Unit - 5

Business Organizations and E-Governance

Q1) Define sole trader.         

A1) To give you a transparent picture of your organization's only sort of trade, here are some important definitions.

(I) L.H. Haney:

"Individual entrepreneurship may be a sort of business that takes responsibility, directs the business, and puts the individual in danger of failure alone in its head." consistent with Haney, the business isn't only its management, but its management. it's within the hands of 1 one that is additionally liable for the risks.

(II) James Stephenson:

A sole proprietor may be a one that runs a business on his own, not only the owner of the capital of the business, but also usually organizes, manages and assumes responsibility for all profits or losses. James Stevenson emphasizes that the only trade business is funded by himself and is administered alone consistent with his management capabilities. he's also liable for the success or failure of this business.

(III) S.R. Davor:

"A sole proprietor is someone who runs his own business without the assistance of a partner. He brings in his own capital and uses all his workforce. He also pays as a gift. I’m being helped by others. "

According to Davar, the only proprietor uses only his resources and doesn't get the assistance of his partner. With the rise in jobs, he may hire some people to assist him get purchased their jobs. Adding a partner changes the form of the organization because it becomes a Partnership issue.

A sole proprietor is someone who uses mm's resources to start out a business, hire people to manage the business on their own, and bear all the advantages and risks of the business on its own.

Q2) Write the characteristics of personal business.    

A2) Characteristics of Personal Business:

(I) Individual Initiatives:

This business starts with the initiative of 1 person. He prepares a blueprint for the venture and coordinates various factors of production. He may hire others to assist, but he has ultimate authority and responsibility. All profits and losses are taken by one individual.

(II) Unlimited Liability:

In a single trade, business liability is unlimited. The owner is liable for all losses arising from the business. Responsibility isn't only the investment in his business, but also his personal property is liable for his business obligations.

(III) Management and Control:

The owner manages the whole business on his own. He makes various plans and executes them under his own supervision. Someone may help him, but the last word control lies with the owner.

(IV) Motivation:

One is the only owner of the business. He receives all profits and suffers losses, if any. There is a direct relationship between effort and reward. The more he works, the more he will earn. He is eager to expand his business activities. He doesn't want to enter the speculative business because of the high risk.

(V) Secret:

All important decisions are made by the owner himself. He keeps all business secrets only to him. Business secrets are very important for small businesses. By keeping the business secret, he prevents competitors from entering the same business.

(VI) There is one sole proprietor and one sole proprietor.

Legally, sole proprietorships and their businesses are not separate entities. The loss of his business is his loss and the debt of his business is his debt.

(VII) Owners and businesses coexist:

In a single trade business, there is no independent business with the owner. Business and owner exist together. If the owner dies, goes bankrupt, or is removed from the scene, the business will be dissolved.

(VIII) Limited Business Area:

The sole proprietorship generally has a limited business area, because of the limited resources and management capabilities of the sole proprietor. He can only arrange limited funds and can oversee small businesses. All decisions are to be made by the owner, so the area of   business is limited by his management ability.

(IX) No legal Proceedings:

You can start a stand-alone trading business without any legal proceedings. No formation or registration is required.

(X) Any start and end:

The sole proprietor may start the business at his will and may dissolve it at his discretion as well.

(XI) Freedom in trade choices:

Sole proprietors are free to decide what type of business they want to start. He is not supposed to consult anyone to make such a decision.

(XII) Profit Sharing:

The sole proprietor is the single owner of the business and he receives all the benefits himself. He puts all his efforts into the business and enjoys all the fruits of his work.

Q3) What are the purposes of Independent Trade Business?   

A3) A single trade business is established by one person with his or her own resources.

This form of organization is set up for the following purposes:

(I) Channel Individual funds:

Individuals have a small surplus with them. These funds are not enough to set up a large company. People may not like to risk their money in businesses that have no say or control. Instead of keeping your money idle, it's better to set up a small business. Therefore, a single trade business provides a channel for the productive use of individual funds.

(II) Strengthening Distribution Channels:

The only trading business is generally small-scale. People have set up small retail stores under the sole proprietorship. Retailers are an important link in the distribution chain. He is in direct contact with consumers. Without the active involvement of only one trader, the distribution channel from producer to consumer cannot be successful.

(III) Serving Consumers:

Small traders come into direct contact with consumers. Consumers want to buy their daily requirements from the nearest location. The only trader has a store wherever it is available to consumers. Consumers save time by purchasing daily necessities from the nearest retail store.

(IV) Create self-employed Opportunities:

By launching the only trading business, the owner created jobs for himself. Instead of looking for a job outside, this is a form of organization that helps people create their own jobs.

(V) Avoid Concentration of Wealth:

To avoid the concentration of wealth in a small number of funds, a single trading business helps its distribution among many people. When a large number of people enter different businesses, it may be small, but it helps to distribute economic wealth.

(VI) Supporting Large Companies:

The success of large businesses is also related to the support provided by small business units. Smaller units provide ancillary services to larger units. Larger units require many smaller components, from smaller units. As such, a single trade business serves large units by providing everything they do not want to manufacture in-house. In Japan, all large units rely on supply from small units.

Q4) Explain single trade business and also explain legal position of single trade business.                                                                                                                                           

A4) A single trade business is such a form of organization that does not require any procedures to establish it. Anyone can start a business whenever they want. There are no legal requirements to form a single trading business. However, if some businesses require prior government sanctions, such procedures must be completed.

The usual decisions to launch all businesses are also made in single trade businesses. The first decision is the choice of a particular business area. To make this decision, you must first assess the potential demand for the product if it is in the manufacturing sector, or the presence of the consumer if it is in the retail industry.

Next, you need to evaluate the resource requirements and availability. In general, the only trader relies on family resources to start a business. With the expansion of banking facilities in most places, single companies are now beginning to use credit lines to expand their jobs. Choosing the right site is very important in a single trade business.

Choosing where to start a business is very important, as most retailers are in the hands of single merchants. Customer requirements must be taken into account when choosing a business site.

Customers want to buy their personal necessities at the nearest location, but they want to go to the main shopping center to buy durable consumer goods such as TVs, refrigerators, washing machines, and music systems. The business is set up with various factors in mind. The stand-alone trading business can be closed by the owner at any time. As with other forms of organization, no legal process is required to liquidate this business. Setting up and liquidating a single trade business is both easy.

