Unit 3.1: Sole trading concern
Concept of sole trading concern:
Sole trading concern is the oldest and simplest form of business organization, It is a business organization in which an Individual invests all the capital required, manages and control the business himself, bears all the risk alone, enjoy all its profit or suffers all the loses. He alone play the role of an honor, manager, controller, decision maker and risk bearer. The proprietor uses his own skills, intelligence, knowledge, and capability for the successful operation and management of the firm. It is also called proprietorship, sole proprietorship, sole ownership, individual enterprises and sole trader.
According to A. N. Agrawal, “A person who established and manages a business for his own account and risk is known as sole proprietorship business.”
Features / Characteristics of sole trading concern
a. Soul Investment: The owner contributes the whole amount of capital in his business. He invest the entire capital either from his private property by borrowing from relatives or banks
b. Sole management: The owner manage and controls whole affairs of business. He makes plan for the business implement them and controls its daily activities.
c. Sole risk taking: Sole trading business organization in which individual invests, manages capital and controls the business. So, if business loss at that time, the owner himself bears the whole risk of business.
d. No Separate legal entity: Since a sole proprietorship is not legal entity, the owner & the business have the same legal status in the eyes the law. Therefore, the life of business is in the hands of owners.
e. Unlimited liability: The liability of the owner is not limited to his investment. If the business suffers from loses and its properties are insufficient to meet its debts. The owner has to clear business days from his private property.
f. Independence: A Sole trading concern is an independent organization. The owners of the business is free to make all sorts of decisions as per the judgement. He is the supreme judge for all the business matters.
g. Limited operation: The resources of sole trading concern are limited. Due to the limited resources it cannot produce goods in a large scale. Its business activities are restricted to limited geographical area.
Advantages of al sole trading Concern.
a. Easy to start and close: A sole trading concern can be established & closed easily. There are limited and simple legal formalities to start a business.
b. Quick decision: The sole trader is completely free to take decisions and to implement them. The quicker the decision the better it is for meeting the benefit of opportunity. Since a sole trader can take business decisions by himself, decisions are quick and timely.
c. Secrecy: In a sole trading concern it is easy to maintain secrecy in business. The owner will not leak out business secrets due to fear of competitors.
d. Incentive: The sole trader alone receives all the profit of business and he alone has to bear all risk and loses. There is direct relationship between effort
and reward. It provides incentive to work hard efficiently and honestly.
e. Personal relations: A soul trader play the role of an employee as well as manager. He can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees, money lenders and government. These relation helps in improving the image and goodwill of business.
f. Flexibility: In Soul trading the owner has a much greater degrees of flexibility to run his business. For example, he can easily put additional capital or withdraw a part of take other similar decision as per the changing business need situation.
g. Economy: The owner himself work as the manager and an employee of his business. Thus, he can save some of office and administrative expenses and attain economy of operation.
h. Social benefit: A sole trading concern provides various benefits to the society. It helps to solve unemployment of problem by offering employment opportunities to the people and also utilize the ideal resources.
Disadvantages of Sole Trading.
a. Unlimited liability: The sole trader has unlimited liability. He is personally responsible for business debts. His private assets can be used to pay debts. The failure of business can ruin him financially.
b. Limited capital: The personal resources of sole trader are limited. His borrowing Capacity is also limited. Business expansion is difficult. Good business opportunities may be lost.
c. Limited skills: Sole trading is one man show. The owner may lack business skills and experience. He cannot be expert in all except of business.
d. Uncertain life: Sole trading has uncertain life. The owner is the business in sole trading. Bad health or death of owner leads to end of business. There is no stability and continuity in sole trading.
e. Limited expansion: There is limited scope for expansion in sole trading. The capital and management are limited, large scale operations are not possible, specialiazation is lacking.
f. Loss in absence: Long absence of owner from business con cause losses. There it nobody in charge to manage and control the business. Employees may not take in interest in business, chance of leakage and fraud increase.
g. Limited opportunity: A sole trading concern offers limited opportunities to the limited scope of expansion and development of the business. Its employees get limited opportunity for trading, higher studies, career development, attractive salary and other benefits.
Registration and renewal of sole trading concern in Nepal.
The private firm registration act 2014 B.S. has provisions for registration and renewal of sole trading concern in Nepal. It treats sole trading concern as a private firm. A sole trading concern must be registered before it can start legal business in Nepal. Only Nepali citizen can registered a sole trading concern. If the sole trading Concern is an industry it should be registered in the department of industry. If the sole trading concern is an industry then it should be registered in department of commerce. The private form registration act 2014 sets the following procedures for the registration of a sole trading concern in the Nepal.
a. Application: An application should be submitted in the prescribed form to the concerned government department. It should include The following information.
- Name and address of the sole trading concern
- Name and address of owner, including names of father and grand father.
- Objective and nature of business.
- Other information as required.
Attachments required with the application are:
- Copy of citizenship certificate of the owner.
- Receipt of registratIon of owner.
b. Registration fee payment: Payment of registration fee is another stage of firm registration. Generally, amount of registration fee should be deposit in the Nepal Rastra Bank in the account of department. The bank voucher should be submitted in the concerned department with application form.
c. Certificate of Registration: After necessary inquiries the concerned department issue a certificate of registration. It can refuse registration if the proposed
registration seems in-appropriate. The certificate of registration authorized a sole trading concern to conduct legal business in Nepal.
Renewal of sole trading concern: All the registered private firms must be renewed each year. The application for renewal with renewal fee should be submitted to the conjoined deportment. The renewal of firm must be done within 35 days of new fiscal year. If the firm is not renewed within the prescribed a fine of Rs 750 will be charged by Nepal government. Prohibition the export import transactions & bank account of any non-registered and non-renewed firm through notice.
Important Question for exam:
- What is sole trading concern Explain the disadvantage of sole trading concern.
- What is sole trading concern ? Describe the procedure of registration & renewal of sole trading concern in Nepal.
- Explain the characteristics of sole trading concern.
- What is sole trading concern? Explain its advantages.
Unit 3.2: Partnership firm
Meaning of Partnership firm:
Partnership organization in-fact has emerged to overcome the major limitations of a sole trading concern has grown out of the need for more capital, more effective supervision and control and greater division of owners. Thus, partnership is an form of organization in which there are at least two or more owners who agree to invest capital in a lawful business, supervise it and share its profit or loss. In other word, it is an agreement between two or more than two for carrying on a lawful business for carrying profit.
According to L.H.Haney, “Partnership is the relation between persons who agree to carry on a lawful business in common with a view to private gain.
Features of Partnership firm
a. Agreement: An agreement is the basis for forming partnership. The agreement is made in written form signed by all the partners to carry on a business for earning and sharing the profit and loss. It includes such matters as partners capital, profit sharing ratio, right duties and responsibilities of partners and so on.
b. Joint Ownership: A partner has two or more owners. It is established with the joint investment of business. The amount of capital of the partners may however, differ from one another as per the agreement
c. Joint management: A partnership is generally managed by all partners jointly. The partners divide the duties and responsibilities as per the partnership agreement for the smooth operation of the firm.
d. Sharing of profit: The profit or loss is shared between or among partners of an agreed ratio. In the absence of an agreement for sharing profit all partners share the profit equally.
e. Unlimited liability: Every partners has unlimited liability. A partner is jointly as well as individually liable to pay all the debts of business even from his personal property of its assets are insufficient to meet all the debts.
f. Restriction in transferring interest: The interest of a partner in a partnership is non-transferrable. No partner is allowed to sell or transfer his interest or share to an outsider without the consent of all the partners.
g. Role of principal and agents: A partnership is managed by all partners or anyone of them acting for all partners or anyone of them acting for all. Each partner can simultaneously, play the role of a principle as well as agent of he firm.
h. Uncertain life: Partnership firm has uncertain life. It becomes to an end when partners retires, die or become insolvent.
