Business enterprises

1
Sole Proprietorships

• A sole proprietorship business is a business
  entity that is owned and controlled by a single
  owner who doesnt have partners.This is the
  typical example for a SME.

2
Registration of a sole proprietorship business

• The respective legal source is Businessnames
  registration ordinance of number of 6 of 1918.
• According to that,s when the name of the business
  doesnt include the full name of the
  owner(withrespect to a sole proprietorship) or
  full names of the owners(with respect to
  parnership),then the name of the business must be
  registered in the respective regional
  office(Provincial council/Urban council/Municipal
  council/Regional office).

3

• ?The term Limited cant be used as a part of
  the name of a sole propretorship business.
• ?However,if the sole proprietorship business has
  the full name of the proprietor,then according to
  the legal source,registration is not compulsory.
• However,practically sole proprietors are willing
  their businesses to be registeredas they get the
  following benefits by doing it.
• To obtain bank loan
• To build customer confidence
• To receive benefits from the government
• To get various standard certificates

4
1.Past savings 2.Using the proceeds by selling
the assets 3.Support provided by family
members,relations friends 4.Borrowing from an
external parties
5
The Legal sources pertinent to a Sole
proprietorship business

• Laws related to consumers
• ?Consumers Affairs Authority act
• ?Consumer credit act
• ?SLSI act
• ?Measurement standards
• Laws related to employees
• ?EPF act
• ?ETF act
• ?Office and Shop act
• Laws related to competition
• ?Central environmental act
• ?Intellectual property act

6
Meaning of Unlimited Liability of Sole proprietor

• Here the sole proprietor of the business is
  liable for the borrowings of the business from
  external parties not only to the amount of
  capital that he invested in the business but also
  to the entire amount that the business has
  borrowed from external parties.
• This is a risky feature of a sole proprietor may
  have to sacrifice his personal properties in
  settling the external debts of the business.

7
This says that the sole proprietorship business
doesnt have continuous existence as the business
may have to shut down if something happen to the
owner and if there is no one to take the
responsibilities of the business.
Sole proprietorship business doesnt have
perpectual succession
8

• Advantages of sole Proprietorship

• Disadvantages of Sole Proprietorship

• Relatively east to commence
• Profits are required not to be shared as the
  proprietor doesnt have partners
• Administration is relatively easy
• Relatively lower degree of legal influence
• Can make independence and implement them quickly
• Confidencial business information can be secured
• Can maintain close direct contacts with
  customers
• Can use personal talents of the proprietor for
  the success of the business
• Maximum personal controbution of the proprietor
  is provided

• Unlimited liability to the proprietor
• Not a separate legal existence
• Losses can not be shared, it has to be tolarated
  individually
• Difficult to expand
• No prepectual succession for the business
• Difficult to make correct decesions

9

• A sole Proprietorship business doesnt have a
  legal personality and hence the name of the
  proprietor must be used for the following
  requirements.
• To sue against another party
• To be used by another party
• To acquire assets
• To pay taxes
• To enter into contracts
• To recruit employees,appoint agents etc.

10
Disadvantages of Sole Proprietorship
Advantages of Sole Proprietorship
?Profits are required not to be shared as the proprietor doesnt have partners. ?Unlimited liability to the proprietor.
?Administration is relatively easy. ?Not a separate legal existence
?Can make independenceimplement them quickly. ?Losses can not be shared,it has to be tolarated individually
?Confidencial business information can be secured. ?Difficult to expand.
?Can maintain close and direct contacts with customers. ?No prepectual succession for the business.
?Can use personal talents of the proprietor for the success of the business. ?Difficult to make correct decesion.
?Maximum personal contribution of the proprietor is provided.

11
Ownership There is only one owner There are no partners
Capital Equity capital is completely provided by the owner The owner borrows from external parties for various purpose of the business
Decision making All the decisions are independently made and implement by the proprietor himself
Legal Personality Doesnt have a legal personality
Liability Unlimited liability to the proprietor
Risk Higher risk involved due to the absence of legal personality,the existence unlimited
12
Perpectual succession Doesnt have a perpectual succession
Profit The proprietor individually enjoy the profit and bare losses without sharing
Registration Its not compulsory when the name of the business different from the owner of the business should be registered under the respectly under prvincial council with accordance
Accounting Accounting is not compulsory Incomplete informal recors are maintain
Taxes When the profit exceeds the tax free income,taxes must be paid in the name of the proprietor

13
PARTNERSHIP
14
Partnership

• A Partnership is an association of persons who
  agree to operate a business together to earn a
  profit.
• Partnership is a relation between persons who
  have agreed to share the profits of a business
  carried on by all or any of them acting for all.
• A partnership is the relation which subsists
  between persons carrying on a business in common
  with a view of profit.

15

• Conditions must be satisfied in order to prove
  the existence of partnership business-
• ?There must be persons(more than one)
  (2-20 partners)
• ?There must be an agreement
• (an implied/an oral/a written)
• ?There should be a business (manufacturing,co
  nstruction,buying and selling,service)
• ?There must be view of profit.
• ?Mutual agency among partners(Every partner
  is both an agent and a principle for himself
  and other partners)

16
Types of Partnership

• General partnership businesses

• Limited partnership businesses

• In this type of partnerships,the liability of all
  partners is unlimited and hence known as
  Unlimited partnerships
• Partnerships of this type are controlled by the
  Partnership ordinance of 1980.
• This is the type of partnerships that is popular
  in modern global and sri Lankan business context.