Legal Status of a Single Trade Business:

The following points explain the legal position of a single trade business.

(I) There is no specific law that requires registration, etc. for this business. The joint-stock company must be established under the Companies Act of 1956, the Partnership company is subject to the Partnership Act of 1932, and the only trading business is not subject to anything. Such a decree. Therefore, this business may be started and dissolved at the discretion of the owner, regardless of statutory provisions.

(II) Single trade business is subject to general land law. If there is a provision to obtain a license to start a specific business, the sole proprietor also obtains a license before starting such a business. Those who want to start a wine shop are expected to get a license from the state government. Sole proprietors who want to enter this business are certainly expected to comply with this law.

(III) The sole proprietor and her business are the same. Business exists only with sole proprietors. If he dies or otherwise disappears from the scene, the business will be dissolved. The owner and his business have one personality.

(IV) The sole proprietorship's liability is unlimited. When a business is dissolved, there is no distinction between business assets and private assets of a sole proprietor, and business loans and personal loans.

Q5) What are the social needs of the social desirability private business? 

A5) Its social need is due to the following reasons.

(I) Employment of a large number of people:

This form of organization can be started alone, but he takes others to help. The number of only traders is very large in all countries and they employ many as their helpers. Therefore, sole proprietors can provide employment to a large number of people.

(II) Need for less capital:

This form of organization can be undertaken by anyone by any means. Even people with few resources can start a business on a small scale. Vegetable sellers can start a business for hundreds of rupees and regain capital at the end of the day. Therefore, this type of form encourages people to do independent business.

(III) Low risk:

In general, the sole proprietorship is started on a small scale and less investment is made. Because of the low risk, you can change your business if it is not appropriate.

(IV) Offering low-priced products:

In this way, we provide consumers with products at low prices. The only number of traders is large, they are in fierce competition with each other, and consumers are offered products at competitive rates. In general, business expenses are low. This allows the only trader to sell their products at a lower price.

(V) Equal Distribution of Income:

This form of organization acts as a constraint on the monopoly tendencies of other forms of organization. Many people enter the business. Therefore, this results in an equal distribution of income. Everyone can invest their savings and get a fair return on it. When a business is in the hands of a few, it brings a concentration of wealth in the hands of only some.

(VI) Useful for small producers:

The only trader buys goods from small producers and sells them to consumers. Many intermediaries are excluded from distribution channels. Some of the profits that the intermediary earns in the form of commissions are left to the producers and some are passed on to consumers in the form of low prices.

(VII) Helping Consumers:

Consumers are helped by some traders in making their purchases. The only trader opens a store on the street so that consumers can buy from nearby stores. Merchants supply products even at the front door.

(VIII) Functions as a training center.

The only trading business offers the opportunity to learn business techniques. With less investment, you can afford to learn by trial and error. You can expand it later by bearing the various strengths and weaknesses of your business. Therefore, this is a good organizational form for receiving business training.

Q6) What are the advantages of sole proprietorship?   

A6) The advantages of sole proprietorship are:

1. Easy to form: Forming and organizing a sole proprietor's business is very easy and easy. There is no legal procedure.

2. Easy to manage: A small organization. The owner can easily manage it.

3. Profit incentives: Sole proprietors enjoy all the benefits for themselves. The motivation for this profit is an incentive to work hard.

4. Quick decision: He is the only organizer, so he can make quick decisions. He can act swiftly in response to changes in the market.

5. Customer contact: He is the owner and manager of concern. By building good relationships with our customers, we will be in a position to personally study their tastes and needs.

6. Business secrets: He can keep business secrets for himself. Keeping confidential is an important issue for all types of corporate organizations.

7. Smooth operation: Since he is a sole proprietor, there is no disagreement or controversy. It helps the smooth execution of concerns.

8. Efficiency and economy: Organizations are small. He can be a close director. He can reduce the cost of management and all sorts of waste. He can run his business efficiently.

9. Flexibility: Business changes can be adopted at any time. Flexibility is promoted with a small investment. It can be moved from place to place very easily.

10. Family Training: He gets the help of his family members in maintaining business. His children are trained in business activities.

11. Self-Employed: Easy to get started with small units. Nationalized banks are also supporting this direction.

12. Social Benefits: It offers many individuals an opportunity. Many can become entrepreneurs with limited resources.

13. Tax Benefits: Income tax is levied on the sole proprietor's personal income, not on the interests of concern. Therefore, it is advantageous.

Q7) What are the limitations of sole proprietorship?   

A7) Restrictions or Disadvantages of Sole Proprietors

The Sole Proprietorship also suffers from certain serious limitations (weaknesses).

1. Limited Capital: The use of limited capital means only limited profits. If you need to grow your business, you may not have enough resources.

2. Limited Skills: Since there is only one man, management ability is limited.

3. Limited Borrowing Capacity: The sole proprietor's borrowing capacity is limited to the extent of his financial position.

4. Unlimited liability: The creditor can withdraw the loan amount not only from the assets of the business, but also from his personal assets. Therefore, his liability is unlimited.

5. Make Hurry Decisions: The sole proprietor makes all the decisions himself. So, there may be a hasty and thoughtless decision

6. Short-lived: If the sole proprietor has no children, or if his children are not interested in continuing the business, the business will be terminated. We do not guarantee a continuous presence in this type of business.

7. No division of labor: Since it is a small unit, it is not possible to introduce a division of labor into management.

8. Employee reliance: With business expansion, it is inevitable that owners will rely on paid managers.

9. Limited Business Area: The business is small. Therefore, the activity cannot go beyond a specific area.

10. Lack of Economies of Scale: Sole proprietors have only small businesses. He is unable to do a large business due to lack of financial resources. Therefore, he cannot enjoy the economy of large-scale production, buying and selling.

Q8) What is partnership? What are its features?    

A8) The term partnership is used to mean a business structure in which two or more individuals have come together to do a legitimate business and have agreed to share the benefits and losses that result from it. Business management and operations are performed by all partners or one of them and must represent all partners.