Advantages of Partnership firm
a. Easy to Start and dissolve: Like a sole trading concern, partnership can be easily started and dissolved without much legal expense it can be started and dissolve as desired by partners.
b. Larger capital: A partnership can collect a large amount of capital than a sole trading concern. Since, all partners contribute capital as per their agreement. The firm is able to mobilize a larger amount of capital.
c. Effective Supervision: In a partnership, there is a unique combination of various of talents, abilities and skills. Besides, there is division of work and specialization among partners.
d. Secrecy: In a partnership, the partner’s themselves manage the affairs of business. They are required to publish their financial statement either. As a result they can maintain business secrecy that provides them and edge over their competitors.
e. Flexibility: Like a sole proprietorship, the partnership firm also enjoy freedom from legal restriction on its activities. Therefore, the partners can easily introduce change in their business.
f. Credit facility: A partnership enjoy credit worthiness than a sole trading concern. The individual credibility of the partners and their joint limited liability enable them to barrow more than what an individual can borrow.
g. Incentives: In a partnership organization, there is a direct relationship between efforts and rewards. The greater the profit of firm, the greater the share of each partner. Hence, partners are encouraged to work hard for maximizing their profit.
h. Less risky: A partnership is less risky than a sole trading concern. The risk of loss of the firm is divided among the partners. If the firm suffers loss each partner has to bear the loss in proportion to their profit sharing ratio.
Disadvantages of partnership firm
a. Chances of conflict: In a partnership there is always a chance of conflict among its partners. Such conflict may arise due to misunderstanding among the partners on same issues. As a consequences the agreement between the partners may sell and the partnership firm may break down.
b. Uncertain life: A partnership is not a permanent form of business organization. It has an uncertain life because due to misunderstanding among partners, death, insolvency of a partners. When this happen the partnership is dissolved.
c. Absence of legal status: A partnership firm has no separate legal status. As such it cannot enter into a contract on its own. It cannot sue & cannot be issued.
d. Unlimited liability: In a partnership. organization the liability of partners is unlimited. Therefore, the partners individually & jointly have to settle debts of the firm even selling their personal properties.
e. Non transferable interest: In a partnership a partner cannot transfer his interest to an outsider at his will. He must obtain consent from all other partners to do so.
f. Delay in decisions: In a partnership quickly decision cannot be taken. In order to arrive at a decision consent of all the partners must be obtained. If any differences emerge among them the decisions is delay. As a result business opportunities may be missed.
g. Lack of public confidence: A partnership firm is not required to publish its account and financial statement. The public never know what’s happening their in. Due to frequent infighting among partners lack of separate legal existence and uncertain life, public confidence in partnership is relatively lower.
h. Problem of inefficient partner: A partnership said to have a unique combination of talents, abilities & skills. However, not all the partners have the same level of talents, abilities and skills. As a result problems may raise in the partnership for due to their differing level of contribution.
Types of partners
a. General partner: A general partner is also known as unlimited partner. It is the most common type of partner who has unlimited liability. The general partner participate actively in the management and Decision making of the firm.
b. Limited partner: A limited partner is one whose liability os limited up to amount of capital invested by him. The partner need not to pay the firms debts from his private property. A limited partner also known as a special partner. Such a partner cannot actively participate in the management of the firm.
c. Active partner: An active partner is one who actively participate in the daily management and operation of the firm. He is fully responsible for successfully running the firm. He is also known as working partner who actively takes part in a business matter of the firm.
d. Passive partner: A passive partner doesn’t take in active part in the daily management and operation of the firm. Therefore, he is also known as a sleeping or dormant partner. Such a partner contributes the capital share the profit or loss and bears the liabilities but doesn’t take in the activities of the business.
e. Passive partner: A passive partner doesn’t take in active part in the dairy management and operation of the firm. Therefore, he is also known as aa sleeping or dormant partner. Such a partner contribute the capital, share the profit or loss and bears the liabilities but does not take in the activities of the business.
f. Incoming partner: An incoming partner is one who is newly admitted to an existing partnership firm. At the time his admission such a partner brings in his share of capital and agree to certain share of profit or loss of the firm. Generally the incoming partners brings in certain extra amount over and above his share of capital for the goodwill of the firm.
g. Outgoing partner: Managing partner is one who retired from the firm such a partner gives a written notice to the remaining panthers expressing his intentions to leave the firm. He is responsible for all the activities and liabilities of the firm before his retirement. The firm has to pay the share capital with the share of profit to the retiring partner.
h. Secret partner: A secret partner is one who does not want to disclose his name as a partner of the firm. Such a partner contributes capital, takes an active part in the management and shares the profit or loss without exposing himself as a partner of the firm.
i. Minor partner: A minor partner is one who is below the age of 16. A minor cannot sign the agreement of the partnership . Yet he can be taken in as partner of time firm with the consent of all partners: The liability of a minor partner is limited. He cannot take an active part in the management.
j. Nominal partner: A partner without any role in the partnership is known as a nominal partner. He lends his name and credit to the firm for its benefit. He is not a true partner. Such a partner neither contributes capital nor shares the profit or loss of the firm. However, a nominal partner is personally liable to meet the debts of such persons who believe him as one of the partner of the firm. In Case, the firm fails to meet such liabilities.
k. Quasi partner: A quasi partner is one who doesn’t contribute to the capital but lends money as a loan to the firm. Such a partner does not share the profit of the firm but receive interest against the loan given. He has no right to take part in the management of the firm.
Rights of a partner
a. Right to manage: Every partner has a right to take a active part in the management of the firm. He has the right to be involved in planning, implementation and control activities of the firm.
b. Right to express opinion: Every partner has a right to express his opinion all matters relating to the firm. Such opinions are discussed and decided in the consent of all the partners.
c. Right to share profit: Every partner has a right to share the profit of the firm. The amount of profit is shared among the partners according to the partnership deed or equally in the absence of such a deed.
d. Right to get compensation: Every partner has a right to get compensation for the expenses paid by him on behalf of the firm. The partner should be indemnified for the loss suffered due to the use of his personal assets for the benefits of the firm.
e. Right to get interest: Every partner has a right to get interest on loans and advance made by him to the firm. He can be allowed interest on his capital only out of the profit earned by the firm.
f. Right to use properties: Every partner has to use the properties of the firm for the purpose of the carrying on the activities on the firm.
g. Right to judge in an emergency: Every partner has a right to judge and act in an emergency for protecting the business from possible losses. While making judgement he should b far-sighted and make the decision after careful study of the situation.
h. Right to leave the firm: Every partner has right to leave the firm with the consent of all the partners. In Case of partnership at will the partner can leave the firm just by surveying a proper notice to other partners.
Duties of a partner
a. To work honestly: Every partner has to perform the activities of the firm honestly. He must work for the common benefit of all the partners and the firm.
b. To present true accounts: Every partner must present true financial status of the firm. He Should not mislead others and shouldn’t make secret profits.
c. To provide true information: Every partner must provide accurate, reliable and complete information about the activities of the firm. He must provide true information relating to purchase, sales, assets, liabilities, agreements and contracts made by the firm.
d. To use firm’s properties: Every partners must use all the properties of the firm only for its benefits. Such properties should not be used for the personal benefits of the partner.
e. To work within authority: Every partner must perform the activities of the firm within the scope of authority entrusted to him. He should not make any decisions by crossing the limit of the authority on trusted.
f. To Indemnify: Every partner must indemnify for all such losses suffered by the firm due to his irregularity, negligence and carelessness. He should also indemnify for the losses suffered by the firm due to the use of the firms properties for his personal benefits.
g. To bear losses: Every partner should bear the losses. If the firm as per the agreed ratio. If there is no agreement in this respect such losses should be borne by all the partners equally.
h.Not to transfer interest: No partner should transfer his interest or share to others without the consent of the partners. Similarly, the partner shouldn’t transfer his right to others partner without the consent of all partners.
