Contents

FOREIGN TRADE ............................................................................................. 2

IMPORT TRADE ..............................................................................................13
EXPORT TRADE .............................................................................................19
MARKETING ...................................................................................................24
BUSINESS UNIT ..............................................................................................47
BUSINESS CAPITAL .....................................................................................149
THE ROLE OF GOVERNMENT IN TRADE .................................................163
TAXATION ....................................................................................................174
CONTRACT OF SALES .................................................................................183
ORGANIZATION AND MANAGEMENT OF A BUSINESS .......................199
THE BUSINESS OFFICE ...............................................................................228

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 FOREIGN TRADE

Is the trade which is conducted across the boundary of the [Link] includes imports and exports .

− Export trade is the selling of goods to abroad.

− Import trade is the buying of goods from abroad.

TERMS OF INTERNATIONAL TRADE

1. Import trade
Is the trade which involves with purchasing of goods and services from another country.

2. Export trade
Is trade which involves selling goods and services outside of the country.

3. Entre port trade

It involves the importation of goods in a country not for sale in the country but for selling
them to another country.

e.g. a businessman in Tanzania may buy goods from Japan and then to another trader in
Zambia.

4. Bilateral trade

Is the selling and buying of commodities with two countries only. eg Tanzania and
Cuba,Tanzania and China etc

5. Multilateral trade

This is when a country trades with many countries. eg Tanzania trades with
Kenya,Uganda,Rwanda,Burundi etc

6. VISIBLE TRADE- This refers to import and export of goods.

7. INVISIBLE TRADE – This refers to import and export of services

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 [Link] OF TRADE-This is the difference between the visible import and the visible
export of a [Link] can be ;

I. Favourable balance of trade

Is when a country exports more goods than she imports during a specific
period.

II. Unfavourable balance of trade

Is when a country’s imports exceed her exports.

9. BALANCE OF PAYMENT

• Is the difference between the receipts (both for visible and invisible exports )
and payments for both visible and invisible [Link]

• Is the difference between the receipts from export goods and services and
payment for the import goods and [Link] can be;

i. Favourable balance of [Link] exists when a country’s receipts

from both visible and invisible export trade exceed its payment for both
visible and invisible
import trade

[Link] balance of payment / adverse balance of [Link] occurs

in a situation where a country’s payment for both visible and invisible import trade
exceed its receipts from both visible and invisible exports.
[Link] balance of [Link] occurs when country's receipts from
exports and its payments on imports are equal.

REASONS FOR INTERNATIONAL TRADE / WHY INTERNATIONAL TRADE?

I. Different in natural resources.

Some countries are blessed with minerals resources some with oil, wealth, some with
oil wealth , some with rich, agricultural and some with industrial expertise.

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 II. Geographical different.

Counties sell what they are physically capable of producing and buy from other what
they either do not here at all or here only insufficient quantities.

III. Different in human skills and productivity.

Many developing countries have million of people who are illiterate and lacking
technical administrative and managerial skills which lead them into substance
peasant agriculture which developed countries people here high skilled engage into
industrial products.

IV. Uneven distribution of capital equipment around the world.

Capital consisting machines tools, factories an essential factor of products, thus is

north America and Europe west work is done machine while in Africa latin America
and ASIA most work is done by hand this mean less can be produced per man, per
hour and that production cost tent to be higher than in industrialized countries.

V. Political reason.

A country may trade with another country basically for political reasons e.g. PTA ,
SADC , the reverse is thus , a country often refuse to trade with countries due to
political disagreements.
[Link] and division of labour among countries.

ADVANTAGES OF INTERNATIONAL TRADE

I. It enable a country to get what she can not produce herself e.g. Tanzania import
vehicle, heavy machine , crude oil etc

II. It enable a country to dispose (sell) off her surplus goods which would otherwise have
to be destroyed.

III. It offer the greater variety of goods to the country.

IV. At the time of calamities e.g. flood, drought , famine , food and other supplies can be
obtained from other countries.

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 V. It promote health competition among local producer to absence of international trade
may establish a money and charge exorbitant prizes.

VI. It promote friend ship and peace among nation since people moves from one country
to another which led to international understanding.

VII. It enable country to earn foreign exchange.

DISADVANTAGES OF INTERNATIONAL TRADE

a) Price fluctuations and unexpected fall in demand. This is when a country is too
much specialized on production of one commodity e.g. Zanzibar in clove.

b) When a country export mainly minerals, it will run out of its deposit and end up
with nothing else to export e.g. Zambia fails to intensify her industries and
agriculture.

c) Some of the imported goods have adverse effects to the citizens of importing
countries e.g. harmful drugs.

d) Problems of dumping i.e. importing expired items which their uses are out dated.

e) Political instability

A stable political system is conducive to smooth business relationship with all

party of the world problems of political instability may lead to civil strikes, wars
sudden, political change etc.

TYPES/ FORMS OF INTERNATIONAL TRADE

I. Bilateral trade.
II. Multilateral trade.
III. Entre port trade.
IV. Visible trade.
V. Invisible trade.

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 VI. Export trade.
VII. Import trade.

