of
expertise.
More funds:- in a partnership, the capital is contributed by a number of partners. This makes it possible to
raise larger amount of funds.
Sharing of risks:- the risks involved in running a partnership firm are shared by all the partners.
Secrecy:- a partnership firm is not legally required to publish its accounts and submit its reports.
Limitations
a. Unlimited liability
b. Limited resources:- there is a restriction on the number of partners, and hence contribution in terms of
capital investment is usually not sufficient to support large scale business.
c. Possibility of conflicts
d. Lack of continuity
e. Lack of public confidence
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Types of partners
Active 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.
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.
Secret partner:- a secret partner is one whose association with the firm is unknown to the general public.
Nominal 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/she does not take active part in managing the firm, does not share its profit or
losses but is liable, like other partners.
Partner by estoppels:- a person is considered a partner by estoppels if, through his/her own initiative,
conduct or behavior, he /she gives an impression others that he/she is a partner of the firm. 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.
Partner by holding out:- a partner by holding out is a person who though is not a partner in a firm but
knowingly allows himself/ herself to be represented as a partner in a firm. Such a person becomes liable to
outside creditors for repayment of any debts which have been extended to the firm on the basis extended to
the firm on the basis of such representation.
He should immediately issue a denial, clarifying his position that he is not a partner in the firm.
Types of partners
Type Capital Management Share in profits/ Liability

contribution losses
Active partner Contributes Participates in Shares profits/ Unlimited

capital management losses liability
Sleeping or Contributes Does not participate Shares profit/ losses Unlimited

dormant capital in management liability
partner
Secret partner Contributes Participated in Shares profit/ losses Unlimited

capital management, but liability
secretly
Nominal Does not Does not participate Generally does not Unlimited
partner contribute in management shares profits/ liability
capital losses
Partner by Does not Does not participate Does not share Unlimited
estoppels contribute in management profit /losses liability
capital
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Partner by Does not Does not participate Does not share Unlimited
holding out contribute in management profit /losses liability
capital
Types of partnership
# Partnership at will:- this type of partnership exists at the will of the partners. It can continue as long as the
partners want and is terminated.
# Particular partnership:- partnership formed for the accomplishment of a particular project say
construction of a building or an activity to be carried on for a specified time period is called particular
partnership.
# General Partnership: in general partnership, the liability of partners is unlimited and joint. 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.
# Limited partnership:- in limited partnership, the liability of at least one 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.
# Partner Deed:- a partnership is a voluntary association of people who come together for achieving
common objectives. In order to enter into partnership, a clear agreement with respect to the terms,
conditions and all aspects concerning the partners is essential so that there is no misunderstanding later
among the partners. Such an agreement can oral or written. Even though it is not essential to have a written
agreement, it is advisable to have a written agreement as it constitutes an evidence of the conditions agreed
upon.
The partnership deed generally includes the following aspects:-
Name of firm
Nature of business and location of business
Duration of business
Investment made by each partner
Distribution of profits and losses
Duties and obligations of the partners
Salaries and withdrawals of the partners
Terms governing admission, retirement and expulsion of a partner
Interest on capital and interest on drawings
Procedure for dissolution of the firm
Preparation of accounts and their auditing
Method of solving disputes
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Registration:- registration of a partnership firm means the entering of the firms name, along with the
relevant prescribed particulars, in the register of firms kept with the registrar of firms.
It is optional for a partnership firm to get registered. In case a firm does not get registered, it is
deprived of many benefits.
A partner of an unregistered firm cannot file a suit against the firm or other partners,
The firm cannot file a suit against third parties, and
The firm cannot file a case against the partners.
Cooperative Society:- the cooperative society is a voluntary association of persons, who join together
with the motive of welfare of the members. They are driven by the need to protect their economic
interests in the face of possible exploitation at the hands of middlemen obsessed with the desire to
earn greater profits.
Difference between a public company and private company

Basis Public company Private company
Members Minimum -7 Minimum 2

Maximum - unlimited Maximum 50
Minimum numbers of Three Two

directors
Minimum paid up Rs. 5 lakhs Rs. 1 lakh

capital
Index of members Compulsory Not compulsory
Transfer of shares No restriction Restriction on transfer
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Formation of company
Introduction. Formation of company is a complex activity involving completion of a lot of legal
formalities and the
Procedures. To fully understand the process one can divide the formalities into four distinct stages,
which are: (1) promotion; (2) incorporation; (3) subscription of capital; and (4) commencement of
business.
Promotion of company. Promotion is the first stage in the formation of a company. It involves
conceiving a business opportunity and taking an initiative to from a company taking an initiative to
from a company so that practical shape.
PROMOTERS A person or a group of persons or a company proceeds to form a company., then, they
are said to be the promoters of the company. A promoter is said to be the one who undertakes to from a
company with reference to a given project and set it going and who takes the necessary step to
accomplish that purpose.
Functions of a promoters
a) Identification of business opportunity. The first and foremost activity of a promoter is to identify
a business opportunity. The opportunity may be in respect of producing a new product or service or
making some product available through a different channel.
b) Feasibility studies. It may not be feasible or profitable to convert all identified business
opportunities into real projects. The promoters, therefore, undertake detailed feasibility studies to
investigate all aspects.
c)
Technical feasibility. Sometimes an idea may be good but technically not possible to execute.
It may be so because the required raw material or technology is not easily available.
Financial feasibility. Every business activity requires funds. The promoters have to estimate
the fund requirements for the identified business opportunity. If the required outlay for the
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project is so large that it cannot easily be arranged within the available means, the project has to
be given up.
Economic feasibility. Sometimes it so happens that a project is technically viable and
financially feasible but the chance of it being profitable is very little. In such cases as well, the
idea may have to be abandoned. Promoters usually take the help of experts to conduct these
studies.
d) Name approval. Having decided to launch a company, the promoters have to select a name for it
and submit, an application to the registrar of companies of the state company is to be situated, for
its approval.
e) Fixing up signatories to the Memorandum of Association. Promoters have to decide about the
members who will be signing the Memorandum of Association of the proposed company. Usually
the people signing memorandum are also the first directors of the Company.
f) Appointment of professionals. Certain professionals such as mercantile bankers, auditors etc., are
appointed by the promoters to assist them in the preparation of necessary documents which are
required to be with the registrar of companies.
g) Preparation of necessary documents. The promoter takes up steps to prepare certain legal
documents, which have to be submitted under the law, to the registrar of the companies for getting
the company registered. These documents are memorandum of Association, Articles of Association
and consent of directors.
DOCUMENTS REQUIRED TO BE SUBMITTED.
a) Memorandum of Association. Memorandum of Association is the most important document as it

defines the objectives of the company. No company can legally undertake activities that are not
contained in its memorandum of Association.
THE NAME CLAUSE. This clause contains the name of the company with which the
company will be known, the registrar of companies.
REGISTERED OFFICE CLAUSE. This clause contains the name of the state, in which the
registered office of the company is proposed to be situated. The exact address of the registered
office is not required at this stage but the same must be notified to the registrar within thirty
days of the incorporation of the company.
OBJECTS CLAUSE. This is probably the most important clause of the memorandum. It
defines the purpose for which the company is formed. A company Is not legally entitled to
undertake an activity, which is beyond the objects stated.
The main objects. The main objects for which the company is formed are listed in this
sub-clause. It must be observed that an act which is either essential or incidental for the
attainment of the main objects of the company.
Other objects. Objects not included in the main objects could be stated in this sub
clause.
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LIABILITY CLAUSE. This clause limits the liability of the members to the amount unpaid on
the shares owned by them.
CAPITAL CLAUSE. This clause specifies the maximum capital which the company will be
authorized to raise through the issue of shares. The authorized share capital of the proposed
company along with its division into the number of shares having fixed face value is specified
in this clause.
ASSOCIATION CLAUSE. In this clause, the signatories to the memorandum of Association

state their intention to be associated with the company and also give their consent to purchase
qualification shares.
b) ARTICLES OF ASSOCIATION. Articles of Association are the rules regarding internal

management of a company. These rules are subsidiary to the memorandum of Association and
hence, should not contradict or exceed anything stated in the memorandum of Association. A public
limited company may adopt Table A which is a model set of articles given in the companies Act.
c) Consent of proposed Directors. Apart from the memorandum and articles of Association, a written
consent of each person named as a directors is required confirming that they agree to act in that
capacity undertake to buy and pay for qualification shares.
d) Agreement. The agreement, if any, which the company proposes to enter with any individual for
appointment as its managing director or a whole time director or manager is another document
which is required to be submitted.
e) Statutory declaration. A declaration stating that all the legal requirements pertaining to
registration have been complied with is to be submitted to the registrar with the above mentioned
documents for getting the company registered.
f) Payment of fee. Along with the above-mentioned documents, necessary fees has to be paid for the
registration of the company.
Incorporation
After completing the aforesaid formalities, promoters make an application for the incorporation of the
company. The application is to be filed with the registrar of companies of the state within which they
plan to establish the registered office of the company. These may be briefly mentioned again.
1. The memorandum of Association duly stamped, signed and witnessed. In case of a public company,
at least seven members must sign it.
2. The articles of Association duly stamped and witnessed as in case of the memorandum. However,
as stated earlier, a public company may adopt table A, which is a model set of articles.
3. Written consent of the proposed directors to act as directors and an undertaking to purchase
qualification shares.
4. The agreement, if any, with the proposed managing director, manager or whole-time director.
5. A copy of the registrars letter approving the name of the company.
6. A statutory declaration affirming that all legal requirements for registration have been complied
with.
7. A notice about the exact address of the registered office may also be submitted along with these
documents. Within 30 days of the receipt of the certificate of incorporation.
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8. Documentary evidence of payment of registration fees.
Capital Subscription.
A public company can raise the required funds from the public by means of issue of shares and
debentures. For doing the same, it has to issue a prospectus which is an invitation to the public to
subscribe to the capital of the company.
a) SEBI Approval. SEBI (Securities and Exchange Board of India) which is the regulatory authority
in our country has issued guidelines for the disclosure of information and investors protection. This
is necessary for protecting the interest of the investors. Prior approval from SEBI is, therefore,
required before going ahead with raising funds from public.
b) Filling of Prospectus. A copy of the prospectus or statement in lieu of prospectus is filed with the
registrar of companies. A prospectus is any document described or issued as a prospectus including
any notice, circular, advertisement or other document inviting deposits from the public.
c) Appointment of Bankers, Brokers, Underwriters. Raising funds from the public is a stupendous
task. The application money is to be received by the bankers of the company. The brokers try to sell
the shares.
d) Minimum subscription. In order to prevent companies from commencing business with

inadequate resources, it has been provided that the company must receive applications for a certain
minimum number of shares before going ahead with the allotment of shares. The limit of minimum
subscription is 90 per cent of the size of the issue.
e) Application to stock exchange. An application is made to at least one stock exchange for
permission to deal in its shares or debentures. If such permission is not granted before the expiry of
ten weeks from the date or closure of subscription list, the allotment shall become void.
f) Allotment of shares. In case the numbers of shares are allotted less than the number applied for, or
where no shares are allotted to the applicant, the excess application money, if any, is to be returned
to applicants or adjusted towards allotment money due from them.
Commencement of business
If the amount of minimum subscription is raised through new issue of shares, a public company
applies to the registrar of companies for the issue of certificate of commencement of business. The
following documents are required.
a) A declaration that shares payable in cash have been subscribed for and allotted up to the
minimum subscription
b) A declaration that every director has paid in cash, the application and allotment money on his
shares in the same production as others.
c) A declaration that no money is payable or liable to become payable to the applicants because of
the failure of the company.
d) A statutory declaration that the above requirements have been combined with. The registrar
shall examine these documents. If these are found satisfactory, a certificate of commencement
of business will be issued.
Difference between memorandum of Association and Articles of

Association
Basis of Memorandum of Association Articles of Association
difference
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Objectives Memorandum of Association Articles of Association are rules of
defines the objects for which the internal management of the company of
company is formed. the company. They indicate how the
objectives of the company are to be
achieved.
Position This is the main document of the This is a subsidiary document and is
company and is subordinate to the subordinate to both the memorandum of
companies Act. Association and the companies Act.
Relationship Memorandum of Association Articles defines the relationship of the
defines the relationship of the members and the company.
company with outsiders.
Validity Acts beyond the memorandum of Acts which are beyond Articles can be
Association are invalid and connote ratified by the members, provided they
be ratified even by a unanimous do not violate the memorandum.
vote of the members.
Necessity Every company has to file a It is not compulsory for a public ltd.
memorandum of Association. Company to file Articles of Association.
It may adopt Table A of the companies
Act.
.(SOURCES OF BUSINESS FINANCE)