• This is a partnership business where there are
  partners with limited liability but there should
  be at least one partner whose liability is
  unlimited.
• Partnerships of this type are controlled by the
  Limited partnership ordinance of 1907.
• This type of partnerships doesnt exist in modern
  global and Sri Lankan business context.

17
Partnership Agreement
Partnership By Written agreement
Partnership By Oral agreement
Partnership agreement by Implication
18
Partners imply to an external party,that there is
a partnership among partners,but they dont have
any formal agreement.
Partners only have a verbal/oral agreement among
each other.
We can use Implied verbal agreements when
the capital is less than Rs.1000 ,If the
capital equal or exceed Rs.1000 we should use
written agreement.
In this method of agreement,partners generate a
written agreement to which all have agreed and
signed.
19

• Content of a typical partnership agreement
• ?The name of the partnership business
• ?The names addresses of partnership business
• ?The objectives of the partnership business
• ?The main business activity of partnership
• ?The nature of the business
• ?The principal location of the partnership
  business
• ?The term of the business
• ?Capital contribution by partners
• ?Sharing profits and losses among partners
• ?Other important specification
• ?Settlement of disputes
• ?Method of dissolution of the business

20
1890 Partnership Ordinance
This is the main legal source that is applicable
for general/unlimited partnerships of Sri Lanka
Sentences Relevance
1-4 The nature of a partnership business
5-18 Nature of the relationships between external parties and partners
19-31 Inter-relationships among partners
32-44 Dissolution of partnership business
45-50 Additional sentences
21
Content of the section 24

• The profit loss of the partnership must be
  equally distributed/shared among partners.
• All the partners have the right to participate in
  the activities of the partnership and they should
  not draw a salary for what they do.
• Partners are not entiled to receive an interest
  on the capital that they have invested in the
  business.
• If a partner besides his cap
• ital contribution has given a loan to the
  partnership, he has the right to get interest of
  5 per annum.
• If a partner were to incur privately an
  expenditure on the partnership, it could be
  reimbursed from the partnership.

22

• The accounting books of the business could be
  checked by all partners all time.
• The accounting books of the partnership business
  must be maintained and kept at the head office of
  the business.
• The admission of a new partner must be approved
  by all existing partners.
• Although the ordinary decisions could be made
  with the consent of the majority but when more
  important decisions are made that should be
  approved by all partners.

23
Main legal sources that effect partnership
business
Basic Dimension Interpretation
1890 Partnership Ordinance This is the main legal source that affets general partnership in which the liability of all partners is unlimited.
1907 Limited Partnership Ordinance This is the regulatory source that affets limited partnerships in which there is at least one partner whose liability is unlimited where as the liability of all other partners is limited
1918 Business Names Registration Ordinance This legal source says that when the business has been given a name which is different from the full name of the owners then the name of the business must be registered with the respective provincial council.
24
2007 no 07 companies act Seletion 519 specified that the maximum number of a partners of a partnership business has to be 20(not more than 20)
1840 Prevention of Frauds Ordinance This regulatory source says that when ever the initial capital exceeds Rs.1000 there has to be a written agreement for the partnership business
Garner vs. Murray Judgement This judgement mentions that the liability of a bankrupted partner must be shared by other partners according to their latest capital balance ratios.
Pate Vs Pate Judgment This judgement has specified that when there is no written agreement partners can not sue against each other.
25
Basics of a Partnership business
Ownership The partnership business is owned by all the partners who invested capital in the business
Capital Capital is introduced by the partners both at the inception of business and when the business requires additional funds to operate
Management The activities of partnership business are managed by the partners
Legal personality Partnership business doesnt have a legal personality and as a result the name of the partnership business cant be used in legal matters instead the names of the partners must be used.
Liability Usually the liability of all partners of on general partnership business is unlimited .However there can be limited partnership businesses with the partners of limited liability a long withat least one partners whose liability is unlimited.
26
PerPectual succession Partnership businesses dont have a continuous existence
Risk Partners in a partnership business acknowledge higher risk as the profit is not quranteed and experiencing unlimited liability position.
Profit sharing When there is an agreement usually there is aprofit sharing ratio.However when there is not any agreed ratio profits must be equally shared among the part ners.
Registration According to name registration ordinance a partnership business has to be registered in the respective regional/provincial council,When it has been giving a name that differs from full name of the partners
Accounting Accounting is not copulsory,however accounting information is maintained to enumerate the profit and to share it.
Taxes Partnership businesses pay taxes to the government based upon the profits shared to the partners and payment is made as personal income taxes
27
Types of Partners
Partner Type Capital Investment Contributing to Management Earnings Liability Known by the General public or not
General partner Capital Yes Profits Unlimited Yes
Sleeping/Dormat partner Capital No Profits Unlimited No
Silent partner Capital No Profits Unlimited Yes
Secret partner Capital Yes Profits Unlimited No
Nominal partner Goodwill No Profits Unlimited Yes
Limited partner Capital No Profits Limited Yes
Quasi partner Lending/loans No Interest Unlimited Yes
28
Partners Matrix
Is the partner known by general public as a partner?

