UNIT – 2
MANAGEMENT OF JOINT STOCK COMPANY
Shareholders:
Shareholders are the owners of the stock in the corporation, meaning they literally are the owners. The shares of stock they buy represent the part ownership in the corporation.
Shareholder powers:
Their first, and most important power, is that the s elect the members of the board of directors. This gives them direct influence over how the corporation is run. Second, they have the power to approve or disapprove of major changes to the corporation. This includes actions like mergers, acquisitions and the selling of substantially all of the corporation’s assets. Also, shareholders often have the power to amend the articles of incorporation or the bylaws and they can sometimes void certain transactions of the corporation.
In short, shareholders own the company, and as a collective unit, they have great power and influence over it.
The board of directors:
The board of directors manages a corporation at the policy level.
Director powers:
A key aspect of the director’s powers are their ability to appoint the officers of the corporation, who handle the day to day operations. The board also sets major policy, for instance any non-trivial acquisitions of another company’s stock would have to director approved.
The directors also have great influence over the corporation, but mainly at a higher policy level.
Officers:
Officers are the front line managers and they handle the day to day operations of the corporation.
Officer’s powers:
The officers have tremendous influence over the corporation and they make many of the nuts and bolts decisions, such as signing contracts and buying assets for the corporation. They essentially act as agents of the board of directors and derive their power from there.
Prosecution of Mr. Kesub Mahindra, for the Bhopal gas tragedy which resulted in loss of several lives, sent shock waves in the corporate world. Mr. Kesub Mahindra was non Executive Chairman on the Board of Union carbide. A debate started all over the country as to whether non executive chairman or part time directors have any liability in such cases. Even the Ministry Corporate Affairs has sought suggestions from all quarters whether there should be amendment to the effect to exclude part time directors from the ambit of liability. This article focuses on the rights, duties and obligations of directors.
Definition of Director:
Section 2(13) of the Companies Act, 1956, defines a Director as any person, occupying the position of Director, by whatever name called. The Articles of association generally contain provisions as to their appointment, retirement rights duties and remuneration.
Composition of Board:
The Board of Directors is elected representatives of the shareholders of the company. The Board of Directors of a company collectively are responsible for making policies and good governance process The Board has a fiduciary position and holds the position of trusteeship to protect and enhance shareholder value through strategic management and governance. Board’s responsibilities inherently demand the exercise of judgment for which the Board necessarily has to be vested with powers and a reasonable level of discretion.
The Board of directors consists of part time directors and whole time directors. Part time Directors are those who only attend board meetings and contribute to the framing of polices and decision making in the board meetings. Whole time directors as the name itself implies devote whole time and are treated as employees. Similar is the position of Managing director and this category of directors are entrusted with substantial powers of management to look after the day to day affairs of the company.
Listed companies shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors. If chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors. Corporate Governance clause defines an independent Directors as those directors are those who do not have any material pecuniary relationships or transactions with the company and are not related to the promoters or person on the board or senior management and not an executive in the past 3 years.
Appointment of Directors:
The power to appoint directors is exercised by the shareholders in First Annual General meeting as per the provisions of Section 255 and regulations in the Articles of Association.
The Board of directors can also appoint directors Additional Directors u/s 260 who hold office up to the ensuring Annual general meeting, Director in a vacancy caused by resignation /death of a regular director u/s 262 to hold office up to the term of original director in whose place he is appointed and Alternate Directors u/s 313 to represent original director who is away and such director holds office till the original director returns
Resignation of Directors:
Unless the Articles of Articles of the company concerned contain any specific provision about acceptance of resignation by the Board of Directors of the company, the resignation from directorship takes effect immediately, i.e., from the date of the resignation letter.
Powers of Directors:
The provisions of Companies Act and the articles of association of the company spell out rights, duties powers and responsibilities of Directors. Section 291 of the Act provides that subject to the provisions of the Act, the board of directors shall be entitled to exercise all such powers and to do all such acts and things as the company is authorized to exercise and do.
Powers to be exercised only at Board meeting (Section 292)
Power to make calls on shareholders in respect of money unpaid on their shares
Power to issue debentures
Power to borrow moneys otherwise than on debentures
Power to invest the funds of the company
Power to make loans
Certain restrictions can be imposed on general powers of the Board and invariably they have to seek the approval of shareholders in the General meetings in such cases. The sections which deal with restrictions are 293, 294AA etc. There are certain powers which can be exercised only with the approval of the shareholders and also Central Government for eg: Sec.294AA (appointment of sole selling agents), Section 295 (Loans to Directors) etc.
Board can also exercise its powers by passing a resolution by circulation (Section 289) in respect of matters other than those mentioned in Section 292.
Rights of Directors:
Rights can be categorized into individual and collective rights. Individual rights are such as right to inspect books of accounts {Section 209(4)},Right to receive notices of board meetings (Section 285),right to participate in proceedings and cast vote in favour or against resolutions(Section 300),right to receive circular resolutions proposed to be passed.(Section 289),right to inspect minutes of board meetings.
Collective rights are as follows:-
Right to refuse to transfer shares: According to Section 111 of the Act, directors of private companies and deemed public companies are entitled to refuse registration of transfer of shares to a person whom they do not approve.
Right to elect a Chairman: Regulation 76(1) of Table-A provides that the directors are entitled to elect a chairman for the board meetings.
Right to appoint a Managing director: The Board has the right to appoint the managing director/ manager (as defined in the Act) of the company.
Right to recommend dividend: The Board is entitled to decide whether dividend is to be paid or not. Shareholders cannot compel the directors to pay dividend. However they can reduce the rate of recommended dividend. Payment of dividend is the prerogative of the board
Duties of Directors:
Directors as individuals have a duty to attend board meetings and contribute to the deliberations of the board and ultimately to the decision making leading to formulation of policies. Directors are under obligation to disclose their interest whether directly or indirectly in contracts or arrangements with the company (Section299). They are also duty bound to disclose their directorships in other companies within 20 days of appointment or relinquishment of his office in other companies (Section 305).As per Section 308, directors are also required to disclose their shareholding in the company.
The following are some of those duties exercised collectively:-
Approval of annual accounts and authentication of annual accounts
Directors report to shareholders highlighting performance of the company, transfers to reserves, investment of surplus funds, borrowings
Appointment of First Auditors
Issuance of Notice and Holding of Board meetings and shareholders meetings
Passing of resolutions at board meetings or by circulation.
Directors are paid remuneration for their efforts in formulating policies and for devoting their valuable time for the company. Directors remuneration consists of sitting fees as per provisions in Articles of association, and Commission as a fixed percentage of net profits or as a fixed monthly sum as decided by the shareholders in the general meeting. As per the provisions in the new companies bill,2009 independent directors can not receive any remuneration other than sitting fees, expenses for attending board meetings and commission linked to profits.
Liabilities of Directors:
Directors are liable for violation of the provisions of the Companies Act and other Acts which may expose them to punishment with fine or imprisonment or with both. The Humble Supreme Court of India held in the case of Maksud Saiyed Vs State of Gujarat and others that the vicarious liabilities of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. If directors are guilty of negligence or found to be misusing their position, they will be liable for civil as well as criminal liability. For e.g.; if directors make any untrue statements in the prospectus, or do not maintain books of account as per provisions of Section 209 or falsify accounts, criminal liability also arises. Even for cheque bouncing, Section 141 of the Negotiable Instruments Act imposes vicarious liability on the directors provided an averment is made to that effect in the complaint. The Directors of a company incur a personal liability, if they contract in their own names or where it is ambiguous as to capacity in which they signed the contract. However directors can seek protection against a liability for acts done in good faith. Director will also relieved of the offence, provided he is able to show that he was not in charge or control of the day to day affairs of the company or Offence in question was committed without his consent/knowledge/connivance and he was not negligent in ensuring that laws are complied.
