KATHIR COLLEGE OF ARTS AND SCIENCE

NELAMBUR, COIMBATORE-62

STUDY MATERIAL
(ACADEMIC YEAR 20225-2026)

BUSINESS ORGANISATION AND OFFICE MANAGEMENT

DEPARTMENT OF COMMERCE WITH PROFESSIONAL

ACCOUNTING
PREPARED BY

V.SUBASHINI
ASSISTANT PROFESSOR
DEPARTMENT OF COMMERCE WITH ACCOUNTING AND
FINANCE KATHIR COLLEGE OF ARTS AND SCIENCE
NEELAMBUR, COIMABTORE
Unit:1 Nature of Business
Nature and scope of Business, Forms of Business Organisation – Sole Trader, Partnership firms,
Companies and Co-operative Societies – Public Enterprise.

Unit:2 Sources of Finance

Location of Business – Factors influencing location, localization of industries- Size of forms, Sources of
Finance – Shares, Debentures, Public Deposits, Bank Credit and Trade Credit – Relative Merits and
Demerits

Unit:3 Stock Exchange

Stock Exchange - Functions – Procedure of Trading – Functions of SEBI – DEMAT of shares- Trade
Association-Chamber of Commerce

Unit:4 Office Accomodation

Office – Its functions and significance – Office layout and office accommodation – Filing and
Indexing

Unit:5 Data Processing Systems

Office machines and equipments – Data Processing Systems – EDP –Uses and Limitations – Office
Furniture

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 BUSINESS ORGANISATION AND OFICE MANAGEMENT

UNIT-1

SYLLABUS:

NATURE AND SCOPE OF BUSINESS, FORMS OF BUSINESS ORGANISATION-SOLRE TRADER,

PARTNERSHIP FIRMS, COMPANIES AND CO-OPERATIVE SOCIETIES –PUBLIC ENTERPTRISE

Business:

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional

activities. Businesses can be for-profit entities or they can be non-profit organizations that operate to fulfill
a charitable mission or further a social cause.

The term "business" also refers to the organized efforts and activities of individuals to produce and sell goods and
services for profit. It is “STATE OF BEING BUSY”.Business is a regular process of earning a profit by
satisfying consumer’s needs through the manufacturing of goods, reselling of products, providing services or
carrying out all three together. It is an occupation which requires a particular set of skills and expertise to derive
maximum profit out of it.

Following activities cannot be considered as a business:

● Preparing food and distributing it in an orphanage;

● Selling of drugs;

● A mother teaches her child.

Nature of Business

Business is derived from ‘busy-ness,’ i.e. keeping oneself occupied with one or the other work, but it is much
more than just being busy.

To have a better understanding of what a business is, we must go through the following points:

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  Regular Process: It is an activity which is performed repeatedly to generate profit.
 Economic Activity: The whole sole purpose is maximising wealth.
 Creates Utility: The goods or service must be such that it creates form utility – conversion of products in
a consumable form, time utility – making the goods and services available when needed; and
 place utility – availability of goods or services wherever required, for the consumers.
 Capital Requirement: Any venture requires fund depending on the size and its type.
 Deals in Goods and Services: It is related to manufacturing and offering goods for sale or catering
services.
 Risk: All businesses have a risk factor or uncertainties of failure and loss.
 Profit Earning Motive: The initial motive of a businessman is making a profit out of his venture.
 Satisfaction of Consumer’s Need: It is concerned with the fulfillment of the customer’s demands and
needs.
 Involves Buyer and Seller: There are majorly two parties involved, the customer and the merchandise.
 Social Obligations: It has some social responsibilities, like creating job opportunities, dealing with
licensed products, etc.
Types of Business

The previous instance has made it clear that business involves goods or services or both. A person has first to
select the kind of business line he wants to operate.

Thus, a business can be broadly classified as into the following types:

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Service:

An activity performed to earn money through customer satisfaction is known as a service. It involves professional
skills and expertise.

E.g. A professional teacher earns money by taking tuition class

● Merchandising:

Merchandising means procurement of goods from manufacturers or wholesalers, at a low price and selling it at a
higher price to make a profit. It is also known as a retail business.

E.g. A florist selling flowers

● Manufacturing:

Making profit through production or creation of goods from raw material in such a way that it derives some
utility to the consumer is known as a manufacturing business.

E.g. Processing of sugarcane in a sugar mill to get fine sugar

● Hybrid:

A business which involves all the three activities, i.e. manufacturing of goods,merchandising of products
and delivering service falls under the hybrid category.

E.g. A furniture seller, who manufactures furniture, buys old furniture and sells it at a higher price after repairing
and also provides services for polishing old furniture.

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IMPORTANCE OF BUSINESS

Business is a self-employment opportunity for a person to become self-independent and master of his ideas. It is
not only beneficial to the owner but also makes an impact on society.

To get a detailed understanding of the importance of trading activities to the owner and the society, let us go
through the following points:

 Revenue Generation:
 It is the key to revenue generation for the business owner since it brings in profit and proves to be a
source of income for the owner.
 Economic Growth:
 It is essential for the economic growth of a country since high revenue means higher tax collection.
 Improves Standard of Living: A country with more industrial units and companies experience a higher
rate of employment and better living standards.
 Bulk Production: Manufacturing units involve large-scale production, which ultimately reduces the cost
of production, and people get a continuous supply of goods at a reasonable price.
 Innovation: It involves brainstorming and generation of new ideas which opens up the way for
innovation and creativity.
 Generates Employment: It is a long-term process which requires the human resource to function
correctly. Therefore, it creates job opportunities.
 Market Expansion: A good strategy and high customer satisfaction lead to a strong customer base
aiming at market expansion.
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DIFFERENCE BETWEEN BUSINESS AND PROFESSION

SL.NO BASIS BUSINESS PROFESSION

1 Meaning Business is an economic activity Profession is an economic

activity where people work with
where people sell goods or
their knowledge and skill.
services.

2 Qualificati No minimum qualification is Educational or professional degree

on required in case of business. or specified knowledge is required
in case of profession.

3 Transfer of Transfer of interest is possible in Generally transfer of interest is not

interest case of business. possible in case of
profession.

4 Accountin g Generally, Manufacturing Trading / Generally, Income

Type Profit & Loss a/c is maintained in &Expenditure a/c is
case of Business maintained in case of Profession.

5 Reward Reward for business is known as Reward for profession

‘profit’ is known as ‘professional
fee’

6 Tax Audit Tax audit u/s. 44AB is required if Tax audit u/s 44AB is required if
annual turnover or gross receipt gross receipt exceeds Rs. 50 lakh in
exceeds Rs. 1cr. (2 cr. for case of a profession
presumptive income scheme u/s
44AD) in case of

business.

Comparison of Business, Profession and Employment

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Economic activities are divided into three major categories, namely business, professions and employment.
While all these may seem similar in the world of business they are distinctly different. Let us learn about all three
and also the differences amongst them.

SL.NO Basis Business Profession Employment

Commencement Business may The profession may Employment

commence with the commence on commences on joining
decision of completion of a degree duty by entering into a
entrepreneur. course & by getting a service agreement.
certificate of practice.

Qualification No minimum Prescribed & Qualification depends

qualification professional on the nature of the job.
required before qualification &
starting a training required.
business.

Investment Capital requirement Limited capital No capital investment is

depends on the investment is required.
scale of business. required.

Risk In business, there is In the profession, there In employment,

always risk & is little risk present. there is no risk
uncertainty. involved.

Transfer of Transfer of interest Transfer of interest is Not possible to transfer

interest is possible with not possible. the service contract.
some formalities.

Main objective The main objective The main objective of a The main objective of
of business is to earn profession is to provide employment is to earn
a profit. service. income in the form of
salary by satisfying the
employer.

Code of conduct There is no Code of conduct is The terms & conditions

prescribed code prescribed by the of service contract

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 ofconduct for professional are applicable to
business. associations. an employee.

Nature of work It involves It involves the It involves performing

production, purchase rendering of the work as assigned by
involved
& sale orexchange personalized services the employer.
of goods & of specialized nature.
services.

OBJECTIVES OF BUSINESS

Objectives are needed in every area where performance and results directly affect the survival and prosperity of a
business. The right choice of objectives is critical for the success of the business. The objectives of a business can
be classified into two main categories, which are

A. Economic objectives

B. Human Objectives

C. Social objectives

A. ECONOMIC OBJECTIVES OF BUSINESS

1. Profit Earning

Business is a set of activities undertaken with the prospect of sale for the purpose of earning a profit. Profit is the
extra income over the expenses. The main objective of any business is to earn a profit.

Profit is necessary for growing and expanding business activities. Profit guarantee a consistent stream of capital
for the modernization and augmentation of business activities in the future. Profits likewise show the scale of
stability, efficiency, and advancement of the business organization.

2. Market Share / Creation of Customers

In the words of Drucker, “There is only one valid definition of business purpose; to create a customer. “ Profits
are not generated out of thin air. They are the result of the hard work of the businessman to satisfy the needs of
the customers.

3. Innovation & Utilization of Resources

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Innovation normally means to change processes or creating more effective processes, products and ideas.
Nowadays, business is ever-changing and dynamic. To keep up with the growing competition a businessman has
to introduce efficient design, latest trends, upgraded machinery, new techniques, etc.

4. Increasing Productivity

Productivity is a scale to measure the efficiency of the business activity. It is usually the last objective but just as
important because productivity is measured by the output given by the activities. It is the end result of any
business activity. Each business must go for more prominent productivity – to guarantee its survival and
development. This goal can be accomplished by decreasing wastages and making proficient utilization of
machines and supplies, HR, cash and so forth.

B. HUMAN OBJECTIVES

1. Welfare of Employees:

The employees should be awarded by bonus time and again. So, that they will be encouraged towards their
activities.

2. Satisfaction of Consumers:

The satisfaction of the consumers is necessary to earn profit. So, consumers satisfaction is to be maintained by
providing qualitative goods.

3. Satisfaction of Shareholders:

The management should give reasonable return on the money invested by the shareholders. They should also be
provided with required information.

C. SOCIAL OBJECTIVES

1) Providing Goods & Services at Reasonable Prices

Business exists in the first place to satisfy the needs of the society. It’s the first and major social objective of the
business. Products and services ought to be of better quality and these ought to be provided at sensible costs. It is
additionally the social commitment of business to keep away from misbehaviors like boarding, Black promoting
and manipulative advertising.

2) Employment Generation

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One of the major problem today’s generation facing is unemployment. Business generates employment.
Therefore, it is the social objective of a business to give chances to beneficial employment to individuals of the
society. In a nation like India, unemployment has turned into a critical issue.

3) Fair Remuneration to Employees

The business does not run on its own but the people are responsible for the success and failure of the business.
The people on the inside of the business are more valuable i.e. employees. They are an asset of the business and
make a ground-breaking contribution to the business. They must be given reasonable pay for their work.

4) Community Service

Business must give back something to the society. As a result, the Library, dispensary, educational foundations
and so on which a business can make and help in the advancement of society are created. Business enterprises
can build schools, colleges, libraries, hospitals, sports bodies and research institutions. They can help non-
government organizations (NGOs) like CRY, Help Age, and others which render services to weaker sections of
society.

FORMS OF BUSINESS ORGANIZATION

SOLE-TRADER

A sole-trader is a person who carries on business exclusively by and for himself, He is not only the owner of the
capital of the undertaking, but is usually to organize and manage and takes all the profits or responsibility for
losses.”

DEFINITIONS:
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According to Michael Greener, "A Sole trader is a person who trades on his own account rather than in
partnership or as member of the company".

"Sole trading concern is the business in the hands of one person, who is not only responsible for its management
but also for its risks."

FEATURES OF SOLE TRADING CONCERN:

a. Single Ownership:

This business is managed and controlled by an individual alone (one person or one proprietor). He is single
owner of the business. All the capital, property and assets of the business are brought by the owner himself. The
owner of this organization is known as Sole Trader.

b. Individual Capital:

Here, capital is brought by single person. He himself arranges for the additional capital by borrowing from his
friends and relatives. This organization is having limited capital; therefore the business is conducted on small
scale and in local trader market.

c. Unification of Ownership and Management:

A sole trader is the complete master of his business and enjoy complete control over his business. Therefore, he
can take any decision in his business as he thinks fit. He has the supreme authority to command over his business.
If there are some problems, he can immediately take corrective steps to control and correct the faults of the
business. Instead of appointing outsiders, for management, he prefers to take the help of the family members. In
other words ownership, management and control are not separated but co-coordinated.

d. Unlimited Liability:

Sole Trader and his business unit are treated as one and the same. So when there are losses in business operations
then these should be settled by sole owner by selling his personal property. The liability of sole trader is
unlimited. This means he is personally liable to pay all the debts of the creditors. Sole trader and his business are
inseparable i.e. one and the same.

e. Freedom from Government Regulation:

In this type of organization, there is very limited control of the government. There are almost no legal formalities
to start or close down a business, however, certain types of business like restaurants, liquor, tobacco and
medicines (drugs), etc. need license. Among other businesses, a person may choose that he likes except that
which is against the law of land. There is no separate act for sole trading concern.
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 f. No Sharing of Profits and Losses:

There is direct relationship between efforts and reward. Due to the single ownership, the profits of the business
are the profits of the proprietor. Since he alone contributes the capital and takes risk of business he is fully
entitled to the profits of business.

g. Lack of Legal Status:

This organization is not governed by special act. It is purely personal organization. The registration of this
organization is not possible. Therefore, the sole trading concern and sole trader are one and same person. It is not
artificial person like Joint Stock Company.

h. Risk Bearing:

A sole trader takes entire responsibility of his business and bears the risk of losses involved in the business.

i. Flexibility in Operation:

Sole trader enjoys maximum flexibility. He can take right decisions at the right time depending upon the
situation. At any time he can expand his business. He may also change the line of his business at any time. He
may even close down the business, if the situation so demands.

j. Business Secrecy:

The sole trader can maintain complete business secrecy. He need not publish any accounts & records.
Competitors cannot easily get business secrets and information of the sole trader's activities.

k. Local Area Business:

Normally, a sole trader conduct business in a local area. This is because of limited size of his business. However,
there are sole traders who may cater to regional and national markets. Sole trader may also undertake foreign
trade.

l. Close Contacts:

The sole trader can develop close contacts with his customers. He regularly deals with local customers and as
such he can develop personal contacts with his employees also.

m. Quick Decision:

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The sole trader can take quick decisions. Normally, the sole trader takes decisions on his own. He need not
consult others to take decisions.

ADVANTAGES OF SOLE TRADING CONCERN:

1. Simple and Easy Formation:

Formation of sole trading concern is very simple. A person, who is competent to enter into an agreement, can
start a sole trading concern. There are no legal formalities. In some cases only he need to obtain license. For
example: For starting a restaurant, to deal in liquor or tobacco, for dealing in medicines. As the formation is
simple and easy it saves time and money.

2. Close Contact:

In this organization, it is very easy to establish maximum personal contacts with the customers and employees.
Sole trader can take care of likes and dislikes of consumers, similarly he creates good relations with his
employees due to which customers turn into permanent customers and do publicity. Employees also work with
loyalty and honesty.

3. Quick Decisions and Prompt Actions:

Sole trader himself takes all the decisions as he is only the owner of his business, there is no need to consult any
other for decisions. Certain types of business like speculative business require quick decisions. Since in sole
trading concern, there is no one to consult or advice or make disputes. Therefore, the decisions taken by the
proprietor are final and carried out promptly.

4. Flexibility:

It means quick and easy changes in business. This form of business has total flexibility. A sole trader can change
nature, object, place, etc. of business at his own desire and at any time. Because this business organization is not
managed by any special act and there are no government regulations.

5. Direct Motivation:

All the profits of the business are the profits of the owner alone. This means there is direct relationship between
efforts and rewards and this encourages and induces the sole trader to manage the business efficiently with hard
work. He takes highest interest in the business. As he will work hard, he will get more profits therefore, he is
induced to work hard for business.

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 6. Business Secrecy:

Less the number of persons in business more will be the secrecy. It is said that business secrets are similar to
secrets of gold mine. A sole trader is a single person; he neither discloses his accounts nor is he required to
consult anyone on his business policies. In this way the business secrets are safeguard by a sole trader.

7. Unlimited Liability:

The unlimited liability helps the creditors and sole traders, because he enjoys the confidence of creditors.
Creditors know that he will work carefully and economically, he will also try to take sound and correct decisions
because his liability is unlimited. Secondly, his unlimited liability gives confidence to his creditors that they can
recover their dues from his personal property.

8. Better Credit Standing:

The sole trader enjoys the better credit standing in the market because of unlimited liability and close contacts.
This creates confidence in the minds of creditors, suppliers, etc. and thus sole trader can easily get credit facility
and can expand his business according to his desire and capacity.

DISADVANTAGES OF SOLE TRADING CONCERN:

1. Limited Capital:

The owner of the business has only two sources of getting the capital, i.e. by personal savings and by borrowings
from friends, relatives and institutions. The borrowings as well as saving capacity of one person are always
limited. Therefore, as in sole trading concern the capital is limited for sole trader; it is not possible to have a large
scale business.

2. Limited Managerial Ability:

A sole trading concern has limited managerial ability since there is only one person to manage and control the
business. If paid employees are appointed they also work according to the capacity of the salaries they are
getting. The employees do not take keen interest in the business, therefore, the sole trader also find it difficult to
manage all business activities properly. In other words, any person is not capable for having full knowledge of all
business activities. But in sole trading concern all the decisions are taken by Sole Trader relating to expansion,
more capital, purchases, sales etc. Therefore, this organization is having limited managerial ability.

3. Doubtful Continuity:

This form of organization does not have stability of life. Its existence is totally depending on the life of its owner.
Generally, it comes to an end due to death, insolvency or insanity of the sole trader. Therefore, sole trading
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concern is always doubtful. There are some chances that the family members of the sole trader may continue the
business after his death, etc.

4. Unlimited Liability:

This means the sole trader is personally liable to pay for the business losses. He has to sell his personal property
for paying the liability of business. Sole trader and his business are inseparable. Therefore, a sole trader has to do
the business with due care and caution and has to think twice before taking the decision of new or risky job.

5. Absence of Economies of Large Scale:

This means the benefit of large scale by way of discounts, concession, etc. Sole trader cannot enjoy economy in
purchases, economy in transportation, economy in advertisement and other expenses. The sole trader is not
getting these benefits of large scale because he is generally having small business with limited capital. All this
ultimately reduces the profit and he cannot make quick progress in business.

6. Absence of Legal Status:

The sole trading concern and sole trader are one and the same. They cannot be separated from each other. This
organization does not have separate life from sole trader. Due to the death of sole trader this organization is
dissolved..

7. Hasty Decisions:

A sole trader is free to take all decisions at his own sweet will. There are some chances of hasty decision, which
may result in losses because it is always said "Haste makes waste".

Partnership

A partnership is a kind of business where a formal agreement between two or more people is made and agreed to
be the co-owners, distribute responsibilities for running an organization and share the income or losses that the
business generates.

In India, all the aspects and functions of the partnership are administered under ‘The Indian Partnership Act
1932’. This specific law explains that partnership is an association between two or more individuals or parties
who have accepted to share the profits generated from the business under the supervision of all the members or
behalf of other members.

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Features of Partnership:

1. Agreement between Partners:

It is an association of two or more individuals, and a partnership arises from an agreement or a contract. The
agreement (accord) becomes the basis of the association between the partners. Such an agreement is in the
written form. An oral agreement is even handedly legitimate. In order to avoid controversies, it is always good, if
the partners have a copy of the written agreement.

2. Two or More Persons:

In order to manifest a partnership, there should be at least two (2) persons possessing a common goal. To put it in
other words, the minimal number of partners in an enterprise can be two (2). However, there is a constraint on
their maximum number of people.

3. Sharing of Profit:

Another significant component of the partnership is, the accord between partners has to share gains and losses of
a trading concern. However, the definition held in the Partnership Act elucidates – partnership as an association
between people who have consented to share the gains of a business, the sharing of loss is implicit. Hence,
sharing of gains and losses is vital.

4. Business Motive:

It is important for a firm to carry some kind of business and should have a profit gaining motive.

5. Mutual Business:

The partners are the owners as well as the agent of their firm. Any act performed by one partner can affect other
partners and the firm. It can be concluded that this point act as a test of partnership for all the partners.

6. Unlimited Liability: Every partner in a partnership has unlimited liability.

Types of Partnerships

A partnership is divided into different types depending on the state and where the business operates. Here are
some general aspects of the three most common types of partnerships.

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General Partnership

A general partnership comprises of two or more owners to run a business. In this partnership, each partner
represents the firm with equal right. All partners can participate in management activities, decision making, and
have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided
equally.

In other words, the general partnership definition can be stated as those partnerships where rights and
responsibilities are shared equally in terms of management and decision making. Each partner should take full
responsibility for the debts and liability incurred by the other partner. If one partner is sued, all the other partners
are considered accountable. The creditor or court will hold the partner’s personal assets. Therefore, most of the
partners do not opt for this partnership.

Limited Partnership

In this partnership, includes both the general and limited partners. The general partner has unlimited liability,
manages the business, and the other limited partners. Limited partners have limited control over the business
(limited to his investment). They are not associated with the everyday operations of the firm.

In most of the cases, the limited partners only invest and take a profit share. They do not have any interest in
participating in management or decision making. This non-involvement means they do not have the right to
compensate the partnership losses from their income tax return.

Different modes of reconstitution of Partnership Firm

® Limited Liability Partnership

In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is guarded against
other partners legal and financial mistakes. A limited liability partnership is almost similar to a Limited Liability
Company (LLC) but different from a limited partnership or a general partnership.

® Partnership at Will

Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership
firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to be fulfilled by a firm to
become a Partnership at Will are:

a) The partnership agreement should have not any fixed expiration date.

b) No particular determination of the partnership should be mentioned.

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Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will.
Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the
mentioned date that it will be considered as a partnership at will.

.Merits of partnership firm

1. Easy to start and dissolve

A partnership firm can be setup easily and quickly. There is not much legal formalities and expenditures are
involved in the establishment of a partnership. Similarly, a partnership firm can be closed down very easily and
quickly.

2. Higher capital

Many partners invest capitals and there is higher flexibility in capital because new partner can be agreed to be
associated and investing can be increased.

3. Higher innovation:

Many partners use their own ideas and innovation capacity. So there is unlimited managerial ability

4. Reduction of work load

Partners mustn’t work more to earn more profit. Higher profit generation is important. So, there is no dull and
monotonous work. In case of monotony, health problem to any partner than other partners can help and reduce
absenteeism.

5. Better decision

There is specialization in decision taking. So there can be fewer chances of taking wrong decisions

6. Harmonization of different ability

There are many partners in this firm and many partners have different skills, knowledge and capacity

7. Credit facility

In this liability of partners becomes unlimited. It will help to arrange more capital. And that’s why it has more
credit. It improves more financial function

8. Close supervision

There is effective management and effective supervision. They look the business themselves.

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 9. Flexible

There can be change in management, capital and production. This change can be made by mutual agreement of
partners

10. Reduced risk

Partners have right to take part in management. They have the duty to bear risk with proportion too.

Demerits of partnership firm

1. No Business secrets

The partner can keep the secrets to himself but these secrets can be known to competitors or others when there is
conflict among the partners

2. Uncertain existence

Death of any partner can sometime cause death of entire firm. Dishonesty, conflict and lack of resource also can
collapse the firm

3. No Personal contact

A partner can’t be in a position to maintain intimate contacts with his customers and employees. He cannot be
able enter to the requirements of each and every customer. Then there is no close personal touch which decreases
the competitive strength of the business.

4. Unlimited liability

Proprietor is liable for all the debts of the business. In case the assets are insufficient to meet the debts, the
personal property of the proprietor can be attached.

5. Delay in decisions

The partnership firm is completely not free to take all decisions and to implement the. The partners need to
consult or seek others approval. Delay in decisions reduces the efficiency of business.

6. Danger of conflict

Many persons are the owners of partnership firm. There can be misunderstanding and jealousy among them and
these cause problems in operation of business and profit making

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 7. Difficulty in transfer of shares

Partners cannot transfer their share without the consent of other partners. There may be conflict when done
otherwise.

8. Limited resources

There is low investment, may be higher than in sole trading but not sufficient for large scale production resulting
in limited areas of operation.

Difference between Sole Proprietorship and Partnership

Sole Proprietorship Partnership

Definition

It is a business model where an individual is an It is a business model where two or more persons
owner as well as the operator of the business. agree to carry on business and share profits and
losses mutually.

Business act

Comes under no specific act Governed by the Indian Partnership Act,

1932

Owner called as
one
Sole Proprietor Two
Individual members known as partners and
Maximum Members collectively known as a firm.

Only One
Incorporation Required 100

Freedom to operate
Not required Voluntary

Minimum Member The decision needs to be mutually acceptable to

all partners. A difference of opinion can arise and
Decision-making rests with the proprietor only,
cause
hence full freedom to operate.
loss of business.

Liability

Rests with the proprietor only Shared by partners of the firm

Finance S21

Scope of raising capital is limited. Scope of raising capital is relatively high.

Partnership Deed

Partnership Deed is a written legal document that consists of an agreement between two individuals who want to
do business together and share profit and losses. Partnership Deed is also termed as Partnership Agreement
wherein business gets registered as Partnership Firm. To s tart a new business, two individuals gather mutual
understanding of sharing profits and losses together in a defined manner (unlike a sole proprietorship).

Components / Contents of Partnership Deed

Partnership Agreement Template consists of the below mentioned components that are required to be duly filled
by the members in order to register their firm as a partnership.

● Name and addresses of all partners

● Date of establishment of partnership firm

● Capital contribution by each partner

● Guidelines for the operations of bank accounts

● Profit and loss sharing ratio of each partner

● Interest rate on borrowed capital or loan

● Rights and duties of each partner

● Rules for settlement of disputes among partners

● Rules in case of admission, retirement or death of partner

● Any other aspect regarding the code of conduct of business

Types of Partners

A partnership is when two or more people work together and share the profits from the business or profession.
However, one must not always assume that all partners participate in the work or profits or even liabilities of the
firm equally.

a) Active Partner/Managing Partner

An active partner is also known as Ostensible Partner. As the name suggests he takes active participation in the
firm and the running of the business. He carries on the daily business on behalf of all the partners. This means he

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acts as an agent of all the other partners on a day to day basis and with regards to all ordinary business of the
firm.

Hence when an active partner wishes to retire from the firm he must give a public notice about the same. This
will absolve him of the acts done by other partners after his retirement. Unless he gives a public notice he will be
liable for all acts even after his retirement.

b) Dormant/Sleeping Partner

This is a partner that does not participate in the daily functioning of the partnership firm, i.e. he does not take an
active part in the daily activities of the firm. He is however bound by the action of all the other partners.

He will continue to share the profits and losses of the firm and even bring in his share of capital like any other
partner. If such a dormant partner retires he need not give a public notice of the same.

c) Nominal Partner

This is a partner that does not have any real or significant interest in the partnership. So, in essence, he is only
lending his name to the partnership. He will not make any capital contributions to the firm, and so he will not
have a share in the profits either. But the nominal partner will be liable to outsiders and third parties for acts done
by any other partners.

d) Partner by Estoppel

If a person holds out to another that he is a partner of the firm, either by his words, actions or conduct then such a
partner cannot deny that he is not a partner. This basically means that even though such a person is not a partner
he has represented himself as such, and so he becomes partner by estoppels or partner by holding out.

e) Partner in Profits Only

This partner will only share the profits of the firm, he will not be liable for any liabilities. Even when dealing
with third parties he will be liable for all acts of profit only, he will share none of the liabilities.

f) Minor Partner

A minor cannot be a partner of a firm according to the Contract Act. However, a partner can be admitted to the
benefits of a partnership if all partner gives their consent for the same. He will share profits of the firm but his
liability for the losses will be limited to his share in the firm.