BARRIERS TO INTERNATIONAL TRADE/TRADE RESTRICTIONS

These are obstacles set up to restrict free movement of goods between different
countries. Both imports and exports [Link] are:-

I. Import protectionism / total ban (embargo).

This is when the import of certain commodities are totally for bidden by law to
be brought into a country.

II. Tariffs / customs duties.

Are tax imposed by importing country to goods coming into the country. The
tax is paid to the government of the importing country by the importer.

III. [Link] is the legal limit placed on the amount of a products allowed to
enter a [Link] purpose of the quota is to conserve on foreign exchange
and
protect local industrial and employment

IV. Subsides.

− These are payment made by the government to producers of alternative for

foreign [Link] effects of subsidies is to reduce the cost of producing the
goods thus allowing them to be sold at lower price abroad.
V. Exchange [Link] this method the government interfere in the
process of buying and selling hard currencies the government may allot or
ration the foreign exchange to the importer so that they can buy only a limited
amount of goods from foreign countries.

VI. Preferential [Link] is when discrimination is made

in the rate of duties with regard to different countries goods with preferential
treatment are charged lower duties.

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 VII. Import [Link] this system the government allows the import of goods
with a permit inform of import license (OGL).
[Link] regulation eg by ministry of healthy,agriculture ministry and
National bureau of standards.
IX. Devaluation policy.

KINDS OF TARIFFS

Two basic kinds of tariffs exist

a) Advalorem duties

This is he duty expressed as a percentage of the value of goods e.g. 10% of import
[Link] is a customer duty levied according to the value of goods.

b) Specific duties

It is a customs duty levied according to the weight or volume of goods.

These duties are expressed as a specific amount of the currency of money per unit of
quantity e.g. 100 per pen.

REASONS FOR IMPORTING TARIFFS/REASONS FOR PROTECTIONISM

a) National security

Countries needs to have food, industries etc to satisfy for the need. Tariffs would present the
entrance of importer goods hence force citizen to produce in their own.

b) To protect infant industries

Most young countries can not complete with developed counties product hence impose
currency of money per unit of quantities e.g. shs 100 per pair.

c) To promote employment

Government should imposed restriction this will results to increase domestic production
which in turn will increase domestic employment.
[Link] generate revenue for government through import and export duties.

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 e)To prevent consumption of harmful commodities to the lives of the people.
f)To avoid dumping and its effects.

IMPORT TRADE
Is the buying of goods and services from other countries.

Those firms wishing to import goods from abroad may against the whole process for
themselves but only the large firm can do so firm use the following ways they
import

A. Import merchants

These merchants deals on their own behalf. They keep a watch on goods offered
for sale by foreign producers buy then store there in if necessary and disposal
them on the home marked.

B. Import [Link] agents represent number of overseas exporters in this

country.

− They work on behalf of number of overseas . exporters and earn or receives

commission by selling their principals goods

− They are called “ del-credere agents” and they receive an extra commission
to cover the risk that they may have incase goods are left in their hands.

C. Import brokers

− Import broker usually specialized in particular product

− They act on behalf of manufacture wishing to obtain supplies of goods or raw materials
from abroad , or on behalf of overseas producers wishing to sell there in this country.

DOCUMENTS USED IN INTERNATIONAL TRADE

1. Shipping note

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 This is the document which is issued by the shipping company which contains instructions to the
captain of the ship to receive on board the vessel with the specified quantity of goods from the
exporter concerned.

2. Weight note

This document states the weight and volume of the goods delivered at the dock.

3. Invoice

This is the bill which states the kind of goods that have been sent to the buyer , their weight
volume, making value, price per unit, insurance freight and other charges to be paid to the
exporter.

4. Consular invoice

− This is an invoice signed by consul office for importing country verifying that the price
quoted on the invoice is the exporters’ country. This document enables the importer to
obtain prompt clearance of goods after they read the port of destination .Or

− This is an invoice that has been signed by the embassy of the country to which the goods
are being exported.

5. Bill of landing

This is a commercial document signed by the ship owner or ship master or by an agent of the
ship owner, stating the condition under which the goods are being carried

The bill contains

i. The name of the ship.

ii. The quantity.
iii. The type of the goods.
iv. Special marking on the package.
v. The name of the part of embarkation and that of unloading etc
Types of bill of lading

a) A clean bill of lading

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 This states that the goods and packages of goods were in good condition
at the time of loading them in a ship.

b) The dirty bill of lading

It is also called a “ foul” or “ clause” bill of lading.

This bill of lading states that some of the packages or part of the container
were not in good conditions e.g. damaged.

IMPORTANCE OF THE BILL OF LADING

❖ It is the semi - negotiable instruments being a document of little of goods

❖ It acknowledges the receipts of goods on board or ship

❖ It is a proof of a contract between the shipping company and exporter of the goods
which covers all terms of contract of at freight between the two parties

❖ It provides the information to be interested parties as it disclose many details of goods

6. Certificate of origin.

− This state the original place of production.

− This supplies because some country have natural agreement to charge or to charge less
customs duties on goods imported from one to another.