Classification of Sources of Funds
In case of company form of organization, the different sources of business finance which are available
may be categories as given in Table.
Periods Basis. On the basis of periods, the different sources of funds can be categorized into three parts.
These are long-term sources, medium-term sources and short-term sources. The long-term sources fulfill
the financial requirements of an enterprise for a period exceeding 5 years and include sources such as
shares and debentures, long-term borrowings and loans from financial institutions. Where the funds are
those which are required for a period not exceeding g one year. Trade credit, loans from commercial
banks and commercial papers are some of the examples of the sources that provide funds for short
duration. Short-term financing is most common for financing of current assets such as accounts
receivable and inventories. Seasonal businesses that must build inventories in anticipation of selling
requirements often need short-term financing for the interim period between seasons.
Ownership Basis. On the basis of ownership, the sources can be classified into owners funds and
borrowed funds. Owners funds means funds that are provided by the owners of an enterprise.
Borrowed funds on the other hand, refer to the funds raised through loans or borrowings. The sources
for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue
of debentures, public deposits and trade credit.
Sources of Generation Basis. Another basis of categorizing the sources of funds can be whether the
funds are generated from within the organization or from external sources. Internal sources of funds are
those that are greeted from within the business. A business, for example, can generate funds internally by
accelerating collection of receivables, disposing of surplus inventories and ploughing back its profit.
External sources of funds include those sources that lie outside an organization, such as suppliers,
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lenders, and investors. When large amount of money is required to be raised, it is generally done through
the use of external sources.
Sources of Finance. A business can raise funds from various sources. Each of the source has unique
characteristics, which must be properly understood so that the best available source of raising funds can
be identified.
Retained Earnings. A company generally does not distribute all its earnings amongst the shareholders as
dividends. A portion of the net earnings may be retained in the business for use in the future. This is
known as retained earnings. It is a source of internal financing or self-financing or ploughing back of
profits.
Merits. The merits of retained earnings as sources of finance are as follows:
a) Retained earnings is a permanent source of funds available to an organization;
b) It does not involve any explicit cost in the form of interest, dividend or floatation cost;
c) As the funds are generated internally, there is a greater degree of operational freedom and
flexibility;
Limitations. Retained earnings as a source of funds has the following limitations:
a) Excessive ploughing back may cause dissatisfaction amongst the shareholders as they would get
lower dividends;
b) It is an uncertain source of funds as the profits of business are fluctuating;
c) The opportunity cost associated with these funds is not recognized by many firm. This may lead to
sub-optimal use of the funds.
Trade credit. Trade credit is the credit extended by one trader to another for the purchase of goods and
services. Trade credit facilitates the purchase of supplies without immediate payment. Trade credit is
commonly used by business organizations as a source of short-term financing. It is granted to those
customers who have reasonable amount of financial standing and goodwill.
Merits. The important merits of trade credit are as follows:
a) Trade credit is a convenient and continuous source of funds;
b) Trade credit may be readily available in case the credit worthiness of the customers is known to the
seller;
c) Trade credit needs to promote the sales of an organization;
d) If an organization wants to increase its inventory level in order to meet expected rise in the sales
volume in the near future, it may use trade credit to, finance the same;
e) It does not create any charge on the assets of the firm while providing funds.
Limitations. Trade credit as sources of funds has certain limitations, which are given as follows:
a) Availability of easy and flexible trade credit facilities may induce a firm to indulge in overtrading,
which may add to the risks of the firm;
b) Only limited amount of funds can be generated through trade credit;
c) It is generally a costly source of funds as compared to most other sources of raising money.
Public Deposits. The deposits that are raised by organizations directly from the public are known as
public deposits. Rates of interest offered on public deposits are usually higher than that offered on bank
deposits. Any person who is interest in depositing money in an organization can do so by filling up a
prescribed form. The organization in return issues a deposit receipt as acknowledgment of the debt.
Public deposits can take care of both medium and short-term financial requirements of a business. The
deposits are beneficial to both the depositor as well as to the origination.
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Merits. The merits of public deposits are:
a) The procedure of obtaining deposits is simple and does not contain restrictive conditions as are
generally there in a loan agreement:
b) Cost of public deposits is generally lower than the cost of borrowings from banks and financial
institutions;
c) Public deposits do not usually create any charge on the assets of the company. The assets can be
used as security for raising loans from other sources;
Limitations. The major limitation of public deposits is as follows:

a) New companies generally find it difficult to raise funds through public deposits;
b) It is an unreliable source of finance as the public may not respond when the company needs money;
c) Collection of public deposits may prove difficult, particularly when the size of deposits required is
large.
Commercial Paper (CP). Commercial papers emerged as a source of short term finance in our country
in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds
for a short period, varying from 90 days to 364 days. It is issued by one firm to other business firm,
insurance companies, pension funds and banks.
Issue of shares. The capital obtained by issue of shares is known as share capital. The capital of a
company is divided into small units called shares. Each share has its nominal value. For example, a
company can issue 1,00,000 shares of Rs. 10 each for a total value of Rs. 10,00,000. The person holding
the share is known as shareholder. These are equity shares by and preference shares. The money raised
by issue of equity shares is called equity share capital, while the money raised by issue of preference
shares is called preference share capital.
a) Equity shares. Equity shares are the most important source of raising long term capital by a
company. Equity shares represent the ownership of a company and thus the capital raised by issue
of such shares is known as ownership capital or owners funds. They are referred to as residual
owners
since they receive what is left after all other claims. Their liability, however, is limited to the extent
of capital contributed by them in the company.
Merits. The important merits of raising funds through issuing equity shares are given as below:
a) Equity shares are suitable for investors who are willing to assume risk for higher returns;
b) Payment of dividend to the equity shareholders is not compulsory.
c)Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a
company.
d) Equity capital provides credit worthiness to the company and confidence to prospective loan
providers;
e)Funds can be raised through equity issue without creating any charge on the assets of the company.
Limitations. The major limitations of raising funds through issue of equity shares are as follows:
a) Investor who want steady income may not prefer equity shares as equity shares get fluctuating
returns;
b) The cost of equity shares is generally more as compared to the cost of raising funds through other
sources;
c)Issue of additional equity shares dilutes the voting power, and earnings of existing equity
shareholders;
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d) More formalities and procedural delays are involved while raising funds through issue of equity
share.
Preference shares. The capital raised by issue of preference shares is called preference share capital.
The preference shareholders enjoy a preferential position over equity shareholders in two ways: (i)
receiving fixed rate of dividend; out of the net profits of the company, before nay dividend is declared for
equity shareholders; and (ii) receiving their capital after the claims of the companys creditors have been
settled, at the time of liquidation. Preference shares resemble debentures as they bear fixed rate of return.
Preference shares have some characteristics of both equity shares and debentures. Preference
shareholders generally do not enjoy any voting rights.
Merits. The merits of preference shares are given as follows:
a) Preference shares provide reasonably steady income in the form of fixed rate of return and safety of
investment;
b) Preference shares are useful for those investors who want fixed rate of return with comparatively
low risk;
c)It does not affect the control of equity shareholders over the management as preference shares dont
have voting rights;
d) Payment of fixed rate of dividend to preference shares may enable a company to declare higher
rates.
e)Preference shareholders have a preferential right of repayment over equity shareholders.
Limitations. The major limitations of preference shares as source of business finance are as follows:
a) Preference shares are not suitable for those investors who are willing to take risk and are interested
in higher returns;
b) Preference capital dilutes the claims of equity shareholder over assets of the company;
c)The rate of dividend on preference shares is generally higher than the rate of interest on debentures;
Debentures. Debentures are an important instrument for raising long term debt capital. A company
can raise funds through issue of debentures which bear a fixed rate of interest. The debenture issued by a
company is an acknowledgment that the company has borrowed a certain amount of money, which it
promises to repay at a future date. Debenture holders are, therefore, termed as creditors of the company.
Merits. The merits of raising funds through debentures are given as follows:
a) it is preferred by investors who want fixed income at lesser risk;
b) debentures are fixed charge funds do not participate in profits of the company;
c)the issue of debentures is suitable in the situation when the sales and earnings are relatively stable;
d) as debentures do not carry voting rights, financing through debentures does not dilute control of
equity shareholders on management;
Limitations. A debenture as sources of funds has certain limitations. These are given as follows:
a) As fixed charge instruments, debentures put a permanent burden on the earnings of a company.
b) In case of redeemable debentures, the company has to make provisions for repayment on the
specified date, even during periods of financial difficulty;
c)Each company has certain borrowing capacity. With the issue of debentures, the capacity of a
company to further borrow funds reduces.
Classification of source of funds
A. On the basis of periods
1. Long-term 2. Medium-term 3. Short-
term
Equity shares * Loan from banks
* Trade credit
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Retained earnings * Public deposits *
Factoring
Preference shares * Loan from financial *
Banks
Debentures * Institutions
* Commercial paper
Loan from financial institutions * Lease financing
Loan from banks
B. On the basis of ownership C. On the basis of
sources of generation
1. Owners Funds 1. Internal
Sources
Equity shares * Equity
share capital
Retained earnings * Retained
earnings
2. Borrowed Funds 2. External
Sources
Debentures * Financial
institutions
Loans from financial institutions * Loans from
banks
Public deposits * Preference shares
Lease financing * Public deposits
Commercial papers * Debenture
* Lease financing
*Commercial
papers
*Trade credit
*Factoring
Financial Market
Concept of Financial Market. Households which save funds and business firms which
invest these funds. A financial market helps to link the savers and the investors by mobilizing funds
between them. In doing so it performs what is known as an allocative function. It allocates or directs
funds available for investments into their most productive investment opportunity. A financial
market is a market for the creation and exchange of financial assets. Financial markets exist
wherever a financial transaction occurs.
Functions of Financial Market. Financial markets play an important role in the allocation
of scarce resources in an economy by performing the following four important functions.
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a) Mobilization of Savings and Channeling them into the most productive Uses . A
financial market facilitates the transfer of saving from savers to investors. It gives savers the
choice of different investments and thus helps to channelize surplus funds into the most
productive use.
b) Facilitating price Discovery . You all know that the forces of demand and supply help to
establish a price for a commodity or service in the market. In the financial markets, the
households are suppliers of funds and business firms represent the demand. The interaction
between them helps to establish a price for the financial assets.
c) Providing Liquidity to Financial Assets. Financial markets facilitate easy purchase and
sale of financial assets. In doing so they provide liquidity to financial assets, so that they can
be easily converted into cash whenever required.
d) Reducing the cost of transactions. Financial markets provide valuable information about
securities being trade in the market. It helps to save time, effort and money that both buyers
and sellers of financial assets. Financial markets are classified on the basis of the maturity of
financial instruments traded in them. Instruments with a maturity of less than one year are
traded in the money market. Instruments with longer maturity are traded in the capital market.
Money Markets. The money market is a market for short term funds which deals in monetary
assets whose period of maturity is up to one year. These assets are close substitutes for money. It is a
market where low risk, unsecured and short term debt instruments that are highly liquid are issued
and actively traded every day. The major participants in the market are the Reserve Bank of India,
(RBI), and Commercial Bank, Non-Banking Finance Companies. State Governments, Large
Corporate Houses and Mutual Funds.
Money Market Instruments
a) Treasury Bills. A treasury bill is basically an instrument of short-term borrowing by the

Government of India maturing in less than one year. They are also known as Zero Coupon
Bonds issued by the Reserve Bank of India on behalf of the central Government to meet its
short-term requirement of funds. Treasury bills are issued in the form of a promissory note.
They are issued at a price which is lower than their face value and repaid at par. Treasury bills
are available for a minimum amount of Rs. 25,000 and in multiples thereof.
b) Commercial Paper. Commercial paper is a short-term unsecured promissory note,

