Forms of Business OrganizationForms of Business OrganizationJoint Stock Companies and Joint Stock Companies and

Banks Banks

Dr. Attaullah Shah Dr. Attaullah Shah

Legal Forms of Business

Sole Proprietorships Partnerships Corporations

General Partnership

Limited Partnership

Master Limited Partnership

Regular Corporation

Subchapter SCorporation

(S-Corporation)

Sole ProprietorshipsSole Proprietorships

Business owned (and usually operated) Business owned (and usually operated) by one personby one personSimplest form of business ownership Simplest form of business ownership Most popular form of business Most popular form of business organization – 72.2% of allorganization – 72.2% of allMost common in:Most common in:– RetailingRetailing– ServiceService– AgricultureAgriculture

Sole Proprietorship -- AdvantagesSole Proprietorship -- Advantages

Ease of StartupEase of Startup– Little legal documentationLittle legal documentation– No co-owners to consultNo co-owners to consult

Least expensive to startLeast expensive to start

Pride of OwnershipPride of Ownership

Retention of profitsRetention of profits

FlexibilityFlexibility

No Business Income Tax No Business Income Tax

Sole Proprietorship -- Sole Proprietorship -- DisadvantagesDisadvantages

Unlimited LiabilityUnlimited LiabilityLimited Life – Business ends when owner Limited Life – Business ends when owner leaves the businessleaves the businessLimited Access to Start-up CapitalLimited Access to Start-up CapitalLimited Access to Credit Limited Access to Credit Limited Management ExpertiseLimited Management ExpertiseDifficulty in Hiring EmployeesDifficulty in Hiring EmployeesProprietor not considered an employeeProprietor not considered an employee

PartnershipsPartnerships

Two or more owners Two or more owners

Least numerous form – 7.7% of all Least numerous form – 7.7% of all businessesbusinesses

Partnership AgreementPartnership Agreement– Specifies rights and obligations of partnersSpecifies rights and obligations of partners– If written, called the If written, called the Articles of PartnershipArticles of Partnership

((Articles of Co-partnershipArticles of Co-partnership))

Partnership -- AdvantagesPartnership -- Advantages

Greater Access to CapitalGreater Access to Capital

Greater Access to CreditGreater Access to Credit

Retention of ProfitsRetention of Profits

More Management ExpertiseMore Management Expertise

No Business Income Tax No Business Income Tax

Partnership -- DisadvantagesPartnership -- Disadvantages

Shared ProfitsShared Profits

Unlimited Liability for “General Partners”Unlimited Liability for “General Partners”

Each partner has “Agency” powerEach partner has “Agency” power

Limited LifeLimited Life– Business ends when any partner withdrawsBusiness ends when any partner withdraws

Management DisagreementsManagement Disagreements

Frozen InvestmentFrozen Investment

Types of PartnersTypes of Partners

General PartnerGeneral Partner– Unlimited LiabilityUnlimited Liability– Assumes Management RoleAssumes Management Role

Limited PartnerLimited Partner– Liability limited to InvestmentLiability limited to Investment– May not take active managerial roleMay not take active managerial role

Every partnership must have at least one Every partnership must have at least one general partnergeneral partner

Types of PartnersTypes of Partners

General PartnershipGeneral Partnership– All partners are general partnersAll partners are general partners

Limited PartnershipLimited Partnership– One or more limited partnersOne or more limited partners

Master Limited PartnershipMaster Limited Partnership– Owned & managed like a corporationOwned & managed like a corporation– Taxed like a partnershipTaxed like a partnership– Shares may be soldShares may be sold

CorporationsCorporations

Generally larger than other forms (Except for S-Generally larger than other forms (Except for S-Corporation)Corporation)– 20.1% of all U.S. Businesses20.1% of all U.S. Businesses– Account for 87.1% of all U.S. Business IncomeAccount for 87.1% of all U.S. Business Income

Considered a separate legal entityConsidered a separate legal entity– Owners called “Stockholders” or Shareholders”Owners called “Stockholders” or Shareholders”

Ownership evidenced by “Stock Certificate”Ownership evidenced by “Stock Certificate”

Governed by “Board of Directors”Governed by “Board of Directors”

