Allocating Scarce Capital Or Channeling Saving Into Investment

The main general function of the market is allocation function. The financial market is related to money. It allocates the available supply of scarce resources to he prospective users. The financial market determines the rate of interest or the value of money that allocates scarce resources.

In general, investment means the purchase of building, machinery and equipments, stock and raw materials, semi-finished and finished goods. The different types of capital goods are produce goods and services. The fixed capital is required to invest in the fixed factors like building, machinery and equipments, where as working capital is required to invest in variable factors like wages, fuel, raw materials. Adequate finance is compulsory to make provision of such factors in appropriate quantity. The loans can be paid from the funds received by selling financial securities like share, debenture through the financial market.

In the financial market, the suppliers of money receive promissory note to be paid in future. The promissory notes are - stocks, bonds, cheque, insurance policy etc. The investors receive dividend, interest etc from financial promissory notes in future. In this way, financial market channelises saving into investment. This function is very essential for the sound economic system. Consequently, income declines and unemployment problem increases. The system of sound financial market makes the income of savers increase and the compulsion to take loan declines.

The main general functin of the market is allocation function. The financial market is related to money. It allocates the available supply of scarce resources to he prospective users. The financial market determines the rate of interest or the value of money that allocates scarce resources.

In general, investment means the purchase of building, machinery and equipmentsm, stock and raw materials, semi-finished and fineshed goods. The different types of capital goods are produce goods and services. The fixed capitalis required to invest in the fixed factors lide building, machinery and equipments, where as working capital is required to invest in vareable factors like wages, fuel, raw materials. Adequate finance is compulsory to make provision of such factors in appropriate quantity. The loans can be paid from the funds received by selling financial securities like share, debenture through the financial market.

In the financial market, the suppliers of money receive promissory note to be paid in future. The promissory notes are - stocks, bonds, cheque, insurance policy etc. The investors receive dividend, interest etc from financial promisory notes in future. In this way, financial market channelises saving into investment. This function is very essental for the sound economic system. Consequently, income declines and unemployment problem increases. The system of sound financial market makes the income of savers increase and the compulsion to take loan dclines.

Advantages And Weaknesses Of Joint Stock Company

Advantages:-

The corporation from of organisation has following advantages:-

1. The owners have limited liability. Hence, there is a guarantee that they need not lose more than their investment.
2. Since shares are marketable, the corporation can take large size.
3. The ownership can be easily transferred.
4. The firm has long, unlimited life. The firm is not dissolved in the event of death of any owner.
5. The service of professional managers can be taken.
6. Since, the firm has access to the capital market funds can be easily raised or the firm can expand easily.
7. The firm can take tax benefits.

Weaknesses:-

The corporation form of organisation has following weaknesses:-

1. Generally, taxes are higher. The tax is imposed on the income of the corporation as well as the dividend distributed to the owners.
2. It is expensive to establish in comparison to other forms of organisations.
3. There are more government regulations.
4. The employees have less interest in the activities of the firm.
5. There is no secrecy, since financial report should be submitted the shareholders.
   

Joint Stock Company Or Business

Joint stock company or business is regarded as the most important innovation in the development of business enterprises. In this form of organization a separate 'legal person' is created. Its legal rights and duties are different from its members. The corporation has a power of a person. It means that it can sue, can be sued, can be a party of litigation, can negotiate and can acquire property in its name.

The form of corporation can be found in all types of businesses. The main participants in a company are- shareholders, board of directors and chairman. The shareholders are its real owners. They vote from time to time to elect the board of directors and to amend the constitution of the corporation. The ultimate right of giving guidelines regarding the activities of the corporation and designing general policies. The board of directors may consist o0f the top employees of the company itself and also outsiders. The chairman or the chief executive officer (CEO) is responsible for implementing the policies fixed by the board of directors and arranging day to day operation of the business. He submits reports to the board of directors from time to time.

There are two types of company- Private Companies and Public Companies. The share are not distributed to the general public in private companies. In public companies, the shares and debentures may be distributed to the general public. The public companies should use 'Public Limited Company' at the end of their name.

The promoters should submit 'memorandum of association' and 'articles of association' for the formation of a company. The memorandum of association consists of the rules regarding external activities of the company. On the other hand, articles of association consist of the internal rules, regulations and nature of business etc. related to the management of the company.

The company raises funds in different ways such as by issuing preference share, ordinary share and debenture. The preference shareholders get first priority in the distribution of dividend. The rate of return is fixed in definite percentage. They do not get dividend in the absence of profit. Similarly, they do not get additional payment even if there is excess profit. In general, they do not have voting right.

Most of the risks of the company are bore by ordinary shareholders because they have rights only to claim on profit remained after payment to others. The dividend received by them depends on the profitability of the firm and the decision of board of directors. Most of the ordinary shares have voting rights. The ordinary share capital of the company is known as common stock.

The fund needed by the company is also raise by issuing debentures. The debenture holders are not the owners but creditors of the company. The rate of interest is fixed at definite percentage in debentures. The debenture holders get first priority over the shareholders on payment.