negotiable and transferable by endorsement and delivery with a fixed maturity period. It is
issued by large and creditworthy companies to raise short-term funds at lower rates of interest
than market rates. It usually has a maturity period of 15 days to one year. The issuance of
commercial paper is an alternative to bank borrowing for large companies that are generally
considered to be financially strong. It is sold at a discount and redeemed at par.
c) Call Money. Call money is short term finance repayable on demand, with a maturity period of
one day to fifteen days, used for inter-bank transactions. Call money is a method by which
banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate
paid on call money loans is known as the call rate. It is a highly volatile rate that varies from
day to day and sometimes even from hour to hour.
d) Certificate of Deposit. Certificates of deposits (CD) are unsecured. Negotiable, short-term
instruments in bearer from, issued by commercial bank and development financial institutions.
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They can be issued to individuals, corporations and companies during periods of tight
liquidity.
e) Commercial Bill. A Commercial bill is a bill of exchange used to finance the working capital
requirements of business firms. It is a short term, negotiable, self liquidating instrument which
is used to finance the credit sales of firms. When goods are sold on credit, the buyer becomes
liable to make payment on a specific date in future. The seller could wait till the specified date
or make use of a bill of exchange. The seller (drawer) of the goods draws the bill and the buyer
(drawee) accepts it. On being accepted, the bill become a marketable instrument and is called a
trade bill. These bills can be discounted with a bank.
Capital Market. The term capital market refers to facilities and institutional arrangements through
which along-term funds; both debt and equity are raised and invested. it consists of a series of
channels through which savings of the community are made available for industrial and commercial
enterprises and for the public in general. The capital market can be divided into two parts 1 st.
Primary Market and 2nd Secondary Market.
Distinction between Capital Market and Money Market
a) Participant. The participants in the capital market are financial institutions, banks, corporate
entities, foreign investors and ordinary retail investors from members of the public.
Participations in the money market is by and large undertaken by institutional participants
such as the RBI, banks, financial institutions and finance companies.
b) Instruments. The main instruments traded in the capital market are equity shares, debentures,
bonds preference shares etc. the main instruments traded in the money market are short term
debt instruments such as T-bills, trade bills reports, commercial paper and certificates of
deposit.
c) Investment outlay. Investment in the capital market securities dose not necessarily required a
huge financial outlay. The value of units of securities is generally low Rs.10, Rs. 100. In the
money market, transactions entail huge sums of money as the instruments are quite expensive.
d) Duration. The capital market deals in medium and long term securities such as equity shares
and debentures. Money market instruments have a maximum tenure of one year, and may even
be issued for a single day.
e) Liquidity. Capital market securities are considered liquid investments because they are
marketable on the stock exchanges. Money market instruments on the other hand, enjoy a
higher degree of liquidity as there is formal arrangement for this. The discount finance house
of India (DFHI) has been established for the specific objective of providing a ready market for
money market instruments.
f) Safety. Capital market instruments are riskier both with respect to returns and principle
repayment. Issuing companies may fail to perform as per projections and promoters may
defraud investors.
Primary Market.
The primary market is also known as the new issues market. It deals issued for the first time. The
essential function of a primary market is to facilitate the transfer of investible funds from savers to
enterprises seeking to establish new enterprises or to expand existing ones through the issue of
securities for the first time. A company can raise capital through the primary market in the form of
equity shares, preference shares, debentures, loans and deposits.
Method of Floatation
1. Offer through Prospectus:- Offer through prospectus is the most popular method of raising
funds by public companies in the primary market. This involves inviting subscription from the
public through issue of prospectus. A prospectus makes a direct appeal to investors to raise
capital, through an advertisement in newspapers and magazines.
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2. Offer for sale:- Under this method securities are not issued directly to the public but are
offered for sale through intermediaries like issuing houses or stock brokers.
3. Private Placement:-Private placement is the allotment of securities by company to
institutional investors and some selected individuals. It helps to raise capital more quickly than
a public issue.
4. Right Issue:-This is a privilege give to existing shareholders to subscribe to a new issue of
shares according to the terms and conditions of the company. The shareholders are offered the
right to buy new shares in proportion to the number of shares them already posses.
5. e-IPOS:- A company proposing to issue capital to the public through the on-line system of
stock exchange has to enter in to an agreement with the stock exchange. This is called an
Initial public offer (IPO). SEBI registered brokers have to be appointed for the purpose of
accepting applications and placing orders with the company.
Secondary Market
The secondary market is also known as the stock market or stock exchanging. It is a market for the
purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to
enter the market it is also provides liquidity and marketability to existing securities.
Stock Exchange
A stock exchange is an institution which provides a platform for buying and selling of existing
securities. As a market, the stock exchange facilitates the exchange of security (share, debenture
etc.) into money and vice versa. Stock exchanges help companies raise finance, provide liquidity
and safety of investment to the investors and enhance the credit worthiness.
Meaning of Stock Exchange
According to Securities Contracts (Regulating) Act 1956, stock exchange means anybody of
individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or
controlling the business of buying and selling or dealing in securities.
Function of a Stock exchange. The following are some of the important functions a stock
exchange.
a. Providing Liquidity and Marketability to Existing Securities:- The basic function of

a stock exchange is the creation of a continuous market where securities are bought and sold.
It gives investors the chance to disinvest and reinvest. This provides both liquidity and easy
marketability to already existing securities.
b. Pricing of Securities:- Share prices on a stock exchange are determined by the force of
demand and supply. A stock exchange is a mechanism of constant valuation through which
the prices of securities are determined.
c. Safety of transaction:- The membership of a stock exchange is well regulated and its
dealing are well defined according to the existing legal framework. This ensures that the
investing public gets a safe and fair deal on the market.
d. Contributes to Economic Growth:-A stock exchange is a market in which existing

securities are resold or traded. Through this process of disinvestment and reinvestment
savings get channelized into their most productive investment avenues.
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e. Spreading of Equity Cult:- The stock exchange can play a vital role in ensuring wider share
ownership by regulating new issues, better trading practices and taking effective steps in
educating the public about investment.
f. Providing scope for speculation. The stock exchange provides sufficient scope within the
provisions of law for speculative activity in a restricted and controlled manner. It is generally
accepted that a certain degree of healthy speculation is necessary to ensure liquidity and price
continuity in the stock market.
Trading Procedure on A Stock:- Till a few years ago trading on a stocks exchange took place
through a public outcry or auction system. This has been replaced by an online screen based
electronic trading system as almost all exchanges. Brokers are members of a stock exchange
through whom trading of securities is done. Brokers may be individuals, partnership firms.
A Companys securities can be traded on a stock exchange only if they are listed or quoted on it.
National stock Exchange of India (NSE):- The national stock exchange is the latest, most
modern and technology driven exchange. It was incorporated in 1992 and was recognized as a stock
exchange n April 1993. It stated operations in 1994 with trading on the wholesale debt market
segment. The NSE was set up by leading financial institution, banks, insurance companies and
other financial intermediaries. It is managed by professionals, who do not directly or indirectly
trade on the exchange. The board of NSE comprises senior executives from promoter institutions
and eminent professionals, without having any representation from trading members.
Objectives of NSE: - NSE was set up the following objectives.

a. Establishing a nationwide trading facility for all types of securities.
b. Ensuring equal access to investors all over the country through an appropriate
communication network.
c. Providing a fair, efficient and transparent securities market using electronic trading system.
d. Enabling shorter settlement cycles and book entry settlements.
e. Meeting international benchmarks and standards.
Market Segments of NSE. The exchange provides trading in the following two segments.
a. Whole sale Debt market Segment:- This segment provides a trading platform for a wide
range of fixed income securities that include central government securities, treasury bills,
state development loans, bonds issued by public sector undertakings, floating rate bonds,
zero coupon bonds, index bonds, commercial paper, certificate of deposit, corporate
debentures and mutual funds.
b. Capital Market Segment:- he capital market segment of NSE provides an efficient and
transparent Platform for trading in equity, preference, debentures, exchange trade funds as
well as retail government securities.
Over the Counter Exchange of India (OTCEI). The OTCEI is a company incorporated
under the
Companies Act 1956. It was set-up to provide small and medium companies an access to the capital
market
For raising finance in a cost effective manner. It is fully computerized, transparent, single window
exchange Which commenced trading in 1992. This exchange is established on the lines of
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NASDAQ (National Association of Securities Dealers Automated Quotations) the OTC exchange
in USA. It has been promoted by UTI, ICICI, IBDI, IFCI, LIC, GIC, SBI capital markets and can
Bank Financial Services.
Advantage of OTC Market:-
a. It provides a trading platform to smaller and less liquid companies as they are not eligible
for listing on a regular exchange.
b. It is a cost effective method for corporates as there is a lower cost of new issues.
c. Family concerns and closely held companies can go public through OTC.
d. Dealers can operate both in new issues and secondary market at their option.
e. It gives greater freedom of choice to investors for market making in both primary and
secondary markets.
f. It s a transparent system of trading with no problem of bad or short delivers.
g. Information flows are free and more direct from market makers to customers since there is
close contact between them.
Securities and Exchange Board of India (SEBI).
The securities and Exchange Board of India was Established by the Government of India on 12
April 1988 as an interim administrative body to promote Orderly and healthy growth of securities
market. The SEBI was a statutory status on 30 January 1992 Through an ordinance.
Purpose and role of SEBI:- The basic purpose of SEBI is to create an environment to
facilitate efficient Mobilization and allocation of resources through the securities markets. It also
aims to stimulate competition and encourage innovation. This environment aims at meeting the
needs of the three groups which basically constitutes the market, viz, the issuers of securities
(companies), the investors and the market intermediaries.
To the issuers, it aims to provide a market place in which they can confidently look forward
to raising finances they need in an easy, fair and efficient manner.
To the investors, it should provide protection of their rights and interests through adequate,
accurate and authentic information and disclosure of information on a continuous basis.
To the intermediaries, it should offer a competitive, professionalized and expanding market
with adequate and efficient infrastructure so that they are able to render better service to the
investors and issuers.
Objectives of SEBI. The overall objective of SEBI is to protect the interests of investors and
to promote the development of, and regulate the securities market.
a) To regulate stock exchanges and the securities industry to promote their orderly
functioning.
b) To protect the rights and interests of investors, particularly individual investors and to guide
and educate them.
c) To prevent trading malpractices and achieve a balance between self regulation by the
securities industry and its statutory regulation.
d) To regulate and develop a code of conduct and fair practices by intermediaries.
Functions of SEBI
a) Registration of brokers and sub-brokers and other players in the market.
b) Registration of collective investment schemes and Mutual Funds.
c) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and
the business in stock exchanges and any other securities market.
d) Regulation of takeover bids by companies.
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e) Calling for information by under taking inspection, conducting enquiries and audits of
stock exchanges and intermediaries.
f) Levying fee or other charges for carrying out the purposes of the Act.
Development Functions
a) Training of intermediaries of the securities market.
b) Conducting research and publishing information useful to all market participants.
c) Undertaking measures to develop the capital markets by adapting a flexible approach.
Protective Functions:-
a) Prohibition of fraudulent and unfair trade practices like making misleading statements,
manipulations, price rigging etc.
b) Controlling insider trading and imposing penalties for such practices.
c) Undertaking steps for investor protection.
d) Promotion of fair practices and code of conduct in securities market.
The organization structure of SEBI. As SEBI is a statutory body there has been a
considerable expansion in the range and scope of its activities. Each of the activities of the SEBI
now demands more careful, closer, co-ordinated and intensive attention to enable it to attain its
objectives.
It has decided its activities into five operational departments. Each departments. Is headed by an
executive director A part from its head office at Mumbai, SEBI has opened regional offices in
Kolkata, Chennai, and Delhi to investor. The SEBI also formed two advisory committees. They are
the primary market advisory committee and the secondary market advisory committee. These
committees consist of the market players, the investors associations recognized by the SEBI and the
eminent persons in the capital market. The objectives of the two committees are as follows:
a) To advise SEBI on matters relating to the regulation of intermediaries for ensuring
investors protection in the primary market.
b) To advise SEBI on issues related to the development of primary market in India.
c) To advise SEBI on disclosure requirements for companies.
d) To advise for changes in legal framework to introduce simplification and transparency in
the primary market.
e) To advise the board in matters relating to the development and regulation of the secondary
market in the country.
1. Depository : depository is the apex organization or unit in the depository system.

Depository is just like a bank where Depositor/Investor can deposit and withdraw
the money or securities. In a depository an investor can deposit and withdraw his
shares.
Features of depository are:

1. Depository is an institution which holds securities such as shares, debentures, etc.
2. Currently Limited and CDSL (Central Depository Services Limited).
3. Depository interacts with the investors through agents called Depository Participants
(DPs).
4. DPs can offer services only after obtaining a certificate from SEBI.
5. Investors have to open Depository account with any DP called Demat Account.
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2. The Depository Participants (DP ): Depository participant is an agent of
the depository. An investor has to interact only with a DP and not with the
depository for all his dealings in shares in electronic form. As per SEBI guidelines
any financial institution, the share brokers, Banks etc. can become DP after
registration with SEBI. DP is the vital intermediary in depository system and all
buying and selling of shares under Depository System take place through DP only.
3. Demat Account:
1. It is an account to buy and sell listed securities in electronic form i.e. through
internet.
2. It is opened by an investor through Depository participants.
3. This account eliminate problems such as forgery, theft, transfer delays, which were
there with physical share certificates.
4. Facilitate fast transfer and settlements.: Some Benefits of on Line Stock Exchange:
1. Demutualisation: it refers to separation of ownership and control of stock exchange from the
trading rights of member. Through demutualization there is reduction of chances of brokers using stock
exchange for personal gains.
2. Dematerialization : A share certificate is a proof of ownership of securities by an individual. In