Corporations -- AdvantagesCorporations -- Advantages

Limited LiabilityLimited Liability

Ease of Ownership TransferEase of Ownership Transfer

Unlimited LifeUnlimited Life

Greater Access to CapitalGreater Access to Capital

Specialized Management ExpertiseSpecialized Management Expertise

Corporations -- DisadvantagesCorporations -- Disadvantages

More difficult & costly to formMore difficult & costly to form– Requires a “Corporate Charter”Requires a “Corporate Charter”

Subject to greater governmental scrutinySubject to greater governmental scrutiny

Diluted earningsDiluted earnings

Double taxationDouble taxation

Corporations vs. Corporations vs. Sole Proprietorships Sole Proprietorships

SPSP CorpCorpIncomeIncome $1,000,000$1,000,000 $1,000,000 $1,000,000Expenses Expenses 500,000500,000 500,000500,000EBTEBT $500,000 $500,000 $500,000 $500,000

(Assume Business Tax Rate = 50%)(Assume Business Tax Rate = 50%)Business Tax Business Tax 0 0 250,000250,000Net ProfitNet Profit $500,000 $500,000 $250,000 $250,000

(Assume a 30% Personal Tax Rate)(Assume a 30% Personal Tax Rate)Personal Tax Personal Tax 150,000 150,000 75,000 75,000$ to Owners $350,000 $175,000$ to Owners $350,000 $175,000

Corporate CharterCorporate Charter

Legal Permission to Operate as a Legal Permission to Operate as a CorporationCorporation

Issued by state Issued by state

May not conduct business as a May not conduct business as a corporation without a chartercorporation without a charter

Contents of a Corporate CharterContents of a Corporate Charter

Company Name & AddressCompany Name & Address

Names & addresses of IncorporatorsNames & addresses of Incorporators

Purpose of the CorporationPurpose of the Corporation

Maximum amount of stock & Classes of Maximum amount of stock & Classes of Stock to be issuedStock to be issued

Rights & Privileges of stockholdersRights & Privileges of stockholders

Length of time the corporation is to existLength of time the corporation is to exist

Stockholder RightsStockholder Rights

Common StockCommon Stock– Votes in corporate mattersVotes in corporate matters– One vote per share ownedOne vote per share owned

Preferred StockPreferred Stock– No voting rightsNo voting rights– Dividend claims are paid 1Dividend claims are paid 1stst

DividendDividend– Distribution of earnings to the stockholders of Distribution of earnings to the stockholders of

a corporationa corporation

Owners/Stockholders/Shareholders

Chief ExecutiveOfficer (CEO)

Board of Directors

President

Senior Vice President

Vice PresidentFinance

Vice PresidentProduction

Vice President Marketing

Vice President Human Resources

Organizational ChartOrganizational Chart

Types of CorporationsTypes of Corporations

Government-Owned CorporationGovernment-Owned Corporation– “ “Public Corporation”Public Corporation”– Owned & operated by governmentOwned & operated by government– Post al Corporation, NASA, FIDIC,SNGPL Post al Corporation, NASA, FIDIC,SNGPL

Quasi-Government CorporationQuasi-Government Corporation– “ “Quasi-Public Corporation”Quasi-Public Corporation”– Privately owned, government controlled monopolyPrivately owned, government controlled monopoly– Public utilities, Fannie Mae, Freddie Mac, Sallie Mae Public utilities, Fannie Mae, Freddie Mac, Sallie Mae

Private CorporationPrivate Corporation– Owned by individuals or other companiesOwned by individuals or other companies

Types of CorporationsTypes of Corporations

Not-For-Profit CorporationNot-For-Profit Corporation– Organized to provide a social, educational, religious, Organized to provide a social, educational, religious,

or other serviceor other service– Habitat for Humanity, Red CrossHabitat for Humanity, Red Cross

For-Profit CorporationFor-Profit CorporationClosed CorporationClosed Corporation– Stock owned by relatively few peopleStock owned by relatively few people– Stock not sold to general publicStock not sold to general public

Open CorporationOpen Corporation– Stock is bought and sold on security exchangesStock is bought and sold on security exchanges– Can be purchased by any individualCan be purchased by any individual

Types of CorporationsTypes of Corporations

S-Corporation (Subchapter-S Corporation)S-Corporation (Subchapter-S Corporation)– Corporate structure designed for small businessCorporate structure designed for small business– Taxed as a partnership if there are 75 or fewer Taxed as a partnership if there are 75 or fewer

stockholdersstockholders– No non-resident alien stockholdersNo non-resident alien stockholders– Only one class of stockOnly one class of stock

