Saturday, 19 March 2011

Disadvantages of nationalization or arguments against nationalization of industry

The nationalization of industry is not considered desirable on the following grounds:

1. Costly Management:-
The management of the nationalized industry is complicated and unwieldy. There are numerous department and paid persons i.e. directorate, regional office conduct its management.

2. Lack of decision making:-
All the necessary matters are decided by various officials and committees. In case of conflicting views, quick decision cannot be made for the urgent matters which is dangerous in business.

3. Lack of Efficiency:-
Nationalized industries are managed by salaried persons who are generally found less efficient as compared with privately owned concerns. There is also lack of flexibility and adaptability where are asset of private ownership.

4. Bureaucracy:-
There is extensive and rigid procedure of the state machinery by which event is dealt. Such stipulated rules has made the process of work every complicated which results in delay and loss of initiative.

5. Absence of profit motive:-
The salaried persons are not concerned with profit. Therefore, nationalized undertaking hardly run successfully due to lack of personal interest.

6. Chances of Loss:-
The loss of nationalized enterprises is regarded as the loss of the nation. So the structure of nationalized economy will greatly be effected by the failure of such scheme.

7. Limited Investment:-
Investors hesitate to invest large sum of money due to risk of nationalization. Therefore, volume of investment remains limited in private sector.

8. Undue Interferences:-
Nationalized enterprises are undesirably interfered by political parties. Such undue activities are handicapped in progress of sound business.

9. Objectionable to Public:-
Public generally criticizes the giant policy of nationalization. So government may not be in position to initiate new schemes freely.

10. Loose Supervision:-
The skilled and efficient businessmen are replaced after nationalization. The charge usually taken over by the officials who are incompetent and inexperienced to run the industries. So the production volume is affected due to loose supervision.

11. Uncertain Situation:-
The giant policy of state ownership does not remain for ever. It may be changed by the the change government which results in confusion and hesitation.

12. Chances of Fraud:-
The controlling authority of the state enterprises may play discrimination and favoritism. They may appoint dishonest and corrupt persons. Therefore frauds and manipulations may occur in the transaction which causes exploitation of the public.


Friday, 18 March 2011

Advantages of Nationalization

State is regarded most desirable due to the following arguments.

1. Prevention of Monopoly:-
This is a strong argument in favor of nationalization that it abolishes the economic powers from the few monopolists. It thus enables the govt. to take steps for the welfare of the public..

2. Economical Prosperity:-
Government is an position to modernize the industry, communications and transport for the best interest of the nation. So rapid growth of industries causes economic prosperity in the country.

3. Maximum utilization of resources:-
All the oil, gases, minerals and other national resources can be utilized maximum in order to achieve economic development.

4. Development of Backward Area:-
All the regions of the country developed equally under nationalization. Regional and social factors are considered preferential while Government decides regarding the location of new plant.

5. Improvement of Working Conditions:-
Government improves the working conditions of the workers in nationalized industries. The state interested in providing just rates of pay, security of services and other fringe benefits. So peaceful atmosphere can be maintained in the industrial field.

6. Protection of Public Interest:-
Unhealthy competition among the industrialists injuries the interest of the public which can be measures and mitigated by state ownership.

7. Economy:-
It enables the Govt. to achieve the economy in different fields due to the coordination in numerous departments.

8. Promotion of Defense service:-
Nationalization is desired to strength then the specific industries for defense of the country.

9. Centralized Management:-
Centralized management is possible due to co-ordination in nationalized industry. It thus enables the state to solve the problems of organization, capital, labor operation and marketing.

10. High Standard of Living:-
It tends to increase the economic activities of the country which greatly influence the standard of living of the people.

11. Use of Surplus Profit:-
Under the state ownership the profit of the enterprises would go to the public treasury which can be employed for the welfare of the country.

12. Employment:-
Industries are nationalized with a view to creating new posts for jobless persons under a programmed.

13. Uniformity in Services:-
As all the public utility services i.e. water, railway, post office, communications, electricity are connected by the state, so uniformity in quality of services can be maintained.

14. Skilled Services:-
Government may hire the services of outstanding talented and skilled persons due to its largest resources. So all the undeveloped resources of nationalized industries can be utilized for productive purpose by skilled services.

15. Miscellaneous Advantages:-

( a ) Cost per unit may be reduced due to large scale of production.

( b ) Prices of the goods may be lower.

( c ) The role of middleman can be eliminated.

( d ) Research facility can be scientific lines and up to date modern technique and scientific invention can be enjoyed.


Describe the various types of enterprises owned and controlled by the state

Major Forms of State Enterprises

The following are the major forms of enterprises which are owned and managed by the state:

1. Municipal Corporation or District Council.
2. Department Organization.
3. Government Joint Stock Company.
4. Statutory Corporation.
5. Special Organization.

1. Municipal Corporation or District Council:-
Public utility concerns are generally operated by local authority i.e. Municipality or District Council. Its management is conducted by paid officers and activities are supervised by the elected members. These corporations are empowered to impose certain types of taxes, in order to pay its heavy expenditures.

2. Department Organization:-
Government enterprises are organized separately to its nature of function. such as railways irrigation telephone and telegraph departments. These regarded as government employees. Their activities are surprised by the concerned secretariat. These departments performs valuable services for achieving the social and economic objects of the state.

3. Government Joint Stock Company:-
Government joint stock company registered under the Companies ordinance (Govt. Companies Provisions). It is found for the accomplishment of specific business and commercial objectives. It majority of share are controlled over by the govt. Management is conducted by the Board of Directors whose chairman and members are nominated by the government. This form of state enterprises is from rigid financial rules and possess features of flexibility, adaptability and autonomy.

4. Statutory Corporation:-
Such corporations are formed under the special act of legislature or parliament or by the order of the head of state. In our country State Bank of India are created by the special law of the government. Its monopolists powers are laid down in the special act of the legislature under which is formed. It is managed by the Board of the Directors Who are appointed by the government for the specific period. It is corporate body which is free from government intervention.

5. Special Organization:-
Some time govt. arranged special board of committee for the particular type of business operating contacts and control board are quite and suitable for defense services and river valley projects respectively. Government determines the rights and power of the member of such organization at the time of its formation.


