CruxBusiness Organisation and Management

(B.Com Prog only.) An organisation is a group of people who work together, in a planned way, for a common purpose. It brings people, money, materials and machines together and gives each member a part of the work. A firm, a hospital, a school, a bank, a government office, an army unit, a club and a charity are all organisations.

Modern life runs through organisations. Almost every need you have is met by one:

Organisations also drive the economy. They combine resources, create jobs, pay taxes and bring new products.

Because we depend on organisations so much, the quality of their management shapes the quality of our lives. A well-run hospital saves lives; a badly run one wastes money and harms patients. Management is needed in every organisation, big or small, profit-making or not.

In plain words, management is the process of getting things done through and with other people so that the group reaches its goals effectively and efficiently. Three words in that sentence matter.

1. Process. Management is a chain of linked activities, the functions: planning, organising, staffing, directing and controlling.
2. Effectively. Being effective means finishing the right task and reaching the goal. It looks at the end result.
3. Efficiently. Being efficient means doing the task with the least cost, that is, getting more output from the same input, or the same output from less input.

Writers define management in different ways, and no single definition covers every aspect. Three standard views, in our words:

Some definitions are framed around a statement DU likes to quote: management as the effective use of human resources (people's knowledge, skill and effort) and material resources (money, machines, materials, buildings, information) to reach the enterprise's objectives. Read such a statement in three parts: the purpose (the objectives), the means (people and other resources) and the test (effective and efficient use). A fuller view adds that the work should satisfy the people it serves and give those who do it a sense of achievement. Management is more than using resources: people are not just another input, and their commitment has to be earned.

The nature of management means its basic character. Seven features describe it.

Art, science or profession

DU asks whether management is an art, a science or a profession. Test it against the features of each.

1. Art is the skilful, personal use of knowledge to get a result. Management is an art: a manager learns principles, then applies them in his own way, with practice and creativity. Two managers with the same training run a team differently.
2. Science is an organised body of knowledge with principles found by observation and tested by experiment, which hold everywhere. Management has an organised body of knowledge and principles (Taylor's, Fayol's), but it deals with people, whose behaviour cannot be predicted exactly. So it is an inexact (or social) science: its principles must be adapted to each situation.
3. Profession needs a defined body of knowledge, entry restricted by a degree or examination, a professional association that regulates members, a code of conduct and a service motive. Management meets only some of these.

Management matters because it turns scattered effort and resources into results. The main reasons:

1. It brings order and discipline. Clear roles, authority and coordination prevent confusion and conflict.
2. It reaches group goals. It gives the separate efforts of many people one common direction.
3. It helps people meet personal goals. Through motivation and leadership, staff earn pay, growth and recognition while working for the firm's goals.
4. It raises efficiency. Better planning, organising, staffing, directing and controlling cut waste and raise productivity.
5. It drives innovation and growth. Managers spot opportunities and organise resources to pursue them.
6. It keeps the organisation dynamic. People resist change because it means leaving the familiar. Management helps them adapt to new technology, rivals and customer tastes, so the firm keeps its edge.
7. It develops society. Well-run firms supply good products, create jobs, adopt new technology and support the community.

In today's business the same points carry extra weight. Fast technological change, global competition, mobile knowledge workers, crises such as supply shocks, and society's demand for ethical and green conduct all need sound management. In a knowledge firm the main assets are people: if leadership, communication and governance fail, staff may leave and the firm's value leaves with them.

The levels of management are the layers of managers in an organisation. They arise because each person has a task, the authority to do it, and a superior to answer to. Usually there are three levels.

Time spent on each function differs by level: top managers spend more time planning and organising than lower managers do.

Management is described as the process of planning, organising, staffing, directing and controlling the work of the organisation's members, and of using its resources to reach set goals. The five functions:

Henri Fayol, an early writer, listed the functions as to plan, to organise, to command, to coordinate and to control. Later writers replaced command with directing, added staffing, and treat coordination as the essence of all functions (MP02).

Coordination is the process by which a manager matches the efforts of individuals and departments, in amount, quality, timing and sequence, so that they produce one line of action towards common goals. It turns specialised parts into a working whole.