Partnerships are relationships that exist between individuals who decide to pool money, skills, and resources in their business and share profits and losses in agreed proportions. Partner members are jointly referred to as partnership companies, and some are referred to as partners.

In India, it complies with the India Partnership Act of 1932 and is formed in accordance with the provisions of that law. This begins through a legal agreement between partners, called a partnership certificate. It sets out the conditions that regulate partnerships, such as the share of profits and losses, the nature of the business, the duration of the business, the obligations and obligations of the partners, the capital each partner contributes, and the way the business is conducted.

Features:

In partnerships, decisions are made with the mutual consent of all partners. They share the decision-making and management of normal business operations.

Q9) What are the different types of partnership?   

A9) Partnerships can be divided into different types by state or place of business. Here are some general aspects of the three most common types of Partnerships.

General Partnership

A Partnership is made up of two or more owners who run the business. In this Partnership, each partner represents a company with equal rights. All partners have the right to participate in management activities, decision making and manage the business. Similarly, profits, liabilities, and liabilities are evenly shared and evenly divided.

In other words, the definition of a Partnership can be described as a Partnership in which rights and responsibilities are equally shared in terms of management and decision making. Each partner must take full responsibility for the debts and responsibilities incurred by the other partners. If one partner is sued, all other partners are considered responsible. The creditor or court holds the personal assets of the partner. Therefore, most partners do not choose this Partnership.

Limited Partnership

This Partnership includes both general and limited partners. The General Partner has unlimited liability and manages the business and other limited liability partners. A limited liability company has limited control over its business (limited to his investment). They have nothing to do with the day-to-day operations of the company.

In most cases, Limited Partners only invest and share profits. They are not interested in participating in management or decision making. This non-involvement means that they do not have the right to compensate for the loss of Partnership from the income tax return.

Limited Liability Partnership

In a limited liability Partnership (LLP), all partners have limited liability. Each partner is protected from the legal and financial mistakes of the other partners. Limited liability Partnerships are similar to limited liability companies (LLCs), but not limited liability Partnerships or Partnerships.

Voluntary Partnership

A voluntary Partnership can be defined as if the expiration of the Partnership company is not mentioned. Under Section 7 of the Indian Partnership Act of 1932, the two conditions that a company must meet in order to become a voluntary Partnership are:

Therefore, if the term and decision are stated in the contract, it is not a voluntary Partnership. Also, if the expiration date of the company is initially set, but the operation of the company continues beyond the above date. It is free to be considered a Partnership.

Q10) What are the important stages in the formation of company? 

A10) Important Stages in the formation of a company

The whole process of company formation can be divided into four stages as given below.

1. Company promotion:

A company cannot be established by itself. It is the result of the efforts of individuals or groups of people or institutions. That is, it must be promoted by some people. The process of promoting a business begins with the idea of   an idea and ends when the idea is put into action. That is, the establishment of a company and the start of a business.

 Who is the promoter of the company?

Successful promoters are wealth creators and economic prophets. People who are involved in the promotion of a company are called promoters. He came up with the idea of   starting a business and took all the steps necessary to make a company a reality.

 For example, Dhirubhai Ambani is the promoter of Reliance Industries.

Promoters find ways to raise money, research business ideas, arrange funding, raise resources, and establish a going concern.

The Companies Act does not give promoters legal status. He is in the position of a trustee.

Promoter type

There are various types of promoters, including professional promoters, temporary promoters, promoter companies, financial promoters, entrepreneurs, lawyers and engineers.

2. Company registration

It is registration that gives birth to a company. A company is only properly formed if it is officially registered under the Companies Act.

Registration procedure

The important documents that you need to submit to the company registrar to register your company are:

a. Basic Articles of Incorporation: A minimum of 7 people must sign a public company and 2 people must sign a public company. Must be stamped properly.

b. Articles of Incorporation: This document is signed by everyone who has signed the Articles of Association.

c. List of Directors: Make a list of directors' names, addresses and occupations and submit them to the company's registration body.

d. Written Consent of Directors: Written consent of a Director who has agreed to act as a Director must be submitted to the Registrar with a written commitment to acquire and pay qualified shares.

e. Notification of registered office address: It is also customary to submit a notification of the address of the company's registered office when the company is established. It will be issued within 30 days from the date of establishment.

 Legal Declaration: Legal Declaration by

Defender of the Supreme Court or high court or

A lawyer or counsel qualified to appear in the High Court

Practicing a certified accountant in India, engaged in the establishment of a company, or

It is mentioned that the legal requirements and the rules below are being observed by the person listed in the article as a director, managing director, secretary or manager of the company. This must be submitted to the company's registration authority.

Once the required documents have been submitted to the registrar with a prescribed fee, the registrar will scrutinize the documents. When the registrar is filled, the name of the company is entered in the register. The registrar then issues a certificate called the Certificate of Incorporation.

3. Establishment certificate

Upon registration of the Articles of Incorporation, Articles of Incorporation and other documents, the registrar issues a certificate called the "Certificate of Establishment". Issuing a certificate is proof of the fact that the company has been established and is in compliance with the requirements of the Companies Act.

4. Business start certificate

Private companies can start their business as soon as they obtain a proof of establishment. A public company can only start a business after obtaining a "business start certificate". After the company obtains the certificate of establishment, the public company issues a prospectus to invite the general public to join its equity capital. Modify the minimum subscription. Next, you need to sell the minimum number of shares listed in the prospectus.

Once the required number of shares have been sold, a proof of receipt of all the money will be sent to the registrar along with a letter from the bank.

The registrar then scrutinizes the document. If he is happy, he will issue a certificate known as a "business start certificate". This is the definitive proof of starting a business.

Q11) What do you means by Article of association?   

A11) MOA (Memorandum of Association) is a legal document that must be submitted to the company's registration body when the company is established. This is often referred to as a memorandum and consists of the basic conditions under which a company operates.

The Association Memorandum of Understanding is the most important document that needs to be prepared with the utmost care. A document that defines the relationship between the company and the outside world. The Articles of Association serve as the company's constitution, which defines all the rules and regulations that all companies must comply with. All companies wishing to register as a limited liability company are required to prepare the basic articles of incorporation.