Limited-Liability Company (LLC)Limited-Liability Company (LLC)– Combines the benefits of a corporation & partnershipCombines the benefits of a corporation & partnership– Not limited to 75 stockholdersNot limited to 75 stockholders

Mergers & AcquisitionsMergers & Acquisitions

Hostile takeoverHostile takeoverTypes of mergersTypes of mergers– Horizontal: Similar products / servicesHorizontal: Similar products / services– Vertical: Different but related firmsVertical: Different but related firms– Conglomerate: Completely different Conglomerate: Completely different

industries industries

Merger TrendsMerger Trends– DivestitureDivestiture– Leveraged Buyout (LBO)Leveraged Buyout (LBO)

FranchisingFranchising

Franchise Franchise – License to operate an individually owned License to operate an individually owned

business as though it were part of a chain of business as though it were part of a chain of outlets or storesoutlets or stores

– The business itself The business itself

FranchisingFranchising– Actual granting of a franchiseActual granting of a franchise

FranchisingFranchising

FranchisorFranchisor– Supplies a known & advertised business nameSupplies a known & advertised business name– Supplies management skillsSupplies management skills– Supplies training & materialsSupplies training & materials– Supplies method of doing businessSupplies method of doing business

Franchisee:Franchisee:– Supplies labor & capitalSupplies labor & capital– Operates the franchised businessOperates the franchised business– Agrees to abide by the franchise agreementAgrees to abide by the franchise agreement

Franchising AdvantagesFranchising Advantages

FranchisorFranchisor– Fast, Selective DistributionFast, Selective Distribution– Motivated FranchiseeMotivated Franchisee

FranchiseeFranchisee– Opportunity to start a business Opportunity to start a business – Business Experience of othersBusiness Experience of others– Nationally recognized nameNationally recognized name– National promotional campaignsNational promotional campaigns

Franchising DisadvantagesFranchising Disadvantages

Mainly from Franchisee’s Viewpoint:Mainly from Franchisee’s Viewpoint:– Franchisor’s contract can dictate every aspect Franchisor’s contract can dictate every aspect

of the businessof the business– Pay for securityPay for security– Long hoursLong hours– Competition from same companyCompetition from same company

Joint Stock Company: Joint Stock Company: The limitations of sole-proprietorship and partnership forms of The limitations of sole-proprietorship and partnership forms of ownership gave birth to joint stock company form of organisation. ownership gave birth to joint stock company form of organisation. Two important limitations of earlier form of organisation were Two important limitations of earlier form of organisation were inadequacy of funds and unlimited liability. inadequacy of funds and unlimited liability. The earlier form of organisation could not meet the increasing The earlier form of organisation could not meet the increasing demand for funds of organisation. The other limitation which demand for funds of organisation. The other limitation which hampered the growth of business was the unlimited liability of hampered the growth of business was the unlimited liability of owners. owners. Joint stock company was first started in ITALY in THIRTEENTH Joint stock company was first started in ITALY in THIRTEENTH century.century.During 17During 17thth and 18 and 18thth centuries, joint stock companies were centuries, joint stock companies were formed in ENGLAND under ROYAL CHARTER or ACTS OF formed in ENGLAND under ROYAL CHARTER or ACTS OF PARLIAMENT.PARLIAMENT.

DEFINITION:-DEFINITION:-

A company is ‘’ a voluntary association of many individuals for A company is ‘’ a voluntary association of many individuals for profit having limited liability and contribute money or money’s profit having limited liability and contribute money or money’s worth to a common stock.worth to a common stock.

Characteristics of Joint Stock Co. Characteristics of Joint Stock Co. ASSOCIATION OF PERSONS:- ASSOCIATION OF PERSONS:-

A company is an association of persons joining hands with a common A company is an association of persons joining hands with a common motive. A private limited company must have at least two persons and motive. A private limited company must have at least two persons and public limited company must have at least seven members to get it public limited company must have at least seven members to get it registered. Furthermore, the number of shareholders should not exceed registered. Furthermore, the number of shareholders should not exceed 50 in private companies but there is no maximum limit in a public limited 50 in private companies but there is no maximum limit in a public limited company.company.

INDEPENDENT LEGAL ENTITY:- INDEPENDENT LEGAL ENTITY:-

The company is created under law. It has separate legal entity apart from The company is created under law. It has separate legal entity apart from its members. A company acts independently of its members. The its members. A company acts independently of its members. The company is not bound by the acts of its members. The company can sue company is not bound by the acts of its members. The company can sue and be sued in its own name.and be sued in its own name.