Yes No
Yes Ordinary/active/General partner Secret partner
No Silent partner Sleeping partner/Dormat partner
Does he actively partcipate in managerial activity?
29
Applicability of the partnership form of business

• Its the companies act of number 07 of 2007 that
  determines the maximum number of partners to a
  partnership business.Section number 519 of the
  companies act of number 07 of 2007 has specified
  that the maximum number of partners in a
  partnership business should not exceed 20.
• However this section has not specified maximum
  number of partners for the following types of
  businesses
• Partnership business of lawyers
• Partnership businesses of accountants
• Partnerships of professional services
• Further partnership businesses cant be
  commended for business like the following.
• Commercial banks
• Finance companies
• Stock brokerage copanies
• Insurance companies
• It has been recommended that partnership
  businesses are suitable for businesses for which
  the professional services are provided to the
  customers.

30
Rights Responsibilities of a partner

• Responsibilities of a partner

• Rights of a partner

• To claim for the profit share
• To check accounting books of the partnership
• To participate in business management
• To present ideas resolution
• To represent to another partner
• To be paid the value of any expenditure incurred
  by the partner on behalf of the partnership
• To resign
• To use properties of the business for the
  betterment of the business

• To tolerate business losses
• To acknowledge unlimited liability position
• To be concern with business affairs
• To act in good faith
• To prevent from hidden profit
• To represent other partners the business with
  external parties
• Not to be angaged with competitive business
• Not to exceed ones powers

31
Similarities between Sole proprietorships partnerships
Registration is not compulsory
Unlimited liability
Absence of legal personality
Both are privately owned business
Absence of perpectual succession
Accounting auditing are not compulsoy
No 06 of 1918 business names registration ordinance is applicable
Limits of expanding the business
32
Differences between sole proprietorships
partnerships

• Sole proprietorships

• Partnerships

• Only one person
• Capital is raised by one person
• Profits losses
• Management by one person
• Decision making easy faster
• Less problems disputes
• Decision making will not always be accurate
  successful
• Risk is individually tolerated
• No profit sharing ratio
• No special act
• Dissolved by the proprietor

• 2-20 partners
• Capital is raised by many partner/partners
• Profits losses is shared many persons
• Managed by many partners
• Decision making will be accurate successful
  most of the time
• Risk shared
• There is a profit sharing ratio
• Partnership ordinance of 1890
• Dissolved voluntarily or by court

33
Advantages Disadvantages of partnership
businesses

• advantages

• disadvantages

• Relatively easy to commence
• Losses can be shared
• Unlimited liability can be shared among partners
• Can make accurate decisions
• Can use different talents of different partners
  to promote the business
• Business activity can be shared among partners
• Partnerships have higher prospects than
  soleproprietorship to expand business activity

• Profits have to be shared among partners
• Unlimited liability
• Partnerships dont have perpectual succession
• Delays in making decisions
• More exposed to have disputes
• Partnership business dont have legal personality
• Though the business is expanded it has some
  limits
• No proper control over resources as accounting
  auditing are compulsory
• Disputes can be adversely affect businesses

34
Dissolution of Partnership

• There are two aspects that are identifiable
  pertinent to the dissolution of partnership
  businesses
• Dissolution of partnership
• Dissolution of the firm
• Dissolution of partnership
• This doesnt say that the partnership firm is
  dissolvedinstead this says that there is an
  amendent of the partnership agreement that
  prevail among partners.
• As the partners make changes to the
  partnership agreement,it caused the previously
  existed agreement to abolish and it will be
  replaced with a new agreement.
• As the existing partnership agreement is
  dissolved,its known as dissolution of the
  partnership
• Suppose that Ajantha,Asanka and Akalanka had a
  partnership agreement which had before,was
  dicarded(partnership was dissolved) and the new
  agreement was founded.

35
Dissolution of the partnership firm This
refers to the complete termination of business
activities of the partnership firm and after this
the partnership business doesnt exist.
This can be cause due to two reasons. Voluntarily
dissolution Dissolution by court order
Situation of dissolving a partnership firm



Voluntarily dissolution Dissolution by court order
By the expairy of the partnership agreement When a partner becomes lunatic/insance
On the death or bankrupt of a partner A total disability of a partner
Achieving the desired goals of the parnership Making continuous losses by the business
By the consent of all partners Voilating the duties of the agreement by a partner
By completion purpose When a partner is imprisoned
Misbehaviour of partners
When its illegal for the businesses further operate

36
Companies
37
Definition

• A company is a ollection of people who has been
  given special charter by the government and hence
  authorized to act as an individual entity with a
  life separated from its owner.
• In other word A company(corporation) can be
  identified as a business entity empowered with
  legal rights which are usuall only reserved for
  individuals.

38
Characteristics of companies

• A separate legal enitity
• Limited liability of shareholders
• Having a perpectual succession
• Having the rights to own and use properties in
  its own name
• Separation of ownership and control
• Established under a special charter which has
  been approved by the parliament
• Diverse and complicated capital structure
• Can exit in many ways
• Suitable for both medium and large scale business
• Transferability of owbership

39
Advantages of Companies

• Having a separate legal entity from its owner
• Limited liability of shareholders ncourage
  entrepreneurs
• Having a perpectual succession ensures the
  existence of the company over a long period of
  time
• Ability to transfer the ownership encourages
  shareholders to invest in companies
• A large number of shareholders can invest which
  causes that capital base of the company to expand
• Higher prospects for the survival and growth of
  the company
• Flexible borrowing capacities
• Can increase the worth of the business
• Etc

40
Disadvantages of companies

• Higher cost on company incorporation
• Dual taxation effect
• Higher degree of control by rules and
  regulations
• Higher degree of public attention
• Separation of ownership and control
• Cost and time for paperwork and to fulfill legal
  obligaions
• Information must be disclosed to the general
  public periodically
• Voting privilege depends on invetments
• Unethical competition and control
• Relatively complicated management and
  administrative techniques

