UNIT 1

INDUSTRIAL
MANAGEMEN
T

 Importance

of Management:-

Accomplishment of Goals.

Effective utilization of resources

Sound organization

Providing vision and foresight

Harmony in work

Help and motivates employees in achieving personal objectives.

Development of society and nation.

MANAGEMENT AS SCIENCE OR ART

MANAGEMENT AS A SCIENCE:

Science is a systematized body of knowledge pertaining to particular field

of enquiry.

Contains concepts, hypotheses, theories and principles to explain cause

and effect relationship between 2 or more factors.

To be organized as science, a discipline should have:

Have a method of scientific enquiry

Establish cause and effect relationship

Principles should be verifiable

Ensure predictable results

Universal applications

Management is systematized body of knowledge and the researchers uses

scientific techniques to collect and analyse data about human cause and
effect relationship.

Management is called as a science but its not a perfect science.

Reasons for inexactness of management as science:

Many principles of mgmt. not supported by research.

Difficult to establish cause and effect relationship

Applications of principles depends upon situations and factors.

Mgmt. deals with the people at work and it is very difficult to predict their behavior
accurately.

MANAGEMENT AS AN ART:

Art signifies the application of knowledge and personal skills to brings out desired result.

Science is learnt, an art is practiced.

Science is to seek knowledge and art is to apply knowledge.

Features of ART:

Denotes personal Skills

Signifies practical knowledge

Helps in achieving concrete results

Creative in nature

Management as an art :

Practice of management does involve the use of

concepts, principles and techniques.

knowledge of management

Manager has to apply his personal skills to deal with various problems in org.

Management is situational

Art of management can be mastered through continuous practice.

Management is creative.

MANAGEMENT AS BOTH SCIENCE AND ART:

Its both science and art.

Science as contains certain universal truth

Art as managing requires application of certain skills which are personal

possession of manager.

Manager be a applied scientist, possess the specialised knowledge of mgmt.

and skills to put this knowledge into practice.

Its been remarked that management is the oldest of arts and the youngest of
science.

MANAGEMENT AS A PROFESSION

Profession an occupation backed by specialized body

of knowledge and training and to which entry is
regulated by representative body.

Requirement of Profession:a)

Specialized field of knowledge

b)

Restricted entry based on the knowledge and training

c)

Representative or professional association

d)

Ethical code of conduct for self regulation.

e)

Social recognition

f)

Professional fee.

Professional Criteria

Management

Specialized body of knowledge

It has a systematized body of knowledge and

principles

Entry based on education and

training

Entry does not require

qualification and training

Professional Association

No professional assc. Of which membership is

essential. In India, AIMA but not essential to
hold its membership to be a manager

Code of Ethics

Managers are not bound by any common code

of conduct.

Service responsibilities

Service is not the only goal for management.

Growing concern for social responsibility of
mgmt.

any

prescribed

Management can be considered a profession :

Mgmt. is supported by well defined body of knowledge that can

be taught and learnt.

There is need for the formal education and training in

management to acquire competency for application of
management principles, techniques and skills.

Certain associations of managers have been formed in different

countries in the world.

Several associations of Managers like AIMA have prescribed

code of conduct for their members.

Managers are aware about their social responsibilities thats

how they are guided by service motive.

Management cant be fully regarded as a profession:

Entry to management profession is not restricted.

Need not to have a all India representative association.

There are no ethical code of conduct for the managers.

DEVELOPMENT OF
I.M.

History can be traced to the industrial revolution in

England and other European nations during 18th and
19th century.

Development of different schools of mgmt. during

industrial revolution, rise of factory system, growth of
trade unionism, expansion of industrial trade,
consumerism, etc.

Harold Koontz Management theory Jungle due to

divergent direction of management thoughts.

Industrial Revolution:

Result of invention from 1760 to 1820.

Need of inventions due to increased demand of products due to widening

of markets.

Beyond the capacity of the industry to meet increasing demand with

labor intensive techniques.

Some prominent inventions:

James Hargreaves spinning genny (1764), Richard Arkwright waterframe (1779),

Crompton Mule spinner , Cartwright Powerloom, and invention of steam engines.

Significant contributions of Industrial revolution were:i.

Growth of engineering industries

ii.

Rise of chemical industries

iii.

Use of power driven machines.

iv.

Revolution in iron making

v.

Advancement in coal mining.

vi.

Development of means of transport.

Impact of industrial
Management:

Large scale production

Change of form of ownership

Factory system

Specialisation

revolution

on

Industrial

EMINENT CONTRIBUTORS

Robert Owen (1771-1858):

Started factory at Manchester for manufacturing textile

machinery.

Became Managing director of Charlton Twist company.