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Such a minor partner on attaining majority (becoming 18 years of age) has six months to decide if he wishes to
become a partner of the firm. He must then declare his decision via a public notice. So whether he continues as a
partner or decides to retire, in both cases he will have to issue a public notice.

JOINT STOCK COMPANY

The simplest way to describe a joint stock company is that it is a business organization that is owned jointly by
all its shareholders. All the shareholders own a certain amount of stock in the company, which is represented by
their shares.

Professor Haney defines it as “a voluntary association of persons for profit, having the capital divided into some
transferable shares, and the ownership of such shares is the condition of membership of the company.” Studying
the features of a joint stock company will clarify its structure.

Features of a Joint Stock Company

● Artificial Legal Person

A company is a legal entity that has been created by the statues of law. Like a natural person, it can do certain
things, like own property in its name, enter into a contract, borrow and lend money, sue or be sued, etc. It has
also been granted certain rights by the law which it enjoys through its board of directors.

● Separate Legal Entity

Unlike a proprietorship or partnership, the legal identity of a company and its members are separate. As soon as
the joint stock company is incorporated it has its own distinct legal identity. So a member of the company is not
liable for the company. And similarly, the company will not depend on any of its members for any business
activities.

● Incorporation

For a company to be recognized as a separate legal entity and for it to come into existence, it has to be
incorporated. Not registering a joint stock company is not an option. Without incorporation, a company simply
does not exist.

● Perpetual Succession

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The joint stock company is born out of the law, so the only way for the company to end is by the functioning of
law. So the life of a company is in no way related to the life of its members. Members or shareholders of a
company keep changing, but this does not affect the company’s life.

● Limited Liability

This is one of the major points of difference between a company and a sole proprietorship and partnership. The
liability of the shareholders of a company is limited. The personal assets of a member cannot be liquidated to
repay the debts of a company.

A shareholders liability is limited to the amount of unpaid share capital. If his shares are fully paid then he has no
liability. The amount of debt has no bearing on this. Only the companies assets can be sold off to repay its own
debt. The members cannot be made to pay up.

● Common Seal

A company is an artificial person. So its day-to-day functions are conducted by the board of directors. So when a
company enters any contract or signs an agreement, the approval is indicated via a common seal. A common seal
is engraved seal with the company’s name on it.

● Transferability of Shares

In a joint stock company, the ownership is divided into transferable units known as shares. In case of a public
company the shares can be transferred freely, there are almost no restrictions. And in a public company, there are
some restrictions, but the transfer cannot be prohibited.

Advantages of a Joint Stock Company

1. Large Capital:

It is possible for a joint stock company to raise huge financial resources. There is not maximum limit on
membership in a public limited company. Shares issued are available in small denominations. Therefore people
can invest any small amount as per their needs and capacity due to the features of limited liability. Free
transferability of shares etc. many investors are attracted to become shareholders of the company. Loans can be
taken from banks and other financial institutions by the company.

2.Democratic Management:

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Though shareholders elect the Board of Directors, who manage the business efficiently, the directors are
accountable to shareholders, their activities are supervised and controlled by shareholders indirectly.

3. Transferability of Shares:

There is free transferability of shares in a public limited company. No permission is required to be sought from
the directors or members of the company for buying or selling shares. However, a private limited company, does
not permit free transferability of shares.

4.Limited Liability:

The liability of a member in a public limited company is limited to the extent of the unpaid amount of the shares
held by him. Since the company has an independent legal status, its liabilities are its own.

5.Expert Services:

Due to large financial resources available with joint stock company, it can appoint experts for managing each
area or functions of the company business, by paying attractive salaries to them, these brings in a great degree of
professionalism and thereby, efficiency in management of business.

6. Relief Taxation:

The companies are required to pay taxes at flat rate. The amount of tax on a high taxable income therefore may
be less for a joint stock company than individuals in a same tax bracket.

7. +Public Confidence:

Joint stock company enjoys public confidence. The working of joint stock companies in India is governed by the
provisions of Indian Companies Act, 1956.

8. Scope for Growth and Expansion:

There is possibility of growth and expansion in the company business. The company can raise large financial
resources. Attractive salaries can be paid to engage the services of experts for business expansion and for
managing the business professionally.

Demerits of Joint Stock Company

1. Difficulty in Formation:

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The formation of the company is in itself a very difficult and involves too many formalities. Promoters have to
prepare and submit various documents to the registrar of companies for approval i.e. Articles of Association,
Memorandum of Association etc. the public limited company cannot commence business without obtaining a
certificate of commencement of business. Registration of Joint Stock Companies is compulsory as per Indian
Companies Act, 1956.

2. Delay in Decisions:

In sole trading concern, and partnership firm decisions can be taken quickly. Company business is managed by
Board of Directors who are not owners of the company. Therefore, there is no direct motivation for directors to
give their best to the company. Moreover, for taking various decisions and getting them approved from share
holders, they have to hold board Meeting and share holders meeting, for which a proper procedure has to be
followed. That results into delay in decision making, good business opportunities may be lost.

3. Excessive Government Control:

There is a lot of government interference in the working of the company. Various rules and regulation of the
companies Act have to be strictly followed by the company, the non – compliance of any of these provisions
results into penalties for the officers involved.

4. High cost of Management:

The management of joint stock company form of organization is costly. The formation involves availing of the
expert services of many professional like underwriters, financial and technical experts, share brokers, solicitors,
bankers etc.

5. Undue Speculation:

Since directors are responsible for the management of the company, they sometime use the confidential
information for speculation and for personal gains. This results in sudden fluctuations in prices of shares in stock
exchange, adversely affecting the public confidence.

6. No Personal Contact:

Due to very large size of the organization, employees feel that their efforts are not recognized and appreciated,
their work related problems are not taken care of. as a result they feel demoralized and their productivity
declines.

7. Lack of Secrecy:

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There is no business secrecy involved in the company form of organization since it has to fulfill various statutory
requirements, e.g. as per Indian Companies Act, 1956, every company must publish its annual accounts and
certain other documents.

8. No Direct Effort Reward Relationship:

Since the ownership and management are separate, there is no direct relationship between the efforts and
rewards. This can be de motivating for the owners of the company.

Distinguish between Joint Stock Company and Partnership Firm.

Sr. Basis of Partnership Firm Joint Stock Company

No Difference

1. Meaning Two or More persons come togetherIt is Voluntary association of individuals

for some business for profit having capital

activity & agree to share divided into transferable shares, the

profit & loss is ownership which is the condition of

called partnership firm membership

2. Membership Partnership firm owned by two In private limited company minimum

or more and maximum 10 in of numbers of members are 2 and

banking and 20 in other firms maximum numbers are 50. In public

limited company minimum numbers

are 7 and no maximum number limit

3. Formation Formation is simple and less Formation involves many complicated

costly. only a partnership deed legal formalities. Therefore it is costly

is required. Registration is legal formalities. Therefore it is

optional [ except in tremendously time-consuming

Maharashtra ]

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 4. Liability Liability of partners are Liability of every shareholder is

unlimited. limited to the extent of the unpaid

amount on shares held by him

5. Act Partnership is controlled under Joint stock company is controlled

partnership Act, 1932 under the Indian companies Act, 1956

Types of Joint stock Company

® Chartered Company

The company which is incorporated by the royal order is called chartered company. Its power, rights, and
functions are governed by the charter, issued at the time of formation. But this kind is not killed and formed in
present days. Now all companies are registered under the company ordinance. Examples: Chartered Mercantile
Bank of India, Amsterdam Stock exchange, Chartered Bank of England, Muscovy Company.

® Statutory Company

This company is formed by the order of Governor General President or Prime-Minister or by the special act of
the legislature. It is organized for the purpose of carrying on some business of national importance. The word
“Limited” may not be used after the name of such company. Each can exercise its particular power which is
governed by the terms of its special Act.

® Registered Company

It is incorporated under the company act. In our country, there is ordinance 1984 to

form and supervise the registered company. It possesses separate legal entity apart form its members.
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® Unlimited Company

The shareholders of the unlimited company are liable to pay the debts and other obligations of the business as in
an ordinary partnership.

Features of Unlimited Joint Stock Company

a) It is managed by the board of directions.

b) It has a separate legal entity.

c) There may be a large number of shareholders and

d) Its shares may be transferred to another person.

e) But in spite of foregoing characteristics public do not like to form this type of company.

Company Limited by Guarantee

Where each member gives a guarantee to contribute a specified amount to the company on its winding up, such
company is said to be limited by guarantee. It may or may not also have share capital. If such a company has a
share capital, the amount must be mentioned in the charter of the company.

It is not formed to earn profit but the object of the company is to promote social, cultural and scientific activities
such as clubs, chamber of commerce, welfare, and educational association.

Company Limited by Shares

Where the liability of each member is limited to the nominal amount of the shares which he holds is called
company limited by shares. If he pays the value of the shares, his liability will be nil. It is popular from different
types of the joint stock company. It may be classified into two groups

What is difference between Public & Private Company?

Minimum Paid-up Capital

A company to be incorporated as a Private Company must have a minimum paid-up capital of Rs. 1, 00,000,
hereas a Public Company must have a minimum paid-up capital of Rs. 5, 00,000.

Minimum Number of Members

Minimum number of members required to form a private company is 2, whereas a Public Company requires at
least 7 members.

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Maximum Number of Members

Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum
number of members in a Public Company.

Transferability of Shares

There is complete restriction on the transferability of the shares of a Private Company through its Articles of
Association, whereas there is no restriction on the transferability of the shares of a Public Company.

Issue of Prospectus

A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company
cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public
Company can issue a Prospectus.

Number of Directors

A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must
have at least 3 directors.

Consent of the Directors

There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public
Company must have file with the Registrar a consent to act as Director of the company.

Qualification of Shares

The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the
Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the
public Company.

Commencement of Business

A Private Company can commence its business immediately after its incorporation, whereas a Private Company
cannot start its business until a Certificate to commencement of business is issued to it.

Share Warrants

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A Private Company cannot issue Share Warrants against its fully paid shares, whereas a Private Company can
issue Share Warrants against its fully paid up shares.

Further Issue of Shares

A Private Company need not offer the further issue of shares to its existing shareholders, whereas a Public
Company has to offer the further issue of shares to its existing shareholders as right shares. Further issue of
shares can only be offer to the general public with the approval of the existing shareholders in the general
meeting of the shareholders only.

Statutory Meeting

A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company
must call its statutory Meeting and file Statutory Report with the Register of Companies.

Quorum

The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a
Public Company FIVE members must be present personally to constitute quorum. However, the Articles of
Association may provide and number of members more than the required under the Act.

Managerial Remuneration

Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case
of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private
Company.

Special Privileges

A Private Company enjoys some special privileges, which are not available to a Public Company.

Memorandum of Association (MOA)

Memorandum of Association (MOA) is the main, compulsory document required for the incorporation of the
company. It must be registered with the ROC (Registrar of Companies) at the time of incorporation. It lays down
the objects, scope, powers and area of operation of the company, all of which the company can’t transgress. Thus,
it lays down it’s the limits of the company.

It must be drafted very carefully as the company can’t go against it later. Moreover, it can only be amended by a
difficult procedure in the Annual General Meeting with the knowledge of the Central Government. It can’t be
amended retrospectively.

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It guides all relations within and outside the company by laying guidelines and rules for the same and all the
subordinate documents and agreements follow from it. Also known as the ‘charter of the company’, it must lay
down the following six conditions:

a) Name Clause

It is meant to register the official name of the company with the CG (Central Government) which must be
original and must not, in any way, resemble that of a pre-existing one.

b) Situation Clause

It deals with highlighting the name of the state in which the company’s registered office is located.

c) Object Clause

The main and auxiliary objects of the company are specified here.

d) Liability Clause

It specifies the liabilities of each member of the company.

e) Capital Clause

It lays down the total capital of the company.

f) Subscription or Associate Clause

It lays down in detail all information about subscribers and their shares.

Articles of Association(AOA):

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The article of Association is a document which defines the procedures of a company, and it’s various other
operations for execution and purpose. It includes various other systematic procedure through which various other
tasks are to be accomplished within the organization. The article of association generally contains some of the
provision as discussed below.

● Shares belong to a specific class should have their certain value and rights attached to each of
them.

● Calls of shares, transfer of shares, forfeiture, conversion of shares and alteration of capital.

● Directors, their appointment, power, and duties are also inclusive in it.

● Minute of Meeting circulation and their intimation.

● Accounts and their audit at regular interval of time.

● Auditors appointment and their remuneration.

● Dividends and Reverse.

● Minimum subscription.

● Formulation of rules to utilize and custody of the common seal.

● Rules and regulation need to convert fully paid shares into stocks.

● The proposed alteration increases the liability of existing members.

● The alteration is allowed only to obtain better results.

● The alteration can be done with retrospective effect.

Differences Between Memorandum of Association and Articles of Association

® Memorandum of Association is a document that contains all the condition which are required for the
registration of the company. Articles of Association is a document that contains the rules and regulation for the
administration of the company.

Memorandum of Association is defined in section 2 (56) while the Articles of Association is defined in section
2 (5) of the Indian Companies Act 1956.

Memorandum of Association is subsidiary to the Companies Act, whereas Articles of Association is subsidiary
to both Memorandum of Association as well as the Act.

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In any contradiction between the Memorandum and Articles regarding any clause, Memorandum of Association
will prevail over the Articles of Association.

Memorandum of Association contains the information about the powers and objects of the company.
Conversely, Articles of Association contain the information about the rules and regulations of the company.

Memorandum of Association must contain the six clauses. On the other hand, Articles of Association is framed
as per the discretion of the company.

Memorandum of Association is obligatory to be registered with the ROC at the time of registration of Company.
As opposed to Articles of Association, is not required to be filed with the registrar, although the company may
file it voluntarily.

Memorandum of association defines the relationship between company and external party. On the contrary,
articles of association govern the relationship between the company and its members and also between the
members themselves.

When it comes to scope, the acts performed beyond the scope of memorandum are absolutely null and void. In
contrast, the acts done beyond the scope of articles can be ratified by unanimous voting of all shareholders.

Prospectus Meaning

The prospectus is a legal document, which outlines the company’s financial securities for sale to the investors.

According to the companies act 2013, there are four types of the prospectus, abridged prospectus, deemed
prospectus, red herring prospectus, and shelf prospectus. Definition

The prospectus is a legal document for market participants and investors to pursue, detailing the features,
prospects, and promise of a financial product.It is mandated by the law to be supplied to prospective customers.

Importance

The company provides prospectus with capital raising intention. Prospectus helps the investors to make a well-
informed decision because of the prospectus all the required information of the securities which are offered to the
public for sale.

Whenever the company issues the prospectus, the company must file it with the regulator. The prospectus
includes the details of the company’s business, financial statements.

 To notify the public of the issue

 To put the company on record with regards to the terms of the issue and allotment process

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  To establish accountability on the part of the directors and promoters of the company
Contents of a prospectus:

● Address of the registered office of the company.

● Name and address of company secretary, auditors, bankers, underwriters etc.

● Dates of the opening and closing of the issue.

● Declaration about the issue of allotment letters and refunds within the prescribed time.

● A statement by the board of directors about the separate bank account where all monies received
out of shares issued are to be transferred.

● Details about underwriting of the issue.

● Consent of directors, auditors, bankers to the issue, expert’s opinion if any.

● The authority for the issue and the details of the resolution passed therefore.

● Procedure and time schedule for allotment and issue of securities.

● Capital structure of the company.

● Main objects and present business of the company and its location.

● Main object of public offer and terms of the present issue.

● Minimum subscription, amount payable by way of premium, issue of shares otherwise than on
cash.

● Details of directors including their appointment and remuneration.

● Disclosure about sources of promoter’s contribution.

● Particulars relation to management perception of risk factors specific to the project, gestation
period of the project, extent of progress made in the project and deadlines for completion of the
project.

Cooperative Society Definition:

As the name suggests, cooperative society refers to that type of business organization, wherein people work
together, for a common goal, i.e. welfare of its members.

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It has to be registered under the Cooperative Societies Act, 1912, in order to obtain the status of a separate legal
identity. The members of the cooperative society raise the capital themselves by issuing shares.

It is an autonomous association of individuals, operated with the motive of safeguarding their economic, cultural
and social interest if there are possible chances of exploitation while dealing with the intermediaries, who want to
earn maximum profits. Characteristics of Cooperative Society

1. Voluntary Association:

In a cooperative society, the membership is voluntary, i.e. as per the choice of people. In essence, the people are
free to join and become members of the society, as well as they can quit anytime, as per their own will. However,
a proper process is to be followed for leaving the society, and so prior notice is required to be served.

2. Open Membership:

The cooperative society is open for all the people having a common interest for which the society is formed. Any
person of any caste, gender, religion, race can join the society. The minimum number of members required to
constitute a cooperative society is 10.

3. Registration:

A cooperative society needs to be formally registered for obtaining legal status. The registration gives it a
separate identity which is distinct from its members. Along with that the society can enter into contracts and
acquire property in its name, and it can legally sue and be sued by others.

4. Limited Liability:
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In a cooperative society, the liability of the members is limited to the extent of the capital contributed by them.

5. Democratic Character:

A Managing Committee is appointed so as to take important decisions. Members have the right to vote and
choose among themselves, the members who will form the managing committee, making it a democratic one.

6. Service Motive:

Mutual Help and Welfare of the poorer section is the sole purpose of society. Any surplus earned from its
operations is allocated to the members as a dividend, while complying with the regulations of the cooperative
society.

7. State Control:

With the aim of safeguarding the interest of its members, it comes under the control and supervision of the state
government. Further, at the time of registration, it has to furnish the details of its members and the business
which it operates. Further, society has to maintain its account books, which will be audited by an independent
auditor.

Types of Cooperative Societies

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 A. Consumer Cooperative Society

The cooperative society established with the purpose of safeguarding the interest of consumers and to promote
their welfare is consumer cooperative society. Consumers who prefer to purchase a good quality product at
reasonable prices, often join these societies.

Further, to attain economy in operations these societies eliminate middlemen and for that, it purchases goods
directly from the wholesalers and sells them to customers.

Example: Kendriya Bhandar, Sahkari Bhandar, etc

B. Producer Cooperative Society

When a cooperative society is formed with the aim of protecting the interest of small producers and increase their
bargaining power. Its members are those producers who wish to procure inputs such as raw material, tools,
equipment and suppliers, for the production of goods to satisfy consumer demands.

Example: Andhra Pradesh State Handloom Weavers Cooperative Society (APCO), Haryana

Handloom, etc.

C. Marketing Cooperative Society

These societies are set up to help the small producers to sell their producers by providing them reasonable price
for their offerings. It is possible by eliminating middlemen and obtaining a competitive market position.

Example: Gujarat Co-operative Milk Marketing Federation, which sells the product under the name ‘AMUL’,
Mother Diary, etc.

D. Worker Cooperative Society

Also called as workers cooperatives, is a form of cooperative society, whose ownership and management lies in
the hands of its workers. Meaning that the members of the society are both employees as well as its members.

Example: Indian Coffee House (ICH)

E. Farmer Cooperative Society

These societies provide quality input such as seeds, fertilizers, insecticides, machinery, manure, irrigation
equipment, support services, etc to the farmers for their development as well as welfare. Its purpose is to gain the
advantage of large scale farming and increasing the yield.

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Example: Lift-irrigation cooperative societies and Indian Farmers Fertiliser Cooperative Limited

F. Credit Cooperative Society

These societies aim at providing loan facility at a nominal interest rate to the members. And so the members are
those who look for financial aid. It aims at protecting the members for being exploited by money sharks, who
charge high interest. The loan is provided out of the money raised as capital and the deposits of members.

Example: Village Service Co-operative Society, Urban Cooperative Banks, etc.

G. Housing Cooperative Society

As the name suggests, a housing cooperative society is one that helps people with low income to build their
houses. The residential accommodation problem is resolved by the society by building flats or providing plots to
the members on which they can themselves construct the house.

Example: Employees’ Housing Societies and Metropolitan Housing Co-operative Society

Advantages of Cooperative Society

1) Easy to Form

A cooperative society is a voluntary association and may be formed with a minimum of ten adult members. Its
registration is very simple and can be done without much legal formalities.

2) Open Membership

Membership in a cooperative organisation is open to all people having a common interest. A person can become
a member at any time he likes and can leave the society at any time by returning his shares, without affecting its
continuity.

3) Democratic Management

A cooperative society is managed in a democratic manner. It is based on the principle of ‘one man one vote’. All
members have equal rights and can have a voice in its management.

4) Limited Liability

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The liability of the members of a co-operative society is limited to the extent of capital contributed by them. They
do not have to bear personal liability for the debts of the society.

5) Stability

A co-operative society has a separate legal existence. It is not affected by the death, insolvency, lunacy or
permanent incapacity of any of its members. It has a fairly stable life and continues to exist for a long period.

6) Economical Operations

The operation of a cooperative society is quite economical due to elimination of middlemen and the voluntary
services provided by its members.

7) Government Patronage

Government gives all kinds of help to co-operatives, such as loans at lower rates of interest and relief in taxation.

8) Low Management Cost

Some of the expenses of the management are saved by the voluntary services rendered by the members. They
take active interest in the working of the society. So, the society is not required to spend large amount on
managerial personnel.

9) Mutual Co-Operation

Cooperative societies promote the spirit of mutual understanding, self-help and self-government. They save
weaker sections of the society from exploitation by the rich. The underlying principle of co-operation is “self-
help through mutual help.”

10) No Speculation

The share is always open to new members. The shares of cooperative society are not sold at the rates higher than
their par values. Hence, it is free from evils of speculation in share values.

11) Economic Advantages

Cooperative societies provide loans for productive purposes and financial assistance to farmers and other lower
income earning people.

12) Other Benefits

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Cooperative societies are exempted from paying registration fees and stamp duties in some states. These societies
have priority over other creditors in realising its dues from the debtors and their shares cannot be decreed for the
realisation of debts.

Disadvantages of Cooperative Society

a. Limited Capital

Cooperatives are usually at a disadvantage in raising capital because of the low rate of return on capital invested
by the members.

b. Inefficient Management

The management of a co-operative society is generally inefficient because the managing committee consists of
part-time and inexperienced people. Qualified managers are not attracted towards a cooperative on account of its
limited capacity to pay adequate remuneration.

c. Absence of Motivation

A cooperative society is formed for mutual benefit and the interest of individual members is not fully satisfied.
There is no direct link between effort and reward. Hence, members are not inclined to put their best efforts in a
cooperative society.

d. Differences and Factionalism among Members

Once the initial enthusiasm about the co-operative ideal is exhausted, differences and group conflicts arise among
members. Then, it becomes difficult to get full co-operation from the members. The selfish motives of members
begin to dominate and service motive is sometimes forgotten.

e. Rigid Rules and Regulations

Excessive Government regulation and control over co-operatives affect their functioning. For example, a co-
operative society is required to get its accounts audited by the auditors of the co-operative department and to
submit its accounts regularly to the Registrar. These regulations and control may adversely affect the flexibility
of operations and the efficiency of management in a co-operative society.

f. Lack of Competition

Cooperatives, generally, do not face any stiff competition. Markets for their goods and services are more or less
ready and assured. Hence, there is possibility of slackening of efforts.
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 g. Cash Trading

The members of the societies are generally from poor sections of the society. These persons need credit facilities.
On the other hand, private traders extend credit facilities to the consumers. Though the societies sell goods at
lower prices but absence of credit facilities compel them to go to private traders for meeting their requirements.

h. Lack of Secrecy

The affairs of a co-operative society are openly discussed in the meetings of the members. Every member is free
to inspect the books and records of the society. Therefore, it becomes difficult to keep the secrets of business.

i. Weightage to Personal Gains

Mutual co-operation erodes away over a period of time and the members start giving weightage to their personal
gains.

j. Lack of Incentive and Initiative

In a cooperative society form of organisation everybody is the owner of the society and over a period of time it
becomes lifeless due to a lack of incentive and initiative as everybody is the owner, but business does not belong
to any one of them.

k. Corruption

It is the worst demerit from which co-operative societies suffer, it is the biggest hindrance in the development and
growth of business.

Difference between Joint Stock Company and Cooperative Society.

Sr. Basis of Co-operative Society Joint Stock Company

No
Difference

1. Meaning A Co-operative society is a voluntary It is voluntary association of

association of people who come together on individuals for profit having capital
the basis of unity and equality to protect and divided into transferable shares, the
ownership which is the condition of

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 promote their common economic interest. . membership.

2. Formation Co-operative Society is Comparatively Joint stock company involves

cheaper
many legal, lengthy complicated and
costly process

3. Motive Main motto of a co-operative society is to Main motto of a Joint stock

provide services to members and secondary
company is to earn profit and
profit making
secondary is to providing services

4. Transfer ability of Shares are not transferable to Shares are freely transferable in
Shares public limited company
other, though they can be surrendered to the
society

5. Members Minimum of 10 members are At least 2 members are required for

private company and maximum 50
required and no mix mum limit for the
members.public
formation of co-operative society
company has minimum 7 members
and maximum not limit

6. Management Managing committee is the managing body of Board of directors constitute the
co-operative society. management of company. Directors
run the business since they possess
the required expertise

7. Capital Raising There is no capital appreciation Large capital raise since

capacity
and it can raise limited capital since the attractive dividend is paid and there
dividend is fixed is capital appreciation

8. Voting Rights The principle of voting is one The principle of voting is one

member one vote share one vote

9. Remuneration Managing committee works

honorary capacity

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Public Enterprises

A commonly accepted definition of a public enterprise is “Any commercial or industrial undertaking which the
government owns and manages with a view to maximize social welfare and uphold the public interest.”

Characteristics of Public Enterprises

 They function under the direct control of the government and some are even established under statutes
and Companies Act. Therefore, public enterprises are autonomous or Semi-Autonomous in nature.
 Either the State or the Central government can control a public sector enterprise.
 Primarily, the objective of establishing a public enterprise is to serve the public. They can supply essential
goods/services at reasonable prices and also create employment opportunities.
 A public enterprise endeavors to serve all section of people in the community.
 In some sectors, private organizations do not have permission to operate. Therefore, the public sector
enterprises enjoy a monopoly in operation. For example, the State enterprises have a monopoly in Energy
production, Railways, and Post and Telegraph services.
 Sometimes, the country receives financial/technological assistance from the international community for
the development of industries. These grants are applied through public enterprises.
 Public sector enterprises are liable to the general public for their actions.® These enterprises help in the
implementation of the economic plans and policies of the government.
 The government makes the primary investment in a public sector enterprise. However, they arrange
finance for the day-to-day operation making it financially independent.

Organization of Public Enterprises

In India, public sector enterprises have three different forms of organization:

Departmental Undertaking

The departmental undertaking is the oldest and traditional form of an organization of the public sector
enterprise.It is organized, financed and controlled in such a manner that any other government organization.

The undertaking is under the control of a minister who is responsible to the parliament. Some example of
departmental undertakings is Indian Railways, Post and Telegraph, All India Radio, Doordarshan etc.

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Features of Departmental Undertaking

▪ It is structured as a sub-division of a Central Government department and is subject to its direct

control.

▪ The management of the departmental undertakings is in the hands of civil servants. They are brought
over from other departments on deputation and transfers for a specific period of time and are changed
after a regular period of time.

▪ It is totally funded by the government and all their income go into the State treasury.

▪ Since departmental undertakings directly come under some ministry, they are subject to government
audits. Their performance is discussed in the parliament and other forums.

▪ They represent the government in the services they provide. They use the insignia of the government.

▪ They are subject to budgetary control, government audits etc.,

▪ It possesses sovereign immunity of the government. Therefore it cannot be sued without the consent
of the government.

▪ The funding of these enterprises come directly from the Government Treasury

▪ The portion of the budget is allocated for these departmental undertaking.