Under the existing Act, all directors, including independent directors are held responsible for a company’s actions. However in the Companies Bill 2009, it is proposed to protect independent directors. An independent directors will be held responsible for any action only if motive and criminal intent is established in his actions. This is welcome otherwise highly qualified professional would be reluctant to Join the Board’s of company as independent directors.
What is a Company Secretary?
Every company, including a single member company, is required by law to have a company secretary, who may be one of the directors. The company secretary acts in accordance with directors’ instructions. A company secretary’s main functions are to oversee the company’s day to day administration and to ensure specifically that the company complies with the law and observes its own regulations.
Qualifications of a Company Secretary
No qualifications are required to be the company secretary of a private company. In the case of public limited companies, the directors have a statutory duty to ensure that the company secretary is a person who appears to them to have the requisite knowledge and experience to discharge the functions of company secretary.
Duties of Company Secretary:
In addition to ensuring that the company complies with the law and observes its own regulation, a company secretary may be assigned other functions in the company’s articles of association or they may be delegated by the company’s directors. Secretaries’ duties are classified as;
Statutory duties
Duty of disclosure
Duty to exercise due care, skill and diligence; and
Administrative duties
Statutory Duties
a) signing the annual return
b) certifying that the financial statements attached to the annual return are true copies of the originals
c) making out the statement of affairs in a winding up or receivership
d) signing the relevant application form and making a statutory declaration, if applicable, on the re-registration of a company as a different type of company
e) making the statutory declaration required for a public limited company before it may carry on business.
Power # 1. Conducting a Meeting:
The primary power of the chairman of a meeting is to conduct it successfully so that decisions can be taken.
Power # 2. Maintaining Order:
Whenever the chairman finds that disorder has set in and decorum is lost he can take measures to restore order.
Such measures are of two types depending on the nature of the disorder:
(a) If there is too much agitation and general fray of temper in the house, the chairman may adjourn the meeting for some time or for the day. As an extreme case he may adjourn the meeting sine die.
(b) If any particular participant behaves in a disorderly manner and refuses to obey the orders or rulings of the chairman then he may ask him to leave the meeting place. He does not allow anybody to use any unparliamentarily words at the meeting. Generally a disciplinary action against a member is taken by passing a resolution.
Power # 3. Deciding Points of Order:
Any participant may raise ‘points of order’ or objections to the saying of other speakers as they are irrelevant, wrong, malicious, out of the scope of the meetings etc. and draw the attention of the chairman. It is within the powers of the chairman to allow or disallow a point of order. But once he gives his ruling, it is final. The chairman may, however, consult with other senior members present before he gives his ruling.
Power # 4. Priority of Speakers:
When a number of participants want to speak on a point of discussion, the chairman has the power to decide the priority. Generally he invites the intending speakers to give him their names in slips of paper. Then, one by one, he allows them to speak and sometimes he allots some fixed time for each and does not allow an individual to speak unless he has any new point to place. In some cases, particularly in conferences, a list of speakers is prepared in advance.
Power # 5. Declaring ‘Closure’:
When discussion on some matter has taken place for a long time the chairman may declare ‘closure’ or stopping of further discussion on the issue, even though there are more persons intending to speak on it. He can stop a speaker in mid-way of his speech if he has crossed the time allotted to him.
Power # 6. Ordering Adjournment:
ADVERTISEMENTS:
The chairman has the power to adjourn a meeting in order to cool down the temper of the participants or when much time has passed and the participants seem to be tired or when adjournment is demanded by members themselves.
If, however, there is want of quorum at the very beginning the meeting is automatically adjourned (in case of an extra-ordinary meeting, it ends) and it is the duty of the chairman to see that the meeting is not held.
Power # 7. To Cast Votes:
The chairman is normally a member of the organisation and so has the right to cast his deliberative votes. But, in addition, he may have right of ‘casting vote’. If he has that right then he has the power to exercise casting vote when occasion arises. (Sometimes a chairman does not exercise even his deliberative votes to be totally impartial.)
Power # 8. Approval of Minutes:
The secretary after, preparing the draft of the minutes shows it to the chairman of that meeting for which minutes have been drafted. It is within the powers of the chairman to go over the draft and to make corrections, if any. He may ‘expunge’ or remove some objectionable words from the minutes
WHAT IS A MEETING?
In common parlance, the word meeting means an act of coming face to face, coming in company or coming together.
Company meeting - Essentials, Kinds Company meeting – Essentials, Kinds
The Oxford Dictionary defines a meeting as
An assembly of number of people for entertainment, discussion or the like.
A meeting therefore, can be defined as a lawful association, or assembly of two or more persons by previous notice for transacting some business. The meeting must be validly summoned and convened. Such gatherings of the members of companies are known as company meetings.
ESSENTIALS OF COMPANY MEETINGS:
The essential requirements of a company meeting can be summed up as follows:
1. Two or More Persons: To constitute a valid meeting, there must be two or more persons. However, the articles of association may provide for a larger number of persons to constitute a valid quorum.
2. Lawful Assembly: The gathering must be for conducting a lawful business. An unlawful assembly shall not be a meeting in the eye of law.
3. Previous Notice: Previous notice is a condition precedent for a valid meeting. A meeting, which is purely accidental and not summoned after a due notice, is not at all a valid meeting in the eye of law.
4. To Transact a Business: The purpose of the meeting is to transact a business. If the meeting has no definite object or summoned without any predetermined object, it is not a valid meeting. Some business should be transacted in the meeting but no decision need be arrived in such meeting.
KINDS OF COMPANY MEETINGS:
The meetings of a company can be broadly classified into four kinds.
1. Meetings of the Shareholders.
2. Meetings of the Board of Directors and their Committees.
3. Meetings of the Debenture Holders.
4. Meetings of the Creditors.
1. Meeting of the Share Holders
The meetings of the shareholders can be further classified into four kinds namely,
Statutory Meeting,
Annual General Meeting,
Extraordinary General Meeting, and
Class Meeting.
The chart given below gives a classification of company meetings.
1. Statutory Meeting:
This is the first meeting of the shareholders conducted after the commencement of the business of a public company. Companies Act provides that every public company limited by shares or limited by guarantee and having a share capital should hold a meeting of the shareholders within 6 months but not earlier than one month from the date of commencement of business of the company.
Usually, the statutory meeting is the first general meeting of the company. It is conducted only once in the lifetime of the company. A private company or a public company having no share capital need not conduct a statutory meeting.
Kinds of Company Meetings Kinds of Company Meetings
2. Annual General Meeting;
The Annual General Meeting is one of the important meetings of a company. It is usually held once in a year. AGM should be conducted by both private and public ltd companies whether limited by shares or by guarantee; having or not having a share capital. As the name suggests, the meeting is to be held annually to transact the ordinary business of the company.
3. Extra-ordinary General Meetings (EOGM):
Statutory Meeting and Annual General Meetings are called the ordinary meetings of a company. All other general meetings other than these two are called Extraordinary General Meetings. As the very name suggests, these meetings are convened to deal with all the extraordinary matters, which fall outside the usual business of the Annual General Meetings.
EOGMs are generally called for transacting some urgent or special business, which cannot be postponed till the next Annual General Meeting. Every business transacted at these meetings is called Special Business.
Persons Authorized to Convene the Meeting
The following persons are authorized to convene an extraordinary general meeting.
The Board of Directors.
The Requisitionists.
The National Company Law Tribunal.
Any Director or any two Members.
4. Class Meetings:
Class meetings are those meetings, which are held by the shareholders of a particular class of shares e.g. Preference shareholders or debenture holders.
Class meetings are generally conducted when it is proposed to alter, vary or affect the rights of a particular class of shareholders. Thus, for effecting such changes it is necessary that a separate meeting of the holders of those shares is to be held and the matter is to be approved at the meeting by a special resolution.
For example, for cancelling the arrears of dividends on cumulative preference shares, it is necessary to call for a meeting of such shareholders and pass a resolution as required by Companies Act. In case of such a class meeting, the holders of other class of shares have no right to attend and vote.
