Unit III: Organisation of Business

Ownership forms- proprietary and corporate;

Unorganized (informal enterprises) versus organized (registered/incorporated

enterprises);

Business families and family business, multinational businesses;

Domains/functions of business- an overview-reinforcing career options- of

production & operations, marketing, accounting, finance and HR.
 BUSINESS OWNERSHIP
Business is also classified according to ownership, and deciding the type
of ownership is one of the most important business decisions. The
ownership decisions have long lasting decisions on the future of the
business so it is important that this decision is to be taken after
consulting with a lawyer or chartered accountant.

Factors like nature of the business, vision, the mission of the business,
levels of the business, nature of operations, geographic and political
factors etc. have to be taken into consideration before proceeding with
ownership decisions of the business from different types of Business
Ownerships.
 Following are a few types of Business Ownerships
Sole Proprietorship
A sole proprietorship (also known as individual entrepreneurship, sole trader, or
simply proprietorship) is a type of an unincorporated entity that is owned by one
individual only. It is the simplest legal form of a business entity.
Note that, unlike the partnerships or corporations, a sole proprietorship does not create
a separate legal entity from the owner. In other words, the identity of the owner or the
sole proprietor coincides with the business entity. Because of this fact, the owner of
the entity is fully liable for any and all the liabilities incurred by the business.

The simplicity of a sole proprietorship makes this form of business structure

extremely popular among small businesses, freelancers, and other self-employed
individuals. What begins as a sole proprietorship may be transformed into another,
more complex business structure, such as a company, if the business grows
substantially and begins hiring a sizeable number of employees.
Advantages of a Sole Proprietorship
Despite its simplicity, a sole proprietorship offers several advantages, including
the following:
1. Easy and inexpensive process
The establishment of a sole proprietorship is generally an easy and inexpensive
process. Certainly, the process varies depending on the country, state, or province of
residence. However, in all cases, the process requires minimum or no fees, as well
as very little paperwork.

2. Few government regulations

Sole proprietorships adhere to a few regulatory requirements. Unlike corporations,
the entities do not need to spend time and resources on various government
requirements such as financial information reporting to the general public.

3. Tax advantages
Unlike the shareholders of corporations, the owner of a sole proprietorship is taxed
only once. The sole proprietor pays only the personal income tax on the profits
earned by the entity. The entity itself does not have to pay income tax.
Disadvantages
Potential disadvantages include the following:
1. Unlimited liability of the owner
Since a sole proprietorship does not create a separate legal entity, the business
owner faces unlimited personal liability for all debts incurred by the entity. In other
words, if a business cannot meet its financial obligations, creditors can seek
repayment from the entity’s owner, who must use his or her personal assets to
repay outstanding debts or other financial obligations.

2. Limitations on capital raising

Unlike partnerships and corporations, sole proprietorships generally enjoy fewer
options to raise capital. For example, the owner cannot sell an equity stake to
obtain new funds. In addition, the ability to obtain loans depends on the owner’s
personal credit history.
 One Person Company
One Person Company (OPC) is a company incorporated by a single person.
Before the enforcement of the Companies Act, 2013, a single person could not
establish a company. If an individual wanted to establish his business, he/she
could opt only for a sole proprietorship as there had to be a minimum of two
directors and two members to establish a company.

As per Section 2(62) of the Company’s Act 2013, a company can be formed with
just 1 Director and 1 member. It is a form of a company where the compliance
requirements are lesser than that of a private company.

The Companies Act, 2013 provides that an individual can form a company with
one single member and one director. The director and member can be the same
person. Thus, one person company means one individual who may be a resident
or NRI can incorporate his/her business that has the features of a company and
the benefits of a sole proprietorship.
Advantages Of OPC
Legal status
The OPC receives a separate legal entity status from the member. The separate legal
entity of the OPC gives protection to the single individual who has incorporated it.
The liability of the member is limited to his/her shares, and he/she is not personally
liable for the loss of the company. Thus, the creditors can sue the OPC and not the
member or director.

Easy to obtain funds

Since OPC is a private company, it is easy to go for fundraising through venture
capitals, angel investors, incubators etc. The Banks and the Financial Institutions
prefer to grant loans to a company rather than a proprietorship firm. Thus, it
becomes easy to obtain funds.

Less compliances
The Companies Act, 2013 provides certain exemptions to the OPC with relation to
compliances. The OPC need not prepare the cash flow statement. The company
secretary need not sign the books of accounts and annual returns and be signed only
by the director.
Easy incorporation
It is easy to incorporate OPC as only one member and one nominee is required for
its incorporation. The member can be the director also. The minimum authorised
capital for incorporating OPC is Rs.1 lakh. Thus, it is easy to incorporate as
compared to the other forms of company.