Began cooperative moment in 1828 in Rochdale, England.

Referred as Father of Personnel Management.

Worked for developing spirit of coop. between management

and works.

Practiced the idea that workers should be treated as human,

made prov. like reduced working hours, housing facilities,
education of workers and children, etc.

He preached personnel mgmt. pays dividend to the employees

and is an essential part of every managers job.

Charles Babbage (1792-1871):

British mathematician at Cambridge University from 1828 to 1839.

Invented mechanical calculator in 1832 and conceived analytical machine in

1833 later termed as computer.

Known for the book On the Economy of Machinery and Manufacture

(1832).

Perceived that methods of science and mathematics could be applied to solve

factory problems.

He was an mathematical management scientist

Especially interested in economics of division of labor and the development of

scientific principles.

Daniel C. McCallum:

Tried to find out solutions to managerial inefficiencies, plaguing rail roads at

that time.

Approach to run railroad was one of system, commonsense, reports and control.

Initiated job descriptions, promotions on the basis of merits and made people
responsible and accountable for their operations.

APPROACHES TO
MANAGEMENT
Scientific Management Approach
Management Process Approach
Human Relation Approach.
Behavioral Science Approach
Quantitative Approach
Systems Approach
Contingency Approach.
Operational Approach
Empirical Approach.

Scientific Management:

Industrial Revolution in England necessitated the development

of new management principles and practices.

Need of bringing people together for the purpose of working

together.

Establishment of formal organizational structure, formal lines

of authority, factory systems and procedures.

Management movement known as Scientific Management

Fredrick Winslow Taylor (1865-1915), emphasized the need the

need for adopting scientific approach.

Important aspects, standard time, standard output, standard

cost, standardisation of production process, change in the
attitude of management and workers.

Supporters, Henry L. Gantt, Frank Gilberth, Lillian Gilberth,

Harrington Emerson, etc.

Management Process Approach:

Perceive management as a process consisting of planning,

organising, commanding and controlling.

Regards management as a universal process.

The process school is also called as Traditional or

Universalist school.

Henry Fayol is regarded as the father of this school.

Supporters, Oliver Sheldon, J.D. Mooney and Chester I. Bernard.

Human Relations Approach:

Recognising the importance of human element in org.

Elton Mayo, Hawthrone Experiment and investigated the myriad

of informal relationships, social cliques, patterns of
communication and informal leadership.

Lead to trend known as Human relation movement

Behavioral Science Approach:

Utilises and uses the methods and techniques of social sciences such as
psychology, sociology, social psychology and anthropology.

Pioneer of this school, Gantt and Munsterberg.

As per them, study of management must be centered around the people and
their interpersonal relations.

Concentrated on motivation, individual drives, group relations, leaderships,

group dynamics and so forth.

Contributors, Abraham Maslow, Fredrick Herzberg, Victor Vroom, Douglas

McGregor.

Quantitative Approach:

Using of scientific tools for providing scientific basis for managerial

decisions.

Management problems can be expressed in terms of mathematical symbols

and relationships.

Linear programming, CPM, PERT, Break even analysis, Game theory and
queuing theory widely popular.

Systems Approach:

Composed of elements or subsystems that are related and dependent on each

other.

Based on generalization that an organisation is a system and its components

are inter-related and independent.

Basic feature, more importance given to the over- all effectiveness of the
system rather then sub-system.

Founder, Chester I. Bernard.

Emphasises on the communication and decision process through out the

organisation.

Contingency Approach:

Also known as situational approach.

Basis, internal functioning of organisation must be consistent with the

demands of technology and external environment and needs of its members.

Suggest, there is no one best way to handle any management problem.

3 major parts :- i) environment, ii) management concepts, principles and

techniques , iii) contingent rship between the two.

Operational Approach:

Advocated by Koontz and ODonnell.

Recongnises there is a central core of knowledge about managing which

exist in management such as line and staff, patterns of departmentation,
span of management, managerial appraisal and various managerial
control techniques.

Regards management as universally applicable body of knowledge that can

be brought to bear at all levels of managing and in all types of enterprises.

Also recognises actual problem manager face and the envt. in which they
operate may vary between enterprises and levels.

Emperical Approach:

Management is the study of the experience of managers.

Knowledge based on experience of successful managers can be applied by

other managers in solving problems and in making decisions.

Based on the analysis of the past experience and uses the case method of
study and research.

APPLICATIONS OF INDUSTRIAL MANAGEMENT

Helps in development of the org. for achievement of group goals.