2. Meetings of the Directors:
Meetings of directors are called Board Meetings. These are the most important as well as the most frequently held meetings of the company. It is only at these meetings that all important matters relating to the company and its policies are discussed and decided upon.
Since the administration of the company lies in the hands of the Board, it should meet frequently for the proper conduct of the business of the company. The Companies Act therefore gives wide discretion to the directors to frame rules and regulations regarding the holding and conduct of Board meetings.
The directors of most companies frame rules concerning how, where and when they shall meet and how their meetings would be regulated. These rules are commonly known as Standing Orders.
3. Meetings of Debenture Holders:
The debenture holders of a particular class conduct these meeting. They are generally conducted when the company wants to vary the terms of security or to modify their rights or to vary the rate of interest payable etc. Rules and Regulations regarding the holding of the meetings of the debenture holders are either entered in the Trust Deed or endorsed on the Debenture Bond so that they are binding upon the holders of debentures and upon the company.
4. Meetings of the Creditors:
Strictly speaking, these are not meetings of a company. They are held when the company proposes to make a scheme of arrangements with its creditors. Companies like individuals may sometimes find it necessary to compromise or make some arrangements with their creditors, In these circumstances, a meeting of the creditors is necessary
What are resolutions?
A resolution is a legally binding decision made by limited company directors or shareholders. If a majority vote is achieved in favour of the decision, a resolution is ‘passed’. Shareholders can pass ordinary resolutions or special resolutions at general meetings, or they can pass written resolutions. All types of collective decisions of directors are simply referred to as ‘resolutions’. These decisions can be made at board meetings or in writing.
Types of resolutions
There are 3 types of resolutions available to limited company shareholders:
Ordinary resolutions – Passed by a simple majority of shareholders’ votes. Used for all matters, unless the Companies Act, the articles of association, and/or a shareholders’ agreement stipulates the need for a special resolution. The majority of ordinary resolutions must be filed with Companies House.
Special resolutions – Passed by a 75% majority of shareholders’ votes at a general meeting. Used for extraordinary matters that cannot be passed by an ordinary resolution.
Written resolutions – Used when a general meeting is not required to pass an ordinary resolution or special resolution. Any written ordinary resolution must be passed by a simple majority of shareholders’ votes; written special resolutions require a 75% majority vote. Shareholders must sign a written resolution to cast their votes.
Notice:
The persons entitled to attend a meeting must be informed of the time, place, date and business of the meeting in proper time.
The communication informing the persons entitled to attend the meeting about time, place, date and business of the meeting is called the ‘notice’.
To make the meeting valid, the notice must be served by the right person by the right means to all the persons entitled to attend the meeting. Usually, the notice is drafted and issued by the Secretary under the instruction of the Director of the company. A notice, in order to be valid, must be signed by the proper authority.
The requisites of the meeting can be classified into the following classes:
1. The notice must specify the exact date, time and place of the meeting.
2. The notice must state the nature of business to be transacted at the meeting. A complete agenda is appended to the notice.
3. The notice should be served to all members entitled to attend the meeting.
4. The notice must be clear and unconditional.
5. Proper length of notice must be given in accordance with the rules of the organisation.
Notice of the first Board Meeting of company with a complete agenda.
Indian National Publishing Company
1 College Street, Calcutta 13
Dated 1st July 1999.
Notice:
This is to inform that the first meeting of the Board of Directors of the company will be held at its registered office at 1 College Street, Calcutta 13, on Tuesday, 22nd July 1999 at 3.P.M.
Your presence is solicited.
D. Roy
Director
Agenda:
1. Election of the Chairman.
2. Adoption of the Memorandum of Association, Articles of Association and Certificate of Incorporation of the Company.
3. Appointment of the first Directors of the Company.
4. Appointment of the Chairman of the Board.
5. Appointment of the Managing Director.
6. Appointment of the Secretary with retrospective effect.
7. Appointment of the Bankers of the Company and Auditors.
8. Fixation of the date of the next Board meeting.
9. Any other business.
Notice for an Annual General Meeting of Chinsurah Cooperative Credit Society
Chinsurah Cooperative Credit Society Ltd.
Regd. Office: 6 Netaji Subhas Road
P.O. Chinsurah, Dist. Hooghly, 712103
Agenda:
1. Election of the Chairman.
2. Adoption of the Memorandum of Association, Articles of Association and Certificate of Incorporation of the Company.
3. Appointment of the first Directors of the Company.
4. Appointment of the Chairman of the Board.
5. Appointment of the Managing Director.
6. Appointment of the Secretary with retrospective effect.
7. Appointment of the Bankers of the Company and Auditors.
8. Fixation of the date of the next Board meeting.
9. Any other business.
Notice for an Annual General Meeting of Chinsurah Cooperative Credit Society
Chinsurah Cooperative Credit Society Ltd.
Regd. Office: 6 Netaji Subhas Road
P.O. Chinsurah, Dist. Hooghly, 712103
Secretary
Agenda:
1. To confirm the proceedings of the last meeting.
2. To consider the adoption of the Secretary’s Report.
3. To consider the adoption of the Audited Accounts of the year ended 31st March 1992.
4. To consider the question of declaring dividend.
5. To elect the directors.
6. To adopt the budget for 1992-93.
7. To fix up the borrowing power of the Society.
8. To consider any other business with the permission of the Chair.
Notice of the Board meeting other than the first
Roychowdhury Chemicals Ltd.
Regd. Office, 10 Netaji Subhas Road
Calcutta 700 001
2nd February 1995
To
M..
Director
Address………………
Dear Sir,
The 11th meeting of the Board of Directors of Roychowdhury Chemicals Ltd. Will be held at the Registered Office of the Company at 10 Netaji Subhas Rd. Calcutta 700001, on Monday, 25 February 1995 at 3 P.M.
Your presence is solicited.
Yours faithfully
Tapan Roychowdhury
Secretary
Agenda:
1. Confirmation of the minutes of the 10th Board Meeting.
2. Approval of share transfer.
3. Production of financial statements and declaration of interim dividend.
4. Consideration of opening a new branch at Bhubaneswar. –
5. Fixation of the date of the next Board Meeting.
6. Any other business with the permission of the Chair.
Notice of the Statutory Meeting of a Public Company
Raj and Raj Co. Ltd.
Regd. Office, 2 Netaji Subhas Road
Calcutta 700 001
1 February 1998
Notice
Pursuant to Section 165 of the Companies Act, 1965, Notice is hereby given that the Statutory Meeting of the Company will be held at the Registered Office of the Company on Monday 1 March 1998 at 3 P.M.
A copy of the Statutory Report is annexed herewith.
By order of the Board
B. Das
Secretary
Agenda:
1. Consideration and adoption of the Statutory Report.
2. Inspection of the list of Members.
3. Discussion on any matter related to the formation of the company.
Note:
A member entitled to attend and vote is entitled to appoint a proxy to attend and vote in case of poll only instead of himself and the proxy need to be a member of the company.
A proxy form is attached herewith.
Circular:
How a Circular is to be Drafted:
Circular letters are used to communicate the same message to a large number of customers and suppliers. If they are written in an attractive style and in an interesting manner it will be effective for business communication.
When a business-man wants to give publicity to a cause or a campaign they go for circular letters. Through such letters the readers are provided with facts and figures about the firm. The circular letters aim to create the interest in the contents and thereby win the confidence of the readers.
Circular letters are normally used when opening of a new branch, change of premises, introduce a new article, reduction of sales, admission, retirement and death of a partner and change in the constitution of the firm.
While drafting a circular the following points should be kept in mind:
1. The circular letter must be drafted carefully.
2. They must be informative.
3. They must not be ambiguous.
4. The circulars must be courteous in tone and pleasing in form.
5. While drafting a circular letter the purpose of the same should be kept in mind.
6. The circular letter must be concise.
Purposes:
The circular letters are issued for many purposes.