What do you mean by state ownership? Describe briefly the causes of the growth of state ownership

State Ownership:-
It involves all those business, trade and industrial activities which are carried on under the ownership and management of the government. It is desired by every government for the purpose of safeguarding the public interest. It is regarded most essential to promote the welfare of the country. The state enterprises are conducted by government or semi-government organization and public statutory corporation. All the public utilities programs are particularly served by the state ownership undertaking.

Cause of growth of state and business ownership

The major causes of the growth of state or business ownership are indicated as below:

1. Heavy expenditure:-
Many investors hesitate to invest their capital where heavy expenditure is required but return is not so in near future. On the other side government spend large sum of money on such projects without any motive of profit.

2. Public utilities services:-
Government contract over some enterprises with a view to providing utilities services to the public. All corporations, municipalities and district councils are supervised by the government which render valuable services in providing public amenities.

3. National interest:-
State intervention is also required for national interest. It is always considered most essential to protect defense and other key industries in every case.

4. Establishment of monopoly:-
Government undertakes some enterprises to hold strict control over them railway electric and water supply, communication are directly managed by the government for the public interest.

5. Promotion of welfare:-
This is major motive behind the growth of state ownership that govt. wants to achieve rapid economic development in order to promote welfare of the public.

6. Balanced development:-
Government control over certain industries in order to give equal importance to all the regions of the country. Some enterprises are started in undeveloped areas of the country for the purpose of reducing of goods and its prices.

7. Protection of consumer:-
This is required to ensure that there is no exploitation of consumer by monopoly powers. State ownership is therefore, desired to protect the consumer from selfish hands with a view to regulating the supply of goods and its prices.

8. Maximum utilization of sources:-
There are certain national sources which cannot be utilized to the maximum but by the government Oil, Gases, minerals and Sea resources are allocated option for the best interest of the public.

9. Centralized management:-
Various departments and enterprises are controlled by the govt. on account of the fact that centralized management is required for the object of coordinating and saving in the expenses of management.


Qualities of good Salesman

A successful salesman should possess following main three types of qualities.

1. Professional qualities.

2. Specific qualities.

3. General qualities.

Some of the most important points in professional, specific and general traits of goods salesman have been explained below :

1. Training and experience :-

A good salesman should be expert in his respective field. He should have knowledge about the technique of production and art of salesmanship. He must be trained in speaking regional and other languages. It is advisable for the successful result of the operation that a salesman must undergo on practical training before coming to the actual job.

2. Latest information :-

A salesman must have up to date information in regarded to quality, nature, description, prices and importance of the dealing products. He should also have the knowledge of potential market, organization of his firm and taste of his consumers.

3. Psychological approach :-

A salesman should be in a position to follow the psychology of human nature. He must have ability to understand his customer's choice. So he should talk in terms of the customer's interest and create pleasant atmosphere to achieve favorable attention and interest on the part of prospect buyer.

4. Convincing style :-

A good salesman should adopt convincing style in order to win prospect's confidence. He must persuade his prospect that the specific product being sold will best fill that need.

5. Sound appearance :-

A salesman should have the personality of good health and sound physique. He must be stalwart young man with pleasing manners and nice habits. He must possess the abilities of influencing and attracting other persons.

6. Honesty :-

It is a permanent quality of a good salesman. In order to establish the goodwill of the firm. He must be honest and sincere in performing his duty. There is no place for dishonest salesman in the business.

7. Steady work :-

It is the most important trait of successful salesman that he should be industrious. He must show enthusiasm for his profession and constantly work hard to achieve more success in his field.

8. Courtesy :-

A salesman must be very polite. Courtesy into the business what oil is to machinery. It costs nothing but wins a reputation. So polite language should be used for the object of winning buyer,s confidence. This will also help will to make regular and permanent customers. In addition to the foregoing qualities, a salesman should be sincere , self reliant, and tactful and diplomatic.

9. Sociability :-

A good salesman must keep in touch with the people of different nature in the world and not keep himself to himself. He should move about with a the view to widen his range of acquaintances. Salesman should, therefore, possess a quality of mixing freely with unknown person within a short time. He should be sociable and popular in order to win friends.

10. Self reliance and persistence :-

Another note able quality of good salesman is ability to convince the prospective customers with persistent efforts. In order to adequately satisfy customers demand he must be a man of self reliance. He should have perseverance and determination.

11. Dependability :-

The successful salesman should have the capacity of dependability. It keeps him much to win the heart of both customer and employer. A dependable salesman will remain loyal to firm. Thus he will be sincere in his approach to customer with a view to increase the volume of sales and enhances the firms reputation.


Define salesmanship and describe briefly its importance

Definition of Salesmanship:-
Salesmanship is an art of influencing another person for the object of persuading him to buy specific product. It may be regarded as the process of winning the confidence of consumer. According to WHITEHEAD. "It is a method of arriving at a common point of view with the prospect in regard to the desirability of same, article, service or idea." Salesmanship may also refer to convincing a customer by certain technique and he is really persuaded for buying a particular product.

Importance of Salesmanship

1. Salesmanship helps to create demand for new products or new brands. It influences to change in patronage from one source of supply to another which results concentration of purchases of specific product.

2. As it wins the buyer's confidence so it helps to make regular and permanent customers.

3. The person who is engaged in convincing the public desirability of a specific product is called salesman. He informs the customers about usefulness of commodity with a view to including him to buy the goods.

4. He establishes the goods will of firm in the market. So the sales volume may easily be increased.

5. He constantly observes the fashion, taste, like and dislike of customer and informs the producer about heir choice.

6. He helps to establish close relationship between the manufacturer and consumer.


Wednesday, 16 March 2011

Position of a minor in partnership firm

The position of a minor in partnership firm and the provision, of law in this respect are given below:

A minor cannot become a partner in the firm:-

But he can admitted to the benefit of partnership business with the consent of all other partners. This can be performed by an agreement executed by his guardian on his behalf with the existing partners of the firm.

2. A minor will be entitled to his agreed share of the property and of the profits of the firm.

3. He is not personally liable for the obligations of the firm but his share in profit and property may be liable for the debts of the firm.

4. He can file a suit for accounts and for his agreed share of property or profit when he severs his connection with the firm.