Weaknesses Or Drawbacks Of Partnership Business

Weaknesses Or Drawbacks:-

Here some weaknesses or drawbacks of partnership business are listed below:-

1. Since the partners have unlimited liability, some partners will have to bear the debt of even financially weak partners.
2. There is no continuity in business, since if a partner dies, the business is dissolved.
3. It is difficult to liquidate or transfer partnership.
4. It is difficult to run on large scale.
5. On the non-financial aspect, problem in partnership arises particularly in managerial area. The particular work of the partners is not clear. If a partner causes loss in the business, the result will have to be borned by all. consequently, antagonism and misunderstanding arises among the partners. However, this problem can be involved by specifying the function and duty of each partner.
6. The partnership business survives on the basis of mutual agreement among the partners. it is difficult to maintain such understanding in difficult or miserable market situations.
   

Advantages Or Strengths Of Partnership Business

Advantages Or Strengths:-

Every business has some advantages and disadvantages. Here some advantages of partnership business are presented below:-

1. Like sole proprietorship, it is easy and economical to establish.
2. It can raise more funds than sole proprietorship.
3. It has more power to take loan since it has many partners.
4. More talent and managerial skill is available.
5. The good employees can be retained.
6. It is free of special regulation of the government.
7. The tax is levied on the income as the personal income of the partners.
   
8. Each partner may be specialized in the particular work of the business, which increases efficiency.
9. If partners are few, the decision making is prompt and flexible.
   

Partnership Business

Two or more than two persons have ownership on the organization. As in sole proprietorship, the organization and the partners are not legally different. The partnership is found to be concentrated in the business, such as finance, insurance, sale and purchase of land, house. This business is somewhat wider than sole proprietorship. The capital needed by the business is made available by different persons. Similarly, decision making can be divided among them. All partners need not play active role. Some partners may remain as sleeping partners only by making capital available. Most of the partnerships are established by making a written contract called 'articles of partnership.'

There are two types of partners- general partner and limited partner. In general or regular partnership, all partners have unlimited liability. It implies that in such a business, the creditors can claim on the personal property of the general partner. Each partnership requires at least one general partner. On the hand, a limited partner has limited liability. In case of loss in the business, the limited partner needs not take the responsibility of more than his investment. In general, the limited partner is restricted from being active in the management of the firm.

Weaknesses Or Drawbacks Of Sole Proprietorship Business

Weaknesses Or Drawbacks:-

Sole proprietorship has following weaknesses or drawbacks:-

1. The owner has unlimited personal liability. The total wealth of the owner should be used to pay the debt or to borne the loss.
2. It has limited capacity to raise fund because the funds are available only from his own source and the loans taken from personal security. It obstructs the development of business.
3. The sole proprietor should be Jack-all-trades which is not possible.
4. It is difficult to provide long-term occupational opportunity to the employees.
5. There is no continuity in the business. If the entrepreneur dies, the business is dissolved
6. If the business increases, the proprietor will have to employ trained person as financial and accounting staff or other staffs. They may desire to have partial ownership. It is called non-financial weakness.
   

Advantages Or Strengths Of Sole Proprietorship Business

Advantages:-

Sole proprietorship has following advantages:-

1. It is easy and simple to establish. A single person establishes and also runs the business.
2. The owner receives all the profit (also losses) of the business.
3. Less organizational cost is required to initiate the business.
4. The tax is imposed on the income of the business as the individual income. It needs not pay corporate income tax, since an individual and business are not legally different in it.
5. There is secrecy in it.
6. The dissolution is easier in it.
7. The government makes less regulation.
8. It receives the advantages of small business.
9. The decisions can be made promptly.
10. It has flexibility to change according to the market environment since the owner himself manages the business.

Sole Proprietorship Business

The sole proprietor runs the business with the help of his employees. He raises capital for the business by borrowing from his personal resource and personal security. He is responsible for all the decisions of business. The sole proprietor has unlimited liability. It means that he should use not only the amount invested in the business to pay the creditors, but also his total wealth.

Sole proprietorship is the simplest form of business organisation. In it, a single person supplies capital and makes decisions. He has sole right over profit and bears all risks and losses of the business. The ownership and control of the business lies with a single person. Particularly in developing countries, sole proprietorship is more prevalent than others. Such businesses are found to be concentrated in the areas such as farming, retail trade, building construction, financial service, sale and purchase of land, houses etc.

Forms of Business Organisation

The legal structure of the operation of the firm differ from country to country. But there are some such characteristics which apply to all the economies. Here attention has been focused on such characteristics.

The legal form of a business organisation is basically of three types-sole or single proprietorship, partnership and corporation. The choice of the from of organisation for a business depends on both the financial and non-financial factors. The main non-financial factors are the capacity of the management to run the organisation efficiently and the relation of the organisation with the various agencies of the government. The main factors determining the form of an organisation are the financial factors. The form of organisation is selected taking these factors into account.