Easy to manage
Since a single person can establish and run the OPC, it becomes easy to manage its
affairs. It is easy to make decisions, and the decision-making process is quick. The
ordinary and special resolutions can be passed by the member easily by entering
them into the minute book and signed by the sole member. Thus, running and
managing the company is easy as there won’t be any conflict or delay within the
company.

Perpetual succession
The OPC has the feature of perpetual succession even when there is only one
member. While incorporating the OPC, the single-member needs to appoint a
nominee. Upon the member’s death, the nominee will run the company in the
member’s place.
Disadvantages Of OPC
Suitable for only small business
OPC is suitable for small business structure. The maximum number of members the
OPC can have is one at all times. More members or shareholders cannot be added to
OPC to raise further capital. Thus, with the expansion and growth of the business, more
members cannot be added.

Restriction of business activities

The OPC cannot carry out Non-Banking Financial Investment activities, including the
investments in securities of anybody corporates. It cannot be converted to a company
with charitable objects mentioned under Section 8 of the Companies Act, 2013.

Ownership and management

Since the sole member can also be the director of the company, there will not be a clear
distinction between ownership and management. The sole member can take and approve
all decisions. The line between ownership and control is blurred, which might result in
unethical business practices.
 Joint Hindu Family Business
Joint Hindu Family (HUF) is a form of business organization wherein
the members of a family can only own and manage the business.
It is governed by Hindu Law. Karta of the HUF is the Head of the
family who is authorized to do business on behalf of the HUF.
A HUF is also allowed to purchase assets in its name. A separate
Permanent Account Number (PAN) is allotted to the them.
HUF has unlimited business liability and like a proprietorship concern,
it is also not required to register itself.
The merits of the joint Hindu family business are as follows:
Effective Control
The Karta has full control over the business activities and takes a decision
quickly.
No one can interfere in the decision of Karta as every member is bound to
accept his decision.
Hence, it avoids clashes among the members and results in very speedy
decision making.
Continued Business Existence
After the death of Karta, the next eldest member takes up his position. So, it
does not affect the activities of the business.
Hence, all the business activities are done smoothly, continuously without any
threat.
Limited Liability of Members
As all the liability of the members is restricted to the extent of their share in
the business.
But the Karta has unlimited liability due to his complete hold on the business.
Hence, in case of dissolution of the business, Karta’s personal assets and his
share will be liable.

Expanded Loyalty and Cooperation

All the business operations are carried on by the members of a family jointly.
So, this increases loyalty and cooperation with each other without any
hindrance.
Therefore, all the targets of the business can be achieved by the cooperation
among the members and the Karta.
Below-mentioned are the few demerits of a joint Hindu family business:

Limited Resources
All the members of Joint Hindu Family Business totally depend upon the
ancestral property due to their limited liability.
Many commercial banks resist extending the credit limit due to the weak
financial position of the business.
Hence, this will result in limited expansion and growth of the business.

Unlimited Liability of Karta

All the important decision regarding management of various business activities
are taken by Karta.
But there is a disadvantage with the Karta that he has unlimited liability.
Hence, all the business debts are paid by using the personal assets of the Karta.
Dominance of Karta
The Karta takes all the decisions individually and manages the business
He also involves other members in decision making.
But Karta is not bound to accept the decisions of the members which may create
conflicts between the Karta and the other members.
Hence, due to clashes in decision making, lack of cooperation between Karta and other
members occurs.

Limited Managerial Skills

Sometimes the members suffer due to unfair decisions taken by the Karta in respect of
business operations.
Unfair decisions are taken due to the lack of managerial skills.
So, the Karta cannot be knowledgeable or proficient in all managerial functions.
Nowadays, the joint Hindu family business is declining due to the decreasing number
of joint Hindu families in the nation.
 Partnership Firm
A Partnership is one of the most important forms of a business
organization. A partnership firm is where two or more persons come
together to form a business and divide the profits in an agreed ratio. The
partnership business includes any kind of trade, occupation and
profession. A partnership firm is easy to form with fewer compliances as
compared to companies.