purchase and sale of securities share certificates are transferred. So there are chances of theft, forgery,
delay and other problems of paper work. To eliminate this problem an electronic book entry form of
holding and transferring securities has been introduced. This is referred as dematerialization of securities
(more commonly known as Demat account ), i.e., no transfer of documents in material form. Transfer is
shown by crediting of debiting the demat account of the security holder.
Internal Trade
Introduction. Trade refers to buying and selling of goods and services with the objective of earning
profit. On the basis of geographical location of buyer and sellers, trade can broadly be classified into two
categories (1) internal trade; and (2) external trade. Trade which takes place within a country is called
internal trade. Trade between two or more countries, on the other hand, is called external trade.
Internal trade. Buying and selling of goods and services within the boundaries of a national is called
Internal Trade. Whether the products are purchased from a neighborhood shop in a locality or a central
market or a departmental store or a mall or even from any door to door salesperson or from an exhibition,
all these would be considered to be examples of internal trade. Internal trade can be classified into two
broad categories (1) wholesale trade and (2) retails trade.
Wholesale Trade. Wholesale trade refers to buying and selling of goods and services in large quantities
for the purpose of resale or intermediate use. Wholesalers serve as an important link between
manufacturers and retailers. They not only enable the producers to reach large number of buyers spread
over a wide geographical area (through retailers) but perform a variety of functions in the process of
distribution of goods and services.
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Retail trade. A retailer is a business enterprise that is engaged in the sale of goods and services directly
to the ultimate consumers. He / she normally buys goods in large quantities from wholesalers and sells
them in small quantities to the ultimate consumers. He / she represent the final stages in the distribution
where goods are transferred from the hands of traders to final consumers or users.
There may be different ways of selling the goods, personally, on telephone, or by vending machines. A
retailer performs different functions in the distribution of goods and services. He / she purchases a variety
of products from wholesale distributors and others, arranges for proper storage of the goods, sells the
goods in small quantities, bears business risks, grades the products, collects market information.
Long Retailers.
1. Departmental stores. Departmental store is a large establishment offering a wide variety of
products, classifieds into well-defined departments, aimed at satisfying practically every customers
need under one roof. It has a number of departments, each one confining its activities to one kind of
product. For example, there may be separate departments for toiletries, medicines, furniture, groceries,
electronics, clothing and dress material. However, some stores on this line in India include Akberally
in Mumbai and Spencers in Chennai.
2. Chain stores or multiple shops. Chain stores or multiple shops are networks of retail shops
that are owned and operated by manufacturers or intermediaries. Under this types of arrangement, a
number of shops with similar appearance are established in localities, spread over different parts of the
country.
a) These shops are located in fairly populous localities; where sufficient number of customers can be
approached.
b) The manufacturing / procurement of merchandise for all the retail units are centralized at the head
office, from where the goods are dispatched to each of these shops.
c) Each retail shop is under the direct supervision of branch manager, who is held responsible for its day
to day management.
d) All the branches are controlled by the head office, which is concerned with formulating the policies
and getting them implemented.
e) The prices of goods in such shops are fixed and all sales are made on cash basis.
Mail Order Houses. Mail order houses are the retail outlets that sell their merchandise through mail.
There is generally no direct personal contact between the buyers and the sellers in this type of trading. For
obtaining orders, potential customers are approached through advertisements in newspapers of magazines,
circulars, catalogues, samples and bills, and price lists sent to them by post. All the relevant information
about the products such as the price, features, delivery terms, terms of payment, etc., are described in the
advertisement.
There can be different alternatives for receiving payments. First, the customers may be asked to make full
payment in advance. Second, the goods may be sent by value payable post (VPP).
Third, the goods may be sent through a bank, which is instructed to deliver the articles to the customers.
Consumer cooperative store. A consumer cooperative store is an organization owned, managed and
controlled by consumers themselves. The objective of such stores is to reduce the number of middlemen
who increase the cost of produce, and thereby provide service to the members.
The profits earned by consumer cooperative stores during a year are utilized for declaring bonus to
members according to purchases made by them and for strengthening the general reserves and general
welfare funds or similar funds for social and educational benefits of the members.
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To start a consumer cooperative store, at least 10 people have to come together and form a voluntary
association and get it registered under the cooperative societies Act.
Super markets. A super market is a large retailing business unit selling wide variety of consumer goods
on the basis of low margin appeal, wide variety and assortment, self-services and heavy emphasis on
merchandising appeal. The goods traded are generally food products and other, low priced, branded and
widely used consumer products.
Super markets are generally situated at the main shopping centers. Goods are kept on racks with clearly
labeled price and quality tags in such stores. The customers move into the store to pick up goods of their
requirements, bring them to the cash counter, make payment and take home the delivery.
Super markets are organized on departmental basis where customers can buy various types of goods under
one roof.
Some of the important characteristics of a super market are as follows.
A super market generally carries a complete line of food item and groceries, in addition to
noon-food convenience goods.
The buyers can purchase different products as per their requirements under one roof in such
markets.
A super market operates on the principle of self-services. The distribution cost is, therefore,
lower.
The prices of the products are generally lower than other types of retail stores because of bulk
purchasing, lower operational cost, and low profit margins.
The goods are sold on cash basis only.
Vending machines. Vending machines are the newest revolution in marketing methods. Coin
operated vending machines are proving useful in selling products such as hot beverages, platform
tickers, milk, soft drinks, chocolates, newspaper etc., in many countries.
Vending machines can be useful for selling pre-packed brands of low priced products
which
have high turnover and which are uniform in size and weight.
MAIN DOCUMENTS USED INN INTERNAL TRADE

1.Proforma Invoice :- It is a confirmed purchase order containing the terms and conditions on which
buyer and seller agree on the product detail and cost. A sale quote is prepared in the
form of proforma invoice. This is sent in advance of commercial invoice.
2.Commercial Invoice :- This document is an evidence of contract between buyer and seller. This
documents contains detailed description of goods quantity, price, total value etc and terms of payment.
3.Lorry Receipt :- When goods are sent by roadsways then this receipt is issued by the transporter anad it is
treated as document of title.
4.Railway Receipt :- When goods are dispatched through railways then railway authorities issue
their receipt. It is treated as document of title.
5.Debit Note : - A form of letter issued by seller to advise the amount owed by buyer. An invoice is a
kind of debit note. Sometimes the seller issues a debit note when he has charged less price from
buyer than the actual price.
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6.Credit Note :- It is a monetary instrument issued by seller that allows a buyer to purchase any item
or service on a future date. It is issued by seller as a goodwill gesture for a sales return.
This note is a proof that seller owes the amount mentioned in credit note to buyer.
TERMS OF TRADE
1.COD (Cash on Delivery ) :- Under this system payment is made only when goods are delivered to
buyer.
2.FOB (Free on Board ) :- Under this contract the seller is expected to deliver the goods to the
transporter and buyer has to bear all losts, risk or loss or damage.
3.C & F (Cost and Freight ) :- Under this system the seller deliver the goods. The freight charges
are borne by seller but risk of loss or damage is borne by buyer. C and F price consists of FoB price
freight charge.
4.CI & F (Cost, Insurance and Freight) Under this seller bears all the cost, freight and insurance charges
against risk of loss, damage to the goods during transit.
5.E. & O.E. (Errors and Omissions Excepted) :- This is written in an attempt to reduce legal liability for
inncorre3ct or incomplete information supplied by supplier in contractual document such as Price list etc. It
is generally used here the information is relatively fast changing.
Nature and significance of management

INTRODUCTION
Management is necessary for all the organizations irrespective of its size, nature and functions. Management
is a pervasive and universally accepted function. No organization can work smoothly and efficiently without
management. Like
(i)Infosys has become a leading IT company due to managerial efficiency of Narain Murthy and his
managers.
(ii)Wipro is running successfully due to managerial efficiency of Aseem Premjee
CONCEPT OF MANAGEMENT (MEANING AND IMPORTANCE)
Traditionally management was defined as:
management is the art of getting things done through others. Marry parker follett
The tradition view point of management is considered in appropriate in the present day environment where
workers are educated and have higher level of aspirations.
Modern concept of management
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management is the coordination of all resources through the process of planning , organizing ,directing and
controlling order to attain stated objectives. -F. W. Taylor
According to modern concept management is the process of getting things done with the aim of achieving
goals effectively and efficiently.
CHARACTERISTICS OF FEATURES OF MANAGEMENT
1.MANAGEMENT IS GOAL ORIENTED PROCESS . Management always aims at achieving the
organisational objectives. The functions and activities of manager lead to the achievement of organisational
objectives.
2.Management is pervasive. Management is a universal phenomenon. The use of management is not
restricted to business firms only ,it is applicable in profit-making ,non profit making , business or non
business organizations; even a hospital club and house has to be managed properly.
3.Management is multidimensional .management does not mean one single activity but it includes three
main activities;
(a)Management of work (b)Management of people
(c)management of operatio0ns
(a)Management of work. All organization set up to perform some task or goal. Management activities aim
at achieving goals or tasks to be accomplished . The task or work depends upon the nature of business
(b).Management of people. People refers to human resources and human resources are the most important
assets of an organization . An organization can win over competitor with efficient employees
(c)management of operations .operations refers to activities of production cycle such as buying inputs,
converting them into semi finished goods finished goods.
4.Management is a continuous process. Management is continuous or never ending functions. All the
functions of management are performed continuously ,for example planning, organizing, staffing directing
are performed by all the mangers all the time
5. Management is group activity. Management always refers to a group of people involved in managerial
activities . The management functions cant be performed in isolation. Each individual perform his/her role
at his /her status and department then only management function can be executed.
6.Management is a dynamic function. Management has to make changes in goals objectives and other
activities according to changes taking place in the environment .the external environment such as social
,economical and technical environment has great influence over the management .as changes take place in
these environments ,same are implemented in organization to survive in competitive world.
Objective of management
Objective are the ends towards which the activities of an organization are directed and the standards against
which the performance is assessed .the managerial objectives of an organization can be classified as..
1.organisational objectives 2.social objectives 3.personal objectives

Organizational objectives-generally it is assumed that profit maximization is the main objective of every
organization but it is not true. The mangers try to develop and attain variety of objectives in all management
areas which reduces cost and brings maximum prosperity organization.
The three organizational objectives of a manager are:
1.Survival.the basic purpose of every organization is to survive and exist in the competiative era. and it is
possible only when it is able to cover its cost and earn profit .
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2.Profit.the most important objective of every organization is earning adequate amount of profit. Profit is
essential for survival, growth and expansion of business.
3.Growth.business organization must grow and expand their activities . The success of any organization is
measured by the growth of rate and growth is measured in terms of sales ,number of branches.
Social objectives
Social objective of the organizations deal with the commitment of the organisation towards the society.
Business organization are the part of society.
The major social objectives of organizations are:
(a)Supply of quality products at reasonable prices.
(b)Generation of economic wealth
(c)Generation of employment opportunities.
(d)Using environmental friendly methods of productions.
(e)Providing employment opportunities to weaker section of society.
Personal objectives/human objectives/individual objectives
Individual objectives are related to the employees of the organization. As employees are most important
resources of every company and satisfied and motivated employees contribute maximum for the
organizations. The main objectives of management are:
(a)Competitive salary (b)Social recognition
(e)Good and healthy working conditions
Importance of management
1.Management helps in achieving group goal. Management tries to integrate the objective of all the
individuals in the common direction.
2.management improves efficiency . Managers try to reduce the cost and improve productivity with
minimum wastage of resources . Management insists on efficiency and effectiveness in the work. Through
planning.
3.management creates a dynamic organization. Organization have to survive in dynamic environment so
managers keep making changes in the organization to match the environmental changes .efficient
managements motivates employees to adopt changes willingly by convincing them that change is not only
beneficial for organization but it improves the employees work also.
4.management helps in achieving personal objectives. An efficient manager is the one whop brings
maximum prosperity for employer as well as employees mangers lead the people in such a manner that
along with organizational goal individual goal of employees is also achieved.
5.management helps in development of society. Efficient management always has multiple objectives,
they give due importance to social obligations, towards different groups of people such as employees,
customers, suppliers etc .
NATURE OF MANAGEMENT
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Some author regard management as science because there are well tested and experimented principles of
management ,some authors describe management as an art because more practice is required in management
and some authors consider that management is going towards the paths of profession.
Management as a science
Science can be defined as a systematic and organized body of knowledge based on logically observed
findings, facts and events.
Main features of science are:
1.systematic body knowledge. In science organized and systematic study material is available which is
used to acquire the knowledge of science.
2.scientific principle re derived on the basis of logical and scientific observations. The scientist perform
logical observation before deriving any principle or theory .they are objective while doing the observations.
3.principle are based on repeated experiments. Before developing scientific principles scientist test these
principles under different conditions and places. Similarly ,managers also test and experiment managerial
principles under different conditions in different organizations .so this feature of science is present in
management.
4.universal validity. Scientific principles have universal application and validity .management principles
are not exact like scientific principles so their application and use is not universal . So this feature of
science is not present in management.
5.replication is possible. In science replication is possible as when two scientists are undertaking the same
investigation working independently and treating the same data under the same conditions may desire or
obtain the identical or exactly same result.
On comparing the features of science with management we find that two features of science are present in
management whereas three are not present so management cannot be considered pure or exact science but
we can call it as an inexact science or social science.
Management as an art
Art can be defined as systematic body of knowledge which requires skill, creativity and practice to get
perfection.
Features
1.systematic body of knowledge of theoretical knowledge .in every art there is systematic and organized
study material available to acquire theoretical knowledge of the art .in management also there is systematic
and organized body of knowledge available which can help in acquiring managerial studies.
2.personalised application. In the field of art only theoretical knowledge is not enough .every artist must
have personal skill and creativity to apply that knowledge. In management also all managers learn same
management theories and principle .so this feature of art is also present in management.
3.basedon practice and creativity .the artist requires regular practice of art to become more fine and
perfect. Same way with experience managers also improve their managerial skills and efficiency. So this
feature of art is also present in management.
Management as a profession
Profession can be defined as an occupation backed by specialized knowledge and training ,in
which entry is restricted.
Features:
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1.well defined body of knowledge. In every profession there is practice of systematic body of
knowledge which helps the professionals to gain specialized knowledge .in case of management
also there ia s availability of systematic body of knowledge.
2.restricted entry .the entry profession is restricted through an examination or degree. Example a
person can practice as doctor only when he is having MBBS degree. Where there is no legal
restriction on appointment of a manager ,anyone can became a manager irrespective of the
educational qualification. presently this feature of profession is not present in management but
every soon it will be included with statutory backing.
3.presence of professional associations. For all professions special associations are established
and every professional has to get himself registered with his association before practicing that
profession. In case of management various management associations are set up at national and
international levels which have some membership rules and set of ethical codes, for example
AIMA in new delhi ,national institute of personal management at Calcutta etc.
4.existence of ethical codes. For every profession there are set of ethical codes fixed by
professional organizations and are binding on all the professionals of that professionals of that
profession .in case of management there is growing emphasis on ethical behavior of managers.
5.service motive. The basic motive of every profession is to serve the clients with dedication.
Whereas basic purpose of management is achievement of management goal. Presently this feature
profession is not present but very soon it will be included.
Conclusion :->we can say management is on the path of becoming a profession. Today it may
not be recognized as a full fledge profession like doctor ,lawyer etc, but very soon it will be
recognized as a full-fledge profession.
Level of management
In companies large number of persons are employed and placed at different managerial
activities . this chain is divided into three levels which result in creation of three levels of
management. The main levels of management are: 1.top level management
2.middle level management.
3.supervisory level, operational or lower level of management.
Top level management
Top level management consists of chairman ,board of directors, managing directors general
manager ,president, vice president ,chief executive officer(C.E.O.),chief financial
officer(C.F.O.)and chief operating officer etc. It included group of crucial persons essential for
leading and directing the efforts of other people.
Main function of top level management are:
(a)determining the objectives of the enterprise.
(b)framing of plans and policies.
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(c) organizing activities to be performed by persons working at middle level.
(d) assembling all the resources such as finance ,fixed assets etc.
(e)responsible for welfare and survival of the organization.
Middle level management
This level of management consists of departmental heads such as purchase department
head ,sales department head ,finance manager, marketing managers executive officer ,plant
superintendent etc. People of this group are responsible for executive the plans and policies
made `by top level .they act as a linking pin between top and lower level management.
Main functions of middle management are:
(a) interpretation of policies framed by top management to lower level.
(b)organizing the activities of their department for executive the plans and policies.
(c)finding out or recruiting and appointing the requires employees for their department.
(d)motivating the persons to perform to their best ability . The middle level managers offer various
incentives to employees.
(e)implementing the plans framed by top level.
Supervisory level/operational level
The level consists of this level consists of supervisor ,superintendent clerk foreman etc. Managers
of this group actually carry on the work or perform the activities according to the plans of top and
middle level management. Their authority is limited.
Function of lower level management are:
(a)representing the problem or grievances of workers before the middle level management.
(b)maintain goods working conditions and developing healthy relations between superior and
subordinate.
(c) looking to safety of workers. Supervisory level managers provide safe and secure work
environment for workers.
(d)helping the middle level management in recruiting ,selecting and appointing the workers.
(e)minimizing the wastage of materials
Functions of management
(a)planning. Planning is always the first function performed by every manager. Planning refers
to deciding in advance what to do ,how to do ,when to do, and who is going to do it. Planning
bridges the gap between where we stand today and where we want to reach.
(b)organizing .after setting up a plans next function of every manager is to organize the activity
and establishing an organization structure to execute the plan. Setting up organizational structure
means deciding the framework of working how many units and sub-units.
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(c) staffing. Staffing is the third step or function of a manager. It refers to recruiting ,selecting,
appointing the employees ,assigning them duties, maintaining cordial relations and taking care of
grievances of employees.
(d)directing .once the employees are appointed there is need to instruct them and get the work
done. Directing refers to giving directions or instructions to employees by motivating them
supervising the activities of employees communicating with them.
(e)controlling. This is the last function of managers. In this function managers try to match the
actual performance with the planned performance and if there is no match between both them
managers try to find out the reasons of deviation and suggest corrective measures to come on the
path of plan.
Coordination
There is one important function which every manager has to perform..this is called coordination.
it is not only a function but it is the essence of management.
Coordination can be defined as synchronization of efforts from the stand point of time and
the sequence of execution . In general coordination means bringing together the activities and
resources of organization and bringing harmony in them.
Coordination :the essence of management