Generally, a circular letter conveys the following types of information:
1. Establishment or transfer of a business.
2. Opening of a new branch.
3. Change of premises.
4. Taking over a business or closing down a business.
5. Dissolution or amalgamation of business.
6. Appointment, discharge or retirement of an important employee.
7. Admission or death of a partner.
8. Issue of bonus shares.
9. Offer of right shares to shareholders.
Draft a circular informing customers a grand clearance sale of stock before the arrival of the Puja festival.
The City General Stores
1st September 1998
Dear Sirs,
On the eve of the Puja festival, prices of many articles tend to go up but not at our shop. We have planned a grand clearance sale of our stocks before the arrival of the festival—just the time when you wish to buy cheap.
Prices Marked D
O By 50% or more for almost all items.
W
N
Hurry up! Offer open till 20 September.
You get Rs. 200 worth of goods or even more for just a hundred!
We welcome you tomorrow and everyday till 12 September between 8. A.M. And 8. P.M. Without midday closure of counters to enable you to choose any time convenient to you.
Yours faithfully
N. Mazumder
Director
Draft a circular letter to customers and dealers announcing the opening of a new branch
Bata Shoe Company
23 Chowringhee Road
Calcutta 700 019
Circular No N/B/6 March 15 1998
Dear Sirs
We have the pleasure to announce the opening of our new branch at 10, Zonal Central, Durgapur, West Bengal, in order to cope with the increasing demand for our products in that area. Mr. S. M. Bhattacharya has been appointed the Branch Manager. The new branch will start operation from 20 March 1998.
With your cooperation and patronage, we have been able to supply different types of shoes to cater various types of customers for the last 60 years.
We hope you will extend your patronage to our new branch and we assure you of our best attention at all times.
Yours faithfully
S. N. Basak
Sales Manager
Drafting of Reports:
A report is an organised statement of facts on a particular subject prepared by the writer after proper investigation and enquiry, with or without recommendations. A report may be written by an individual or a Committee or Board of Enquiry.
Types of Reports:
Reports may be of two kinds: Ordinary and Special.
Ordinary reports:
Ordinary reports are made and presented at stated intervals in the usual routine of business. Generally, they contain n mere statement of facts without any opinion or recommendation and merely seek to convey some information on some matter, e.g., Report of Directors to the Annual General Meeting. The facts are stated usually chronologically or subject-wise.
A special report:
A special report is prepared by the individual or by a committee and presented to the superior body requiring it. It contains the recommendations of the writer or writers supported by the facts upon which recommendations are based.
Reports may be also Formal and Informal. A formal report is made according to the requirements of an office or company. It usually follows a prescribed form and established procedure.
An informal report, on the other hand, is one which does not follow any prescribed form or procedure. It is usually written in the form of a personal letter, without any formal procedure involved in it.
Formal reports of a company are of two types—Statutory Reports and Non-statutory Reports.
Statutory reports are those reports which have to be prepared and submitted according to a procedure prescribed by law. Statutory reports include Directors’ Report to the Annual General Meeting, Annual Returns, Auditors’ Report, Reports of the Secretary etc.
Non-statutory reports are those reports which are not required under the provisions of any law but are prepared to help the directors to arrive at right decisions for efficient running of the business. These reports are prepared by the secretary or by the directors themselves to submit to shareholders, employers or committees.
In the case of organisations other than companies there may be various types of reports, e.g., Reports of secretaries of different organisations, Newspaper Reports of daily events, Reports of the standing committees of different associations etc.
Privilege Reports:
Reports of meetings may sometimes contain statements which may be considered defamatory by some person. Just like speeches delivered by individuals, certain reports have been granted ‘privilege’ by the law i.e., claim to be immune from the liability to libel or slander.
Reports of proceedings in a Court of Law, Reports of proceedings of the Parliament, Newspaper reports of public meetings enjoy ‘qualified privilege’, i.e., they are privileged provided the reports are fair and accurate.
Preparation of Reports:
As already stated, report is an organised statement of facts leading to some conclusion with or without recommendations of the writer. The main purpose of a report is to help the recipient to know the facts relating to a subject and arrive at some decisions. The report must be clear, concise and factual and must be prepared in a recognised form.
However, it is difficult to state a precise set of rules to which all reports must conform. In the case of Statutory Reports the form is prescribed by law. In other cases the nature, length and style of the report will vary according to the nature of demand.
Every report should be prepared in such a way that the reader can easily understand the points. The main parts of a report are the heading or title, date, address, the body, salutation, complementary close and signature. The body of the report should be divided into paragraphs, each dealing with a particular subject. The report is usually written in a personal form and in the first person.
The following form and arrangement are maintained in every report:
1. The Heading or Title:
Every report should contain the heading or title. It is written on the title page or cover page.
2. Address:
The name of the person or superior body to whom the report has to be submitted.
3. Contents:
It is a list of chapters contained in a report. The title of each topic is given. It may also contain a list of enclosures.
4. Body of the Report:
It is the main part of the report.
The body of report should be divided into the following parts:
1. Introduction:
It is made up of the terms of reference and the subject of study. Here the writer analyses the problem facing him in the light of the terms of reference.
2. Findings:
In this part the writer presents the facts and data collected by him and adds his comments or opinions.
3. Conclusion and Recommendation:
In this concluding part of the report the writer arrives at certain conclusions on the basis of the data and facts. He then presents some definite suggestions of his own. When the report is prepared by a committee for presentation to a general body for adoption, recommendations should be made in the form of ‘motions’ or ‘resolutions’.
4. Reference and Bibliography:
A report should contain a list of references and bibliography just after the index so that the reader can understand the sources of information.
5. Index:
In case the report is lengthy an index of the contents of the reports is added after the bibliography.
6. Summary:
When the report is very lengthy a summary of the findings and recommendations of the report is appended.
7. Signature:
Every report must be dated and signed by the person or committee submitting it. If the report is unanimous, the signature of the chairman will do. If the report is not unanimous a separate minority report with the notes of dissent has to be submitted with the majority report.
Guidelines for Report Writing:
No hard and fast rules can be laid down regarding report writing. Any language and style may be adopted in writing reports so long as they serve the main purpose for which the report is being written.
However, some general principles can be laid down which will help the report writer:
1. The language should be simple and clear. Short and simple sentences should be used as far as possible.
2. Negative statements should be avoided as far as possible.
3. The report should be better written in the narrative form.
4. The data used in support of conclusion must be accurate and reliable.
5. No such technical term should be used which is not understood by the people for whom the report is written.
6. The report should be as brief as possible. Repetition should be avoided.
Draft a report for submission to the Board of Directors of a company about the desirability or otherwise of standardization of office furniture, forms and stationery.
Gladstone Engineering Industries Ltd.
Secretarial Dept.
30 Sarat Bose Road
Calcutta 700 026
2nd October 1996
To
The Chariman
Board of Directors
Gladstone Engineering Industries Ltd.
Calcutta 700026
Sir
As desired by you, I made a study of the benefits we may derive from the standardisation of office furniture, forms and stationery in our office. I have visited a number of modern offices in the city where such standardisation is practiced and noted several advantages to which I draw your attention:
1. Standardisation of office furniture will save space to a large extent. Replacement can be made easily and quickly. The cost of such furniture is not high.
2. Standardisation of forms is essential as it helps the staff to do the work quickly. They will be accustomed to do work in a particular standard form.
3. Standardisation of stationery also increases the efficiency of employees. A clerk accustomed to a particular type of calculating machine can give better service in lesser time if he is always given the same type of machine.
Considering the above-mentioned facts, I suggest that it is in our own interest that we introduce standardisation of office furniture, forms and stationery as soon as possible.
I am seeking the approval of the Board of Directors as quickly as possible.
Yours faithfully
A. K. Ghosh
Secretary
Concept of Business Combinations:
Business combinations may be defined as follows:
Business combinations are combinations formed by two or more business units, with a view to achieving certain common objective (specially elimination of competition); such combinations ranging from loosest combination through associations to fastest combinations through complete consolidations.
L.H. Haney defines a combination as follows:
“To combine is simply to become one of the parts of a whole; and a combination is merely a union of persons, to make a whole or group for the prosecution of some common purposes.”