Partnership deed
Meaning: A partneRship is formed and operated with mutual understanding and co-operation of partners. Each partner has certain rights, duties and obligation. To maintain mutual understanding and co-operation and to legalized the rights, duties obligation all partners must enter into written agreement. This written agreement which defines rights, duties, obligation and mutual relationship of partners is called partnership deed as agreement. It is the document which mention rules and regulation and the way of operation, management and control of the attraction of the firm. A partnership deed is the main document of partnership which is required for it’s registrations.
Contents of partnership deed:
- Name and address.
- Nature and objectives
- Duration
- Capital and drawing
- Interest
- Profit sharing ratio
- Rights and duties
- Admission and retirement
- Death of partner
- Accounts and audit
- Salary
- Valuation of goodwill
- Dissolution of partnership
- Arbitration clause.
Registration of partnership firm in Nepal.
A partnership firm is registered under the partnership act 2020 in Nepal. It should be registered with the concerned government office within a months of its formation. The registration of the partnership is compulsory. The registration give recognition to the firm legalized its business and makes the firm accountable for its activities. If the firm is concerned with industry. It requires to be registered with the department of industries. If the firm is concerned with commerce. According to the partnership act 2020 the following are the procedure for the registration of the partnership firm:
A) Filing an application: In order to get partnership firm registered an application form should be properly filled and signed by all partners. The application form contain the following particular
- Full name of partnership firm
- Address of the firm
- Objective of me firm
- Name and address of all partners
- Types of partners and capital contributed by each partners,
- Name of the partners who represent the firm
- Methods of sharing profit or loss
- Methods of determining profit or loss
- Any other particulars as presented by the concerned government departments.
B) Paying registration fee: The application form is verified by the concerned official to confirm that all the particulars are correctly mentioned with required documents. If the concerned official is satisfied with the information and document supplied, he may ask for depositing registration fee. The amount of registration fee are as follows: [May vary with Time]
C) Obtaining certificate: After receiving application form along with required documents and registration fee to the concerned official investigation all particulars & supporting documents supplied. If he is satisfied with them the firm will be registered and a certificate of registration will be issued. These certificates is a proof of the legal registration of the firm.
Renewal of partnership firm in Nepal:
According to the partnership act 2020 BS, every partnership firm must be renewed each year within 35 day of the completion of fiscal year. If the firm is continued without renewal its activities and transactions are considered illegal. In order to renew the form of an application should be submitted along with renewal fee to the concerned office. The amount renewal fee depends on the amount of capital. When the concerned department receive application for renewal along will registration fee the concerned official enters the particulars of renewal in the renewal book. The amount of renewal fee at present is as follows: [May vary with Time]
Dissolution of partnership firm in Nepal
Dissolution of partnership to all of terminating the partnership agreements and closing the partnership business. It is the process of bringing the partnership business to an end. It is the process of bringing the partnership business to an end. It involves the process of realizing assets of the partnership firm paying of its liabilities, refunding the amount of capital to the partners and sharing the surplus among the partners according to the partnership deed. The following are the conditions of dissolution of a partnership firm as per the partnership act 2020 BS.
A) Dissolution by agreement: A partnership firm can be dissolved with the mutual consent of all the partners. It can also be dissolved as part of the provision made in the partnership deed.
B) Dissolution by notice: If a partnership is formed for an indefinite period of time the firm can be dissolved by any partner serving a written notice to all other partners indicating his intention to dissolve the business. In such condition the dissolution takes places from the date of the notice.
C) Dissolution at any time: A partnership can be dissolve at any time under the following reason:
- If partner is unable carry his assigned duties and bear responsibilities as per the partnership deed.
- If a partner doesn’t pay the agreed amount payable to the firm or transfer his interest to another person without the consent of all partners.
- If a partner commits fraud or negligence in the activities of the firm.
D) Immediate dissolution: A partnership will end immediately if a partner die or becomes insolvent.
E) Dissolution by the concerned department: A partnership can be terminated by the concerned government under the following reasons:
- If the firm is not renewed within the stipulated period of time.
- If the partners apply to the concerned department requesting it to terminate the fund.
- If the firm is closed either giving or not giving the information to the concerned department.
- If the firm operates its activities against me concerned act.
Questions Important on exam
- What is partnership firm? Explain the feature of partnership firm.
- What is partnership firm? Explain it’s advantages and disadvantages
- Explain different types of partner
- Explain the right and duties of a partner.
- Explain the conditions in which a partnership firm is dissolved in Nepal.
- Explain the procedure for the registration and renewal of a partnership firm in Nepal
- Mention the contents of a partnership deed
- Difference between a sole trading concern and partnership firm. [Click here for answer]
Unit 3.3: Joint stock company
Meaning and definition of joint stock company
Joint stock company has come into existence to overcome the limitation of sole trading and partnership firm. A joint stock company is a voluntary association of person for establishing a business under a company act 2063. It is a distinct legal person created by law. Its capital is divided into a large number of part with equal value. Each part of capital is called a share. The company collects the capital bu selling the shares to individuals and organizations. The shares are freely transferable. The person who hold the shares are called shareholders of the company. The liability of the shareholder is limited to the face value the shares held by them.
The company is managed by representative of shareholders known as he Board of Directors (BOD.) The member of the board are elected by shareholders. The company is a corporate body whose life is not connected with the life of the shareholders. Hence, the company is permanent. example: Biratnagar jute mill was the first joint stock company in Nepal.
According to L.H. Haney – A joint stock company is a voluntary association of individuals for profit having a capital divided into transferable shares, The owner ship of which is the condition of membership. Again a company is an artificial person created by law having a separate entity win a perpetual succession and a common seal.
Characteristics of Joint Stock company:
a. legal personality: Joint stock company is an artificial person and enjoy the facility natural person in certain aspect. It has a separate legal entity independent from its members. It can hold property, borrow debts can carry on business and enter into contract in its own name. It is created by law and can also be dissolved only by The law.
b. Perpetual existence: Being an independent body the life of the company is not connected with the life of its shareholders. The law creates the company and and the law brings it to an end. It is corporate body. Its shareholders may transfer their shares and new persons may come in their place but the existence of company is not affected.
c. Limited Liability: The limited liability is another important feature of a joint stock company. If anything goes wrong with the company the shareholders liability is limited by the amount of shares hold by him.
d. Representative management: Although shareholders are the real owners of company but in in practical it is not possible that all the shareholders should involve in he management of the company. The management of the company is done by the representatives of shareholders known as board of directors. The board of directors are elected representatives of the shareholders and responsible for the day to day operation of the company.
e. Democratic management: A joint stock company is a democratic organization. The decisions are taken in the annual general meeting (AGM) on the board meeting by following the principles of democracy. The board is elected and dismissed according to the interest of the majority of shareholders.
f. Transferability of shares: The shares of joint stock company are easily transferable from one parson to another without permission from company management. The shareholders may come and shareholder may go but the company remains at it is unless liquidated according to the law.
g. Common seal: As the company has no physical form it cannot sign any contract in its own. Therefore, originally all documents and contracts paper require the affixing of the seal. Most of the transactions are signed by the directors who act as a agents of the company. It uses a common seal for its official signal. Therefore, any document without common seal of the company is not liable for the same.
h. Publication of financial statement: Financial statements of the companies have to be published on a regular basis for public information. The financial statement involve manufacturing account, trading account, profit and loss account, balance sheet and other statements of the company. These statement must be audited before they are publish to public.
i. Issues of Shares for capital collection: A private company raise its capital from friends and relatives. It cannot invite the general public to buy its shares where huge capital is required for production and operation public limited company formed and the general public is invited to invest their capital.