Helps in finding out efficient and economical work methods.
Helps to find out the economic lot size work required during processing.
Helps in schedule of work.
Tries to find out standard performances.
Maintains discipline though control over the employees.
Keeps co-ordination among the staff at various levels.
Proper distribution of work and machines among the workers to secure maximum output.
It improves efficiencies.
Suggest new ideas and improvements.
Helps in cost control, rating and budgetary control.
Makes arrangement for payment on scientific basis.
Takes care of trade, finance, insurance, store and banking policies.
Gives due importance to labor grievances and their psychology.
Helps in improving the competitive position of the organisation.

SCOPE OF IM
Engineering
Management

Improvement of
work condition

Internal

External

Vendor
Development,
Customer Need
Analysis, etc.

Lighting, Noise
andvibration,
fatigue, ventilations,
etc.

Improvement in
Managerial
Decisions

Improvement in
Workplace, method
and procedures

Improvement in
product and services

Organizational
problems:Leadership,
Motivation,
Automation, Org.
culture, etc.

Work study, system

analysis, layout
planning, planning,
directing, control,
scheduling, etc

TQM, Value engg.,

Business process reengg.,
Benchmarking..

ACTIVITIES OF I.M.

Manufacturing Engineering:i.

Equipment selection and specialization

ii.

Design of tools, jigs and fixtures.

Methods of Engineering:i.

Work Measurement

ii.

Determination of allowances

iii.

Computation of standard time

Production planning and control:i.

Material Management ( Raw material, semi-finished , finished and components)

ii.

Machines and manpower

iii.

Routing

iv.

Estimating

v.

Scheduling

vi.

Dispatching

vii.

Expediting

viii.

evaluation

Plant layout and material handing.

Organization management

Inspection and quality control

Wages and incentives

Budgetary control and cost control.

FUNCTIONS OF INDUSTRIAL
ENGINEERING.

Organization and management methods.

Plant location and plant layout

Materials handling methods.

Methods engineering.

Time study

Production, planning and control.

Statistical quality control

Cost control

Job evaluation

Wage incentives

Operation research.

DEFINITION

No single definition of productivity.

European Productivity Council

Another definition widely acceptable and commonly used

productivity as the ratio of output to input in a productive system.

As per definition productivity can be improved by either:-

is an attitude of mind. It is a
mentality of progress , of the constant improvement of that which
exist. It is the certainty of being able to do better today than
yesterday, and continuously. It is the constant adaptation of
economic and social life to changing conditions; it is the continual
effort to apply new techniques and methods. Its the faith in
human progress.

Producing more output with the same inputs, or

Using lesser inputs to produce same output.

Different views on productivity from different perspectives:

Economics:- effect of envt. and govt. regulation.

Industrial engg.:productivity.

Psychologist and management:- job design or other human relation

approach.

Stress on effects of methods and work flow on

Complexity to define productivity, as it encompasses inputs,

outputs ad the conversion process of techno-socialcommercial environment of production system.

Difficult to measure when end product is multiple commodities,

not homogeneous in nature and has a number of by-products.

Out is converted into standard hours i.e. time allowed for a product
delivered to stores by an individual worker or a group of workers.

Eg. Total time allowed to product 1 unit = 15 mins (.25 hrs.)

Units to be produced: 1000 units

Total time = .25 x 1000 = 250 hours.

Standard time is calculated with consideration to ideal situation with

respect to normal speed of a worker and his willingness to work.

Productivity = Labor utilisation X Labor efficiency

= Standard hours

X Available shift

hours
Available shift hrs.

Actual hours worked

= Standard hours/ Actual hours worked

In capitalist industry labor productivity has little

significance.

PRODUCTIVITY, EFFICIENCY
AND EFFECTIVENESS

Efficiency:- It is the ratio of actual output attained to the standard

expected output. Indicates how well the resources are utilised to
accomplish the targets or results.

Effectiveness:- Degree of accomplishing the objectives.

Productivity:- The combined result or effect of efficiency and

effectiveness.
Productivity Index:- Performance achieved
Input resources consumed
= Effectiveness/Effeciency

Efficiency, Effectiveness and productivity of a production

DIFFERENT APPROACHES

Partial Productivity:

Defined on the basis of class of the input being considered.

Eg. Increase in labor and its impact on the increased output is represented
by productivity.

Same for capital productivity, material productivity, etc.

Advantages:-

Good diagnostic measure to identify areas where improvements may be done.

Easy to calculate as independent of other inputs.

Easy to understand.

Easy pin-pointing the logic for improvement.

Easy to benchmark (compare) with other industries.

Data may be easily generate

Limitations:

Misleading if used out-of-context.

Doesnt contain overall effect of the system of performance.

Focused areas of improvement are difficult to identify.

It gives the myopic view of performance.

Misses holistic approach.