The Indian Partnership Act, 1932 governs and regulates partnership

firms in India. The persons who come together to form the partnership
firm are knowns as partners. The partnership firm is constituted under a
contract between the partners. The contract between the partners is
known as a partnership deed which regulates the relationship among the
partners and also between the partners and the partnership firm.
Advantages of Partnership Firm
Easy to Incorporate
The incorporation of a partnership firm is easy as compared to the other forms
of business organisations. The partnership firm can be incorporated by
drafting the partnership deed and entering into the partnership agreement.
Apart from the partnership deed, no other documents are required. It need not
even be registered with the Registrar of Firms. A partnership firm can be
incorporated and registered at a later date as registration is voluntary and not
mandatory.

Less Compliances
The partnership firm has to adhere to very few compliances as compared to a
company or LLP. The partners do not need a Digital Signature Certificate
(DSC), Director Identification Number (DIN), which is required for the
company directors or designated partners of an LLP. The partners can
introduce any changes in the business easily. They do have legal restrictions
on their activities. It is cost-effective, and the registration process is cheaper
compared to a company or LLP. The dissolution of the partnership firm is
easy and does not involve many legal formalities.
Quick Decision
The decision-making process in a partnership firm is quick as there is no
difference between ownership and management. All the decisions are taken
by the partners together, and they can be implemented immediately. The
partners have wide powers and activities which they can perform on behalf of
the firm. They can even undertake certain transactions on behalf of the
partnership firm without the consent of other partners.

Sharing of Profits and Losses

The partners share the profits and losses of the firm equally. They even have
the liberty of deciding the profit and loss ratio in the partnership firm. Since
the firm’s profits and turnover are dependent on their work, they have a sense
of ownership and accountability. Any loss of the firm will be borne by them
equally or according to the partnership deed ratio, thus reducing the burden of
loss on one person or partner. They are liable jointly and severally for the
activities of the firm.
 Limited Liability Partnership
Limited Liability Partnership (LLP) has become a preferred form of organization
among entrepreneurs as it incorporates the benefits of both partnership firm and
company into a single form of organisation.

The concept of the Limited Liability Partnership (LLP) was introduced in India
in 2008. An LLP has the characteristics of both the partnership firm and
company. The Limited liability Partnership Act, 2008 regulates the LLP in India.
Minimum two partners are required to incorporate an LLP. However, there is no
upper limit on the maximum number of partners of an LLP.

Among the partners, there should be a minimum of two designated partners who
shall be individuals, and at least one of them should be resident in India. The
rights and duties of designated partners are governed by the LLP agreement.
They are directly responsible for the compliance of all the provisions of the LLP
Act, 2008 and provisions specified in the LLP agreement.
Features of LLP
• It has a separate legal entity just like companies.
• The liability of each partner is limited to the contribution made by the partner.
• The cost of forming an LLP is low.
• Less compliance and regulations.
• No requirement of minimum capital contribution.

The minimum number of partners to incorporate an LLP is 2. There is no upper

limit on the maximum number of partners of LLP. Among the partners, there should
be a minimum of two designated partners who shall be individuals, and at least one
of them should be resident in India.
The rights and duties of designated partners are governed by the LLP agreement.
They are directly responsible for the compliance of all the provisions of the LLP Act
2008 and provisions specified in the LLP agreement.
If you want to start your business with a Limited Liability Partnership, then you
must get it registered under the Limited liability Partnership Act, 2008.
Advantages Of LLP
Separate legal entity
An LLP has a separate legal entity, just like companies. The LLP is distinct
from its partners. An LLP can sue and be sued in its own name. The contracts
are signed in the name of the LLP, which helps to gain the trust of various
stakeholders and gives the customers and suppliers a sense of confidence in
the business.

Limited liability of the partners

The partners of the LLP have limited liability. The liability of the partners is
limited to the contributions made by them. This means that they are liable to
pay only the amount of contributions made by them and are not personally
liable for any loss in the business. If an LLP becomes insolvent at the time of
winding up, only the LLP assets are liable for clearing its debts. The partners
have no personal liabilities, and thus they are free to operate as credible
businessmen.
Low cost and less compliance
The cost of forming an LLP is low compared to the cost of
incorporating a public or private limited company. The compliances to
be followed by the LLP is also low. The LLP needs to file only two
statements annually, i.e. Annual Return and a Statement of Accounts and
Solvency.