Its nature, point by point:

1. It is deliberate. It does not happen by itself. Even willing staff need someone to fit their work together.
2. It unites group effort. It gives many separate efforts a common focus, so that work goes as planned.
3. It is every manager's job. Top managers coordinate the whole organisation and its links with the environment; middle managers coordinate departments with each other and with the levels above and below; supervisors coordinate the daily work of their workers.
4. It secures unity of action. It acts as the binding force between departments, keeping every action aimed at the common goal.
5. It is all-pervasive. Departments depend on each other, so coordination is needed at every level and across every department.
6. It is continuous. It begins at the planning stage and goes on until controlling; it never stops while the organisation runs.
7. It is vertical and horizontal, internal and external. Vertical coordination links the levels of the hierarchy; horizontal coordination links departments at the same level (purchase, production, sales). Internal coordination covers the organisation itself; external coordination covers its dealings with suppliers, customers, government and others.

Why coordination is the essence of management

Coordination is sometimes listed as a separate function, but it is better seen as the essence of management: the purpose every function serves. Each function contributes to it.

A manager who plans, organises, staffs, directs and controls well is, in effect, coordinating. Like the thread in a garland, it runs through all the functions.

Coordination and cooperation

Cooperation is people's willingness to help one another. It comes from the individuals. Coordination is the manager's conscious arrangement of their efforts for the whole organisation. The two need each other: cooperation without coordination wastes effort, because willing people pull in different directions; coordination without cooperation breeds discontent, because a timetable imposed on unwilling people is resisted.

Coordination is needed because of the way modern organisations are built.

1. Interdependence. Each unit depends on others for information and inputs: sales on production, production on purchase, all on finance.
2. Specialisation. Specialists tend to judge only by their own field. Coordination brings their work back into one whole.
3. Functional differentiation. Departments (finance, production, marketing, human resources) have their own goals and styles. Marketing may want discounts that finance rejects. Coordination links them to the common goal.
4. Growth in size. More people and units make it harder to keep efforts together.
5. Clash of goals. Individual and departmental goals often differ from the organisation's goals and must be reconciled.

Its benefits follow from these:

• Unity of action towards organisational, not departmental, goals.
• No duplication and no gaps, so resources are not wasted.
• Less conflict over priorities, resources and authority.
• Efficiency and economy, with fewer delays and less idle time.
• Support for growth and change, keeping new units and products aligned with the old.
• Better relations and morale, as people see how their work connects with others'.

(B.Com Hons only.) Every organisation must solve two problems: dividing work into tasks, and coordinating those tasks into a whole. Henry Mintzberg, in his study of how organisations are structured, named the basic ways they coordinate work: the coordination mechanisms, which he called the glue that holds an organisation together. His original list had five; he later added a sixth.

How the mix changes. As work becomes more complex, coordination tends to move from mutual adjustment to direct supervision, then to standardisation (of processes, then outputs, then skills), and back to mutual adjustment when work becomes highly complex and unpredictable, as in a research team. Each mechanism goes with one of Mintzberg's structures:

Mary Parker Follett set out four principles of effective coordination.

1. Direct contact. The people concerned should talk face to face, at every level, not only through the chain of command. Direct talk clears misunderstandings fast.
2. Early beginning. Coordination should start at the planning stage, while goals and policies are set. Building harmony into plans is easier than mending conflicts later.
3. Reciprocal relationship. All factors in a situation affect each other. Each person and department must weigh how its actions affect others and how others' actions affect it.
4. Continuity. Coordination is never finished. It goes on as long as the organisation exists, because conditions keep changing.

Later writers added further principles:

1. Clear and common objectives that everyone understands.
2. Sound organisation structure with clear authority, responsibility and grouping of work.
3. Effective communication, the means by which coordination happens.
4. Self-coordination, where departments that understand their effect on others adjust on their own.
5. Effective leadership and supervision that settles differences.
6. Coordination devices such as committees, liaison officers, schedules, budgets and meetings.

Techniques are the practical means managers use to coordinate.

Coordination is essential but not easy. Its main limits:

1. Size and spread. Many levels, locations and units make it slow and hard.
2. Departmental loyalty. Specialists guard their own goals and budgets.
3. Dependence on communication. Late or poor information breaks it, however good the plans.
4. Human factors. Ego, personal differences and unwillingness cannot be removed by procedures alone.
5. Cost and time. Committees, meetings, liaison staff and reports take time and money.
6. Over-coordination. Too many checks and approvals slow decisions and kill initiative.
7. A changing environment. Sudden outside changes can upset carefully matched plans.

These limits do not lessen its importance. They mean coordination has to be built in through clear goals, a sound structure, good communication and cooperative leadership.