5. He has a right to inspect and copy books of accounts of the firm.

Position of a minor after attaining maturity:-
Within six months of his attaining maturity, a minor has to decide whether he wants to become full-fledged partner or not. He may give public notice of his consent to become partner.

A. In case of becoming partner:-
After attaining maturity and option to become a partner, his position will be as follows:

He will be personally liable for all obligations of the firm incurred since he was admitted to the benefits of the partnership.

2. The right and liability of the minor after attaining maturity continue to be those of a minor.

3. His interest into his business i.e. share in profit and property of the firm shall be the same which he has got as a minor.

4. He can perform the role of an agent and can bind the other persons by his act.

5. He is entitled to conduct the management of the business.

B. In case of not becoming partner:-
If minor doesn't want to become full-fledged partner after attaining maturity, his position will be as under:

1. He will not be liable for all the debts an obligations of the firm after the date of notice.

2. He has right to sue the partners for his share of the profits in property.


Tuesday, 15 March 2011

What is Market and discuss the Main Functions of Marketing

Market :-
Mr. Lispy has defined the market in the following words. " A market is an area over which buyers ans sellers negotiate for the exchange of a well defined commodity."

Marketing :-
Mr. Breach says, "Marketing is the process of determining consumer demand for a product or service motivating its sale and distributing it into ultimate consumption at a profit."

Following are the main functions of the marketing.

1. Buying:-
This is an important function of marketing and occupies much of the time of both business undertaking and consumers. This may be relatively simple or exceeding complex whether this function is conducted by the manufacturer, the wholesale or the retailer. In the present economic stage, the success of business depends on the effective purchasing system. So large business concerns have separate purchasing department, may have experienced staff of buyers. The buying function includes the determination of needs, the selection of proper source of supply, title from the seller to the buyer. The buying function includes the determination of needs, the selection of proper source of supply, title from the seller to the buyer.

2. Selling:-
Selling is indispensable function of every marketing and is basic reason for the operation of business concerned that more sales must be obtained at less cost. But this function, is expensive because it involves many activities i.e. creating demand, finding buyer, negotiating price and transferring the title.

3. Assembling:-
Assembling is the physical act of putting together and collection of goods to obtain larger quantities of similar goods. It is more essential in case of marketing of agriculture commodities which are generally grown in similar quantities by larger number of producers in territories spread over vast areas.Concentration of raw material is necessary for the regular supply of the standardized materials because these are used in large volume by manufacturers.

4. Standardizing and Grading:-
Standardizing involves the determination of basic measure or limits to which articles being standardized. To standardize into give performance to grades.

Grading is an reality a part of standardization. It is process which tests the conformity of commodities to standards that have been previously set up. Product of agriculture and the extractive industries are usually graded according to general standard. Grading may be based on shape, size, color, strength, appearance,specific gravity and chemical contents.

5. Packaging and Packing:-
Packing is meant the placing of goods in small packages i.e. can or bottles etc. It may be regarded as an aspect of marketing because it has a considerable influence on sales in the domestic consumer market.

Packing is concerned with the wrapping and crating necessary for the transport or storage of goods. Many goods must be packed in order to be preserved or delivered to the buyers.

6. Dividing:-
Dividing is an other important function of marketing. As the wholesale require the product in large units according to the requirements of retailers. But retailer require the products in small quantity so they divide the stock into small units according to the need of customers. It enables the businessmen to reduce the bulk of commodities in order to take them more readily transportable.

7. Storage or Warehousing:-
Storage is a major marketing function which involves the utilization of substantial manpower and capital resources. The ultimate consumer finds it necessary to purchase some goods in advance of need and to store them for the future use.On the other hand, goods are produced in large quantities in anticipation of future demand and for the unknown customers. Warehouses are required to store the goods for the adjustment of supply to demand.

8. Transportation:-
Transportation involves all kinds of movement of persons and goods from one place to another. It is the function of transportation to convey commodities from places where their utility is relatively low to places where it is higher. Because of the nature of natural resources, variations in climatic conditions, concentration of skilled or unskilled labor, large scale manufacturing, and raised or manufactured largely or exclusively in certain places. The principal economic basic for transportation is the enhancing the value of goods by the creation of place utility. Thus effective transport is indispensable to economic progress.

9. Financing:-
The whole modern production and marketing mechanism is based on credit and money. No person can think of conducting business without sufficient finance. There is wide gap between the production of goods and consumption of goods. So the product, distributing and consuming require large funds. When a retailer sells commodities on credit, he is rendering a financing services. He may, in part shift this function back on the wholesaler who has extended credit to him, while the wholesaler, in return, may pass part of burden back to the credit granting manufacturer.

10. Risk Taking ( Insurance ) :-
When the goods are sent by the seller to the buyer through rail, road and ship, there may be risk of loss. The goods may be lost or damaged or destroyed by sea perils, flood, fire, theft, storm and change in the temperature. The businessman and other exporters think, therefore, in terms of minimizing these risks by shifting them on others shoulder's. So insurance provides safety against any unforeseen circumstances and ways to the business people to cover losses or dangers.

11. Market Information's:-
As the demand for various products in national or international market have raised, the amount of information needed has also regarding trademark, quality go goods, method of packing, test and fashion of consumer nature of demand, prices to considerably increased. It helps a businessman to secure information regarding trademark, quality of goods, method of packing, test and fashion of consumer nature of demand, prices of goods are procedure of distribution. There are various method and ways by which such investigations and experiment may be conducted. It thus enables the producers to formulate and to carry out selling policies.


What is market? discuss the classification of market

The term market refers to place where buyers and sellers meet for the object of transferring the ownership of goods from one hand to another hand. A market may be defined by WILLIAM STATION "As an aggregate demand by potential buyers of a product of service."
The concept of market also implies a demand for a product or service. In fact, the terms "market and demand " are often used jointly as "Market Demand." On economic sense, a market exist 'where buyers and sellers of a commodity come into free contact with each other for the purpose of exchange. In other words market can be taken to exist wherever these exist a group or several groups of people, some of whom desire to obtain certain things and some of are in a position to satisfy that desire.


Marketing may be classified into the following headings:

1. Retail Market:-
It is that market where goods are bought and sold in small quantity and are supplied directly to consumers near to home at retail price.

