Company
A joint stock company is a voluntary association formed by people to carry on a certain business for profit. People contribute their capital in the form of shares in the company. It has separate entity from its members. “A company is an artificial person created by law, having separate entity, with a perpetual (Continues) succession and a common seal (Shut).” In private company there must be at least two members and maximum limit is fifty. In public limited company minimum members is seven and there is no limit of maximum.
Features of the Company:
Following are the features of the company under companies’ ordinance 1984.
1. Voluntary Association
A company is a voluntary association of persons joining hands with common motive. For the formation of private limited company, there must be at least two members and the maximum limit is fifty. In a public limited company, minimum members are seven and there is no limit of maximum.
2. Large Capital
The company can easily raise large capital. It can raise capital by issuing shares and debentures to the public. The capital of company always depends upon the number of shareholders. Maximum number of members led to maximum capital and minimum led to minimum capital.
3. Number of Members
In private limited company, there must be at least two members and the maximum limit is fifty. In a public limited company, minimum members are seven and there is no limit of maximum.
4. Permanent Life
A company has permanent life. It is not affected by the death, insolvency or retirement of any shareholder. Once it is formed, it continues for an unlimited period until it is dissolved according to the companies’ ordinance.
5. Expert Management
The company can employ qualified professionals due to its huge resources. The hired professionals are expert in their fields and they manage their work efficiently and company ran smoothly.
6. Separate Legal Existence
It means that company has separate legal entity from its members. The creditors can recover their money only from the company. They cannot sue (bring a claim) individual members. Similarly, the company is not liable for the individual debts.
7. Transferability of Shares
The shares of the public companies are easily transferable. A shareholder can sell his/her shares to any person in the stock exchange.
8. Public Confidence
It has lots of confident of public because people know that it cannot dissolve next day they like to deal with companies rather than firms.
9. Flexible Management
It also has flexible management because of number of experts and work division etc.
10. Chances of Increasing Founds
There are number of ways in company to increase founds. It can be increased by issuing share, issuing debentures and other securities to the public.
11. Minimum Risk of loss
There is minimum risk of loss in the company because it has huge setup and has number of ways to receive profits like investment in government securities and investment in other companies.
12. Opportunity for Investment
As public can buy and sell the shares of the companies at any time through stock exchange. Public has opportunity to invest their extra money in the stock exchange.
13. Opportunity for Jobs
It also provides the large-scale job opportunities to the people because it has huge setup and many departments and sections where it requires employees who can work there.
14. Limited Liabilities
In a company the liabilities of the members are limited. For example: if a person has 5 shares @ 100 each he is only liable of 500 rupees only.
15. Double Taxation:
The company pays double tax first, the tax is levied (Rate) on the profits of the company and secondly, the shareholders pay tax at the time of dividend received.
Advantages:
Following are the advantages of the company:
1. Voluntary Association:
A company is a voluntary association of persons joining hands with common motive. For the formation of private limited company, there must be at least two members and the maximum limit is fifty. In a public limited company, minimum members are seven and there is no limit of maximum.
2. Large Capital:
The company can easily raise large capital. It can raise capital by issuing shares and debentures to the public. The capital of company always depends upon the number of shareholders. Maximum number of members led to maximum capital and minimum led to minimum capital.
3. Limited Liabilities:
In a company the liabilities of the shareholders are limited. They are liable of their own portion of investment. For example: if a person has 5 shares @ 100 each he is only liable of 500 rupees only.
4. Permanent Life:
A company has permanent life. It is not affected by the death, insolvency or retirement of any shareholder. Once it is formed, it continues for an unlimited period until it is dissolved according to the companies’ ordinance.
5. Public Confidence:
It has lots of confidence of public because people know that it cannot dissolve next day they like to deal with companies rather than firms. So it has reputation in the eyes of the public and in the eyes of the investors.
6. Expert Management:
The company can employ qualified professionals due to its huge resources. The hired professionals are expert in their fields and they manage their work efficiently and company ran smoothly. With the help of the experts grow of the profits definitely increased and company will enjoy the high profits.
7. Opportunity for Investment:
As public can buy and sell the shares of the companies at any time through stock exchange. Public has opportunity to invest their extra money in the company with the help of stock exchange stock exchange.
8. Opportunity for Jobs:
It also provides the large-scale job opportunities to the people because it has huge setup and many departments and sections where it requires employees who can work there.
9. Expansion of Business:
The expansion of business needs capital and efficient persons. The company is in a better position to expand its business due to the availability of the large capital and efficient management.
10. Chances of Increase Funds:
There are number of ways in company to increase funds. It can be increased by issuing share, issuing debentures and other securities to the public.
11. Transferability of shares:
The shares of the public companies are easily transferable. A shareholder can sell his/her shares to any person in the stock exchange. As shares are freely transferable, so, a shareholder can easily converted into cash.
12. Flexible Management:
It also has flexible management, because of number of experts and work division etc.
13. Less chances of loss:
There is minimum risk of loss in the company because it has huge setup and has number of ways to receive profits like investment in government securities and investment in other companies.