No requirement of minimum capital contribution

The LLP can be formed without any minimum capital. There is no
requirement of having a minimum paid-up capital before going for
incorporation. It can be formed with any amount of capital contributed
by the partners.
Disadvantages Of LLP
Penalty on non-compliance
The compliance that is to be followed by LLP is minimal. But, if these compliances are not
completed on time, then the LLP will have to pay a heavy penalty. Even if the LLP does
not have any activity in the year, it is required to file returns with the Ministry of Corporate
Affairs (MCA) annually. If it fails to file the returns, then a heavy penalty will be imposed
on the LLP.
Winding up and dissolution of LLP
A minimum of two partners is required to form an LLP. If the minimum number of
partners is below two for six months, then the LLP will be dissolved. It may be dissolved if
the LLP is unable to pay its debts.
Difficulty to raise capital
The LLP does not have the concept of equity or shareholders like a company. Angel
investors and venture capitalists cannot invest in the LLP as shareholders. This is because
the shareholders must be partners in the LLP and have to take up all the responsibilities of
a partner. Thus, angel investors and venture capitalists prefer to invest in a company rather
than an LLP making it difficult for the LLPs to raise capital.
 JOINT STOCK COMPANY
A joint-stock company is a business that is owned by its investors. The
shareholders buy and sell shares and own a portion of the company. The
percentage of ownership is based on the number of shares that each
individual owns. Shareholders can buy and sell shares and transfer
shares between one another, without putting the continued existence of
the company in jeopardy.
Advantages of a Joint Stock Company
One of the biggest drawing factors of a joint stock company is the limited
liability of its members. their liability is only limited up to the unpaid amount
on their shares. Since their personal wealth is safe, they are encouraged to
invest in joint stock companies
The shares of a company are transferable. Also, in the case of a listed public
company they can also be sold in the market and be converted to cash. This
ease of ownership is an added benefit.
Perpetual succession is another advantage of a joint stock company. The
death/retirement/insanity/etc does affect the life of a company. The only
liquidation under the Companies Act will shut down a company.
A company hires a board of directors to run all the activities. Very proficient,
talented people are elected to the board and this results in effective and
efficient management. Also, a company usually has large resources and this
allows them to hire the best talent and professionals.
Disadvantages of a Joint Stock Company
One disadvantage of a joint stock company is the complex and lengthy
procedure for its formation. This can take up to several weeks and is a costly
affair as well.
According to the Companies Act, 2013 all public companies have to provide
their financial records and other related documents to the registrar. These
documents are then public documents, which any member of the public can
access. This leads to a complete lack of secrecy for the company.
And even during its day to day functioning a company has to follow a
numerous number of laws, regulations, notifications, etc. It not only takes up
time but also reduces the freedom of a company
A company has many stakeholders like the shareholders, the promoters, the
board of directors, the employees. the debenture holders etc. All these
stakeholders look out for their benefit and it often leads to a conflict of interest.
 Private Company
A private company is owned by either a small number of shareholders,
company members, or a non-governmental organization, and it does not
offer its stocks for sale to the general public. Instead, its stock is offered,
owned, or exchanged privately among a small number of shareholders –
or even held by a single individual. Private companies are also referred
to as privately-held companies, limited companies, limited liability
companies, or private corporations, depending on the country they’re
incorporated and how they are structured
Merits of Private company
No Minimum Capital
No minimum capital is required to form a Private Limited Company. A Private Limited Company can be
registered with a mere sum of Rs. 10,000 as total Authorized Share capital.

Separate Legal Entity

A Private Limited Company is a separate legal identity in the court of the law, meaning assets and liabilities
of the business are not the same as the assets and liabilities of the Directors. Both are counted as different. A
Private Limited Company separates Management and Ownership and thus, managers are responsible for the
company’s success and are also answerable for the company’s loss.

Limited Liability
If the company undergoes financial distress because of whatsoever reasons, the personal assets of members
will not be used to pay the debts of the Company as the liability of the person is limited.
For e.g. If a Private Limited Company takes any loan and is unable to pay it off, the members are responsible
to pay only that much how much they own towards their own shareholding i.e. the unpaid share value. This
means, if you have no balance payable towards the number of shares you hold, you are not payable towards
any debt payable by the company even if the debt/credit amount remains unpaid.
Fund Raising
A Private Limited Company in India is the only form of business except for
Public Limited Companies that can raise funds from Venture Capitalists or
Angel investors.
Free & Easy transfer of shares
Shares of a company limited by shares are transferable by a shareholder to any
other person. The transfer is easy as compared to the transfer of an interest in a
business run as a proprietary concern or a partnership. Filing and signing a
share transfer form and handing over the buyer of the shares along with a share
certificate can easily transfer shares.
Disadvantages of a Private Limited Company
• One of the main disadvantages of a Private Limited Company is that it
restricts the transferability of shares by its articles.
• In a Private Limited Company the number of shareholders, in any
case, cannot exceed 50.
• Another disadvantage of a Private Limited Company is that it cannot
issue prospectus to the public.
• In the stock exchange shares cannot be quoted.
 Public Company
A public company is a corporation wherein the ownership is dispensed
to general public shareholders through the free trade of shares of stock
over-the-counter at markets or on exchanges. Even though a minute
percentage of shares are initially given to the public, the daily trading
which happens in the market will determine the worth of an entire
company. It is termed as ""public"" as the shareholders, who become
equity owners of the firm, may be composed of any individual who
buys stock in the firm.