7. Letter of hypothecation.

Is a letter from an exporter to his bank authorizing the bank to sell goods being exported for the
best possible price if the bank can not obtain payment on a bill of exchange.

8. Certificate of insurance.

Is usually enclosed together with the other documents assures interested parties tat the goods
have properly insured.

9. Packing list.

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 This is a document written by the supplier to the buyer of the goods informing the buyer of the
goods and specification of the packing materials of packages given to the transporter.

10. The indent.

This Is a form of order which is sent to the foreign agents for goods to be imported.

It states the exact details of goods requiring date of delivery, methods of packing quantity of
goods , quality of goods the price at which the importer is willing to pay etc.

11. Letter of credit

It is a documents issued by the importer by the importer bank in favour of the foreign dealer
(seller ). It contains an undertaking by the bank concerned that the bill of exchange drawn by
the foreign dealer on the importer will be honoured on presentation to the extent of the
amount specified in the letter of credit.

INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

Quotation for the goods imported

The quotation of goods is a reply to an inquiry mad by the importer special terms called “incoterms” are
used in quotation of price in international trade

These terms include:

 EX-WORKS

Price is quoted just when the buyer has to incur all expenses from the place of the
producer up to his place of business.

 F.O.R ( FREE ON RAIL ) OR F.O.T (FREE ON TRUCK)

Price include all expenses until the goods are loaded on rail or truck the buyer has to pay
all subsequent expenses until the goods reach his premises.

 FREE ON DOCK (F.O.D)

The price quoted include ex factory price plus all charges until the goods are delivered at
the dock. It include all other subsequent charge like dock.

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 FREE ALONG THE SHIP (F.A.S)

The price quoted include all charges until the goods are placed at the side of the ship
but any other charge of loading etc are excluded.

 FREE ON BOARD (F.O.B)

The exporter incur all the risk involved in the transportation of goods until they are
loaded into the ship the importer takes over from that point

 COST AND FREIGHT (C.F)

The exporter incur all cost involved in transportation of the goods until the port of
destination the importer doesn’t pay for the insurance.

 COST, INSURANCE AND FREIGHT (C.I.F)

The quotation of the rice of goods includes freight and insurance charges hence the
seller pays insurance premium and transport cost up to the pot of destination e.g.
c.i.f dsm ,
but it exclude offloading [Link] exporter is responsible for the cost until the
port of destination in addition the exporter pays of destination in addition the
exporter pays for the insurance.

 COST , INSURANCE , FREIGHT AND FREE OUT (C.I.F.F.O)

The exporter is responsible for all charge until the goods have been discharged at the
port of destination.

 COST , INSURANCE , FREIGHT , AND INTEREST (C.I.F.I)

The quotation include the interest on the value of shipment when the agent is acting on
behalf of the importer, then the agents commission is added and thus(c.i.f.i )

 FRANCO DOMICILE, RENDU OR FREE

The exporter pays for all costs until the goods arrived at the buyer place of the business.

 DUTY PAID

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 The price quoted include the charges plus import duty. It may or may not include the
charge for warehousing to the date of withdrawal.

 IN BOND

It means that delivery is to be made into the customer bonded warehouse at the port of
destination but any other charges for withdrawal from there has been borne by the
buyer

PROBLEMS OF INTERNATIONAL TRADE

• Geographical distance

• Language differences

• Documentation processing problems

• Cultural and religious difference

• Tariffs / barriers

• Customs regulation

• Monetary system

IMPORT TRADE

What is it?
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Is the purchase of goods or services from other countries.

TYPES OF IMPORT

Import trade may be classified into two parts of:

• Direct import trade.

• Indirect import trade.

Direct import trade.

Is the kind of import on which a person in his own name import goods or services without
making use of middlemen. Normally such kind of import will be done for a person own
consumption rather than selling

Indirect import trade.

Is a kind of import on which a person purchase goods or services through the use of middlemen,
professional importers, import merchants and the like. Normally such kind of import will involve
bulk purchase and will be done for the sake of selling in home market.

TYPES OF THE INFORMATION NEEDED BEFORE IMPORTATION

1. To know the procedures and formalities of importing in various countries.

2. To know the culture of people around the world before supplying goods.
3. To know the international exchange rates to achieve profitable transactions.
4. To know the changes brought about weather conditions in various parts of your source of
supply/ import.
5. To know the technological changes with regards to the goods you are dealing with.
6. To know the total cost of goods to be imported up to your premises .

SOURCES OF INFORMATION FOR IMPORTER

The following are some of the institutions or organizations which will help importer to get
information about import trade

1. Tanzania Chamber of commerce, industry and agriculture (TCCIA).

2. Foreign firms representatives in the country.
3. Board of external trade BET.
4. The consular services.
5. International trade fairs.
6. Newspapers, journals, publications (through advertisement)
7. Visiting various websites.
8. Direct contact with the foreign exporters through several means of communication.