Coordination brings unity of action integrates different activities of organization. Coordination is
considered as the essence of management because of following reasons
1.coordination is needed to perform all the functions of management :
(i)in planning coordination is required between main plan and supportive plans of different
departments.
(ii)in staffing coordination is required between skill of a person and job assigned to him.
(iii)in directing function coordination is required between superior and subordinates.
(iv)in controlling function coordination is requires between standards and actual performance.
2.coordination is required at all the levels:
(i)top level requires coordination to integrate add the activities of organization and lead the efforts
of all the individuals in one common direction.
(ii)coordination is required at middle level to balance the activities of different departments so that
these can work as a part of one organization only.
3.coordination is the most important function of an organization. any company which fails to
coordinate its activities cannot survive and run successfully for a long period of time.
Difference between coordination and cooperation
basic coordination cooperation
Meaning Coordination refers to bringing Coordination refers to voluntary
together the activities of an efforts of individuals to work
organization . together and help each other.
nature Coordination is a conscious and It is voluntary efforts of
deliberate action of manager. employees.
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interdependence Coordination is interdependent Cooperation is also dependent
upon cooperation as it is upon coordination as it is
incomplete without it. meaningless without it.
relations Coordination is achieved through Cooperation arises out of informal
both formal and informal relations. relations
Principle of management
The concept
A managerial principle is a broad and general guideline for decision making and behavior. Management
principles are not as rigid as principles of pure science. They deal with human behavior and, thus, are to be
applied creatively given the demands of the situation.
Nature of Principles of Management
The following points summaries the nature of principles of Management:
1.Universal applicability. The principles of management are intended to apply to all types of organizations,
business as well as non-business, small as well as large, public sector as well as private sector,
manufacturing as well as the services sectors.
2.General guideline. The principles are guidelines the action but do not provide readymade, straitjacket
solutions to all managerial problems. This is so because real business situations are very complex and
dynamic and are a result of many result of many factors. However, the importance o principles cannot be
underestimated because even a small guideline helps to solve a given problem.
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3.Formed by practice and experimentation. The principles of management are formed by experience and
collective wisdom of managers as well as experimentation.
4.Flexible. The principles of management are not rigid prescriptions, which have to be followed absolutely.
They are flexible and can be modified by the manager when the situation so demands.
5.Mainly behavioral. Management principles aim at influencing behavior of human beings. Therefore,
principles of management are mainly behavioral in nature. Moreover principles enable a better
understanding of the relationship between human and material resources in accomplishing organizational
purposes.
6.Cause and effect relationships. The principles of management are intended to established relationship
between cause and effect so that they can be used in similar situations in a large of cases.
7.Contingent. The application of principles of management is contingent or dependent upon the prevailing
situation at a particular point of time.
Significance of principles of management.

The principles of management derive their significance from their utility. They provide useful insights to
managerial behavior & influence managerial practices. Managers may apply these principles to fulfill their
takes and responsibilities. Principles guideline managers in taking and implementing decisions.
1.Providing managers with useful insights into reality. The principles of management provide the
managers with useful insights into real world situations. These principles will add to their knowledge,
ability and understanding of managerial situations and circumstances.
2.Optimum utilization of resources & effective administration. Resources with both human & material
available with the company are limited. They have to be put to optimum use. By optimum use we mean
that the resources should be put to use in such a manner that they should give maximum benefits with
minimum cost. Principles of management limit the boundary of managerial discretion so that their
decisions may be free from personal prejudices and biases.
3.Scientific decisions. Decisions must be based on facts, thoughtful and justifiable in terms of the intended
purposes. They must be timely, realistic and subject to measurement and evaluation. Management
principles help in thoughtful decision-making.
4.Meeting changing environment requirements. Although the principles are in the nature of general
guidelines but they are modified and as such help managers to meet changing requirements of the
environments.
5.Fulfilling social responsibility. The increased awareness of the public, forces business especially limited
companies to fulfill their social responsibilities. Management theory and management principles have
also evolved in response to these demands.
6.Management training, education and research. Principles of management are at the core of management
theory. As such these are used as a basis for management training. Education and research.
Taylors scientific management.

Scientific management refers to n important stream of one of the earlier schools of thought of management
referred to as the Classical school.
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Fredrick Winslow Taylor was an American mechanical engineer who sought to improve industrial efficiency.
In 1874, he becomes apprentice mechanist, learning factory conditions at the grass roots level. Taylor thought
that by scientifically analyzing work, it would be possible to find one best way to do it. He is most
remembered for his time and motion studies. He known for coinage of the term scientific management in his
article the principles of scientific management published in 1911. After being fired from Bethlehem steel
company he wrote a book Shop floor which sold well.
In the words of Taylor, scientific management means knowing exactly what you want man to do and seeing
that they do it in the best and cheapest way.
1.Science not Rule of Thumb. Taylor pioneered the introduction of the method of scientific inquiry into
domain of management practice. Taylor believed that there was only one best method to maximize
efficiency. This method can be developed should substitute Rule of thumb throughout the organization.
According to Taylor, even a small production activity. Like loading pigs of iron into boxcars can be
scientifically planned. This can result in tremendous saving of human energy as well as wastage of time
and materials.
2.Harmony, not discord. Factory system of production implied that managers served as a link between the
owners and the workers. Since as managers they had the mandate to get work done from the workers, it
should not be difficult for you to appreciate that there always existed the possibility of a kind of class-
conflict, the managers versus workers. Taylor recognized that this conflict helped none, the workers, the
managers or the factory owners. He emphasized that there should be complete harmony between the
management and workers. Both should realize that each one is important. Management should share the
gains of the company, if any , with the workers. At the same time workers should work hard and be
willing to embrace change for the good of the company.
3.Cooperative, non individualism. There should be complete cooperation between the labour and the
management instead of individualism. This principle is an extension of principle of Harmony discord.
For this, management should not close its ears to any constructive suggestions made by the employees.
4.Development of each and every person to his or her greatest efficiency and prosperity. Industrial
efficiency depends to a large extent on personnel competencies, as such, scientific management also stood
for worker development.
To increase efficiency, they should be given the required training. Efficient employees would produced
more and earn more. This will ensure their greatest efficiency and prosperity for both company and
workers.
Techniques of scientific management
Functional foremanship. In the factory system, the foreman represents the managerial figure with whom
the workers are in face-to-face contact on a daily basis.
Taylor concentrated on improving the performance of this role in the factory set-up. In fact, he identified a
list of qualities of a good foreman/supervisor and found that no single person could fit them all. This
prompted him to suggest functional foremanship through eight persons.
Under the factory manager there was a planning incharge and a production incharged. Under planning
incharge four personnel namely instruction card clerk, route clerk, time and cost clerk and a disciplinarian
worked. These four personnel would draft instructions for the workers, specify the route of production,
prepare time and cost sheet and ensure discipline respectively.
Under production incharge, personnel who would work were speed boss, gang boss, repair boss, and
inspector.
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These respectively were responsible for timely and accurate completion of job, keeping machines and tools
etc., ready for operation by workers, ensure proper working condition of machines and tools and check the
quality of work.
Standardization and simplification of work. Standardization refers to the process of setting standards for
every business activity; it can be standardization of process, raw material, time, product, machinery,
methods or working conditions. These standards are the benchmarks, which must be adhered to during
production.
1. To reduce a give line or product to fixed types, sizes and characteristics.
2. To establish interchange ability of manufactured parts and products.
3. To establish standards of excellence and quality in materials.
4. To established standards of performance of men and machines.
Simplification aims at eliminating superfluous varieties, sizes and dimensions while standardization
implies devising new varieties instead of the existing ones.
Method study. The objective of method study is to find out one best way of doing the job. There are
various methods of doing the job. To determine the best way there are several parameters. Right from
procurement of raw materials till the final product is delivered to the customer every activity is part of
method study.
Motion study. Motion study refers to the study of movements like lifting, putting objects, sitting and
changing positions etc., which are undertaken while doing a typical job. Unnecessary movements are
sought to be eliminated so that it takes less time to complete the job efficiently.
Time study. Determines the standard time taken to perform a well-defined job. Time measuring devices
are used for each elements of task. The standard time is fixed for the whole of the task by taking several
readings. The method of time study will depend upon volume and frequency of the task, the cycle time of
the operation and time measurement costs.
Fatigue study. A person is bound to feel tired physically and mentally is she/he does not est while
working. The rest intervals will help one to regain stamina and work again with the same capacity. This
will result in increased productivity. Fatigue study seeks to determine the amount and frequency of rest
intervals in completing a task.
Differential piece wage system. Taylor was a strong advocate of piece wage system. He wanted to
differentiate between efficient and inefficient workers. The standard time and other parameters should be
determined on the basis of the work-study discussed above. The workers can then be classified as deficient
or inefficient on the basis of these standards. He wanted to reward efficient workers. So he introduced
different rate of wage payment for those who performed above standard and for those who performed
below standard. For example, it is determined that standard output per worker per day is units and those
who made standard or more than standard will get Rs 50 per unit and those below will get Rs.40per unit.
Now an efficient worker making 11 unit will get 11x50 = Rs.550 per day whereas a worker who makes 9
units will get 9x40 = Rs.360 per day.
Mental revolution. Mental revolution involves a change in the attitude of workers and management
towards one another from competition to cooperation. Both should realize that they require one another.
Both should aim to increase the size of surplus. This would eliminate the need for any agitation.
Management should share a part of surplus with workers. Workers should also contribute their might so
that the company makes profits.
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Fayols principles of Management. Henry fayol (1841-1925) was a French management theorist whose
theories concerning scientific organization of labour were widely influential in the beginning of twentieth
century. Based largely on his own experience, he developed his concept of administration. The 14
principles of management propounded by him were discussed in detail in his book published in 1917.
Administration industrielle et general. It was published in English as General and Industrial Management
in 1949 and is widely considered a foundational work in classical management theory.
The 14 principles of management given HENRY FAYOL