▪ The revenue earned by these is also paid into the treasury.

▪ They are subject to accounting and auditing controls, as applicable to other Government entities.

▪ The employees are Government servants and their recruitment & conditions of service are the same
as that of other government employees.

▪ They are headed by Indian Administrative Service (IAS) officers and civil servants who are
transferable from one ministry to another.

▪ It is generally considered to be a major subdivision of the Government department

▪ It is subject to direct control of the ministry.

Advantages of the Departmental Undertaking:

1. Easy Formation:

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It is easy to set up a departmental undertaking. The departmental undertaking is created by an administrative
decision of the Government, involving no legal formalities for its formation.

2. Direct and Control of Parliament or State Legislature:

The departmental undertaking is directly responsible to the Parliament or the State legislature through its overall
head i.e. the minister concerned.

3. Secrecy Maintained:

The departmental undertaking can maintain secrecy of important policy matters; as the Government can withhold
any information, in public interest.

4. Lesser Burden of Tax on Public:

Earnings of departmental undertaking are paid into Government treasury, resulting in lesser tax burden on the
public.

5. Instrument of Social Change:

Government can promote economic and social justice through departmental undertakings. Hence, a departmental
undertaking can be used by the Government, as an instrument of social change.

6. Lesser Risk of Misuse of Public Money:As the departmental undertaking is subject to budgeting,
accounting and audit procedures of the government; the risk of misuse of public money is relatively
less.

7. Guided by Rules and Regulations of the Ministry:

The officers of the departmental undertaking are under the direct administrative control of the ministry. They are
guided by the rules and regulations of the ministry, framed with a focus on public welfare.

Limitations of Departmental Undertaking:

a) Read-Tape and Bureaucracy:

Departmental undertaking is run in a way other departments of the Government are run. Its management and
functioning are subject to excessive red-tap and bureaucracy. (Red-tape means unnecessary and complicated
officials rules which prevent things from being done quickly). As a result, the departmental undertaking loses all
flexibility desired of a business enterprise.

b) Incidence of Additional Taxation:

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Losses incurred by a departmental enterprise are met out of the treasury. This very often necessitates additional
taxation the burden of which falls on the common man.

c) Lack of Competition:

A departmental undertaking often enjoys monopoly in its field. As a result, it tends to become indifferent to the
quality and price of its goods and services; and may not hesitate to exploit the society.

d) Casual Approach to Work:

As officers of a departmental undertaking are subject to frequent transfers; they develop a sense of casual
approach to work. As a result, the operational efficiency of the undertaking suffers a lot.

e) Political Influence:

A departmental undertaking is subject to excessive political influence. Its fate depends on the balance of power
between the ruling party and the opposition. As such, a departmental undertaking becomes a political
organisation rather than an economic or business organisation.

f) Lack of Professional Management and Fear of Criticism:

A departmental undertaking is managed by civil servants, who do not possess professional management skills.
Moreover, these managers could not afford to be innovative, because of a fear of criticism by the minister or the
Parliament.

g) Financial Dependence:

A departmental undertaking is financially dependent on the Government’s budgetary allocations. As such, it

cannot have its own independent long range investment decisions, which may bring enormous prosperity to the
undertaking.

Public Corporation

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

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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:

(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).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.

(ii) 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.

(iii) Financial Autonomy:

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A public corporation enjoys financial autonomy. It prepares its own budget; and has authority to retain and utilize
its earnings for its business.

(iv) 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.

(v)Own Staff:

A publication corporation has its own staff; whose appointment, remuneration and service conditions are decided
by the corporation itself.

(vi) Service Motive:

The main objective of a public corporation is service-motive; though it is expected to the self-supporting and earn
reasonable profits.

(vii) 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:

(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:

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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.

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 (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:

(i) Autonomy and Flexibility,

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:

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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.

Government Companies

Government Company is a company or an organization in which at least 51% of the paid up

share capital is held by the central government or the state government or partly by both
central and state government. These are many government companies, few of them are, Steel
Authority of India Limited, Bharat Heavy Electricals Limited, Coal India Limited, State
Trading Corporation of India, etc.

The public sector companies in India were incorporated into two main objectives:

 To achieve more equity in the distribution of wealth and income amongst the citizens
of the country.
 To gain the momentum in the growth of the nation.
Features of a Government Company

 It is a separate legal entity.

 It is incorporated under Companies Act 1956 & 2013.
 The management is governed and regulated by the provisions of Companies Act.
 The Memorandum of Association and Articles of Association govern the appointment
of employees.
 A government company gets its funding from government shareholding and other
private shareholdings. The company can also raise money from the capital market.
 A government company is audited by the agency appointed by the central
government. This agency is mainly Comptroller and Auditor General of India
(C&AG).
Advantages of Government Company:

(i) Easy Formation:

A Government company can be easily formed under the Companies, Act, just by an executive
decision of the government.

(ii) Internal Autonomy:

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A government company can manage its affairs independently. It is relatively free from
ministerial control and political interference, in its day-to-day functioning.

(iii) Private Participation:

Through Government company device, the government can avail of the management skills,
technical know-how and expertise of the private sector and foreign countries. For example,
the Hindustan Steel Limited has obtained technical and financial assistance from the
U.S.S.R., West Germany and the U.K. for its steel plants at Bhilai, Rourkela and Durgapur.

(iv) Easy to Alter:

Objectives and powers of the Government Company can be changed by simply altering the
Memoran of Associating of the company, without seeking the approval of the Parliament.

(v)Discipline:

The Government Company is subject to provisions of the Companies Act; which keeps the
management of the company active, alert and disciplined.

(vi) Professional Management:

A Government company can employ professionally qualified managers; because it has its
own personnel policies.

(vii) Public Accountability:

The Annual Report of a Government company is presented to the Parliament/ State

Legislature. These reports can be discussed and debated there.

Limitations of Government Company:

(i) Board of Directors Packed with ‘Yes-Men’:

On the Board of Directors of a government company, there are Government appointed

directors (Government being the major shareholder); who are ‘yes-men’ of the Government.
They are unable to run the company, in a businesslike manner.

(ii) Autonomy Only in Name:

Independent character of a Government company exists only in name. In reality, politicians,

ministers, Government officials, interfere excessively in the day-to-day working of the
government company.

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 (iii)A Fraud on Companies Act and Constitutions:

A Government company is criticized as being a ‘fraud on the Companies Act and on the
Constitution. This criticism is valid on the ground that the Government can exempt a
Government company from application of several provisions of the Companies Act. Again,
the Parliament is not taken into confidence, while creating a Government company.

(iv) Fear of Exposure:

The annual report of the government company is placed before the Parliament/State
Legislature. The working of the company is exposed to Press criticism: Therefore,
management of the Government Company often gets demoralized and may not take initiative
to come out with and implement something innovative.

(v)Lack of Expertise in Deputationists:

The key personnel of a Government company are often deputed from Government
departments. These deputatiosnists generally lack expertise and commitment; leading to
lower operational efficiency of the government company.

(vi) Selfish Functioning:

The Government Company works neither for the government nor for the public at large. It
serves the personal interests of people who work in the company and who dictate policies of
the company.

Public Utilities:

Meaning:

Public utilities are those business undertakings which provide necessary services to the
society. The undertakings dealing with the supply of electricity, gas, power, water and
transport etc. are all covered under public utility services. All these things are needed in the
day-to-day life of the people.

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The undertakings dealing with public utilities require large scale capital investments. It is
expected that the services should be provided at reasonable rates. Public utilities tend to be
monopoly concerns. The entry of other entrepreneurs in these fields is generally barred by the
government.

The purpose of making public utilities as monopoly concerns is to serve the consumers in a
better way and to provide services at cheap rates. Certain special privileges are also given to
these concerns with a view to improve their working.

R.G. Hawtrey defines public utilities as “a service in which a tendency to a local monopoly
necessitates, the intervention of a public authority to defend the interest of the consumer.”
Garuham Roper defines a public utility as “any undertaking that meets the needs or
inconveniences of a considerable section of the public and that places the undertakings in a
position justifying the imposition of the control in return for monopolistic or other special
privileges.”

Characteristics of Public Utilities:

(i) Protection of Consumers:

Public utilities are meant for serving the consumers. The supply of services like electricity,
water, power, transport should be adequately maintained. Public cannot do without these
services. These services should also be provided at reasonable rates. These services being
necessities, consumer exploitation is possible. The supply of essential services should not
only be at lower prices but they should be constantly maintained.

(ii) Monopoly Position:

Public utility enterprises are given monopoly in a particular area. These undertakings are the
outcome of special legislations. The entry of other concerns is barred to these fields.
Monopoly position is necessary to avoid duplication in providing these services.

These undertakings require large capital investments for want of resources. Small investors
cannot enter these fields. The supply of essential services should be maintained regularly.
Public utility service can be well maintained when the power to operate in a field is absolute.

(iii) Special Franchise:

Public utility concerns are given special powers and privileges so that regular and satisfactory
supply is maintained. The privileges and special status is conferred by the legislations passed

S56
for creating those concerns. Franchise is a charter of special powers, privileges and duties as
well. Public utility concerns may acquire and use public property, if necessary. The powers
are given in good faith and these concerns should not make misuse of these powers.

(iv) Large Investments:

Public utility concerns require large investments of capital. The investments are more in fixed
assets. In case of railways, large amounts are spent on providing railway lines, purchase of
engines and wagons and constructing railway stations. In the same way, electricity concerns
require large investment on setting up lines. The expansion of supply of these services
reduces cost per unit as no additional investment is required. Cost per unit will go on
decreasing with the expansion in service.

(v)Public Regulations:

Public utility undertakings are generally created by special legislation of Parliament and state
legislature. Indian Railways are set up under a special act of Parliament. Electricity Boards
are set up in different states by state legislatures. Special acts are necessary because certain
special powers and privileges are needed to maintain regular and efficient service.

(vi) No Business Risks:

The demand for public utility always remains. So there is no risk on this score. There is no
fear of competition because of monopolistic conditions. The demand for these services is
both direct and derived. The use of electricity in the house is a direct demand and the use of
power for running engines is a derived demand. There is always a possibility of increase in
demand. So, public utility undertakings do not suffer from business risks as other
undertakings suffer.

(vii) Pricing Policies:

The primary aim of public utility services is to h2lp the society in getting essential services at
reasonable prices. The prices are also affected by the nature of demand and laws of returns.
These concerns operate under decreasing cost conditions. So, they should charge reasonable
prices. The pricing policy of these undertakings is generally guided by the government. Some
margin of profit is allowed to maintain efficiency and expansion of these services.

Forms of Public Utility Undertakings:

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The form of public utility undertakings depends upon the nature and type of service provided
by them. The ownership of these undertakings is always preferred to be in government hands.
It ensures regular supply of these services without any discrimination to consumers. It also
helps to protect the interests of consumers.

Generally, following forms may be used for these undertakings:

▪ Public authority.

▪ Private company operating under limited monopoly.

▪ Joint ownership concerns i.e., Public and Private companies.

▪ Public utility trusts.

The preference is always for a form owned and controlled by the government. Under
government control, it may be departmental form, a public corporation or a government
company.

Privileges and Obligations: Privileges:

 To maintain efficient and regular service certain privileges are allowed to public
utility concerns:
 The entry into public utility services is determined by an Act of Parliament or of a
state legislature. It restricts the entry of other persons into that field. Competition in
public utilities is not allowed.
 They have right to use public property like streets, etc. A water supply company may
dig a road to lay down its pipes, thus disturbing the traffic.
 These undertakings are allowed to charge reasonable rates for their services rendered
for goods supplied. A fair rate of return is allowed to them.
 It has the rights of ’eminent domain’. Under this right they can acquire public
property for its use on payment of compensation.
Obligations:

o It is the duty of public utility undertakings to provide services to each and

every person without any discrimination of caste and creed.
o The services should be supplied as and when required. Certain rules and
regulations should be framed to standardise the use of public utilities.
o The services should be supplied through safest equipment’s.

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 o The services should be supplied at reasonable rates so that all sections of
society may be able to utilise them.

UNIT –II

Business Location

The location of a business can make an important difference to its success. Choosing the right
location means taking into account a number of factors.

The importance of location

Location is the place where a firm decides to site its operations. Location decisions can have
a big impact on costs and revenues.

A business needs to decide on the best location taking into account factors such as:

 Customers - is the location convenient for customers?

 Staff - are there sufficient numbers of local staff with the right skills willing to work

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 at the right wage?
 Support services - are there services offering specialist advice, training and support?
 Cost - how much will the premises cost? Those situated in prime locations (such as
city centres) are far more expensive to rent than edge-of-town premises.
Importance of infrastructure

Infrastructure refers to the facilities that support everyday economic activity, eg roads, phone
lines and gas pipes.

An efficient transport network enables staff to get to work easily. It also allows supplies to be
brought in from far afield and permits finished products to be moved to market cheaply and
quickly.

The impact of location depends on the type of business. For example, it is important for shops
and restaurants to be conveniently located for customers. A delivery-only takeaway may
prefer to locate in inexpensive premises on the edge of town close to good transport links.

Business Location Analysis

Location analysis is a dynamic process where entrepreneur analyses and compares the
appropriateness or otherwise of alternative sites to select the best site for a given enterprise.

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 ● Demographic Analysis

It involves the study of population in the area in terms of total population (in no.), age
composition, per capita income, educational level, occupational structure, etc.

● Trade Area Analysis

It is an analysis of the geographic area that provides continued clientele to the firm. He would
also see the feasibility of accessing the trade area from alternative sites.

Competitive Analysis

It helps to judge the nature, location, size, and quality of competition in a given trade area.

Traffic Analysis

To have a rough idea about the number of potential customers passing by the proposed site
during the working hours of the shop, the traffic analysis aims at judging the alternative sites
in terms of pedestrian and vehicular traffic passing a site.

Site Economics

Alternative sites are evaluated in terms of establishment costs and

operational costs under this.

Costs of the establishment are the cost incurred for permanent physical facilities. Still,
operational costs are incurred for running a business on day to day basis, they are also called
as running costs.

Objectives of Business Location

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 a. To hold minimum investment and operational cost

The foremost objective in selecting an ideal location is to ensure minimum investment and
lower operational costs.

This could be achieved if the business is located in a place where raw materials, labor,
transport, and power are easily, regularly, and sufficiently available.

b. To ensure the smooth operation of the business.

Another objective of the ideal location is to ensure the smooth operation of the business. This
could be achieved if the business is located in a place where the services of banking,
communication, transport, repairs, and maintenance are available easily and regularly.

c. To promote employee welfare.

If the business is located where the educational recreational, medical, and religious needs of
employees are met, they will certainly feel attached to the enterprise. They would develop
loyalty and commitment to it.

d. To co-ordinate with Government Policies.The entrepreneur, while selecting

a location, must ensure that his decision does not conflict with the
government policy of balanced regional development.

Factors to be Considered in Selecting a Business Location

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 1) Nature and Type of Business

The nature and type of your business is the single greatest determinant of where the business
should be located. Businesses that rely on walk-in customers from the public are the most
affected, the main ones being in the service industry.

If your business relies heavily on walk-in clients as opposed to businesses that prospect, then
location is everything. Getting your location wrong can spell doom for your business.

In the restaurant business, for example, there are three “main” rules when setting up.

These are “LOCATION, LOCATION, and LOCATION.”

This example underscores the importance of a great location for restaurants.

A study of McDonald’s reveals this to be true. Senior management at MacDonald’s will tell
you that they are burger salespeople, but their business is real estate.

Therefore, businesses such as restaurants, supermarkets, liquor stores, Ice cream parlors, and
the like must be located in easily accessible areas with high levels of human traffic.

In contrast, businesses such as law firms, accountants, software firms, and so forth, which do
not rely on high levels of human traffic, can be located in posh offices within office blocks.

2) Budget

The amount of money you can afford to obtain premises must, of course, come into play.
Most first time entrepreneurs will be renting due to budget constraints.

Always try and secure premises that provide the best value for your money, considering the
nature of business.

3) Space required

Certain types of businesses require very large amounts of space.

For example, car dealerships and car rentals require a large space to park their vehicles. This
may mean looking for an out of cheap town location.

4) Special facilities needed

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Certain types of businesses require special facilities to carry out their business effectively.
For example, IT companies have some very special mechanical, electrical, plumbing, and fire
suppression requirements.

Server rooms and computer areas need dedicated cooling units. These must be taken into
consideration before settling on a business location.

At one point, we may want to determine the size of the business. This helps in knowing
whether it’s growing or not.

Also, you ascertain it to plan its various requirements. If you know the size of your firm, then
you’re able to determine its efficiency. Any enterprise is the ether; small, medium or large
size.

Localization of Industries

Meaning of Localisation of Industry:

Localisation of industries is also called the geographical or territorial division of labour. This
means that certain areas or towns come to specialise in the production of certain
commodities. Some of them acquire a State-wide reputation, while others come to be known
throughout the country and even in other parts of the world. Some Kashmir products have an
international reputation. Mysore silk is known all over India and Sheffield cutlery has a
world-wide market.

Among Indian industries which have become localized may be mentioned the cotton textile
industry in Bombay and Ahmedabad, the sugar industry in U.P. and Bihar, jute mill industry
in Calcutta and the iron and steel industry in Bihar, West Bengal and Orissa. These places or
areas have become famous for their products. This form of specialization is called
localization or centralization of industries.

Causes of Localization of Industry:

There are several factors which are responsible for certain centers specializing in certain
products. It is partly due to natural causes like climate, nature of the soil, presence of
minerals and power resources. Then, there are economic factors like the availability of labour
and capital and proximity to markers. Sometimes political factors also assist localization by
extending patronage and restricting outside competition

Favourable Climate:

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There are certain industries which require special type of climate, e.g., damp climate for
spinning and weaving. The growth of certain herbs and the preparation of medicines and
drugs from them need a temperate climate. The climatic factor is a very important one for
determining the localisation of an industry. The damp climate of Bombay specially suits the
cotton textile industry localised there.

Nearness to Raw Materials:

Proximity to raw materials is an essential condition of localisation, if the raw material is

bulky. A cement factory must be near the limestone rock; the iron and steel industry must be
located where iron-ore fields, coal-mines and abundant water are to be found in close
proximity. These conditions are ideally fulfilled in Bihar and West Bengal.

Nearness to Sources of Power:

For running a mill, power is necessary. The fall of a canal or a stream from a higher to a
lower level may be used to generate electricity, or coal should be available nearby. Our
industrial areas are centred in West Bengal and Bihar, for coal is available there. Tamil Nadu,
Maharashtra, Gujarat, U.P. and the Punjab are poor in coal but rich in the source of hydro-
electricity.

Fertility of the Soil:

Industries which are based on agriculture, like the sugar industry, the dairy industry, fruit and
vegetable canning, etc., must have vast areas of fertile land all around. It will be impossible to
establish such industries in areas which are arid wastes.

Nearness to Markets:

If the market is near, the cost of transportation will be low. Many foreign concerns were
established in India so as to come close to their consumers and save transport costs. This is
the case of Indian match industry.

Availability of Trained Labour:

Some areas have traditions of inherited skill. Adequate supplies of trained labour are
available there. The employers will experience no difficulty in securing an adequate supply of

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efficient labour here. This is a great inducement to the capitalists to establish their factories
there.

Availability of Capital:

No business can be run and expanded successfully without adequate credit facilities at
reasonable rates. The presence of banks and financial houses in a locality encourages the
establishment of trading and industrial concerns there.

Political Patronage:

Sometimes States give certain concessions like grants of free land, advances of cheap money,
subsidies, bounties, protective duties and guarantees of purchases. This attracts industries to
certain areas. Many Indian industries have grown behind the shelter of the tariff walls.

Many mills were started in the former Indian States attracted by the concessions granted by
their rulers. Even now some industrially backward States offer concessions to prospective
industrialists in order to accelerate industrial development in their regions.

Momentum of an Early Start:

Sometimes no particular cause is at the root of the location of an industry in an area. The
industry just happened to be started there by some enterprising businessman sometime back.
It grew in strength from the momentum gained from that early start. The Ludhiana hosiery
industry owes its present position to this cause.

Causes of Localised Industries:

Trained Labour:

In no other city will a man find such an abundant supply of hosiery workers as in Ludhiana.
The factories working there serve as training grounds, and a large supply of skilled labour is
built up on which the new entrants in the industry can easily draw. This is no small attraction.

Credit Facilities:

In an industrial centre, several banks are started. Ample backing facilities thus become
available. This is a great facility. In order to enjoy this facility, more industrialists are drawn
to that place.

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Specialised Transport:

Means of transportation may have become specialised and adapted to the needs of that
particular industry. For example, railway sidings may be made available by the railway
authorities. This facility attracts further concentration of the industry in such areas.

Subsidiary Industries:

Many subsidiary industries grow up in this place. The main industry draws valuable support
from these. For example, in Ludhiana, bleaching, washing and dyeing industries have been
developed. They assist the main hosiery industry.

Industrial inertia:

An industry tends to remain where it is localised, unless positive drawbacks appear in that
locality. It will even put up with small hardships and inconveniences. Man does not like to
move out, if he can help it.

Other Causes:

The reputation of the place helping in publicity, publication of technical journals, presence of
training and research institutions and the existence of associations to safeguard the interests
of the local industry, etc., are the other causes on account of which the industry clings to that
place.

Remedies:

To overcome these drawbacks of localisation, two remedies may be suggested:

(i) Supplementary Industries:

Several small industries which may assist the main industry may be established. This will
remove the risk of unemployment and lessen the severity of the depression when it conies. It
will remove the – exclusive dependence of the locality on one industry, and provide other
strings to its bow. This will also remove dependence on foreign markets or materials. The
workers will have a wider scope of employment.

(ii)Decentralisation:

By decentralisation is meant spreading out of industries in various regions of a country. It

will be found more economical to move an industry to other less congested centres. It will

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remove some of the drawbacks’ of centralisation. Such decentralisation has been taking place
in recent times. For example, cotton textile mills have been established away from Bombay
and at other centres.

Theories of Location:

1. Alfred Weber’s Theory of the Least-Cost Location:

Alfred Weber first introduced his famous theory of industrial location in 1909, in his book
entitled, Uber den Standort der Industrien and its English translation was published in 1929
as The Location and Theory of Industries. His theory is known as ‘Least-Cost Location
Theory’ or ‘Least-Cost Minimisation Approach’. The basic objective of the Weber’s theory is
to find out the minimum cost location of an industry.

Prior to describing Weber’s theory, it is necessary to explain the following terminology

used in his theory:

 Ubiquities are materials available everywhere throughout the uniform plain at the
same cost.
 Localised materials are available only at specific locations.
o Pure materials are localised materials that enter to the full extent of their
weight into the finished product, such as petroleum.
o Weight-losing materials are localised commodities that impart only a portion
or none of their weight into the finished product.
o Isodapane is a line connecting points of equal total transport costs.
o Isotim is a line of equal transport cost for any material or product.
Losch’s Theory of Economics of Location:

This theory belongs to the ‘market area’ or ‘profit maximisation’ approach and has focused
on spatial variations in scales potential. August Losch was a German economist and he
proposed his theory in 1939 in a book entitled Die taumliches Ordnung Derwirt’s Chaff. Its
English translation was published in 1954 as Economics of Location.

He disregarded spatial variations in production costs by holding them constant, and instead
depicted optimal location as occurring where the largest possible market area is monopolised
– that is, where sales potential and total revenue potential are maximised. Losch sought to

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explain the size and shape of market areas within which a location would command the
largest revenue.

His theory is based on following assumptions:

● An isotropic surface.

● For each firm there exists a behavioral pattern such that it seeks to locate at the
most profitable of the production points at which it can locate.

● For each location there exist constant costs for the procurement and consumption
of raw materials.

● Buyers are evenly dispersed over an area, and have identical demands.

● Entrepreneurs act as economic men and their main aim is profit maximisation.

Losch established the hexagon as the ideal market shape, and viewed the trading area of the
various products as the nets of such hexagons. Figure 15.6 helps to explain his choice of the
hexagonal form. First, a net of hexagonal market forms will completely cover any area under
consideration, whereas circular areas will either leave utilised area or will overlap.

Second, of all the regular polygons (hexagon, square, triangle, etc.) that will cover an area,
the hexagon deviates least from the circular form and in consequence minimises
transportation expenditure in supplying a given demand.

2. Walter Isard’s Theory of Substitution:

Walter Isard had given the location theory in 1956 vided publication entitled, Location and
the Space Economy. Isard has modified the Loschian schema, in the attempt to make it more
realistic. Isard linked location theory to the general theory of economics through the
substitution principle. In economic theory, capital can be substituted for labour, for example.
Similarly, the selection of a manufacturing site from among alternative locations can be
viewed as substituting expenditures among the various production factors such that the best
site is chosen.

3. Smith’s Theory of Industrial Location:

D. M. Smith in his theory has provided a theoretical framework for industrial location.
His theory is also known as ‘Area-Cost Curve Theory’. Smith has attempted to
utilise the perfect competition-least cost approach of Weber with some reference to

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 the monopolistic competition-market area approach of Losch. His conceptual design
is quite straightforward and is based on the statements of other location theorists.
Recognising the complexity of the industrial location decision, Smith began by
simplifying the real-world conditions.

He assumed a profit motive. He observed that processing costs vary in space as do

revenues. The most profitable location will be where total revenue exceeds total
cost by the greatest amount. Figure 15.8 depicts the effect of spatial variations in
cost and price and suggests the optimal location and spatial profitability margins.

4. Tord Palander’s Theory:

In 1935, Tord Palander, a Swedish person had put forward the industrial location theory. First
of all Palander determined the boundary between two market areas and explained how two
firms making the same product for a linear market distributed horizontally, and how the plant
cost or the price charged lore the product varied away from the plant.

5. Renner’s Theory of Industrial Location:

Renner, in his book entitled, World Economic Geography: An Introduction to Geonomics

(1960), has introduced the industrial location theory which is factor-oriented. Renner
identified six factors for the location of industries, these are: capital, transport, raw material,
market, power and labour. These factors have direct impact on industrial location but each
factor affects differently.

In his theory Renner has explained in detail the role of each factor in industrial location as
well as localisation of industries and also pointed that there is a tendency that many factors
may be available at a particular place.

More the factors available at a place more it will be suitable for the industrial location.
Renner has given the term industrial symbiosis for the combination of these factors.

6. Rawstron’s Theory of Industrial Location:

E. M. Rawstron has given a simple principle of industrial location, which is entirely

based on geographical elements. According to Rawstron, the industries are located
at a place where cost is minimum. He pointed out that first of all expenditure on
each element is to be examined and then location be determined at a place of

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 maximum profit; in other words, industries are established at a place where the cost
is least.

Factors Influencing the Location of Industries

1) Availability of raw materials:

In determining the location of an industry, nearness to sources of raw material is of vital

importance. Nearness to the sources of raw materials would reduce the cost of production of
the industry. For most of the major industries, the cost of raw materials form the bulk of the
total cost. Therefore, most of the agro-based and forest-based industries are located in the
vicinity of the sources of raw material supply.

2) Availability of Labour:

Adequate supply of cheap and skilled labour is necessary for and industry. The attraction of
an industry towards labour centres depends on the ratio of labour cost to the total cost of
production which Weber calls ‘Labour cost of Index’. The availability of skilled workers in
the interior parts of Bombay region was one of the factors responsible for the initial
concentration of cotton textile industry in the region.

3) Proximity to Markets:

Access to markets is an important factor which the entrepreneur must take into consideration.
Industries producing perishable or bulky commodities which cannot be transported over long
distance are generally located in close proximity to markets. Industries located near the
markets could be able to reduce the costs of transport in distributing the finished product as in
the case of bread and bakery, ice, tins, cans manufacturing, etc. Accessibility of markets is
more important in the case of industries manufacturing consumer goods rather than producer
goods.