A theory of management is an organised set of ideas that explains how organisations work and how they should be run. Each school answered the question "how do we get better results" in its own way, and each built on what the earlier one missed.

A further strand, management science (operations research), uses quantitative tools to help managers decide. It reappears in U2 (decision techniques).

F.W. Taylor, an American mechanical engineer, is called the father of scientific management: replacing guesswork in factory work with study, measurement and the one best method.

Principles of scientific management:

1. Science, not rule of thumb. Find the best method by study and experiment instead of each manager's habit.
2. Harmony, not discord. Managers and workers should see that their interests are the same. This needs a mental revolution: both sides change their attitude from fighting over the surplus to working together to enlarge it, and management shares the gains with workers.
3. Cooperation, not individualism. An extension of harmony: management should welcome workers' suggestions and work alongside them; workers should avoid strikes and unreasonable demands.
4. Development of each person to the greatest efficiency and prosperity. Select workers scientifically, give them work that suits their abilities, and train them in the best method, so that they produce and earn more.
5. Maximum, not restricted, output. Both sides should aim to raise output rather than hold it down.

Techniques of scientific management:

Henri Fayol, a French mining engineer and practising manager, looked at management from the top: how the whole organisation should be run. He saw management as five functions: to plan, to organise, to command, to coordinate and to control. He grouped a firm's activities into six kinds: technical, commercial, financial, security, accounting and managerial. His 14 principles are general guidelines, to be applied with judgement.

Fayol today. His principles still guide structure and policy: clear reporting lines, specialised departments, fair pay, team spirit. Modern firms apply them flexibly, for example by giving teams more initiative and decentralising decisions.

Taylor versus Fayol. The two are complementary: Taylor improved work on the shop floor, Fayol improved the running of the whole organisation.

Max Weber, a German sociologist, described bureaucracy as the most rational way to run a large organisation. His aim was to remove the inconsistency and favouritism that come from personal and arbitrary use of power. A bureaucracy has:

1. A hierarchy of offices, each under a higher one.
2. Division of labour, with each office's duties clearly fixed.
3. Written rules and procedures that govern every decision.
4. Impersonality: rules apply equally to all, without personal feeling.
5. Selection and promotion on merit, by qualifications and record.
6. Written records of decisions and actions.

Limits of the classical school as a whole:

• It treated people mainly as economic beings and ignored feelings, groups and motivation.
• It saw the organisation as a closed system, paying little attention to the environment.
• Its principles were presented as universal, though they work best in stable, routine settings.
• Bureaucracy can turn rigid and slow, with "red tape" that puts rules above results.

The Hawthorne experiments were carried out in the 1920s and early 1930s at the Hawthorne Works of the Western Electric Company, near Chicago. Elton Mayo is their best-known figure. They began as a test of how physical conditions affect output and ended by showing that social factors matter more. They gave birth to the human relations (neo-classical) approach.

The four phases:

Conclusions:

1. The worker is a social being, not only an economic one.
2. Attention, recognition and belonging raise morale and output.
3. Informal groups exist inside the formal organisation and set their own norms of behaviour and output.
4. People respond to management as members of groups, not only as individuals.
5. Supervisory style and two-way communication strongly affect productivity.
6. Participation and being heard improve attitudes to work.
7. The organisation is a social system as well as a technical and economic one.

Contribution to management theory:

• It started the human relations movement: managers began to study needs, attitudes and group behaviour.
• It brought informal organisation into management thinking.
• It laid the base for behavioural science and organisational behaviour. Mayo's attack on the old view of workers led on to McGregor's Theory X and Theory Y, and to later work on motivation, leadership and groups.
• It changed the view of supervision: supportive, democratic supervision and two-way communication came to be valued.
• It encouraged personnel practices such as counselling, welfare, attitude surveys and participation.
• Its social-system view prepared the ground for the systems approach.

Criticism. The groups studied were small and not tightly controlled, so other changes of the time may explain part of the rise in output. The effects of the economic depression and of changes in pay were played down, and conflict between workers and management was ignored. Critics also said it managed workers' feelings rather than their real conditions; a contented worker is not always a more productive one. The Hawthorne effect, people changing their behaviour because they know they are being studied, also clouds the results.

Relevance today:

The human relations approach (roughly the 1920s to the 1950s) held that employees do not respond to rules, chains of authority and money alone; they are also driven by social needs and attitudes. Its main ideas:

1. Understanding the psychology of workers is essential.
2. Group behaviour differs from individual behaviour; workers follow group norms.
3. People form informal relations alongside the formal structure, and managers must take note of them.
4. Communication, both upward and downward, is central.
5. Management works with and through people, so a human approach, not only a technical one, improves efficiency.