LIMITED LIABILITY:- The liability of its shareholders is limited to the value LIMITED LIABILITY:- The liability of its shareholders is limited to the value of shares they have purchased. In case the company incurrs huge of shares they have purchased. In case the company incurrs huge liabilities, the shareholders can only be called upon to pay the unpaid liabilities, the shareholders can only be called upon to pay the unpaid balance on their shares. balance on their shares.

COMMON SEAL:-COMMON SEAL:-

A company being an artificial person cannot put its A company being an artificial person cannot put its signatures. The law requires every company to have a signatures. The law requires every company to have a seal and get its name engraved on it. The seal of the seal and get its name engraved on it. The seal of the company is affixed on all important documents and company is affixed on all important documents and contracts as a token of signature. contracts as a token of signature.

TRANSFERABILITY OF SHARES:-TRANSFERABILITY OF SHARES:-

The shares of the company can be transferred by its The shares of the company can be transferred by its members. Under ARTICLES OF ASSOCIATION, the members. Under ARTICLES OF ASSOCIATION, the company can put certain restrictions on the transfer of company can put certain restrictions on the transfer of shares but it cannot altogether stop it. shares but it cannot altogether stop it.

SEPARATION OF OWNERSHIP AND MANAGEMENT:-SEPARATION OF OWNERSHIP AND MANAGEMENT:-

The shareholders of a company are widely scattered. A The shareholders of a company are widely scattered. A shareholder may like to invest money but may not be shareholder may like to invest money but may not be interested in its management. The companies are managed interested in its management. The companies are managed by the board of directors.by the board of directors.

PERPETUAL EXISTENCE:- The company has a permanent PERPETUAL EXISTENCE:- The company has a permanent existence. The shareholders may come or may go but the existence. The shareholders may come or may go but the company will go on forever. The continuity of the company is company will go on forever. The continuity of the company is not affected by death, lunacy or insolvency of its not affected by death, lunacy or insolvency of its shareholders. shareholders.

CORPORATE FINANCE:- A joint stock company, generally, CORPORATE FINANCE:- A joint stock company, generally, raises large amounts of funds. The is divided into small raises large amounts of funds. The is divided into small shares of domination. A large number of persons purchase shares of domination. A large number of persons purchase shares and contribute to the capital of the company.shares and contribute to the capital of the company.

CENTRALISED AND DELEGATED MANAGEMENT:-CENTRALISED AND DELEGATED MANAGEMENT:-

A joint stock company is an autonomous and self A joint stock company is an autonomous and self governed body. The shareholders being large in number governed body. The shareholders being large in number cannot look after the day-to-day activities of the company. cannot look after the day-to-day activities of the company. They elect board of directors in general body meeting for They elect board of directors in general body meeting for managing the company. All policies of the company are managing the company. All policies of the company are decided by a majority vote. All decisions are taken in a decided by a majority vote. All decisions are taken in a democratic way.democratic way.

PUBLICATION OF ACCOUNTS:-PUBLICATION OF ACCOUNTS:-

A joint stock company is required to file annual statements A joint stock company is required to file annual statements with the registrar of companies at the end of a financial with the registrar of companies at the end of a financial year. They are available for inspection in the office.year. They are available for inspection in the office.

Kinds of Companies: Kinds of Companies: ACCORDING TO INCORPORATIONACCORDING TO INCORPORATION

The companies may be divided into three categories according to The companies may be divided into three categories according to incorporation.incorporation.

CHARTERED COMPANIES:-CHARTERED COMPANIES:- These type of companies are These type of companies are incorporated under ROYAL CHARTER by the king or HEAD OF incorporated under ROYAL CHARTER by the king or HEAD OF THE STATE. Under the charter, certain exclusive rights and THE STATE. Under the charter, certain exclusive rights and privileges are granted to the company for undertaking certain privileges are granted to the company for undertaking certain commercial activities. If the company violates the rules, the head of commercial activities. If the company violates the rules, the head of the state can close such companies.the state can close such companies.

STATUTORY COMPANIES:-STATUTORY COMPANIES:- These companies are formed under These companies are formed under special act of parliament or of a state legislature. These companies special act of parliament or of a state legislature. These companies may or may not use the word ‘limited’. The EXAMPLES of such may or may not use the word ‘limited’. The EXAMPLES of such companies are State Bank of Pakistan THE INDUSTRIAL companies are State Bank of Pakistan THE INDUSTRIAL FINANCE CORPORATION OF Pakistan, STATE TRADING FINANCE CORPORATION OF Pakistan, STATE TRADING CORPORATION OF Pakistan, etc.CORPORATION OF Pakistan, etc.