1. Division of work. Work is divided into small tasks/jobs. A trained specialist who is competent is
required to perform each job. Thus, division of work leads to specialization.
2. Authority and responsibility. According to fayol, Authority is the right to give orders and obtain
obedience, and responsibility is the corollary of authority. There should be a balance between authority
and responsibility. An organization should build safeguards against abuse of managerial power. At the
same time a manager should have necessary authority to carry out his responsibility.
3. Discipline. Discipline is the obedience to organizational rules and employment agreement which are
necessary for the working of the organization. According to fayol, discipline requires good superiors at
all levels, clear and fair agreements and judicious application of penalties.
4. Unity of Command. According to Fayol there should be one and only one boss for every individual
employee. If an employee gets orders from two superiors at the same time the principle of unity of
command is violated. The principle of unity of command states that each participant in a formal
organization should receive orders from and be responsible to only one superior.
5. Unity of direction. All the units of an organization should be moving towards the same objectives
through coordinated and focused efforts. Each group of activities having the same objective must have
one head and one plan. This ensures unity of action and coordination. For example, if a company is
manufactureing motorcycles as well as cars then it should have two separate divisions for both of them.
Each division should have its own incharge, plans and execution resources.
6. Subordination of individual interest to general interest. The interest of an organization should take
priority over the interests of any one individual employee according to Fayol. Every worker has some
individual interest for working in a company. The company has got its own objectives. For example the
company would want to get maximum output from its employees at a competitive cot (salary). On the
other hand an employee may want to get maximum salary while working the least.
7. Remuneration of employees. The overall pay and compensation should be fair to both employees and
the organization. The employees should be paid fair wages, which should give them at least reasonable
standards of living. At the same time it should be within the paying capacity of the company.
8. Centralization and decentralization. The concentration of decision-making authority is called

centralization whereas its dispersal among more than one person is known as decentralization.
According to fayol, there is a need to balance subordinate involvement through decentralization with
managers retention of final authority through centralization. The degree of centralization will depend
upon the circumstances in which the company is working.
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9. Scalar chain. An organization consists of superiors and subordinates. The formal lines of authority
from highest to lowest ranks are known as scaler chain. According to Fayol, Organizations should
have a chain of authority and communication that runs from top to bottom and should be followed by
managers and the subordinates. Let us considerasituation where there is one head A who has two
lines of authority under her/him. One line consists of B-C-D-E-F. another line of authority under A is
L-M-N-O-P. if E has to communicate with O who is at the same level of authority then she/he has to
traverse the route E-D-C-B-A-L-M-N-O.
10. Order. According to Fayo, People and materials must be in suitable places at appropriate time for
maximum efficiency. The principle of order states that A place for everything (everyone) in its
(her/his) place. Essentially it means orderliness. If there is a fixed place for everything and it is present
there, then there will be no hindrance in the activities of business/ factory.
11. Equity. Good sense and experience are needed to ensure fairness to all employees, who should be
treated as fairly as possible, according to Fayol. This principle emphasizes kindliness and justice in the
behavior of managers towards workers. This will ensure loyalty and devotion. Fayol does not rule out
use of force sometimes.
12. Stability of personnel. Employee turnover should be minimized to maintain organizational
efficiency, is according to fayol. Personnel should be selected and appointed after due and rigorous
procedure. But once selected they should be kept at their post/position for a minimum fixed tenure.
They should be given reasonable time to show results.
13. Initiative. Workers should be encouraged to develop and carry out their plans for improvements
according to Fayol. Initiative means taking the first step with self-motivation. It is one of the trails of an
intelligent person. Initiative should be encouraged.
14. Spirit De Corps. Management should promote a team spirit of unity and harmony among employees,
according to fayol. Management should promote teamwork especially in large organizations because
otherwise objectives would be difficult to realize. It will also result in a loss of coordination. A manager
should replace I with We in all his conversations with workers to foster team spirit. This will give
rise to a spirit of mutual trust and belongingness among team members.
Sl. No. Basis of difference Henri Fayol F. W. Taylor
1. Perspective Top level of management Shop floor level of a factory
2. Unity of Command Staunch Proponent Did not feel that it is important as

under functional foremanship a
worker received orders from eight
specialists.
3. Applicability Applicable universally Applicable to specialized situations
4. Basis of formation Personal experience Observations and experimentation
5. Focus Improving overall administration Increasing Productivity
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6. Personality Practitioner Scientist
7. Expression General Theory of Administration Scientific Management
PLANNING
CONCEPT OF PLANNING:- Planning is deciding in advance what to do? And how to do? Planning is
closely connected with creativity and innovation. Planning seeks to bridge the gap between where we are
and where we want to go. Planning is what managers at all levels do. It requires taking decisions since it
involves making a choice from alternative courses of action. Planning, thus, involves setting objectives and
developing appropriate
e courses of action to achieve these objectives. Planning provides a rational approach for achieving
predetermined objectives. Planning means setting objectives and targets and formulating an action plan to
achieve them.
IMPORTANCE OF PLANNING
(i) Planning provides directions: Planning ensures that the goals or objectives are clearly
stated so that they act as a guide for deciding what action should be taken and in which direction.
(ii)Planning reduce the risks of uncertainty: By deciding in advance the tasks to be performed,
planning shows the way to deal with changes and uncertain events.
(iii) Planning reduces overlapping and wasteful activities: It helps in avoiding confusion
and misunderstanding. Since planning ensures clarity in thought and action. Work is carried in
smoothly without interruptions.
(iv) Planning promotes innovative ideas:
(v)Planning facilitates decision making: The manager ahs to evaluate each alternative and select the
most viable proposition. Planning involves setting and predicting future conditions.
(vi) Planning establishes standards for controlling: Plan provides the goals or standards
against which some actual performance is measured. By comparing actual performance with some
standard, managers can know whether they have actually been able to attain the goals.
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FEATURES OF PLANNING
Planning is the primary function of management they have set their objectives first. Thus, all
businesses follow a set pattern of planning g.
i Planning focuses on achieving objectives:
ii Planning is a primary function of management:
iii Planning is pervasive:
iv Planning is continuous:
v Planning is futuristic:
vi Planning is a mental exercise:
Limitations of Planning
(i) Planning leads to rigidity:
ii Planning may not work in a dynamic environment:
iii Planning reduces creativity.
iv Planning involves huge costs:
v Planning is a time-consuming process:
vi Planning does not guarantee success:
PLANNING PROCESS
(i) Setting Objectives:
Objectives may be set for the entire organisation and each department or unit within
wants to achieve.
ii Developing Premises: Planning is concerned with the future which is uncertain the manager is required to
make certain assumption about the future. These assumptions are called premises. Assumptions are
the base material upon which plans are to be drawn.
iii Identifying alternative courses of action: There may be many ways to act and achieve objectives. All the
alternative courses of action should be identified.
iv Evaluating Alternative Courses: Each course will have many variables which have to be weighed against
each other. The positive and negative aspects of each proposal need to be evaluated in the light of the
objective to be achieved.
v Selecting An Alternative: The best plan has to be adopted and implemented. The ideal plan of course,
would be the most feasible, profitable and with least negative consequences.
vi Implementing the Plan: This step is concerned with putting the plan into action i,e., This step would also
involve organizing for labour and purchase of machinery.
vii Follow-Up Action: Monitoring the plans is equally important to ensure that objectives are achieved.
TYPES OF PLANS
Plans can be classified as-Objectives, Strategy, Policy. Procedure, Method, Rule, Programme, Budget.
OBJECTIVES
The first step in Planning is setting objectives. Objectives, therefore, can beside to be the deserted
future position that the management would like to reach. Objectives are very basic to the organization
and they are defined as ends which the management seeks to achieve by its operations.
STRATEGY
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A strategy providers the broad contours of an organisations business. It also refer to future decisions
defining the organisations direction and scope in the long run. Thus, we can say a strategy is a
comprehensive for plan for accomplishing an organisation objectives. This comprehensive plan
will include three dimensions,
i Determining long term objective,
ii Adopting a particular course of action, and
iii Allocating resources necessary to achieve the objective.
POLICY
Polices are general statements that guide thinking or channels energies provide a basis for interpreting
strategy which is usually stated in the implementation strategy. For example, the company may have
recruitment policies, define the broad parameters within which a manager may function. The manager
may use his/her discretion to interpret and apply a policy.
PROCEDURE
Procedures are routine steps on how to carry out activities. They detail the exact manner in which any
work is to be performed. They are specified in a chronological order. for example, there may be a
procedure for requi9sitioning supplies before production.
METHOD
Methods provide the prescribed ways or manner in which a task has to be performed considering the
objective. It deals with a task comprising one-step of a procedure and specifies how this step is to be
performed. The method may vary form task to task.
PROGRAMME
Programmes are detailed statements about a project which outlines the objectives, Policies,
procedures, rules tasks, human and physical resource required and the budget to imply men any
course of action. Programme will include the entire gamut or activities as well as the organisations.
BUDGET
a budget is a statement of expect results expressed in numerical term. It is a plan which quantifies
future facts and figures. For example, sales budget may forecast the sale of different products in each
area for a particular month.
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ORGANISATION
Organization is concerned with the building ,developing and maintaining of a structure of working
relationships in order to accomplish the objectives of the enterprise.
Organisation structure is purposive, dynamic and philosophical index of an enterprise.
Organisation structure of the business is the basic framework within which the executives decision-making
behavior takes place. Dalton E.McFarland
Simply stated ,Organization structure is a network of relationships.It is a way in which the jobs, the
jobholders and their positions are put together or organized.
Functions of Organisation Structure:-
1. Providing an efficient production system
2. Providing a system of communication
3. Providing satisfactions to individual members of the organization
4. Providing organizational and individual indentities.
Types of Organisation:- There are various types of organization structure
1. Line Organisation
(i) Pure Line Organisation
(ii) Departmental Line Organisation
2. Functional Organisation
3. Line and Staff organization
4. Committee organization
5. Project or matrix organization
Line Organisation
Line Organisation is , by,far , the oldest type of organization structure.It is the simplest
and most convenient form of organization. It acts as the originating point for other types of organization
structure.
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Line Organisation is that patter of organization structure where authority flows directly from
the top to the bottom through various level . In such organization structure , the Lines of authority are
direct , with no advisory or auxillary activities attached.
In Line Organisation authority flows directly from the board of directors to managing director then,
In turn , to manager, to assistant manager, to superintendent,to foreman and to the workers.
There are two kinds of line organization
(i) Pure Line Organisation:- Pure line organization is one in which the activities on any one
level are same , each man having exactly or at least relatively the same king of task to
perform up to the higher levels, each group of activities being a unit within itself,is adequate
for the functions which it is required to perform. . In this waw , all the workmen in this type
of organization perform the same type of work or task.
(ii) Departmental Line Organisation :- Departmental organization is one in which the

enterprise is divided into departments that , as a rule , are not alike in functions to be
performed . Thus in this type of organization works are normally divided on functional basis.
Then different departments are created within the enterprise and headed by separate heads
and all departments are directed and controlled by a superior(general Manager).
Functional Organisation :- An Organisation which is structured internally on the basis of major

functions performed in the enterprise is known as functional Organisation.
Accordingly , under this type of organizational structure , all the activities of the enterprise are grouped
together into broad functions, such as production, finance, personnel and marketing. These functions are put
under the charge of different specialists. The credit to evolve and to popularize it goes to F.W.Taylor.
Each function would be performed under a person or a boss. Out of eight bosses functions
are divided as ,foru bosses would be in the planning room and other four in the shop or production.
Line and Staff Organisation :- Line and staff organization is considered an improvement over the
functional organization . This form of organization combines the positive qualities of both the line and
functional structures . Line and staff organization simply relate to authority relationship of members of
organization. It refers to a pattern of organization in which individual specialists and groups of specialist
advise the line executives or managers in the performance of their activities.
Line authority is the fundamental authority in organization , without it no organization exists and
works .line authority is the relationship in which a superior exercises direct supervision over a subordinate.
Staff Authority , under this the upper level management delegates the authority to the lower
level and takes the help of specialists in decision making.
Committee Organisation :- Committee refers to a group of persons appointed to attend to special
business or task. It is an administrative device based on group decision making backed by democratic
philosophy. It has become widespread . committees help shape and are a part of almost every organization
structure and design. Interaction of members (committee) serving as a group should produce superior
results in comparision to an individual,the complexity of organization can be handled with committee.
Under committee organization , committees are appointed to handle the complexity of organization and to
produce better result in organization .
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COMMUNICATION
Communication plays key role in the success of a manager. How much professional Knowledge and
intelligence a manager possesses becomes immaterial if he is not able to communicate
Effectively with his subordinates and create understanding in them. Communication is defined in different
Ways. Generally, it is understood as a process of exchange of ideas, views, facts, fillings etc., between
or among people to create common understanding.
Elements of Communication Process: Communication has been defined as a process. This process involves
Elements like source, encoding, media/channel, receiver, decoding, noise and feedback.
(i)Sender: Sender means person who conveys his thoughts or ideas to the receiver. The sender represents
Source of communication.
(ii) Message: It is the content of ideas, feelings, suggestions, order etc., intended to be communicated.
(iii)Encoding: it is the process of converting the message into communication symbols such as words,
Pictures, gestures etc.,
(iv) Media: It is the path through which encoded message is transmitted to receiver. The channel may be
in written from, face to face, phone call, internet etc.,
(v)Decoding: it is the process of converting encoded symbols of the sender.
(vi)Receiver: The person who receivers communication of the sender.
(vii) Feedback: It includes all those actions of receiver indicating that he has received and understood
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message of sender.
(viii)Noise: Noise means some obstruction and hindrance to communication. This hindrance may be
caused to sender, message or receiver. Some examples of noise are;
a Ambiguous symbols that lead to faulty encoding.
b A poor telephone connection.
c An inattentive receiver.
d Faulty decoding (attaching wrong meanings to message).
e Prejudices obstructing the poor understanding of message.
IMPORTANCE OF COMMUNICATION:
a Acts as basis of coordination: Communication acts as basis of coordination. It provides coordination
among departments, activities and persons in the organization.
b Help in smooth working of an enterprise: Communication makes possible for the smooth and
unrestricted working of the enterprise
c Acts as basis of decision making: Communication provides needed information for decision making.
In its absence, it may not be possible for the managers to take any meaningful decision.
d Increases managerial efficiency: Communication is essential for quick and effective