14. Higher Profits:
Due to availability of large capital, the company installs expensive machinery which leads to greater production of goods, greater production leads to reduce cost, and lower cost leads to higher profits.
15. Large scale Production:
Due to large size of business the company can produce goods and services at large scale means it can meet his huge targets very efficiently.
16. Social Benefits:
The joint stock companies have made it possible for the persons of low income groups to invest their savings in the company and earn the profits in shape of dividend and improve their living standard.
17. Full Legal Cover:
There is full legal cover on the activities of a company from the birth (Formation) to its liquidation (Dissolution). Therefore, people have greater confidence in companies than they have in sole-proprietorship or in partnership.
18. Growth of Economic Activities:
The company plays a very important role in the economic activities of a country. For example; due to large capital and large setup it provides employment opportunities and also provides opportunities of investment and these leads towards betterment of the economy and the economy grow slowly but consistently.
19. Spread of Risk:
In company the risk is divided among large number of shareholders. For example; if the liabilities of the business are 1000 rupees and the number of owners are two then they have to pay 500 rupees each, but if the number of owners are 100 then they have to pay only 10 rupees each. Here the risk is divided into 100 owners.
20. Source of Government Income:
A company is a source of government income. It pays income tax, sales tax, excise duty, and other taxes to the government. The collection of the taxes is the main source of income to the government.
DISADVANTAGES:
Following are the disadvantages of company…
1. Difficult Formation:
The formation of a company is very difficult and expensive. It requires a number of formalities. For the formation the basic documents like memorandum of association, articles of association, and prospectus are to be prepared.
2. Lack of Personal Interest:
The company cannot protect (look after) the interests of the shareholders easily due to separation of management from ownership. Salaried persons managed it who have no personal interest in the business.
3. Lack of Secrecy:
It is essential for all companies to send annual reports to every shareholder. It also sends annual reports to the registrar of the companies. As well as it has to publish financial statements for sake of information. If we sum up all above it is concluded that there is no secrecy in the company.
4. Lack of Quick Decision:
The quick decisions are not possible in a company. The business problems are discussed in the meetings of directors and some are discussed in the shareholders meetings. A decision-making is a lengthy process that can lose the business opportunities.
5. Government Restrictions:
A company is controlled by the government. The government makes rules and regulations for the protection of investors. The company has to follow the rules and regulations if it fails to follow the rules then it have to pay heavy penalty.
6. Double Taxes:
The company pays double tax first, the tax is levied (Rate) on the profits of the company and secondly, the shareholders pay tax at the time of dividend received.
7. Chances of Frauds:
As the management and ownership are separate from each other then there is just check and balance on the management but very little involvement of the ownership in the management, which is no enough to control the frauds. There is high probability of frauds in the company.
8. Stock Exchange Speculation:
Stock exchange speculation is big limitation (Disadvantage) for the companies especially for those listed on the stock exchange. For example; a broker make a prediction that next week the share price of NBP will decrease up to 40% then the shareholders will definitely try to sell their holding share as quickly as possible and vice versa. In this way the reputation of the company will decrease automatically.
9. Favoritism and Nepotism:
Favoritism and nepotism are very common the companies which effect the output of the company lot. For example; one person is very close to the director of the company then he and director will try to get and give a high position in the company’s management.
10. Grouping for Powers:
The management of the company remains in the hands of a group which acquires controlling shares. This leads the company towards the negative side of the curve.
11. Unions:
Mostly the unions affect the companies’ lot. They try to divide the workers into groups and try to create monopoly in the organization, which can be very dangerous for the organization.
12. Impersonal Relationship:
As the size and operations of the company expand day by day this creates gap between the employers and the employees.
13. High cost of starting:
As the formation of the company is very lengthy and time consuming process so this will increase the cost of the business because it has to prepare memorandum of association, articles of association and prospectus as well as registration that increase the cost of starting business.
14. Difficult Dissolution:
The dissolution of the company is also a lengthy process. It has to fulfill thousands of legal requirements. For example; the Tajj Company which dissolute in 19s still not dissolute completely.
15. Evil from social point of view:
The big companies like WAPDA creates monopoly in the market and charge high price from the customers what they want.
Business
In the literary sense, the word business means the state of being busy. In technically sense the term business means all those activities, which are related to the production and distribution of goods and services with the objective of earning business. “Any legal activity with aim to earn profit is known as business.”
Characteristics of Business:
Purchase of goods:
A businessman deals in the production and purchase of goods. A business requires some kind of goods to be purchased for the purpose of resale, production and manufactured, to gain profit.
Manufacturing:
Uses raw material and makes a variety of consumer and capital goods which are needed by consumers. Without manufacturing, the business will stand idle.
Exchange:
Production or purchase of goods and services to exchange can be called business. E.g. when a weaver prepares cloth for his personal use it is not a business, but if he prepares it for sale, it becomes business.
Dealing in goods and services:
Business means dealing in goods and services, the term goods includes consumers’ goods like cloth, shoes, soaps, tooth paste and produces’ goods like tools and machinery. The services include transportation of goods and supply of electricity etc.