[Link] Chamber of commerce, industry and agriculture (TCCIA):Is an organization

14
which was established in 1988 with the support of the government of Tanzania to strengthen the
private business sector throughout [Link] has members and branches almost in all
regions which are autonomous in their operational activities

Services provided by TCCIA

1. Offers expertise in many areas of interest to local businesses through seminars, workshops and
training, example seminars as topics of burning issues.
2. Advice: Businesses get advice face to face or forward questions via e-mail.
3. Providing business supportive initiatives which includes business license.
4. Business promoting activities like National and International trade affairs, International
delegations these in turn give members the possibility to increase trade opportunities.
5. TCCIA receivers a great number of business inquiries from all over the world.
6. Publications: Business information about companies typing to find customers or suppliers are
published and distributed to all member.
7. To settle disputes among members.

INTERMEDIARIES IN IMPORT TRADE

• Who are these intermediaries?

These are specialized traders in import trade. They perform the following roles

1. Ordering the goods.

2. Documentation.
3. Receiving the goods.
4. Clearing and forwarding the goods.
5. Distributing the goods.

Who are they?

1. Import merchants.

These are intermediaries who buy goods from abroad in their own name and sell them locally.
They maybe wholesalers or middlemen. They normally deal in general merchandise.

2. Import commission agents.

These are traders who import goods at overseas sellers’ risk. They are sent consignment by
overseas sellers and market they are goods locally at the best price. They are paid commission
from the proceeds of sale in an agreed percent. If goods are not sold/ unsold stock, they can
return them at the sellers’ expense.

3. Import brokers.

15
These are people who do not buy or sell goods themselves but arrange deals between buyers and
sellers. They possess knowledge of available market both locally and internationally and hence
connecting the importers with exporters. Finally they are paid commission known as brokerage.

4. Stockist distributors.

These are merchants who are specialized in importing goods of a particular type which are
skilled on them. They normally offer other services like “after sale services”, repairs and
distribution of commodities to consumers.

Indent house;

is an import agent of a firm who import goods on order received from the domestic buyer. The
importer enter into agreement with the indent house for the supply of certain specified goods by
filling and signing special forms regarding the full descriptions of goods to be imported.

Manufacturers representatives;

Those traders who represent manufacturers in a foreign country whose duty is to sell
manufacturers products in the country they represent.

IMPORT PROCEDURES AND DOCUMENTATION IN TANZANIA

In order to import goods in Tanzania, the following procedures may be followed.

1. Making an inquiry: This requesting information on goods to be imported. This can be made
orally, electronically through an internet or by writing a letter.
2. Contract to buy goods: An importer enter into contract with exporter and receivers a pro-forma
invoice.
3. Applying and obtaining import permit or import license from legal empowered body. Sometimes
government permit importation of some goods without import license, such goods are shown in
the open in general license (OGL) list issued by the Government from time to time.
4. Arrangement for payments.
5. Receipt of the shipping documents and documents of the title.
6. Customs Clearance: Customs Clearance can be done by clearing and forwarding agents.
7. Collection of goods: A bill of entry is prepared and submitted to customs officer and goods are
released after payments of important duty (if any).

• Bill of entry is a document containing the name of the port of which goods are received, name
of the ship, descriptions and value of the goods entering the country.

IMPORT [Link] a action taken by a country to regulate the volume of goods to be

purchased from the foreign country. This will be among the measures to protect the balance of
payment being disequilibrium (unfavourable).

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Advantages of controlling imports

1. To protect infant industries at home against imported goods.

2. To make a country self reliant.
3. To reduce the balance of payment problem.
4. To encourage specialization at home.
5. To avoid the entry of harmful commodities into a country.
6. Enable a country to develop its own natural resources.

Disadvantage of controlling imports

1. Resources misuse by protected industries because this will encourage inefficient industry to
remain in a business. This results to misuse of resources.
2. Increasing costs: High tariffs on raw –materials imported increase the cost of production while
tariffs on finished goods raise prices and cost of distribution which can cause inflation.
3. Encourage poor quality of goods: Protected industries may become careless and produce poor
quality products.
4. Protected industries may fail to produce enough to meet demand appropriately hence storage
of goods in the local market.
5. Monopoly creation: When the industry is comprised with few organized firms protection may
cause monopoly which can lead to poor services delivery.
6. Smuggling: High tariffs encourage smuggling because importers are not willing to pay high tax
levied on imported goods.
7. Limited choice to consumers especially for goods produced abroad.

Methods or ways of controlling importation/imports

1. Imposing heavy tariffs:Tax or duty levied on traded commodities crossing the national
boundaries.
2. Fixing import quotas: Fixing maximum units or value of goods/services for import
allowed.
3. Total ban policy: A complete prohibition of importation of named goods.
4. Exchange control policy: Through the central bank a country restrict among of foreign
currencies available for importing goods.
5. Subsidization policy: Government may subsidize domestic producers to enable them to
complete with foreign sellers, hence low price for home goods.
6. Adopting devaluation policy:Deliberate action by government to reduce the value of her
currency so as to make import expensive.

INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

INCOTERMS are different price quotations, terms and conditions employed in

international transactions specifying who is to incur or not to incur certain duties during

17
importation of
commodities between the importer and exporter.