performance of managerial functions.
e Promotes cooperation and industrial peace: Efficient operation is the aim of all prudent management.
It may be possible only when there is industrial peace in the factory and mutual co-operation
between management and workers.
Formal Communication: Formal communication flows through official channels designed in the
organization chart. This communication may take place between a superior and subordinate, a subordinate and
superior or among same cadre employees or managers. Formal communication may be vertical and horizontal.
Vertical communication flows vertical, upwards or downwards through formal channels. Upwards
communications refer to flow of communication from subordinate to superior whereas downward
communication indicates communication from a superior to subordinate. Horizontal or lateral
communication take place between one division to another. For example, a production manager
may contact marketing manager to discuss about schedule of product delivery, design, quality etc.
(a)Single Chain: this network exists between a supervisor and his subordinates. Since many levels exist in
an organization structure, communication flows from every superior to his subordinate through single chain.
# Wheel: In wheel network, all subordinates under one superior communicate through him only as he
acts as a hub of the wheel. The subordinates are not allowed to talk among themselves.
# Circular: In circular network, the communication moves in a circle. Each person can communicate
with his adjoining two persons. In this network, communication flow is slow.
# Free flow: in this network each person can communicate with other freely. The flow of communication
is fast in this network.
# Inverted V: In this network, a subordinate is allowed to communicate with his immediate superior as
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well as his superiors superior.
Information Communication: Communication that takes place without following the formal lines
of communication is said to be informal system of communication is generally referred to as the grapevine
because it spreads throughout the organization with its branches going out in all directions in utter disregard
to the levels of authority. The informal communication arises out of needs of employees to exchange their
views, which cannot be done through formal channels. It also leads to generate rumours which are not
authentic. Peoples behavior is affected by rumours and informal discussion and sometimes may hamper
work environment.
Barriers to communication: It is generally observed that managers face several problems due to
communication breakdowns or barriers. These barriers may prevent a communication or filter part of it or
carry incorrect meaning due to which misunderstanding may be created.
The barriers to communication in the organizations can be broadly grouped as, semantic barriers,
psychological barriers, organizational barriers, and personal barriers.
Semantic Barriers: Semantic is the branch of linguistics dealing with the meaning of words and
sentences. Semantic barriers are concerned with problems and obstructions in the process of encoding and
decoding of message into words or impressions. Normally, such barriers result on account of use of wrong
words, faulty translations, different interpretations etc.
a Badly expressed message: Sometimes intended meaning may not convey by a manager to his
subordinates.
b Symbols with different meanings: A word may have several meanings. Receiver has to perceive one
such meaning for the word used by communicator.
c Faulty Translations: Sometimes the communications originally drafted in one language need to be
translated to the language understandable to workers. If the translator is not proficient with both the
languages, mistakes may creep in causing different meanings.
d Unclarified assumption:
e Technical jargon: It is usually found that specialists use technical jargon while explaining to persons
who are not specialists in the concerned field.
Psychological barriers: Emotional or psychological factors acts as barriers to communicators. For
example, a worried person cannot communicate properly and an angry receiver cannot understand the real
meaning of message.
a Premature evaluation: sometimes people evaluate the meaning of message before the sender
completes his massage.
b Lack of attention: The preoccupied mind of receiver and the resultant non-listening of message acts
as a major psychological barrier.
c Loss by translation and poor retention: When communication passes through various levels,
successive transmissions of the message results in loss of, or transmission of inaccurate information.
d Distrust: Distrust between communicator and communicate acts as barrier.
Organisational barriers: The factors related to organization structure, authority relationships, rules and
regulations may, sometimes, acts as barriers to effective communication.
a Organisational Policy: if the organizational policy, explicit or implicit, is not supportive to free flow
of communication.
b Rules and regulations: Rigid rules and cumbersome procedures may be a hurdle to communication.
c Status: Status of superior may create psychological distance between him and his subordinates.
d Complexity in organization structure: In an organization where there are number of managerial
levels, communication gets delayed.
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e Organisational Facilities: If facilities for smooth, clear and timely communications are not provided
communications may be hampered.
Personal barriers: The personal factors of both sender and receiver may exert influence on effective
communications. Some of the personal barriers of superior or subordinates are mentioned below:
a Fear of challenge to authority:
b Lack of confidence of superior on his subordinates:
c Unwillingness to communicate:
d Lack of Proper incentives:
MOTIVATION
Motivation: motivation means incitement or inducement to act or move. In the context of an organization, it means
the process of making subordinates to act in a desired manner to achieve certain organizational goals.
Motivation is the desire within an individual that stimulates him or her to action George R.Terry
(i). Motive: A motive is an inner state that energies, activates or moves and directs behavior towards goals. Motives.
Motives arise out of the needs of individuals.
(ii). Motivation: Motivations is the process of stimulating people to action to accomplish desired goals.
(iii). Motivators: Motivator is the technique used to motivate people in an organization. Managers use
diverse motivators like pay, bonus, promotion, recognition, praise, responsibility etc.
Features of motivation: the analysis of various definitions and viewpoints on motivation reveals th following
features of motivation.
(i). Motivation is an internal feeling.
(ii). Motivation produces goal directed behavior.
(iii). Motivation can be either positive or negative. Positive motivation provides positive rewards like
increase in pay, promotion, recognition etc.
(iv). Motivation is a complex process as the individuals are heterogeneous in their expectations,
perceptions and reactions.
Motivation Process: An unsatisfied need of an individual creates tension which stimulates his or her drives. These
drives generate a search behavior to satisfy such need. If such need is satisfied, the individual is relieved of tension.
Unsatisfied Need->Tension->Drives-> Search Behavior -> Satisfied Need -> Reduction of Tension
THEORIES OF MOTIVATION
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(1) :- Maslows need Hierarchy Theory of Motivation: Abraham Maslow, a well-know Psychologist
in a classic paper published in 1943, outlined the elements of an overall theory of motivation.His theory was based on
human needs. He felt that within every human being, there exists a hierarchy of five needs.
(i). Basic/ Physiological Needs: These needs are most basic in the hierarchy and corresponds to primary
needs. Hunger, thirst, shelter, sleep and sex are some examples of these needs.
(ii).Safety/Security Needs: These needs provides security and protection from physical and emotional
harm. Example; job security, stability of income, pension plans etc.
(iii).Affiliation/Belonging needs: These needs refer to affection, sense of belongingness, acceptance and friendship.
(iv).Esteem Needs: These includes factors such as self-respect, autonomy status, recognition and attention.
(v). Self Actualisation Needs: It is the highest level of need in the hierarchy. It refers to the drive to become what
one is capable of become.
(2).The Carrot and the Stick Approach:- It is oldest approach to motivate human behaviour . It is said that the
carrot and stick approach of motivation is based on the old story that to move a donkey move , one must put a carrot
in front of him or job him with stick from behind. Here carrot relates to reward and the stick relates to penalties or
punishment. In order to motivate people in desired way , inducements of some kind of carrot are essential . Money is
considered as an important carrot like wages,salary,bonus,promotion etc .
On other hand stick is penalties or fear. It motivates the people not to work in an undesired manner. For eg fear of
loss of employment,loss of income ,loss of position, reduction in bonus etc act as sticks
(3):- Herzbergs Hygiene Theory:- Herzberg developed a two-fold theory of motivation-hygiene factors and
motivational factors. Hygiene factors are also termed as maintenance or job context factor. Company policy and
administration, quality of supervision, working conditions, inter-personal relationship with supervisors, inter personal
relationship with peers and subordinates, salary, status, job security, and persona life come under hygiene factors.
These aspects of hygiene factors are only dissatisfiers and not motivators. If hygiene factors exist in high quantity and
quality in a work condition or environment , dissatisfaction does not arise.
The second factor is motivational factors or motivators. According to Herzberg, there are six factors that an
individual to do his best. These include achievement , recognition, advancement, challenging work , growth in job and
responsibility. These are related to job content. If these factors are available in higher quantity and quality, the
employees would be satisfied and not dissatisfied.
In a nutshell, the maintenance factors do not motivate people in an enterprise. But their existence is a must
,otherwise dissatisfaction will arise. On other hand , motivational factors are the real motivators because they have
the necessary potential of yielding a sense of satisfaction.
(4) McGregors Theory X and Theory Y :- McGregor developed a model which explains the human behavior
and nature . His model is popularly known as X Theory and Y-Theory. Theory X represent extremely negative
viewpoints about human behavior whereas Theory Y represents positive viewpoints.
Theory X :-
Theory X contains traditional assumptions about the nature of human being. This is the reason why it is called the
traditional theory of human behavior. Following assumptions are included in theory X
1. The average person has an inherent dislike for work and he will avoid it if he can.
2. Because of this dislike for work , most people must be coerced, controlled, directed ,threatened, and
punished to get them to put forth adequate effort toward the achievement of organizational objectives.
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3. Management is responsible for organizing the elements of productive enterprises-money, equipment,
people-in the interest of economic ends.
4. He lacks ambition, dislikes responsibility, prefers to be led.
5. He is by nature resistant to change.
Theory Y :-
1. The expenditure of physical and mental effort in work is as natural as play and rest.
2. External control and threat of punishment are not the only means for bringing about the effort tward
organizational objectives. Man will exercise self direction and self-control.
3. Commitment of objectives is a function of the reward associated with their achievement.
4. The average of human being learns, under proper conditions not only to accept but to seek responsibility .
Avoidance of responsibility , lack of ambition, emphasis on security are not human character.
5. The capacity to exercise a relatively high degree of imagination, ingenuity and creativity in the solution
of organizational problems, is widely , not narrowly , distributed in the population.
Implications :-
1. Central principle derived from theory -Y is integration
2. The organization will be more effective in achieving its objectives if adjustments are made to the needs
and goals of its members.
3. We are challenged to innovate, to discover new ways of organizing and directing human effort.
To sum up , Theory X is negative in nature. It believes in negative approach to leadership and

motivation. Conversely , Theory-Y is positive in character. It relies on positive approach to
leadership and motivation. In the words of Burt K. Scanlan Theory X represents a negative set
of assumptions about people and usually results in negative approach to leadership. Theory Y
represents a positive set of assumptions about people and usually
Lead relationship between the type of leadership and the level of motivation; the type of
leadership is influenced by a manners assumptions about people, and positive approaches to
leadership tend to elicit positive employee response.
(5) THEORY Z:- Theory Z has been evolved on the basis of a comparative study of the management
practices of the United State of America and Japan. Credit to discover goes to William G. Ouchi. It may be noted
that speedy decision making, greater skill to bear risks , innovation, creativity and individual autonomy are the
pillars of American management philosophy whereas security of employment, social harmony ,concern of
employees , participative management, greater informal control and moderately specialized career paths are the
strengths of Japanese management philosophy. With the help of Z theory G.Ouchi has depicted how the Japanese
management practices could be adopted and implemented in the USA and other countries.
SALIENT FEATURES OF THEORY Z :- It explore a new motivational pattern . it emphasizes more on
human factors than technical factors. There are five features of theory Z as..
1.Trust:- It is the responsibility of every organization to create an environment for developing and strengthening
trust, integrity and openness between employees ,superiors, work groups, management and government.
2. Strong Relationship b/w Organisation and Employee:- Ouchi emphasizes on the establishment of strong
mutual relationship b/w organization and employees . Life time employment, better environment for work, slow
process of promotion through horizontal progression etc are the way and means of building Strong relationship
b/w the organization and employee.
3.Employee Participation:- Employees should be involved in organizational decision making process in a
selective manner. That is to say , in all such decision which are going to influence the employees , the employee
should involved. by this Organization show that it gives due recognition to their ideas and suggestions.
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4.Absence of Formal Organization structure:- This theory advocates that the establishment of a strong
informal organization structure in place of formal one. In fact Ouchi has proposed a structureless organization
like a basketball team where exists no formal structure but all play together and solve the problems collectively.
5.Holistic Approach towards Employees :- With a view to obtaining high level of cooperation and
communication from the employees for achieving better organizational performance, a holistic approach towards
employees is essential.
Financial and Non-financial Ince