REGISTERED COMPANIES:-REGISTERED COMPANIES:- These are the companies formed and These are the companies formed and registered under the provisions of the companies act. Most of the registered under the provisions of the companies act. Most of the companies in Pakistan are registered under the COMPANIES ACT 1956. companies in Pakistan are registered under the COMPANIES ACT 1956. these companies may be limited by shares, limited by guarantee or these companies may be limited by shares, limited by guarantee or unlimited companies.unlimited companies.

ACCORDING TO LIABILITY= ACCORDING TO LIABILITY=

According to liability, the companies may be classified into three categories.According to liability, the companies may be classified into three categories.

1.1. COMPANIES LIMITED BY SHARES:-COMPANIES LIMITED BY SHARES:- The companies limited by shares have The companies limited by shares have a share capital. The capital is divided into shares. The shareholders are not a share capital. The capital is divided into shares. The shareholders are not liable to pay anything more than the value of shares held by them, whatever liable to pay anything more than the value of shares held by them, whatever be the liabilities of the company.be the liabilities of the company.

2.2. COMPANIES LIMITED BY GUARANTEE:-COMPANIES LIMITED BY GUARANTEE:- These companies are also formed These companies are also formed under the companies act with a stipulation in the memorandum clause that under the companies act with a stipulation in the memorandum clause that members are guaranteed to pay a certain amount of money in case of its members are guaranteed to pay a certain amount of money in case of its winding up. The amount which members undertake to pay is called the winding up. The amount which members undertake to pay is called the guarantee money.guarantee money.

3.3. UNLIMITED COMPANIES:-UNLIMITED COMPANIES:- The companies registered without limiting the The companies registered without limiting the liability of members to the value of shares are called unlimited companies. All liability of members to the value of shares are called unlimited companies. All members are liable to meet the liabilities of the company to an unlimited members are liable to meet the liabilities of the company to an unlimited extent. extent.

ACCORDING TO TRANSFERABILITY OF SHARES:-ACCORDING TO TRANSFERABILITY OF SHARES:- 1.1. PRIVATE COMPANY:-PRIVATE COMPANY:- A private company can be formed with the A private company can be formed with the

association of at least two members but the maximum number of association of at least two members but the maximum number of shareholders cannot exceed fifty. A private company restricts by its shareholders cannot exceed fifty. A private company restricts by its articles, a) the right of members to transfer its shares, b) limits the number articles, a) the right of members to transfer its shares, b) limits the number of its members to fifty, and c) prohibits any invitation to the public to of its members to fifty, and c) prohibits any invitation to the public to subscribe to is shares and debentures.subscribe to is shares and debentures.

EXEMPTIONS AND PRIVILEGES OF PRIVATE COMPANYEXEMPTIONS AND PRIVILEGES OF PRIVATE COMPANYA.A. A private company can be started with just two members whereas a A private company can be started with just two members whereas a

public company requires at least seven members.A private company is public company requires at least seven members.A private company is not required to file a prospectus or a statement in lieu of prospectus with not required to file a prospectus or a statement in lieu of prospectus with the registrar of companies.the registrar of companies.

B.B. There is no restriction of minimum subscription as in the case of public There is no restriction of minimum subscription as in the case of public company. It can directly allot the shares. It can work with just two company. It can directly allot the shares. It can work with just two directors. A private company is not required to hold a statutory meeting directors. A private company is not required to hold a statutory meeting and filing a statutory report.and filing a statutory report.

2. 2. PUBLIC COMPANIES:-PUBLIC COMPANIES:- Public company means that public at large is Public company means that public at large is interested in those companies. A minimum of seven members are interested in those companies. A minimum of seven members are required to constitute a public company and to get it registered. There is required to constitute a public company and to get it registered. There is no restriction on the maximum number of members. Public companies are no restriction on the maximum number of members. Public companies are required to issue a prospectus for inviting people to purchase their required to issue a prospectus for inviting people to purchase their shares. A public company can start work only after getting ’CERTIFICATE shares. A public company can start work only after getting ’CERTIFICATE OF COMMENCEMENT’ from the ‘REGISTRAR OF COMPANIES’. The OF COMMENCEMENT’ from the ‘REGISTRAR OF COMPANIES’. The shareholders are free to sell their shares in the market.shareholders are free to sell their shares in the market.