Public companies are traded publicly within an open market. Various

investors buy shares. Mostly, public companies were initially private
companies who became public companies to raise capital post
complying with all of the regulatory requirements.
Merits of Public Company
• Raising capital through public issue of shares
• Widening the shareholder base and spreading risk
• Other finance opportunities
• Growth and expansion opportunities
• Prestigious profile and confidence
• Transferability of shares
Demerits of public company
• More regulatory requirements
• Higher levels of transparency required
• Ownership and control issues
• More vulnerable to takeovers
• Short-termism
• Initial financial commitment is higher
 Cooperative Society
A cooperative society is not a new concept. It prevails in all the
countries, this is almost a universal concept. The cooperative society is
active in all countries worldwide and is represented in all the sectors
including agriculture, food, finance, healthcare, etc.

To protect the interest of weaker sections, the co-operative society is

formed. It is a voluntary association of persons, whose motive is the
welfare of the members.
Features of Voluntary Association
• As it is a voluntary association, the membership is also voluntary. A person is free
to join a cooperative society, and can also leave anytime as per his desire.
Irrespective of their religion, gender & caste, membership is open to all.
• It is compulsory for the co-operative society to get registration. The co-operative
society is a separate legal identity to the society.
• It does not get affected by the entry or exit of its members.
• There is limited liability of the members of co-operative society. Liability is
limited to the extent of the amount contributed by members as capital.
• An elected managing committee has the powers to take decisions. Members have
the right to vote, by which they elect the members who will constitute the
managing committee.
• The cooperative society works on the principle of mutual help & welfare. Hence,
the principal of service dominates it’s working. If any surplus is generated, it is
distributed amongst the members as a dividend in conformity with the bye-laws of
the society.
Some of the advantages of a cooperative society are:-
• Easy to Form
• Open Membership
• Democratic Management
• Limited Liability
• Stability
• Economical Operations
• Government Patronage
• Mutual Co-Operation
• No Speculation
• Economic Advantages
• Income Tax Exemption
Some of the disadvantages of a cooperative society are:-

• Limited Capital
• Inefficient Management
• Absence of Motivation
• Rigid Rules and Regulations
• Lack of Competition
• Cash Trading
• Weightage to Personal Gains
• Undue Government Intervention
Unorganized (informal enterprises) versus organized
(registered/incorporated enterprises)
Sectors are majorly divided into three categories primary,
secondary and tertiary.

Based on the employment conditions these are further classified as

an organised and unorganised sector or enterprises.

While the former is related to business, government, industry

involving large-scale operations, the latter include small scale
operation, petty trade, private business, etc.
 Organised Sector/Enterprise

The sector, which is registered with the government is called an organised

sector.
In this sector, people get assured work, and the employment terms are
fixed and regular.
A number of acts apply to the enterprises, schools and hospitals covered
under the organised sector.
Entry into the organised sector is difficult as proper registration of the
entity is required. The sector is regulated and taxed by the government.
There are some benefits provided to the employees working under
organised sector like they get the advantage of job security, add on benefits
are provided like various allowances and perquisites.
They get a fixed monthly payment, working hours and hike on salary at
regular intervals.
 Unorganised Sector
The sector which is not registered with the government and whose terms
of employment are not fixed and regular is considered as unorganised
sector.
In this sector, no government rules and regulations are followed. Entry
to such sector is quite easy as it does not require any affiliation or
registration.
The government does not regulate the unorganised sector, and hence
taxes are not levied. This sector includes those small size enterprises,
workshops where there are low skill and unproductive employment.
The working hours of workers are not fixed. Moreover, sometimes they
have to work on Sundays and holidays. They get daily wages for their
work, which is comparatively less than the pay prescribed by the
government.
BASIS FOR COMPARISON ORGANISED SECTOR UNORGANISED SECTOR
Meaning The sector in which the employment terms The sector that comprises of small
are fixed and employees have assured work scale enterprises or units and are not
is Organised sector. registered with the government.

