An entrepreneur is the co-coordinator of all other factors of production. He has to plan, organize and direct other factors of production arrange for marketing the produce and take risks and uncertainties.
Functions of an Entrepreneur
Function of initiation;
- An entrepreneur makes proper assessment of markets (both input and output markets) and decides upon what, when and how with regard to production and marketing of a commodity.
Function of choice of location:
- He decides upon the particular place to locate the concern or unit where facilities regarding production and marketing are available.
Function of co-ordination:
- The entrepreneur has to co-ordinate, direct and supervises the functioning of other factors of production.
Function of innovation:
- The entrepreneur has to introduce new technology, machinery and tools in order to increase the labour productivity and also to reduce the cost of production.
Function of bearing risk and uncertainty:
- Taking risks means accepting a probability that things will turn out badly. Under risk the occurrence of future events can be predicted fairly accurately by specifying the level of probability, E.g. prediction on monsoon rain, storm, etc. In the case of uncertainty, the future occurrences of an event cannot be predicted accurately. E.g. price fluctuation. In both cases, the entrepreneur may likely to incur losses. So, he has to anticipate risk and uncertainties and provide necessary alternatives to face them.
Forms of Business Organization:
- Business organization is a trading concern or producing unit. A business organization may be owned either by a single person or by many people. The primary aim of a business organization may be either earning profit or promotion of general welfare of the people. On the basis of the above two criteria, business organizations can be classified into five categories as follows:
Individual Entrepreneur (Individual Proprietary System):
- A business organization owned by a single person is known as the individual proprietary system. In this case, personal attention on all consumers by the proprietor is possible. He himself takes the entire risks and hence, wastage of all kinds is eliminated. However, large-scale business is not possible, as the capital at the command of the sole proprietor is generally meager.
- In the event of failure, not only the assets of business but also the other private assets and properties of the proprietor can be claimed against by creditors. E.g. Retail shops. The individual enterprise is the most common form of business organization.
Merits:
- The owner of business enjoys absolute freedom without interference of anybody in the business.
- The owner or proprietor enjoys all the profits received from the business.
- Capital requirement is less. Capital is supplied from the owner’s funds.
- This type of business is more flexible allowing changes in various business decisions like investment, sales, diversifying the business activities. Expanding size of business, etc.
- This type of business is easy to start and easy to terminate.
Demerits:
- Limited capital for the business to expand as the owner funds are by far the sole source of funds.
- In the event of failure of the business, creditors (lenders) are empowered to exercise every right to attach not only the assets of business but also the personal property of the owner to make the good the unpaid debts.
- The continuity of business is questioned as the death of owner brings the business to a grinding halt.
Partnership:
- In this case, two or more person join together; contribute share capital and share profit or loss in agreed proportions. It establishes wider personal contacts and hence, large-scale production is possible. The existence of unlimited liability curbs the speculative or risky tendencies of the partners and prevents the starting of risky enterprises. However, unlimited liability makes the business un enterprising, because all partners are liable for the firm’s debts irrespective of the amount of capital each has invested. Further, in actual practice, partners behave in a selfish manner, i.e., doing the minimum and trying to get the maximum out of the business. Any action taken by one partner is legally binding on all other partners and this makes the business more complex. E.g. Small transport operators, textiles business firms, etc.
Merits:
- Generation of greater financial resources coupled with diversified managerial talents.
- Simplicity of the business.
- Enjoys freedom from the govt. control.
- Less business risk as risk is shared by all partners.
Demerits:
- Unlimited liability
- Limited size of business and uncertain life.
- Difficulty in convincing all the partners on certain decisions.
Joint - Stock Company:
- The joint-stock company is owned by a large number of share holders who contribute to the share capital. They are entitled to get the profits (dividends) of the company. The share holders elect a board of directors among themselves. The board appoints one of its members as the managing director. The board directs and supervises the affairs of the company. The joint stock company is based on the principle of limited liability. That is, each share holder is liable for the debts of the company only up to the value of the share he has bought from the company. His other properties cannot be attached by the creditors of the company. Hence, the word ‘Limited’ (Ltd) is written after the name of any joint stock company. Shares are transferable from one person to another through stock exchanges. In general, there are two types of shares: 1) ordinary share and 2) preference share. There is no special privilege attached to the ordinary share and the ordinary share holder gets a dividend out of the net profits of the company. The preference shares are guaranteed by a certain fixed dividend, which is paid out of the net profits before dividends are paid on any other kind of shares. Joint stock companies are of two kinds, viz., private and public. A private company has to satisfy the following conditions:
- Neither share holders nor debenture holders exceed fifty in number.
- Shares are not offered for sales by public issue;
- Directors can disapprove any proposed transfer of shares;
- Nobody outside the company is in a position to control its policies.
- Besides the shares, the companies usually raise funds by floating ‘debentures’. Debentures or security bonds are not shares of the company but they are promissory notes on the basis of which the company raises additional funds in the form of loans. The debenture holders are the company’s creditors and they must be paid the agreed rate of interest whether the company makes profit or not.