Read this article to know about the causes of formation of business combination.
Causes of Business Combinations:
Some of the outstanding causes leading to the formation of business combinations are described below:
(i) Wasteful Competition:
Competition, which is said to be the ‘salt of trade’, by going too far, becomes a very powerful instrument for the inception and growth of business combinations. In fact, competition, according to Haney, is the major driving force, leading to the emergence of combinations, in industry.
(ii) Economies of Large-Scale Organization:
Organisation of production on a large scale brings a large number of well-known advantages in its wake – like technical economies, managerial economies, financial economies, marketing economies and economies vis-a-vis greater resistance to risks and fluctuations in economic activities. Economies of large scale operations, thus become, a powerful force causing increased race for combinations.
(iii) Desire for Monopoly Power:
Monopoly, a natural outcome of combination, leads to the control of market and generally means larger profits for business concerns. The desire to secure monopolistic position certainly prompts producers to join together less than one banner.
(iv) Business Cycles:
Trade cycles, the alternate periods of boom and depression, lead to business combinations. Boom period i.e. prosperity period leading to an unusual growth of firms to reap rich harvest of profits results in intense competition; and becomes a ground for forming combinations.
Depression, the times of economic crisis-with many firms having to only option to close down-prompts business units to combine to ensure their survival.
(v) Joint Stock Companies:
The corporate form of business organization is a facilitating force leading to emergence of business combinations. In joint stock companies, control and management of various corporate enterprises can be concentrated, in a ‘small group of powerful persons through acquiring a controlling amount of shares of different companies.
(vi) Influence of Tariffs:
Tariffs have been referred to as “the mother of all trusts”. (A trust is a form of business combinations). Tariffs do not directly result in combinations; they prepare the necessary ground for it. In fact, imposition of tariffs restricts foreign competition; but increases competition among domestic producers. Home producers resort to combinations, to protect their survival.
(vii) Cult of the Colossal (or Respect for Bigness):
In the present-day-world, business units of bigger size are more respected than units of small size. Those who believe in the philosophy of power and ambition, compel small units to combine; and are instrumental in forming powerful business combinations, in a craze for achieving bigness.
(viii) Individual Organising Ability:
The scarcity of organizing talent has also induced the formation of combinations, in the business world. Many-a-times, therefore, combinations are formed due to the ambition of individuals who are gifted with organising ability. The number of business units is far larger than the skilled business magnates; and many units have to combine to take advantage of the organising ability of these business brains.
Causes of Business Combinations -at a Glance
Types of Business Combinations:
Business combinations are of the following types:
(i) Horizontal Combinations.
(ii) Vertical Combinations.
(iii) Lateral or Allied Combinations:
Lateral combination refers to the combination of those firms which manufacture different kinds of products; though they are allied in some way.
Lateral combination may be:
(a) Convergent lateral combination:
In convergent lateral combination, different industrial units which supply raw-materials to a major firm, combine together with the major firm. The best illustration is found in a printing press, which may combine with units engaged in supply of paper, ink, types, cardboard, printing machinery etc.
(b) Divergent lateral combination:
Divergent lateral integration takes place when a major firm supplies its product to other combing firms, which use it as their raw material. The best example of such combination may be found in a steel mill which supplies steel to a number of allied concerns for the manufacture of a variety of products like tubing, wires, nails, machinery, locomotives etc.
(iv) Diagonal (or Service) Combinations:
This type of combination takes place when a unit providing essential auxiliary goods / services to an industry is combined with a unit operating in the main line of production. Thus, if an industrial enterprise combines with a repairs workshop for maintaining tools and machines in good order; it will be effecting diagonal combination.
(v) Circular (or Mixed) Combinations:
When firms engaged in the manufacture of different types of products join together; it is known as circular or mixed combination. For example, if a sugar mill combines with a steel works and a cement factory; the result is a mixed combination.
Forms of Business Combinations:
By the phrase ‘forms of combinations’, we mean the degree of combination, among the combining business units.
According to Haney, combinations may take the following forms, depending on the degree or fusion among combining firms:
(I) Associations:
(i) Trade associations
(ii) Chambers of commerce
(iii) Informal agreements
(II) Federations:
(i) Pools
(ii) Cartels
(III) Consolidations – Partial and Complete:
(а) Partial Consolidations:
(i) Combination trusts
(ii) Community of interest
(iii) Holding company
(b) Complete Consolidations:
(i) Merger
(ii) Amalgamation
The following chart depicts the above forms of business combinations:
Forms of Business Combinations
Following a brief account of the above forms of business combinations:
(I) Associations:
Forms of Combinations, in this Category are:
(i) Trade Associations:
A trade association comes into being when business units engaged in a particular trade or industry or in closely related trades come together for the promotion of their economic and business interests. Such an association is organized on a non-profit basis and its meetings are used largely for a discussion of matters affecting the common interests of members such as problems of raw- materials, labour, tax-laws etc.
Most of the trade associations are organised on a local or territorial basis. A trade association is the loosest form of combination and it does not interfere with the internal management of a member unit.
(ii) Chambers of Commerce:
Chambers of commerce is voluntary associations of persons connected with commerce and industry. Their membership consists of merchants, brokers, bankers, industrialists, financiers etc.
Chambers of commerce is formed in the same way as associations, with the ultimate objective of promoting and protecting the interests of business community. But they differ from trade associations in that they do not confine their interests only to a particular trade or industry; but stand for the business community in a particular region, country, or even the world, as a whole.
Chambers of commerce act as spokesmen of business community and make suggestions to the government regarding legislations that will foster trade and industry. The constitution and composition of chambers of commerce vary from country to country. In most of the countries, they are voluntarily organised by businessmen; though the government maintains close contacts with them.
(iii) Informal Agreements:
Informal agreements are types of business combinations which may be formed for the purpose of regulating production or for dividing the markets or for fixation of prices etc. Such agreements require the surrender of some freedom by the combining business units; though ownership and control of combining units is not affected.
Informal agreements among business magnates are often concluded secretly at social functions like dinners or at meetings of trade associations etc. These agreements are merely understanding among the parties and no written documents are prepared. As they depend mainly on the honour and sincerity of members; they are referred to as Gentlemen’s agreements.
(II) Federations:
Forms of Business Combinations in this Category are:
(i) Pools:
Under the pool form of business combination, the members of a pooling agreement join together to regulate the demand or supply of a product without surrendering their separate entities, in order to control price.
Important Types of Pools are:
(a) Output Pools:
Under these pools, the current demand for the product of the industry is estimated; and quotas of output for various member units are fixed. Member units are expected to produce only up-to the quota, and sell their products at a price determined by the pooling association.
(b) Traffic Pools:
Such pools are formed by shipping companies, airlines, railway companies and road transport agencies; with the basic objective to limit competition through a division of the area of operation.
(c) Market Pools:
These pools are formed with the objective of ensuring a certain demand to each member. For this purpose, the entire market is divided among the members in any of these three ways by customers, or by products or by territories.
(d) Income and Profit Pools:
In these pools, members of the pooling association are required to deposit a very high percentage (say 80%) of the gross receipts in the common pool for re-distribution among members on an agreed basis.
(ii) Cartels (Kartells):
Basically cartel is the European name for the American pools. According to Von Beckereth, “A cartel is a voluntary agreement of capitalistic enterprises of the same branch for a regulation of the sales market with a view to improving the profitableness of its members’ business.”
Von Beckereth mentions the following broad types of cartels:
(a) Price-Fixing Cartels:
In this type, prices are fixed for goods and members cannot sell below those prices.
(b) Term-Fixing Cartels:
In this type, terms regarding sales e.g. Rate of discount, period of credit; terms of payment etc. are prescribed.
(c) Customer Assigning Cartels:
In this type, each member unit is allotted certain customers.
(d) Zonal Cartels:
In this type, division of market among units takes place; but generally these cartels are formed for dividing the world market.