Productivity of Labor = Output

Number of workers or No. of man hours
Man Hrs = No. of workers employed x No. of hrs. worked.
Capital Productivity =

Output

Total Capital Employed

Productivity of Material =

Output

Material
Productivity of machine =

Output

Machine Hrs. worked

Productivity of Land =
Area of Land used.

Output

TOTAL FACTOR PRODUCTIVITY

Ratio of net input to the sum of labor and

capital inputs.
Net output
services
Labor + capital inputs

= Total output Intermediate goods or

Labor + capital Input

Advantages:

Relatively easy to compile data from company records

Preferred as easy to compare in cross-industry context.

Limitations:

Many important inputs like material , energy, etc., are

ignored.

Net-output does not reflect the efficiency of prod. System

in a proper way.

TOTAL PRODUCTIVITY

Its the ratio of total output to the sum of all input factors.

Advantages:-

Considers all the outputs and inputs factors.

More accurate representation of real economic performances.

Easy for top management to understand the company performance.

If used with the partial productivity, areas of improvement may be identified.

Easy for cost accountants to compare.

Easy to do sensitivity analysis.

Limitations:

Difficult to generate company wise and sector wise data.

Many indirect measures of input/output are ignored.

TPI = Total production of goods and services

Labor + Capital + Materials + Power

PRODUCTIVITY AND
PROFITABILITY

Basic Productivity Ratio:- Prod. = Output/Input.

Productivity may be measured in terms of physical units,

monetary units, depending upon the availability of data and
requirement of specific situations.

Increase in the productivity occurs when the ratio of output to

input rises from one period to the next.

Profitability = (Revenue Cost)/ Investment

Profitability can be increased by reducing costs and that would

also increase the productivity.

A decrease in the price of the product may lead to decrease

profitability even though productivity my be rising or vis--vis.

IMPORTANCE OF
PRODUCTIVITY

Increase in
Productivit
y

Reduction
in Cost

Increase in
Profits

Competitiv
e
advantage

Better
Quality of
life

FACTORS AFFECTING
PRODUCTIVITY

Categories of factors

Internal factors:Technological factor:-

a)

Size and capacity of plant

Product design and standardisation

Timely supply of material and fuel

Rationalisation and automation measures

Repairs and maintenance

Production planning and control

Plant layout and location

Material handling system

Inspection and quality control

Machinery and equipment used

Research and development

Inventory control.

Internal Factors or
controllable
External Factors or
uncontrollable

b). Human Factors:

Existence of adequate skilled personnel in the org. for increasing the productivity.

Two forces which affect the productivity of human labor are:-

i.

Ability to work

ii.

Willingness to work.

c). Financial Factors:.

Adequate amount of capital required for running the org.

d). Material and Energy:.

Efforts to reduce consumption of energy and materials.

Factors to be considered:-

i.

Selection of quality material

ii.

Control of wastage

iii.

Effective stock control

iv.

Development of sources of supply

v.

Optimum energy utilization and energy savings.

External Factors:

Natural factors ( physical, geographical and climatic conditions)

Sociological Factors ( social customs, traditions and social institutions)

Government policy (industrial policies, licensing policies, taxation policy, etc.

Managerial Talent ( Professional managers)

FACTORS FOR INCREASING

INDUSTRIAL PRODUCTIVITY
. Improved raw materials
. Better technology
. Scientific selection and training of workers
. Work study
. Research and development
. Good working conditions
. Provision for incentives
. Harmonious relationship
. Quality and cost consciousness
. Workers participation in management
. Quality Circles

(small group of workers which regularly meets to discuss

problems, investigate causes, recommend solutions and authorised to take
corrective actions)

PRODUCTION
SYSTEMS
Process by which goods and services are created.

Other words, conversion of raw materials into

semi-finished ad finished products with the help of
certain production process.

Aim of any prod. system is produce economically

the goods and services required by the customers.

Essential to plan, organize, direct and control.

All these activities together known as production

management.

Performed by the production manager.

PRODUCTION MANAGEMENT

Concept of Production:

Traditionally used with the reference to manufacturing

activity resulting in output of goods.

Scope have been widened as its also include the

production of services, as banking, insurance, teaching,
defense , etc.

Production function of acquiring inputs ( materials,

capital, manpower, etc.) and transforming them into
goods and services desired by customers.

Output it measured in terms of predetermined standards of

quantity, quality and time schedules and provides feedback
to input and transformation subsytems for corrective actions.

Inputs: humans,
financial , physical,
technological.

Transformat
-ion process

Input-output model

Control

Outputs:
goods and
services

Production Management:

As per Elwood S. Buffa, Prod. Mgmt. deals with decision

making related to production process, so that
resulting goods and services is produced according to
the specifications, in the amounts and by schedule
demanded and at minimum cost.