Merits:
- As the company can raise a large sum of capital, large-scale production is possible.
- As the company is based on the principle of limited liability, the share holder’s risk is reduced.
- It promotes research and development facilities in order to improve the quality of goods and to minimize the costs.
- Shares can easily be transferred through stock exchanges. A share holder can withdraw whenever be likes without disturbing the company.
Demerits:
- Directors are practically self appointed and the share holders do not have much influence in the decisions taken by the company.
- Share capital is owned by the share holders but risk is taken by the board of directors. Hence, some directors start risky enterprises and this result in inevitable losses to the company.
- The liability being limited and the shares being transferable, the share holders take no interest in development of the company.
Co-operative Enterprises:
- Co-operation is a form of economic organization where people voluntarily work together for a business purpose on the basis of mutual benefit. It is a voluntary organization designed to promote economic interests of its members. Members have equal rights and responsibilities. The co-operative society has the motto of ‘each for all and all for each’. Co-operation is supposed to teach virtues like self-sacrifice, discipline, honesty and fairness in dealings, mutual help and self-reliance. The basic objective of co-operation is protecting weaker sections of the society so that they fulfill their needs. e.g. Primary Agricultural Co-operative Credit Society. Various types of co-operatives societies are: a) Consumers’ co-operatives b) Producers’ co-operatives c) Credit co-operatives.
Merits:
- Membership is open to every person. None can prevent any person willing to join the societies.
- Management of the co-operative is democratic. The members among themselves elect the board of management. Every member has equal right in electing the members irrespective of number of shares.
- The co-operative purchase goods from producers directly and sell them to consumers directly. In this process the middlemen are eliminated.
- The motto of co-operative is service, but no profits. Co-operatives aim at spreading the virtues of discipline, integrity, honesty, mutual help, fairness in dealings, etc.
Demerits:
- Suffers from timely and capital inadequacies. Societies aim at the betterment of weaker section and shares raised them all are of small magnitude. This limitation stands in the way of initiating a large scale enterprise.
- Since there is no bar in entering into a society for anybody, the members are drawn from different sections of the society. This creates lack of understanding among the members. The members as a result do not take much interest and leaves everything to paid workers.
- The transactions of the society are in cash and no credit sales are allowed. Since the members come from poorer sections of the society, they cannot always transact them to buy their requirements.
- Societies function under the regulation of the Government. Govt. even nominates members of the management committee. In nominating the members of political parties take a major role and the business environment suffers.
- There is a lack of incentive and initiative.
- Business leadership is lacking in co-operatives.
State Enterprises:
- A commercial undertaking owned and controlled by the government is public undertaking or state enterprise. Entire investment or major part of the investment is done by the Government. The major considerations for the States to undertake the business are heavy investment requirements, need to protect weaker sections against economically strong and when private traders are hesitant to venture into the enterprise. State enterprise is found in manufacturing, trading and service activities. The Government programmes are implemented through State enterprises. Public undertakings have been started for the following reasons:
- It brings about rapid economic development.
- It ensures that the benefits of development are shared by all the people.
- The state can raise huge capital, which could not be raised by the private sector.
- As a monopoly enterprise, it enjoys several advantages.
Merits:
- Industrial development is possible through State enterprises. Private sector does not show much concern for initiating projects requiring huge capital and long gestation period.
- Planned and balanced growth is possible through the entry of Government. Private enterprises show their preference for establishing industries in developed areas. Government is prepared to establish industries even in underdeveloped areas which ensure balanced growth in all spheres of activities.
- Government takes over the sick units and run them as State enterprises in the interest of the nation.
- The profit obtained by the State enterprise, are ploughed back into the business for further expansion and diversification and also the welfare of the community in general.
- Government enterprise encourage socialistic pattern of society which reduce economic disparities.
- There is an attraction for the aspiring qualified individuals to join the Government service. It commands superior talents.
- The employees feel greatly secured in Government service.
Demerits:
- State enterprise when compared with private enterprise is not run and managed efficiently.
- Red-tap-ism and lack of initiative are prevalent.
- Inefficient management of the administrators results in loss of under utilization of resources.
- The proposed projects by the Government are plagued by undue delays. This is due to the complicated procedural formalities coupled with non-release of funds in time. These delays make the planned estimates go topsy-turvy, consequently the expected benefits would not be forthcoming timely.
- The security of the job of an employee is a State organization makes him not to bother too much to deliver the goods, for he gets his pay regularly.
- Manpower planning is a lacuna in the State enterprises and they employ persons disproportionate to their needs. This result in overstaffing leading to inefficiency.
- These are by the service oriented rather than profit oriented.
- Another demerit of public concern is high overhead costs. These arise out of large amounts of expenditure on unproductive items coupled with high investment on amenities for employees even before the profit is earned.
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