5) Transport Facilities:

Transport facilities, generally, influence the location of industry. The transportation with its
three modes, i.e., water, road, and rail collectively plays an important role. So the junction
points of water-ways, roadways and railways become humming centres of industrial activity.
Further, the modes and rates of transport and transport policy of Government considerably
affect the location of industrial units. The heavy concentration of cotton textile industry in

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Bombay has been due to the cheap and excellent transportation network both in regard to raw
materials and markets.

6) Power:

Another factor influencing the location of an industry is the availability of cheap power.
Water, wind, coal, gas, oil and electricity are the chief sources of power. Both water and wind
power were widely sought at sources of power supply before the invention of steam engine.
During the nineteenth century, nearness to coal-fields became the principal locating influence
on the setting up of new industries, particularly, for heavy industries. With the introduction of
other sources of power like electricity, gas, oil, etc. the power factor became more flexible
leading to dispersal and decentralization of industries.

7) Site and Services:

Existence of public utility services, cheapness of the value of the site, amenities attached to a
particular site like level of ground, the nature of vegetation and location of allied activities
influence the location of an industry to a certain extent. The government has classified some
areas as backward areas where the entrepreneurs would be granted various incentives like
subsidies, or provision of finance at concessional rate, or supply of power a cheaper rates and
provision of education and training facilities. Some entrepreneurs induced by such incentives
may come forward to locate their units in such areas.

8) Finance:

Finance is required for the setting up of an industry, for its running, and also at the time of its
expansion. The availability of capital at cheap rates of interests and in adequate amount is a
dominating factor influencing industrial location. For instance, a review of locational history
of Indian cotton textile industry indicates that concentration of the industry in and around
Bombay in the early days was mainly due to the presence of rich and enterprising Parsi and
Bhatia merchants, who supplied vast financial resources.

9) Natural and Climatic Considerations:

Natural and climatic considerations include the level of ground, topography of a region, water
facilities, drainage facilities, disposal of waste products, etc. These factors sometimes
influence the location of industries. For instance, in the case of cotton textile industry, humid

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climate provides an added advantage since the frequency of yarn breakage is low. The humid
climate of Bombay in India and Manchester in Britain offered great scope for the
development of cotton textile industry in those centres.

9. Personal Factors:

In deciding location of industrial units, sometimes an entrepreneur may have personal

preferences and prejudices against certain localities. For instance, Mr. Ford started to
manufacture motor cars in Detroit simply because it was his home-town. In such cases,
personal factor dominates other considerations. However, this kind of domination is rare.

10) Strategic Considerations:

In modern times, strategic considerations are playing a vital role in determining industrial
location. During war-time a safe location is assuming special significance. This is because in
times of war the main targets of air attacks would be armament and ammunition factories and
industries supplying other commodities which are required for war. The Russian experience
during the Second World War provides and interesting example.

11) External Economies:

External economies also exert considerable influence on the location of industries. External
economies arise due to the growth of specialized subsidiary activities when a particular
industry is mainly localized at a particular centre with port and shipping facilities. External
economies could also be enjoyed when a large number of industrial units in the same industry
were located in close proximity to one another.

12) Miscellaneous Factors:

Historical incidents also play a dominating role in determining the location of industries in
certain cases. The development of cotton-textile industry in Lancashire provides an
interesting example for this. Further, the size of and industrial unit would also have much
influence in choosing location. This is because the size of industrial units depends upon the
radius of the circle within which they can profitably distribute their goods and upon the
density of population living within the circle.

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Process of selection of location

The site selection process has evolved dramatically over the last 20 years for a variety of
reasons. Some of these factors include the availability of massive amounts of new site
selection data, development of advanced software applications and tools to analyze site
selection data, the sheer economic growth and corporate expansion during this period of time,
and the general globalization of corporations.

As a result, it has made the site selection process more complicated and a company’s ability
to find the optimal location for industrial projects such as manufacturing and distribution
centers. It has also complicated the search for corporate function locations such as
headquarters, software engineering, shared service centers, call centers, data centers and retail
sites.

Step 1: Identify the project team

The first step is to establish a project team. The team will typically include representatives
from the executive team, business unit, real estate department, logistics department, tax
department, human resources and outside site selection consultants.

Step 2: Define the project requirement

Project requirements vary significantly based on the project type. The requirements for a
software development operation will dramatically differ from a manufacturing plant. The
project team will need to work closely together to identify key dates, employee skill
requirements, projected headcount, desired labor rates, capital investment, accessibility to
customers/suppliers, real estate needs and infrastructure requirements.

Step 3: Conduct a geographic filtering process based on the project criteria

To properly filter locations, bulk data will have to be gathered to build a filtering model with
relevant data aligned with your site selection criteria. Typically, companies will use data
variables such as population, demographics, unemployment rate, cost of living, utility costs,
industry presence, inbound/outbound materials, wage rates, union rates, tax rates, time zone
and other similar variables to narrow the list to a long list of five to 10 locations. Many
companies often think they can make a decision from this level of data which is typically a
major mistake.

Step 4: Conduct an in-depth analysis of the long list to identify the finalists

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To identify the finalist locations, the site selection team will need to perform a rigorous
workforce, infrastructure, logistics, business climate, economic incentive and real estate
market analysis of the five to 10 candidate locations. This research will include the gathering
of detailed demographic data as well as primary research that will be analyzed in various site
selection models that will need to be developed. The following provides a sample of the
information that needs to be uncovered and compared utilizing a balanced scorecard-type
approach:

Demographics

Educational attainment

College and universities

Historic unemployment

Location, size and wages of competitors

Local employment drivers

Military presence

Recent expansions

Recent closures

Wage rates

Infrastructure conditions (roads, utilities, fiber, etc.)

Step 5: Site visits to finalist locations

Once the short-listed communities have been agreed upon, the project team will conduct on-
site community due diligence to gain a thorough understanding of what a particular
community has to offer. The tours will typically take one to two days per community in the
U.S. and up to a week in international locations. During the tours, the project team will meet
with community leaders, regional economic development officials, workforce training
representatives, staffing agencies, local employers, utility providers and real estate brokers.
The anecdotal evidence uncovered during the tours will be crucial to the success of the site

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selection process and enable the team to truly understand the qualitative differences ofeach
finalist location.

Step 6: Negotiations

Once the community tours are completed and the finalist locations have been identified, the
project team will initiate the simultaneous negotiation of economic incentive and real estate
terms. It is critical to carefully control the negotiation process to maximum leverage and
make sure commitments for real estate don’t conflict with a company’s ability to secure the
economic incentives.

The site selection process has evolved dramatically over the last 20 years for a variety of
reasons. Some of these factors include the availability of massive amounts of new site
selection data, development of advanced software applications and tools to analyze site
selection data, the sheer economic growth and corporate expansion during this period of time,
and the general globalization of corporations.

As a result, it has made the site selection process more complicated and a company’s ability
to find the optimal location for industrial projects such as manufacturing and distribution
centers. It has also complicated the search for corporate function locations such as
headquarters, software engineering, shared service centers, call centers, data centers and retail
sites.

To help companies understand the key steps of the “modern-day” site selection process, the
following seven-step process provides a great roadmap for companies trying to find the best
onshore, nearshore and offshore locations to expand.

Size of Business Unit:

The size of a business unit means the size of a business firm.

The term’ size of business’ refers to the scale of organization and operations of a business
enterprise. It is essential here to have a clear understanding of the terms’ size’ of the ‘plant’
size of ‘firm’ and the size of the industry.’

A ‘plant’ means an establishment of the manufacturing of goods. It represents a production

unit where the due provision of all the activities facilitating the production process as made.

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A ‘firm’ means as an organization that owns manages and controls a plant or number of
plants and also arranges for the marketing of products, provision of finance, and other
facilities to run the organization.

The term industry’ implies the aggregate of all firm which manufacture similar types of
products.

a) Measures of Size

Business firms vary in size-small, medium, and large. To measure the size of a business unit,
the standards of measurement can be grouped into the following two categories.

b) Measures About Input

This includes capital employed, net worth, total assets, labor employed, and raw material and
power consumed.

This includes a volume of output, the value of output, and value-added.

The volume of output

The number of goods produced or services rendered may also serve as a good basis for
comparison between firms. The greater the number of goods and services produced, the
larger the size.

c) Capital employed

The capital includes owned capital and borrowed capital. The larger the amount of capital
employed, the larger the size of the firm.

d) Net worth

Net worth is the excess of assets over liabilities, as shown in the balance sheet of a firm.
However, for all practical purposes, it refers to the amount of paid-up capital plays reserves
and surpluses built up during business.

This measure is appropriate for comparing the size of different firms in an industry or to
measure the rate of growth for a particular firm.

e) Total assets

Another measure of size if the size of the total assets of a firm.

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The value of total assets is calculated by taking into account the amount invested in fixed
(land, building, plant, and machinery), current (cash, short-term securities, stock, debtors,
etc.) and intangible assets (goodwill, planet, rights, etc.).

f) Labor employed

The number of laborers employed in a firm is another measure commonly employed to

measure the size of the business, which is producing similar types of goods and which are in
the same stage of development.

g) Amount of raw materials and power consumed.

The quantity or value of raw materials and power used is yet another measure that can be
used to adjudge a firm.

h) Value of Output

The monetary value of goods and services produced by a firm also serves as a basis for
measuring the size of a firm.

i) Value Added

A useful variation or combination of the two output criteria is the measure of net value-
added, calculated by deducting the costs of production from the value of production.It must
be mentioned here that no one measure is fully comprehensive, and the accuracy, adequacy,
and utility of each standard will depend upon three factors – nature of industry and character
of its output, the uniformity and accuracy of data available, and the purpose for which it is
required.

Factors Affecting the Size of the Firm

A. Nature of Industry

The nature of the industry has a direct influence on the size of the firm.

Manufacturing industries are, by and large, bigger compared to trading and service firms.

Manufacturing industries heavy machinery, produce goods on a large scale, make higher
capital investments, and therefore large.

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 B. Nature of Products

When the product is less standardized, the size of the firm is often small when the product is
standardized, complex, and durable; the size of the firm is often big.

C. Capital employed

When the capital involved is large, and the firm can raise it, the size of the firm is large, when
the capital involved in small, the size of such a unit will be small.

D. Size of the market

If the size of the market is large for the product, the firm will also be large and vice-versa.

E. Quality of management

The competence and integrity of management largely determine the size of a business unit. If
the management is competent to manage the complex tasks of modern business, the firm can
afford to be large.

Factors Determining Size of the Firm

Every business is striving towards attaining the optimum size. Usually, any business starts as
a small entity, and then during its operating period, it expands till it reaches the optimum size.

Capital Investment Factor The capital employed by shareholders in the form of share
capital, reserves, and surplus (net worth) determines the size of the business. It is mainly used
to compare two firms or more that are producing similar or differentiated products.

Number of Employees

The number of employees employed by any business determines its size. This is done by
comparing the wages paid to employees with other businesses.

This factor is used where firms produce similar goods. If you use it in comparing firms that
are producing differentiated products, then you end up with false results. Power Used the
amount of power used determines the size of the business. Business firms don’t rely on this
factor as it is inaccurate because of the amount of power used by any business may be more
or less.

Raw Materials Used

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The annual consumption of raw materials of any firm determines its size. It used only on
those firms that are producing similar products.

The volume of the output

This factor is used for those firms that are producing homogeneous goods. The capacity of
Plant .It is used by firms that produce similar products.

Total Assets

The total assets of any business determine its size. The value of all assets (current and fixed)
is taken as a means of measure. It is used in both similar and differentiated firms.

Value of Output

This is another factor that determines the size of any firm; however, this method is only
effective in cases where firms produce a variety of products and where price levels remain
constant. In all these factors, the volume of output is the most effective and reliable factor in
measuring the size of any business unit.

The Optimum Size of Business

From an economic point of view, every business organization should expand as long as its
average per-unit cost is just equal to that of its marginal cost. In simple words, when the
factors of production-land, labor, capital, and organization can affect maximum returns at
their minimum involvement, the economics consider that as the best, and the most desired
size of business.

Optimum Firm

A firm with this-sat and volume of operation may ensure minimum unit cost, but a
maximum return is known as the optimum firm.

“By the optimum firm,” says E.A.G. Robinson, “we must mean that firm which, in
exiting conditions of techniques and organizing ability has the lowest average cost of
production per unit, when all those costs which must be covered in the long run are
included.”

The implications of this definition are as follows;

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The point to be considered is the average cost of production and not-profits. The average cost
means the total cost divided by the total output. Total cost includes all costs, including
depreciation, interest, and a reasonable margin of profit.

Optimum size is a moving point and depends upon technological and managerial
developments. Thus the optimum size is a relative and dynamic concept and static. That is
why the optimum size of firms will vary in different industries where different technical,
marketing, and financial conditions are encountered.

The concept of the optimum firm is represented in the following graph:

The size’ is measured along the “X” axis and the average cost per unit along the axis. The
cost per unit falls as output increases until, at the point, “p” it begins to rise again. This point
represents the optimum size.

Concept of Optimum Size

A firm of optimum size is brought into existence partly by the conscious decisions of a
businessman who are considering how they can invest their resources profitably and partly by
the forces of competition, which tend to eliminate the inefficient and encourage efficiency.

The optimum size, can, however, be achieved only. If the size of the market is sufficient

to absorb the whole production of at least one firm of such a size and If product competition
prevails in the market so that prices charged by the firms tend to be equalized. The state of

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perfect competition is hardly encountered in practice, and hence the concept of optimum size
is generally considered to be of least practice relevance.

However, it is not without practical utility. It motivates the businessmen to bring down the
cost of production to the maximum possible extent through the use of better techniques of
production and better management methods.

The concept of an optimum firm represents a simple analysis of the problem of determining
an efficient size for a firm and the factors which should be taken into account while deciding
upon a desirable scale of operations in the process of growth

Factors influencing optimum size of a Business unit

1. Technical forces
2. Managerial forces
3. Financial forces
4. Marketing forces
5. Forces of risk and fluctuations
1. Technical forces influence size of a firm

 Technical forces which influence the optimum size of firm are degree of
specialization (division of labour), mechanization and integration of work processes.
 In the case of division of labor, a job is split into small functions and each function is
assigned to a specific workman. When a workman performs a specific operation over
a long period of time, the skill of the workman, speed of performance, quality of work
etc improve.
 Division of labor facilitates mechanization. A firm has to be fairly large enough to go
in for mechanization. A large firm producing standardized products can go for
assembly line manufacturing which increases output and results in lower cost of
output.
 Another advantage is a large scale firm can go in for integration of processes.
 Manual labor can be replaced by machines. Technical factors favor expansion of an
organization. The size of the optimum firm will be large if
 the product or machinery used for manufacturing is large in size (e.g. ship building,
aircraft manufacturing, iron and steel plants, heavy machinery etc)
 the industry is a public utility (power generation and distribution, railways etc.)
 the industry produces intricate, complex products (computer chips, semi conductors,
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 watches etc).
 In case then industry produces products of a small size or the machinery used in
Manufacturing is small in size, the optimum size would be small (e.g. small machine
tools etc).
2. Managerial forces influence size of business units

 Managing an organization today is a complex task. The services of qualified,

experienced, professionals are required to run the organization in an efficient manner.
Therefore businesses which desire to maximize their sales and profitability need to
appoint a competent management team.
 To appoint such personnel, high amounts of remuneration and benefits have to be
paid. Only large organizations would be able to offer such high remuneration levels.
The expert managers using their ability and skills can ensure the growth of the
business in various spheres. But there is a limit to which expert management can grow
the organization.
 As Prof. Johnson has observed,“If he attempts to manage more, he must either cause
endless delays or else become no more than a rubber stamp. And so the big firm is a
series of wheels within wheels, an elaborate hierarchy in which every decision
requires the consulting of this man, the referring to another man, the permission of the
third, the agreement of a fourth so that decisions become endlessly delayed”.
3.Financial forces influence size of a business unit

 Investors have more confidence in large and established firms. They prefer to invest
their money in large firms because of the possibility of earning high returns. Investors
generally do not prefer to invest in new or small firms because they feel that such
investment is risky and the possibility of earning high returns is also less. Therefore
large firms are able to raise required financial resources easily. Banks also come
forward to lend loans at cheaper rates of interest and therefore cost of funds is also
less for large firms.
 In case of financial difficulties they can transfer funds from one division to another.
Though a large firm is able to raise resources from outside resources, there is also a
limitation. There may be interference in the management of the firm by outsiders. The
Board of directors are answerable to shareholders, and financial institution such as
IFCI, ICICI or IDBI which advance loans might require that their representative
should be in the Board of directors. This sort of interference will result in

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 management losing its independence, delayed decisions, disharmony and loss of
efficiency.
4.Marketing forces influence size of business

 A large firm can enjoy economies of buying and selling. Since it buys raw materials
in bulk quantities it can enjoy the benefits of quantity discounts. It can employ experts
for purchase. They would be able to source quality raw materials at cheaper prices.
Similarly experts can be employed for marketing their products. In case a large firm
has multiple products the sales force can market the entire range of products.
 Advertisement time in media can be bought in bulk at cheaper rates. The organization
can employ reputed market research agencies to know the changing needs and
preference of consumers and produce products accordingly. But the large firm cannot
have close contact with the customers and understand their requirements whereas a
small firm can do so. Any mistake done by a large firm would result in huge losses.
5. Forces of risks and fluctuations influence size of business

 Business enterprises face risks from different sources. Risks may arise due to the
following reasons:
 changes in customers preferences (textiles to ready-made, typewriters to computers
etc.)
 changes in fashions (jeans to cotton casuals etc.)increased competition (in all
industries) changes in government policies (reservation to De-reservation in SSI’s,
ban on lottery sales in Tamil Nadu, from protection to local industry to liberalization,
globalization and privatization etc.)
 In case of risks, a small firm would be able to adjust its operations and business much
faster when compared to a large firm. A large firm would find it difficult to change its
business and way of working in a quick manner. Sometimes large firms may combine
with other firms to adjust itself to the new changes.
Sources of Finance

Sources of finance for business are equity, debt, debentures, retained earnings, term loans,
working capital loans, letter of credit, euro issue, venture funding etc. These sources of funds
are used in different situations. They are classified based on time period, ownership and
control, and their source of generation. It is ideal to evaluate each source of capital before
opting for it.

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Sources of capital are the most explorable area especially for the entrepreneurs who are about
to start a new business. It is perhaps the toughest part of all the efforts. There are various
capital sources, we can classify on the basis of different parameters.

On the basis of a time period, sources are classified as long-term, medium term, and short
term. Ownership and control classify sources of finance into owned and borrowed capital.
Internal sources and external sources are the two sources of generation of capital. All the
sources have different characteristics to suit different types of requirements. Let’s understand
them in a little depth.

Long-Term Sources of Finance

Long-term financing means capital requirements for a period of more than 5 years to 10, 15,
20 years or maybe more depending on other factors. Capital expenditures in fixed assets like
plant and machinery, land and building, etc of business are funded using long-term sources of
finance. Part of working capital which permanently stays with the business is also financed
with long-term sources of funds. Long-term financing sources can be in the form of any of
them:

● Share Capital or Equity Shares

● Preference Capital or Preference Shares

● Retained Earnings or Internal Accruals

● Debenture / Bonds

● Term Loans from Financial Institutes, Government, and Commercial Banks

● Venture Funding

● Asset Securitization

● International Financing by way of Euro Issue, Foreign Currency Loans,

ADR, GDR, etc.

Medium Term Sources of Finance

Medium term financing means financing for a period of 3 to 5 years and is used generally for
two reasons. One, when long-term capital is not available for the time being and second when

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deferred revenue expenditures like advertisements are made which are to be written off over a
period of 3 to 5 years. Medium term financing sources can in the form of one of them:

o Preference Capital or Preference Shares

o Debenture / Bonds
o Medium Term Loans from
 Financial Institutes
 Government, and
 Commercial Banks
 Lease Finance
 Hire Purchase Finance Short Term Sources of Finance
Short term financing means financing for a period of less than 1 year. The need for short-term
finance arises to finance the current assets of a business like an inventory of raw material and
finished goods, debtors, minimum cash and bank balance etc. Short-term financing is also
named as working capital financing. Short term finances are available in the form of:

● Trade Credit

● Short Term Loans like Working Capital Loans from Commercial

Banks

● Fixed Deposits for a period of 1 year or less

● Advances received from customers

● Creditors

● Payables

● Factoring Services

● Bill Discounting etc.

According to Ownership and Control:

Sources of finances are classified based on ownership and control over the business. These
two parameters are an important consideration while selecting a source of funds for the
business. Whenever we bring in capital, there are two types of costs – one is the interest and
another is sharing ownership and control. Some entrepreneurs may not like to dilute their
ownership rights in the business and others may believe in sharing the risk.

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Owned Capital

Owned capital also refers to equity. It is sourced from promoters of the company or from the
general public by issuing new equity shares. Promoters start the business by bringing in the
required money for a startup. Following are the sources of Owned Capital:

● Equity

● Preference

● Retained Earnings

● Convertible Debentures

● Venture Fund or Private Equity

Further, when the business grows and internal accruals like profits of the company are not
enough to satisfy financing requirements, the promoters have a choice of

selecting ownership capital or non-ownership capital. This decision is up to the promoters.

Still, to discuss, certain advantages of equity capital are as follows:

● It is a long-term capital which means it stays permanently with the

business.

● There is no burden of paying interest or installments like borrowed

capital. So, the risk of bankruptcy also reduces. Businesses in infancy
stages prefer equity for this reason.

Borrowed Capital

Borrowed or debt capital is the finance arranged from outside sources.

These sources of debt financing include the following:

o Financial institutions,
o Commercial banks or
 The general public in case of debentures
In this type of capital, the borrower has a charge on the assets of the business which means
the company will pay the borrower by selling the assets in case of liquidation. Another
feature of the borrowed fund is a regular payment of fixed interest and repayment of capital.
Certain advantages of borrowing are as follows:

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 ❖ There is no dilution in ownership and control of the business.

❖ The cost of borrowed funds is low since it is a deductible expense for

taxation purpose which ends up saving on taxes for the company.

❖ It gives the business the benefit of leverage.

ACCORDING TO SOURCE OF GENERATION:

Based on the source of generation, the following are the internal and external sources of
finance:

Internal Sources

The internal source of capital is the one which is generated internally by the business. These
are as follows:

 Retained profits
 Reduction or controlling of working capital
 Sale of assets etc.
The internal source of funds has the same characteristics of owned capital. The best part of
the internal sourcing of capital is that the business grows by itself and does not depend on
outside parties. Disadvantages of both equity and debt are not present in this form of
financing. Neither ownership dilutes nor fixed obligation/bankruptcy risk arises.

External Sources

An external source of finance is the capital generated from outside the business.

Apart from the internal sources of funds, all the sources are external sources.

Deciding the right source of funds is a crucial business decision taken by top-level finance
managers. The usage of the wrong source increases the cost of funds which in turn would
have a direct impact on the feasibility of the project under concern. Improper match of the
type of capital with business requirements may go against the smooth functioning of the
business. For instance, if fixed assets, which derive benefits after 2 years, are financed
through short-term finances will create cash flow mismatch after one year and the manager
will again have to look for finances and pay the fee for raising capital again.

UNIT III

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STOCK EXCHANGE

A stock exchange is a marketplace where securities, such as stocks and bonds, are

bought and sold. Bonds are typically traded Over-the-Counter (OTC), but some corporate
bonds can be traded on stock exchanges. Stock exchanges allow companies to raise capital
and investors to make informed decisions using real-time price information. Exchanges can
be a physical location or an electronic trading platform. Though people are typically familiar
with the image of the trading floor, many exchanges now use electronic trading.

Purpose of Stock Exchanges

1) Raising Capital

Through initial public offerings (IPO) or issuing of new shares, companies are able to raise
capital to fund operations and expansion projects. This provides companies with avenues to
increase growth.

2) Corporate Governance

Companies that are publicly listed on a stock exchange must conform to reporting standards
that are set by regulating bodies. This includes having to regularly and publicly report their
financial statements and earnings to their shareholders.

The actions of a company’s management are constantly under public scrutiny and directly
affect the value of the company. Public reporting helps ensure that management will make
decisions that benefit the goals of the company and its shareholders, thereby acting
efficiently.

3. Economic Efficiency

In addition to encouraging management efficiency, exchanges also facilitate economic

efficiency through the allocation of capital. Stock exchanges provide an avenue for
individuals to invest their cash, as opposed to merely saving these funds. This means that the
capital that would otherwise be untouched is utilized towards economic benefits, resulting in
a more efficient economy.

In addition, exchanges also provide liquidity, as it is relatively easy to sell one’s holdings. By
providing liquidity and real-time price information on company shares, the stock exchange

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also encourages an efficient market by allowing investors to actively decide the value of
companies through supply and demand.

Primary Market

When a company issues new securities that did not previously exist on any exchange, it is
issuing securities to the primary market. Undergoing an IPO is an example of this. The
company offers securities to the investors to raise capital and becomes listed on the stock
exchange.

Secondary Market

After a company undergoes an IPO, its shares continue to be traded between investors on the
m arket. This is referred to as the secondary market. The company is no longer involved in
any of these transactions. The stock exchange facilitates trade between buyers and sellers in
the secondary market.

Functions of Stock Exchange

1) Role of an Economic Barometer:

Stock exchange serves as an economic barometer that is indicative of the state of the
economy. It records all the major and minor changes in the share prices. It is rightly said to be
the pulse of the economy, which reflects the state of the economy.

2) Valuation of Securities: Stock market helps in the valuation of securities based on

the factors of supply and demand. The securities offered by companies that are
profitable and growth-oriented tend to be valued higher. Valuation of securities helps
creditors, investors and government in performing their respective functions.

3) Transactional Safety: Transactional safety is ensured as the securities that are

traded in the stock exchange are listed, and the listing of securities is done after
verifying the company’s position. All companies listed have to adhere to the rules
and regulations as laid out by the governing body.

4) Contributor to Economic Growth: Stock exchange offers a platform for trading of

securities of the various companies. This process of trading involves continuous
disinvestment and reinvestment, which offers opportunities for capital formation and
subsequently, growth of the economy.

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 5) Making the public aware of equity investment:

Stock exchange helps in providing information about investing in equity markets and by
rolling out new issues to encourage people to invest in securities.

6) Facilitates liquidity:

The most important role of the stock exchange is in ensuring a ready platform for the sale and
purchase of securities. This gives investors the confidence that the existing investments can
be converted into cash, or in other words, stock exchange offers liquidity in terms of
investment.

7) Better Capital Allocation:

Profit-making companies will have their shares traded actively, and so such companies are
able to raise fresh capital from the equity market. Stock market helps in better allocation of
capital for the investors so that maximum profit can be earned.

8) Encourages investment and savings:

Stock market serves as an important source of investment in various securities which offer
greater returns. Investing in the stock market makes for a better investment option than gold
and silver.

Features of Stock Exchange:

a) A market for securities- It is a wholesome market where securities of

government, corporate companies, semi-government companies are bought and
sold.

b) Second-hand securities- It associates with bonds, shares that have already been
announced by the company once previously.

c) Regulate trade in securities- The exchange does not sell and buy bonds and
shares on its own account. The broker or exchange members do the trade on the
company’s behalf.

d) Dealings only in registered securities- Only listed securities recorded in the

exchange office can be traded.

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 e) Transaction- Only through authorised brokers and members the transaction for
securities can be made.

f) Recognition- It requires to be recognised by the central government.

g) Measuring device- It develops and indicates the growth and security of a

business in the index of a stock exchange.

h) Operates as per rules– All the security dealings at the stock exchange are
controlled by exchange rules and regulations and SEBI guidelines.

Trading Procedures

Most stock exchanges are auction markets, in which prices are determined by competitive
bidding. In very large, active markets, the auction is continuous, occurring throughout the
day’s trading session and for any security in which there is buying and selling interest. In
smaller markets the names of the listed stocks may be submitted in some form of rotation,
with the auction occurring at that time; this process is described as a “call market.”