(e) Quota-Fixing Cartels:
In this type, production quotas are fixed for each member; and no member would produce more than the allotted quota.
(f) Syndicates (or Cartels Proper):
This type of cartel is brought into existence, through an agreement among a number of competing producers to establish a joint selling agency (called syndicate) for the exclusive sales of their products. Member units sell their products to the syndicate at a price called the accounting price.
The syndicate sells to consumers at a price higher than the accounting price; and the profits earned are distributed among members on an agreed basis.
(III) Consolidations:
As a Form of Business Combinations, Consolidations may be:
(a) Partial Consolidations:
Under partial consolidations, the combining units surrender their freedom for all practical purposes to the combination organisation; but retain respective individual entities nominally.
Popular Types of Partial Consolidation are the following:
(i) Combination Trusts:
A combination trusts is an arrangement by which the business control is entrusted to the care of trustees, by a number of business concerns. It consists in the transfer to trustees of the voting rights arising from the possession of shares.
The trust has a separate legal existence. The control and administration of the combining units are consolidated; and they have to forgo a large measure of their independence and autonomy in directing their affairs. The shareholders of combining companies get trust certificates from the Board of Trustees; which show their equitable interest in the income of the combination.
(ii) Community of Interest:
When trusts were declared illegal in the U.S.A.; the business leaders devised a new form of combination ‘Community of interest’, for keeping a number of companies under some kind of common control.
A community of interest may be defined as form of business combination in which, without any central administration, the business policy of several companies is controlled, by a group of common shareholders or directors.
(iii) Holding Company:
A holding company is a concept recognized by law in India and most other countries. A holding company is any company which holds more than half of the equity share capital of other companies or controls the composition of the board of directors of other companies (called the subsidiary companies).
Further, a company which is a subsidiary of another subsidiary company will be the subsidiary of that other holding company too. If e.g. C is a subsidiary of B; and B is a subsidiary of A; then C will be deemed to be a subsidiary of A through the medium of B.
(b) Complete Consolidations:
Complete consolidation is that form of business combination under which there is a complete fusion of the combining units and the separate entities of these units are surrendered in favour of the consolidated unit.
There are Two Forms of Complete Consolidation:
(i) Merger:
In merger, one or more companies merge with another existing company. The absorbing company retains its entity and enlarges its size through merger. The company which is absorbed, on the other hand, loses its entity in the absorbing company.
(ii) Amalgamation:
An amalgamation implies the creation of a new company by a complete consolidation of two or more combining units. Under amalgamation none of the existing companies retains its entity. There is a complete fusion of various existing companies, leading to the formation of an altogether new company.
Meaning of Public Corporation:
A public corporation is that form of public enterprise which is created as an autonomous unit, by a special Act of the Parliament or the State Legislature.
Since a public corporation is created by a Statute; it is also known as a statutory corporation.
The Statute defines the objectives, powers and functions of the public corporation. Life Insurance Corporation of India, the Indian Airlines, the Air India International, Oil and Natural Gas Commission etc. are some examples of public corporations, in India.
Features of Public Corporation:
Following are the salient features of a public corporation:
(i) Special Statute:
A public corporation is created by a special Act of the Parliament or the State Legislature. The Act defines its powers, objectives, functions and relations with the ministry and the Parliament (or State Legislature).
(ii) Separate Legal Entity:
A public corporation is a separate legal entity with perpetual succession and common seal. It has an existence, independent of the Government. It can own properly; can make contracts and file suits, in its own name.
(iii) Capital Provided by the Government:
The capital of a public corporation is provided by the Government or by agencies controlled by the government. However, many public corporations have also begun to raise money from the capital market.
(iv) Financial Autonomy:
A public corporation enjoys financial autonomy. It prepares its own budget; and has authority to retain and utilize its earnings for its business.
(v) Management by Board of Directors:
Its management is vested in a Board of Directors, appointed or nominated by the Government. But there is no Governmental interference in the day-to-day working of the corporation.
(vi) Own Staff:
A publication corporation has its own staff; whose appointment, remuneration and service conditions are decided by the corporation itself.
(vii) Service Motive:
The main objective of a public corporation is service-motive; though it is expected to the self-supporting and earn reasonable profits.
(viii) Public Accountability:
A public corporation has to submit its annual report on its working. Its accounts are audited by the Comptroller and Auditor General of India. Annual report and audited accounts of a public corporation are presented to the Parliament or State Legislatures, which is entitled to discuss these.
Advantages of Public Corporation:
Following are the advantages of a public corporation:
(i) Bold Management due to Operational Autonomy:
A public corporation enjoys internal operational autonomy; as it is free from Governmental control. It can, therefore, run in a business like manner. Management can take bold decisions involving experimentation in its lines of activities, taking advantage of business situations.
(ii) Legislative Control:
Affairs of a public corporation are subject to scrutiny by Committees of Parliament or State Legislature. The Press also keeps a watchful eye on the working of a public corporation. This keeps a check on the unhealthy practices on the part of the management of the public corporation.
(iii) Qualified and Contented Staff:
Public corporation offers attractive service conditions to its staff. As such it is able to attract qualified staff. Because of qualified and contented staff, industrial relations problems are not much severe. Staff has a motivation to work hard for the corporation.
(iv) Tailor-Made Statute:
The special Act, by which a public corporation is created, can be tailor-made to meet the specific needs of the public corporation; so that the corporation can function in the best manner to achieve its objectives.
(v) Not Affected by Political Changes:
Being a distinct legal entity, a public corporation is not much affected by political changes. It can maintain continuity of policy and operations.
(vi) Lesser Likelihood of Exploitation:
The Board of Directors of a public corporation consists of representatives of various interest groups like labour, consumers etc. nominated by the Government. As such, there is lesser likelihood of exploitation of any class of society, by the public corporation.
(vii) Reasonable Pricing Policy:
A public corporation follows a reasonable pricing policy, based on cost-benefit analysis. Hence, public are generally satisfied with the provision of goods and services, by the public corporation.
Limitations Public Corporation:
A public corporation suffers from the following limitations:
(i) Autonomy and Flexibility, Only in Theory:
Autonomy and flexibility advantages of a public corporation exist only in theory. In practice, there is a lot of interference in the working of a public corporation by ministers, government officers and other politicians.
(ii) Misuse of Monopolistic Power:
Public corporations often enjoy monopoly in their field of operation. As such, on the one hand they are indifferent to consumer needs and problems; and on the other hand, often do not hesitate to exploit consumers.
(iii) Rigid Constitution:
The constitution of a public corporation is very rigid. It cannot be changed, without amending the Statute of its formation. Hence, a public corporation could not be flexible in its operations.
(iv) Low Managerial Efficiency:
Quite often civil servants, who do not possess management knowledge and skills, are appointed by the government on the Board of Directors, of a public corporation. As such, managerial efficiency of public corporation is not as much as found in private business enterprises.
(v) Problem of Passing a Special Act:
A public corporation cannot be formed without passing a special Act; which is a time consuming and difficult process. Hence, the scope for setting up public corporations is very restricted.
(vi) Clash of Divergent Interests:
In the Board of Directors of public corporation, conflicts may arise among representatives of different groups. Such clashes tell upon the efficient functioning of the corporation and may hamper its growth.
I. INTRODUCTION
The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen. The first plan of life insurance was that each member paid a fixed annual payment per share on from one to three shares with consideration to age of the members being twelve to fifty-five.
At the end of the year a portion of the "amicable contribution" was divided among the wives and children of deceased members and it was in proportion to the amount of shares the heirs owned. Amicable Society started with 2000 members. Amicable Society for a Perpetual Assurance Office, established in 1706, was the first life insurance company in the world.
The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance. James Dodson, a mathematician and actuary, tried to establish a new company that issued premiums aimed at correctly offsetting the risks of long term life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his advanced age. He was unsuccessful in his attempts at procuring a charter from the government before his death in 1757.