Advantages of Joint stock Company (Imp)
a. Huge amount of capital: A company has the ability to collect huge financial resources. In order to collect money from large number of person, a company can issue shares. Beside, shares and debentures may be issued with different features with regard sharing of risk of income and control.
b. Limited Liability: The shareholders have limited liability. They are not liable to pay anything more than the fixed value of the shares even if the capital of the company becomes insufficient to pay its liabilities. This facility attracts the general people for investment in the company.
c. Perpetual existence: A company’s existence is not affected due to the entry, retirement, death or insolvency of its shareholders. It performs ifs function without any interruption even if any changes are made in the management, the board of directors, working procedures etc. So, the company is a longterm business organization which is beneficial to both the company and its shareholders.
d. Transferability of shares: When the shareholders require money they can sell their shares to other’s easily. So, the shares of public limited company are easily transferable from one person to another. Prior permission of management is not required for transfer such shares.
e. Effective management: The shareholders cannot directly take part in company’s management. They hire skilled, experienced, trained and qualified employer for performing organizational activities. Hence, professionalization of management is possible. Profession of managers are able to show better business results.
f. Democratic management: The governance of company is entrusted to the representative of shareholders called Board of Directors (BOD). The board of director is democratically elected from me shareholders due to democratic set up the company is lightly to run in the best interest of its shareholders.
g. Credit worthiness: A company has more credit worthiness than any other form of organization. Since a company is a baby of corporal and legal entity. It has to make its business affairs public and as such it has high public confidence.
h. Accountability: A company is not only accountable fo its owners but also to government, general public and financing institutions. It is compulsory to disclose the financial statements as required by law.
Disadvantages of Joint stock company,
a. Difficult to formation: for establishment of a joint stock company some legal formalities in connection with he registration, establishment and operation have to be fulfilled. Formation of a joint stock company is difficult and time consuming work. The legal formalities also cost some amount of money.
b. Lack of motivation: The directors and other officers of a company have little personal involvement in the efficient management of a company. It is difficult for the directors to keep personal touch with customers and employees. This reduce their motivation to work hard for the company. As a result, efficiency of business operation be affected.
c. Lack of quick decisions: Decisions cannot be taken by one person alone. Major decisions need to be taken by the meeting of directors or shareholders. Resolutions are passed from such meetings. Hence, quick decisions and quick action mayn’t be possible. It takes more time to inform directors and shareholders to hold meetings and to decide the matters. Such delay in decision making may result in loosing business opportunities.
d. Lack of secrecy: Being a public limited company most of its affairs had to be made public. Every year the company has to publish its statements of financial affairs to revel the results of its operation and the financial position. Therefore, there is lack of secrecy.
e. Exploitation by majority shareholders: Since the majority principle prevails in the governance of a company. The voice of its minority shareholders aren’t heared. For example, the board of directors is formed by majority votes of shareholders. Similarly vital decisions of board are taken by me majority votes of directors.
f. Corrupt management: As we know management is the backbone of an organization and for the development the organization efficient management is essential. Joint Stock company is a large organization with maximum employees where as it is managed by few number of directors & professionals. It performs business in appropriate manner till the directors and professional perform their duties efficiently. But if they are inefficient and selfish then problems will arise in management.
g. Excessive legal provision: A joint stock company needs to fulfill legal formalities at every stage of management. Many rules and regulations are essential to complete at every stage of business activity and has to report to concerned department. In one sense it requires many expert for the preparation of reports and completion of legal procedures like auditors, legal experts and management consultants etc which create external financial burden to the company.
h. Social evils: The company organization may sometimes lead themselves to form combination in an attempt to gain monopoly powers in a few hands. Such monopoly powers results in the exploitation of small procedures, consumers and employees.
Types of Joint Stock Company.
A. Public limited Company: A public limited company is a company the membership of which is opened to the general public under me provision of it’s articles. The minimum number required for its formation is 7, but there is no upper limit. It offers its shares to the public through a prospectus and any person con apply for if shares. According to section-2 of the company act 2063, a public limited company means any company incorporated according to this act.
A public limited company has to obtained the certificate of commencement before starting its business along with the certificate of incorporation . It has to issue a prospectus at the time of issuing share or debentures for public subscriptions. For quick identification the word “Ltd” or limited is written after the name of the company. For eg Tata iron and steel company Limited, Nabil Bank Limited etc
B. Private limited Company: It is one of the registered company incorporated according to the company act in the concerned department. According to the section 43 of the company act 2063. The minimum number of shareholders may be 1 and maximum shareholders should not exceed 50. A private limited company cannot issue shares to the public for subscription and remain limited to some limited number of shareholder. Shares are also not transferable without the consent of all members. In other words, it is nothing but a kind of partnership with limited liabilities. A private limited company can start business after getting certificate of incorporation from the concerned department of the government. For quick identification of such company the word “Pvt. Ltd” or private limited is written after the name of the company. For eg, Pashupati Biscuit Pvt. Ltd, Hyundai Motors Pvt. Ltd
Q. Differences between Public limited company and private limited company. [ Click here for answer]
Main documents of joint stock company
- Memorandum of association (MOA)
- Article of Association (AOA)
- Prospect
a. Memorandum of Association (MOA) Memorandum of Association is the most important document of a company which is to be enclosed with the application form. It is the foundation document on which the structure of time company is utilized. It describes the objective and rights of the company and also regulates the relationship of the company with other parties. It is also known as constitution or the chartered of the company. This charter its more or less permanent in nature. Hence, it is not easy to change any of the clause of this document. The memorandum should thus be prepared with great care because the company cannot go beyond the limitations let down by this document. Memorandum of Association must be divided into different clause. The main clause of this document are as follows:
- Name clause
- Situation or domicile clause
- Objective clause
- Liabilities clause
- Capital Clause
- Subscription or association clause.
b. Article of Association (AOA): Articles of Association is another important document of a company. This document, should he attached with the application for registration. The articles are subordinates to the memorandum of association. These are the regulation & by law for governing the infernal affairs of the company. The memorandum lays down what is to be done and the articles states how it is to be done. The article define the mode and manner in which the company’s business is to be carried out fo achieve its objective as state in the memorandum of association. It also mention the appointment of the Board of directors (BOD), procedure for holding meeting, transfer of shares and re-issue of shares, rules regarding loans, appointment of the auditor etc. According to the company act 2063 the following particulars should be included in Articles of Association.
- Name of directors
- The amount of minimum subscription by directors
- The procedure for calling company be meeting and notice to be given.
- Right and Duties of managing director.
- Provision relating to remuneration and allowance of directors.
- All the matters mention in the memorandum of association.
- Other necessary particulars.
c. Prospectus: A public notice circular or advertisement published addressing in public for the purchase of the securities of the company. It appeal to the public to buy its share and debenture. The prospectus project a company as a good investment opportunity. Hence, it must include details of performance to date, current worth & future plans. To protect the rights of prospective shareholders the prospectus must also highlight share transfer and share forfeiture of the company. It is prepared and circulated basically to inform the public about company and people to invest money in the company. The prospectus must be sign and dated by the promoters of the company. According to the company 2063, the prospectus should contain the following matters. The main objective the company and after important matters mentioned in the memorandum of association and article of association.
- Minimum number of shares to be subscribed to become the directors and their salaries and allowances.
- Description of cash received as remuneration of the reward by the promoters or directors.
- Provision relating to bonus share.
- Name and address of directors and number of shares subscribed.
- Number of shares to be issued to the general public.
- Minimum number of shares to be subscribed and advance payment along with the application.
- Net worth the company.
- Name and address of the auditors and the audit report.
- Date of opening and closing of subscription list.
- The balance sheet and profit and loss account of the company and time and place for inspecting the same.
- Other necessary particulars.
Company meetings: Most of the decisions in a joint stock company are taken through meetings. A company meeting is define as an assembly of persons who are connected with the company for discussing the matter relating to different activities of the company. The followings are the main types of company meeting.
- Preliminary General Meeting (PGM)
- Annual General Meeting (AGM)
- Special General Meeting (SGM)
a. Preliminary General meeting: This is the first category of meeting of the Shareholder. The main observe of this meeting of the shareholders. The main objective of meeting is to provide the information about the prospectus of the company to its members.
According to the act such meeting must be conducted within one year after the date of receiving the certificate of commencement of business. A 21 days prior notice should be sent to the share holders by mentioning the date, place and agenda of the meeting.
A preliminary report is to be sent to all the share holders certified by at least two directors. This report contains a statement of receipt and payment of the company. It show the amount of preliminary expenses, names, address of directors, auditors and managers of the company. The preliminary record must contain the following details.