Trading methods on all the exchanges in the United States are similar. In a typical transaction
for a security listed on the New York Stock Exchange, a customer gives an order to an
employee in a branch or correspondent office of a member firm, who transmits it either
indirectly through the firm’s New York office or, as is becoming increasingly common,
directly to a receiving clerk on the floor of the exchange. The receiving clerk summons the
firm’s floor broker, who takes the order, goes to the post where the stock is traded, and
participates in an auction procedure as either buyer or seller. If the order is not a market order
calling for immediate action, the broker turns it over to an appropriate specialist who will
execute it when an indicated price is reached.

As in any auction market, securities are sold to the broker bidding the highest price and
bought from the broker offering the lowest price. Since the market is continuous, buyers and
sellers are constantly competing with each other. In the New York Stock Exchange, the
specialist plays an important role. As a principal, he has the responsibility of buying and
selling for his own account, thereby providing a stabilizing influence; as an agent, he
represents other brokers on both sides of the market when they have orders at prices that
cannot be readily executed. With the growing demand for stocks on the part of

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institutions such as insurance companies, mutual funds, pension funds, and so forth, the size
of orders consummated on the New York Stock Exchange has grown. The common way of
handling these big blocks on the floor of the exchange has been to break them into smaller
orders executed over a period of time. Another method is to assemble matching orders in
advance and then “cross” them, executing the purchase or sale at current prices in accordance
with prescribed rules; since the broker initially may have obtained the matching orders off the
floor, this procedure assumes some of the aspects of a negotiated rather than a pure auction
transaction. It is only a step from this to so-called block positioning, in which the broker
functions as a principal and actually buys the block from the seller and distributes the
securities over a period of time on the floor of the exchange.

Brokers and jobbers

Trading on the London Stock Exchange is carried on through a unique system of brokers and
jobbers. A broker acts as an agent for his customers; a jobber, or dealer, transacts business on
the floor of the exchange but does not deal with the public. A customer gives an order to a
brokerage house, which relays it to the floor for execution. The receiving broker goes to the
area where the security is traded and seeks a jobber stationed in the vicinity who specializes
in the particular issue. The jobber serves only in the capacity of a principal, buying and
selling for his own account and dealing only with brokers or other jobbers. The broker asks
the jobber’s current prices without revealing whether he is interested in buying or selling. The
broker may seek to narrow the spread between the bid and ask quotations or he may approach
another jobber handling the same issue and undertake the same bargaining process.
Eventually, when satisfied that he has obtained the best possible price for his client, the
broker will complete the bargain.

A broker is compensated by the commission received from the customer. The jobber seeks to
maximize his profitable business by adjusting his buying and selling prices. As the ultimate
dealer in the London market, the jobber’s activities provide a stabilizing factor, but unlike the
specialist on the New York Stock Exchange, the jobber is under no obligation to help support
prices. The growing importance of institutional customers has increased the size of
transactions in the London market as it has in the U.S., and therefore the jobber has been
compelled to risk larger sums. To offset this risk, arrangements for a particularly large order
may be negotiated beforehand and the transaction put through the floor as a matter of
procedure, with the jobber accepting a minimum “turn.” Although the jobbing system

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provides a continuous market, it does not employ the auction bidding of the New York
exchange.

Shares

A company’s capital is divided into small equal units of a finite number. Each unit is known
as a share. In simple terms, a share is a percentage of ownership in a company or a financial
asset. Investors who hold shares of any company are known as shareholders.

TYPES OF SHARES

1. PREFERENCE SHARES

As the name suggests, this type of share gives certain preferential rights as compared to other
types of share. The main benefits that preference shareholders have are:

❖ They get first preference when it comes to the payout of dividend, i. e. a

share of the profit earned by the company When the company winds up,
preference shareholders have the first right in terms of getting repaid

a) Cumulative preference shares:

Cumulative shareholders have the right to receive arrears on dividend before any dividend is
paid to equity shareholders. For example, if the dividends on preference shares for the year
2017 and 2018 have not been paid due to market downturns, preferential shareholders are
entitled to receive dividend for all preceding years in addition to the current one.

b) Non-cumulative preference shares:

Non-cumulative shareholders cannot claim any outstanding dividend. These shareholders

only earn a dividend when the company earns profits. No dividends are paid for the prior
years.

c) Convertible preference shares:

As the name suggests, these shares are convertible. Convertible shareholders can convert
their preference shares into equity shares at a specific period of time. However, the
conversion of shares will need to be authorized by the Articles of Association (AoA) of the
company.

d) Redeemable Preference Shares:

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A company issues redeemable preference shares to redeem them at a later stage.

Simply put, the company can opt for a buy-back in the future

e) Irredeemable Preference Shares:

This category of shares can only be redeemed if the company shuts its operations or
liquidates itself

f) Participating Preference Shares:

Another common classification for preferred equity, where if the shares are participating,
they stand a chance to earn higher than the state rate of fixed dividend

g) Non-Participating Preference Shares:

Dividend to the shareholders from this category cannot be paid from surplus profit and only
enjoy the fixed dividend rate

2. EQUITY SHARES

Equity shares are also known as ordinary shares. The majority of shares issued by the
company are equity shares. This type of share is traded actively in the secondary or stock
market. These shareholders have voting rights in the company meetings. They are also
entitled to get dividends declared by the board of directors. However, the dividend on these
shares is not fixed and it may vary year to year depending on the company’s profit. Equity
shareholders receive dividends after preference shareholders.

3. DIFFERENTIAL VOTING RIGHT (DVR) SHARES

The DVR shareholders have less voting rights compared to equity shareholders. To dilute the
voting privileges, companies provide extra dividend to DVR shareholders. As DVR shares
have less voting rights, their prices are also low. The price gap between equity shares and
DVR shares is almost 30-40%.

SEBI

Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with
the responsibility to regulate the Indian capital markets. It monitors and regulates the

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securities market and protects the interests of the investors by enforcing certain rules and
regulations.

SEBI was founded on April 12, 1992, under the SEBI Act, 1992. Headquartered in Mumbai,
India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with
other local regional offices across prominent cities in India.

The objective of SEBI is to ensure that the Indian capital market works in a systematic
manner and provide investors with a transparent environment for their investment. To put it
simply, the primary reason for setting up SEBI was to prevent malpractices in the capital
market of India and promote the development of the capital markets.

Objectives of SEBI

The fundamental objective of SEBI is to safeguard the interest of all the parties involved in
trading. It also regulates the functioning of the stock market. SEBI’s objectives are:

 To monitor the activities of the stock exchange.

 To safeguard the rights of the investors
 To curb fraudulent practices by maintaining a balance between statutory regulations
and self-regulation.
 To define the code of conduct for the brokers, underwriters, and other intermediaries.
Powers of SEBI

SEBI carries out the following tasks to meet its objectives: Protective functions, Regulatory
functions, and developmental functions.

Functions that SEBI performs as a part of its protective functions are:

 It checks price manipulation

 It bans Insider trading
 It prohibits unfair and fraudulent trade practices
 It promotes a fair code of conduct in the security market
 It takes efforts to educate the investors regarding ways to evaluate the investment
options better
 As a part of its regulatory functions, SEBI performs the following role:
 It has designed a code of conduct, rules, and regulations to regulate the brokers,
underwriters, and other intermediaries.

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  SEBI also governs a company’s takeover.
 It regulates and registers the workings of share transfer agents, stockbrokers,
merchant bankers, trustees, and others who are linked with the stock exchange.
 It regulates and registers the mutual funds as well.
 It conducts audits and inquiries of stock exchanges.
 As a part of its developmental functions, SEBI performs the following role: It
facilitates the training of the intermediaries.
 It aims at promoting activities of the stock exchange by having an adoptable and
flexible approach.
Structure of SEBI

The Board of SEBI comprises of nine members. The Board is an aggregate of the following:

o One Chairman of the board – appointed by the Central Government of India

o One Board member – appointed by the Central Bank, that is, the RBI
 Two Board members – hailing from the Union Ministry of Finance
 Five Board members – elected by the Central Government of India
 The Chairman of SEBI, in addition to overseeing the Board, also looks over the
Communications, Vigilance, and Internal Inspection Department.
There are four whole-time members in the organizational structure. The whole-time members
are allocated a number of departments that they have to oversee. Each department is
individually headed by an executive director. The executive directors report to specific
whole-time members.

The organizational structure of SEBI consists of more than 25 departments, such as

Foreign Portfolio Investors and Custodians (FPI&C), Corporation Finance Department

(CFD), Information Technology Department (ITD), Department of Economic and Policy
Analysis (DEPA-I,II, & III), Investment Management Department, Legal Affair Department,
Treasury and Accounts Divisions (T&A), and National Institute of Securities Market (NISM)

SEBI Act and SEBI Guidelines

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SEBI was established as a non-statutory body in 1988, entrusted with observing the stock
market activities. The SEBI Act of 1922 converted SEBI into a statutory authority with
autonomous powers. The Act provided SEBI with the authority to regulate capital markets,
not just observe but enforce guidelines.

The SEBI Act 1992 covers the following areas:

o Composition and actions of the SEBI Board members

o Powers and Functions of the Board
o Fund sources of SEBI, as in grants made available by the Union Government
o Rules on Penalties and legal pathways
o Defines the judicial authority of SEBI
o The extent of powers of the Union Government to supersede SEBI
 SEBI also has to adhere to a list of SEBI guidelines, pertaining to areas such as:
o Employee Stock Option schemes
o Disclosure and Investor Protection norms
o Legal Proceedings
o Anti-money laundering norms
o Listing and delisting of securities
o Opening of trading terminals overseas
Functions –

a) To protect the interests of Indian investors in the securities market.

b) To promote the development and hassle-free functioning of the securities

market.

c) To regulate the business operations of the securities market.

d) To serve as a platform for portfolio managers, bankers, stockbrokers,

investment advisers, merchant bankers, registrars, share transfer agents and
other people.

e) To regulate the tasks entrusted on depositors, credit rating agencies,

custodians of securities, foreign portfolio investors and other participants.

f) To educate investors about securities markets and their intermediaries.

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 g) To prohibit fraudulent and unfair trade practices within the securities market
and related to it.

h) To monitor company take-overs and acquisition of shares.

i) To keep the securities market efficient and up to date all the time through
proper research and developmental tactics.

WHAT IS DEMAT ACCOUNT

Demat Account is an account that is used to hold shares and securities in electronic format.
The full form of Demat account is a dematerialised account. The purpose of opening a Demat
account is to hold shares that have been bought or dematerialised (converted from physical to
electronic shares), thus making share trading easy for the users during online trading.

In India, depositories such as NSDL and CDSL provide Free Demat account services.
Intermediaries, depository participants or stockbrokers—like Angel Broking—facilitate these
services. Each intermediary may have Demat account charges that vary as per volume held in
the account, type of subscription, and terms and conditions between a depository and a
stockbroker.

Demat Account is an account that is used to hold shares and securities in electronic format.
The full form of Demat account is a dematerialised account. The purpose of opening a Demat
account is to hold shares that have been bought or dematerialised (converted from physical to
electronic shares), thus making share trading easy for the users during online trading.

In India, depositories such as NSDL and CDSL provide Free Demat account services.
Intermediaries, depository participants or stockbrokers—like Angel Broking—facilitate these
services. Each intermediary may have Demat account charges that vary as per volume held in
the account, type of subscription, and terms and conditions between a depository and a
stockbroker.

Importance of Demat account

A Demat account provides a digitally secure and convenient way of holding shares and
securities. It eliminates theft, forgery, loss and damage of physical certificates. With a Demat
account, you can transfer securities immediately. Once the trade is approved, the shares are
digitally transferred to your account. Moreover, in case events like stock bonuses, mergers,
etc., you get shares automatically into your account. Your Demat account information

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regarding these activities is available online by simply logging into the website. You can
trade on-the-go using your smartphone or desktop. So, you needn’t visit the stock exchange
to transact. You also enjoy the benefit of reduced transaction costs because there is no stamp
duty involved with the transfer of shares. These features and benefits of a Demat account
encourage a larger trade volume by investors, thus increasing the potential for lucrative
returns.

How does a Demat Account work?

Trading through a Demat account is similar to the procedure of physical trading, except that a
Demat account is electronic. You begin trading by placing an order through our online
trading account. For this purpose, it is necessary to link both trading and Demat accounts.
Once an order is placed, the exchange will process the order. Demat account details the
market price of shares and the availability of shares is verified before the final processing of
the order. On completion of the processing, shares are then reflected in your statement of
holdings. When a shareholder wishes to sell shares, a delivery instruction note has to be
provided with details of the stock. Shares are then debited from the account and the
equivalent cash value is credited to the trading account.

Types of Demat account

There are two types of Demat accounts—Repatriable Demat account and Non-repatriable
Demat account. Repatriable funds are deposited in a separate bank account known as the
Non-Resident External Account (NRE account). Repatriable funds are those funds which can
be transferred abroad. The investments made from these funds are maintained in a The
Repatriable Demat account holds the investments made from repatriable funds. On the other
hand, non-repatriable funds (funds which cannot be taken/transferred abroad) are deposited in
a different bank account known as the Non Resident Ordinary Account (NRO account).The
Non-repatriable Demat account holds the investments made from non-repatriable funds.
Money can easily be transferred from an NRE to an NRO account. However, once the
transfer is made, the repatriability is lost and the money cannot be transferred back to the
NRE account.

Benefits of opening a Demat Account with Angel Broking

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Angel Broking is one of the most renowned stockbroking houses in India. The Angel Group
is a member of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and the
two leading Commodity Exchanges in the country: NCDEX & MCX. Angel Broking is also
registered as a Depository Participant with CDSL. Here are some benefits of opening a

CHAMBER OF COMMERCE

A chamber of commerce is an association or network of businesspeople designed to promote

and protect the interests of its members. A chamber of commerce, sometimes known as a
"board of trade," is often made up of a group of business owners that share a locale or
interests, but can also be international in scope. They will choose leadership, name
representatives, and debate which policies to espouse and promote.

Chambers of commerce exist all over the world. They do not have a direct role in creating
laws or regulations, though they may be effective in influencing regulators and legislators
with their organized lobbying efforts.

objectives Chambers of commerce seeks to achieve the following To protect the interests of
business community as a whole.

● To develop a sense of cooperation among their members.

● To collect and supply useful information to the members.

● To advise the Government on matter relating to trade, commerce and industry.

● To consult the Central and State Governments on matters relating to trade,

commerce and industry.

● To assist the Government in making budget by expressing views on different

sectors of the country’s economy.

● To bring to the notice of the Government the impact of various laws and
regulations on business.

● To make the members aware of changes in the field of technology, marketing,

financing, human resources, etc.

● To talk to foreign businessmen and explore the areas where Indian

businessmen can cooperate and participate.
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 ● To draw plans and projects for encouraging the growth of trade and commerce
in the country.

● To carry on research for the benefit of members.

● To protect the environment from industrial pollution.

● To organise educational and training facilities for the members.

● To provide legal advice to members.

● To act as arbitrators in order to solve disputes among the members.

Functions of Chambers of Commerce

Chambers of Commerce perform a number of useful functions in promoting the interests of

the business community. Some of the important functions are:

❖ Performing the role of spokesman of the business community.

❖ Collection and communication of information relevant to business and

trade to members.

❖ Making representations to government regarding any legislation which is

detrimental to their interests. For example, Chambers of Commerce have
made representations to the government regarding the Fringe Benefit Tax
(FBT).

❖ Making representation to the government regarding any proposed

legislation. For example, Chambers of Commerce have made
representations regarding the proposed Competition Commission.

❖ Requesting the government for any new legislation to promote trade and
commerce. For example Chambers of Commerce have been representing
to the government the need for an exit policy (freedom to close down
unviable businesses).

❖ Requesting the government for changes in existing legislation. For

example Chambers of Commerce have been requesting the government to
amend labour laws (making them more flexible) so as to enable them to
hire and fire workers according to the business requirements.

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 ❖ To serve as a forum for settlement of disputes among members by means
of Arbitration.

❖ Maintenance of information and statistical bureaus in order to provide

necessary information to its members.

❖ Organizing industrial fairs and trade exhibitions to create awareness

among buyers and promote members businesses.

❖ Organizing lectures, seminars and workshops for the benefit of its

members. For example Chambers of Commerce conduct meetings and
workshops after the Union Budget is presented to make members aware
of the changes in tax provisions. Discussions with the Finance Minister
may also be organized to enable members clear their doubts, air their
grievances and make suggestions.

❖ Providing support to members who are contesting elections for

Legislative Assembly or Parliament.

❖ Providing library facility for knowledge enhancement of members.

❖ Running educational programs, conducting examinations and awarding

diplomas to members.

Benefits of Chambers of Commerce To the government

 The Chambers of commerce provide feedback to the government with regard to

 members opinions of government policies.
 It gives suggestions to the government to promote and safeguard interests of the
business community.
 It provides inputs to the government for framing suitable economic policies.
To the members

● It serves as a forum where members can come together, discuss common

problems, share information about best practices etc.,

● They can settle disputes that might arise between members.

● They can conduct research with regard to various sectors of the business and
about the emerging market opportunities in India and abroad.

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 ● They can conduct training programs to equip members with new skills and
knowledge.

What is a Trade Association? Definition:

A trade association is an institution that groups many businesses from certain industry to
increase political influence and create networking opportunities. Its members are industry
participants that meet to tackle different subjects related to their work field.

“A trade association is a voluntary organization of independent business units in the same

branch of industry, which conducts co-operatively activities aimed at improving the welfare
of the group, which does not deprive its members of the power to make essential managerial
decisions.”

What Does Trade Association Mean?

The main purpose of trade associations is to improve the conditions within the business sector
that they participate in. By reuniting their efforts companies can impose more leverage into
government, suppliers and even international instances. They are normally organized as a
non-profit entity and they are normally funded by its own members plus other events and
strategies employed to gather resources. These organizations frequently elect a set of
members to form an executive body to conduct the association’s activities and to promote the
industry’s agenda in different spheres like politics and society.

The meetings of the trade associations generally discuss issues relating to the common
interest of the members. Issues may relate to:

 Taxation (tax rates and taxation procedures)

 Raw material prices or shortages,
 Infrastructural issues (roads, power, telecom, ports etc.)
 Labour issues and labour legislation
 Legislation affecting the interests of the members
 Unfair competition.
 Import and export issues
 Emerging opportunities in business, trade and commerce.
Features of Trade associations

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 1. Voluntary association:

It is a voluntary association of member units. Members are free to exit at any time.

2. Non-profit motive:

Trade associations are non-profit earning associations. They are not promoted with a
commercial motive.

3. Name:

The associations are generally named after the nature of the trade or industry conducted by its
members.

4. Identity:

Members continue to retain their individual identity

5. Independence:

Members units can remain completely independent. There is no interference by the

association on the business affairs of its members.

6. Objective:

The objective of trade associations is to promote the business interests of the members,
exchange views, serve as a platform for discussions and to represent the interests of its
members.

Name: The associations are generally named after the nature of the trade or industry
conducted by its members.

7. Identity:

Members continue to retain their individual identity

8. Independence: Members units can remain completely independent. There is no

interference by the association on the business affairs of its members.

9. Objective:

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The objective of trade associations is to promote the business interests of the members,
exchange views, serve as a platform for discussions and to represent the interests of its
members.

o Educating members so as to improve efficiency.

o Preventing cut-throat or unfair competition.
o Promoting and extending trade through ‘legislative work’.
The following are the other functions of trade associations:

To provide market information to members with regard to customer preferences,

expectations, market opportunities etc.

o Providing information relating to emerging business opportunities.

o Rendering advice on technical matters and legal issues.
o To secure co-operation and co-ordination among members.
o To serve as a forum where members can settle their disputes.
o Ensuring that members do not indulge in unfair trade practices.
o Providing references with regard to the reputation and credit worthiness of
members.
o Undertaking advertisements to promote the industry.
o To prescribe code of ethics with a view to promote ethical behavior.
o To represent members grievances to the government and seek redressal.
o Conduct seminars or workshops on new legislation, the budget, international
business developments etc.,
o To conduct market research and provide information to member.
o To send representatives to serve on various committees and boards set up by
the government.
Advantages of Trade associations

1. It protects and promotes the interests of its members. It can take up issues relating to
the respective authorities for redressal and corrective action. For e.g. it can take up
issues such as: insufficient infrastructural facilities, high inputs costs, problem of
cheap imports which affects the survival of local firms with the government and
request it to take suitable remedial measures.

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 2. The association serves as a forum for members to interact with each other. Members
can discuss key issues, share knowledge about industry trends, consumer
preferences, best practices followed etc. This kind of knowledge sharing enables
companies to implement appropriate measures and achieve efficiency and
profitability.

3. Trade associations can undertake research and development to innovate new

products, processes etc. Individual firms face resource constraints in undertaking
research and any new innovation would benefit that individual firm. But the fruits of
the research and development efforts of trade associations would benefit all the
members.

4. Trade associations can engage market research agencies such as IMRB, ORG-
MARG, etc. to

conduct market research on consumer preferences and expectations. They can sponsor
delegations of members to foreign countries to find out the market potential.

5. They play an important role in settling conflicts and disputes among members. They
can use the services of members who enjoy a good reputation to settle disputes
between members. This saves the members from expensive litigation which might
also take up a lot of members’ time.

6. Trade associations prevent members from indulging in unfair trade practices. They
ensure that members do not engage in cut-throat competition and promote the
orderly development of the industry.

UNIT-4

Office Meaning

In this post, we are going to understand office meaning and office definition. We are
also going to learn about the modern concept of office.

An office is a place where relevant records for the purpose of control, planning, and
efficient management of the organization are prepared, handled, and kept.

The office provides facilities for internal and external communication and
coordinates the things within the organization as well as the outside market.

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 In simple terms, an office is generally the room or place where the employees
perform their day to day work for the organization or business.

Office Definition

As per James Stephenson,”Office is that part of the business enterprise which is

devoted to the direction and coordination of its various activities.”

Purpose of Office

The main purpose of an office environment is to support its occupants in performing

their job.

The office has work spaces which are typically used for conventional office
work.The primary purpose of an office building is to provide a workplace and working
environment primarily for administrative and managerial workers.

These workers usually occupy set areas within the office building and usually are provided
with desks, PCs and other equipment they may need within these areas.

FUNCTIONS OF A MODERN OFFICE

I. Basic Functions of a Modern office

1. Receiving Information

The information may be received from within the organization or outside the
organization. If information is received from various departments and executives of the
organization, it is termed as information received within organization.

If information is received from outsiders say customers, government departments, share

holders, suppliers, they are termed as information received from the outside organization.

2. Collecting Information

Collecting information is differing from receiving information. If an office gets

information voluntarily, it is receiving information. If an office gets information after an
enquiry or demands, it is collecting information. Enquiry or demands may be made through
letters and/or telephone calls.

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 Managers or departmental executives can visit other offices to collect information.
Information may be received or collected if it helps the management in taking decisions.

3. Recording Information

Both received and collected information should be properly recorded in suitable form.
An office determines the form, number and nature of records to be maintained according to
the needs. Some forms are specified in the respective statutes.

For example, Indian Companies Act requires the companies to maintain books and
registers in a specified way.

4. Creating Records

The information should be converted into according to the needs and prepare financial
and cost accounts, production details, sales particulars, man hours worked, price list and the
like. These records are used as a reference library of the management.

5. Processing or Arranging Information

The received and collected information have to be arranged in a systematic way. If

not so, there is no use of such received and collected information. Financial statements and
statistical statements are examples of arranged information.

According to J.C. Denyer,The basic functions of an office can be said to be receiving,

recording, arranging (and analyzing) and the giving of information

6. Computation and Statistical Work

Calculations have to the made for preparing statistical charts and / or diagrams. Cost Sheet,
Production Budget, Sales Budget, Purchase Budget, Master Budget, Fund Flow Statement
and Cash Flow Statements are also prepared.

7. Analyzing Information

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 One has to analyze the information to find a truth. The hidden fact has to be
highlighted through proper analysis. Reports are also drawn up out of analysis. Market
analysis, Production Report, Financial Report and Employees Report are also prepared.

8. Maintenance of Records

Created records should be maintained in a proper way. The future reference will be very easy
through proper maintenance of records.

9. Retention of Records

Records may be classified into two types i.e. necessary records and outdated records.
The necessary records should be preserved under the control and supervision of office
manager. The outdated records can be destroyed.

10. Communication of Information

The office supplies information from its records as and when required by
management for taking decisions. The information may be supplied verbally or in writing.
Normally, the urgent information is supplied verbally.

The validity of the information depends upon the promptness with which the office
supplies information. The giving information should be precious, specific, accurate and
complete. Irrelevant information should not be supplied to anybody.

According to Mills and Standing Ford,The purpose of the office has been defined
as the providing of a service of communication and record.

II. Administrative or Management Functions of an Office

1. Organizing the Office

Organizing the office on modem lines involves performing the management functions
of planning, organizing, directing and controlling. In other words, the office work must be
properly planned, organized and then executed according to the plan.

A proper control must be exercised over the office activities and also over the affairs of
different employees and departments. Besides them, activities must be effectively
coordinated.

2. Laying down office routines and systems

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 For steady and undisturbed performance of the office work, the office should
develop definite Routine Systems and Procedures. Since all the jobs in the office are
interdependent and interrelated, there should be proper sequencing of routine for each type of
work. This is possible only when proper systems etc. are laid down.

3. Form Designing and Control

A form is a standardized record, which is used to accumulate and transact information for
reference purposes. These forms serve as a storehouse of Information. Since the office work
is largely paper work, the forms used should be properly designed so as to furnish the
required information in an appropriate manner. It is the duty of the office management to
design the forms that can be used in various departments.

4. Procurement and supply of stationery

It is stated already that office work is mostly paper work. To carry on the office
work, stationery of suitable quality should be supplied to the clerical staff and others in
required quantities. The office should arrange for the procurement of the necessary stationery
and issue them to all departments on the basis of their need.

5. Selection and purchase of office appliances and equipment

In every office, the management should provide suitable furniture to its staff so that
they can perform their work conveniently. Besides, modem devices like telephone,
calculators, typewriters, Dictaphones etc. are extensively used now-a-days.

Labour saving devices have become popular in all modern offices. The office
manager should procure the right type of equipment and also maintain them in good working
conditions. Since modem equipment is very costly, proper care is needed for preserving them.

6. Public Relations Functions

Public understanding and acceptance are essential for any growing organization. This
calls for constant touch with the public i.e. public relations. The purpose of public relations is
to make the enterprise look good to all actions.

7. Personnel Functions

We know that the office work can be performed only by trained and experienced
office personnel. To procure suitable personnel, an office performs certain personnel

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functions also. It recruits, selects and trains the clerical personnel and places them on various
jobs in the office.

Sometimes, particularly in large undertakings their work is delegated to the

Personnel Department. But the office manager must assist the Personnel Officer in the matter
of selection. The office manager should also-provide them proper working environment in
the office and motivate them for peak performance.

8. Controlling office cost

Clerical expenditure on office cost is yet another factor, which needs control. By
adopting scientific methods like mechanization of the office, adopting labor saving devices,
using proper forms and periodically analyzing and reviewing the existing systems and
procedures, the office cost can be controlled effectively and reduced substantially.

Importance of Offices

 Information Center:

The office serves as an information centre. It collects information from sources like
invoices, letters, memos, agreements, vouchers etc., and protects them in safe mode on the
basis of their importance for future reference.

 Proof of Existence:

The office is the evidence for existence and survival of business. As office coordinates the
functions of different departments of an organisation, without office no business house can
survive. People tent to generalize about the existence of business only with the help of regular
functioning of an office.