2. Whole Sale Market:-
In this market goods are bought and sold in large scale at wholesale price. Generally wholesalers purchase goods directly from the producer of the goods and are supplied to retailers. He thus play the role of middleman between retailers and producers.

3. Stock Exchange Market:-
It is an organized market. Where shares bonds and debentures of the bonafide trading unit are regularly transacted. Its dealing are carried on within a particular place in which a person can easily convert his securities into cash. There are large numbers of buyers and sellers who conduct their activities under strict rules.

4. Foreign Exchange Market:-
It denotes that market where foreign currencies are brought and sold.

5. Capital Market:-
In this market loans are given to businessman, industrialists and traders for the object of removing financial difficulties and expansion of business.

6. Money Market:-
This market is the portion of capital market. It provides the financial facilities to various businessman for short period only.

7. Commodity Market:-
It refers to an organized market where raw materials are transacted with manufactures who offer the goods to consumers in useful form.


Media of Advertisement

The list of media of advertisement is given below:-

1. Radio and Television.

2. Newspapers and Magazines.

3. Calendar and Hand Bills.

4. Circular Letters.

5. Tickets and Date Schemes.

6. Agents and Gifts Schemes.

7. Fairs and Exhibitions.

8. Sky advertisement. ( By airplanes ).

9. Moving Lights and pictures.

10. Special periodicals and journals.

11. Booklets and Pamphlets.

12. Posters.

13. Hoarding.

14. Neon Sign and Cinema slides.

15. Blotters.

16. Jokers.


Advantages of insurance or Importance of insurance in modern business

We discuss major advantages of insurance under these headings:

1.Removal of uncertainties:-
Insurance company takes the risks of large but uncertain losses in exchange for small premium. So it gives a sense of security, which is real gift to the businessman. If all certainty could be removed from business, income would be sure. Insurance removed many uncertainties and to that extent is profitable.

2. Stimulant of business enterprise:-
Insurance facilities to maintain the large size of commercial and industrial organizations. No large scale industrial undertaking could function in the modern world without the transfer of many of its risks to insurer. It safeguards capital and at the same time it avoids the necessity on the part of industrialists. They are therefore free to use their capital as many seem best.

3. Promotion of saving:-
Saving is a device of preparing for the bad consequences of the future. Insurance policy is often very suitable way of providing for the future. This type of policy is found particularly in life assurance. It promotes savings by making it compulsory which have a beneficial effect both for the individual and nation.

4. Correct distribution of cost:-
Insurance helps maintain correct distribution of cost. Every businessman try to pass on to the customer all types of costs including accidental and losses also. In the various fields insurance such losses are correctly estimated keeping in view a vast number of factor bearing on them. In the absence of insurance these losses and costs would be assessed and distributed only by guess work.

5. Source of credit:-
Modern business depends on largely credit , insurance has contributed a lot in this regard. A life insurance policy increases the credit worthiness of the assured person because it can provide funds for repayment if he dies. Credit extension is also obtained by means of various kinds of property insurance . Business man who stock of goods has been properly insured can get credit easily. Similarly marine insurance in an essential requirement for every transaction import and export.

6. Reduction of the chances of loss:-
Insurance companies spends large sums of money with a view to finding out the reasons of fire accidents, theft and robbery and suggest some measure to prevent them. They also support several medical programmed in order to make the public safety minded. Without such losses preventive activities if insurance companies, the chances of loss would have been greater than they are at present days.

7. Solution of social problems:-
Insurance serves as a useful device for solving complex social problems e.g. compensation is available to victims of industrial injuries and road accident while the financial difficulties arising from old age, disability or death are minimized. It thus enables many families and business unites to continue intact even after a loss.

8. Productive utilization of funds:-
Insurer accumulates large resources from the various insurance funds. Such resources are generally invested in the country, either in the public or private sector. This facility considerably in over all development of the country.

9. Insurance as an investment:-
A life policy is a combination of protection and investment which serves a useful purpose. The premium that the insured pays go on accumulating in a fund every year. The sum of accumulated by the insurance company earn interest. Under life assurance a person may also invest his capital in a annuity which will pay him an income every year till death. Therefore, insurance may be regarded as an investment.

10. Promotion of international trade:-
The growth of international trade of the country has been greatly helped by shifting of risk to insurance company. A ship sailing in the sea faces some miss-fortune. A fire breaks out and burns to ashes all the merchandise of a business man. But the insurance is one of the devices by these which risks may be reduced or eliminated. So industrialists and exporter may devote their full attention toward the promotion of business which may increase the export activities.

11. Removing Fear:-
Insurance helps to remove various types of fear from the mind of the people. The insured is secured in the knowledge that the protection of the insurance fund is behind him if some sad event happens. It thus creates confidence and eliminates worries which is difficult to evaluate, but the benefit is very real.

12. Favorable allocation of factors of production:-
Insurance also helps in achieving favorable allocation of the factors of production. Capital is usually shy in risky business. People hesitate to invest their capital where financial losses are great. If protection is provided against these risks by means of insurance, several investors will become ready to invest funds in those fields.

13. Growth of business competition:-
Insurance enables the small business units to complete upon more equal term with the bigger organization. Without insurance it would have been impossible to undertake the risks themselves. On the other side bigger organization could absorb their losses due to great financial strength. Moreover insurance remove uncertainty of financial losses arising out of of the certain causes. It thus increases knowledge which is one of the most important preconditions of perfect competition.

14. Employment opportunity:-
Insurance provides employment opportunity to jobless persons which is helpful for the improvement and progress of social condition.

15. Miscellaneous benefits:-
( a ) It establishes the relation between the employed and employer by providing various facilities i.e. group life insurance, social security scheme, retirement income plan, workman's compensation insurance.
( b ) Insurance creates the confidence and some sense of security among the policy holder.
( c ) Insurance company provides valuable services of skilled and expert persons to industries and business in order to eliminate various risks.
( d ) It promotes economic growth and development. This would be impossible in the absence of insurance.
( e ) It contributes to the efficiency of business and also industrial and commercial executives.
( f ) Security of dependents is made possible through life assurance. It gives relief to helpless families after the death of the earning member of the family.