41
Steps of forming a company
Step Description
1 Selecting a name which is not similar to any other existing company
2 Preparing aproving the Articles of Association
3 Appointing directors to board secretary
4 Submitting the required document to company registrar general of department of company registration
5 Paying incorporation fees along with taxes
6 Obtaining a certificate of incorporation from the company registrar general
7 Making a public notice to inform the commencement of new company to the general public
42
Documents required incorparating a company

• The application form which is properly completed
  .
• The name declaration with which initial
  shareholder certify that the name of the company
  is not similar to the name of anyother existing
  company
• Properly completed articles of association which
  has been signed by each of initial shareholder.
• The letter of consent by each of the initial
  director stating that theyre willing to
  acknowledge the resposibility of director.
• The letter of consent by the initial secretary
  stating that he/she is willing to act as the
  secretary of the company

43
The name of the company

• A company is a legal business entity which has
  the legal personality that is a life separated
  from its owners and due to this fact,the name of
  the company significant,
• The company must present a declaration stating
  that the name of the company is not identical or
  similar to that of an existing company.
• The name of every-
• Limited company other than listed-Limited/
  Ltd
• Private company- (Private) Limited/ (Pvt)
  Ltd
• Limited company which is listed- Public
  Limited Company / PLC
• A company shall within thirty working days of
  its incorporation under the companies act give a
  public notice of its incorporation,specifying
• a)The name of the company,number of the company
  and
• b)The address of the companys registered office

44

• A company cannot be registered with the following
  names-
• President
• Chambers of commerce
• Municipal
• Incorporated
• Corporate
• Society
• National
• State
• Srilanka
• A company shall ensure that its name and its
  company number are clearly stated in-
• All business letter
• All business contractual document
• All forms of advertisement on the company seal

45
Articles of Association

• This can be considered as rule book of the
  company which contains all important fundamental
  information their important in the affairs of the
  country.
• In the companies act no 07 of 2007,A model
  articles of association which comprises three
  important components-
• The objective of the company
• The rights responsibilities of shareholders
• The management administration of the company
• The article of association must explain two forms
  of relationship
• a)The relaionship between shareholders the
  company(this includes the relationship among
  shareholders)
• b)The relationship between the company external
  party
• AOA before submitting to the company registrar
  general,must be signed approved by each of the
  initial shareholder therefore their shares known
  as Initial shares.

46
Certificate of Incorporation

• Obtaining the certificate of incorporation is the
  main purpose of the submission of the above
  mentioned five document . This document which
  place the role of the birth certificate issued by
  company registrar general to the company.
• Therefore when company has obtained the
  certificate of incorporation .It indicates that
  the company is a business entity with legal
  identity which confirms the necessary legal
  requirement have been fulfilled by company as a
  result the company has been successfully
  incorporate.
• The certificate of incorporation consist of the
  following information -
• The name of the company
• Tbe number of the company
• The date of incorporation
• The type of the company(limited/unlimited/private/
  public/offshore)

47
Classification of companies
Un Limited liability companies
Companies limited by gurantee
Listed/Quoted public limited companies
48
Private limited company
Shareholders Minimum-1 Maxium-50
Capital Provided by purchasing share Share debenture cannot be issued to general public
Name (Private) Limited or (Pvt)Ltd
Directors At least one
Control Companies act of Srilanka Controlling power is with the shareholders depending upon the number of shares they hold
Liability Limited
Legal personality Has a legal personality
Existence Has a perpectual existence
49
Public limited company
Shareholders Minimum-1 Maxium-Unlimited
Capital Provided by purchasing share Share debenture can be issued to general public
Name Limited or Ltd
Directors At least two
Control Companies act of Srilanka Controlling power is with the shareholders depending upon the number of shares they hold
Liability Limited
Legal personality Has a legal personality
Existence Has a perpectual existence
Incorporation Its compulsory At the department of company registrar
Accounting Auditing Compulsory
50
Criteria Private Limited companies Public limited companies
No of shareholder Minimum-01 Maximum-50 Minimum-1 Maximum-02
Share/ depenture issuance Cant be issued to the general public(only private placement) Can be issued to the general public(going public)
The name Must end with (Private)Limited/ (Pvt)Ltd Listed-Must end with Limited/ Ltd Unlisted-Must end with Public limited company/ PLC
The directors Minimum-1 Minimum-2
The ability to become a listed Cannot become listed company Can become a listed company
51
Private limited company

• Advantages

• disadvantages

• Appropriate for small/medium scal businesses with
  legal personality and limited liability
• The ownership of company can be kept among few
• Relatively covineant to be incoporated
• Relative flexible legal influence
• Appropriate for a modernized business owned and
  controlled by family relative

• Cant raise a huge capital base
• Limited opportunity to expand the business
• Cant become a listed/quoted public limited
  company
• Cant experience economies of large scale
• Its difficult to international market

52
Public limited company

• advantages

• disadvantages

• A huge capital based can be raised as there is
  not an upper limit to the maximum number of
  shareholder
• More opportunities to expand the business because
  shares can be issued to the general public
• Can become a listed company in the CSE
• Can experience economize of large scale
• Can reach international market

• Not suitable for small scale business
• Ownership can not be restricted so that paries
  can not be prevented from investing in the
  company.
• Relative complicated to be incorporated
• Relatively regibt legal influence
• Not appropriate for a business owned by members
  of the family because the ownership open to other
  parties