In simple words, prod. Mgmt. deals with the managerial

functions related to the design of the production system
and operation and control of the production system i.e.
production planning and control.

FUNCTION AND SCOPE OF

PRODUCTION MANAGEMENT
Design of product
Design of production system
Production planning and control
Selection of location
Layout of plant
Selection of plant and equipment
Research and development

TYPES OF PRODUCTION
SYSTEM

Prod. system a framework within which conversion

of input into output occurs.

Types of production system:A. Production or continuous manufacturing.

a) Line production or synthetical industries.
b) Flow production or analytical industries

B. Job production
C. Intermittent production

CONTINUOUS PRODUCTION

Where facilities are standardised as to routines and

flow since inputs are standardised.

Involves continuous production of goods in anticipation

of customer demand rather then in response to
customer demand.

Eg. Petroleum, chemical, cement, steel and sugar

industries.

Classified: (i) Flow or analytical industries (ii) Line or

synthetical industries.

Flow or analytical industries:

Breaks up the material into several parts along with the

processor production.

Arrangement is not flexible.

Eg. Oil refinery.

Mass Production or synthetical industries:

Involves mixing upto two or more materials to manufacture a product.

Identical particles are produced in vary large quantities.

Eg. Electrical appliances.

Continuous manufacturing process lends to standardization of

prod. techniques and to mechanization, in order to keep labor
cost comparatively lower.

Main characteristics :

Flow of material is continuous with little or no queuing at any stage of

processing.

Machines and plant layout ( Special purpose machines and plant and
assembly stages are laid out on the basis of product layout).

Material handling comparatively less, firstly materials move through short

distance between stages and secondly material handling is mechanised by
conveyors and transfer machines.

Relatively low skilled labor is necessary.

Manufacturing cycle time is very short.

Supervision is relatively easier as only few instructions are required.

Interruptions due to breakdowns and absenteeism seriously affect prod.

JOB ORDER PRODUCTION

Manufacture of products to
requirements of special orders.

meet

specific

customer

Quantity is usually small.

Mainly concerned with special projects, models, proto-types,

special machinery or equipments to perform specialised and
specific tasks, components or sub-assemblies to provide
replacement or repairs.

3 types of on the basis of regularity of production:i.

A small number of pieces produced only once.

ii.

A small number of pieces produced intermittently when the need arises.

iii.

A small number of pieces produced periodically at a known intervals of

time.

Planning become complex as one order all together different

from the other.

Skilled labor is required to handle variety of jobs.

Eg. Brick
making.

making,

shoe

industry,

customized

machine

Output is mainly governed by the plant capacity and

immediate increase in plant capacity is impractical.

Scheduling is dependent on the assessment of production

times.

Main Characteristics:

Small production runs, single or product designed and manufacture

strictly to customer specifications.

Flow of materials and components between different stages, highly

discontinuous due to imbalanced operation.

Relatively longer manufacturing cycle time as relatively long delays

occur due to lack of materials, imbalanced work flow, design changes ,
etc.

Machines are arranged according to process layout as it differ from

product to product.

Highly skilled and versatile workers are necessary.

Highly competent general engineers used for close supervision.

Unit cost of production is high as cannot take advantage of large scale

buying and automation.

BATCH PRODUCTION

Manufacture of number of similar articles, either to meet a

specific order or to satisfy continuous demand.

When the production of particular batch is completed, plant

and equipment can be used for the production of similar or
other products.

3 types under batch production:-

i.

A batch produced only once.

ii.

A batch produced repeatedly at irregular intervals when the need arises.

iii.

A batch produced periodically at known intervals to satisfy continuous

demand.

2 principle problems:.

Size of the batch ( number of components to be produced per lot)

Scheduling of production.

Solution depends on whether the production is governed by

the external orders or whether the plant is producing for
internal consumption.

Characteristics:

Characterised by short production run and frequent changes in

set ups.

It needs high investment.

Planning, routing and scheduling changes with fresh batch of

orders.

Skilled labor capable of handling variety of jobs is required.

Supervisors need considerable knowledge of specific process.

Plant and equipment are procured and arranged to obtain

flexibility.

Material handling is less as compared to job order production.

Disruptions due to machine breakdown, absenteeism do not

seriously affect production as another machinery can be used,
another operator from another machine can be shifted.

Eg. Electronic goods, medicines, eatable products, etc.

CHARACTERISTICS OF PRODUCTION
Characteristics
SYSTEMS
Job order
type Batch
Continuous
Production

production

Examples

Prototype
models,
machine tools, spcl.
Projects, large turbo
generators,
ship
building
material,
etc.

Shoe-making, cloth
manufacturing,
casting
process,
chemical plants, etc.