 Channel of Communication:

The office is the channel of communication between different people and department of
business. The staffs working at various levels of managerial hierarchy are linked with one
another through office. Office transmits the information about the functioning of different
departments such as personnel, finance, production and marketing with each other.

 Co-Ordination of Work:

Business is divided into department and sub-units for bringing simplicity in the
operation. The office will work as a coordinator to maintain the relationship between

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departments. It develops productivity relationship to achieve common goals of an
organisation.

 Centre for Formulation and communication of plan and policies:

A business is established with the objective of attaining the certain result. To achieve
this result top level manager formulate plans and policies from office. These plan and policies
are communicated to related person through the office. Therefore, the office is a centre for
the formulation and communication of plans and policies.

 Managerial Control:

The process of developing performance standard and comparing with actual

performance in order to take corrective action for deviations if any is called controlling. The
office helps in controlling the activities of different people and department of an organisation.
Through controlling it ensures that the various activities of business are performed with much
accuracy.

 Memory Center:

Office protects important information of past in a safe manner. The departments and
people generally collect needed data from the office as and when they are required. It
provides information storage facilities in the form of files and devices on the basis of their
importance for future reference. Therefore, the office is considered as memory center.

 Service Center: The office works as a service centre for different units and departments of
an organisation. It provides clerical services like mailing, filing, typing,
printing, supplying resource etc., to all people working in different departments of an
organisation.

Office layout

Introduction

When a management decides to establish an office, it has to carefully define its

plan for systematic and scientific segmentation of various departments and equipment for the
office.

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 The reason is that the systematic arrangement of office equipment leads to
availing of maximum benefit from the space available. The office layout is based on the
principle of division of labor. If the principle of division of labor is applied, every job of an
office can be divided into many sections. All the sections may not be possible to
accommodate in one room or on the same floor. Hence, office layout ensures fully utilization
of office space and the efficiency of operation is high.

Meaning of Office Layout

Office layout means the systematic arrangement of office equipment, machines and
furniture and providing adequate space to office personnel for regular performance of work
with efficiency.

Definition of Office Layout

According to Littlefield,“Office layout is the arrangement of equipment within the

available floor space”.

According to Hicks and Place,“The problem of layout relates to the arrangement in

the space involved so that all the euipment, supplies, procedures and personnel can function
at maximum efficiency”.

Therefore, the main task of office manager is the proper allocation of space to each
section by considering the interlinking of other sections, so that the activities of different
sections can be coordinated and controlled easily. Faulty or improper arrangement of
furniture, equipment and space for employees leads to unnecessary wastage of time and
energy and increase in the cost of office operations.

Objectives of Office Layout

 The main objectives of office layout are as follows

 Effective utilization of available floor space and smooth flow of work.

 Both power and telephone service is made available whenever necessary.

 Office supervision is made more easy and convenient.

 Good working conditions should be provided to each employee

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  The reception room should be very near to the main gate or entrance so that the
visitors may feel easy and convenient.A sense of belonging and loyalty should be
made in the minds of office employees.

 Employee’s satisfaction should be the outcome of proper office layout.

 There should be a free flow of communication among employees.

 All the sections can not work independently. Hence, the office layout ensues the
interlinking of each sections according to their needs.

 There must be an adequate space between desks, tables and chairs for free movement
of employees.

 Noise and disturbing operations should be segregated within the office.

 Some sections require privacy. The sections may be interview section and inquiry
section. Interview section is dealing with recruitment of staff and inquiry section is
dealing with progress and performance of the existing staff.

 Frequent mutual consultation and interference between clerks should be avoided.

 The room of the manager should be arranged in such a manner that he can easily
observe the activities of staff for exercising control on them.

 The external noise and disturbance should be avoided by fixing double glazed
windows and doors.

 Changes may be made in the office layout if the volume of work is increased in future
and requires facilities.

 Staff doing confidential work should be provided adequate privacy.

 There must be sufficient, natural or artificial light.

Principle of office layout

1. Principle of flow of work:

It is the layout which helps for smooth and effective flow of office works. Simple,
easy and prompt work flow and essential for work progress

Principle of free movement and observation:

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Office layout should allow the free movement of employees. There should also be proper
supervision and observation of works of movement too

2. Principle of effective supervision:

There should be free supervision of flow of works, movement of personnel, cost,

wastage, balance of budget, quality of office works etc.

3. Principle of departmental relationships:

For the office layout related departments are inter related and those inter related
departments should be placed side by side.

4. Principle of flexibility:

Office should be flexible enough to facilitate the expansion in the future.

5. Principle of maximum utilization:

As the time flows, there is increase in cost of every thing as per the situation of
the economy if the country and the area where office is established. There are very fewer
cases of deflation basically in developing countries. Therefore, when office is set up then
there must be maximum utilization of employees, materials, space, machines and resources.
There should be reduction of wastage.

6. Principle of pleasing appearance:

Interior design, lighting, ventilation and cleanliness should be maintained. Office

must be well furnished and pleasing enough to make it attractive to all the customers and
visitors

7. Principle of good ventilation:

Office must have enough doors, windows, and ventilation for constant supply of fresh
air.

8. Principle of good lighting:

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 Office should try to provide natural light that is sunlight. Dark places should be
avoided for establishment of office.

9. Principle of safety:

An office layout must be based on the safety. It should reduce office accidents like
theft, fire, damage and so on. Office machine must be implemented properly

10. Principle of service facilities:

There must be provisions of good canteen, lights, lifts, telephone, and toilets.

11. Principle of providing private offices:

In an office. Separate rooms should be provided to some important employees. If

the work is confidential in nature then private room should be provided. It is better to use
movable partition to provide privacy

DIFFERENT TYPES OF OFFICE LAYOUTS

A. Cellular Office Layout

According to the recent research, an office design/layout directly impacts the morale
of an employee which affects the quality of their work and other operational tasks. That is the
reason why new-age entrepreneurs focus more on these aspects.

No matter how small or big your company is, incorporating an efficient office layout
such as Cellular plan always has a potential to influence your employee's performance. A
Cellular Office is one of the most popular layouts in which the entire floor space is divided
into individual spaces or cubicles for one or more employees. It is sequentially arranged areas
that give employees their own private space. Most of the offices in Australia opt for this

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classic office design plan because it not only promotes focused working environment but also
systemise things in a better way.

In cellular office plan, individual rooms are created either by using ceiling stud
partitions or a window or a door. This means each will get their own separate space where
they can operate their work the way they want.But the best part about this layout is that you
can create small cubicles for your different operational team –which is good for your team as
well as company’s productivity.

a) Open Office Layout

Most of the creative and IT companies in Australia use open office layout to
promote smooth and effective communication among employees while maintaining a high
level of discipline.

Under this plan, an entire floor area is divided by low partitions where employees
may have their own desks or may share a table with other employees. However, each
employee will be given a separate chair and a computer, but the overall workspace will
remain non-territorial.

Those who prefer this office layout says that it provides greater opportunities for
effective communication, transparency, collaboration while promoting employee
relationships. If you want to boost your company’s productivity, then this office layout has a
lot to offer you.

b) Co-working Office Layout

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 Co-working office plan is trendy, chic and popular among new-age Australian
entrepreneurs. In this layout, a worker may or may not have his own workspace. It simply
approaches a first-come and first-serve policy that encourages individuals to operate
wherever they want to within the premises. In fact, you are free to choose your own space as
per your requirement. Being an employer, you can assign particular desks to your workers
according to their assigned job.

If you are a young businessman and want to promote social interaction within your
organisation, then this one is best office plans for you. The flexible working environment
increases the possibility of collaboration while making workers (even freelancers)
comfortable.

In a nutshell, Co-working spaces are ideal for self-employed workers who don’t have an
office space for their own. With the payment of a small fee, these people can work in a
comfortable working environment.

c) Combination Office Plan

This is one of the most versatile office plan layouts that can help business owners to
design their offices the way they want.

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 If you want both the open and cellular layouts, then a combination office plan is
perfect for you. In this specific office plan, you can design your office in an individual or
separate cubicles but use smaller space as compared to the cellular layout.

Instead of using doors or windows, use common office surroundings such as tables,
couches, and chairs. This will also give a glimpse of open office layout.

Office accommodation and layout.

Meaning of office accommodation

It is the process of selecting appropriate building in a favorable location, establishing

different sections and departments, proving or arranging resources in a scientific way. The
purpose of office accommodation is to create sound working environment and to bring
efficiency and rapidness in office work. It is important for both employees and outsider.
Office employees spend a long time office. Bad accommodation can cause boredom and
frustration among employees. Bad environment also may cause bad impression to outsiders.

Selection of office building

1. Shape and size of office building

It is one of the major factors that should be considered while selecting office
building. It should have adequate space to accommodate all machines, equipment, and
employee with furniture and enough space for flexibility. It should be considered taking the
base of both present and future needs.

2. Lighting and ventilation

An office building should have adequate lighting and ventilation. It helps a lot to
increase efficiency and enhance worker’s morale. Well lighted and ventilated accommodation
puts less pressure on the employees and also reduces the physical and mental strain and
consequently the efficiency is higher.

3. Convenience to customers and employees

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 While selecting office building it should consider the convenience of customer and
employees. It should not be far from the related trade center, must have proper toilet and
canteen services and food hospitality and utilities.

4. Cost

The cost of building effects on total budget of organization. The building purchased or
built must be within the budget of organization. There should be balanced between
requirement of space, capacity of the organization and the cost for covering the expanses.

5. Flexibility

Flexibility of office building in its shape and size should be considered while selecting the
office building. It must also match the nature of organization.

6. Layout facility

The efficiency of men and machine depend upon the layout. The proper layout makes
office attraction. For this furniture, machine and other goods are necessary. This also helps in
the internal arrangement of office.

Selection of office location:

1. Nearness to customer:

The office should be accessible to customers. They do not like long distances to make
business inquiries. The office should be accessible to other parties who are in regular contact.

2. Nearness to related business:

It is desirable to locate the office near the offices of related business. It should be
established in the same line of trade.

3. Availability of infrastructure:

The infrastructure should be available in office location. It consists of transport,

communication, power, water and parking facilities.

4. Nature of business:

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 The nature of business affects location of office. Office of manufacturing business in
located near the source of raw materials, labor and service facilities. Office of trading and
banking business is located in commercial centers near the customers. Office of perishable
goods business is located near the market for such goods.

5. Availability of human resources:

Needed human resources should be available for office. They can be skilled, semi-skilled
and unskilled. All facilities must be available for employees

6. Environment:

The office location should have healthy environment. It should not be near polluted
rivers or waste disposal sites. It should be free from noise, dust and pollution.

7. Cost of space:

Sufficient space should be available at reasonable cost for the office. Space should be
available for future expansion.

8. Government laws:

The selection of location should comply with government laws and regulation at
national and local levels.

Factors Determining office Location

Location means the place and site where the office of an organisation is situated.
Proper location of the office is of great importance to every organisation. While taking a
decision on this issue, the management must take into consideration the present as well as
future needs. An unsuitable location adversely affects the efficiency of operations.

Factors Determining office Location

The following factors should be taken into consideration while determining office location:

(a) Availability of sufficient space

The office should have sufficient accommodation and facilities i.e., rooms, storage
space etc. Future expansion and requirements should also be kept in view.

(b) Proximity to other departments

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 The office should be located in a central place so as to be easily accessible to other
sections, units and departments of the organisation.

(c) Proximity to other offices

The office should be located in or near an existing office complex which will enable it
to derive the benefits of common services like Post Office, Bank, Transport etc. available in
the locality.

(d) Availability of transport facilities

Every office requires adequate transport facilities for the convenience of office workers
and outsiders dealing with the office.

(e) Service facilities

Besides transport, availability of banking, postal, internet, telephone and telegraph

facilities are also necessary for the efficient conduct of office functions. The services of
insurance agencies are also needed for various purposes. The office should, therefore, be
located where such facilities exist.

(f) Availability of office employees

It is desirable to locate the office where it may be easier to recruit and retain different
categories of office staff e.g., stenographers, computer operators, accountants, clerks, typists,
peons, etc.

(g) Healthy environment

Every office requires healthy surroundings. The place must be free from dust and
noise. It should not be located in a congested area. Unhealthy surroundings adversely affect
the efficiency of the employees. In short, the location chosen must be one from where the
entire organisation can be served efficiently at a reasonable cost.

Filing

Filing can be described as the core of records management. The files of an

organization are its memory and any malfunction of this memory will severely affect the
overall efficiency of the organization.

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 For many years in most of the organizations, filing was not considered as an
important activity and so untrained girls straight from schools were recruited for filing duties.
But the situation has now changed.

Most modern management realized the need for an efficient filing system. Unless there
is a well-trained supervisor, operating a sensible system of filing with right lines of
equipment, chaos and confusion will prevail.

MEANING AND DEFINITION OF FILING

J.C. Denyer gives a very simple definition for the term filing. According to J.C.
Denyer,filing is the process of arranging and storing records so that they can be located when
required.

In the words of Leffingwell,filing provides a means of preserving the records of business

transactions. It is the process of arranging and sorting original records or copies of them that
they can be readily located when required.

FUNCTIONS OF FILING

A good filing system performs four important functions. They are as follows:

1. LIBRARY FUNCTION

Library function involves sorting and arranging the records for future reference.

2. ADMINISTRATIVE FUNCTION

A good filing system performs certain administrative functions also. Administrative

functions here imply maintaining, protecting and supplying the various documents to the
management for developing the business policies.

3. HISTORICAL FUNCTION

Important records relating to the progress of the enterprise are preserved. These
records clearly reveal the history of the organization.

4. INFORMATION FUNCTION

Various types of information for various uses and purposes are preserved and protected.
Besides, they are also supplied to the users in times of need.

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ADVANTAGES OF A GOOD FILING SYSTEM

A business firm derives various concrete advantages by adopting a suitable system of

filing. They are mentioned below:

1. DOCUMENTARY EVIDENCE

Files constitute valuable documentary evidence of the transactions. They will be very
useful in case of any disputes, which may arise in future.

2. VALUABLE ASSISTANCE

Past records are valuable assistance to formulate new policies and programmes.
Policies based on past experience will have greater realism in their approach.

3. NO DELAY IN HANDLING CORRESPONDENCE

Correspondence can be handled properly without any delay. Systematic handling of

correspondence will contribute to build up goodwill and reputation of the firm.

4. CONTROL OF PROCESS

Process of control is greatly facilitated by a carefully devised system of filing. A check

is kept on the incoming and outgoing letters and letters requiring action are thus disposed off
quickly.

5. PROTECTION OF RECORDS

Documents are protected against possible loss or damage. Some documents are to be
preserved permanently. Particularly care must be taken in protecting documents like title
deeds, agreements etc. Proper filing system ensures protection of all vital records.

6. FOLLOW-UP MEASURES

Follow up measures for sales are unthinkable without a good system of filing. When a
firm introduces a new product in the market, it should approach its old customers and win
their co-operation first. Price changes should also be informed to them promptly. All these
activities are possible only when records are maintained properly.

7. TRACING OF REFERENCE IS EASY

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 Tracing out references with regard to various matters is facilitated by an efficient
system of filing. This will avoid the need for duplicating or repeating such matters once
again.

ESSENTIALS OF A GOOD FILING SYSTEM

There is no universal best system for filing for all kinds of office situations. The
requirements of each office or section or department must be analyzed individually and a
system best suitable to the concerned office or section should be devised.

While developing a filing system, the peculiar needs of the office organization and the
dimensions of the office work should be considered. In spite of these limitations, authorities
on the subject have suggested certain guidelines in designing a proper filing system. They
may be stated as follows:

1. COMPACTNESS

The first consideration is the space requirement. Most of the business offices are located
in towns and cities where space is available only at a higher rent. Therefore, it is important
that the filing system should not take up space unnecessarily.

2. SIMPLICITY

The filing system should not be complex. It should be easy to understand and simple to
operate. A system, which cannot be followed by the office staff, is likely to defeat its own
purpose of quick reference. Moreover, operation of the system should not require any special
training. This will add further expenditure and cause financial strain.

3. ECONOMY

A filing system should be cost effective. In other words, the filing system should be
economical to install and operate. The acceptable cost level may, however, vary with the type
of record depending on the speed of retrieval required.

4. ACCESSIBILITY

The records should be readily available to the people who use them. Whenever a paper
has to be filed, the clerk should not find any difficulty in taking out or writing any note on it.

5. FLEXIBILITY
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 The filing system should be flexible or elastic. It should be capable of being expanded
or contracted with requirements of time. While designing a filing system, the future needs of
growth and expansion should be kept in mind. Otherwise the system will become less elastic.

6. CROSS REFERENCE

A record should be filed under a heading to which it relates. Some times, the same
record may touch two different points and it cannot be filed in two different headings. In such
a case, cross-reference should be given. If cross-reference is not given the filing clerk should
take more time to trace out the concerned document in the other file where it is actually
located. While designing a filing system the possibility of providing facility for cross-
reference must be considered. This applies particularly to records of correspondence.

7. CLASSIFICATION

It is necessary to employ the most suitable method of classification. Moreover, too

many miscellaneous files and too much bulk must be avoided. This will help in locating the
required files quickly.

8. MOVEMENT OR OUT GUIDE

Whenever a file or a letter from a file is removed, a guide or indicator should be

inserted stating that the letter or file so removed, to whom it was sent etc. If possible the
signature of the person to whom it was delivered should also be obtained. These out guides
are necessary for a good filing system. Besides, they also enable easy tracing out and location
of the records.

9. RETENTION

The records should be retained or discarded on the basis of their utility. Unwanted or
unnecessary records should not be allowed to accumulate. If a record is no longer required, it
should be destroyed. Only live material must be kept for the requisite length of time. There
should be specific retention policy for this purpose.

10. SAFETY

The filing system should be one under which the safety of the documents from insects,
dust, water, fires, theft etc. is ensured. Fireproof almirahs should be provided for valuable
documents. Entry into the filing department should be restricted. Moreover, issue of files
should be made only on the basis of requisition.

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ESSENTIAL REQUIREMENTS OF FILING

Filing provides a means of preserving records of business transactions. This is its

original and still its principal use. To accomplish this purpose, a filing system should satisfy
three conditions. The three essential conditions are as under:

1. EDUCATED AND TRAINED SUPERVISION

It is already stated that filing was previously considered as an unimportant activity.

But now the management has realized its importance and need. The filing work should be
performed by specialists and supervised by educated and trained supervisors.

2. STANDARDIZED PROCEDURE

The filing should be scientifically devised and standard procedure should be set out. No
succeeding file clerk should be allowed to alter the procedure, which have been established
and standardized.

3. MINIMUM MISFILING

The chief difficulty is not filing but finding. Misfiling causes delay in tracing out the
location of the desired documents. To avoid misfiling, good training should be given to the
filing force. No clerk should be permitted to file any material unless he has thoroughly
mastered the filing system. In order to prevent misfiling, eminent authorities suggest the
following steps.

 There should be specific rules for filing. These rules should be followed without any
deviation.

 The filing system should be supplemented by a well-designed index plan.

 A well-designed system of requisitioning files should be adopted.

Organisation of filing department

1. Centralized filing system

The records of all the departments of the business organization are maintained at one
place i.e. centralized filing system. The centralized filing records are controlled by a common
index plan. For which, a separate department is created i.e. known as filing department. All

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the files of the organization are preserved by this department. The functional departments of
an organization are relieved from the headache of maintaining records. All files, filing
equipment and filing staff are located in the filing department.

Advantages of Centralized Filing

The main advantages of centralized filing are as follows.

 There is no duplication of filing arrangements. Therefore, cost of filing

maintenance is very low.

 There is better utilization of storage space.

 Easy location of documents and records are possible. It saves time and human
resources.

 There is full utilization of storage space available.

 Duplication of filling equipment is avoided at the maximum and required only few
filing cabinets.

 It enables uniformity and standardization of the filing system and method.

 It ensures easy location and delivery of required documents.

 This system utilizes trained and qualified staff which leads to greater accuracy in
the filing of records.

 This system ensures greater output and efficient operation of every work
throughout the office.

 Supervision and control can be employed in a better way on transfer of records,

their retrieval and retention.

 Records and documents are filed on subject wise basis.

 This system ensures efficient operation of follow up activities.

 The continuous operation of this system can not be hampered by the absence of
any office staff.

 The split of relevant documents at different location is avoided.

 There is no difficulty to file users and filing department staff.

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  Integrity of files can be maintained and loss of valuable records can be prevented
since the authorized staff alone permitted to access the files.

 More effective administration of the retention of records schedule is facilitated.

 The functional departmental heads are saved from the botheration of maintenance
of records. They can devote their full time and attention on the departmental
activities.

DISADVANTAGES OF CENTRALIZED FILING SYSTEM

 If the filing staff are not adequately trained and have no specialized trade knowledge,
it shall lead to misfiling.
 Since all the records are stored in one place they will become more vulnerable.
Consequently, the risk of loss due to theft, fire etc. can be increased.
 There may be delay in making files available. Since the whole work is performed by a
few staff members, delay cannot be avoided. The workload will also be more.
 Chances for misfiling will increase considerably. Misfiling will lead to unnecessary
delay in tracing out the documents and they cannot be produced promptly.
 Where records are needed frequently by departments, centralization of files will cause
much inconvenience. This may also cause frequent delays.
 Centralized filing would result in increased staff costs.
 The central department often tends to become a repository of all unwanted and
unnecessary documents of all other departments.
 Telephone enquiries cannot always be answered immediately if records are not on
hand.
 The real needs of the user department shall become secondary to the established
routines and regulations of the central filing department.
 Certain departments may find that the system of classification of files adopted by the
central library is not the best one for referring their records.

DECENTRALIZED FILING OR DEPARTMENTAL FILING

Under Decentralized filing system, filing is done in each individual department

independently. In other words, each department makes its own arrangements for filing, install
separate equipment and the department staff themselves will look after this work. Therefore,

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filing equipment are installed in each and every department. Hence, it is also known as
department filing.

MERITS OF DECENTRALIZED FILING

 This system ensures secrecy of documents and enables the individual

departments to carry on their work independently and effectively.

 This system saves time. If any document is needed, it can be made

available promptly without any delay. This ensures quick action.

 Specialized knowledge about the concerned departments will eliminate the

chances for misfiling. Thus safety of papers is ensured.

 Since the papers are located within the same department they can be
obtained at any time. The staff members need not go to the central filing
section and get the required file. Reference is thus easy and quicker.

 If various departments are geographically dispersed, departmental filing

alone is suitable and economical.

 The department staff normally does the filing work themselves. Hence,
additional costs for appointing specialized staff for the filing department is
avoided.

 When chances for misfiling are more in the centralized filing system,
decentralized filing is the only remedy.

 The juniors will get sufficient training. In case of emergency, they can be
transferred to the central filing department.

DEMERITS OF DECENTRALIZED FILING

 No standardized procedure shall be followed throughout the organization. The filing

equipment will not also be standardized. Consequently, confusion will prevail in the
office. The receiving clerk shall find it inconvenient in sorting out the incoming mail.
 Additional space and equipment should be provided in each functional department.
This factor will increase the cost of filing operations.
 When a paper or document is concerned with more than one department, copies of
such documents should be taken out and sent to various departments. This will result

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 in unnecessary duplication of work.
 Advantages of specialization are not possible in a decentralized filing system.
Usually, one or two staff members in each department will look after this work
besides their original work. Since it is an additional workload, they will not perform
filing operations effectively.
 There will be no uniformity in filing procedure. Each department. will adopt its own
procedure, which may be totally different to that of another.
 Departmental filing lacks supervision. Therefore, control of filing becomes a difficult
process. Co-ordination will also become difficult.
 Specialist filing staff cannot be appointed in each department due to the additional
cost involved.
 Under decentralized filing system, movement of files cannot be controlled. This in
turn leads to files being mislaid and difficulty in locating files quickly.
Classification of Filing System

The chief difficulty in office management is not filing but in finding. It is essential to
determine the nature of each and every document, sort them on a predetermined basis and
then filed. Then only a document, which is needed for reference in future can be traced out
and made available. The process of sorting out the document on some definite basis is called
classification of filing.

Classification can be defined as the process of selecting headings under which

documents are grouped or classified on the basis of certain common characteristics before
filing takes place.

Direct and Indirect Classification of files

Classification systems may be either direct or indirect. Direct filing means that the
documents can be stored or retrieved without reference to an index. In an indirect system,
index is necessary.

Methods of Classification of files

The files can be arranged on any one or more of the following basis.

o Alphabetical classification.
o Numerical classification.
o Geographical classification.

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 o Subject-wise classification.
o Chronological classification
ALPHABETICAL CLASSIFICATION OF FILING

Alphabetical filing is the most widely used method. In this system of classification the
papers or records are classified in accordance with the first letter of the name in alphabetical
order. The Telephone Directory is a good example of such a classification.

For example, correspondence with those whose names or surnames begin with ‘A’ will
be classified and arranged together. If there are several names having the same first letter the
arrangement takes into account the subsequent letters also.

The main divisions of the alphabet can be further sub-divided and colour coding can
be employed to facilitate selection and replacement of files. Alphabetical classification can be
either by name or by subject or by geographical location.

ADVANTAGES OF ALPHABETICAL FILING

1. Most people are familiar with alphabetical filing. Hence, it is easy and simple to
understand and operate.

2. It is self-indexing. No separate index is needed for alphabetical filing.

3. This system is highly elastic i.e. new headings can be introduced at any point without
disturbing the classification.

4. Chances for misfiling are minimized.

5. There are useful provisions for miscellaneous papers.

DISADVANTAGES OF ALPHABETICAL CLASSIFICATION

1. Alphabetical classification of filing is not always the fastest system i.e. it takes a long time
to find papers in large organizations.

2. Difficulties may arise through the misspelling of names.

In setting up a new system, it is difficult to estimate how much space is to be allowed for
each letter of the alphabet.

4. Dead files removed from the system leave gaps, which cannot be filled except by
correspondence bearing the same or a very similar name.

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5. If the number of records increases, extensive rearrangements of guide cards and files
became necessary.

In spite of these limitations, it is the most suitable method of filing inward and
outward letters and other documents, Generally, there is a separate file for each letter in
alphabet. However, in small organizations two or three files are sufficient for all the 26
letters.

NUMERICAL CLASSIFICATION OF FILES

Under this method, each folder or record is given a number and the files are arranged
in the numerical order i.e. each customer or subject is allotted a number. All papers relating
to a particular customer or supplier or subject are placed in one folder bearing its distinctive
number.

Folders are arranged in the cabinet numerical sequence and guide cards are used to
divide them into suitable groups of 10 or 20. Thus, if a customer, is allotted the number 14,
all papers and documents connected with him will be found in folder number 14.

Index will have to be maintained to facilitate location of and reference to a particular file.

TYPES OF NUMERICAL CLASSIFICATION

Numerical classification can be further divided into various categories. Of them the following
three are worth mentioning viz.,

 Consecutive Classification System.

 Dewey Decimal System.

 Terminal Digit System.

1. CONSECUTIVE CLASSIFICATION SYSTEM

In this classification, folders or files are arranged in a strict numerical order from
one onward. Each folder is numbered and titled by subject or name and placed at the rear
(back) of the existing folders.

2. DEWEY DECIMAL SYSTEM

This system is very popular in libraries. Under this method, each digit stands for a sub-
classification.

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3. TERMINAL DIGIT SYSTEM

Under this method, file numbers are in groups of two or three read from right to left
each group representing a particular location or some other coding.

ADVANTAGES OF NUMERICAL CLASSIFICATION

1. Greater accuracy in filing is ensured. Hence, chances for misfiling are reduced to the
minimum.

2. This system is highly flexible because it has unlimited scope for expansion.

3. There is no need for keeping miscellaneous files as in the case of alphabetical system.

4. Replacement of files shall be quicker and more certain.

5. Numbered files can be easily located.

DISADVANTAGES OF NUMERICAL CLASSIFICATION

1. This system will operate efficiently only when there is an index. The index must be
carefully managed and kept up-to-date.