IMPORTANCE OF INCOTERMS

i. They are useful in identifying the duties and obligations of each part i.e exporter and importer.
ii. They are indicating the lines of demarcation of duties and an obligation i.e where the exporter
ends and where the importer begins.
iii. They are influencing both the importer and exporter to do their utmost to fulfill the terms and
conditions agreed upon hence better performance.
iv. They are governing the methods and responsibilities as well as accountability in affecting
payments of costs to be incurred e.g terms of delivery decide who pays the costs of
transportation and incidental charges.

The following are some INCOTERMS;

• F.O.R (Free on rail) ─ Which include expense of packing and delivery up to the
railway station in the exporter’s country.
• FRANCO ─ Include all expenses such as import duty, carriage and delivery charges,
dock charges and delivery up to the importer’s premises.
• F.O.B(Free on board)─ Which include all expenses such as packing, loading charges,
export duties etc to be covered by the exporter for taking goods until they are delivered
on board the ship.
• F.A.S (Free Along side Ship)─ The price consists of all expenses such as dock charges
packing and carriage to be covered until the goods are placed along side the ship.
• C.& F (Cost and freight) ─ The quotation refers to mean that the exporter bear all
expenses of carriage, export duties, freight charges, loading charges, etc except insurance
up to the port of destination
• [Link] (Cost, Insurance, Freight ) ─ Covering all expenses under C.& F quotation plus
insurance.
• C.I.F.I.(Cost, insurance, freight and interest) ─ Covering all expenses under C.I.F
quotation plus interest on the value of goods.
• C.I.F.& E ─ (Cost, insurance, freight and Exchange) ─ Covering all items of
expenses under C.I.F risks of exchange fluctuations.
• C.I.F.& C(Cost, insurance, freight, interest and commissions) ─ Covering all expenses
as per C.I.F.I quotation plus the commission of importer’s agent.
• [Link].O(Sale Cost insurance freight and free out) ─ This means that the seller is
responsible for all charges until the goods have been discharged at the port of destination.
• FREE DOCKS – The price include all expenses until the goods reach the docks.
• EX-SHIP(FREE OVERBOARD) ─ Which include all expenses up to the port of
destination.
• PRICE IN BOND ─ Which cover all expense till the goods are delivered to the port of
destination.
• SALE EXGODOWN (EX WORKS) ─ It is the responsibility of the buyer or importer
to collect the goods from the go down or the works of the seller or exporter by meeting
all expenses and take care all risks. It is also called ex- factory.

18
 • SALE FREE ON WHARF.(F.O.W.) ─ This is a case where by the seller makes that
the goods are transported to the nearest stipulated wharf and incur all the transportation
costs up to that port.
• SALE, COST, INSURANCE,FREIGHT AND FREE OUT(C.I.F.F.O) ─ This means
the exporter is responsible for all charges until the goods have been discharged at the port
of destination.
• DELIVERY DOCK(DD) ─ Include the cost of carriage to the docks.

EXPORT TRADE

This is one of the branch of foreign trade dealing with selling of goods, raw materials or services
to foreign countries.

It involves two main types;

• Direct export trade: This is when the sellers exports goods themselves it does not involve
the use of agents.
• Indirect export trade: This is when export of goods and services is through appointed
agents who work for a commission.

Advantages of direct exportation

1. It involves the exporter himself and therefore reduce the cost of exportation. In this way
exports can be sold cheaply in foreign markets and attract many customers hence big
sales and profits.
2. It enables the exporter to be familiar with the changing market conditions, in this case
he can export goods more effectively.

Disadvantages of direct exportation

1. Exportation may be done inefficiently as the exporter may not be professionally sound
enough to carry out exportation.

2. The exporter has to incur more distribution expenses through the use of intermediaries
hence fall in profits and high price of exports which may lead to customers not to buy the
products.

[Link] does not allow the exporter to be familiar with real export process and actual foreign
market environment as most of the tasks are performed by intermediaries.

19
 4. Sometimes these intermediaries (middlemen) perform exportation in efficiently which
results to losses to the export firms. It makes the exporter busy in both production and
actual selling which can

lead to inefficiency and diseconomies of scale.

Advantages of indirect export

3. High degree of assistance is attained in the process of export from professional export
intermediaries hence more success in export business.
4. There is high possibility of establishing and increasing the size of foreign markets
through using various intermediaries.
5. Export agents can perform many activities in the complicated foreign markets situations
hence helping much in business.
6. Export agents can assist in such activities like repacking and assembling of products
which is of great help to producer.

Disadvantages of indirect exportation

[Link] IN EXPORT TRADE

1. Foreign commission agents: These are agents who sells the goods on behalf of
the principal and remit the balance of money to the exporter after deducting
commission and other expenses by them in the course of selling the goods. They
are found in the foreign country where goods are to be sold.
2. Exporters own representatives: These are exporters sales representatives based
in the country to which products are to be sold, they collected orders from
customers and sent them to the exporter for processing according to the terms
of each order.
3. Exporters brokers: They assist exporters to negotiate on ally terms in exporting
the goods in return they are paid brokerage for performing the negotiation.
They can be locally based or based in other countries.
4. Marketing boards: They are mainly dealing with agricultural exports, selling
produce to the agents of foreign buyers by auction or opening offices abroad to
boost export of their produce e.g. coffee marketing board.
5. Buying agents: Many overseas firms have their own buying agents in the
country who buy the goods for their firms therefore local producers can sell the
goods abroad through them.