53
Other types of companies
Company Description
Company limited by gurantee Here the liability of the shareholders has been extended by an additional amount specified in the articles of associaion. A company of this type cant be a single shareholder company because there shouldbe at least two shareholders. This companies dont issue shares and hence though they have a capital its not a share capital. A company of this doesnt payout dividends instead the profit reinvested in the business because the business has been formed to attain broad community oriented interest. Practically in Srilanka the name of the company of this type is written with the abbreviation of (GTE) Eg- Colombo stock exchange(This has been organized as a company limited by gurantee)
54
Company Description
Offshore company An offshore company has been characterized by three interelated feature -Its incorporated in Sri Lanka under the Sri Lankan company act -Its not permitted to conduct its business activity in sri Lanka -It carriesout business activity in Srilanka
Overseas Company An overseas company is characterized by four features -Its a incorporated in other country under foreign company act -It wants to be registered under the Srilankan company act so it receives a business registeration -It carriesout business activity outside Sri lanka -The purpose of being registered in the Srilkankan company act is to carrirsout business activity in Srilanka
55
Company Description
Quoted/Listed Company Its a public limited company which has been registered/listed with the CSE so that it can issue shares to the general public through the organized share market. In order to become a quoted/listed company it has to satisfy some listing requirement . The name of every listed/quoted company must end in the word public limited company the abbreviation of Plc.
Charitable company Its a company which has been established with the intention of promoting commerce,art,science,religion community services. Limited liability but not require to mention that limited liability status in the name of the company. The main motive of the company this type is maximization of social welfare. A charitable company doesnt payout dividend instead they invest the profit in the business activity.
56
Share issuance procedure

• Obtaining the Certificate of incorporation
• Publishing the Prospectus
• Determing the Minimum Subscription
• Entering in to an underwriting Agreement
• Conducting an IPO or SPO
• Collecting the Consideration
• Establishing the Stated Capital
• Having an Annual General Meeting

57
Prospectus

• This is the document prepared and issued by a
  public limited company to invite the general
  public in order to subscribe/invest in the shares
  or debentures of the company

58
PUBLICLY OWNED BUSINESS ORGANIZATION
59
PUBLICLY OWNED BUSINESS ORGANIZATION

• Basically government/publicly/state owned
  businesses can be generally defined as business
  entities that are owned ,maintained and
  controlled either by the central
  government,provincial council and local
  authorities with the basic intention of public
  welfare.(sometimes profit motive also can be
  observed)

60
Classification of Publicly owned Businesses
61
The following are the reasons for maintaining
businesses under public sector ownership

• There are some essential services that the
  general public expects,but are not successfully
  provided by profit seeking private sectors
• ?Eg-crude oil,electricity,water,national
  defense,Law and order
• There are types of business activities for which
  the domestic private sector doesnt present
  itself forward to supply and as a result the
  government must supply them under public
  enterprise
• ?Eg-Street lightning,protecting
  environment,road construction,other economic
  social infrastructure development
• The government deliberately intervenes to
  provide services under its entrpreneurship to
  restrict and control private sector monopoly and
  its adverse impacts on the general public
• ?Eg-Communication,telecommunication,transpor
  t

62

• Government must implement public sector
  businesses in order to ensure national defense
  and it undertakes businesses that are highly
  influencial on national defense
• ?Eg-Criminal investigation
  department,Ministry of National defense,Military
  services,Police services
• The government carefully allocate its budgetary
  reservations to various state enterprises to
  minimize wastage of resources so that the
  government hopes to play an exemplary role to
  guide domestic private sector to use limited
  economic resources effectively and efficienly.
• Some government sector businesses have been
  introduced to make policies to guide the private
  sector and to limit the unethical practices of
  the private sector.
• ?Eg-Central Bank of Sri Lanka,Consumer
  affairs authority,Central environmental
  authority.
• Continue to tutorial

63
Disadvantages of Public Sector Business

• Undesirable political interferance
• Rigid rules regulation
• Delays in making decision delays in
  implementing
• Inefficiency and higher wastage
• Problems created by trade unions
• Consistent losses
• Most of public sector enterprises in srilanka
  have become a burden to the government budget
• Too much employees have been employed than the
  required level
• Lower quality in the services
• Poor customer relationship management
• Most of the public sector enterprises dont use
  the modern technology

64
Differences between Privately Owned Business
Publicly Owned Business

• Privately owned business

• Publicly owned business

• Theyre owned by a group of people who usually
  has private desires
• Usually theyre profit oriented
• Theyre owned by a private party
• Funds are introduced to the businesses by people
  as they invest in their businesses

• Theyre owned either by the cental
  government,provincial council or local
  authorities
• Usually theyre welfare oriented
• Theyre owned by the general public
• Usually funds are provided by using tax income
  with borrowings grands