The behavioural science approach (organisational humanism) took this further. Chris Argyris, Douglas McGregor, Abraham Maslow and Frederick Herzberg used psychology, sociology and anthropology to study behaviour at work. Its belief is that people want to use all their abilities and creativity at work. Its ideas on motivation and leadership (Maslow, Herzberg, McGregor) are studied in U4.

A system is a set of interrelated and interdependent parts arranged so that they form a unified whole working for a common purpose. The systems approach sees the organisation as such a system. A manager must look at the whole, remember that a change in one part affects the others, and remember that the organisation depends on its environment.

Key ideas:

1. Subsystems. The organisation is made of parts (production, marketing, finance, human resources), each with its own inputs and outputs. They are linked, so a weak part drags the others down. Management itself is one subsystem.
2. Open system. An open system trades continuously with its environment (customers, suppliers, lenders, government, rivals); a closed system does not. Business organisations are open systems: what they get back depends on how their outputs are received.
3. Inputs, transformation, outputs, feedback. The organisation takes in inputs (people, materials, money, information), transforms them through its processes, and gives out outputs (goods, services, profit, satisfaction, and also waste). Feedback on outputs guides adjustment.
4. Part of a larger system. The firm sits inside an industry, a society and a legal and political order, and must work within their rules and expectations.
5. Synergy. Parts working together achieve more than the same parts working separately: the whole is greater than the sum of its parts.
6. Boundary. Each system has a boundary that separates it from its environment; open systems have boundaries that let resources and information pass.

Merits. It gives a whole view, stresses links between departments, recognises the environment, and joins earlier ideas into one frame. Limits. It is abstract and gives no specific prescription for what a manager should do in a given case.

The contingency (situational) approach holds that there is no one best way to manage. The right structure, leadership style, control system or technique depends on (is contingent on) the situation. Management must first diagnose the situation, then choose the practice that fits. The approach is stated as if-then relations: if these conditions exist, then this practice works best. It grew from studies showing that successful organisations in different conditions were run differently, and it applies even inside other theories, for example which of Maslow's needs will move a given employee depends on that person's circumstances.

Main propositions:

1. No method of management is best everywhere.
2. Effectiveness depends on the fit between practice and situation.
3. Managers must diagnose before they act.
4. Useful parts of earlier theories are kept and applied where they fit.
5. The approach is practical and action-oriented.

Contingency variables:

Critical evaluation.

Contingency versus systems.

Contingency versus classical.

(B.Com Hons only.) Classical writers such as Fayol described what managers should do: plan, organise, command, coordinate and control. Henry Mintzberg instead watched chief executives closely through their working days to see what they actually do. His explanation is called unique because it rests on direct observation and shows management as a set of linked roles, not a neat sequence of functions.

He found that a manager's work is brief, varied and fragmented: many short activities, constant interruptions, a liking for spoken communication and current information, and a web of contacts inside and outside the organisation. Calm, reflective planning is rare. A role is an organised set of behaviours that goes with a position. Mintzberg grouped what managers do into ten roles in three groups, all flowing from the manager's formal authority and status.

Critical examination.

A skill is an ability that can be learned and shown in performance. Robert Katz named three skills every manager needs.

The mix changes with level. A supervisor uses technical skill daily; a chief executive spends most effort on conceptual work; human skill matters equally everywhere. The same three skills are what a leader draws on to influence others (U4).

A competency is a combination of knowledge, skills, behaviour and attitudes that enables a person to do a job well. Managerial competencies are the combinations a person needs to be effective as a manager, across jobs and organisations: in planning, organising, leading and controlling. They go beyond technical know-how to include working with people, thinking strategically and managing oneself.

Nature of managerial competencies:

1. A combination. Each blends knowledge (what one knows), skills (what one can do) and behaviour and attitudes (how one acts).
2. Linked to performance. A competency is identified because it separates effective managers from less effective ones; it shows in behaviour and can be assessed.
3. Learnable. It is built through education, experience, coaching, feedback and reflection, not only inborn.
4. Tied to the role and setting. Which competencies matter, and how much, depends on the job and the organisation.
5. Varies by level. Technical competence matters more at lower levels, human competence at all levels, conceptual competence most at the top (Katz).
6. Dynamic. New conditions call for new competencies, such as digital literacy and cross-cultural awareness.
7. Interdependent. Competencies support one another; communication, for instance, underlies teamwork and leadership.