IMPORTANCE OF EXPORT TRADE

1. It encourages specialization among countries.

2. It encourages economies of scale.
3. It reduces scarcity of goods.
4. It stimulates international understanding among countries.
5. Enable a country to earn foreign exchange through export duties.

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INFORMATION ON EXPORT TRADE

The type of information which are very important before exporting are as follows;

1. Place of export (market).

2. Kind/type of goods to export.
3. Marketing strategies.
4. Procedures and documentation.
5. Rate of exchange e.g. Tshs Vs Kwacha.
6. Distribution channel to be used.
7. Trade policy and restrictions.

THE SOURCES OF EXPORT TRADE INFORMATION

1. Board of external trade (BET): Provides trade information to both local traders and firm
intending to buy goods from within the country.
2. Chamber of commerce: This institution can give important information to intending exporters
on firms and individuals who want to buy good from the country. Example in Tanzania chamber
of commerce, industry and agriculture (TCCIA).
3. Consular offices: Can give intending exporters a list of individuals and firms wishing to buy
products from the country.
4. International exhibition: Through which traders can exhibit their products and explain their
merits to prospective customers who can place big orders.
5. Ministries: In Tanzania we have the ministry of commerce and industries through its department
of external trade which is responsible for promoting exports in the international market. I.e.
from this department prospective exporter can get useful information on what to export.
6. Other sources like:

-Reading international business newspapers, publications and magazines.

-Having personal inquiries to prospective importers in foreign countries.

-Visiting websites.

EXPORT PROCEDURES AND DOCUMENTATIONS IN TANZANIA

Every country has its own procedures in exporting goods but having the same use of documents.
In Tanzania the following procedures must be carried into force

A. PRELIMINARY PROCEDURES

These are early procedures which includes;

[Link] into export contract: Importer and exporter have to agree on some terms and
conditions then sign the contract.

21
[Link] an inquiry. The intended exporter receives a written request from a foreign buyer for
information regarding the price and all other description on the goods he wants to buys example
quality, quantity,features,time and methods of delivery and payments.

[Link] a quotation: The intended exporter sends a document giving descriptions on the
goods to be sold.

[Link] indent: After receiving quotation a foreign buyer (if satisfied with terms of sale)
makes order by sending indent to the exporter.

An indent is an International order which states the exactly details of the goods required, date of
delivery, shipment instructions methods of setting debs.

[Link] and obtaining export license or permit: Some products require specific permit from
the Government departments, institutions or controlling body legally empowered to provide
license which allow the exportation according to set government conditions.

[Link] a letter of credit: The exporter should demand a letter of credit from the importer,
this letter of credit assures the payment from the importer.

B. EXPORT SHIPMENT PROCEDURES

After the exporter is satisfied with credit worthiness of the intended importer he makes
arrangement for the shipping of goods.

[Link] for shipping goods: Due to complication in the shipping the goods as per
formalities are concerned ,exporters can decide to
employ the clearing and forwarding agents. The shipping of goods arrangements
includes the following formalities:
-Application for customs permit from customs office.
-Booking space in ship for carrying goods.
-Issue of shipping order. After the terms and conditions of shipment are settled, the
shipping company issues a shipping order this is a
document evidencing a contract made between the shipping company and exporter
or his agent.
-Attending various customs formalities.
-Placing goods on the clock.
-Receipt of the goods by the ship caption or his assistant.
-Sending documents to importer to allow him to collect the goods once they are
delivered.

C. SECURING PAYMENT PROCEDURES

22
 The exporter secures payments in settlement of the transactions in one of the
following ways of financing foreign trade:

EXPORTER SHIPMENT PROCEDURE

- Bill of exchange.
- By getting a letter of credit issued in favour of exporter by the importers bank.
- Documentary credit.
- Documentary bill.
-Bank draft.

INTERMEDIARIES IN EXPORT TRADE

The common used intermediaries in export trade are;

• Marketing boards.
• Foreign commission agents.
• Brokers.
• Representative offices.
• Buying agents.

INSTITUTIONS INVOLVED IN EXPORT TRADE IN TANZANIA

[Link] BOARD OF EXTERNAL TRADE(B.E.T.)

The board of external trade was instituted in 1997 and started operations in the same year.

FUNCTIONS AND OBJECTIVES OF THE BOARD

1. To provide advisory services in external trade development policies and measures.

2. To provide specialized assistance in the development of export products and technology
to improve the quality and quantity of exports.
3. To coordinate and monitor all export management programs including management of
export targets and incentives.
4. To provide functional advisory services in such areas as costing and pricing of exports,
product adoption, packing for export, trade information, trade publicity, formulation of
export marketing policies and plans and trade fair participation.
5. Amelioration of basic infrastructure of export financing transport, fiscal and trade
policies and development of export industries.
6. Provision of useful information and education to local businessmen by organizing
courses and seminars and assists them by providing in certain cases, export credit
guarantee.
7. To arrange exhibitions in foreign countries and inside the country to attract customers for
Tanzania products.