65
Government Departments
Ownership Completely owned by the government
Commencement/establishment Established under a respective ministry
Capital Fully supplied by the government/government makes annual budgetary allocations
Legal personality Departments dont have a legal personality.The head of the department must represent the department by his/her official designation
Liability Government has unlimited liability
Administration Departmnts are administered by the head of the department under the directions of Establishment code,Financial Regulation and periodic circulars published
Control A department of government is subject to the direct control of the government and its basically controlled by the followings forms ?Parliamentary control ?Ministerial control ?Auditor general control
66
Accounting Auditing This is compulsory andaccounts are subject to the direct control of the department of auditor general.
Incomes profits or losses There is no motive of profit maximization,but any generated profit is creditedto the consolidated fund of the government.In contrast any loss that is resulted is tolerated by the government
Taxes Government deparments dont pay taxes
Existence Long term existence is there as far as budgetary allocations are made by the government
Dissolution A government department is dissolved by the approval of the resolution by the parliament
Eg- Attorney Generals Department Department of
Agriculture department ofAnimal production
and Health Department of Labour Department
Lotteries Board
67
Disadvantages of Government departments
1.Undesirable political interferance 2.Poor
management administrative decisions 3.Lower
quality in the service 4.Poor customer
relationship management 5.Consistent of
losses 6.Inefficiency higher wastage 7.Rigid
rules regulation
68
Public/State corporations
Ownership The full or majority ownership is at the hands of government sector.There can be private sector ownership with minority ownership control
Establishment A state corporation is established either under a general or special act
Capital A larger proportion of capital is provided either by the government or state affilated institutions where as the private sector too may supply a smaller proportion of capital
Legal personality State corporations have legal personality
Taxes State corporations must pay tax in the name of the corporation
Existence State corporations have a perpectual succession
69
General act Special act
Here the act is set to be a general act as different state corporation are established under this act General act One act Many corporation Here the act is set to be a special act as one state corporation has been established under this act Special act One act One state corporation
70
Liability The liability of the government is limited whereas the liability of the private sector is limited
Administration Administration is done by a board of directors appointed either by the president,prime minister or ministers
Control A state corporation is controlled by a variety of sources -Statutory control, Ministerial control,Parliamentary control,Auditor general control
Accounting Auditing This is compulsory and accounts are subject to the direct control of the department of auditor general
Incomes profits or losses The profit of a state corporation is used for the following purposes - For reinvestment within the business,For paying dividends,For giving benefits to the employees,Remainder is credited to the consolidated funnd of the government
Dissolution A government department is dissolved by notice made by the respective minister to the parliament
71
Alternative Names 1.Corporation-Srilanka
broadcasting corporation 2.Authority-Atomic
Energy Authority 3.Institution-Institute of
fundamental studies 4.Commission-Commission to
Investigate Allegation of Bribery or
corruption 5.Council-National Youth Services
council 6.Board-Ceylon Electricity
Board 7.Statutory Board 8.Bureau-Bureau of
Foreign employment
72
Government department State corporation
Fully owned by the government Fully or pharsaly owned by the government
Doesnt have a legal personality Have a legal personality
Doesnt pay taxes to the government Taxes are paid
No statutory control Statutory control exist
Diadvantages of state corporations
Lack of participation of private secor
Rigid control by the parliament statutory
As they pay taxes to the government they cant make a considerable profit
Lack of innovative solution
Inefficient administrative by government officials
73
The role of the private sector in a state corporation
The private sector must invest in state corporation
Private sector should perform reasearch development
It has introduced superior stategies such as marketing
It should help government to reduce the cost
Advantages of a state corporation compared to a government department
State corporation can have a private sector as a joint owner with the government
Due to public private combined ownership corporation relatively efficient competitive
Better financing,operation marketing strategies are used and as a result cost can be reduced revenue can be increased
State corporation are not a big burden to the government budget.

74
State owned companies
State owned companies are established and
incorporated under the compnies act of no 7 of
2007 where the purchases share majority investors
institutional investors purchase the
minority. Eg -Airport Aviation Services (Sri
Lanka) Ltd Lanka Hospital Company limited Lanka
Electricity Company limited Independent
Television Network ttd.(ITN)
75
Government departments State owned company
Fully owned by the government Pharsally owned by the government
Established under a ministry Incorporated under the companies act
There is not share capital There is a share capital
No legal personality There is a legal personality
Unlimited liability Limited liability
Advantages of State Owned Company
Efficient competitive than government department state corporation
A large capital can be obtained by issuing shares through CSE to the general public
Efficient superior management technique are used
Products are higher quality
There are not a burden to the government budget
76
Franchise Businesses
77
Definition f Franchise business

• Franchise is a form of business organization in
  which a firm which already has a successful
  product or service (the franchisor) enters into a
  continuing contractual relationship with other
  businesses(franchisees) operating under the
  franchisors trade name and usually with
  franchisors guidance,in exchanging for a fee.

78
Basic features of a franchise business

• Based on a franchise agreement that concepts the
  franchiser the franchisee.
• The franchiser who owns the product , trademark,
  manufacturing method or the business format
  gives the rights permission to the franchisee
  to start conduct business .
• The franchise business is ready made business
  which can be purchased by the franchisee.
• The basic objective of the franchisor is to
  expand its business into geographic market with
  an intention of further strengthening the brand
  name of the business.
• The basic objective of the franchisee is to make
  a considerable profit within a short period of
  time by acquiring a popular brand.