Governed by Various acts like Factories Act, Bonus Act, Not governed by any act.
PF Act, Minimum Wages Act etc.
Government rules Strictly followed Not followed
Remuneration Regular monthly salary. Daily wages
Job security Yes No
Working hours Fixed Not fixed
Overtime Workers are paid remuneration for overtime. No provision for overtime.

Salary of workers As prescribed by the government. Less than the salary prescribed by the
government.
Contribution to Provident Yes No
fund by the employer
Increment in salary Once in a while Rarely
Benefits and perquisites Employees get add-on benefits like medical Not provided.
facilities, pension, leave travel
compensation, etc.
 Business Families and Family Business
A family business is a commercial organization in which decision-making is
influenced by multiple generations of a family, related by blood or marriage
or adoption, who has both the ability to influence the vision of the business
and the willingness to use this ability to pursue distinctive goals.
They are closely identified with the firm through leadership or ownership.
Family business is the oldest and most common model of economic
organization.
The vast majority of businesses throughout the world—from corner shops to
multinational publicly listed organizations with hundreds of thousands of
employees—can be considered family businesses.
Family business, as the name suggests, is the business which is actively
owned, operated and managed by two or more members of the single-
family. Here, members may be related by blood, marriage or adoption.
Basically, in a family business:
• Single-family owns majority percentage of ownership
• Possess voting control,
• Has power over strategic decisions,
• Has the involvement of multiple generations of the same family and
• Senior management of the firm is drawn from the same family.
Characteristics of Family Business
A family business is characterized by:
• Members: A group of people, who are the members of the same family owns
and runs the business enterprise.
• Position of members: The position of family members in the business
depends on the relationship which the family members have with one another.
• Control: As the family owns a majority share in the company and also
constitutes the senior management, it can exercise control over the business.
• Mutual interest: As the family members occupy the key positions in the
business, it can exercise influence on the policies of the firm, as per the mutual
interest of the family and firm.
• Involvement of multiple generations: The operation and
management of the business are looked after by the family, and so the
reins are passed on, from one generation to another.
• Mutual Trust: All the members of the family have mutual trust in
each other, as they have a common origin, the same set of values,
ethics and business orientation.
• Integrity and Transparency: It is generally characterised by strong
moral principles and honesty towards business goals and business
transparency.
Structure of Family Business
The three-circle model of the family business system is represented as
under:
In this model, the first circle indicates ‘ownership’, the second circle
represents ‘family’ while the third represents ‘business’. Now we will
discuss entity in detail:

Non-family non-manager owners: These are an external investor or say

outsiders, who own a certain proportion of business but do not work.

Family owners: This group include those family members who own a
part of the business but do not take part in its operations.

Family owner-employees: As the name specifies, these are the owners of

the business, as well as work as an employee in the firm, usually in top
managerial positions.
Non-family owners employees: This group covers those individuals who
are employees of the concern and are not family members, as well as own
a certain proportion of the firm’s share capital.
Family members: This group includes all those family members who
neither own shares in the company nor they are actively involved in the
family business.
Family Employees: In this group, all those members of the family are
covered who work for the company, but they do not own part of the
company’s share capital.
Non-family employees: These are the employees of the company, who
work for the company under an employment contract, and are not family
members. They also don’t own shares in the company.
Facts about family business
Based on research of the Forbes 400 richest Americans, 44% of the Forbes
400 member fortunes were derived by being a member of or in association
with a family business.

The family businesses in the 2021 Index collectively generated US$7.28

trillion in revenues, employed 24.1 million people and were distributed across
45 jurisdictions.

Together they constitute the third largest economic contribution in the world
(after the US and China) by revenue – despite the global economy shrinking
by 3.5% in 2020.

They are vital to the future health and growth of every country’s economic
well-being during the post-pandemic recovery.
Almost half (236) of all the businesses in the Index are based in Europe,
indicating it is a nurturing environment for family-owned businesses.

Germany is home to 16% of firms as well as two of the largest in the Index,
Schwarz Group and BMW – which reflects the strength of the German
economy as well as the fact that 90% of all businesses in Germany are family-
controlled, according to the Foundation for Family Businesses.
The Americas continue to be the base for one-third of family businesses. It is
no surprise that the US, as the world’s largest economy, boasts the highest
number of family businesses (119) in the Index (24%). Collectively, these 119
companies contribute 81% (US$2.5 trillion) of the combined revenue in the
Americas and employ 6.4 million people. Seven out of the 10 biggest family
businesses globally are from the US, including Walmart, Berkshire Hathaway
and Ford. Canada and Mexico each have fourteen family companies in the
Index.
India’s two largest family businesses, Reliance Industries and Aditya
Birla Group, are among the twenty largest family businesses in the
Index.