Essential of valid insurance contract or Basic principles of insurance

Definition of Insurance:-
Human life is exposed to many risks, which may result in heave financial losses. Insurance is one of the devices by which risks may be reduced or eliminated in exchange for premium In words of Chief Justice Tindal, "Insurance is a contract in which a sum of money is paid by the assured in consideration of the insurer's incurring the risk of paying larger sum upon a given contingency". In its legal aspects it is a contract whereby one person agrees to indemnify another against a loss which may happen or to pay a sum of money to him on the Occurring of a particular event. All contacts of insurance ( except marine insurance ) may be verbal or in writing, but particularly contracts of assurance are included in a document.

Basic Principles of Insurance

The following are the basis essentials or requirement of insurance irrespective of the type of insurance concerned.

1. Utmost good faith:-
All types of contracts of insurance depend upon the contracts of utmost good faith. Both parties ( insurer and insured ) in the contract must disclose all material facts for the benefit of each other. False information or non-disclosure of any important fact makes the contract avoidable. So the conditions to show utmost good faith is very strict on the part of the insured.

2. Insurable Interest:-
This insured must possess an insurable interest in the object insured. It may be defined as a financial interest in the subject matter of contract. The presence of insurable interest is a legal requirement. So an insurance contract without the existence of insurable interest is not legally valid and cannot be claimed in Court . The object of this principle is to prevent insurance from becoming a gambling contract.

3. Principle of indemnity:-
All types of contracts except life and personal accident insurance are contract of indemnity. According to them, the insurer undertakes to indemnify the insured against a loss of the subject matter of insurance due to insured cause. In life assurance the question of the loss and, and therefore, of its indemnification does not rise. Because the loss of life cannot be estimated in term of money. The principles of indemnity is based on the idea that the assured in the case of loss only shall be compensated against the actual total loss. But if no event happens, the insured has not to receive any amount, so in this case the premiums paid by him becomes the profit of the insurer.

4. Doctrine of subrogation:-
This principle applies to the contract of indemnity only i.e. marine and fire . It lays down a principle which is quite equitable. According to this doctrine, where a loss occurs and the insurer pays as for a total loss, he is entitled to all the rights and remedies which the insured has against a third party in respect of loss so paid for. It prevents the insured being indemnified from two sources in respect of the same loss. Suppose 'A' has damaged 'B' motor car negligently. If pays 'B' s loss in full.'B' cannot collect the same from the insurance company.On other hand if 'B' applied to his insurance company for indemnity under policy, he will not be permitted to collect the damages from 'A' . And the latter case the insurance company will be entitled to collect the amount.

5. Doctrine of proximate cause:-
This principle is found very useful when the loss occurred due to series of events. It means that in deciding whether the loss has arisen through any of the risk insured against, the proximate or the nearest cause should be considered. To take an illustration in one case where a policy holder sustain an accident while hunting. He was unable to walk after the accident and as a result of lying on wet ground before being picked up, he suffered pneumonia. There was an unbroken change of cause was the accident and the death, and the proximate cause of death, therefore, was the accident and not the pneumonia.

6. Cancellation:-
Both parties have right to cancel the policy before its expiry date. The period of the policy comes to an end on the cancellation of policy. So the protection provided by the insured to insurer stops from the date of such cancellation. The premium received by the insurance is also returnable to the insured.

7. Attachment of risk:-
Without the attachment of definite risk to the policy, the contract of insurance cannot be in force. So in this case consideration fails and the premium received by the insurance company must be returned.

8. Mitigation of loss:-
When the event insured against take place, the policy holder must do every thing to minimize the loss and to save what is left. This principle makes the insured more careful, in respect of this insured property.

9. Arbitration:-
Most fire and accident insurance policies contains an arbitration clause which provides for referring to differences to an arbitration. The arbitrator is to be appointed in writing by the parties in difference. The object of this clause is to reduce litigation.


Monday, 14 March 2011

Types or Kinds of Working Capital

The working capital in certain enterprise may be classified into the following kinds.

( 1 ) Initial working capital.
( 2 ) Regular working capital.
( 3 ) Fluctuating working capital.
( 4 ) Reserve Margin working capital.

1. Initial working capital:-
he capital, which required at the time of commencement of business is called initial working capital.
These are the promotions expenses incurred at the realist stage of formation of the enterprise which include the incorporation fees, Attorney's fees, office expenses and other preliminary expenses.

2. Regular working capital:-
This type of working capital remains always in the enterprise for the successful operation. It supplies the funds necessary to meet the current working expenses i.e. for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses, selling the products and turning out finished products. It consist of accounts receivables and marketable securities etc. which keeps on revolving from cash to current assets and back.

3. Fluctuating working capital:-
This capital is needed to meet the seasonal requirement of the business.It is used o raise the volume of production by improvement or extension of machinery. It may be secured from any financial institution which can, of course, be met with short term capital. It is also called variable working capital.

4. Reserve Margin working capital:-
It represents the amount utilized at the time of contingencies. These unpleasant events may occur at any time in the running life of the business. Such as inflation, depression, slump, flood, fire, earthquakes, strike, lay off and unavoidable competition etc, In this case greater amount of capital is required for maintenance of the business.


Source and concepts of Working capital

There are two following concepts of working capital:-

( a ) In case of newly Started business:-
"The amount that remain in the hands for the working of the business after the necessary fixed assets have been purchased is called working capital for the for the newly started business".

( b ) In case of Established business:-
Working Capital is defined for an already established business. :The excess of current assets over current liabilities."
It may be stated in the equation:-
Current assets - Current liabilities = Working Capital

The amount of working capital is invested in current assets like stock of raw material, finished and semi-finished products, bills receivables, debtors and seal able securities etc.

Sources of Working Capital

The following are the main sources of the working capital:

( a ) Issue of share of debentures.
( b ) Managing Agents.
( c ) Reduction of losses, expenditure and wasting.
( d ) Loans from internal and external sources.
( e ) Incorporate Saving.
( f ) Public Deposit.
( g ) Disposed of fixed assets.


Kinds or Types of Debentures

Definition Of Debenture:-
A debenture is an acknowledgement of debts and written promise by the company to repay the loans according to the terms laid down in the document. It is issued to money lenders under the seal of the company. It represents the loan of the company. Even public company can collect money for financing its business by selling debentures in the market.