79
Franchise businesses in Sri Lanka
Foreign franchise businesses operate in Sri Lanka
80
Domestic franchise businesses operate in Sri
Lanka
81
Franchise business types
82
Main parties related to a Franchise business
The franchisor is the party who owns the overall
rights and trademarks of the company allows its
franchisees to use these rights trademarks to
do business and he usually charges the franchisee
an upfront franchise fee for the rights to do
business under the franchise name and in
addition,the franchisor usually collects an
ongoing franchise royalty fee.
83
A franchisee is an individual who purchases the
rights to use a companys trademarked name
business model to do business and he purchases a
franchise from the franchisor.The franchisee must
follow certain rules and guidelines already
established by the franchisor,and in most cases
the franchisee must pay an ongoing franchise
royalty fee to the franchisor.
84
Factors considered by each party in commencing a
Franchise business
Abilities of the franchise Business prospects
of the franchisor Experience of the
franchisee Creditability trustworthiness of
the franchisee Market feasibility Government
rules regulations of the country of the
franchisee
85
The type of experience required in the franchised
business The hours and personal commitment
necessary to run the business Who the franchisor
is,what its track record has been,and the
business experience of its officers and
directors How other franchisees in the same
system are doing How much its going to cost to
get into the franchise How much youre going to
pay for the continuing right to operate the
business If there are any products or services
you must buy from the franchisor how and by
whom they are supplied
86
Franchise Agreement

• The franchise agreement is a legally binding
  agreement which outlines the franchisors terms
  and conditions for the franchisee.
• The content of the agreement-
• The permission clause of using the trade
  mark,logo and any other item
• Rules regulations pertinent to business
  operations
• Services supplied by the franchisor
• Obligation of the franchisee
• Invested capital
• Locations of the franchisee
• Invested capital
• Location of the franchise
• Term of the franchise

87
Relationship between the Franchisor Franchise
Franchisors facilities provided to the
franchisor -Permission to use the trade
mark,brand name -Supplying the content of the
product -Providing employee training
advice -Providing financing facilities -Advice to
site selection -Design construction
instructions -Advertising expertise -Marketing
facilities
Franchisees obligations to the franchisor -Must
conduct according to the rules set by the
franchisor -Investing capital -Purchasing items
from the suppliers recommended by the
franchisor -Paying the royalty as
promised -Protecting business confidential -Preven
ting competitive malpractices -Selling products
at agreed prices -Maintaining high quality
88
Advantages of Franchise form of business

• To the franchisor

• To the franchisee

• The business is expand without investment
• A huge royalty income can be earned
• Positively affects on the poularity
• On the goodwill/brand name on the global basis
• Normally rules regulations are set in favor of
  the franchisor

• If the franchisee doesnt perform well,itll
  adversely affects the goodwill/brand name
• Has to provide the confidential information
  technology to the franchisee
• Higher cost incurred on the provision of basic
  facilities to the franchisee
• The franchisor will have to adjust to suit the
  customers ,traditions,rules demand of the market
  which franchisee serve

89
Diadvantages of Franchise form of business

• To the franchisee

• To the franchisor

• Can start the business with a reputed trademark
• Profits can be made from the beginning
• Can acquire a huge market
• Can obtain management expertise training
  financing facilities from the franchisor
• Sales can be promoted with a lower advertising
  cost
• After paying the loyalty fee the reminder will be
  the profits to the franchisee

• A huge royalty fee must be paid
• The terms conditions of the agreement a reset
  infavor of the franchisor
• A huge initial cost also must be incurred (A
  lump sum fee)
• The franchisee is not independent as he has to
  operate according to the regulations of the
  franchisor
• The frachisee will not be owner of the business
• The whole business depends on franchisor
  goodwill
• The agreement can be terminated whenever the
  franchisor wishes to do so

90
Reasons for the popularity of franchise form of
business

• The franchisor can earn a sustancial return with
  the investment made by the franchisee
• The franchisee can initiate the business with a
  reputed goodwill
• This form of business can easily acquire a huge
  market portion
• Many expert services are exchanged between the
  franchisor franchisee
• The business can be developed with a small
  advertising cost
• The risk involvement is relatively lower

91
Benefit of franchise business to customers

• A product can be purchased with a same standard
  quality in different places.
• Attractive customer care services
• Franchise business always follow attractive
  environmetal friendly service methods.
• Improved new products can be consumed.
• Improved new products can be improved.
• The product can be purchased at stable price.
• Franchise businesses are intended internationally
  accepted standard that ensure consumer
  protection.

92
Differences between a Franchise business a
Multi national company

• Franchise business

• Multi National Company(mnc)

• A franchise can be established in different forms
• Theyre extended both among countries inside
  countries
• Here the franchisor earns a royalty fee paid by
  the franchisee
• The franchisor normally doesnt invest in the
  business of the franchisee

• Theyre established only as public limited
  company
• Operate in more than one country
• Here the mother company receives the profits made
  by other
• Branches which operate all over the world
• The mother company invests in its branches
  located in different countries

93
Differences between a Franchise business an
agency business

• Franchise business

• Agency business

• A franchisee is the owner of the product(just a
  nominal ownership)
• The franchisee receives profits
• The main parties are the franchisor franchisee
• The franchisee pays royalty fee

• The agent is not the owner of the product
• The agent receives commission
• The main parties are the principle the agent
• The agent has to handover the proceedings of the
  sales

94
Corporatives
95
Basic introduction

• The evolution of world economic system shows how
  the income ownership become larger larger
  between the rich capitalists poor labour class.
• The invention of corporative is one of the
  acceptable socially desirable ways of removing
  that disparity.
• In 1844, Rochdale in the region of Lancashire
  on Egland ,28 laborers formes a corporative by
  contributing 28 pounds as initial capital.Its
  also called Society of pioneers of equity.
• International Corporative Alliance(ICA) is the
  authoritative international level institution for
  corporative businesses.ICA has undertaken three
  reviews of the Co-operative Principles-
• -1937
• -1966 and
• -1995

96
Statement on the Co-operative Identify
1995(Manchester corporative principle)

• The current statement on the Co-operative
  identify was adopted at the 1995 congress and
  general assembly of the international
  Co-operative Alliance,held in Manchester to
  celebrate the Alliance Centenary.
• 1.Volunatary Open membership
• 2.Demogratic Member control
• 3.Member economic participation
• 4.Autonomy Independence
• 5.Education,Training Information
• 6.Co-operation among Co-operatives
• 7.Concern for Community

97
Definition of a corporative business

• As it has been defined by International
  Corporative Alliance(ICA) a co-operative is an
  autonomous association of persons united
  volutarily to meet their common economic,social
  ,and cultural needs and aspirations through a
  jointly owned and democratically controlled
  enterprise.
• Basically this form of businesses is conducted by
  a group of people who are willing to put a
  collective effort to reach some common equity and
  fair oriented goals.