Capital investment:
Almost all businesses require capital. There are some businesses, which requires more capital than others e.g. coal mining (taking out), generation of power. The capital required at every stage
Economic activities:
The activities, which are involved in the production or distribution of goods and services for economic motive, are part of business. Any activity undertaken for personal consumption is outside the business. E.g. if a shoemaker makes a pair of shoes and wears himself, it will not be a business.
Profit motive:
Every business is started to earn profit. The success of business depends on its profit. As much as the profit of the business is greater, it is more successful.
Risk:
Every business has risk of loss. The loss may arise any time due to change in consumers’ taste, government policies etc.
Competition:
A business that cannot compete with local and international competitors will soon be forced out of the market.
Change:
Every product has a certain life. The organizations should be prepared to face and accept change.
Information:
Information related to environment of business organizations is an important feature of modern business.
Division:
A business can be divided into three categories
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Objectives:
Followings are the objectives of the business
Profit motive:
Every business is started to earn profit. The success of business depends on its profit. As much as the profit of the business is greater, it is more successful.
Creation of customers:
The business of today is just about creating markets for its customers all over the world by introducing new products, new methods of distribution such as tele shopping.
Modernization:
It helps the customers in getting better and more economic goods and services.
Industry productivity:
The objective of profit can be achieved of firms increase their industrial productivity. It can be increased by reducing per unit cost.
Quality goods:
The objective of every business is to supply of good quality goods in the market. People like to buy branded goods of superior quality.
Reasonable Prices:
The social objective of a business is to sale goods at very reasonable prices and also provides some kind of discounts to the customers.
Social recognition:
Businessman due to wealth and higher standard of living are recognized as powerful person.
Personal satisfaction:
Many people like to work independently and so do not join service where they will have to work under bosses.
Public service:
Social objective of business includes providing fair wages to employees, adopting different safety measures, etc.
Investment opportunity:
It is also to provide investment opportunities to the public. People invest their surplus capital in the business to get profit.
Employment opportunity:
It also provides employment opportunity to the public.
Living standard:
The business units help in improving the living standard of the people.
Use of national resources:
It should use the national resources in the best interest of the country. Wastage should reduce to minimum.
Avoidance of anti-social practices:
It should not be based on the illegal activities such as smuggling
Development:
The industrialist set up their industries in under developed areas to develop these areas.
Foreign exchange reserve:
A wealthy nation is that which has large foreign exchange reserves. Business firms contribute to earn these reserves.
Research and development:
Large corporations have large resources and therefore, they contribute in research and development. They can help the society by their inventions and innovations.
Types of industries:
Extractive industries:
Means industries concerned with supplying commodities which are extracted from natural sources. Like farming, fishing etc.
Genetic industries:
Means industries concerned to grow plants and breed animals for the purpose of sale to customers.
Manufacturing industries:
Industry that convert raw material into semi-finished or finished goods. E.g. cotton textile industry makes clothManufacturing industries.
Construct industries:
Are those firms that concerned with the construction of buildings, dams, bridges, roads etc. known as construction industry.
Services industries:
They do not produce tangible goods. They are concerned with providing services to public like insurance, transportation companies.
Commerce:
Following hindrances (difficulties) can be removed with the help of Commerce.
Hindrance of person:
As the world is so large in area and consumers are spread all over the world. As a result, it is difficult for the producers to contact the consumers. Commerce helps to remove this hindrance between persons by means of trade.
Hindrance of place:
There is a possibility that goods may produce at one place and the demand on the other places. This problem is removed by commerce through different means of transportation.
Hindrance of time:
The goods are produced in large quantities for future demand. They must be stored in a safe place to be sold. The warehouses remove the hindrance of time between the production and consumption.
Hindrance of exchange:
The payments of goods and services are made through banks. Thus the banks remove the hindrance of exchange.
Hindrance of risk:
Goods may face several types of risk during the transportation and storage. Floods, earthquakes, etc may destroy them. This risk is covered by insurance.
Hindrance of knowledge:
Selling of products is the most important problem of manufacturer. People buy the goods only when they have knowledge of the goods. This problem is removed by advertisement.
TRADE:
The process of buying and selling is known as trade. OR The exchange between two parties with the aim of getting some marginal profit is known as trade.
Types of Trade Trade can be divided into followings.
Home Trade:
Home trade means buying and selling of goods within the boundaries of a country. It is also known as internal or domestic trade.
It may have followings types further.
Wholesaler Trade:
Wholesaler trade relates to the purchase of goods in large quantities from the producers and their sale to retailer in small quantities.
Retailer Trade:
Retailer trade relates to purchase of goods in small quantities from the wholesaler and their sale to the ultimate (final) consumer.
Foreign Trade:
Foreign trade refers to buying and selling of goods between two or more countries. It is also known as international trade. It includes import trade and export trade.
Import Trade:
Import trade means purchasing goods from foreign countries for home consumption.
Export Trade:
Export trade means selling of domestic goods to the foreign countries.