Six key competencies. A widely used set, described by Hellriegel, Jackson and Slocum:

The two major approaches to managerial competencies

Many organisations now blend the two: they define the outputs a role needs and the personal behaviours that produce them.

Ethos means the basic character, spirit and values of a people or culture. Indian ethos for management means applying the values, wisdom and world-view of India's scriptures and traditions (the Vedas, the Upanishads, the Bhagavad Gita, the Ramayana, the Mahabharata, Kautilya's Arthashastra and the teachings of saints and thinkers) to the practice of management.

It sees management as a holistic activity concerned with the whole person and the welfare of all, not only with efficiency and profit. Its central idea is that sound management starts with the manager's own values and inner development, and that business is a means of serving society. In India this approach is often called value-oriented holistic management.

Need and relevance. Management driven only by profit and technique often brings stress and burnout, short-term thinking, unethical conduct and a loss of meaning at work. Indian ethos answers these by:

• giving work a purpose beyond the wage, which supports motivation and well-being;
• putting ethics at the base of decisions, which supports trust and good governance;
• widening the firm's concern to all stakeholders and to nature, which supports social responsibility and sustainable growth;
• training the manager's own mind, which supports calm judgement under pressure.

It does not reject modern techniques. It adds an ethical and human foundation to them.

The basic principles, with the Sanskrit phrase where one is standard:

Value-oriented holistic management (VOHM) is the Indian ethos approach in practice. Holistic means seeing the organisation, its people, society and nature as one connected whole. Value-oriented means that lasting human values (truth, duty, self-control, service, harmony), not material gain alone, guide decisions.

Features:

1. Values as the base. Decisions follow right conduct (dharma), not gain alone.
2. Growth of the whole person. Employees' physical, mental, emotional and spiritual growth matters, not only their skills.
3. Inner change before outer change. Managers first manage their own mind, ego and desires.
4. Work as worship and nishkama karma: dedicated work without attachment to reward.
5. Welfare of all (sarva loka hitam). The firm serves owners, employees, customers, society and nature together.
6. Cooperation rather than conflict. Relations rest on trust, respect and a sense of family.
7. Balance of material and spiritual goals. Wealth is created ethically and shared responsibly; it is held in trust for society.

Values and skills. Skills tell a manager how to do a task: how to plan, budget, sell or negotiate. Values tell him why and for whom: which ends are worth pursuing and which means are acceptable. Skills without values can make a manager efficient at harmful work; values without skills achieve little. VOHM asks for both, with values steering skills.

The Bhagavad Gita is Krishna's counsel to Arjuna, who is confused and despondent on the battlefield. It deals with duty, decision-making under stress and right action, which is why it speaks to managers.

The Ramayana tells of Rama's exile, the abduction of Sita by Ravana, and her rescue. Its episodes offer lessons in leadership, teamwork and ethics.

Together, the Gita and the Ramayana support values-based, holistic management: duty with detachment, service to others, ethical conduct and balance, a check on management driven only by short-term profit.

A form of business organisation is the legal shape of ownership: who owns the business, who controls it, who bears the risk, and which law governs it. The main forms in India are the sole proprietorship, the Joint Hindu Family business, the partnership firm, the limited liability partnership (LLP), the cooperative society and the company (private, public, or One Person Company). No form is best for every business: the right one depends on the owner's needs.

Considerations in choosing a form:

1. Nature of the business. A small shop or a personal service suits a proprietorship; heavy plant, many employees or need of public trust points to a company.
2. Scale and capital needed. One person's savings limit a proprietorship; partners pool more; a company can raise large sums.
3. Liability. Where the risk is high, owners prefer limited liability (company, LLP, cooperative) to unlimited liability (proprietorship, partnership).
4. Control. A proprietor keeps full control; partners share it; in a company control rests with the board.
5. Cost and ease of formation. A proprietorship needs almost no formalities; a company needs a legal process that takes time and money; an LLP exists only once the Registrar registers its incorporation document.
6. Continuity. A company has perpetual succession; a proprietorship or partnership may end with an owner.
7. Flexibility. Small forms change their line or methods quickly; a company is bound by its documents and the law.
8. Transfer of ownership. Shares of a public company can be sold freely; a partner's share cannot be transferred without the others' consent.
9. Secrecy. A proprietor or a partnership firm need not publish accounts; a company must disclose a good deal.
10. Tax and compliance. Tax rates and the yearly compliance burden differ by form and affect the net return.
11. Access to skills. A partnership or company can bring in people with different expertise.