- Allotment of total number of shares.
- Number of fully or partially paid up shares among the allotted shares .
- Total amount received on shares.
- Full details of expenses made on income received till 35 days before the meetings.
- Names and address of directors, managers, company, secretary, accountants and auditors & their appointments and conditions service.
- Loan borrowed from any bank.
- Amount due from directors.
- Other necessary information.
b. Annual general meeting: Annual general meeting is regular meeting of the shareholders of a company which is held every year. The main objective of holding this meeting is to provide detailed information to the shareholders about the progress made by the company during the fiscal year. According to the company act, the first annual general meeting should be held within one year from the date of preliminary general meeting but the annual general meeting should be held each year within six months from the date of expiry of the fiscal year.
The company should give at least 21 days prior written notice to all the shareholder to all the annual general meeting. The notice should contain the agenda, date, time and venue of the meeting. If the company is public limited the notice should be published in a popular national newspaper by inviting all the shareholders to attend the annual general meeting. The following resolution are presented by chairman of board in the annual general meeting for decisions and discussions.
- Consideration of the profit and loss account and balance sheet of the last year.
- Reports of the directors and auditors.
- Declaration of the amount of dividend.
- Appointment of directors and auditors.
- Remuneration of directors and auditors.
- Other particulars presented by shareholders representing a minimum 5% to total votes.
- Other particulars.
c. Special general meeting (SGM) or extraordinary general meeting: It is the special type of general meeting of share holders. Assembly of shareholders other than preliminary annual general meeting of the company are called extra-ordinary general meeting. This sort of meeting is commenced when special decision is to be taken or important function is to be completed immediately and it cannot be postponed till the annual general meeting. Generally this type of meeting of shareholders are held only on special reason or problem.
According to section-82 of company act 2063, board of directors, auditors, shareholders and concerned office of government may call it. The special general meeting is called for the discussion and decision on the following matters.
- Change in the name or main objectives of the company.
- Increase in authorized capital.
- Reduction of share capital
- Issue of bonus share:
- Conversion of a private limited company into public limited company.
Agenda and Resolution
a. Agenda: The word ‘Agenda’ literally means things to be done. It is a a statement of the business to be discussed and transacted at meeting. So, the subject which are to be discussed in the meeting are known as agenda. It consists of a list of things to be done and the points to be discussed in the meeting. An agenda must be clear, summary of the business to be transacted in the meeting.
b. Resolution: Resolution is the subject matter presented in the company meeting for discussion and decision. It can be accepted or rejected by voting. It is a formal decision. The activities of a company are conducted by resolutions passed in meetings. All decisions are taken into form of resolution. According to the company act 2063 resolutions can be divided into two types. They are as follows:
- Ordinary resolution
- Special resolution
a. Ordinary resolution: A resolution which is prepared and presented in a board meeting or annual general meeting & decision is taken by a simple majority is known as ordinary resolution. Such resolutions is passed by the shareholder holding more than 50% of the total shares. The following matters are presented and passed under ordinary resolution.
- Audited profit and loss account and balance sheet of the previous year.
- Appointment of directors and auditors.
- Remuneration of directors and auditors.
- Declaration of dividend.
b. Special resolution: A special resolution which is adopted on a special issue of the company and the decisions is taken by the special majority is called special resolution. It is adopted on such important matters which cannot be decided by simple majority. The following matters are presented and passed under special resolution.
- Conversion of company from private limited to public limited
- Winding-up if the company
- Issue bonus shares.
- Changing the name, objective and capital of the company.
- Changing the name objective & capital of the
Incorporation of joint stock company in Nepal: The actual meaning of incorporation is recognition. Therefore, the joint stock company must be registered with office of the company register for its recognition. The establishment of a company requires a series of steps to be taken. First of all, the interested people must gather and prepare a plan and outline the business activities and apply to the office of the register for its registration.
The following procedures should be followed for incorporation of a joint stock company in Nepal.
- Filing an application.
- Payment of registration fee.
- Certificate of incorporation.
- Certificate of commencement of business.
a. Filing an application: The first step is to file an application to the office of the company registrar with the application form. The fallowing details and document have to be attached with the application form.
- Name of the proposed company
- Name and address promoters.
- Two copies of each of memorandum of association and article of association.
- One attached copy the citizenship of the promoters.
- Postage stamp of Rs 5.
- Description of company share capital.
- Types of business.
- Any other information asked in application form.
b. Payment of registration fee: While submitting an application to the office of registrar prescribed registration fee must be paid. The registration fee is prescribed by the office of the registrar. The promoters must deposit the registration fee in Nepal Rastra Bank or paid in cash and should provide the voucher to the office along with application form. The amount of fee varies depending on the amount of authorized capital. The current amount of registrations fee are as follow: [Note that fee may vary in Time]
c. Certificate of incorporation: After receiving the application form with necessary document and registration fee the office of the registrar examines all these document. If the office is satisfied with the documents submitted by the partners. It will enter the name of company in the register within 15 days of the receipt of the application. After registering the office of the registrar issue the certificate to the company.
d. Certificate of commencement of business: After obtaining the certificate of incorporation a private limited can commence its business immediately but in the case of a public limited company it can starts its business only after the receipt of certificate of commencement. To obtain the certificate of commencement business a report of attest 25% of issued capital already paid by the promoters with the duty signed by at least one director must fill with the registrar. Then the office of the registrar examines all the documents. If the office is satisfied with all those information it will issue certificate of commencement of business.
Winding up of joint stock company in Nepal: The process of bringing the existence of company into an end is called winding up of company or liquidation of a company. According to company act 2063 a company can be closed in the following ways:
- Voluntary liquidation
- Compulsory liquidation
a. Voluntary liquidation: Voluntary liquidation means the arrangements made by the shareholders at the special general meeting to winding up of the company. A public limited company can liquidate itself a voluntary liquidation by a special resolution under following conditions.
- In the articles of association(AOA) specifies time frame for the operation and the time expired.
- If the company has excess liabilities to fulfill and It becomes impossible to continue the business.
- A private limited can be liquidated according to me provisions memorandum of association (MOA) and articles of association (AOA) and decisions made in shareholders.
b. Compulsory liquidation: If the liquidation of a company is made by the office of the register it is known as compulsory liquidation. Two thirds(2/3) of the creditor can apply to the office of the registrar for the liquidation of the company to recover the credit amount. After receiving the application the registrar can order for company liquidation. The compulsory liquidation is made under the following.
- If the application is submitted to company registrar to liquidate the company as passed by a special resolution.
- If the company doesn’t submit the required report and documents to the office of company registrar in time.
- If the creditors submit an application to the company registrar informing that the company has failed to pay debts within the specified period within one year of expiry of the period.
Important Questions
- What is Joint Stock Company? Discuss its main characteristics.
- What are the advantages of Joint stock company? Explain.
- What are the disadvantages of joint stock company? Explain
- List out the main documents of Joint stock company?
- Describe the contents of memorandum of association?
- Difference between private & public limited company?
- What is resolution. Discuss various types of resolution.
- Discuss the main contents of articles of association.
- What do you mean by prospectus: Discuss its main contents.
Unit 3.4: Public Enterprises
Meaning and definition:
A public enterprise is a form of business organization, financed, operated and controlled by government for the purpose of providing goods and service at reasonable price. It is wholly or partially owned, managed and controlled by government. It is an autonomous corporate body which is incorporated under the law. Its operation are managed and controlled by the government. In simple words, a public enterprise or a government undertaking is a government owned and controlled business enterprise with distinct legal entity having a corporate status. For eg, Nepal Airlines Corporation, Nepal Electricity Corporation etc
According to AN Agrawal -> “Public enterprise are established, controlled and operated by the government to produce and supply goods and services to the society.”