Once the document is created, the company cannot do anything beyond the limits set forth in the Articles of Association. Therefore, it is considered the best document and consists of the following important terms:

Name clause: The name of the company that must end with the term "finite". You also need to make sure that the name chosen for the company is not similar to the name of an existing company.

Registered Office Clause: This clause requires the address of the company's registered office.

Purpose clause: The purpose clause must clearly state the purpose behind the establishment of the company, that is, the purpose for which the company is established.

Liability Clause: This clause should mention the extent to which shareholders are obliged to repay their debt if the company dissolves.

Capital clause: The authorized capital of the company and the nominal value of all types of shares must be disclosed here. The company must also list its assets here.

Association Clause: In accordance with this clause, shareholders' willingness to partner with the company is required. In the case of a public limited company, a minimum of 7 members must sign the memorandum, but in the case of a limited company, a minimum of 2 members must do the same.

Note: This document must be published and presented to shareholders, creditors, and others associated with the company so that everyone knows the policies that the company operates.

Q12) What is prospectus? Explain prospectus for issuing shares and bond.

A12) A prospectus is a legal disclosure document that provides public information about investment offerings and must be submitted to the Securities and Exchange Commission (SEC) or local regulators. The prospectus contains information about the company, its management, recent financial performance, and other relevant information that investors want to know.

It explains, in detail, a share offers to the investors.

Prospectus for issuing shares or bonds

When a company issues shares or bonds, it issues a prospectus to provide investors with all the information they need to make informed decisions. The issuer provides both a preliminary prospectus and a final prospectus. A preliminary prospectus is an initial public offering document that provides details about the proposed transaction. The final prospectus will be provided when the offering is complete and generally available for subscription.

The information in the final prospectus includes the number of shares issued, the offer price, the company's financial data, risk factors, the use of earnings, dividend policy, and other relevant information. This information helps investors make informed decisions about whether to invest in a company.

Q13) What are the components of prospectus?    

A13) The components of the prospectus are:

1. Company profile and history

The prospectus contains an overview of the company since its inception. It provides a timeline of events that have occurred over the years, such as events that helped the company grow. It also contains information about the founder, company registration, and initial service delivery. This section may also include an overview of the company's strategy and what management believes to be its competitive advantage or "proprietary sales offer" (USP).

2 Services / products provided by the company

The Services / Products section lists the major economic activities that the company is carrying out. The company provides information on the services and products offered to its customers and their addition to the business over the years.

3 Management profile

The prospectus also contains information about the company's management team. It outlines the management team's experience and educational qualifications that make them fit well into the company. Investors want a guarantee that company executives have what they need to protect their investments.

4 Desirable trading structure

If the issuer is an existing company that has previously issued securities, it may provide an overview of the current capital structure and how the new issuance will affect the structure. For example, when selling a bond, an investor may be interested in knowing the debt level of the company and its solvency. Equity investors will want to see the current equity ownership structure and how investments affect the structure and expected rate of return.

5 Use of revenue

Companies often offer the issuance of securities when they are unable to raise funds internally to fund a large investment. For example, a company can expand its business to other geographic locations, acquire its own technology, buy large machines, fund the production of new product lines, or carry out M & As. can do.

6 Security Offering Details

The prospectus also provides information on the number of securities available to the public and the price of each security. You also need to state the expected rate of return on the investor's funds. This section also provides information on the subscription period during which interested investors can purchase securities.

7 Financial information

The prospectus should provide investors with information about the company's past financial performance. Information may include EBIT, net income, stock performance, and more. Security performance can be compared to known benchmarks such as the S & P500 and the Dow Jones Industrial Average.

8 Related risks

The prospectus must disclose the risks that investors face when investing in a trust. For example, an international mutual fund may contain disclosures detailing the currency risks that investors face when investing in the fund.

Q14) Write the purpose and importance of prospectus.   

A14) The purpose and importance of the prospectus

If you are considering investing in a company's stock, you need to fully understand the details of the company and the security itself. Going through it serves this purpose.

Below are some points that explain the purpose and importance of the prospectus.

An important part of that is the details of the issuing company. It gives the big picture of the company. For example, financial information, its operations, goals, objectives, business plans, proceedings, etc. All of this information will help you better understand the company you are investing in.

b.    Security / Offer Details:

It also provides security details. If the company issues shares or bonds, it provides details of the issued shares, asking price, risk factors, dividend policy, and other relevant information.

When a company issues it for a mutual fund, it involves all the fund's objectives, distribution policies, investment strategies, risks, instructions on how to buy and sell the funds' shares, and other important details.

Familiarity with investment offerings will resolve all queries and give you a clearer view of the offering.

c.     Investment-related risks:

Before subscribing to a company's stock, you need to be aware of the risks that may arise after your investment. The prospectus also solves this problem by providing details of the risks associated with the offer. Therefore, you need to go through it to gain insight into these potential risks.

Q15) What are the types of prospectus?    

A15) There are four types of prospectuses. They are:

According to Article 31 of the Companies Act, a public company may issue a shelf outlook if the security is issued in multiple issuances. Issued on the first offer of company securities. The company will provide this prospectus with an expiration date of no more than one year. During this period, the Shelf Prospectus is valid for this new offer, so there is no need to issue a new Offering Prospectus. The Memorandum of Information will be submitted by the company along with the submission of the shelf outlook prior to the issuance of subsequent securities offerings. The Memorandum of Information shall include new changes and changes in the financial position of the Company made during the initial issuance of securities and subsequent issuance of securities.

b.    Red herring prospectus

Red Herring Prospectus does not contain information about the amount of shares issued and / or the price of the shares. This prospectus was issued prior to the issuance of the main prospectus and is intended to declare the offer at least three days before the start of the offer. At the end of the offer, the prospectus will include the total capital raised, the closing price of the securities, and other information, and will not be included in the Red Herring prospectus.

c.     Summary prospectus

A summary prospectus is a compact or summarized form of prospectus that contains all the information about the prospectus, making it quick and easy for investors to understand. A company may not issue a share application unless a summary prospectus is attached. However, it is not required for underwriting contracts or securities that are not disclosed. If the company does not attach it to the application, Rs will be legally charged. 50,000 per default.

d.    Deemed prospectus

A major company can hire an issuer or other company to issue its securities to the market. The issuing / hiring company submits a document called a prospectus on behalf of the company. A document is considered a prospectus if:

The offer to buy or sell will be made within 6 months from the contract with the Company.