98
Distinguish features of a corporative business

• Legal personality
• Limited liability
• Perpectual successsion
• Control by a board of directors(commity members)
• A group of voluntarily gathered people
• Open membership for all
• The price of share remains
• Education of members is emphazied
• A business with demogratic control
• Higher attention is given to community
  involvements
• Politically Religiously neutral as an
  organization
• Etc

99
Basics conceptual background of Corporatives
Corporative Principles Volutarily open
membership Demogratic member control Member
economic participation Autonomy
Independence Education,Training
Information Co-operation among co-operatives Conce
rn for community
Corporative Ethics Honesty Social
Resbosibility Openence Caring for others
Corporative Values Self-help Self-responsibility D
emogracy Equality Solidarity
100
(No Transcript)
101
(No Transcript)
102
Basic features of a cprporative business
The current act of corporatives(number 11 of
1992) has introduced the important
sepcifications.These important specifications are
summarized in the section below
Ownership A co-operative is owned the members who have purchased shares of the co-operative business.There should be a minimum of 10 members where as there is not limit for the maximum number of members
Membership Membership is opened to all and its voluntarily.Howeve its said that the members should reside in the respective geographical are where the co-operative businesses are carriedout
Registration Its compulsory It must be registered under the commisoner the department of corporative devolpment

103
Capital Its raised by issuing shares to the general public.The price of share is 100/ it remains constant.The members who cant pay the etire in once/full can pay 10/ first and the reminder must be paid within a period of one year In addition to this government also produce financial assistance
Legap personality Co-operative have legal personality As a result it can use its own name for legal contractual matters.
Liability The liability of the member is limited However there are some co-operative society with unlimited liability
Administration Management Its administrated by director board There should be minimum of 7 directors to the board
Control There are two types of control- Control by the members Control by the department of co-operative development
Payment of taxes Co-operatives must pay taxes in their names
104
Existence Co-operatives have perpectual succession
Accounting Auditing Its compulsory Here its supplied a special accounting method called accounting fpr Non-profit organization
Distribution of the surplus The surplus of a co-operative is distributed among the members based up on their active participation of co-operative affairs Distributed surplus of each of the members is termed Patronage refund
Dissolution There are two ways of dissolving co-operation Voluntarily dissoution Dissolution by the commisioner of co-operative development
105
Advantages Disadvantages of Corporative business

• advantages

• disadvantages

• Limited liability to the members
• Relatively easy to commence
• Having legal personality
• Having perpectual succession
• Having demogratic control
• One vote for one member
• Ability to cover a wide range of business fields
• No limit to the maximum number of members
• Surplus is distributed among the members as
  patronage based on their active participation

• Limited source of financing
• Riigid corporative principle
• Return doesnt depend on invested capital
• Not focus on profits
• Poor administrative managing method
• Poor quality of products
• Difficult to compete with other private sector
  businesses
• Difficult to transfer ownership

106
Commencing a corporative business

• A corporative business can be initiated by two
  parties
• For persons
• There should be a minimum of 10 members who are
  above 18 years of age should reside within the
  geographical area in consideration.
• For currently existing corporative society
• There should be at least three of such
  coroparative society
• Since registration is a compulsory
  requirement,these corporatives must be registered
  under the approval of commissioner of the
  department of corporative development of Sri
  Lanka.

107

• The registration procedure consists of three
  steps
• Step -1
• Submission of property completed document
  to the corporative development community
• Step-2
• Scrutinizing these documents by the
  corporative development commisioner
• Step-3
• Considering the economic feasibility of the
  corporative franting the registration.

108
Documents which must be submitted when register

• Societys request for registration
• Two compies of the application form
• Two compies of suggested interim articles/by-laws
• A feasibility report related to the prospective
  economic activities of the corporative
• A copy of the resolution suggested in the general
  meeting regarding the formation of the
  corporative
• Information of the general meeting
• A progress report of the societys financial
  accounts
• Information pertinent to the payments of members
  fee
• Name list information of the committee members

109
Duties Rights of a member of a corporative
Duties Rights
Active participation Casting votes
Conducting transactions with the corporative Submitting resolution
Contribution to the capital Claim on the patronage when the surplus is distributed
Concern on corporative affairs Eleted as a director to the board
110
Patronage refund

• Corporative is a non-profit oriented organization
  and hence though it makes a profit its not known
  by the name of the profit,instead we use the term
  Surplus
• If there is a surplus ,that surplus is
  distributed among the members as per the
  provisions made in corporative resolutions or
  interim by-laws
• When the patronage is distributed,the corporative
  has the following options
• Crediting the surplus in to a speacial
  corporative fund
• Donating it to a special community oriented
  activity
• Distributiing among the members of the
  corporative