MERITS OF JOINT STOCK COMPANYMERITS OF JOINT STOCK COMPANY1.1. ACCUMULATION OF LARGE RESOURCES: -ACCUMULATION OF LARGE RESOURCES: - a company can collect a company can collect

large sum of money from large number of share holder. need for more large sum of money from large number of share holder. need for more fund arise, the number of shareholder can be increased .fund arise, the number of shareholder can be increased .

2.2. LIMITED LIABILITY:-LIMITED LIABILITY:-The liability of members in a company is limited to The liability of members in a company is limited to the nominal value the shares the nominal value the shares

3.3. CONTINUITY IN EXISTENCE:-CONTINUITY IN EXISTENCE:-The member of a company may go on The member of a company may go on changing from time changing from time

to time but that does not affect the continuity of a company. The death or to time but that does not affect the continuity of a company. The death or insolvency of members does not in any way affect the corporate insolvency of members does not in any way affect the corporate existence of company. existence of company.

4.4. EFFICIENT MANAGEMENT: - EFFICIENT MANAGEMENT: - In the company form of organization, In the company form of organization,

ownership is separate ownership is separate from management its enables the company to point expert and qualified from management its enables the company to point expert and qualified

person for managing various business function.person for managing various business function. 5.5. ECONOMIES OF LARGE SCALE PRODUCTION:-ECONOMIES OF LARGE SCALE PRODUCTION:-The availability of The availability of

large resources, the large resources, the company can organize production on a big scale .The increase in scale company can organize production on a big scale .The increase in scale

and size of business bill result in economics in production, purchase , and size of business bill result in economics in production, purchase , marketing and management , etc.marketing and management , etc.

6. TRANSFERABILITY OF SHARES:- A share holder can dispose of his share at any time when the market condition are favorable or he is in need of money, the facility of transferring shares encourages many person to invest.

7.DIFFUSED RISK: - In company form of organization, the number of contributors is large; so risk is shared by a large number of persons.

8. DEMOCRATIC SET – UP: - Every individual has an opportunity to become a shareholder. Secondly, the board of directors is elected by the members. So members have a say indicating the policies of the company. The Company form of organization is democratic from ownership and management side.

9. SOCIAL BENEFITS: - The company form of organization mobilizes scattered saving of the community. These saving can be better used for productive purposes. Large – scale production enjoy a number of economics enabling low cost of production

DEMERITS OF JOINT STOCK COMPANYDEMERITS OF JOINT STOCK COMPANY 1.DIFFICULTY IN FORMATION1.DIFFICULTY IN FORMATION:- There is no. of stages is involved in :- There is no. of stages is involved in company promotion. It is both expensive and risky.company promotion. It is both expensive and risky.

2.SEPARATION OF OWNERSHIP AND MANAGEMENT:-2.SEPARATION OF OWNERSHIP AND MANAGEMENT:-..The ownership The ownership and management of a public company is in different hands . The management and management of a public company is in different hands . The management may indulge in speculative business activities.may indulge in speculative business activities.

3.EVILS OF FACTORY SYSTEM:- 3.EVILS OF FACTORY SYSTEM:- The stock company are attribute the evils The stock company are attribute the evils of factory system like insanitation ,air pollution ,congestion of cities.of factory system like insanitation ,air pollution ,congestion of cities.

4.SPECULATION IN SHARES:-4.SPECULATION IN SHARES:- The joint stock company facilitate The joint stock company facilitate speculation in the shares at stock exchanges. speculation in the shares at stock exchanges.

5.FRADULENT MANAGEMENT:-5.FRADULENT MANAGEMENT:- The promoters and director may indulge in The promoters and director may indulge in fraudulent practices due to not invested much in the company.fraudulent practices due to not invested much in the company.

6.LACK OF SECRECY:- 6.LACK OF SECRECY:- Every thing is discussed in the meeting of board of Every thing is discussed in the meeting of board of directors directors

7.DELAY IN DECISION MAKING:-7.DELAY IN DECISION MAKING:- There is no single individual can make a There is no single individual can make a policy decision.policy decision.