ROLES OF THE BOARD OF EXTERNAL TRADE(B.E.T)

23
The board of External trade was established to perform the following objectives;

1. To help industries find markets for their products throughout the world. It provides
assistance increasing and developing Tanzanian exports by actively opening up new
markets.
2. To provide overseas businessmen wishing to trade with Tanzania with the information
they need. The information provided coves Tanzania’s import and export trends.

2.T.P.A (Tanzania Port Authority)

This is an authority which dealing with controlling securities, shipments clearance of goods to
and from other countries.

Roles/ Functions

1. To ensure that there is adequate facilities for all cargo(goods) passing through their ports.
2. To enforce securities of cargo in their ports.
3. To ensure a speed, efficiency and smooth flow of cargo from sea transport.

MARKETING

This is a place where buyers and sellers meet and exchange will take place.

OR

Is a relationship that exist between buyers and sellers and no matter they communicate
each other.

CONDITIONS (ESSENTIALS) FOR EXISTENCE OF THE MARKET

These includes

1. Existence of commodities.
2. Existence of buyers and sellers.
3. Existence of price.
4. Competition.

24
 TYPES OF THE MARKET

Markets can be classified into 4 groups of 8 types as follows

1. According to type of products exchanged

The following types can be formed

• Primary market.
• Secondary market.

[Link] to geographical position of buyers

The following types can be formed

• Local market.
• International market.

[Link] to groups of buyers

The following types can be formed

• Consumer market.
• Producer market.

[Link] to the time exchange take place

The following types can be formed

• Spot market.
• Future/forward market.

MARKET SEGMENTATION

Refers to the partitioning of potential customers or consumers into group of differentiated

submarkets. It involves the following characteristics;

• Cultural grouping.
• Geographical variations.
• Behavioral pattern.
• Social economical variables.

FUNCTIONS OF MARKET

The following are functions performed by market;

25
 1. To facilitate transactions.
2. Source of supply.
3. Provision of contact between buyers and sellers.
4. Stabilize prices.
5. Motivate and increase production.
6. Self employment like entrepreneurs.

MARKETING RURAL PRODUCTS

COMMODITY MARKET

A commodity market is highly specialized market where raw materials are bought or sold on an
international [Link] commodities are dealt in different markets, all of which have their
own methods of trading e.g tea, and coffee are graded and sold in auction according to their
grades. Whereas metals are sold by private negotiations between member brokers are involved in
trading to represent buyers and sellers.

The beneficial effects of a commodity market include the following;

-It helps in custom, control over raw materials concentration of demand for raw materials
situation of a port or an important trade route and other similar influences. This is due to the act
that each of
these markets is centralized or localized in some important city though it embraces world in
the course of its operations.

-Also a commodity market provides highly developed facilities not only for gathering
together of buyers and sellers but also for fixing prices, grading commodities and the publication
of market reports
containing particulars of prices, quantities sold and information which are helpful to
participants.

- Most of these markets are conducted on the basis of samples and grade. This enables
transactions to be affected by telegrams, letters or by simple reference to the grades or samples.

GENERAL MARKETING OF AGRICULTURAL PRODUCTS

(I) Agricultural products from small scale [Link] scale farmers sell most of food crops
through either;

a)Directly selling the final consumer or

b)Selling to traders who then sell to final [Link] most of cash crops from small scale
are sold either

26
 c) To the buying agents who then either sell to the marketing board which also sell in both
local and foreign market

or

To the cooperatives which then sell in both local and foreign market.

(II)Agricultural products from large scale farmers-Most of large scale farmers sell cash crops to
the marketing boards or directly to the foreign
[Link] crops are then sold to processors who them into finished goods which are then
sold to final consumers in both local and foreign
through wholesalers and retailers.

THEORY OF MARKET

Meaning of market

-Market means anybody a person who are intimate business relations and carry on extensive
trans cross in any commodity.

-Market-Is a set of arrangement whereby buyers and sellers come into contact to exchange
goods and services.

ESSENTIALS OF MARKET:

[Link] of a commodity

In the market there must be commodities which have been bought for sale.

[Link] of Buyers:

The people who are able and willing to purchase the commodities being sold at particular price
and time.

3. Presence of seller.

The people who have brought their commodities for sale.

[Link] of an area(region)

Refer to a particular locality where the transactions are taking place

[Link]

One price should prevail for the same commodity at same time

27
 EXTENT OF A MARKET

Refers to the size of the market. The market may be wide or narrow.

Determinants of the size of the market

[Link] of the commodity

In order to have a wide market a commodity must be (i) portable (ii)durable (iii) suitable
for sampling, grading and exact description and (iv) such as it supply can be increase such
commodities are
wheat, gold, government security [Link] articles like brick and perishable articles like
fresh fruit and vegetable have a narrow market.

[Link] of demand .A commodity which is universal demand e.g. gold & silver will have a
write market similarly, a commodity of general consumption has a wide market.

3..Means of transport and [Link] size of the market depends upon the extent
to which means of communication and transport have been developed. A properly developed
transport and
communication system has enabled commodities be carried long distances and establish
wide contacts. The has widened the market.