When the company does not receive compensation by issuing a housing / employment company to the general public.

Q16) What are shares?      

A16) Shares are a unit of ownership of a company that exists as a financial asset and, in the form of dividends, distribute residual profits, if any, evenly. As the value of the company increases, shareholders can also enjoy capital gains.

Stocks represent company stocks, and the two main types of stocks are common stock and preferred stock. As a result, "stock" and "stock" are commonly used interchangeably.

When setting up a company, the owner can choose to issue common or preferred stock to investors. A company issues shares to investors in exchange for the capital used to grow and operate the company.

Unlike debt capital obtained through the issuance of loans and bonds, equity has no legal obligation to repay investors, and stocks can pay dividends as a share of profits, but not interest. Almost every company, from small partnerships and LLCs to multinationals, issues some kind of stock.

Shares of a private company or partnership are owned by the founder or partner. As SMEs grow, their shares are sold to outside investors in the primary market. These may include friends and family, as well as angel and venture (VC) investors. If the company continues to grow, it may seek to raise additional equity by selling its shares to the public on the secondary market through an initial public offering (IPO). After the IPO, the company's stock is said to be listed and listed on the stock exchange.

Most companies issue common stock. They provide shareholders with a residual claim on the company and its profits and provide potential investment growth through both capital gains and dividends. Common stock also has voting rights, giving shareholders more control over their business. These rights allow registered shareholders of the company to vote on specific corporate actions, elect members to the board of directors, and approve the issuance of new securities or the payment of dividends. In addition, certain common stocks have pre-emptive rights, allowing shareholders to purchase new shares and maintain ownership when a company issues new share.

By comparison, preferred stock is usually less valued in the market for corporate value and voting rights. However, this type of stock usually has a payment standard. This is a dividend paid on a regular basis and is less risky than common stock. If the business files for bankruptcy and is forced to repay by the lender, the preferred stock will take precedence over the common stock, so the preferred stock will receive payment before the common stock but after the bondholder. Preferred stock is less risky than common stock because it prioritizes repayment in the event of bankruptcy.

Paper stock certificates have been replaced by electronic records of stock. The issuance and distribution of shares in the public and private markets is overseen by the Securities and Exchange Commission (SEC), and the transactions of shares in the secondary market are overseen by the SEC and FINRA.

Q17) What are equity shares? What are the types of stock?  

A17) Equity shares or stock is the most common type of stock issued by a public company to raise capital. Generally, common stock holders enjoy voting rights, are able to attend the company's general and annual meetings, and are also entitled to the company's surplus.

With respect to voting rights, one share usually means one vote and may be related to company policy or the appointment of directors. However, companies can fine-tune the relationship between the number of shares and the number of votes.

For example, Tata Motors issued a special category in 2008 called "A" shares. By policy, 10 "A" shares are equivalent to 1 vote. However, they received 5% more dividends than regular stocks.

Ordinary shareholders also participate in the loss suffered by the company only by investing in the company. These qualifications are granted to shareholder in order to hold ownership of the company and represent its shares.

However, shareholders will receive dividends when the company meets all other qualifications it is obliged to pay from profits. Therefore, such stakeholders do not receive a fixed amount of dividends or even a guarantee of receipt of dividends.

As a result, dividends are usually not the main source of income from stocks, but their prices change. Because stocks are transferable, investors can make a financial profit by selling at a premium and buying at a discount on different types of stock markets.

When it comes to stock types, common stock includes two comprehensible classifications. One is definition-based and the other is feature-based.

Defined types of stocks –

This indicates the total amount of capital that a company can raise by issuing shares, as described in the Memorandum of Association (MOA).

For example, if a company's MoA indicates an approved share capital of Rs 5 billion, the law does not allow such a company to issue shares whose issued value exceeds that amount.

However, this does not mean that the entity cannot later change MoA's approved share capital. But to do so, organizations must, among other things, follow a series of procedures.

b.    Issued stock capital

As the name implies, issued equity capital is the amount of capital that a company raises by issuing shares.

However, keep in mind that issued equity capital represents only the nominal value of all common stock issued by the company.

For example, if the nominal value of a company's stock is Rs. 10 And it issued 500,000 rupees of shares in the market, and its issued capital stands at rupees. 5 rolls.

c.     Joined capital and paid-in capital

This is the percentage of outstanding capital subscribed to by the investor. Investors may not buy all the shares issued by the company.

On the other hand, paid-in capital is the amount actually paid by the investor to the stock. Therefore, it is directly related to the amount of capital the company raises by issuing shares.

The types of feature-based sharing are –

Voting and non-voting shares

As the name implies, the entity holding these voting shares has the right to vote on matters relating to company policy or the appointment of directors. Most common stock is usually voting stock.

For non-voting shares, there may be a difference in voting rights or no voting rights at all. Examples of different voting rights are given above, with Tata Motors issuing "A" shares in 2008.

Sweat stock

Companies can typically issue shares to employees and directors as a means of compensation when they perform well. Sweat Equity shares allow businesses to retain efficient employees by giving them ownership.

Right stock

Of the many types of shares, the company issues this variant to existing shareholders. In a more rigorous sense, companies give existing stakeholders the right to purchase such shares before they begin trading with external investors.

Bonus share

Companies issue bonus shares instead of dividends. Therefore, existing shareholders are entitled to receive only bonus shares. Organizations can also issue bonus shares to convert a portion of their retained earnings into shares.

Q18) What are preference shares and its types?    

A18) Preferred shares provides special rights or incentives, especially with respect to the receipt of dividends and the repayment of capital when the organization is liquidated. In other words, preferred stockholders receive dividends first, and companies return capital before liquidation at the time of liquidation.

Preferred stockholders also enjoy a fixed dividend guarantee that ordinary shareholders do not have. Therefore, investors looking for low-risk investment options can choose to buy preferred stock in the company.

However, preferred stock is generally not allowed to participate in the interests of the organization beyond its fixed qualifications. Therefore, if a company raises its dividend rate in proportion to its net profit, preferred shareholders will not enjoy the increase, only ordinary shareholders.