Mainland China, Hong Kong and Taiwan account for 32 family

businesses. Japan lists nine companies, and South Korea totals 14
family businesses, including SK Corp and LG Corporation, which are
both among the twenty largest firms in the Index.
Collectively, these 55 companies contribute 87% (US$835 billion) of
the combined revenue in Asia-Pacific, which has 74 family businesses
in the Index.
Industry breakdown of the world’s largest family businesses
What is a Multinational Corporation (MNC)?
A multinational corporation (MNC) is a company that operates in its
home country, as well as in other countries around the world. It
maintains a central office located in one country, which coordinates the
management of all its other offices, such as administrative branches or
factories.
It isn’t enough to call a company that exports its products to more than
one country a multinational company. They need to maintain actual
business operations in other countries and must make a foreign direct
investment there.
Characteristics of a Multinational Corporation
The following are the common characteristics of multinational corporations:
1. Very high assets and turnover
To become a multinational corporation, the business must be large and must own a
huge amount of assets, both physical and financial. The company’s targets are high,
and they are able to generate substantial profits.
2. Network of branches
Multinational companies maintain production and marketing operations in different
countries. In each country, the business may oversee multiple offices that function
through several branches and subsidiaries.
3. Control
In relation to the previous point, the management of offices in other countries is
controlled by one head office located in the home country. Therefore, the source of
command is found in the home country.
4. Continued growth
Multinational corporations keep growing. Even as they operate in other countries, they
strive to grow their economic size by constantly upgrading and by conducting mergers
and acquisitions.
5. Sophisticated technology
When a company goes global, they need to make sure that their investment will
grow substantially. In order to achieve substantial growth, they need to make
use of capital-intensive technology, especially in their production and marketing
activities.
6. Right skills
Multinational companies aim to employ only the best managers, those who are
capable of handling large amounts of funds, using advanced technology,
managing workers, and running a huge business entity.
7. Forceful marketing and advertising
One of the most effective survival strategies of multinational corporations is
spending a great deal of money on marketing and advertising. This is how they
are able to sell every product or brand they make.
8. Good quality products
Because they use capital-intensive technology, they are able to produce top-of-
the-line products.
Reasons for Being a Multinational Corporation
There are various reasons why companies want to become multinational
corporations. Here are some of the most common motivations:
1. Access to lower production costs
Setting up production in other countries, especially in developing economies,
usually translates to spending significantly less on production costs. Though
outsourcing is a way of achieving the objective, setting up manufacturing plants
in other countries may be even more cost-efficient.
Due to their large size, MNCs can take advantage of economies of scale and
grow their global brand. The growth is done through strategic
manufacturing/service placement, which allows the corporation to take
advantage of undervalued services across the globe, more efficient and
inexpensive supply chains, and advanced technological/R&D capacity.
2. Proximity to target international markets
It is beneficial to set up business in countries where the target consumer
market of a company is located. Doing so helps reduce transport costs
and gives multinational corporations easier access to consumer feedback
and information, as well as to consumer intelligence.
International brand recognition makes the transition from different
countries and their respective markets easier and decreases per capita
marketing costs as the same brand vision can be applied worldwide.
3. Access to a larger talent pool
Multinational corporations are also known to hire only the best talent from
around the world, which allows management to provide the best technical
knowledge and innovative thinking to their product or service.
4. Avoidance of tariffs
When a company produces or manufactures its products in another country
where they also sell their products, they are exempt from import quotas and
tariffs.
Merits of a Multinational Companies in a Host Country
• One of the main advantages to the host country is that MNCs boost their
economic growth. They bring with them huge investments and capital.
And then through subsidiaries, joint ventures, branches, factories they
promote rapid industrial growth. In fact, MNCs are known as the
messengers of progress.
• A multinational corporation helps the technological growth of the country
as well. They bring new innovations and technological advancements to
the host country. They help modernize the industry in developing
countries.
• MNCs also reduce the host countries dependence on imports. Imports
reduce while exports from the country see a rise.
• All MNCs have enormous capital and resources at their disposal. A
good portion of such resources is invested in R&D. This can be very
beneficial to the host countries where they set up their R&D facilities.
• Multinational corporations also promote maximum utilization of the
country’s resources. This, in turn, leads to economic development.
Merits of Multinational Companies in the Home Country
• MNCs make their home countries (country of origin) very rich by their
revenues. The corporation will collect fees, royalties, profits, charges
from all their host countries and bring them back to the home country.
This huge inflow of foreign exchange is very beneficial to the home
country.
• MNCs provide a means of co-operation between developed countries and
developing or underdeveloped countries. This allows both to benefit
from the partnership.
• And these multinational corporations also help promote bilateral trade
relations between countries. This is beneficial to both the countries and
the global market and economy.
 DOMAINS/FUNCTIONS OF BUSINESS
A business function refers to the various activities performed by a company.
These activities are divided into several functions or departments.
In the most basic classification, they can be divided into core functions and
support functions.
Core functions refer to income-generating activities, for example, the
production of final goods or services. These functions are usually the main
activities of the company. However, they may also include other activities if
the company considers them part of its core function.