Automobile industry,
electrical
appliances,
household
appliances,
sugar
mills, toy manf. Co.,
glass manf., etc.

End Product
quality and
product design

Non-standard. Very
small. The product
design changes from
one order to another

Standard
(similar)
wide
range
of
products
are
manufactured
in
small quantities of
lots. The product
design changes from
lot
according
to
product
specifications

Standard (identical).
Few
standards
products
are
manufactured
in
large quantities. The
product design is to
be done only once.

Equipment Used

General Purpose

General Purpose

Special purpose

Type of plant
layout

Process
(functional)

Process layout
combination

Skill of Worker

Highly
skilled
to
handle special jobs

Plant

or

Skilled since there is

frequent changes in
product
design
machine set up for
each lot

Product layout
Semi-skilled
or
unskilled.
Since
manufacturing
activities
become
routine function

Characteristics

Job order type

Batch production

Continuous
production

Supervising
difficulties

Much

Less

Quite less

Material handling
equipment

Mobile

Less
mobile,
conveyors can also be
used

Built in type wide

scope for mechanised
material
handling
systems

In Process
inventories

High

Relatively low

Low, since production

is continuous

Unit Cost of item

High

Less

Quite less

Prior Planning

Complex

Easy

Very easy

Control

Complex

Easy

Very easy

Balance of load

Easier and flexible

Relatively difficult

Very difficult coz of

perfect balancing of
prod. Line

Job instructions

Complex and in details

as the job changes
every time

Few job instructions

when the prod. of
another lot begins.

Only at the out set of

new
job.
Once
instructions
given
becomes routine

Investment in
machine and
equipment

Few
machines
are
required as arranged
in
process
layout.
Investment
in
machine is less

Investment
in
machines
comparatively more

High investment in
machine since there
may be duplication of
machine
for
each
production line

ORGANIZATIONAL
OWNERSHIP

Firm an ownership organization which combines

factors of production in a plant for the purpose of
producing goods or services and selling them at
profit.

Selection of type of ownership:

Size and nature of business to be started

Technical difficulties.

Market competition and scope of the articles in the market.

Capital required

Limitations and restrictions put forth by the Govt. in

connection with grant of loans , foreign exchange and other
such things.

TYPES OF
OWNERSHIP
Co-operative
sector
enterprise

Private
Enterprise

Individual
ownership

Partnership

Joint Stock
companies

Public sector
Enterprise

Producer coop. society

Govt. Deptt.

Private Ltd.
co.

Consumer
co-op.

Govt. co.

Public Ltd.
co.

Housing coop society

Statutory
corp.

Credit co-op
society

Statutory
Board.

INDIVIDUAL OWNERSHIP

Also known as single proprietorship or one man business

Simplest and oldest form.

Individual entrepreneur supplies the entire capital.

Organises and manages and take entire risk.

Have the entire authority and responsibility for decision making, policy
making and working.

Profits and losses are of his own.

Can be started by anyone having initiative, tact, selling aptitude and

little capital.

Legal Liability:- covers all his possessions and creditor can collect his
personal property.

Applications:

For small scale business requiring small capital which can be spared by one
man. Eg. Agriculture, cottage industries, retail trade, etc.

Where the risk cover is not to heavy.

Where management by one person is possible.

Where local market is available.

Advantages:

Simple and easy

Least legal formalities

Quick decisions and prompt actions

Quality production

Better labor relationship

Personal attention to customers

Small capital

Maintenance of secrecy

Incentive

Flexibility.

Disadvantages:

Limited capital

Unlimited liability

Personal limitations

Small income

Cannot compete with a big business

Short life ( if a owner dies business may collapse

Division of labor is not possible (one man show)

No economies of large scale.

PARTNERSHIP ORGANIZATION

At one stage of development it becomes impossible for one man to

control the business and to contribute the necessary capital.

Enters into a partnership with other person who can provide the
assistance as well as capital for business.

Partnership may be formed to start a new business altogether.

Formed usually to combine capital, labor and varied skills.

Partnership is owned by 2 or more people (upto 20).

Shares powers, responsibilities and profits according to agreement.

As per Indian Partnership Act, 1932 The relation between two or

more persons who have agreed to share profit of a business, carried on
by all or any of them acting for all.

Formation:

Formed either verbally or written agreement (preferred).

Written agreement is known as Partnership Deed.

Contains terms and conditions relating to partnership and regulations governing internal
management.

Lay down rights and duties of partners.

Have to be duly stamped and sealed and registered in Court of Law.

Enjoys legal status and serve as legal evidence.

Contains of Deed:

Name of the firm

Nature of business

Date of starting of business

Duration of partnership

Rate of interest in the capital invested.