So it is one of the sources to raise capital or make up the deficiency in the capital account. It may be issued at any time before winding up.

Types of Debentures

The following are the important types of the debentures of the Joint Stock Company.

1. Simple Debentures:-
These are also called Naked Debentures. These kind of debentures are issued without security. The holders of these debentures are considered insecure creditors at the time of winding up of the company. So these are not popular in these days.

2. Mortgage Debentures:-
The debentures which are secured on the permanent asset of the company such as Plant, Machinery, Land and Buildings are known as Mortgage Debentures. These are two kinds of Mortgage Debentures i.e.

( a ) First mortgage debentures.
( b ) Second mortgage debentures.
First Mortgage Debentures holders have first right to claim on the property of the company.
Second Mortgage Debentures holders have second right to claim on the assets of the company.

3. Bearer Debentures:-
There are payable to bearer the documents are negotiable instruments and are transferable by simple delivery. Interest is generally payable against the presentation of coupons attached to the debentures.

4. Registered Debentures:-
The names and addresses of registered debentures holders are recorded in the registered of the company.Transfer and transmission of these must be registered in the books of the company as in the case of shares. Interest is paid to the registered holders in the same manners as distribution of dividend.

5. Redeemable Debenture:-
The amount of these debentures are repayable after a stated period. Tease are issued subject to the condition that the company shall redeem them on specified date. These debentures are very common now a day.

6. Irredeemable Debentures ( Perpetual Debenture ) :-
The amount of such loan repayable on the happening of specified contingencies. Generally no lime is fixes within which the company is bound to redeem them.

7. Floating Debenture:-
Such type of debentures are secured by a floating charges on all the assets of the company. These assets may be bills receivable, stocks and Book Debts. it creates a charge upon them in favor of debentures holder are against other creditors in case of failure on the part of the company.

8. Convertible Debentures:-
These debentures may be converted into preference or ordinary shares of company. This option given to such debenture holder for the period stated in the conditions of the issue . So this provision protects the investors.

9. Equipment Trust Debentures:-
These debentures are issued for specific purposes. Funds are raised by such debentures to purchase certain equipment for the running life of the business.

10. Income Debentures:-
The holders of these types of debentures are entitled to receive interest at fixed rate only out of current year profit. If company gains no profit, no interest ill be payable . So these debentures are not popular now a days.

11. Legal Debentures:-
Where the title of property of the company may be transferred by deed to money lenders are security for the loan, they are known as legal debentures.


Sunday, 13 March 2011

Dissolution of firm or How a partnership can be dissolved

Dissolution of Firm:-
It must be noted at there are difference between dissolution of firm and dissolution of partnership. Partnership Act describes, " The dissolution of partnership between all the partners of a firm is called the dissolution of the firm." It means that dissolution of the firm includes the dissolution of partnership. But when partnership is dissolved, the firm may or may not be dissolved because the business may be conducted by the surviving partner on the retirement, death or insolvency of partners. So it is dissolution of the partnership but not dissolution of firm. It becomes clear that a that a partnership may be dissolved without dissolving the firm. When firm is dissolved all the activities must come to an end and the assets of the firm disposed of and distributed among the creditors and the balances, if any, distributed among the members of the firm.

Ways of Dissolution

The following are the five manners is which firm may be dissolved.

1. Compulsory Dissolution.
2. Dissolution by Notice.
3. Dissolution by Agreement.
4. Contingent Dissolution.
5. Dissolution by Court.

1. Compulsory Dissolution:

A. By the insolvency of partner:-
A firm shall be dissolved when all the partners or all but one becomes insolvent.

B. By Business becoming illegal:-
A firm shall be dissolved when the business of the firm is declared illegal or becomes unlawful due to happening of any event.

2. Dissolution by Notice:

In Case of partnership at will:-
The firm may be dissolved by any partner serving notice in writing of 14 days to all the existing partners of his intention to dissolve the firm.

3. dissolution by Agreement:

With the consent of all partners:-
A firm may be dissolved by the mutual consent of all partners at any time or in accordance with a contract between the partners.

4. Contingent Dissolution:

The partnership firm may be dissolved due the following reasons:-

A.Completion of Venture:-
By the completion of particular undertaking or venture for which the partnership was formed.

B. Expiry of Period:-
If partnership formed for a fixed period, the firm may be dissolved by the expiry of that time in the absence of new contract.

C. Insolvency of the partner:-
By the adjudication of a partner as an insolvent.

D. Death of partner:-
The firm may be dissolved by the death of partner whether the partnership is as will or for a fixed period.

E. Insolvency of partnership:-
If partnership is itself declared at any time as insolvent.

F. Retirement of partner:-
The partnership may come to an end on the retirement of any partner if remaining partners do not join in the new contract.

5. Dissolution by Court:

The following are the grounds in which a firm may be dissolved by the order of court:-

A. A transfer of interest:-
If any partner transfer his share or interest to other person with out the consent of existing partners.

B. Breach of contract:-
If any partner commits breach of the partnership contract and remaining partners find it impossible to continue the business.

C. Unsound mind:-
If any partner becomes of unsound mind.

D. In-capacity of partner:-
The firm may be dissolved when a partner shows his incapacity to performs his duties due to any physical or mental disease.

E. Misconduct of partner:-
If a partner is found guilty of misconduct in the carrying on the business.

F. Assurance of loss:-
The Court may issue the order of dissolution if the business of the firm cannot be carried on except at a loss.

G. Other grounds:-
The court may dissolve the firm on any other grounds which is just and equitable.


Friday, 11 March 2011

Definition and features of stock exchange

Stock exchange market refers to an organized market where govt. Securities and shares, bonds and debentures of bonafide trading units are regularly transacted. Its business is carried on within a particular building in which a person can easily convert his shares into cash or new securities. This encourages public to invest in securities by providing a continues market. The term stock exchange referred by some people to Satta Market. Therefore some writer says, " It is a place to get rich quick while other regards as a place of gambling.
The securities of public companies can be transacted in the exchange only if they have been approved by the committee of the stock exchange.
A company desiring its shares to be approved must first satisfy very rigid rules concerning the prospectus. It must also agree to abide by the regulations of the stock exchange about any aspects of its conduct.