Support functions refer to activities within the organization to facilitate core

functions. They do not produce output to sell or generate revenue, but rather
they provide support services to core functions.
Importance of business function
Organizing and managing your business functions is essential because
they are interrelated and interdependent on each other. Your company
divides tasks and jobs into several functions or departments to allow for
organizational effectiveness and efficiency. Each function plays an
important role for the others. If one of the functions is missing or does
not work properly, operations cannot run or are interrupted.

All business decisions taken in each department must synergize and

consider other parts. It requires good communication, cooperation, and
close relationships between each function. That way, each department
supports each other to achieve organizational goals, not only concerned
with their own goals.
Let’s take an example of why decisions in one department depend on another.
For example, the operations function requires information from the marketing
department about product specifications and how much to produce. Likewise,
the marketing function does not sell products without the operations function.

When the product specifications demanded by the market enter the production
department, the team then thinks about how to produce efficiently. For
example, do they need to buy new machines or rely on existing production
facilities? If it is necessary to purchase a new machine, the production
department then drafts a budget for submission to the finance department.

The finance department then considers whether the currently available budget
is sufficient. If it’s not enough, the team thinks about financing it, whether the
company needs to raise capital, for example, by issuing debt or equity.
The decision to allocate money by the finance department is not only for the
production department but also for other business functions, be it marketing
and human resources. For example, the marketing department needs funds to
promote products, or the human resources department needs it to recruit new
workers.

Then, to carry out each function successfully, your company needs skilled and
productive individuals. In this case, human resource management is at the
forefront. This function recruits workers, provides training and development,
sets the compensation, and motivates them to provide the best for your
company.
Types of business functions
Operation
The operations function is sometimes called the production function. You
are probably familiar with the term production department as well. As the
name implies, this function is responsible for the activities of producing
goods or providing services, including:

• Converting inputs such as raw materials and components into outputs

• Ensuring adequate resources are available for production
• Maintaining production levels and output quality
• Achieving a high level of efficiency
• Providing good and consistent service if the business is a service
company.
Human resources
This department is responsible for managing employees within the company,
including:

• Identifying the workforce needs within your company.

• Recruiting and selecting employees with the right qualifications for your
company.
• Training and developing employees to encourage them to be more productive.
• Developing and design compensation system, employment contract, and set
salary for each position
• Establishing a system of rewards and incentives to motivate employees.
• Handling termination or dismissal.
• Managing industrial relations.
• Managing human resource outsourcing strategy.
Marketing
The marketing department is responsible for marketing, market research,
sales, and after-sales service activities. The team identifies customer needs
and wants and develops the appropriate marketing mix to satisfy them.
In general, the marketing department deals with aspects such as:
• Market research
• Product development
• Price
• Advertising
• Distribution
• Customer service
• Packaging
• Customer relationship management
Marketing obtains important information through market research to
identify and collect information such as consumer needs, market
prospects, and market competition. It is then used as a reference for
developing marketing plans and competitive strategies.
From identifying consumers in the market, the marketing team then
segment the market and select the most appropriate segments to follow
up. They then develop the product, set the price, promote the product and
distribute it to customers.
Other decisions to make are about customer service and customer
relationship management. So, your company can offer value to
customers, making them loyal to your product.
Accounting and finance
The accounting and finance department deals with managing money within the
company, including monitoring the money going in and out of business. In
particular, the finance function is tasked with:
• Managing the company’s financial transactions and their records, such as
payment of salaries and to suppliers.
• Preparing budgets and allocating costs to other business functions.
• Disclosing financial information to external users such as creditors, investors,
and the government by publishing financial statements (mandatory for listed
companies).
• Providing financial information to management and other departments
for decision-making.
• Dealing with compliance with legal requirements such as taxes.
• Controlling company finances to avoid errors, fraud and ensure
compliance with procedures, policies, and regulations.
• Raising funds and managing them, such as for capital budgeting and
working capital management.