Types of BanksTypes of Banks

On the basis of ownershipOn the basis of ownership

On the basis of domicileOn the basis of domicile

On the basis of FunctionOn the basis of Function

Types of Bank on the basis of Types of Bank on the basis of OwnershipOwnership

The banks are classified on the basis of The banks are classified on the basis of ownership into two categories.ownership into two categories.

1. Public sector banks1. Public sector banks

2. Private sector banks 2. Private sector banks

Types of Bank on the basis of Types of Bank on the basis of OwnershipOwnership

1. Public sector banks:1. Public sector banks:

The banks owned and controlled by the The banks owned and controlled by the Government are called Public sector bank. Government are called Public sector bank. e.g national Bank of Pakistan e.g national Bank of Pakistan

2. Private sector banks:2. Private sector banks:

The banks owned by corporations are called The banks owned by corporations are called private sector banks. e.g Habib Bank, Bank private sector banks. e.g Habib Bank, Bank Alfalah etc.Alfalah etc.

Classification of banks on the basis Classification of banks on the basis of domicileof domicile

The banks are divided on the basis of The banks are divided on the basis of domicile into two categories.domicile into two categories.

1. Domestic banks1. Domestic banks

2. Foreign banks2. Foreign banks

Classification of banks on the basis Classification of banks on the basis of domicileof domicile

1. Domestic banks.1. Domestic banks.The banks registered and incorporated The banks registered and incorporated within the country are called domestic within the country are called domestic banks. e.g. Bank of Punjab, MCB Bank etcbanks. e.g. Bank of Punjab, MCB Bank etc2. Foreign Banks2. Foreign BanksThe banks which have their origin and head The banks which have their origin and head offices in the foreign countries are called foreign offices in the foreign countries are called foreign banks. e.g. Citi bank, Standard Charted Bank etc banks. e.g. Citi bank, Standard Charted Bank etc

Classification of Banks on the basis of FunctionClassification of Banks on the basis of Function

1.1. Central Bank:Central Bank:

2.2. Commercial Banks:Commercial Banks:

3.3. Exchange Banks:Exchange Banks:

4.4. Saving Banks:Saving Banks:

5.5. Agriculture Banks:Agriculture Banks:

6.6. Industrial Banks:Industrial Banks:

7.7. Co-operative BankCo-operative Bank

8.8. Mortgage BankMortgage Bank

9.9. Investment BankInvestment Bank

10.10. Merchant BankMerchant Bank

11.11. Consortium BankConsortium Bank

12.12. Export-Import BankExport-Import Bank

13.13. School BankSchool Bank

14.14. Labour BankLabour Bank

Classification of Banks on the basis Classification of Banks on the basis of Functionof Function1. Central Bank:1. Central Bank:

Central Bank is the bank of banks. Every civilized country now has its Central Bank is the bank of banks. Every civilized country now has its own central bank.own central bank.The primary function of the central bank is to regulate the flow of money The primary function of the central bank is to regulate the flow of money and credit in order to promote efficiency, stability and growth in the and credit in order to promote efficiency, stability and growth in the country.country. In Pakistan “State Bank of Pakistan” is the central bank (in England it is In Pakistan “State Bank of Pakistan” is the central bank (in England it is “Bank of England” and in America it is “The Federal Reserve System”). “Bank of England” and in America it is “The Federal Reserve System”). Functions of central bank are;Functions of central bank are;– Sole right of note issueSole right of note issue– Banker, agent and advisor to the governmentBanker, agent and advisor to the government– Banker to commercial banksBanker to commercial banks– Controller of creditController of credit– Clearing agentClearing agent– Lender of last resortLender of last resort– Custodian of foreign exchange reservesCustodian of foreign exchange reserves– Development RoleDevelopment Role– Other FunctionsOther Functions

Classification of Banks on the basis Classification of Banks on the basis of Functionof Function

2.Commercial Banks:2.Commercial Banks: Commercial banks are those banks which are engaged in Commercial banks are those banks which are engaged in

performing the routine duties of banking business.performing the routine duties of banking business. They collect surplus money and make loans and advances in They collect surplus money and make loans and advances in

the form of overdrafts, cash credit and discounting bills of the form of overdrafts, cash credit and discounting bills of exchange.exchange.

They also provide special financial services and agency They also provide special financial services and agency services.services.

Commercial banks in short are considered the life blood of the Commercial banks in short are considered the life blood of the economic society.economic society.