Characteristics of public enterprise
a. Government ownership: A public enterprise is owned by the government. It is either wholly or partially owned by the spate investing at least 51% in its share capital.
b. Government management and control: A public enterprise is managed and controlled by the government. The government appoints Board of Director and chief executive for the management of the day to day affairs of enterprise.
c. Service motive: A public enterprise is established for providing quality goods and service of the people rather than earning profits. Although it may make some profit its primary objective is always to provide service to society.
d. Financial autonomy: Although public enterprise are financed and owned the government they have financial autonomy in the operation of their business. They can generate revenue by providing and selling goods and services and make expenditures there of on their owned without government interference.
e. Autonomous body: A public enterprises is an autonomous body. The board of directors is all-in all in the enterprise and is independent of government regulation. It has its own rules and by laws to govern its operations.
f. Separate legal entity: Public enterprises are established under a law with separate legal entity concept the departmental organization. It has a corporate status with a common seal. It can purchase and sell properties and enter into contracts in its own name.
g. Public Accountability: Since public enterprises are financed from public money they are accountable to the general public. The board of director and executive of enterprise are accountable for their performance to the parliament.
h. Perpetual Succession: A public enterprise has permanent life. Being a separate legal entity its life is not affected by the changes in the environment or its own management.
Types of public enterprise
a. Department undertaking: A department undertaking is the oldest method of operating and managing the affairs of the state enterprise. A departmental under taking are organized, financed and controlled by certain department of the government. The general post office is the best example this type of public enterprise, under the departmental undertaking all business activities are carried under the overall control of department. The features of departmental undertaking are as follows:
- Financial control by the government:
- Management and control
- Rule and regulation
- Recruitment of employees.
- No separate legal entity
- Public accountability.
b. Public corporation: Public corporation are he most widely used form of organizations for operating public enterprise. A public corporation is a corporate body created under the public corporation act 1961. Statutory corporation are created by a special act or character of the parliament. Its powers, duties, objectives, scope of operations and management are all defined by the act. The main purpose of a public corporation is the maximization of social welfare. It is managed by the board of directors. The employees are appointed under the terms and conditions of the corporation. Nepal oil corporation (NOC), Nepal Airlines Corporation (NAC), Agricultural development bank (ADB) and Nepal Water Supply Corporation (NWSP) are some of the examples of public corporation in Nepal. The features of public corporation are as follows:
- Incorporated water supply act.
- Board of director.
- Government Ownership and control.
- Separate legal entity.
- Financial autonomy
- Recruitment of employees.
- Autonomy in operation.
- Public accountability
c. Government Companies: A public enterprise which is established under the prevailing company law of the country is called government company. In such a company the government owns at least 51% of its shares. This type of company is a popular form of public enterprise because it is easy to organize and is considered to be more efficient. No special act is required for its incorporation as well. A government company enjoy all the privilege of a joint stock company. The features of government companies are as follows:
- Incorporated under the company act
- Created by executive decision
- Government ownership
- Board of director
- Separate legal entity
- Independent financial Management
- Recruitment of employers
- Public accountability
Importance of public enterprises
a. Establishment of major industries: Public enterprises help for the economic development of a country in a planned manner establishing different industrial and commercial units in different parts of the country.
b. Planned development: Public enterprises contribute in the planned economic development. Generally, public enterprises for its expansion and growth according to their plans. They also target in investment in those industries where it requires very long period to get return or profit and where the private sectors lose their interest.
c. Balanced development: Private enterprise usually don’t enters such regions where profitability is lower. But, public enterprises want to provide service to the all region even if the profitability is lower. So, public enterprises support balanced development of the nation.
d. Providing employment: Public enterprise require large number of people to operate. This creates employment opportunities which enhance the living standard of people. For example: Nepal Airlines Corporation (NAC) is providing employment opportunities to more than 1000 people.
e. Development of infrastructure: Public enterprises play an important role for he development infrastructure like drinking water, transportation, communication, electricity and education etc.
f. Source of government revenue: Public enterprises use one of the important source of government revenue. The public enterprise in various business activities and they have to pay the tax to the government in various forms like company tax, VAT, custom duty and income tax.
g. Supply of essential product or service: Public enterprises are essential for supplying essential goods or services sufficiently at cheaper price to the community. Government himself manufacture and distribute such products.
Important Questions:
- What is public enterprises? Discuss its main characteristics.
- Explain the types of public enterprises.
- Explain the importance of public enterprise.
Unit 3.5: Co-operative organization
Concept of cooperative organization.
A cooperative organization is formed with the aim of working together for common benefit. The main purpose of this form organization is one for all and all for one. The organization carries its authorities borough mutual cooperation of all the members. The members participate in different capacities as producers, consumers, workers and managers secure the benefits of business activities through an equitable distribution business income. A co-operative organization is a voluntary association of people who join together for carrying out a business with the principle quality and mutual help. It is also democratic organization which is operated for providing service to its members.
According to E.H. Calvert “A Co-operative is an organization where in person voluntarily associate together as human beings on the basis of equality for the promotion of economic interest of themselves.”
Features of Co-Operative organization
a. Voluntary organization: A co-operative society is a voluntary organization of the economically weaker people. Its membership depends on the will of the persons. No one can be forced become a member or quit the membership. A person can join and leave the organization at anytime by giving a due notice to the organization.
b. Equality: All members of a co-operative organization have equal rights in its management. There is no discrimination among the members due to their investment, caste, creed, religion and political thought. As the principle is “One member, one vote”, All the member have an equal voice in the management of the co-operative organizations.
c. Democratic management: A co-operative society is a democratic organization. It’s day to day operations are managed by the management committee of the board of directors. The board members are democratically elected by the annual general meeting (AGM) according to the principle “One member, One vote”
d. Mutual help and co-operation: In a co-operative every member work in the general interest of the organization as a whole and not for his self interest. A Co-operative Organization works with the principle “One for all and all for one”
e. Service motive: The main objective of organization is to provide better services and convenience to all its member. It doesn’t aim at maximizing profit. It provides quality goods and services to its members at minimum possible price.
f. Cash transaction: A co-operative organization sells good and service for its member and outsiders on cash basis only. Such cash transaction eliminate the chance of bad debts. As a result of such policy the organization performs its business successfully even with a limited capital.
g. Separate legal existence: A co-operative organization has a corporate status which is Incorporated under the co-operative act-2048. It performs all transactions like purchase and sale of assets and properties in its own name, admission, retirement or death of a member does not affect the existence of the organization.
h. Open membership: In a cooperative organization membership is open to all adults without any discriminations. A person can join the society by contributing a small amount to its share capital. Thus, good harmony among the members is ensured.
Types of co-operative organization
a. Consumer’s Co-operative: A consumer’s co-operative is established by the Consumer for selling consumer goods at a reasonable price to its members and outsiders. It distributes goods of daily necessary to its member comparatively a lower price by eliminating the middle men from the channel of distribution. It establish a direct link with the producers or wholesalers to buy a goods in bulk and sell these goods at fair price.
b. Producer Co-operative: A producer co-operative is established by small scale producers for supplying raw materials, tools, equipment and other items of production to its members. Such co-operative buy the materials in bulk and sell them to its producer member at reasonable price. Its objective is to supply raw materials regularly, improve the quality of products and to secure the economy of large scale production.
c. Credit Co-operative: A credit co-operative is established with an objective to develop and promote the saving habits of the member. Such co-operative provides loan of lower rate of interest to its member for productive activities. It is established by the people having small saving for giving financial support to them. It accepts small saving from its members and grant loan to them for productive purpose against a group guarantee or other securities.
d. Marketing Co-operative: A marketing co-operative is established by small farmers or small scale producers for selling their products at fair price. It help the small producers to secure fair price for their products through efficient marketing. It stores agriculture products in its godown and provide loan to the farmer against the deposit of such products. It sells the products when the price go up and returns the surplus after deducting the amount of loan.
e. Housing co-operative: A housing co-operative society is formed by the persons whose economic condition is weak and cannot build their house without help. The objective of such a cooperative are to make arrangement of land and building house for its members at cheaper cost. Thus, type of cooperative has not been formed in Nepal yet it’s felt necessary.
f. Multipurpose co-operative: A multipurpose co-operative society is the one which carries out several function. It provides loans, make available agriculture and daily consumer goods and makes arrangement for selling and buying agriculture products, encourage small agriculture and cottage industries, conducts educational and health programmes for its members and so on. Mostly multi purpose cooperatives are found operating in the rural areas of Nepal.
g. Miscellaneous co-operative: Besides the above mentioned co-operative, a co-operative can be formed in various other sectors as well for co-operative farming society dairy and poultry farm, fishery co-operative society, transport co-operative society, service co-operative society, transport co-operative society, service co-operative society, labour co-operative society and many others can be formed to achieve certain objectives and to provide to its members.