In addition, preferred stocks usually do not have voting rights. For these reasons, preferred stocks are usually not a popular option among investors.

Nevertheless, the type of stock under the preferred stock is –

In the case of redeemable class of shares, the issuing company and such shareholders may allow the company to redeem or repurchase those shares in a later period, either after a certain period of time or at a future date. I accept. Redeemable shares depend on who can exercise the repurchase clause (shareholder or organization). Therefore, non-redeemable stock is the exact opposite of redeemable stock.

2.     Preferred stock of convertible and non-convertible bonds

Alternatively, stock types can be categorized based on whether there are conversion provisions. To that effect, holders of convertible preferred stock may convert their shares into shares if certain conditions are met. Conversely, holders of non-convertible preferred stock are not entitled to that provision.

3.     Participatory and non-participating preferred stock

Holders of participating preferred stock have the right to participate in the interests of the company once the company allocates dividends to common shareholders. Therefore, if a company's net profit is significantly higher, such shareholders are in a position to receive a portion of such profit. On the other hand, holders of non-participating shares are only entitled to fixed dividend payments. The latter is a more common variant.

4.     Cumulative and non-cumulative preferred stock

If the company does not pay dividends on preferred stock in a particular year, such dividend eligibility will be carried over to the next year if it is cumulative stock. Conversely, for non-cumulative preferred stock, the dividend will not be carried forward unless the organization pays a dividend in a particular year.

Q19) Who can be director?       

A19) The term is commonly used in two different senses, and its choice is influenced by the size and global scope of the organization and its historical and geographical context. In addition to this, the term is used with reference to various technical (legal) definitions specific to the corporate governance laws of individual countries.

Therefore, the director can be one of the following:

A person appointed as Chief Executive Officer of the company itself (Managing Director) or key functions (Finance Director, Operations Director, etc.). In this case, the job title resembles and replaces "executive". The title, which can be considered the British English meaning of the word.

A person in a group of managers who lead or oversee a particular area of   the company [1]. This may be considered the meaning of an American English word.

A person who serves as a "director" in the legal sense and has certain legal obligations and responsibilities for the management of a company appointed by the board of directors.

Within a company that uses this term in the latter sense (American English), directors are typically dispersed across different business functions or roles (e.g., Human Resources Manager). [2] In such cases, directors typically report directly to the Vice President or CEO to inform them of the progress of the organization. Larger organizations may also have "assistant" or "deputy" directors. In this context, director usually refers to the lowest level executive in an organization, but many large companies use the title of Associate Director more often.

When used by a company that uses a title director in the British English sense, being called an "executive director" generally means that the owner is appointed to the board of directors in a legal sense and has significant liability. I will. Financial interests in the business. In contrast, in the American English context, an "executive director" is roughly equivalent to a vice president or senior director in some businesses.

Such companies may have "Regions" and / or "Area Directors", and the positions of Regional Directors tend to be organized by location and used by companies with departments underneath. Shows almost full responsibility for the work of a particular country.

Managing your business is not an easy task. Therefore, there are qualification criteria for a person to become a director.

Only individuals can be directors of the Company. Non-individuals are not eligible to become directors.

In addition, minors cannot be directors of the company because they are not eligible to obtain a DIN and cannot provide valid consent as a director.

At least one director of the company must be a resident of India.

In addition, the person acting as a director would be:

Q20) What qualifications do you need to become a director?  

A20) There is a widespread misconception that directors must always be shareholders of the company. However, if this is not the case, the directors do not have to be shareholders of the company unless otherwise provided in the company's provisions. However, articles usually provide directors with a specific qualification share.

1. Eligible stocks:

If the company article provides so, follow the seconds. 270, Directors are required to acquire qualified shares as follows:

(I) Directors must acquire eligible shares within two months of their appointment, unless they already hold shares.

(II) When the provisions of the provision requiring that the qualified shares be held or acquired within two months before assuming the post of director become invalid.

(III) The nominal value of one Eligible Share must not exceed Rs. 5,000.

(IV) Bearer stock warrants are not counted for the purpose of eligible stock.

(V) Directors will automatically cease to be Directors if they do not acquire eligible shares within two months of their appointment, or if they do not own such shares at any time thereafter.

(VI) Directors must not acquire shares as a gift from the promoter. He has to pay for his qualified shares.

(VII) The director is obliged to hold eligible shares in his own rights. Also, if you are not listed as a trustee in the membership register, it is sufficient to retain it as a trustee.

(VIII) Unless otherwise specified in the article, joint holding is sufficient to qualify shares.

(IX) A person who serves as a director of a company without holding qualified shares after the expiration of the two-month period from the date of appointment retires from the director and Rs. 50 people every day from the expiration date of 2 months to the day of continuing to be a director. [Seconds. 272]

(X) The above provisions regarding eligible shares do not apply to privately held companies that are not subsidiaries. 273]

2. Written consent:

Any person proposed as a candidate for a director must, if appointed, sign and submit to the company an agreement to act as a director (Article 264).

However, the following persons do not need to submit such consent.

(I) Persons who retire as directors due to rotation or other reasons.

(II) A person who has notified a candidate for a director at the company's registration office pursuant to paragraph 2. 257.

However, newly appointed Directors shall not act as Directors unless they sign within 30 days of their appointment and agree to the Registrar to act as such Directors.

You do not need to submit such consent for the following persons:

(I) Directors were reappointed after retiring due to rotation or shortly after their term of office expired.

(II) Additional or alternative directors, or persons who fill temporary vacancies in the duties of directors under Article 262, or who have been appointed as directors, or who have been reappointed as additional or alternative directors shortly after the expiration of their term of office. Person.

(III) A person appointed as a director based on the first registered articles of incorporation.

Only those who wish to become new directors must agree to act in that way. Those who are already directors and will retire at the Annual General Meeting of Shareholders but seek immediate reappointment are exempt from submitting consent.

The provisions of this section do not apply to independent private sectors.

3. Individuals only: Can be a director:

No company, association, or company can appoint a director of a company. Only individuals can be appointed as directors.

Q21) Discuss the duties of a director.     

A21) These seven legal definitions are the obligations of each director to the company, and being a director of the company forms the basis of everything.