Functions of commercial banks are;Functions of commercial banks are;

– Basic FunctionsBasic Functions– Secondary FunctionsSecondary Functions

Classification of Banks on the basis Classification of Banks on the basis of Functionof Function

3. Exchange Banks:3. Exchange Banks:Exchange banks are mainly deal with international trade. These Exchange banks are mainly deal with international trade. These banks takes the responsibility of settlement of foreign exchange banks takes the responsibility of settlement of foreign exchange and arrange the foreign businesses.and arrange the foreign businesses.In Pakistan commercial banks have been allowed to do the In Pakistan commercial banks have been allowed to do the business of Exchange Bank. business of Exchange Bank. American Express bank, Rupali bank, bank of Oman are some American Express bank, Rupali bank, bank of Oman are some examples of exchange banks. examples of exchange banks. There functions are;There functions are;

– Currency exchangeCurrency exchange– Providing information for international businessProviding information for international business– Providing finance for international businessProviding finance for international business– Bank drafts and Bill of exchangeBank drafts and Bill of exchange– Letter of creditLetter of credit

Classification of Banks on the basis Classification of Banks on the basis of Functionof Function

4. Saving Banks:4. Saving Banks:Saving banks are those banks which collect and keep the small Saving banks are those banks which collect and keep the small savings of the public. They are called thrift promoting institutions.savings of the public. They are called thrift promoting institutions.

The Saving banks invest the funds in the safest government The Saving banks invest the funds in the safest government securities and offer reasonable rate of profit on saving accounts.securities and offer reasonable rate of profit on saving accounts.

Students, government employees and household women are Students, government employees and household women are usually opening such accounts.usually opening such accounts.

A prior notice to bank is necessary for withdrawal of huge amount A prior notice to bank is necessary for withdrawal of huge amount (More than Afs 15000)(More than Afs 15000)

National Saving bank in England and Post office saving bank in National Saving bank in England and Post office saving bank in Pakistan are examples of saving banks.Pakistan are examples of saving banks.

There Functions are;There Functions are;– Accepting deposits of people for savingAccepting deposits of people for saving– Investing the money of people in safe means of investmentInvesting the money of people in safe means of investment

Classification of Banks on the basis Classification of Banks on the basis of Functionof Function

5. Agriculture Banks:5. Agriculture Banks:The bank is responsible for the development of agriculture sector of The bank is responsible for the development of agriculture sector of the country.the country.

Agriculture banks are set up to provide financial assistance to the Agriculture banks are set up to provide financial assistance to the agriculturists and agro-based industries.agriculturists and agro-based industries.

Agricultural Development bank of Pakistan, Agricultural Mortgage Agricultural Development bank of Pakistan, Agricultural Mortgage Corporation in England and Federal Land Bank of USA Corporation in England and Federal Land Bank of USA

There functions are;There functions are;

– Providing long term advances for buying tractors etcProviding long term advances for buying tractors etc

– Short term loan for purchasing seeds and fertilizersShort term loan for purchasing seeds and fertilizers

– Introducing modern techniques in farming Introducing modern techniques in farming

– Making awareness in farmers by seminarsMaking awareness in farmers by seminars

– Medium term loans for construction of tube Medium term loans for construction of tube wellswells

Classification of Banks on the basis Classification of Banks on the basis of Functionof Function

6. Industrial Development Banks:6. Industrial Development Banks: The Industrial banks provide medium and long term credit to the The Industrial banks provide medium and long term credit to the

industries. The growth of industries depends on these banks.industries. The growth of industries depends on these banks. There functions are:There functions are:

– Granting loans to set up new companiesGranting loans to set up new companies– Long term loans for machinery and construction of buildingLong term loans for machinery and construction of building– Loans for modernization and replacement of business unitsLoans for modernization and replacement of business units– Short term loan for purchase of raw material and payment of daily Short term loan for purchase of raw material and payment of daily

expenses. expenses.

Assignment: Assignment:

Compare and contrast the various forms of Compare and contrast the various forms of business forms in terms of their advantages and business forms in terms of their advantages and disadvantages. ( Group-1) disadvantages. ( Group-1)

Explain the role of Joint Stock Companies in the Explain the role of Joint Stock Companies in the capital formation. Describe five major joint stock capital formation. Describe five major joint stock companies of Pakistan. (Gp-2) companies of Pakistan. (Gp-2)

Describe the role of State Bank in the monetary Describe the role of State Bank in the monetary control of Pakistan economy.(Gp-3) control of Pakistan economy.(Gp-3)