Money contributed by each partner.

Allotment of managerial functions among partners.

Share profit and loss and proportion.

Salary if any allowed to managing partners.

Basis of inclusion of new partners.

Amount which can be withdrawn by each partner.

Aim of partnership and manner of dissolution.

Provision of arbitration for settling the disputs.

Statement to be prepared by partners containing:

Name of the firm.

Place of business principal place and branches if any.

Name and addresses of all partners

Date of joining the firm in case of every partner.

Duration if any.

TYPES OF PARTNERS
General Partner

Limited partner
Active or
Managing Partner
Sleeping and
silent partner
Nominal Partner
Minor Partner

Participate in the working

Jointly responsible for liab., obligations and
defects.
Liability and debts limited to the extent of
capital.
Not entitled to interfere in the administation
Take active
of business
profit.

part
and

in the formation and management

may also get salary in addition of

Dont take active part in business.

Contribute capital and get the part of profit.
Lend their reputed name
reputation
Dont invest money nor
management.

for
take

the

companys

part

Below 18 yrs of age.

Allowed with the consent of other partners.
Liability limited to their investment.

in

the

Advantages:

Easy formation

More capital

Diverse talent

Less possibility of error of judgement

Prompt decisions

Large economies

Personal factor ( personal relationship with employees and the customers)

Division of labor

Simple dissolution

Cautious and sound approach.

Disadvantages:

Unlimited liability

Short life ( death or retirement of any partner, it can come to an end)

Insufficient capital

Disagreement

Less secrecy

Non-transfer of partnership

No direct relation between efforts and rewards

Lack of public confidence.

Parameter

Individual ownership

Partnership

Membership

Individual owner

Minimum 2 and max. 50

Formation

No agreement is required

Through Partnership Deed

Capital

Limited capital

Comparatively larger capital

Registration

Not required

Necessary
under
Partnership Act, 1932

Risk/Profit

Individual owner bear entire risk Risk spread among partners

and enjoy entire profit
and profit is shared as per
agreement

Management

Individual
business

Secrecy

Individual
owner
can
maintain the secrets

Soundness of
Decisions

Individual not be expert in all Problem examined from more

aspects of business
than one view point hence
decisions are more sound

Suitability

For small scale business

Small as well as medium scale

business

Division of
labor

Not possible

Partners may divide the work

among themselves.

manages

the

entire Shared by the partners

easily Can be leaked if partner leaves
the business.

JOINT-STOCK
COMPANY
Formed and registered
under Indian Companies Act,
1956.

Capital is contributed by a large number of persons,

in the form of shares of different values.

The
purchaser
shareholders.

Managing body i.e. Board of Directors, elected by

shareholders.

Definition of company an artificial person having

an independent legal entity and a perpetual
succession with distinctive name and a common seal
having a common capital divided into shares of fixed
value which are transferable and carry limited
liability.

of

shares

are

known

as

CHARACTERISTICS

Created by registering or incorporating an association of persons

under the Company Act.

Has a separate legal entity distinct of its members.

Artificial person

Perpetual life and a very stable existence.

Have a common seal.

Separation of ownership from management.

Limited liability of shareholders.

Lower tax liability.

Easy transferability of shares

Wide distribution of risk of loss.

Large membership

Statutory regulations provided under Indian Companys Act,

1932.

Definition of Joint-stock company legal business owned by the

shareholders having limited liability and managed by an elected
Board of directors.

Formation:-

Promoter prepares a scheme of business.

Secure the cooperation of 6 more persons ( min. 7 to form a co.).

Promoters prepares the following documents:

Memorandum of association

Articles of association

List of persons who have consented to be the Directors of the company along with the consent in
writing of such persons.

Declaration by an advocate confirming all the requirement of Act fulfilled.

Name and addresses of promoters.

Memorandum of Association contains:

Name of the company

Its name and objectives

Location of head office.

Amount of share capital

Kind and value of each share.

Declaration of limited liability.

Sales deptt.
Auditor
Shareholde
rs

Board of
Directors

Executive
committee

General
Manager

Purchase
deptt.
Accounting
Deptt.

Bankers
Production
Deptt.

Organization structure of Joint-Stock company.

TYPES OF JOINT STOCK

COMPANIES

2 types of joint stock companies:

Private limited company

Public limited company

Private Limited Company:

Capital collected from the private partners, some may be active while others
being sleeping.

Restricts the right to transfer shares and avoid public to take up shares

Number of member between 2 to 50, excluding employee and ex-employee

shareholders.

Need not to file documents like consent of directors, list of directors, etc. with the
Registrar of Joint Stock Companies.

Need not obtain certificate of commencement of business from the Registrar.