Main Features of Stock Exchange Market

1. Specialized Market:-
Stock exchange is a specialized market for the purchase and sale of industrial and financial securities.

2. Rigid Rules:-
There are large number of buyers and sellers who conduct their activities according to rigid rules.

3. Basis of Formation:-
Its activities are controlled by the company ordinance in our country. It can be formed as company limited guarantee or company limited by shares.

4. Bonafide Members:-
Its dealing are carried on within a particular place in which bonafide members are only allowed to participate in the transactions.

5.Rapid Communication:-
The dealers of the stock exchange are in position to communicate rapidly.

6. Management:-
Its management activities conducted by the committee of the management.

7. Approved Securities:-
Only approved and recognized securities of the public limited company and government institution are allowed to bring for dealing in the stock exchange market.

8. Face Value:-
The shares securities and debentures which are brought for dealing in the stock exchange bear definite face value.


Statutory Report

The directors of company have to forward a report to each member at least 21 days before before the day in which the statutory meeting is to be held, is called the Statutory Report. Such report must be certified by not less than three directors, one of whom must be the chief executive of the company. A copy of statutory report must be filed with registrar's office immediately after forwarding it to the members of the Company.

Information Contained in Statutory Report

The statutory report must contain the following information's:-

1. Detail Share Allotment
Full detail in respect of total member of shares allotted i.e. fully of partly paid up otherwise in cash.

2. Summary of Cash Received
Summary of cash received in regard to shares allotted.

3. Receipts and Payment of Company
An abstract of the receipts and payment of the company made out up to date within seven days of the dale of the report.

4. List of Preliminary Expenses
Estimate of the preliminary expenses of the company.

5. Particular of the officers
The name, addresses and description of the directors, auditors, secretary and manager of the company.

6. Particular of Contract
The particular of any other contract the detail of the modification.

7. Particular of Commission
The particular of commission or brokerage on shares paid to any person.

8. Underwriting Contract
The particulars of any underwriting contract , if any.

9. List of Arrears
The arrears, if any due on calls from directors, managing agents and managers.

10. Execution of Underwriting Contract
The extent to which the underwriting contracts, if any have been carried out.


Difference or Distinction points between Share and Debenture

We discuss about difference or distinction points between Share and Debenture under these headings:-

1. Representation:-
Share: Share represent a share in the share capital of the company.

Debenture: IT represent the acknowledgment of debts of the company.

2. Position:-
Share: Share holders are the owner of the company.

Debenture: Actually they are not owners but are considered as creditors of the company.

3. Participation:-

Share: They have right to participate in management of the company thought Board of Directors.

Debenture: They cannot conduct the management of the company neither directly not indirectly.

4. Investment Return:-
Share: Share holders have got right to participate in the profit of the company at the specific or variable rate.

Debenture: Debentures holder have got right to enjoy interest at the fixed rate.

5. Withdrawal Rights:-
Share: The shareholders cannot withdraw their share capital unless the company goes into liquidation or decides to reduce its share capital

Debenture: The amount of the debentures is returnable after the expiry of the specific period.

6. Justification:-

Share: The process of distribution of point or loss among the share holders may be justified in Islam.

Debenture: As debenture holder have to receive interest in every case irrespective of the profit or loss it cannot be justified in Islam.

7. Records Position:-
Share: The rights and powers of the share holders are laid down in Article of Association.

Debenture: The rights and powers of the debenture holder are mentioned in the certificate issued at the time of accepting loan.

8. At the time of Liquidation:-
Share: Share holders have got second right in regard to repayment of capital if there is any balance at time of winding up of the company.

Debenture: In case of liquidation debenture holder have first right to get back their amount from the company.

9. Nature of Securities:-
Share: As the shares are not issued against the charge of any property of company so the are considered in secured.

Debenture: As the assets of the company may be charged against the loans, so debentures are regarded secured security.


Memorandum Of Association

Memorandum Of Association :-
It is the most important document because it defines the constitution of the company. Its sets out of the fundamental condition of incorporation and the objects for which the company was formed. It is the nature of contract between the company and the outside world.

It is the character of the company , the purpose of which is to enable all concerned poisons in the business. This document must be subscribed by at least seven persons in case of public company and two in case of private company. Each subscriber must take at least one share and must write against his name the number of shares he holds. The Memorandum must be:-

( a ) Prepared very carefully.
( b ) Printed.
( c ) Divided into different paragraphs.
( d ) Numbered consecutively.
( e ) Stamped according to the provision of Companies ordinance.
( f ) Signed by each subscriber in the presence of one witness.

Contents of Memorandum of Association

It contains the following particular or clauses.

1. Name of the company.
2. Domicile of the registered office.
3. Objects of the company.
4. Statement of limited liability.
5. Authorized capital.
6. Association or subscription clause.

1. Name of the company:-
( a ) Every public company has to use the word limited or "LTD" after its name and "private limited" as the last word in case of private company.

( b ) The name must not be identical with that of another registered company. the words "Empress" "Royal" "King" " Federal" must not be used without prior sanction of the government.

2. Domicile of the registrar office:-
Every company must have registered office to which all communication may be addressed it is advisable to mention the name of province or state to avoid the legal formalities in shifting its registered office.

3. Objects of the company:-
This clause set out the purpose for which the company is formed. It is the most important clause of the document which cannot be amended easily. The object provides the protection to the share holders, debenture holders, creditors or bankers and all other persons who want to deal with the company.

4. Statement of limited liability:-
According to this clause the liability of the members is limited to unpaid value of their share . Suppose a person purchases 10 shares of Rs. 100 each upon which he has paid calls for Rs. 80 per share, his liability to limited to unpaid value of Rs. 20 per share held. If he has paid the full nominal value of the shares, his liability is at an end.

5. Authorized capital:-
It is also called "Nominal" or "Registered" capital with which the company intends to be registered . This capital is divided into different shares of fixed amount. The stamp duty is payable on this sum.

6. Association or subscription clause:-
This clause must be subscribed by at least seven persons in case of public company and by at last two persons in case of private company.Each must hold at least one share and must sign the Memorandum before a witness.


Difference or Distinction points between Limited partnership and Private limited company

We discuss about difference or distinction points between Limited partnership and Private limited company under these headings:-

1. Legislation:-
Limited partnership: It is controlled under the limited partnership act 1907.

Private limited company: Its activities are controlled by the Company ordinance 1984.