The sale of life insurance in the U.S. Began in the late 1760s. The Presbyterian Synods in Philadelphia and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests created a comparable relief fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. Business Insurance At the same time, the first insurance schemes for the underwriting of business ventures became available. By the end of the seventeenth century, London's growing importance as a centre for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower Street in London. It soon became a popular haunt for ship owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd's of London and several related shipping and insurance businesses.
In 1774, long after Lloyd's death in 1713, the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange on Cornhill as the Society of Lloyd's. Property insurance Property insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667". A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by his Insurance eleven associates established the first fire insurance company, the "Insurance Office for Houses", at the back Office. By the late 19th century, governments began to initiate national insurance programs against sickness and old age. Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von Bismarck introduced old age pensions, accident insurance and medical care that formed the basis for Germany's welfare state. His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of immigrants to America, where wages were higher but welfare did not exist.
In the United States, until the passage of the Social Security Act in 1935, the federal government did not mandate any form of insurance upon the nation as a whole. With the passage of the Act Objective Of The Study To study about Structure of Insurance Sector in India To determine Life Insurance Vs. Other Savings II. METHODOLOGY AND DATA SOURCES Data collection Data collection included both primary and secondary data are used. Primary data is collected by a survey of designing a structured questionnaire which is distributed to the selected policy holders and which respondents are asked to select the best possible answers out of the choices from a list. More than a simple oneword answer and existing employees of Public and Private sector customers , who have taken claims of their life insurance policies. Secondary Data Collection:-The secondary data is collected from the organization website, journals, Textbooks etc., Most of the data is collected from books and some of the data is gathered from the websites. Sampling method : convenience sampling method Sampling method: Convenience sampling method. The present study A Study on Structure of Insurance Sector in India. The present study was mainly of applied nature as the researcher tried to test the Structure of Insurance Sector in India public life insurance companies and private sector life insurance.
III. REVIEW OF LITERATURE The insurance industry in India has witnessed different eras and is more than150 years old. From the days when there were several private companies, to nationalization, and to privatization, the industry has come a full circle. Prior to independence, more than two hundred private insurance companies were doing business particularly in life insurance arena. A cursory glance at the pre nationalization period, through the Indian Insurance Year Books and historical studies amply demonstrates that even with an increasing number of statutory laws and insurance acts passed from time to time-more than 40 times during 1938,1939,1940,1941,1955 and the Insurance Act 1958-to regulate and control the business, as many as 66 out of 215 life insurance companies perished between 1935 and 1955 (Agarwal,1961 and Bhave,1970). The growing business, mismanagement and malpractice, manipulation of life funds to indulge in speculative trading, large scale liquidation of insurance companies, inter-looking of funds, and control and influence of large business houses led to public disenchantment and resentment. On 19th January 1956, the government promulgated life insurance (Emergency Provisions) ordinance through which it look temporary charge of the life insurance business of 154 Indian and non-Indian insurer and of 75 provident fund societies operating in the country (AGARWAL,1960).
On 18th June 1956, the government brought the bill in the parliament for the formation of LIC. The bill, better known as Life Insurance Corporation of India Act,1956,came into force on 1st September 1956 through which the government which took over the life insurance business in the country. The LIC was a monopolistic and monolithic institution, the only exception being the postal life insurance and a few compulsory schemes of Life insurance for state employees managed by some state government.
In 1993, Malhotra Committee, 1 headed by former Finance Secretary and Reserve Bank of India (RBI) Governor R.N.Malhotra, was formed to evaluate the Indian insurance industry and recommended its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. Reviewing “Malhotra Committee Report” it states that reforms were aimed at “creating more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system”.
In 1994, the committee submitted the report and some of the key recommendations included: Structure a) Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. b) Government stake in the insurance companies to be brought down to 50%.
c) All the insurance companies should be given greater freedom to operate. Competition a) Private companies with a minimum paid up capital of Rs.1 billion should be allowed to enter the industry. b) No company should deal in both life and general insurance through a single entity. c) Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. d) Postal Life Insurance should be allowed to operate in the rural market. e) Only one state level life insurance company should be allowed to operate in each state.
Regulatory Body a) The Insurance Act should be changed. b) An Insurance Regulatory body should be set up. c) Controller of Insurance (currently a part from the Finance Ministry) should be made independent. Investments a) Mandatory investments of Life Insurance Corporation (LIC), Life Fund in government securities to be reduced from 75% to 50%. b) GIC and its subsidiaries are not to hold more than 5% in any company. (These current holdings to be brought down to this level over a period of time). Customer Service a) LIC should pay interest on delays in payments beyond 30 days. b) Insurance companies must be encouraged to set up unit linked pension plans. c) Computerization of operations and updating of technology to be carried out in the insurance industry. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives.
Ramesh Jain (1980)2 conducts a case study at Sagar branch, Calcutta, of Life Insurance Company view the spread of life insurance in a particular area and to channelize the mobilized saving for nation building activities. Analyzing the processing of procurement of insurance business and administration of Life Insurance Company in branch level, the study also brings out the growth of total new business and about 30% of Life Insurance Companies individual assurance business originated from the rural sector - it adds to the privilege of Life Insurance Company to contribute their investments to many of the vital projects and schemes under 20 point programmes. The findings of the study were to establish servicing center to have continuous interaction with the policyholders and the sagar branch has still greater potentialities of expansion in rural area. The Planning Wing of the LIC Divisional Office, Thanjavur (1987)3 has conducted a sample survey on “Customer Satisfaction”.
The objectives of the study found the level of consumer satisfaction regarding the services, particularly on the aspects such as timely dispatch of discharge forms, reminders, the cooperation 1 Malhotra Committee Report, Government of India, Ministry of Finance, New Delhi, 1994.www.Indiagov.org. Dated 06-06-2005. 2 Ramesh Jain, A Project on “The Organization and Working of Life Insurance Corporation of India: A Case Study of Sagar Branch, Jabalpur”, Jan-June 1980, P. 45-48. 3 Planning Wing of LIC Divisional Office, Thanjavur Division, “Customer Satisfaction with Particular Reference to Maturity Claims” Special Study No. 1, 1987.
Given by agents or development officers, courtesy and sympathy of Company officials, receipt of the policy amount within the due date etc. The results of the study revealed the following points. They are: • Discharge forms are received before the due date by seventy nine per cent of the policyholders. • Eleven percent of the policyholders approached the agent or development officer for help in the submission of the requirement and they are happy with the services rendered by them. • Twenty one percent of the policyholders submitted the requirements after receiving a reminder from the branch office. • Six percent of the policyholders approached the branch office for discharge forms. • Ninety percent of the policyholders were satisfied with the prompt service rendered by the branch office. •
Some policyholders stated that the corporation should insist the agents and development officers render all possible help to their clients at the time of claim and survival benefits settlement. The overall conclusion from the above study were: • There is an imperative need for keeping up the tempo of maturity claims settlement operations at the present level. • It is desirable to verify the policy ledgers every fortnight for omissions in the computer list so that the delays can be reduced and all the claims can be settled before the due date. •
A few policyholders, who expressed their grievances at the delay, could have been satisfied, if some courteous and prompt attention had been paid to them when they came to office. Syed Ibrahim (2012),4 in his research “Consumers’ Grievance Redressal System in the Indian Life Insurance Industry - An Analysis” attempts to review on consumer protection and the awareness with reference to the grievances settlement operations of the Life Insurance Industry in India. The study was based on relevant secondary data which was been collected mainly through the data bases of Insurance Regulatory Development Authority of India (IRDA), Reserve Bank of India (RBI), various reports and other studies for a period of 5 years.
The research based on various statistical analyses revealed that LIC has succeeded in resolving consumer’s grievances when compared to the private insurers but even private players were active in resolving the grievances only in performance year ends .The paper also highlight that IRDA has recently established the Consumer Affairs Department to give a special focus to and oversee the compliance by insurers of the IRDA Regulations for Protection of Policyholders’ Interests and also to empower consumers by educating them regarding details of the procedures and mechanisms that are available for grievance redressal.