Need not to circulate, the balance sheet, P/L account, etc. among its members,
but need to hold its annual general meeting.

Must get its account audited.

Have to send a certificate along with the annual return to the Registrar stating
does not have shareholders more than 50 excluding employee and ex-employee
shareholders.

Public Limited Company:

Capital is collected from the company by the issue of shares.

Number of shareholders should not be less than 7, no limit for the

maximum number of shareholders.

Have to file the documents like consent of Directors, list of directors,

directors contract, etc., along with memorandum of association and articles
of association.

Have to issue prospectus to the public.

Have to allot shares within 180 days from the date of prospectus.

Can start business only after getting the certificate of commence

business.

Has to hold statutory meeting and to issue a statutory report to all

members and also to Registrar of companies.

Easy transferability of shares.

Directors are subject to rotation

Have to get the account audited every year by registered auditor.

Send financial statement to all its members and to the registrar.

Had to hold general meeting every year.

Managing agents gets a fixed percentage of net profit every year.

Advantages:

Large capital

Limited liability of members

Transferability of shares.

Perpetual succession.

Specialist services

Risk is shared.

Have stability, efficiency and flexibility of management.

Disadvantages:

Too much legal formalities.

Managed by big shareholders.

Managed by the high paid official and objectives might contradict that with
of owners.

Commitment of frauds are possible.

BODs can use their position for personal profits ( sell or purchase of shares)

Difficult to maintain secrecy.

Team spirit lacks.

Lack of accountability due to divided responsibility.

S.No
.

Particulars

Pvt. Ltd.

Public Ltd.

1.

Membership

Confined to the close friends and

relatives, they contribute for
capital and public can not be
invited.

Its open to the General public and

any person can contribute and
become shareholders.

2.

Limits to
membership

Min. 2 and max. 50

Min. 7 and no max. limit.

3.

Election of
directors

No need of holding statutory

meeting to elect directors

Statutory meeting has to be held

and the shareholders elect the
directors.

4.

Resale of shares

Cannot be resold or transferred

without the consent of the co.

Shares can be easily resold and

transfer without the co. consent.

5.

Audit of
Accounts

No legal provision of the audit of

co.s account.

Accts. have to be audited and

circulated among the members.

6.

Min. capital

Can be started with any amount

without any legal binding

Min. lay down capital is legally

required before starting of a
business.

7.

Name

Has to use words Pvt. Ltd. at

the end of its name

Has to use only the word Ltd. at

the end of its name.

8.

No. of Directors

Min. 2

Min.3

9.

Legal Control

Less legal controls

Regulations are more strict

Remuneration of
Directors

Less restrictions for Directors

remuneration

Remuneration of directors is
restricted to 11% of net profit.

10.

COOPERATIVE
ORGANIZATIONS ( SOCIETIES)

Due to the hardships suffered by exploited class

compelled it to unite for their economic uplift through
self and mutual help.

Lead to the evolution of cooperative movement.

Industrial coop. and consumer coop. were developed in

Germany.

Definition of Coop. Organization:

it is a form of org., wherein persons, irrespective of caste, creed ad

religion voluntarily associate together as human beings, on the
basis of equality for the fulfillment of their common economic
interest.

As per ILO, A coop. org. is an association of persons, usually of

limited means, who have voluntarily joined together to achieve a
common economic even through the formation of a democratically
controlled organization, making equitable contributions to the
capital required and accepting a fair share of risks and benefits of
the undertakings.

FEATURES

Voluntary organizations

Open memberships

Economic and democratic management

Profit is not important

Spirit of cooperation

Unity

Common interest

Cooperative status

AIM AND OBJECTIVES OF

INDUSTRIAL COOPERATIVES
@

To purchase and supply

equipment to members.

raw

materials,

tools

and

To secure contracts and execute them with the help of

members.

To market the finished goods of members.

To purchase machinery for giving on hire to members.

To borrow funds from members and non-members.

To grant loans and advances to members on the security

of raw-materials and finished goods belonging to them.

To undertake all such activities as are conducive or

incidental to the accomplishment of aforesaid objectives.

To safeguard the interest of poorer sections of community.

FORMATION

Application to be submitted to the Registrar of

Cooperative societies.

Application provide all essential information like

name and address of the society, its aims and
objectives, particulars of share capital , etc.

Application
members.

Should be accompany duplicate copies of Bylaws

i.e. rules and regulation governing internal
organization and management of the society.

Registrar after scrutiny of documents will issue a

certificate of registration and the society will be
formed.

should

be

signed

by

atleast

10

Producerss Cooperative
society

Consumers Cooperative
Society

TYPES OF
COOP.
SOCITIES
Housing Cooperative
Society

Credit Cooperative
Society.