Incentives means all measures which are used to motivate people to improve performance. These incentive may
be broadly classified as financial and non financial.
Financial Incentives: In the context of existing economic system, money has become a means to satisfy the
physical needs of daily and also of obtaining social position and power. Financial incentives refer to incentives which
are in direct monetary from or measurable in monetary terms and serve to motivate people for better performance. The
financial incentives generally used in organizations are listed below:
(i). Pay and allowances, (ii). Productivity linked wage incentives, (iii).Bonus, (iv).Profit Sharing,
(v).Co-Partnership / Stock option, (v i).Retirement Benefits, (vii).Perquisites.
Non-Financial Incentives: All the, needs of individuals are not satisfied by money alone. Psychological,
social and emotional factors also play important role in providing motivation. Non-financial incentives
mainly focus on these needs.
SOME OF THE IMPORTANT NON-FINANCIAL INCENTIVES ARE DISCUSSED BELOW:
(i). Status: In the organizational context, status means ranking of positions in the organization.
(ii).Organisational Climate: Organisational climate indicates the characteristics which described an
organization and distinguish one organization from the other.
(iii).Career Advancement Opportunity: Every individual wants to grow to the higher level in the
organization.
(iv).Job Enrichment: job enrichment is concerned with designing jobs that include greater variety of work
content. Required higher level of knowledge and skills, give workers more autonomy and responsibilities.
(v).Employee Recognition program: Most people have a need for evaluation of their work and due recognition.
They feel that what they do should be recognized by others concerned.
(vi). Job Security: Employees wants their job to be secure. They wants certain stability about future income
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and work so that they do not feel worried on these aspects and work with greater zeal.
Leadership: Leadership indicated the ability of an individual to maintain

good interpersonal relations with followers and motivate them to contribute for
achieving organizational objectives.
(i).Leadership indicated ability of an individual to influence others.
(ii).Leadership tries to bring change in the behavior of others.
(iii). Leadership indicates interpersonal relationship between leader and
followers.
(iv).Leadership is exercised to achieve common goals of the organization.
(v). Leadership is continuous process.
Importance of Leadership: Leadership is a key factor in making any
organization successful.
The importance of leadership can be discussed from the following benefits to the
organization:
(i). Leadership influence the behavior of people and makes them to positively
contribute their energies for the benefits of the organization.
(ii). A leader maintains personal relation and helps followers in fulfilling their
needs.
(iii). Leader plays a key role in introducing required changes in the organization.
(iv). A leader handles conflicts effectively and does not allow adverse effects
resulting from the conflicts.
(v). Leader provides training to their subordinates.
Qualities of good Leaders: Some of these qualities are explained below;
(i).Physical features: Physical features like height, weight, health, appearance
determine the physical personality of an individual.
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(ii).Knowledge: A good leader should have required knowledge and
competence.
(iii).Integrity: A leader should posses high level of integrity and honesty.
(iv). Initiative: A leader should have courage and initiative. He should not wait
for opportunities come to his way. Rather he should grab the opportunity .
(v). Communication skills: A leader should be a good communicator. He
should have the capacity to clearly explain his ideas and make the people to
understand his ideas.
(vi). Motivation skills: A leader should be an effective motivator. He should
understand the needs of people and motivate them through satisfying their
needs.
(vii). Self confidence: A leader should have high level of self confidence. He
should not loose his confidence even in most difficult times.
(viii). Decisiveness: Leader should be decisive in managing the work. Once he
is convinced about a fact, he should be firm and should not change opinions
frequently.
STYLES OF LEADERSHIP
Different leadership styles exist among leaders at different times and in different situations. The leadership
style in a particular situation is determined by the leasers personality ,experience and value system, type of
followers and nature of environment.
There are three types of leadership styles based on use of authority.
1. Autocratic or authoritative leadership.
2. Democratic or Participative leadership
3. Free rein or Laissez fair leadership
1. Autocratic or authoritative leadership
such a leader follows autocratic or directive style of leadership. The authoritative leader orders to be obeyed
by the subordinates. He centralizes decision-making power. He takes decision for the group without
consulting the group members and simply tells the group what the member have to do. The flow of
communication is one way from boss to subordinates.
2. Democratic or Participative leadership
A democratic leader is one who gives orders after consulting the group members. He sees to it that policies
are worked out in group discussion and with the acceptance of the group. He asks people to be things after
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sketching out the detailed plans and makes it clear that praise or blame will be shared by all the group
members.
The features of participative leadership as follows :
(i) A democratic leader gives order only after consulting the group and works out the policies with the
acceptance of the group.
(ii) He favours decision making by the group
Free Rein or Laissez faire Leader :- A free rein leader does not lead, but leaves the group[ entirely to
itself. He depends largely upon the group to establish its own goals and work out its own problems. Group
members work themselves and provide their own motivation. The leader serves as a contact man with the
outsiders to bring for his group the information and resources it needs to accomplish its goals.
INDUSTIRAL COMBINATION
Combination :- Industrial Combination is an act of joining of two or more industrial enterprises together
for achieving common purpose . these enterprises may be of similar type or varying nature, but have some
common goal to achieve.
The main characteristics of combination are-
Association or Merger of enterprises
Common purpose or common aim of enterprises
Formal or Informal in nature
Permanent of Temperary nature
ADVANTAGES OF INDUSTRIAL COMBINATION:-
i.Elimination of destructive competition
ii.taking benefits of large scale operations
iii. Ability to face Depression
iv.Improvement of Efficiency
v. Use of Improved technology
TYPES OF INDUSTRIAL COMBINATION:-

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1.Horizontl Combination :- When two or more industries of similar nature are brought under some single
form of management , horizontal combination comes into existence. Eg ACC ( Associated Cement
Companies), Indian Sugar Mills Association etc.
2. Vertical Combination :- Vertical combination is combination of firms in successive stages of the same
industry. It consists of those units which are though independent and work at different planes,yet related to
each other on the basis of the use of products.the finished product of one become the raw material for other.
3. Lateral Combination :- It refers to such a combination of industrial units which though produce
different kinds of products , yet these products are allied in nature.
4. Circular Combination :- When units engaged in the manufacturing of different products and belonging
to different industries combine under a central agency,circular combination takes place.
MARKETING
Meaning of marketing
The term marketing has been described by different people in different ways. Some people believe
that marketing is something as shopping. Whenever they go out for shopping of certain products or
services, they describe it as marketing.
Traditionally marketing has been described in terms of its functions or activities. In this respect,
marketing has been referred to as performance of business activities that direct the flow of goods and
services from producers to consumer.
Marketing Management
Marketing management means management of the marketing function. In other words, marketing
management refers to planning, organizing, directing and control of the activities which facilitate
exchange of goods and services between producers and consumers or users of the product and
services
Marketing and Selling
Many people confuse selling for Marketing. They consider these two terms as one and the same.
Marketing refers to a large set of activities of which selling is just one part.
Marketing involve whole range of activities relating to planning, pricing, promoting and
distributing the products that satisfy the consumers need.
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The function of selling, on the other hand, is restricted to promotion of goods and services
through salesmanship, advertising, publicity and short- term incentives so that title of the product is transfer
from seller to buyer.
Functions of marketing
# Analyzing market information # Marketing planning
# Product design and development # Standardization and Grading
# Packaging and Labeling # Branding
# Customer support and Services # Pricing of product
# Promotion # Physical distribution
# Transportation # Storage or Warehousing
Branding
One of the most important decisions that a marketer has to take the area of product is in respect of
branding. He has to decide whether the firms products will be marked under a brand name or a
generic name. Generic name refers to the name of the whole class of the product .
For example:- a book, a wristwatch, tyre, camera , toilet soap, etc.
Packaging
Packaging refers to the act of designing and producing the container or wrapper of a product.
Packaging plays a very important role in the marketing success or failure of many products,
particularly the consumer non- durable product.
Levels of Packaging
# Primary Packaging # Secondary Packaging # Transportation Packaging
Marketing Mix
# Marketing mix is a set of marketing tools that the firm uses to pursue its marketing objectives in a target
market. It is a mixture of different products of a company.
Elements of marketing mix:

# Product # Price # Place # Promotion
Product
# Products, which are purchased by the ultimate consumers or users for satisfying their personal needs and
desires are referred to as consumer product.
Types of products :-
# Convenience products # Shopping products # Speciality product
Price
# When a product is bought, some money is paid for it. This is money represent the sum of values that
consumers exchange for the benefit of having or using the products and referred to as the price of the
product.
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# Price may be define as the amount of money paid by the buyer in consideration of the purchase of a
product or a service.
Factors affecting the Price determination

# Product cost # The utility and demand
# Competition in the market # Government and legal regulation
# Pricing objectives # Marketing methods used
Place (Channels of Distribution)

Channels of distribution are set of firms and individuals that take title, or assist in transferring title, to
particular goods or service as it moves from the producers to the consumers.
In other words, channels refers to a team of merchants, agents, and business institutions that combine
physical movement and title movement of products to reach specific destination.
Advertising
Advertising is the most commonly used tool of promotion. It is an impersonal form of communication,
which is paid for by the marketers (sponsors) to promote some goods or services. The merit of advertising,
as a medium of communication.
Personal selling It involve oral presentation of message in the form of conversation with one or more
prospective customers. For the purpose of making sales. It is a personal form of communication.
Companies appoint salespersons to contact prospective buyers and create awareness about the product.
Sales promotion
It refers to short term incentives, which are designed to encourage the buyers to make immediate
purchase of a product or service.
These include all promotional efforts other than advertising, personal selling and publicity used by a
company to boost its sales.
Commonly used sales promotion activities
# Rebate # Discount # Refunds # Product combination
# Quantity gifts # Instant draws # Full finance # Sampling
MERGER AND ABSORPTION

1 Merger :- In merger, two organizations generally of similar size and stater
combine their forces to become a new business usually with a new name
For eg. :- A Ltd and B Ltd merges to form AB Ltd. Here we find that AB Ltd. is
formal to take ours the business of A Ltd. and B Ltd. the exiting. A Ltd and B Ltd
will lose their respective identies the moment they re merged into a new
company called AB Ltd.
2 Absorption : - The process in which one company generally the stonger
one takes over the other company is known as absorption.
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The company which takes over the business is called absorbing or purchasing
company. The business of which business is taken over is called absorbed or
vender company.
For eg. There are two separable Companies i.e. Y Ltd and Z Ltd. The business of
Ltd is purchased by Z Ltd. This is the case of absorption Here y Ltd. goes into
liquidation while Z Ltd remains as it is and retains its legal identify
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(A Complete Cell of Commerce Education)

CHARACTERISTICS OF BUSINESS ACTIVITIES:-

Basic Business Profession Employment

Mode of Entrepreneurs Membership of a appointment letter and

Nature of Provision of goods Rendering of personalized, Performing work as per

Qualifications No minimum Qualifications, expertise Qualification and training as

Reward or Profit or earned Professional fee Salary or wages

Capital Capital investment Limited capital needed for No capital required

Transfer of Transfer possible Not possible No possible

Code of No code of conduct is Professional code of Norms of behavior laid

Primary Seconda Tertiary

FORM OF BUSINESS ORGANIZATION:-

Features:- salient characteristics of the sole proprietorship form of organization.

d. Limited managerial skills

Type Capital Management Share in profits/ Liability

Active partner Contributes Participates in Shares profits/ Unlimited

Sleeping or Contributes Does not participate Shares profit/ losses Unlimited

Secret partner Contributes Participated in Shares profit/ losses Unlimited

Difference between a public company and private company

Members Minimum -7 Minimum 2

Minimum numbers of Three Two

Minimum paid up Rs. 5 lakhs Rs. 1 lakh

Index of members Compulsory Not compulsory

Transfer of shares No restriction Restriction on transfer

DOCUMENTS REQUIRED TO BE SUBMITTED.

a) Memorandum of Association. Memorandum of Association is the most important document as it

ASSOCIATION CLAUSE. In this clause, the signatories to the memorandum of Association

b) ARTICLES OF ASSOCIATION. Articles of Association are the rules regarding internal

d) Minimum subscription. In order to prevent companies from commencing business with

Difference between memorandum of Association and Articles of

.(SOURCES OF BUSINESS FINANCE)

Limitations. The major limitation of public deposits is as follows:

a) Treasury Bills. A treasury bill is basically an instrument of short-term borrowing by the

b) Commercial Paper. Commercial paper is a short-term unsecured promissory note,

a. Providing Liquidity and Marketability to Existing Securities:- The basic function of

d. Contributes to Economic Growth:-A stock exchange is a market in which existing

Objectives of NSE: - NSE was set up the following objectives.

1. Depository : depository is the apex organization or unit in the depository system.

Features of depository are:

2. Dematerialization : A share certificate is a proof of ownership of securities by an individual. In

MAIN DOCUMENTS USED INN INTERNAL TRADE

Nature and significance of management

1.organisational objectives 2.social objectives 3.personal objectives

Coordination :the essence of management

Significance of principles of management.

Taylors scientific management.

The 14 principles of management given HENRY FAYOL

8. Centralization and decentralization. The concentration of decision-making authority is called

Sl. No. Basis of difference Henri Fayol F. W. Taylor

1. Perspective Top level of management Shop floor level of a factory

2. Unity of Command Staunch Proponent Did not feel that it is important as

3. Applicability Applicable universally Applicable to specialized situations

4. Basis of formation Personal experience Observations and experimentation

5. Focus Improving overall administration Increasing Productivity

6. Personality Practitioner Scientist

7. Expression General Theory of Administration Scientific Management

(ii) Departmental Line Organisation :- Departmental organization is one in which the

Functional Organisation :- An Organisation which is structured internally on the basis of major

d Increases managerial efficiency: Communication is essential for quick and effective

To sum up , Theory X is negative in nature. It believes in negative approach to leadership and

Financial and Non-financial Ince

Leadership: Leadership indicated the ability of an individual to maintain