Sole proprietorship

A sole proprietorship is a business owned, managed and controlled by one person, who takes all the profit and bears all the risk. It suits small businesses and personal services (salons, local shops).

• Features: one owner with full control, who alone takes the profit and bears the risk; no separate legal entity; unlimited liability; no separate law governs it and hardly any formalities are needed, though a licence may be; lack of continuity, since death, insanity, imprisonment, illness or bankruptcy of the owner can close it.
• Merits: easy to start and close; direct reward for effort; a sense of achievement; quick decisions; secrecy (no duty to publish accounts).
• Limits: unlimited liability, which makes the owner wary of risk; limited resources (savings and loans); limited managerial ability; limited life.

Joint Hindu Family business

A Joint Hindu Family business belongs to the members of a Hindu Undivided Family (HUF), who also run it. It is found only in India and is governed by Hindu Law (the Hindu Succession Act, 1956). Membership comes by birth, and three successive generations can be members, called co-parceners. The head, the karta, runs the business.

• Features: control with the karta, whose decisions bind the others; liability of the karta unlimited, of other members limited to their share of the co-parcenary property; at least two members and ancestral property, with no agreement needed; minors can be members because membership comes by birth; continuity, since the next eldest member becomes karta.
• Since the Hindu Succession (Amendment) Act, 2005, a daughter of a co-parcener is a co-parcener by birth, and the eldest member, male or female, becomes karta.
• Merits: loyalty and cooperation within the family; limited liability of members other than the karta; effective, prompt control; continued existence.
• Limits: dominance of the karta; limited managerial skill of one person; unlimited liability of the karta; limited capital. The form is declining as joint families shrink.

Partnership

The Indian Partnership Act, 1932 (s. 4) defines partnership as "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all".

• Features: mutual agency, since each partner is both an agent and a principal of the others; formed by an agreement (oral or written; a written partnership deed is advisable) for a lawful business with a profit motive; decisions by mutual consent; risk shared in the agreed ratio; unlimited liability, joint and several; lack of continuity on a partner's death, retirement, insolvency or insanity, though the rest may continue under a new agreement.
• Number: at least two. Section 464 of the Companies Act, 2013 allows the government to prescribe a maximum of up to 100; the present rule (Companies (Miscellaneous) Rules, 2014) fixes 50.
• Registration with the Registrar of Firms is optional, but an unregistered firm loses rights: a partner cannot sue the firm or the other partners, and the firm cannot sue third parties or its own partners.
• Merits: more funds; shared risk; balanced decisions from partners' different skills; secrecy; easy to form and close.
• Limits: possible conflicts, with one partner's decision binding all; lack of continuity; low public confidence because accounts are not published; unlimited liability; limited resources.

A minor cannot be a partner but may be admitted to the benefits of a firm with all partners' consent; his liability is limited to his share, and on coming of age he must give public notice within six months of whether he will become a partner. If he gives no notice in that time, he becomes a full partner with unlimited liability.

Kinds of partnership: by duration, partnership at will (lasts until a partner gives notice) and particular partnership (for a set project or period); by liability, general partnership (all partners unlimitedly liable; registration optional) and limited partnership (at least one partner with unlimited liability, others limited; limited partners take no part in management; registration compulsory).

Cooperative society

A cooperative society is a voluntary association of persons who join together for their mutual welfare and protect their economic interests democratically. Societies working in one state are governed by that state's Cooperative Societies Act; those working in more than one state by the Multi-State Cooperative Societies Act, 2002.

• Features: service motive, with any surplus shared as dividend under the bye-laws; control by an elected managing committee; voluntary, open membership; registration compulsory, giving a separate legal identity; limited liability.
• Merits: economy (honorary work, no middlemen); government support (low taxes, subsidies, cheap loans); easy formation; one member one vote; stable existence; limited liability.
• Limits: government control; differences of opinion; inefficient management (cannot pay experts well); limited resources; lack of secrecy.
• Kinds: credit, housing, farmers', marketing, producers' and consumers' cooperatives.

Company

A company is an association of persons formed under the Companies Act, 2013 (or an earlier company law), with a legal status separate from its members. It is an artificial person with perpetual succession: it can own property, borrow, contract, sue and be sued in its own name, and it continues whatever happens to its members until it is wound up by law. Shareholders own it; a board of directors elected by them manages it.