Importance of co-operative organization in developing countries.
a. Distributing goods and services: Co-operative organizations makes available goods and services in daily necessary to their members at comparatively lower price. This organizations buy quality goods in bulk directly from the manufacture and wholesaler and sell them to their members and outsiders without the maximizing profit.
b. Forming saving habits: Co-operative organization play a very important role in forming the habit of saving among members. They encourage farmers, employees and small scale business units for saving a part of their incomes on regular basis by offering an attractive rate of interest.
c. Granting credit: Co-operatives are intermediate organizations to all the people of lower income group. They grant credit facilities to their members against the group guarantee with least legal formalities. Co-operatives grants loan to farmers, employees and small retailers who are generally neglected by commercial banks.
d. Marketing output: Co-operative are effective institutional units for selling the output of their members at an attractive price. They provide transportation, warehousing, grading, packaging and advertising service fo their members for effective marketing of their products.
e. Creating employment opportunities: The basic problem of all developing country is the problem of unemployment. The co-operative directly and indirectly contribute to creation of employment opportunities on the one hand they directly enjoy some technical and administrative staff in different posts and position. On the other hand, they create self employment opportunities even in rural areas by offering financial and technical assistance to the farmers and entrepreneurs for launching small scale farming, retailing business and manufacturing activities.
f. Developing moral and social culture: Co-operatives do not discriminates the members on the basis of their capital, caste and religion. This promotes moral and social culture development of the community. In fact, the members of co-operative work as “One for all, and all for one”. This contributes to the improvement of community life and creates the environment for special development.
g. Promotes democracy: Co-operative are democratic organization. These organization educate their members to run business on democratic lines and principle. The members of the board are elected by the majority of the members who are a accountable for the performance of organization.
h. Developing rural areas: The fundamental ideas of a co-operative society is to uplift the social and economic status of rural people who are even deprived of government support by involving them in co-operative movement. The co-operatives are established to mobilize human financial, physical and natural resources by motivating local people through financial and technical support for their involvement in different economic activities.
Registration of co-operative in Nepal
A co-operative society can carry on its activities under the company act 2028. As per act a co-operative can be registered by completing following procedures.
a. Holding preliminary meeting: According to the co-operative act 2048 there should be at least 25 members to form a cooperative society. Before applying for the registration the members must hold the meeting is called preliminary general meeting in order to decide uncertain issue. The meeting should hold a discussion on the following issue.
- The opening of the society.
- The name, address and objectives of the society.
- The value each share and membership fee.
- Opening of bank account, operating account, depositing the amount of capital for registration.
- Delegation of authority for the registration of the society.
- Annual working scheme.
- Working area
- Miscellaneous
b. Filing application for registration: after preparing and passing proposed by laws and working in the preliminary general meeting and application should be submitted to the office of registrar department of co-operative government of Nepal. All necessary information should be filled in and the application has to be duly signed by the promoters. The following particulars should be mentioned in the application form.
- Proposed name
- Address
- Objectives
- Working area
- Liabilities
- Total Share Capital
- Total number of share to be sold
Method of giving membership to their members classification of members and their rights & duties. The following additional document should be submitted along with the application.
- Two copies of the proposed organization .
- One copy original working scheme of proposed society.
- Attached photocopies of the above mentioned decisions of the preliminary general meeting.
- Original copy of the deposit voucher of fee registration fee.
c. Receiving certificate of registration: The application and necessary documents received for registration will be carefully by the department of co-operatives. The registrar will examine whether or not the laws of the society are based on principles of co-operative. If all the documents found satisfactory the registrar will issue the register the society and issue the certificate of registration in the prescribed from signed by the registrar.
National Cooperative Development Board
National Cooperative development board (NCOB) is an autonomous corporate body established for the upliftment of the weaker section the society. According to Co-operative principle Under the cooperative development board act 2049 BS. The national Co-operative development board is established to formulate the national level plans and policies for the development of co-operative in the country. The board is managed by the executive committee of 25 members.
Functions of NCDB
- To formulate necessary policies at the national Level for the promotion and development of co-operative society to recommend the government for their implementation.
- To Cooperate with the government for policy formulation relating to co-operative development to prepare and implement the development plans & policies.
- To undertake research studies for the development of co operatives.
- To provide necessary capital to co-operative societies for conducting development work.
- To invest in co-operative organization and co-operative banks.
- To provide necessary security on the request of cooperative organization for issue debenture or obtaining loan from bak and financial institutions.
- To make necessary provisions for conducting the programmes of co-operative development & to provide technical co-operation for the promotion and protection of cooperative organization.
- To enter into agreement for joint investment with local and foreign investors. Various institutions, companies, corporation and the government for industrial development in the co-operative sector.
Important questions
- What is co-operative organizations? Discuss its main features.
- Explain the types co-operative organizations.
- Explain the importance of cooperative organizations.
- Explain the functions of NCDB.
- Explain the procedures for the registration of co-operative in Nepal.
- Define National co-operative development board.
Unit 3.6: Multinational Companies
Concept of multinational companies:
A multinational companies / corporation is a large scale enterprise scale enterprise that does the production or delivers service in more than one company. They perform their business in international level through their branches, subsidiaries or agents. Their headquarters beside in their home countries and operate in several other countries which are known as hast countries. Multinational companies involved in mass quality production, distribution and promotion of their products and create the distinct brand image of their company. East India company is me first modern multinational company in the world. Most of the major multinational companies ares America, Japanese, European, Such as like Coca-Cola, Walmart, Honda, Patanjali, Toshiba, Apple, Samsung etc.
According to Jacoby, “A multinational companies owns and manages business in two or more countries.” –
Features of Multinational companies:
1. Large scale business: The capital of a multinational company is considerably large. Its assets and volume of sales are also quite large. The sales turnover of some multinational companies are much more than the annual budget of many developing countries.
2. Productive organization: Multinational companies are involved in the production and distribution of goods and service at the international level. They produce and sale good and service in one brand name or trademark all over the world.
3. Global operation: Multinational Companies operate globally the parent company manufactures and sales its product and service through its subsidiaries established in other countries. Hence, they perform their business at the global scale.
4. Mass production and distribution: Multinational companies produce and sale goods and service in a mass scale in order to produce and distribute goods and service at such a scale multinational companies invests huge capital, hire expert manpower, used advanced technology and used aggressive promotion strategies.
5. Professional management: Multinational companies are known for their professional management in order to integrate and manage world wide operations the employee professional managers having skills and specialized educations from a around the world. They hire personnel having expertise in handling production and distribution on activities.
6. Advance technology: Multinational companies use advanced technology to produce goods at competitive price. The parent company transfers some portion of this technology to its branches or subsidiaries.
7. Management and control: In multinational companies the right of management and financial control rest the parent company. However, enough autonomy is given to the subsidiary company to perform their day to day activities.
Advantages/ benefits /importance of multinational companies:
1. Transfer capital and technology: Financial resources, technological know-how and professional management are the main constraint for economic development in the country. Multinational companies can mobilize and transfer technology and management skills to developing countries through their subsidiaries.
2. Provide quality goods and services: Multinational companies produce and sell standard goods and services at competitive price. Hence, the consumers of developing countries are able to consume such good and services. Multinational companies thus help to improve the quality of the people in developing countries.