The first of these obligations is that the directors must act within their authority under the constitution of the company. The most important part of the company's constitution is the articles of incorporation. These are a set of rules that are important to your company and your board of directors.

You may have used a model article available to a private or public company when you registered your company. Alternatively, you may have created your own tailored article, usually with the help of a legal counsel.

As a director, it is important to be familiar with the Articles of Incorporation, as the Articles of Incorporation can constrain decision-making in certain ways. If you go beyond your power, the relevant decisions may be revoked and you may even have to compensate the company for the resulting financial loss.

ii.                Promote the success of the company

The second primary duty of the directors of a company is to promote the success of the company. This is probably the best known of the seven obligations.

Starting in early 2019, the new reporting requirements mean that large companies (more than 250 employees) need to explain in their annual reports how they have fulfilled this obligation.

The obligation states that the directors must act in good faith in a manner that they consider most likely to promote the success of the company for the benefit of all members (shareholders). When making decisions, directors also need to consider the possible consequences for a variety of stakeholders, including employees, suppliers, customers, and communities. We also need to consider the environmental impact, the company's reputation, the long-term success of the company, and all shareholders (including minority shareholders).

The obligation to promote a company's success may seem like an obvious task for directors. However, this has many implications.

Board decisions can only be justified in the best interests of the company, not on the basis of what works best for anyone else, such as a particular executive, shareholder, or other entity. However, directors need to be broad-minded in how they value their interests, taking into account other stakeholders, rather than adopting a narrow financial perspective.

iii.             Independent judgment

The third major obligation requires directors to exercise independent judgment. Directors aim to develop their own informed views on the activities of the company.

Directors must not simply be representatives of executing the orders of other parties (such as major shareholders). In addition, we should not avoid the responsibility of making independent decisions that rely on the knowledge and judgment of other directors and experts.

Directors need to develop their own views, which can require some effort. This is especially true if you are not yet familiar with the important aspects of your company's activities.

iv.              Exercise reasonable attention, skill, and diligence

There was a time when directors could be appointed purely for their name and reputation, without expecting them to actually work as directors. That was over because the directors are obliged to exercise reasonable skills, attention and diligence in their role.

Benchmarks are moderately hard-working people with the general knowledge, skills, and experience that you can reasonably expect from those who perform the director's duties. Also, directors with specific specialized training or skills (such as lawyers and accountants) are kept at a higher level of related issues than unqualified colleagues.

v.                 Conflicts of interest and personal interests

The remaining three legal obligations relate to the need for directors to avoid or manage conflicts of interest that could affect objectivity.

In the event of a situation that imposes multiple claims on the attention and loyalty of a director, it is imperative to disclose them to other board members. It is then up to the other non-competitive board members (or, in some cases, shareholders) to decide how to manage or approve the competition and maintain the integrity of the board's decision-making process.

Examples of conflicts of interest include situations where a director has a business or personal relationship with an individual or group that is affected by the activities of the company. It may also be related to situations where directors may be considering personally using the property, information, or opportunities that belong to the company.

Gifts and benefits from third parties are also potential threats to the director's objectivity. Most importantly, the Board of Directors has a legal obligation to disclose direct or indirect interests in any proposed or existing transaction or arrangement with the company.

vi.              Keep a record

How can directors prove that they have fulfilled these legal obligations? One of the key purposes of board minutes is to provide a record of the board's decision-making process.

By law, these minutes must be kept for 10 years. A few years later, it can be difficult to remember whether you have fulfilled your board's obligations with respect to important decisions. Minutes can provide important evidence of what you have done – something that might cause you to be grateful.

vii.           About the Management Association

Dr. Roger Barker is Head of Corporate Governance at the Management Association (IoD) and Managing Director of Barker & Associates, a corporate governance advisory firm.

Founded in 1903, IoD was awarded a letter of patent in 1906 to support, represent and set standards for business leaders across the country. Their purpose is to ensure that the views of business leaders are taken into account when the government is considering policies and laws, or seeking the views of the broader business community.

IoD is made up of over 30,000 entrepreneurs, CEOs, directors and decision makers in all UK sectors and regions.

Q22) Explain the legal position of the director.    

A22) The legal position of a director can be better explained in the following ways:

1. Position of director as trustee:

(I) Legally, directors are not trustees.

Legally speaking, directors are not fiduciaries of the company. In the case of Smith vs. Anderson, James LJ said: He stands in a trustee relationship. The title of director is the title of a paid employee of the company. A director never makes a contract for himself, but he makes a contract for himself, the company he is a director of or in which he operates. "

From this point of view, directors are not the trustees of the company because they are not the legal owners of the company's property.

(II) Directors as fiduciaries of company property and money:

Directors, to be precise, are not trustees, but are trustees of the company's money and property and are obliged to treat the capital under their control as a trust. They must act in good faith and use their power for the benefit and benefit of the company.

(III) Directors as trustees of delegated authority:

Directors are trustees of delegated authority. They must use these forces honestly and for the benefit of the company as a whole.

Examples of such forces are:

(A) The ability to use company funds.

(B) Authority to declare dividends at the General Assembly.

(C) The ability to make phone calls.

(D) Authority to confiscate shares.

(E) Ability to receive telephone payments in advance.

(F) Authority to approve the transfer of shares.

(G) Ability to accept abandonment of shares.

(H) Authority to issue and allocate unissued shares of the company.

(IV) Directors who are not trustees of shareholders:

It should be noted that directors occupy a trustee relationship only with the company, not with the individual shareholders. They are not trustees of any particular shareholder.

In the case of Percival vs Wright, "The directors bought shares from shareholders while negotiations were underway to sell the company at a very high price. They did not disclose this fact to shareholders. Was unable to deny the contract for that reason. "

(V) Directors who are not trustees of outsiders:

Directors are not trustees of others who enter into contracts with the Company.

The position of a director as a trustee can be simply stated as follows.

(I) Not a trustee in the legal sense.

(II) They occupy a trustee position with respect to the company and are considered trustees with respect to the company's property and money.

(III) They are also trustees with respect to the authority delegated to them. They must exercise these powers honestly for the benefit of the company, and if any, they are responsible for the secret interests created by them.

(IV) There is no trust from individual shareholders.