• Merits: scope for expansion; professional management; limited liability; perpetual existence; easy transfer of shares (public company).
• Limits: many regulations; slow decisions; control by a few directors in practice; conflicts of interest among stakeholders; complex formation; lack of secrecy; impersonal work environment.

Under s. 149(1) the maximum is fifteen directors, and more may be appointed by special resolution. A private company that is a subsidiary of a company which is not private is treated as a public company for the Act, even if its articles still call it private (proviso to s. 2(71)).

Limited liability partnership

An LLP combines a partnership's flexibility with limited liability: partners risk only what they have agreed to contribute. Its incorporation under the LLP Act, 2008:

1. Two or more persons, joined to carry on a lawful business with a view to profit, sign an incorporation document (s. 11(1)(a)).
2. The document states the LLP's name, proposed business, registered office address, the names and addresses of its partners and of its designated partners, and other prescribed details (s. 11(2)).
3. It is filed with the Registrar of the State where the registered office will be, with the fee (s. 11(1)(b)), together with a statement by an advocate, Company Secretary, Chartered Accountant or Cost Accountant engaged in the formation, and by a subscriber, that the legal requirements are met (s. 11(1)(c)).
4. The Registrar registers the document and issues a certificate of incorporation within 14 days (s. 12(1)); the certificate is conclusive evidence that the LLP is incorporated (s. 12(4)).

A One Person Company (OPC) is "a company which has only one person as a member" (s. 2(62)). It gives a single entrepreneur a company's separate legal identity and, in its usual form, limited liability, without a second member. It bridges the gap between a sole proprietorship and a private company.

Features:

1. Single member. One person subscribes to the memorandum and forms it; it is a private company (s. 3(1)(c)).
2. Nominee. The memorandum must name another person who will become the member if the subscriber dies or becomes incapable of contracting. That person's prior written consent, in the prescribed form, is filed with the Registrar along with the memorandum and articles at incorporation (first proviso to s. 3(1)).
3. Change of nominee. The nominee may withdraw consent, and the member may change the nominee at any time by notice, each in the prescribed manner. The member tells the company and the company tells the Registrar. A change of nominee is not an alteration of the memorandum (further provisos to s. 3(1)).
4. Kind of liability. Like any company it may be limited by shares, limited by guarantee or unlimited (s. 3(2)). It is usually limited by shares, so the member's liability is limited to any amount unpaid on the shares.
5. Separate legal entity and perpetual succession. It owns property, contracts and sues in its own name, and continues through the nominee.
6. Name. The words "One Person Company" must appear in brackets below its name wherever the name is printed, fixed or engraved (s. 12(3)).
7. Directors. One director is enough (s. 149(1)); the member may be that director. Like every company it needs at least one director whose stay in India adds up to 182 days or more in the financial year; in the year of incorporation the test applies proportionately (s. 149(3)).
8. Lighter compliance. No annual general meeting is required (s. 96(1)); its financial statements need not include a cash flow statement (proviso to s. 2(40)); one board meeting in each half of the calendar year with at least 90 days between them is enough, and an OPC with only one director need not hold board meetings at all (s. 173(5)).

Advantages for start-ups:

• Limited liability for a solo founder in the usual share-limited form, which encourages risk-taking.
• Full control without finding a partner or co-shareholder.
• The standing of a registered company with customers, suppliers and banks.
• Continuity through the nominee and perpetual succession.
• Fewer formalities than an ordinary private company.
• Separation of business and personal affairs.
• Room to grow. A company of one class may convert to another class by altering its memorandum and articles (s. 18(1)). On the company's application the Registrar, once satisfied, closes the old registration and issues a fresh certificate of incorporation (s. 18(2)). Debts, liabilities, obligations and contracts from before the conversion are unaffected and stay enforceable (s. 18(3)). So an OPC can become an ordinary private or public company when investors join.

Limits: only one person can own it; as a private company it cannot invite the public to buy its shares; it is more complex to form and run than a proprietorship.

A business format is the channel through which a business meets its customers. There are three.

1. Brick and mortar. Sells only through physical premises (shop, showroom, branch, office) that customers visit. Examples: a neighbourhood grocer, a bank branch, a salon.
2. Click (pure online). Sells only through a website or app, with no shop to visit.
3. Brick and click (also called clicks and mortar). Combines physical stores with an online presence, so customers browse, buy, collect or return through either channel. When the channels are fully joined (one stock, one customer account, order online and collect or return in store) it is called omnichannel.