2. Index should be referred before ascertaining the location of a file. This will cause delay in
locating the files.

3. Since no miscellaneous files are kept it is not easy to arrange files for miscellaneous
papers.

4. Errors in filing will result due to transposition of figures.

3. GEOGRAPHICAL CLASSIFICATION

Under this system, files are arranged according to the location or addresses of the
persons or parties to whom they relate.

The classification can be street-wise, town-wise, district-wise, state-wise or country-wise.

This system will operate efficiently only when it is combined with either numerical system or
alphabetical system.

This system of classification is generally followed in organizations engaged in export

trade or doing business over a wide geographical area. Mail order houses, banks, insurance

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companies etc. also adopt this system of classification. This system is also suitable in those
concerns where records are required according to the sales territory.

ADVANTAGES OF GEOGRAPHICAL CLASSIFICATION

1. Speedy location of files is possible

2. It is simple to adopt.

3. Direct filing is possible.

DISADVANTAGES OF GEOGRAPHICAL CLASSIFICATION

1. This system will work only when combined with alphabetical classification. Hence, it is
not an independent system.

2. An index should be prepared, without index this system shall become inoperative.

3. Errors may result if the geographical knowledge of the filing clerk is poor. Hence, chances
for misfiling will be more.

4. Proper training must be given to filing clerks. Otherwise, errors shall become frequent.

4. SUBJECT-WISE CLASSIFICATION

Under this system, all documents concerned with a particular subject are brought
together in one file. Such document may have come from different sources and from different
people.

This system is adopted only when the subject or content of a letter is more important than
the name of the correspondent. Each subject matter is kept in a separate file. These files may
then be arranged alphabetically, numerically or on some other basis.

For instance, separate files may be maintained for purchase quotations, purchase orders,
income tax returns, traveling allowance bills and so on.

ADVANTAGES OF SUBJECT-WISE CLASSIFICATION

1. Once the subject is known, it is very easy to trace out the required information.

2. Each subject file gives complete particulars and information on that subject.

3. There is scope for unlimited expansion.

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DISADVANTAGES OF SUBJECT-WISE CLASSIFICATION

1. This system is not suitable for filing miscellaneous papers.

2. Its greatest drawback is that it is difficult to classify.

3. If the subject classification is not understood properly, it will become difficult to locate a
document.

4. If the number of subjects is more, an elaborate index is necessary. This will make the
system costly.

5. Liberal cross-references are often needed. This would make the system slow and time
consuming.

CHRONOLOGICAL CLASSIFICATION

Under this arrangement, records are filed in strict date order. Records like vouchers,
invoices, bills etc. mostly connected with accounts are filed in this fashion. However, this
system cannot be adopted independently.

The records must be classified according to their subject and may then be placed in
date order inside the file related to that subject.

MERITS OF CHRONOLOGICAL FILING SYSTEM

Chronological filing system is good for overall classification because records may be
separated month-wise. In particular, this system has the following points to its merit.

1. Speedy location of records is possible.

2. Simple to operate.

3. Less expensive because ordinary files are sufficient to preserve the records under this
system.

DEMERITS OF CHRONOLOGICAL FILING SYSTEM

1. This system is suitable only for small business enterprises.

2. This system is not useful when exact dates are not known.

3. Incoming letters are separated from outgoing replies. Hence the history of particular
transaction cannot be ascertained at a glance.

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Old methods of filing in office

Some methods of filing have limited utility and are useful to small size office. Even in
the large size office, the volume of papers is comparatively smaller for filing. Hence,
different methods of filing are used and being replaced by modern methods on need basis.
Modern methods are more efficient than old methods.

Important Old methods of filing in office

Some methods of filing have limited utility and are useful to small size office. Even in
the large size office, the volume of papers is comparatively smaller for filing. Hence,
different methods of filing are used and being replaced by modern methods on need basis.
Modern methods are more efficient than old methods.

Old methods of filing in office

The important old methods of filing are explained below.

1. Metal Holders

The papers and documents are arranged with the help of metal holders in
chronological order. This method is inconvenient for maintenance and outdated. Hence this
method is not much use in practice.

2. Bound Books (Guard Books)

The leaves of bound books are of stout. Whenever papers are to be filed, they are
pasted on leaves of books in a chronological order. Small papers of varying sizes are filled in
the bound book. For example, press cuttings. It has limited use.

3. Expanding Alphabetical Cases

The letters and papers are placed alphabetically with or without number in a pocket
form. These pockets are useful for sorting out correspondence or keeping letters. Generally,
share certificates, savings certificates and important documents maintained for temporary
purposes.

4. Spike or Pillar File

A spike is a wire flitted with wooden stand. It may be kept on a table or hung on the
wall. The papers are to be filed through the sharp point of the spike. Papers are filed one by
one on the upper side; this is very simple and cheap method. The replacement and reference
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of any paper or document is very difficult and time consuming. There is no safety to
documents from dust and insects. This method is very suitable for small office.

5. Concertina File

The file is made up of cardboard and has a number of light card board pockets. The
documents are filed under simple alphabetical classification. This file is mainly used for
keeping letters and documents temporary and the storage place for insurance policies and
sham certificates. It has limited capacity for filing.

6. Box Files

Card board boxes are used for filing. Spring clips are used to hold. the papers and
documents within the boxes. The duration of the box file is very short since the catches may
become inefficient and loose after prolonged use. Hence, there is no safety to documents.

7. Pigeonhole File or Docketing

A cupboard or special almirah is to be used for filing letters and documents. The
cup board is divided in to many compartments. Each compartment has one hole i.e. pigeon
holes. Each pigeon has hole which leaves letters in an alphabet. Whenever the letters are
received, they are sorted out according to alphabets and maintain the letters in the respective
holes. Sometimes, the brief explanation and particulars of letters are recorded on the folders
of the letters for quick reference. This is known as docketing. Mainly this method is followed
in post office for sorting of letters.

The letters kept under this method can be cleared periodically which are not expected to
use or unnecessary in future. This method is simple and economical. But it is very difficult to
locate old records. There is no safety of maintaining letters under this method. There is a
great risk of damage to records. This method is not suitable for large size office and suitable
for small office only.

8. Press Copy Book

The office copies of outward letters are maintained in a book form. An extra carbon
copy of each letter is taken for this purpose and then the original copies are filed in
chronological order. This helps to preserve documents which may become evidence. It is
very difficult to locate the documents for cross reference since it is a cumbersome and time
consuming method.

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Modern Filing Methods

The conventional filing methods and equipment are obsolete and useless from the
standpoint of a large-scale organization. The modern methods of filings are broadly classified
into two categories: (i) Flat or Horizontal Filing and (ii) Vertical or upright Filing.

a) Flat or Horizontal Filing

Under horizontal filing, the papers are inserted in files or folders which are kept in
drawers in horizontal position that is one upon the other. The papers are filed in the folders in
chronological order.

As files are placed one above the other, there may be some difficulty in tracing the
files whenever required. To avoid this, each file is allotted a number and an index prepared.
When a file is removed for reference, a guide card about its movement is kept in its place.

This method is simple and flexible. It facilitates easy reference to current documents
since they are filed in the chronological order. The main defect of horizontal filing is that
reference to previous records would be inconvenient because in order to refer to any old
letter, other letters which are filed above it have to be taken out. Moreover, insertion and
withdrawal of papers take much time.

The important files used for keeping the papers under horizontal filing are:

(A) Flat Files

These are cover of cardboard or thick papers, fitted with metal hinges with which to
fasten the papers together. A separate cover (file) is allotted to each customer or subject, and
all the correspondence and documents relating to the customer or subject is placed in that
cover in a chronological order.

If a letter of paper related to more than one file, copies are made of it and placed in different
covers. The paper to be filed is punched with a punching machine and is inserted in the file
through the metal hinges.

The files are placed horizontally one upon another. An index of files is generally
prepared for quick reference. This index is displayed outside the almirah or drawer in which
the files are kept.

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(B) Arch Lever Files

It is a very popular type of horizontal file. It can be described as a strong cardboard

folder which contains strong metal arches which can be opened with the help of a lever.

Records to be filed are punched with two holes with the help of the punching machine
either at the top or on the left-hand side of the forms, are then filed on the metal uprights,
after the arch has been opened by the lever.

The arch lever file facilitates alphabetical division which is done by inserting thick card
at suitable places. The greatest advantage of this file is that papers can be inserted or taken
out with great ease without disturbing the order of other papers in the file.

The file also offers the advantage of proper preservation of papers from mutilation
and dust, if the files are stored properly in the almirahs.

Advantages of Horizontal Filing:

1. It is simple to operate. It is easy to file documents.

2. It facilitates easy references of documents as they are filed in chronological (date-wise)

order.

3. It is a flexible system.

4. It can keep all letters in proper order with the help of spring fastening device.

5. The letters can be referred without removing them from the file. Thus, risk of being lost is
maintained.

Disadvantages of Horizontal Filing:

 It is unsuitable where volume of records is very high.

 To take out any paper, other papers have to be dislocated as the papers are kept in
the order in which they are received.

 When a large number of papers are stored in one file, their location becomes
somewhat difficult.

 This system is less flexible and takes more time as compared to vertical system.

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2. Vertical or Upright Filing

This is the most modern system of filing. It has grown essentially out of the drawbacks
and defects of the horizontal method under which papers are so arranged that it is impossible
to refer to them at short notice.

Because of its outright superiority to the horizontal method, vertical filing has come to
be adopted by most of the modern offices aiming at efficiency in record keeping. Under this
method, the papers and the files containing them are placed vertically or in a standing upright
position. Hence, the name vertical files.

To put vertical filing into operation, the following equipments are needed:

(A) Folder:

Folders are the basic of vertical filing. They are made of Manila paper or some other
strong paper and are used to hold papers and documents. The back of the folder is slightly
higher than the front.

The extended back is used to write the contents and necessary details about the subject.
When the folders are placed in the cabinet, the extended edges are visible in a sequence so
that contents can be easily read.

(B) Filing Cabinet:

Folders are kept vertically in a wooden or steel cabinet which consists of a number of
drawers. The drawers are deep enough to permit folders to be placed in a vertical position.
Each drawer is fitted with slider which pushes it backward or pulls it forward. There is also a
mechanism fitted in the drawer for holding the folders together.

In order to divide the drawer into convenient sections, guide cards are inserted at
appropriate places. Generally a cabinet has four drawers and each standard size drawer can
accommodate about 240 folders.

Advantages of Vertical Filing

1. Vertical filing allows ready reference of papers and documents. The heading of each folder
is visible from the extended edge of the back-sheet.

2. It is really adoptable. The folders can be arranged according to any classification such as
alphabetical, numerical and subject-wise.

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3. It is economical as compared to the horizontal equipment as it can accommodate more
papers.

4. It provides ample scope for expansion while installing this type of equipment, adequate
rovision for expansion of the number of folders can be made in the drawers.

Disadvantages of Vertical Filing

1. Vertical filing is not as fast as the other methods of filing such as visible card filing and
rotary card filing.

2. There is always a possibility of folders slipping down the drawers. This may lead to
unnecessary wear and tears of various folder.

Index

Index is a ready-made guide, which is used to locate the required file. Therefore, an
index indicates or points out the exact place of keeping a document or file. Indexing is the
process of determining the name, subject, or some other caption under which the documents
are to be filed.

Index is not only necessary to large office but also necessary to small office. When
a large number of files are maintained, the necessity of maintaining index is increased.
Indexing increases the utility of filing by providing an easy reference to the files. The very
purpose of maintaining index is that easy and quickly location of filing.

Meaning of Indexing

I ndexing means an arranged system through which the required documents and papers
are easily located for the speedy disposal of urgent and/or ordinary matters.

The various files are maintained for different departments on various topics. Therefore, an
indicator (index) is necessary to locate the files.

Objectives of Indexing

The objects of indexing are presented below.

 To assist filing so that the filed documents are located easily and quickly
whenever they are needed.

 To increase the efficiency of the filing method.

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  To improve the efficiency of the office operation.

 To state the key information regarding any subject in a condensed form.

 The right system of indexing must be chosen in order to achieve the

objectives of indexing. Indexing is not required if files are arranged in an
alphabetical order.

Essentials of a Good Indexing System

The following are the essential features of a good system of indexing.

a) Simplicity: An indexing system should be simple to understand and operate. It should not
involve unnecessary complex in operation.

b) Economy: It should be economical in terms of money, space, and effort. The purchase of
indexing equipment requires heavy investment during initial period. Therefore, proper
attention should be devoted to ensure economical use in the end.

c) Flexibility: The selected index system should have sufficient scope for expansion. A
single system may be used for several purposes. For example, the location of file, supply
of important information and the like.

d) Efficiency: Any index system should ensure speed in operation and requires minimum
time for operation.

Safety: The index system should protect the records against dust, fire, water, rats, insects,
water etc. The safety should be equipped with lock facility to prevent pilferage of records.

e) Conformity with Filing System: The selection of index method depends upon the nature
and type of filing system adopted in an organization. Hence, there must be a correlation
between the filing system and index method.

f) Cross Reference: There should be Cross reference under the head under which a
document could be filed but has not been filed.

g) Signaling: A tab or slip should be attached at the edge of the card or file. The tab or slip
contains facts of the document briefly. This is used to draw the attention of the needy
persons of files.

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ADVANTAGES OF A GOOD INDEXING SYSTEM

A good system of indexing i.e. which goes well with the filing methods provides the
following benefits.

1. EASY LOCATION

The required papers and documents can be easily located. No extra time is needed.
Hence, referencing shall not be a painful process.

2. EASY CROSS REFERENCING

A good system of indexing also ensures easy cross-referencing and thus saves time and
worries.

3. ECONOMY

The cost of records management shall be reduced and the efficiency is also increased. Hence,
a good index ensures economy in records management.

TYPES OF INDEX SYSTEMS

According to J.C. Denyer, there are five main types of index, which are commonly
used in all offices. They are:

 Page Index.

 Loose or Vertical Card Index.

 Visible Card Index.

 Strip Index.

 Rotary Index.

Though there are other methods of indexing, they are not taken up here for discussion, as they
are crude, unscientific and unsystematic methods.

1. PAGE INDEX

This consists of a few pages allotted to each alphabet, fitted with a tab showing the letter.
On each page are written the beginning with that letter and quoting the relevant reference,
usually a number. This type of index is commonly used for the minutes, customers and
suppliers’ ledgers etc.

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FORMS OF PAGE INDEX

This type of indexing may take the following two forms:

1. BOOK INDEX

Book index may also be called bound index. Index is prepared alphabetically, in a bound
book or register. The pages cannot be lost or disarranged as they are bound. If it is maintained
as a separate book, the entries under different alphabets will indicate the file numbers of
different persons. But if it is attached with some book say a ledger, it will indicate the pages
of the ledger in which accounts of different persons have been entered into.

Book indexes are available in the market, and hence they are economical. But it will
not be useful after a certain limit. Thus, it is inflexible. It can accommodate only limited
number of entries. Another defect of this system is that the names are entered on each page in
the order in which they first occur. Hence, a dictionary like sequence is not maintained.
Therefore, it may take much time to locate an item.

2. LOOSE-LEAF BOOK INDEX

A loose-leaf index is one in which pages are held by a device which makes it possible for
the pages to be taken out or additional pages inserted. The sheets of papers are fitted on metal
hinges and screwed. When a metal leaf is to be inserted or an old leaf is to be removed, the
book is unscrewed and the relevant sheet is inserted or removed.

MERITS OF PAGE INDEX

1. It is a very simple method and easy to operate.

2. It is also a cheap method. So sophisticated equipment are not needed.

DEMERITS OF PAGE INDEX

1. This system is very inconvenient.

2. Easy and quick reference are impossible.

3. When names are deleted the names should be strike off and this will present a shabby
appearance.

4. This system is inflexible. Though loose-leaf binders offer certain amount of flexibility, this
system cannot operate beyond a limit.

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In spite of the drawbacks, this system of indexing is popular in small concerns all over the
world. This system can also be successfully used even in large organizations for limited
purpose.

2. LOOSE OR VERTICAL CARD INDEX

The loose card index was developed by Abbe JeenRozier, a Frenchman, to do away
with the drawbacks of ordinary page index in the 18th century itself.

Under this method, separate cards of uniform size are allotted for each subject, customer or
document. These cards are generally of 105 x 148 mm or 74 x 105 mm size. These cards
contain the names and other particulars to be indexed. These cards are filed vertically and
contain reference numbers on the top.

The cards are filed in some order say alphabetical, numerical or any other suitable
method. They are placed in drawers or boxes of suitable dimensions. A hole is punched into
each card and a steel rod runs through the cards so that the cards are kept in proper places.
Guide cards are used to indicate the broad classifications such as letter A to Z or numerical
sections.

This system is widely used in banks, libraries, hospitals and in offices for credit
records and staff records.

MERITS OF VERTICAL CARD INDEX

This system has several points to its credit. The most important ones are given below:

 It is highly economical. Hence, complex equipment is not needed to install

this system.
 This system is highly flexible. New cards can be inserted at any time,
without disturbing the original order.
 This system is simple and easy to understand. Hence, trained staff need not
be employed.
 Dead cards can be removed very easily without disturbing the order.
 Similarly, cards can be regrouped at any time within a short period.
 Cross-referencing is easy and time is not wasted to have a cross-reference.
 The card contains full particulars. Hence, one card is enough to gather as
many information as needed.

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  This system can be used for various purposes and uses. This will lead to
standardization of equipment and procedures.
 More than one person can consult the card index at the same time.
DEMERITS OF VERTICAL CARD INDEX

This system has certain inherent defects. They are:

 Cards can be substituted to commit or conceal fraud.

 Constant supervision is needed to avoid fraudulent substitution or
manipulation. Moreover, the cards taken for reference should be reinserted in
the same place. If the card is misplaced, the entire system will fail to produce
the desired results.
 Frequent handling of all cards shall result in frequent damage of cards. Hence,
damaged cards or cards torn should be replaced by new cards from time to time
 There is also a danger of separate cards being lost by the persons who take
them away from the drawers for reference.
 Ready reference often becomes a difficult task.
 In spite of the apparent defects, this system is highly flexible and simple to
operate. In particular, this system is followed in all big libraries.
3. VISIBLE CARD INDEXING

Under this method, the cards are laid flat in transparent covers in a shallow tray or in a
metal frame. Each card is fitted into metal hinges so that the edge of each card projects the
width of one line beyond edge of the next card. This makes possible to read one line on each
card without turning the card.

According to J.C.Denyer, The principle of all visible card is that the cards overlaps so
that one line of entry on each card projects and is visible thus forming a one line index.

The trays in which the cards are kept are fitted with a device which enables the cards
to he held in that position and yet permits individual cards to be written upon, withdrawn,
replaced or rearranged whenever needed. The frames or trays can be attached vertically to the
metal stands or they can be put horizontally into cabinets. The trays normally contain 50
cards.

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ADVANTAGES OF VISIBLE CARD INDEX

This system has some advantages namely,

1. It occupies less space and hence economical.

2. Instant or ready reference is ensured. Thus they can be referred to with speed, which adds
to the efficiency of the office.

3. This system is highly flexible. In the same space, more cards can be removed without
disturbing the original order.

4. additional information can be easily written on this card without disturbing the order in
which they are kept.

5. Controlling of various functions shall be made effective. Hence, this index is highly useful
to the management in the process of controlling the affairs of the office.

DISADVANTAGES OF VISIBLE CARD INDEX

This system also has some defects such as:

1. The equipment required for this system is costly.

2. Trained staff should be employed for operating this system.

RECENT DEVELOPMENTS IN VISIBLE CARD INDEXING SYSTEM

Some important variations were made in the visible card system so as to make it more
useful. Some innovations made in this field are:

1. AUTOMATIC CARD INDEX

Under this system, trays of card are suspended from a revolving mechanism under push
bottom control by means of which the office staff can obtain quick access to more than one
lakh cards.

2. VISIBLE BOOKS

Overlapping visible index record can also be kept in a book form. A visible book consists
of a loose-leaf index in which pages are arranged like the cards in the visible card index.

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3. STAGGERED CARD INDEX

This system has been developed to give easier reference to the headings. Cards are
arranged in groups and overlap so that reference headings on the cutaway corners of a whole
group can be seen at once. This system of indexing is sometimes applied to ledger cards to
facilitate the extractions of accounts for posting.

4. STRIP INDEX

Strip index, in fact, is a type of visible card indexing which is used when the entries
are limited to a few lines (Names, addresses etc.). In every type of office, a list of the names,
address and telephone numbers is to be maintained. The strip index is specially designed for
this purpose.

5. WHEEL OR ROTARY INDEX

The wheel or rotary index is a fairly recent development aimed primarily at saving
space and time for reference. This system of index is very popular in Western countries. In
fact, it is a modified form of visible card index.

Under this system, cards are arranged about the circumference of a wheel which may be
portable or set in a cabinet or desk. Entries can be made on the card without removing the
card from the wheel. Similarly, new cards can be inserted without any delay and without
disturbing other cards.

ADVANTAGES OF WHEEL INDEX

1. This system offers a greater speed of reference and thereby promotes the efficiency of
office systems.

2. Economy in space requirements.

3. This system is highly flexible than to other systems.

4. Entries can be made in the card without removing them from the wheel.

SIGNALS

A great advantage of visible index is that various control features can be introduced by the
use of signals on the exposed edges of the records.

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A signal can be described as a metal clip (Plastic tab or adhesive material which is attached to
the exposed edge of the records). The principal aim of the signals is to draw the attention to
certain fact records on the cards. The location of a particular folder or record ledger etc. can
be made easier by attaching signals to them.

Its shape, colour or position along the edge of the folder, card or sheet shows the
significance of a signal. However, these signals are only supplement to the main
classification.

CHOICE OF A SUITABLE INDEX SYSTEM

So far we have discussed the basic methods of indexing in detail. But all methods are
not at all suitable to all organizations. Sophisticated methods like wheel indexing are not
suitable to small organizations. Hence, the most suitable system should be decided with
reference to the requirements of the individual filing system. The factors to be considered are:

1. Volume of information wanted on the index.

2. The frequency of withdrawals and insertions.

3. Nature and number of entries made every day.

4. Cost of the equipment.

5. Space requirements and the availability of space.

6. The need for the use of signals.

UNIT-V

Office Machines & Equipment

INTRODUCTION

Use of machines has become an important part of the functioning of a modem office
organization. They are also called as labour saving devices. There are a large number of
office machines, which can be used for different operations in the office. Novel machines are
found out due to the development of technology and science and they are introduced in
modem offices at a faster rate. Computer era has now started.

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With every business house realising the need and necessity for efficiency and productivity in
today’s competitive market, computers have a very bright future. A wide range of related and
refined office machines and equipments are available in the market.

ADVANTAGES OR OBJECTIVES OF USING MACHINES

Mechanisation or introduction of machinery has certain well-defined objectives.

They are also considered as its possible advantages. They are the following:

1. SAVINGS IN LABOUR

This is the main reason for installing many machines in an office. If a machine
saves labour, it is possible to turn out more work in a given time than before the machine was
used. Savings in labour results in a reduction in pay roll expenditure. In simple words, a
machine should be capable of avoiding the salary expenses payable to five or six clerical
staff.

2. SAVINGS IN TIME

Savings in time is another major advantage of mechanisation. The use of machine is

invaluable for jobs, which have to be completed within a specified time. Examples are
preparation of wage sheets, dividend warrants etc. The value of some machines, in fact lies in
that feature alone.

3. PROMOTION OF ACCURACY

Mechanisation ensures accuracy. The machines give a mechanical accuracy and

save much labour time in checking back as well as the possible annoyances caused by errors.
However, human error in operating the machines can still create problems. As such the men
operating the machines should not commit any mistake.

4. MINIMISING THE CHANCES FOR FRAUD

Sometimes, machines are installed though they do not save labour or time, but due
to their intrinsic value in minimising the opportunity for fraud. A good example of such a
machine is the cheque-writing machine. It is used in offices even when the number of
cheques to be issued is quite small.

5. AVOIDANCE OF MONOTONY

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 Some kind of work is so monotonous as to constitute drudgery. In those cases, office
machines have special value in helping to eliminate distasteful work These machines will
relieve the employees from monotony and boost up their morale. Such machines will provide
considerable satisfaction to them

6. PROVISION OF SERVICE AT THE WHOLE ORGANISATION

Very often mechanisation shall be considered as economically viable because the

services of a single machine are made available to the organisation as a whole rather than to a
single department.

7.SERVICES BEYOND HUMAN CAPACITY

Some large machines perform two or more operations simultaneously. For instance,
large accounting machines write figures, add them up at the same time and then move the
paper ready for the next. In addition, by the use of carbon papers, several documents can be
written, with identical information at one posting. This, of course, may be done manually but
machines create as many twenty copies of a document simultaneously. Analysis can be
obtained at the time of entering in ledger accounts. These things are in fact beyond human
capabilities.

8. EFFICIENCY IN PERFORMANCE

From the management point of view, greater control is possible and more information
in a condensed form will be made available to them as quickly as possible. Hence, it can take
prompt decisions. Prompt decisions are essential to meet the business challenges of the
present day. All these factors will ensure greater success to the company in achieving its
cherished goals.

9. UNIFORMITY OF OFFICE RECORDS

The records of the office will become uniform with the use of machines and give a better
appearance. Moreover, mechanisation facilitates standardisation of office routines and
procedures and therefore a better co-ordination of work.

DISADVANTAGES OF MACHINES

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The use of machines, of course, offers many advantages, yet it suffers from a number of
drawbacks. Most of the drawbacks are concerned with their use rather than the machines
themselves.

1. HUGE INVESTMENTS

Most of the modern machines are very costly. Moreover, all machines have no enough
workload even in very big offices to make them a worthwhile investment. Some machines
require specially trained operators. All these factors make mechanisation a costly affair. Even
financially sound concerns are still hesitating to install sophisticated machines due to this
handicap.

2. LESSER FLEXIBILITY OF OFFICE SYSTEMS

Machines make it necessary to mechanise the office systems and thus the systems
shall become less flexible. Particularly when the office work requires a high degree of skill
and the making of many decisions out of the routine, then the human labour is generally
better than a machine

3. CHANCES FOR OBSOLESCENCE

The obsolescence factor of office machine is very high because of the rapid changes
that are constantly being made.

4. UNECONOMICAL

There should be enough workload to make optimum use of the machines. If the
machines are not used to their fullest capacity, they become uneconomical. Idle machines
mean idle capital.

5. SPECIALISED STAFF

Some machines require trained and experienced operators. But those people cannot
perform other works in the office. Moreover, they cannot perform the work which needs great
intelligence. For instance, even when an accounting machine is installed in an office an
accountant is still required.

Moreover, the absence of one operator causes accumulation of work so that two
operators are to be employed, even though one man is sufficient. This factor causes further
strain on the financial resources of the company.

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6. DOMINANCE OF MACHINE

Unless great care is taken, the machine will become more important than the work it
produces. The machine gives more information than actually needed by the office manager.
In fact, much of the information is never used by anybody.

7. BREAKDOWN OF MACHINE

Some machines may breakdown frequently due to faulty operations. Particularly

when specialized staff is not employed to operate machines, breakdown of machinery shall be
frequent causing undue hardship and accumulation of work.

8. PROBLEM OF TRAINING OFFICE WORKERS

Whenever mechanization programme is undertaken, the existing staff should be trained to

operate the machine. Otherwise, extra workers should be appointed. This will enhance the
office overheads. Moreover, when sophisticated machines are installed, the training may be
long and costly.

9. RECURRING EXPENSES

It is already stated that the company should incur heavy expenditure while installing
the machine. Besides, additional expenses have to be incurred on maintenance and operation.
Therefore, keeping a machine will certainly increase the office cost unless the business firm
is large enough to utilize the machine to its fullest capacity.