3. Create employment opportunities: Since they operate globally, multinational companies are generally mega organization. Therefore, they require a large number of executives, employees and workers for performing their administrative, manufacturing and marketing activities. They generally offer higher pay scales and advancement opportunities to them.
4. Increase government revenue: Since multinational companies operate in large scale in national and international market they are the major sources of government revenue. They pay large sums to the government in the form excise duty, customs duty, income tax, value added tax and other corporate tax.
5. Earn foreign currency: Multinational companies are major sources of foreign currencies for many countries They earn foreign currencies through royalty transfer of technology, exports goods and dividends from subsidiary companies. Similarly, subsidiary companies also earn foreign exchange through exports.
6. Develop international relation: Because of multinational good relation can be developed even among politically opposing countries. For eg, United States and Japan are democratic countries while China in communist country. Despite their opposing political ideologies United State, Japan and China have good trade relations.
7. Increase healthy completion: Multinational companies create an environment of healthy competition in the domestic market. They break the monopolies of domestic companies. As a result, they pressure domestic companies to be competitive and efficient.
Disadvantages of Multinational Companies:
1. Unemployment: Multinational companies do not help much to solve countries unemployment problems of the host as they use capital intensive technology for the production and distribution of goods and service. Beside they employee highly skilled people and modern technology which are normally not available in the host countries.
2. Gain monopoly position: Multinational companies may join hands with large business in the host countries to establish their subsidiaries or branches. Due to huge financial resources, advance technology professional management, aggressive promotion and quality products they try to secure monopoly power.
3. Dilute culture: Multinationals generally produce and sell those goods and services which are popular in the developed countries. They also try to promote the same good and services in the host countries. However, such goods and services may not be compatible to the values, customs and culture of these countries.
4. Outflow of foreign currencies: Multinational companies expand their operations in the developing countries with the aim maximizing profit of their parent company. Therefore, a large portion of profit of their subsidiaries goes back to the parent company in the form dividends in foreign currencies. Similarly, foreign currency from the host country also go out in the form of royalty and technical fee.
5. Exploit resources: One of the purpose all multinational companies to operate in developing countries is to take advantage of their unused natural resources. In order to maximize profit, they tend to use these resources at lower price.
6. Exploit consumers: Multinational company produce goods & service at low cost by using cheaper local resources and labour in the host countries. Due to high cost of the royalties of these goods and service. However, they charge higher price to the local consumers. As a result the local consumers are exploited.
7. Increase dependence: Multinational companies increase dependance of the developing countries on foreign goods and service. These over dependance has long-run implications for host Countries.
Important questions
- What is multinational company? Explain the advantages of multinational company.
- Define multinational company. Explain the characteristic of multinational company. What is multinational company? Explain the disadvantages of multinational company.
- Explain the advantages/merits/pros and disadvantages/demerits/cons of multinational company.
- Explain the importance MNC’s,
Unit 3.7: Business support agencies in Nepal
Business support agencies in Nepal.
- Nepal chamber of commerce (NCC)
- Federation Nepalese Chamber of commerce & industries (FNCCI)
- Trade and export promotion (TEPC)
Nepal chamber of Commerce: The oldest business support agency in Nepal is Nepal Chamber of Commerce. It was established in 1952(20009 BS) as the first chamber of commerce in Nepal. It is located in Kathmandu. It is playing significant role in the business promotion in the country. Beside it takes active part in the formulation of commercial, industrial and fiscal policies of Nepal which make favorable impact on the new start up to existing business.
Formation of Nepal Chamber of commerce.
NCC is formed by its members. It has four types of member. They are:
- Life members.
- Ordinary members
- Affiliated members
- Honoured members
It provides membership to any eligible individual firm, company corporation and organization engaged in trade industries or related profession. At present, it has more than 8000 registered forms. NCC has a number of bodies, committees cells secretarial by which it operates to attain it’s objectives.
Functions of NCC
1. To foster good relationship: Nepal chamber of commerce seek to foster good relationship and unity among trading community industrials. The role of facilitator to develop fair and competitive business environment among business communities. It facilitates to find out acceptable solution to resolve the disputes.
2. To develop links: It develops links between commercial and industrial institution around the world and establish co-operation with each other for the betterment of national economy. It function is to co-operate with national business entities with international business. This is helpful to promote business relation at international level.
3. To organize fairs and exhibitions: It organize trade and industrial fairs and to co-operate and facilitate the Nepalese participation in such fairs. It provide both technical and procedural services to business entities. So, that they can participate easily in such business fair.
4. To issue certificate of origin: It issue certificate of origin for the Nepalese products. In foreign countries, Nepalese products get some exemption in tax and custom duty and for the purpose they need certificate of origin. This helps to promote export trade of Nepal.
5. To conduct academic institution: It establish or encourage in establishing the academic institution related to commerce & industry, finance in the technical management and hold workshop ,seminars, trainings and research programs to promote business activities. It facilitates to search new scope of business and encourages entrepreneurs to invest in such business.
Federation Nepalese Chamber of Commerce and Industries (FNCCI)(Important)
The federation Nepalese chamber of commerce and industries is an umbrella organization of Nepalese private sector. It was established in 1965 with the vision of “leading the nation’s economic progress mission of facilitating Nepalese business become globally competitive. It aims at promoting business and industry and protecting the rights and interest of business and industrial communities. It play a key role in promoting business, trade and Industry in the country. It provides different service to business and government such as consultative, promotional, advisory, and representative service and regularly organize training workshops and seminars. Therefore, it represent in almost all national councils, boards, committees, policies, advisory bodies that are concerned with business and industry.
Formation of FNCCI
The federation Nepalese chamber of commerce and industries is formed by its members.
1. District and municipality member. (92)
2. Commodity and sectoral associations. (68)
3. Leading public and private sector undertakings. (321)
4. BI-National chambers: At present the FNCII members consists of 92 districts and municipality level chamber of commerce of 75 districts, 76 commodities and sectoral association, 432 leading public and private sector un takings and 10 BI-National chambers. It has a number of bodies, committees, cells and secretariat by which it operates to achieve its objective.
Function of (FNCCI)
1. To play developmental role: The FNCCI play a catalytic role in the business and industrial and establish sound industrial relations in the country.
2. To reinforce commitment: It reinforces business communities, commitment to the society.
3. To provide advice: It provides advisory service to government lobbies as and when required information and execution of business and industries related policies acts and programmes.
4. To foster co-operation: To foster co-operation with related national and foreign organization.
5. To provide information: It provides up to dale information services to business and government and the community at large.
6. To create awareness: It creates awareness and support for business and industry effort on issue affecting business like quality social responsibility co-operate governance, HIV, AIDS , child labour, environment etc.
Trade and export promotion centre (TEPC)
Trade and export promotion centre (TEPC) is a national trade promotion organization of Nepal. The government of Nepal established TEPL in 2006 as a focal point by merging previously existing public sector institutions namely trade promotion centre (Estd 1970), export promotion board (Estd 1994 )and carpet and wool development board (Estd 1994) with the objective of promoting foreign trade and in general and export trade in particular of the country.
Functions of TEPC (Trade and export promotion centre)
1. To provide advice: TEPC provides advice to the government of Nepal in formulating policies for the development and expansion of trade and export.
2. To strength economy: It contributes to strength the national economy by developing and expanding trade and export of the country.
3. To help alleviate poverty: It support in achieving the goal of poverty alleviation through the rural economy by enhancing internal and external market for agro-based and other products.
4. To conduct programmes for production: It launches programmes by establishing co-ordination among different agencies for increasing the production of export products.
5. Tо cooperate in opening institutions: It co-operates in opening institutions for export promotion and to diversify trade and extends support to such institution.
6. To execute programmes: It implements appropriate programs so as to attract investment at the national and international level for export oriented and import management project.
7. To identify trade related problems: It studies and identifies the problems of foreign trade & advises the government of Nepal with appropriate measures to solve such problems.
Important questions
- What is NCC? Describe its functions and formation.
- What is FNCCI? Describe its functions and formation.
- What is TEPC? Describe its functions and formation.