2. Positioning of directors as agents:

A company that is an artificial person cannot manage its own business, but the management of the company is entrusted to a human institution called a director. They are the elected representatives of shareholders. They run businesses on behalf of shareholders and are sometimes referred to as company agents.

In the case of Forgerson vs. Wislon, Cairns L.J. described the position of the board as follows: The company itself cannot act on its own because there are no people. You can act "only through the directors". For these directors, whenever the agent is liable, it is just the usual case of the person and the agent. Directors are responsible. If the liability is attached only to the principal and the principal, that liability is the responsibility of the company. "

At Great Eastern Railway vs. Turner, the directors were supposed to represent transactions on behalf of the company.

Directors must act in the name of the company and within their authority. If a director enters into a contract that exceeds that authority but is within the authority of the company, the company can approve it like any other principal.

If a director enters into a contract that infringes the authority of the company, the company cannot approve it and neither the company nor the director is liable for it. However, directors may be held liable for breach of the implied warranties of authority.

"But" it is incorrect to say that a director is an agent for a company. The agent is not elected but is appointed. Second, the agent does not have independent authority, and the directors have independent authority over certain matters.

3. Positioning of directors as managing partners:

Directors are called managing partners because they are responsible for managing and managing the business of the company, but are usually important shareholders of the company.

However, a director is not a partner in the sense of ordinary partnership law as long as the liability of the partner is unlimited, but the liability of the director as a member is limited to the value of the shares he holds (unlimited company). Except for the case of)). Moreover, unlike partners, directors do not have the authority to bind other directors or shareholders.

4. Position of directors as officers:

Under Sec. Under Article 2 (30) of the Companies Act, directors are officers of the company. As officers, they may be held liable if the provisions of the Companies Act are not fully complied with.

5. Positioning of directors as employees:

Directors may be considered employees of the company because they work under a special service contract with the company and are paid accordingly.

6. Positioning of directors as an institution of the company:

Directors have also been treated in judicial decisions as the institution of the company for which the company should be responsible for the actions of his limbs, just as a natural person is responsible for the actions of his limbs.

At Bath vs. Standardland, Neville J. said, "The board of directors is the brain, the only brain of the company, and the company can and acts only through them."

In light of the above discussion, Gessel states:

According to LJ Bowen, "Directors are sometimes described as agents, trustees, and management partners, but each of these terms is not an authority or irresponsibility, but a perspective that may be useful at this time. It is used as an indicator and is considered for a specific purpose. "

Therefore, from the above discussion, directors are not agents, trustees, management partners, officers, or employees of the company, but they are in the position of trustee to the company regarding their power and company property. It's clear.

Q23) Who is an auditor?  What are its qualifications and qualities? 

A23) The auditor is the organization that organizes the audit process. He is the person who prepares the audit report after careful consideration of the company's accounting records and reports that form the impressions / assumptions about the fairness and reliability of the financial statements.

Auditor qualification

The law does not recommend specific qualifications for auditors if there are ownership concerns, but companies require the following qualifications:

Auditor qualities

Some relevant qualities that an auditor should have are:

Q24) What are the obligations of an auditor?    

A24) In addition to the responsibilities that the auditor must fulfil certain obligations, they are:

1. Obligation to prepare an audit report

a. Explanation to Members: Auditors need to generate statements for members, but they are not forced to send reports to all members.

b. Audit Report Review: The report produced by the auditor will be read at the company's general meeting. The report shall be open to all members for viewing.

c. Audit Report Capabilities: The audit report must reveal the accounts maintained by the auditor, namely the income statement, the company's balance sheet, and the records attached to these accounts.

2. Obligation to make competent disclosures in audit reports

Report on Appropriate and Fair Opinion: The auditor states in his impression and, to the best of his knowledge, whether to give to the explanation given to him, the balance sheet and income statement give: Suppose.

Legal instructions; and

A genuine and fair view of the company's situation.

Whether he has collected all the material and justification.

Appropriate books are kept, whether from his point of view or not.

All accounting standards, whether in his view or not, are gathered together.

Whether the director has lost the qualification to become a director.

b.     Report on CARO: The auditor must address all the factors specified in CARO.

c.      Report on the exact Inquisition: This report explains:

Whether the loans and advance payments that the company has built to aid security are fully acquired, and the circumstances in which they are formed, are not biased towards the concerns of the company or its members.

Indicates whether the entry book is at a disadvantage to the company's interests.

The report for a particular inquiry should state whether the retail price of shares, bonds, and other guarantees held by the company is below the purchase price.

3. Obligation to give a sense of accomplishment

The performance aspects of an audit report must be unquestionable to the general public. Qualifications should provide a complete explanation, not just the basis for the impression of an inquiry.

Whenever possible, the auditor should evaluate the development of financial statement capacity when it is important.

It indicates whether he cannot achieve accurate quantification of the outcome of the qualifications that may use the authorities' estimates, or whether he cannot show the meaning of not assessing the effectiveness of the requirement.

4. Obligation to approve audit report

Audit reports or other records that are required to be signed or verified by the auditor may be approved by:

Q25) Write the steps of winding up of a company.    

A25) Steps of winding up are:

If your company is liquidated, follow these steps:

Q26) What is E-Governance? What are its types?    

A26) Electronic governance is the integration of information and communication technology (ICT) in all processes with the aim of extending to electronic governance and strengthening the government's ability to meet the needs of the general public. The basic purpose of electronic governance is to simplify the process of everyone, governments, citizens, businesses, etc., at the national, state and local levels.

In short, it is the use of electronic means to promote good governance. This means implementing information technology in government processes and functions to achieve simple, moral, accountable and transparent governance. It involves access to and provision of government services, dissemination of information, and communication in a fast and efficient manner.

Types of interaction in electronic governance

Electronic governance is possible only if the government is ready for it. It's not a day's work, so the government must plan and execute before switching to it. Some measures include investing in telecommunications infrastructure, budgeting resources, ensuring security, monitoring assessments, speeding internet connectivity, promoting public awareness of importance, and support from all government departments. It will be.

Electronic governance plays a major role in improving and supporting all tasks performed by government departments and agencies to simplify tasks on the one hand and improve the quality of work on the other.