Brick and mortar. Features: face-to-face dealing, goods seen and handled before buying, sale and delivery at the same place and time, a trading area limited to people who can reach the shop.

Online (click) business.

Brick and click has grown because customers want both the convenience of online buying and the trust and service of a store. Many shops, banks and restaurant chains have added online channels, and some online-born firms have opened stores.

E-commerce is buying and selling goods and services, and transferring money and data for them, over electronic networks, chiefly the internet. E-business is wider: it covers all business activity carried out electronically, including procurement, supply-chain management, customer service, internal communication and dealings with government.

Kinds of e-commerce:

Benefits of e-business: global reach; speed, with shorter business cycles; convenience of working any time and anywhere; less paperwork; easy formation and low investment.

Limitations: higher risk because the parties are anonymous and hard to trace; low personal touch; need for technical skill on both sides, which creates a digital divide; a gap between the speed of ordering and the speed of physical delivery; ethical concerns such as monitoring of employees' e-mail; people's resistance to change.

Security problems in e-business. Online deals are made at a distance between parties who never meet, so security is the central concern. The risks fall in three groups.

Other concerns are fake websites that imitate genuine brands, insiders who leak data, and non-repudiation: proving who sent a message or placed an order when a party later denies it. Digital signatures and certificates help.

Franchising is a contractual arrangement in which the owner of a brand, product or business system (the franchisor, also spelt franchiser) grants another business (the franchisee) the right to run outlets under that brand, in a given area and for a given time, for a fee. The franchisee invests in and runs the outlet; the franchisor supplies the brand, know-how, training and support, and controls how the business is run.

Features:

1. The franchisor licenses the franchisee to use its trademark, for a period fixed in the agreement that may be renewed.
2. In return the franchisee pays a fee at the start and a royalty for using the know-how and trademark.
3. The franchisee must follow the franchisor's policies on how the business is run.
4. The franchisor gives marketing support and technology, and in effect sets up the business for the franchisee.
5. The franchisor may train the franchisee's staff.

A franchise manual sets out the know-how: shop layout, staff dress and conduct, job descriptions, training, pricing, storage, advertising, equipment and complaint handling.

Kinds: product (distribution) franchising, where the franchisee sells the franchisor's products (a fuel pump, a vehicle dealership); and business-format franchising, where the whole way of running the business is licensed (food chains, schools, salons, fitness centres).

The franchise agreement usually covers:

• the term of the franchise, renewable on expiry only with both parties' consent;
• the franchisor's undertaking not to end the agreement before its term except for good cause;
• the royalty to be paid;
• the franchisee's undertaking to keep confidential information secret during the term and for two years after;
• the franchisee's undertaking not to run a competing business during the term, and the franchisor's undertaking not to sell another franchise in the same region.

Disputes may arise from unpaid royalty, leaked confidential information, a second franchise granted in the same territory, or a franchisee's poor performance.

Why franchising is spreading in India: rising demand for branded goods and services in smaller towns as well as cities; quick expansion for brands with little capital of their own; lower risk for first-time entrepreneurs; ready support in training, sites and supplies; customers' preference for trusted, uniform quality; the growth of organised retail and services; the wish for self-employment, with lenders seeing a known brand as a safer risk; and the entry of foreign brands through Indian franchisees who know local conditions.

Outsourcing is contracting out to an outside agency work that a business used to do itself, or could do itself. The firm keeps its core competencies (the activities it does best, which give it an edge) and buys other services from specialists. When the agency is in another country it is called offshoring. Firms now contract out manufacturing, research and development, and business processes, whether or not these are enabled by information technology. Together with e-business, outsourcing is one of the emerging modes of business.

Commonly outsourced: accounting and payroll, information technology services, customer support through call centres (business process outsourcing, BPO), logistics, security, cleaning, catering, component manufacture and even research.

Making it work: outsource only non-core work; choose providers carefully; set clear service-level agreements with measurable standards; protect data; monitor performance regularly.

The right format depends on the product and its buyers:

• whether customers need to see, touch or try it first;
• whether it is standardised or varies in quality;
• its size, weight and fragility, which drive delivery cost and damage;
• whether it is tangible or intangible (an intangible can be delivered digitally);
• the need for advice, fitting or after-sales service;
• the target customers' comfort with buying online;
• the cost of each channel.