2. Number of members:-

Limited partnership: There are at least two members and maximum 20 members in case of ordinary business and 10 in the banking partnership.

Private limited company: Minimum members number is 2 but not more than 50.

3. Entity:-

Limited partnership: It has no legal entity. it is not independent of the partners.

Private limited company: It enjoys separate entity and common seal. Its existence is independent of the members.

4. Classification of members:-
Limited partnership: There are two classes of partners in limited partnership i.e. ordinary partners (Unlimited liability partner) and limited liability partner.

Private limited company: There is only one class of members i.e. shareholders with limited liability.

5. Commencement of business:-
Limited partnership: Certifiable of incorporation is not needed by limited partnership. Business can be commenced immediately after agreement.

Private limited company: It can commence business only after obtaining the certificate of incorporation from the registrar's office.

6. Management:-
Limited partnership: Its management is conducted according to the provision of partnership agreement. But generally business is carried on by one two partner is not allowed to participate in the business.

Private limited company: Its procedure of management is laid down in the Article of Association Each member has right to conduct its business personally.

7. Audit:-
Limited partnership: There is no retraction to audit the accounts from the chartered accountant by lass but its depends upon the partnership agreement.

Private limited company: It has to keep the accounts books. Annual audit is compulsory by company ordinance.

8. Limited members:-
Limited partnership: There must be limited partner and one unlimited liability partner for the formation of this type of organization.

Private limited company: It commence its business with at least two members with limited liabilities.

9. Nature of business:-
Limited partnership: Partners may conduct any type of business or change it by mutual consent.

Private limited company: The nature of business is mentioned in the object clause of the Memorandum of Association. It cannot be changed except by the sanction of the court.

10. Submission of documents:-
Limited partnership: No legal documents are required to submitted to the registrar's office before its formation.

Private limited company: Some legal documents i.e. Article of Association are necessary to be submitted to the registrar's office along with other documents before its incorporation.

11. Meeting:-
Limited partnership: There is no compulsion to hold may of meeting under partnership act 1932. No reports are required to be filled with any office.

Private limited company: Some specific meeting must be held with in prescribed time under the provision of company ordinance. Specific reports are to be submitted to concerned office.

12. Capital:-
Limited partnership: Its capital is laid down in Article of partnership ( partnership deed ). It may be changed easily by mutual consent.

Private limited company: Its capital is mentioned in the Memorandum of Association. It cannot be changed without the sanction of the court.

13. Profit:-
Limited partnership: Business profit is distributed among the partners according to the partnership agreement.

Private limited company: The policy of the distribution of the profit is decided at the Board of Directors Meeting according to the Provision of Article of Association.

14. Tax:-
Limited partnership: Tax is the imposed on the individual profit of the partners.

Private limited company: Tax is paid by the company on the whole of its profit.

15. Controlling documents:-
Limited partnership: Its internal management is conducted by partnership deed.

Private limited company: Its internal activities controlled by the Article of Association.

16. Dissolution:-
Limited partnership: Partnership may be dissolved on the retirement or death of any partner. In case of insolvent the insolvency Act applies.

Private limited company: It enjoyed continues existence. Its running business life is not dissolved on the death or retirement of any member. There is separate legal procedure for the winding up of the company insolvency act may not apply.


Functions, Importance or Role of Stock Exchange

Stock Exchange :-
Stock exchange is an organized market where Government securities, shares, bonds and debentures of the trading units are regularly transacted. Stock exchange provides a place to the buyers and sellers of the shares and securities. Stock exchange indicates about the good or bad health of economy. If the share prices are rising it means country is running on the path of development and prosperity.

Importance or Functions of Stock Exchange :
We discuss about major functions of stock exchange under these headings:-

1. Providing a ready market
The organization of stock exchange provides a ready market to speculators and investors in industrial enterprises. It thus, enables the public to buy and sell securities already in issue.

2. Providing a quoting market prices
It makes possible the determination of supply and demand on price. The very sensitive pricing mechanism and the constant quoting of market price allows investors to always be aware of values. This enables the production of various indexes which indicate trends etc.

3. Providing facilities for working
It provides opportunities to Jobbers and other members to perform their activities with all their resources in the stock exchange.

4. Safeguarding activities for investors
The stock exchange renders safeguarding activities for investors which enables them to make a fair judgment of a securities. Therefore directors have to disclose all material facts to their respective shareholders. Thus innocent investors may be safeguard from the clever brokers.

5. Operating a compensation fund
It also operate a compensation fund which is always available to investors suffering loss due due the speculating dealings in the stock exchange.

6. Creating the discipline
Its members controlled under rigid set of rules designed to protect the general public and its members. Thus this tendency creates the discipline among its members in social life also.

7. Checking functions
New securities checked before being approved and admitted to listing. Thus stock exchange exercises rigid control over the activities of its members.

8. Adjustment of equilibrium
The investors in the stock exchange promote the adjustment of equilibrium of demand and supply of a particular stock and thus prevent the tendency of fluctuation in the prices of shares.

9. Maintenance of liquidity
The bank and insurance companies purchase large number of securities from the stock exchange. These securities are marketable and can be turned into cash at any time. Therefore banks prefer to keep securities instead of cash in their reserve . This it facilities the banking system to maintain liquidity by procuring the marketable securities.

10. Promotion of the habit of saving
Stock exchange provide a place for saving to general public. Thus it creates the habit of thrift and investment among the public. This habit leads to investment of funds incorporate or government securities. The funds placed at the disposal of companies are used by them for productive purposes.

11. Refining and advancing the industry
Stock exchange advances the trade , commerce and industry in the country. it provides opportunity to capital to flow into the most productive channels. Thus the flow of capital from unproductive field to productive field helps to refine the large scale enterprises.

12. Promotion of capital formation
It plays an important part in capital formation in the country. its publicity regarding various industrial securities makes even disinterested people feel interested in investment.

13. Increasing Govt. Funds
The govt. can undertake projects of national importance and social value by raising funds through sale of its securities on stock exchange.

According to MARSHAL "Stock exchange are not merely the chief theaters of business transaction, they are also barometers which indicate the general conditions of the atmosphere of business."


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