Savita Jindal (2014), 5 in her study on, “Ethical Issue in Insurance Companies: A Challenge for Indian Insurance Sector” has attempted to find out various ethical issue of insurance companies in India by examining a sample of 50 people from insuring public were interviewed with insurance policies of life insurance to find out the ethical ways in settlement of claims. The study revealed that insurance companies in India are Failing in identifying the customer's needs and recommend products and services that meet their need followed by Misrepresenting in terms and conditions while selling products to customers, Unethical remarks about competitors, their products, or their employees or agents and lastly lack of expertise or skills to competently perform one's duties.
Finally the paper concludes that insurance companies have recognized the moral dilemma in claims settlement; they understand that if claims are not settled in ethical manner it will result in bad consequence for company image which will fall back on the insured or the beneficiary. Finally the research stated that insurance business sector has many areas for improvement and development. Mouna Zerriaa and Hedi Noubbigh (2015),6 in their research paper, “Determinants of Life Insurance Demand in the MENA Region” have tried to investigate the determinants of life insurance consumption in the Middle East and North Africa (MENA) region using a sample of17 countries over the period 2000-2012.They have used two measures of life insurance demand: insurance density and insurance penetration. This research states that consumption increases with income, interest rates and inflation and also it highlights that country’s level of financial development, life expectancy and educational attainment stimulates life insurance demand in a nation. 4 Dr.M.Syed Ibrahim, S.-U.-R. (2012).
"Consumers’ Grievance Redressal System In The Indian Life Insurance Industry - An Analysis." S o u t h A s i a n J o u r n a l o f M a r k e t i n g & M a n a g e m e n t R e s e a r c h. 5 Jindal, S. (2014). "Ethical Issue in Insurance Companies: A Challenge for Indian Insurance Sector." International Journal of Computer Science & Management Studies Vol. 14(Issue 09). 6 Noubbigh, M. Z. a. H. (2015). "Determinants of Life Insurance Demand in the MENA Region." Proceedings of 10th Annual London Business Research Conference, Imperial College, London.
IV. STRUCTURE OF INSURANCE SECTOR IN INDIA
The development of the life insurance market as positive effect on economic growth. The LIC was founded in 1956 when the parliamentary of India passed the life insurance of India act that nationalized the private insurance industry in India. LIC slogan is in Sanskrit “yoga kshemem waham yaham” which translated in English as “your welfare is our responsibility”. This is derived from the ancient Hindu text, the Bhaagawat geetha’s 9th chapter, 22nd verse. The life insurance industry started with a modest beginning in the year 1957 with 82 corers of funds. The business performance of life industry for the period ending 31-12 -1956 was 13 cores first year premium on 9.5 lakh policies. The no. Of direct agents was 12,387 in the year 1958. It is the 2nd biggest real estate after Indian railways. In term of policies paid 96.97% in the year of 2014-15 and 99.55.% in the year of 2015-16. 3.(i).
Types of Insurance Sector in India The Corporation had an Executive Committee consisting of the Chairman, two Managing Directors and two other Members of the Corporation. There was also an Investment Committee consisting of the Chairman, a Functional Director, and five other persons, to advise the corporation in matters referred to it relating to the investment of its funds. 3.(i).a.What is Life Insurance Life insurance is a contract that pledge payment of an amount to the person assured (or his nominee) on the happening of the event insured against. The contract is valid for payment of the insured amount during, The date of maturity, or Specified dates at periodic intervals, or Unfortunates death, if it occurs earlier. Among other things, the contract also provides for the payment of premium periodically to the corporation by the policy holder. Life insurance is universally acknowledged to be an institution, which eliminates 'risk', substituting certainty for un certainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner. By and large. life insurance is civilization's partial solution to the problems caused by death. Life insurance, in short, is concerned with two hazards that stand across the life-path of every person, That of dying prematurely leaving a dependent family to fend for itself and That of living till old age without visible means of support.
3.(i).b.What is General Insurance General insurance covers insurance of property against fire, burglary, theft; personal insurance covering health, travel and accidents; and liability insurance covering legal liabilities. This category of insurance virtually covers all forms of insurance except life. Other covers may include insurance against errors and omissions for professionals, credit insurance etc. Common forms of general insurance are motor, fire, home, marine, health, travel, accident and other miscellaneous forms of non - life insurance. Motor Insurance Motor insurance covers all damages and liability to a vehicle against variou s on-road and offroad emergencies.
A comprehensive policy even secures against damage caused by natural and man - made calamities, including acts of terrorism. Motor insurance is mandatory in India as per the Motor Vehicles Act, 1988 and needs to be renewed every year. Driving a motor vehicle without insurance in a public place is a punishable offence.
Health Insurance Health insurance is an insurance policy that ensures that you get cashless treatment or expense reimbursement, in case you fall ill. It is a contract between a general insurance company and one, which consider expenses incurred when availing treatment. However, the insurance company would pay for your treatment if the medical condition is covered by your policy. As per IRDAI, the premiums payable towards such an insurance policy have tax advantage under section 80D of Income Tax Act,1961 Marine ( Cargo ) Insurance Business involve the import and export of goods, within national borders and across international borders. Movement of goods is fraught with risk of mishaps which can result in damage and/or destruction of shipments. This leads to substantial financial losses for both the importers as well as the exporters. 3.(ii).Organizational Structure – India The life insurance corporation India regions 5 with its central office in MUMBAI and 8 zonal office at Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur, Bhopal, and Patna operates through 113 divisional offices including one salary saving scheme(SSS) divisions at Mumbai, 2048 branch offices and 1,401 satellite offices and Mini office 1,240 and Employees1,14,773 and agents 10,61,560 in the year of 2017. 3.(iii). Registered Insurers in India The number of life insurance companies in India in the year 2001 is total 5 out of which one in public sector and 4 in private sector. The government opened the doors for private players for entering in the insurance business in the year 2000, as a result, many private players entered in it.
The number of private players increased day by day from 5 in the year 2001 to 23 in the year 2011. At present, there are 24 insurance companies in India. At the end of March 2017, there are 53 insurers operating in India of which 24 are life insurers, 27 are general insurers. In addition, GIC is the sole national reinsurer of the 53 insurers presently in operation, eight are in the public sector and the remaining forty five are in the private sector. Two specialized insurers, namely ECGC and GIC. 3.(iv).Table.1. Registered Insurers in India (As on 31th March, 2017) Type of Insurer Public Sector Private Sector Total Life 1 23 24
Merits and Demerits of combination in Indian industries
Circular combination refers to combination of firms engaged in different businesses and producing different products. For e.g. a cell phone manufacturer combining with a car manufacturer or a company manufacturing consumer durable combining with a automobile manufacturing company. It is also known as mixed or complementary combination.
ADVANTAGES OF CIRCULAR COMBINATION TO COMBINING FIRMS
Efficient management: When firms from different industries come together, they can share their knowledge of best practices in different areas. For e.g. If one firm has implemented Total Quality Management successful while another has implemented Total Productive Maintenance, they can share their knowledge. Managerial talent can be better utilized which would lead to efficiency in managing the organization.
Economies in operations: The firms can integrate their transportation, administration and marketing costs. This leads to economies and reduction in costs.
ADVANTAGES OF CIRCULAR COMBINATION TO THE CONSUMERS
Evils of monopoly voided: Unlike a horizontal combination, a circular combination does not result in monopolies and consumers are spared from the evils of monopolies.
Spread of benefits: If a firm which was successful and efficient in one line of business, engages in other businesses it would run them also in a successful manner. Therefore more customers are benefited.
DISADVANTAGES OF CIRCULAR COMBINATION
Problems in co-ordination: Expansion beyond a particular level would lead to problems in coordination and control. Inefficiencies might creep in resulting in dis-economies and would affect all the businesses.
Concentration of economic power: It might result in concentration of economic power in a few hands and inequalities in income distribution in the economy.
Loss of employment: Integration of operations might results in downsizing and employees in combining organizations might lose their jobs.