Taking into consideration the above points, the office manager has to decide carefully
about the installation of a machine and strictly adhere the criteria before taking any decision
in this connection.

Types of OfficeMachines

a) Dictation Machines

One piece of equipment that may not seem essential to many people is the dictation
machine. Although speech recognition software continues to evolve, it is not without pitfalls.
Executives who need to draft letters, memos, and reports are best off dictating the copy and
recording it, since speaking is much faster than writing and can be done while performing
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other tasks. The type of equipment chosen depends on the preferences of the dictators,
number of users, frequency of use, and budget. Some dictation equipment uses cassette tapes,
while more modern versions record digitally and even use a phone system for recording.
However the audio is recorded, this file is then processed by another employee, who
transcribes the audio into a written document and saves, emails, or prints it.

b) Printers

Any office that runs even one PC needs a printer to create hard copies of electronic
documents and files. Despite the promises of paperless offices in the future, that era has not
yet arrived. All sorts of business documentation needs to be printed, whether the business is a
product- or service-oriented industry. Examples of common office documents include
invoices, packing slips, flyers, and letters. Printers can be used not just to generate transfer
electronic files to paper but also to create composite documents containing digital
information and scanned images.

c) Paper Shredders

While you may not think it is necessary to have a paper shredder in your workplace,
because of the constant threat of identity fraud and its effect on businesses and individuals; it
is something you should think seriously about. Information has a high currency, so even if
you are not handling hard copies of customer financial information, you may still be throwing
away other pieces of information that clever criminals can use.

d) Label Makers

It may seem like a labelmaker is nothing more than an extra piece of office equipment
that you could do without. It may be that you think that though, only because you do not
understand the full range of uses this type of machine can provide your business with.

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 For instance, a label maker machine can be used to make labels for ring binders,
file folders; but can also help to organise mail pigeonholes, create ‘out of order’ signs for
toilets and lifts, create official and professional ‘please remove unused items every Friday’ on
fridges, affix important telephone numbers or extensions on a telephone unit, identify and
organise computer hardware and wiring and so much more.

e) Folding Machines

If your company sends out a lot of printed documentation, reports or even letters
and has been relying on specially assigned members of staff to the pieces of the paper folder,
insert it into envelopes and seal them ready for posting; it may be time to look for a more
automated solution. Particularly if you consider the likelihood of errors occurring when your
employees have to handle hundreds of mailing tasks at a time.

Fatigue and boredom can often affect the accuracy and consistency of the work when
it is carried out by humans. When you use a folding machine, however, you don’t have these
kinds of issues or concerns. Folding machines are designed to handle the folding, inserting
and sealing of multiple items in the space of an hour. Even the lower end price range
machines can fold a staggering amount of mailings compared to the one or two hundred
employees may be able to.

h) Laminating Machines

Laminating machines are generally underutilized in most offices. When someone

has gone to the trouble to print or copy a document, that document can be preserved by heat-
sealing two thin layers of clear plastic over each side. A piece of paper is inserted into a
laminating sheet, which is generally is twice the size of a standard document but then folded
in half. Enough of a margin remains on all sides of the document so that the plastic melts to
itself and creates a permanent seal. The document and plastic are inserted into a special

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laminating sleeve that enables the document to pass through the machine smoothly and keeps
the melted plastic from getting stuck between the hot rollers.

i) Shredders

In a world where identity theft runs rampant, one of the most important
pieces of equipment for any office to own is, ironically, the one that destroys all of the
documents that the employees work so hard to produce. Tearing papers into bits by hand is
not only time-consuming and tiring but is not always as effective as it needs to be. Paper
shredders cut a sheet of paper into so many pieces that it is extremely difficult or even
impossible to put them back together and recover the lost information. A shredder is a
necessity in any business where confidentiality is a legal requirement, such as law, medicine,
and education. Of course, any office that has employees keeps documentation on human
resources, and much of this information is confidential as well.

Shredders range from inexpensive units that fit over a wastebasket to large, heavy-
duty machines that can destroy several pages at once; every office supply buyer needs to
consider the needs of the office and take them into account when making a decision on which
type of shredder to buy. The more rugged shredders can handle stapled papers and can also
shred plastic credit cards and other such cards with identifying information on them.

j) Box Making Machines (also known as Corrugated Box Machines)

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Corrugated Box Machinesare usually associated with larger companies who deal with
hundreds and thousands of customer orders every working day because they need branded
cardboard produced to meet the demand. However, that does not necessarily mean that if you
have a smaller company with smaller volume orders, you won’t be able to make use of a box
making machine for your packaging needs.

This is definitely a machine you should give due consideration to if you deal with
packaging and posting out or delivering products to customers and/or clients.

k) Photocopier

A photocopier (also known as a copier or copy machine, and formerly a Xerox

Machine) is a machine that makes copies of documents and other visual images onto paper or
plastic film quickly and cheaply. Most modern photocopiers use a technology called
xerography, a dry process that uses electrostatic charges on a light-sensitive photoreceptor to
first attract and then transfer toner particles (a powder) onto paper in the form of an image.
The toner is then fused onto the paper using heat, pressure, or a combination of both. Copiers
can also use other technologies, such as ink jet, but xerography is standard for office copying.

Photocopying is widely used in the business, education, and government sectors. While
there have been predictions that photocopiers will eventually become obsolete as information
workers increase their use of digital document creation, storage and distribution, and rely less
on distributing actual pieces of paper, as of 2015, photocopiers continue to be widely used.
During the 1980s, a convergence began in some high-end machines towards what came to be
called a multi-function printer: a device that combined the roles of a photocopier, a fax
machine, a scanner, and a computer network-connected printer. Low-end machines that can
copy and print in color have increasingly dominated the home-office market as their prices
fell steadily during the 1990s. High-end color photocopiers capable of handling heavy duty
cycles and large-format printing remain a costly option found primarily in print and design
shops.

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l) STENCIL DUPLICATORA

Mimeograph machine (often abbreviated to mimeo, sometimes called a stencil

duplicator) is a low-cost duplicating machine that works by forcing ink through a stencil onto
paper.[1] The process is mimeography. A copy made by the process is a mimeograph.

Mimeographs, along with spirit duplicators and hectographs, were common

technologies for printing small quantities of a document, as in office work, classroom
materials, and church bulletins. Early fanzines were printed by mimeograph because the
machines and supplies were widely available and inexpensive. Beginning in the late 1960s
and continuing into the 1970s, photocopying gradually displaced mimeographs, spirit
duplicators, and hectographs.

m) WORD PROCESSOR

word processor (WP) is a device or computer program that provides for input, editing,
formatting and output of text, often with some additional features.

Early word processors were stand-alone devices dedicated to the function, but current
word processors are word processor programs running on general purpose computers

The functions of a word processor program fall somewhere between those of a simple text
editor and a fully functioned desktop publishing program. However the distinctions between
these three have changed over time, and were unclear after 2010.

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 The term word processing appeared in American offices in early 1970s centered on the idea
of streamlining the work to typists, but the meaning soon shifted toward the automation of the
whole editing cycle.

n) TYPE-WRITERS:

This is a small but a pretty machine, needs no introduction at all because it is the heart-
throb of any office mechanisation.

Invented in 1873 and being used since then, this has, like the game of cricket, seen a
seaway change over the century.

It has two commendable features of which the first is for the neatness and clarity that it
gives about the information, that it types and, secondly, the number of copies that it can type
says 6 or 7 including the original at a stretch.

o) TELEPHONE:

Telephone becomes an important instrument in modern business houses. With the help of
this facility, a firm can have quick and prompt communication with others. Now-a-days it is
impossible to imagine the office without a telephone. It is the most convenient means of oral
communication. It is widely used for internal as well as external communication. According
to distance and area, telephone calls are classified as local calls, trunk calls and overseas
calls.

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p) MOBILE PHONE:

A mobile phone is a wireless device which can be used to make calls and send text
messages. As the technology changes rapidly; nowadays mobile phones are bundled with
many additional features, such as web browsers, games, cameras, video players and even
navigational systems. A mobile phone may also be known as a cellular phone or simply cell
phone.

q) DICTATION MACHINES:

Dictation Machines are generally used by the executives who need to draft letters,
memos, and reports are best off dictating the copy and recording it, as speaking is much faster
than writing and can be done while performing other tasks. This type of equipment chosen
depends on the preference of the dictators, number of users, frequency of use, and budget.
Some dictation equipment use cassette tapes and most of the modern versions are digitally
recorded and also this phone system is used for recording. Once the audio is recorded, this
file is processed to another employee, who transcribes the audio into a written document,
saves and emails or prints it.

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r) ADDING MACHINE:

Adding machines may either be manually or electrically operated. Most adding

machines have a roll of paper on which the figures are typed and this is known as a “Tally
Roll”. It is used for addition and also for multiplication, subtraction and division.

s) CALCULATING MACHINES:

It calculates at a greater speed and runs without making any noise, but such machines are
usually expensive. The essence of a calculating machine is that it can perform addition,
subtraction, multiplication, and division operations.

t) BILLING MACHINE:

Billing machines are used to prepare invoices, bills of lading, cash memo, etc. The
machine makes all calculations of discounts, commission, addition, subtraction, total, etc.
Papers and carbons are fed into the machine and set automatically.

u) TABULATING MACHINES:

The tabulating machine is an electro mechanical machine designed to assist in summarizing

information stored on cards. It was invented by Herman Hollerith.

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v) ELECTRONIC COMPUTER:

It is an electronic device by which data is processed electronically at great speed. It is

a replica of human brain. It may be noted when the computers are used for data processing,
the processes is known as Electronic Data Processing (EDP). There are two kinds of
computers (a) Analog computer and (b) Digital computer. Analog computers are used for
scientific and research data processing. Digital computers are used for calculating the data in
one billionth of a second.

w) ELECTRONIC PAYMENT OR E-PAYMENT:

Electronic payment system is a system which helps the customer or user to make
online payment for their shopping to transfer money over the internet. Some examples of
EPS: a. Online reservation b. Online bill payment c. Online order placing d. Online ticket
booking (Movie)

x) FRANKING MACHINES:

Franking machine is used in large offices for affixing postage stamps on envelopes. The
outgoing mail is inserted in the machine and a handle is operated either manually or
electrically. It is automatically prints in a franking design comprising the postal charge and
the date of posting in bright red ink. It has a meter which records the amount and balance on
hand.

y) FAX MACHINES

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 The role of the fax machine has decreased in the office with the introduction of email and
scanners, but standard fax machines remain an office staple. Fax machines make it possible to
transmit documents, rather than waiting for mail. Standard functions of an office fax machine
can vary by company. Start up businesses and those sending over 15 faxes a day often need a
high capacity memory and sending speed.

DATA PROCESSING

Data processing occurs when data is collected and translated into usable information.
Usually performed by a data scientist or team of data scientists, it is important for data
processing to be done correctly as not to negatively affect the end product, or data output.

Data processing starts with data in its raw form and converts it into a more readable
format (graphs, documents, etc.), giving it the form and context necessary to be interpreted by
computers and utilized by employees throughout an organization.

Stages of data processing

1. Data collection

Collecting data is the first step in data processing. Data is pulled from available sources,
including data lakes and data warehouses. It is important that the data sources available are
trustworthy and well-built so the data collected (and later used as information) is of the
highest possible quality.

2. Data preparation

Once the data is collected, it then enters the data preparation stage. Data preparation,
often referred to as “pre-processing” is the stage at which raw data is cleaned up and
organized for the following stage of data processing. During preparation, raw data is
diligently checked for any errors. The purpose of this step is to eliminate bad data (redundant,

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incomplete, or incorrect data) and begin to create high-quality data for the best business
intelligence.

3. Data input

The clean data is then entered into its destination (perhaps a CRM like Salesforce or a data
warehouse like Redshift), and translated into a language that it can understand. Data input is
the first stage in which raw data begins to take the form of usable information.

4. Processing

During this stage, the data inputted to the computer in the previous stage is actually
processed for interpretation. Processing is done using machine learning algorithms, though
the process itself may vary slightly depending on the source of data being processed (data
lakes, social networks, connected devices etc.) and its intended use (examining advertising
patterns, medical diagnosis from connected devices, determining customer needs, etc.).

5. Data output/interpretation

The output/interpretation stage is the stage at which data is finally usable to non-
data scientists. It is translated, readable, and often in the form of graphs, videos, images, plain
text, etc.). Members of the company or institution can now begin to self-serve the data for
their own data analytics projects.

6. Data storage

The final stage of data processing is storage. After all of the data is processed, it
is then stored for future use. While some information may be put to use immediately, much of
it will serve a purpose later on. Plus, properly stored data is a necessity for compliance with
data protection legislation like GDPR. When data is properly stored, it can be quickly and
easily accessed by members of the Data Collection Definition

Data collection is defined as the procedure of collecting, measuring and

analyzing accurate insights for research using standard validated techniques. A researcher can
evaluate their hypothesis on the basis of collected data. In most cases, data collection is the
primary and most important step for research, irrespective of the field of research. The
approach of data collection is different for different fields of study, depending on the required
information.

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 The most critical objective of data collection is ensuring that information-rich and
reliable data is collected for statistical analysis so that data-driven decisions can be made for
research.

Data Collection Methods:

Essentially there are four choices for data collection – in-person interviews, mail,
phone and online. There are pros and cons to each of these modes.

In-Person Interviews

In-person interviews always are better, but the big drawback is the trap you might
fall into if you don’t do them regularly. It is expensive to regularly conduct interviews and
not conducting enough interviews might give you false positives. Validating your research is
almost as important as designing and conducting it. We’ve seen many instances where after
the research is conducted – if the results do not match up with the “gut-feel” of upper
management, it has been dismissed off as anecdotal and a “one-time” phenomenon. To avoid
such traps, we strongly recommend that data-collection be done on an “ongoing and regular”
basis. This will help you in comparing and analyzing the change in perceptions according to
marketing done for your products/services. The other issue here is sample size. To be
confident with your research you have to interview enough people to weed out the fringe
elements.

Multi-Mode Surveys

Surveys, where the data is collected via different modes (online, paper, phone etc.), is
also another way of going. It is fairly straightforward and easy to have an online survey and
have data-entry operators to enter in data (from the phone as well as paper surveys) into the
system. The same system can also be used to collect data directly from the respondents

WHAT IS ELECTRONIC DATA PROCESSING (EDP)?

Data is important for strategic decision making and in determining the way in which
a business did business. Today, most organizations prefer electronic data processing (EDP) to
gain advantages such as better control, better response, better customer service, and to save
time and money. Electronic data processing is a generic term that signifies the gathering,
intelligent analysis, and manipulation of data that is put to work.

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 Warehouse stock monitoring and logistics system is one of the most common examples
of EDP in the modern age. With incoming orders, bulk quantities of data are inputted into the
system. It is then processed to transform to a picking order and then transmitted into the
warehouse. The stock is then picked from the warehouse and the item is deducted from the
database.

As the world is getting increasingly digital, every business and organization is

developing endless streams of data about their customers, their competition, and their market.
When the volume of data is massive, an automated mechanism is needed to process it and
gain great insights out of the same. Irrespective of the scale of data processing requirements,
generally four elements are involved in EDP.

COMPONENTS OF ELECTRONIC DATA PROCESSING

Hardware

All the physical parts, including the devices or peripherals involved in data processing
constitute the hardware. Increased digitization of documents has made almost all electronic
data processing to be done on a variety of digital devices including:

Personal Computers – including laptops, desktops, smartphones, and tablets for

performing operations such as data capture and data entry.

Servers – To gather and process data, coming from connected devices.

Cash Registers – Point-of-sale registers are usually used in retail settings to collect data
about transactions.

Video and Audio Equipment – Allows data to be recorded in multimedia format.

Medical Devices – Medical devices collect data about patients, and their diagnosis in
hospitals and home care settings.

Scanners – Used for conversion of hard copy data into digital format.

Software

Software is something that makes the hardware work. It includes a set of instructions that
tells the computer what all actions to perform to achieve a specific output. EDP software is
highly customized and available in the following categories.
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Data Entry Software – Applications for data entry can range from usual spreadsheet
applications such as Excel to extremely customized point-of-sale programs.

Scheduling Software – Applications that track the activities, movements, and involvement
of employees/entities in projects.

Accounting Software – Software designed to track financial or numerical transactions. It

also helps to apply formulas to the tracked data and is used to link with other analytical
devices for predictive or historical modeling purposes.

Analytics Software – Designed specifically for the purpose of data analysis, this software
can accept large volumes of specific data and produce customizable, flexible reports.

Apart from this, ancillary software packages such as OCR (Optical Character Recognition)
are available to cull text and other data from the resulting image file.

DATA PROCESSING PROCEDURE

Certain basic steps are often followed in digital data processing, regardless of the industry or
the type of data being collected.

 Data Capture – Acquisition of data in some format

 Data Conversion – Transforming data into digital format

 Data Validation – Evaluation of data to ensure whether it is in the correct format

 Sorting – Grouping similar data streams

 Aggregation – Combining data streams
 Data Analysis – Processing of the data using formulas and other transformative
techniques
 Reporting – Creation of human-readable reports

PERSONNEL

People who create, administer, and feed the EDP system constitute the final element.
They include:

 Programmers – Creating EDP systems or individual components, such as

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 spreadsheet macros or formulas
 Technicians – Those involved in installing and maintaining hardware
 Data entry specialists – Those entering data into the system
 EDP solutions are necessary for the long term survival of any business. Apart
from the advantages of cost-effectiveness, efficiency and speed, the solution helps
to better understand their market, their business, their resources, and to gain
optimum productivity.
Methods of Electronic Data Processing

There are various methods and types of data processing but there are some very
popular methods when it comes to automated data processing. These methods are widely
adopted in almost every industry. EPD systems are widely used to meet various needs of
companies which are engaged in data analysis. Depending on the nature of requirement such
as data storage, processing methods, control principles, computer equipment, data analysis or
data processing, some of the most popular methods of electronic data processing are
explained below:

 Time-sharing
 Real-time processing
 Online processing
 Multiprocessing
 Multitasking
 Interactive processing
 Batch processing
 Distributed processing
Time- Sharing:In this processing method, many nodes connected to a CPU accessed central
computer. A multi-user processing system controls the time allocation to each user. Each user
can allocate the time slice in a sequence of the Central Processing Unit. The user should
complete the task during the assigned time slice. If the user cannot finish the task, then the
user can complete the task during another allocated time slice.

Real-Time Processing: Providing accurate and up-to-date information is the primary aim of
real-time processing. It is possible when the computer processes the incoming data. It will
give the immediate response to what may happen. It would affect the upcoming events.
Making a reservation for train and airline seats are the best example for real-time processing.

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Online Processing: In this processing method, the data is processed instantly. A
communication link helps to connect the computer to the data input unit directly. The data
input may include a network terminal or online input device. Online processing is mostly
used for information research and recording.

Multiprocessing: Multiprocessing is processing of more than one task that uses the different
processors at the same time of the same computer. It is possible in network servers and
mainframes. In this process, a computer may consist of more than one independent CPU.
This makes data processing much faster.

There is a possibility to make coordination in a multiprocessing system. In this process, the

different processors share the same memory. The processor gets the information from a
different part of one program or various programs.

Multitasking: It is an essential feature of data processing. Working with different processors

at the same time is called multitasking. In this process, the various tasks share the same
processing resource. The operating systems in the multitasking process are time-sharing
systems.

Interactive Processing: This method includes three types of functions. The following are the
types of function:

 Peak detection

 Integration

 Quantitation

It is a simple way to work with the computer. This method of the process can compete
for each other.

Batch Processing: Batch processing is a method of the process the organized data into
divided groups. In this method, the processing data can be divided as a group over a required
time period. The batch processing method allows the computer to perform different priorities
for an interaction. This method is very unique and useful to process.

Distributed Processing: This method is usually used for remote workstations, since the
remote workstations are connected to a big workstation. The customers get the better services
from this process. In this process, the firms can distribute the use of geographical computers.

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The best example for this distributed processing method is ATMs. ATMs are connected to
the banking system.

Elements of Electronic Data Processing

Electronic Data Processing (EDP) is the process of recording information and

processing it for financial, legal, or other business purposes. EDP statistics are used by
businesses to assess their performance and make decisions about growth.

There are many different methods of data processing. Data processing is the process of
doing something with data, and there are many different ways to do it. The benefits of
electronic data processing include the ability to: ensure reliable data; increase speed and
efficiency of the organization; and reduce costs. Electronic data processing can be used to
improve productivity, efficiency, and profitability by increasing the usefulness of
information.

Hardware, Software, procedure, personnel are the basic elements. In the hardware
section, scanners, data storage devices, barcode scanners, cash registers, personal computers,
medical devices, servers, video and audio equipment are the elements of electronic data
processing. In the software section, accounting software, data entry, scheduling software,
analytics, and software are the elements of electronic data processing. In the procedure
section, sorting, analysis, reporting, conversion, data collection, aggregation be the elements
of EDP.

In personnel, the programmer uses the electronic data processing to create the
components and spreadsheets. The data entry specialists use it to scan the barcodes. The
importance of data processing is now understood by all the fields. Each industry now focuses
on what works best for them and how to achieve greater profits. EDP systems are being used
widely just as Management Information System.

Stages of Electronic Data Processing

A collection is the first stage of electronic data processing. It is a very crucial part. In
an EDP system, this process ensures accurate data gathering. Census, sample survey, and
administrative by-product are some types of data collection. Preparation is the second stage
of electronic data processing. Preparation is used to analyse the data processing.

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 Input is the third stage. Data entry is done by the use of a scanner, keyboard, and
digitizer. The fourth stage is processing. It has various methods. The last stage is storage.
Every computer has the use to store the file.

What are the advantages of Electronic Data Processing?

 Cost of managing data is reduced. It aids decision making and data storage.
 Processing of data reduces paperwork and helps in reducing cost as the
management of documents is costly.
 Helps in document management, enables use of integrated process and
integrated system.
 Ability to search in a document saves time. In addition to this, it improves
the internal and external collaboration.
 The famous software product such as Ms. Office is using the electronic data
processing concept. The EDP has the facility to reduce the duplication of
effort, repeated entries and make decisions.
 Provides effective control, increases data security, manages information
assets and creates effective workflows.
Disadvantages of Electronic Data Processing

Electronic form of data is susceptible to hacking attempts. Increased cases of cyber

crimes makes it important and essential to think about data security and access control. If the
various devices of an information system are connected in a network, then any flaw or
loophole in single part of the system might affect the whole network.

You might be required to keep data in encrypted form. This is particularly important when
dealing with sensitive data and storing it in data centres since the data is transmitted over a
network.

Examples of EDP: It is used in a telecom company to format bills and to calculate the usage-
based charges. In schools, they use EDP to maintain student records. In supermarkets, used
for recording whereas hospitals use it to monitor the progress of patients.

Further, it is used for hotel reservations, learning institutions, in banks to monitor the
transactions. In the departments such as police, cybercrime, and chemical the electronic data
processing is used to note the entries. It enables larger organizations to collect the

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information and process the data. The electronic data processing can also be used as video
and audio equipment. It can be used as a barcode scanner.

Office furniture

Office furniture means any furnishing that is free standing and does not require
installation with component parts. Examples are desks, chairs, file cabinets, tables, lounge
seating, and computer desks.

Importance of office furniture

 It increases the efficiency of work

 It makes the office more attractive and pleasant.
 It helps to maintain the prestige of office
 It provides better working environment for the employees
 It helps in reducing the fatigue.
 It helps in protection of documents from fire, dust, insects etc.es to streamline
processes and improve productivity.
 It helps in proper storage of files

Types of Furniture

Every office requires different types of furniture. Furniture can be classified on the basis of
its physical appearance and the purpose for which it is used. E.g. Executive furniture, Special
purpose furniture,Built-in furniture and General clerical furniture.

Desk: The performance of an office employee is very much influenced by the type of desk he
uses. The primary function of any desk is to provide a suitable surface for writing, checking,
sorting and examining. There are different types of desks for different persons depending
upon the nature of work and status. (i). Executive desk (ii). General purpose desk and (iii)
Computer desk.

Executive Desk: These are designed to suit individual tastes and quite often they are
designed as a show piece of an organisation. Their purpose is also to impress visitors. Sharp
edges and corners are eliminated. Table top is covered with a sheet of glass.

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General Purpose Desk: It is a general purpose single pedestal desk with less elaborate
design.

Computer Desk: Computer desks are generally standard flat-topped, single or double
pedestal desk with provision for placing keyboard.

Tables: Tables are generally needed for sorting of mail despatch, for holding meeting of
committees, etc. However, in some office table fitted with drawers and other devices are still
used by clerks for writing purpose.

Chairs: There is a need for providing the right type of chairs to the office employees as they
spend most part of the day in the office. Chairs meant for computer operators should have
adjustable back rest to enable the user to perform their work efficiently.

Filing Cabinet: A filing cabinet is a piece of office furniture usually used to store paper
documents in file folders. The two most common forms of filing cabinets are vertical files
and lateral files. A vertical file cabinet has drawers that extend from the short side of the
cabinet. A lateral file cabinet has drawers that extend from the long side of the cabinet.

Modular Furniture: Modular furniture is pre-made or readymade furniture which can be

used according to the need and room spacing. It is easy to install and dismantle according to
need. It gives modern look to office. It is also available in various colours and designs. There
are various types of modular furniture

 Two in one furniture. This type of furniture has two purposes.

 Three in one furniture. This type of furniture has three purposes.

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Principles in Selecting the Office Furniture:

Suitability: The selected furniture must be suitable for the job. The working area of the table
should be sufficient. It must also have space to keep files (incoming and outgoing),
stationery, etc.

Comfort: The seat of the workers, shape of the chairs and tables must be so designed that the
workers would not feel any fatigue while doing their jobs. This will result in efficiency, in
turn, more output. The equipment, forms, stationery, etc., must be within easy reach. Those
items frequently used, should be placed at hand.

Design: Prior to purchase, one must have an idea of the size, height and design of the
furniture. For example, the size, height, design, number of drawers of the table should be
decided on the basis of work done on it.

There are many designs of tables available in the market. One must decide whether the
top of the table should be of polished wood or glass plate or laminate surface. The decision
regarding the choice of the furniture, say table, desk, chairs, etc. as to its size and design
depends on the officer who uses it.

Durability: Metal furniture is more costly than wooden furniture. But the maintenance
charges of wooden furniture are more than those of the metal furniture. Nowadays, metal i.e.,
steel furniture is more popular, because it is more durable than wooden furniture. Moreover,
steel furniture is safe against fire, burglary etc.

Weight: As the business expands, the size of the office also increases. The existing layout of
the furniture has to be rearranged according to the required comfort. It may become often
necessary to move the furniture from one place to another. Therefore, it is better to have light
weight furniture. If the furniture is light, there will be less breakage and wear and tear when
the furniture is shifted.

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Space saving: Furniture which would occupy minimum space should be selected. The
decision regarding the design of the furniture should depend upon the space available in the
office and the number of persons who work there.

Cost: The cost of the furniture should not be neglected when selecting it. It should be kept
within the financial limit.

Hygiene: The outlay of the furniture should be so made that it will be easy to clean the
furniture as well as the floor underneath it.

Usefulness: The furniture should be selected according to the nature of the particular job.
When it is not needed for the department, it can be easily transferred to another department,
where it may be useful.

Appearance: Furniture should have a good appearance and be pleasing to the eyes. This will
impress the workers and visitors. Wooden furniture looks attractive. Furniture of high quality
wood is durable. It has a warm look and gives comfort to the users. Many varieties and
designs of furniture can easily be made

Multi-Purpose Uses: Furniture should be adaptable to multi-purpose uses, wherever

possible. This permits standardization in the purchase of multi-purpose desks and enables
office workers to perform more than one type of work with the help of same kind of furniture.

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