[Link] and [Link], goods cannot marketed in didn’t places unless peace and
order prevail in war-time, due to insecurity in war zones, markets get restricted. This extent of
the market
depends on the peace prevailing in the region.

[Link] and credit [Link] the currency and credit system of the country are well
developed marketing can be conveniently and profitably carried on over extensive areas. The
extent of the market
depends on the state of the currency and the confidence it inspires.

[Link] of the [Link] may be restricted by the policy of the state. Prohibitive duties and
quotas restrict the market. The zoning system eg: wheat zones, which allow free movements of
goods only
within a certain zone has the same effect. Thus the government policy can also affect the
extent of the market.

[Link] of division of [Link] know that division of labour is limited by the extent of the
market. The converse of this is also true. That is the extent of the market also in its turn depend
upon the
degree of division of labor the cheaper the articles and wider the market.

FUNCTIONS OF MARKETS

28
 There are several ways of classification of markets. Some of these types are

[Link] of market according to what a bought and sold

[Link] market: Deals with selling and buying of final goods eg:markets of sugar, rice
beans, etc

[Link] market: Deals with buying and selling of factors of prod in.e.g labor
market,capital market, market for land

[Link] market: Deals with selling and buying (exchange) of currencies.

The currencies are being sold and bought. Eg. Market for foreign currency in Bureau de
change.

[Link] of market according to the place where the product is bought and sold

1. Local market: This occurs when any commodity is produced and sold on local basic eg local brew
like “mbege” is sold around the areas = of its production.
2. National market: It occurs when any commodity is bought & sold in the whole country. Eg. a
commodity which faces a national market is soap found thought Tanzania.
3. International market: It occurs when a commodity is bought & sold in many countries of the
world eg. medicines fetch international market.

[Link] of market according to commodity.

1. General market

This type of market occurs when various commodities are bought & sold at any specific [Link]
we can say Kariakoo is a general market.

2. Specific market:

It occurs when only: It occurs which only one kind of commodity is being bought & sold at any
specific area. [Link] es salaam stock exchange (DSE) where shares are only bought and sold.

3. Grading market

This is type of market which occurs which any commodity is sold & bought according to its
grade.

29
 [Link] of markets according to future

1. Day to day market:

This type of market occurs when the price of any commodity is determined according to demand
and supply condition on any particular day.

2. Short period market:

It occurs when the price of any commodity is determines according to demand conditions of that
short period. In the short period the firm can any the variable inputs like labor, rim, [Link] this
case, the supply can’t be increased beyond the existing capacity of the present firms.

3. Long period market:

This kind of market occurs when the price of any commodity is determined according to the long
run demand & supply conditions. In the long run period it is to change the amounts of any
factors of production such as establishing new firms, construct building etc.

[Link] of market according to situation & structure of market.

Market is based on the buyers and seller (degrees, types of commodities which differentiated,
and if there are some barrier. Based on this classification market

Types:-

• Perfect market
• Imperfect market

Perfect market.

A market issued to be perfect when all the potential seller and buyer are promptly, aware of the
price to which transactions take [Link] market structure is character by the following.

1. Large numbers of buyers and sellers.

Under this there is a large number of seller & buyers of commodity in the market and therefore a
buyer or seller cannot influence anything in the market for example the price and the output.

[Link] Products.

30
The commodity produced by all firms is totally identical in all aspects therefore a buyer has no
specific preference to buy from a particular seller.

[Link] entry and exist.

Any new firm is free to join the market and any already existing firm to leave the market.

[Link] knowledge.

All seller and buyer have full knowledge about the market condition for example the price.

[Link] mobility of factors of production.

Factors of production such as labor and capital are perfect mobile both geographically and
occupationally. Mobility of factors of production is essential to enable firms and the industry to
achieve an equilibrium position.

[Link] and utility maximization.

The major goal of a firm is to maximize profit and that of the buyer to maximize utility.

[Link] transportation cost.

Under this market structure is also assumed that there is no transport cost for example in the
movement of goal, r.m and so on. If cost of transport is to be there, the prices must differ to that
existing in different sector of the market.

GENERAL MARKETING OF MANUFACTURED GOODS

Manufacturers sell goods to the final consumers in any of the following ways;

1. Selling directly to the final consumers through their own retail outlets.
2. Selling to the wholesalers who then sell to small scale retailers who also sell to the final
consumers.
3. Selling to the wholesalers who then sell to large scale retailers who have to sell to final
consumers
4. Selling to large scale retailers who then sell to final consumers.

MARKETING

The concept of marketing v/s market

31
Marketing comes from the term market. Therefore marketing is the total system of interacting
business activities designed to a product planning, promotion and distribution which will satisfy
present and potential buyers of goods or services to be produced. A person who does marketing
is known as marketer.

OR

Marketing is the business process by which products are matched with the market and through
which transfer of ownership is affected.

OR

Marketing refers to central activities of commercial enterprises that engaged in providing goods
and services to the market.

WHILE

A market is a place where buyers and sellers meet and exchange will take place.

OR

Market is the relationship between buyers and sellers and no matter how they communicate each
other.

ELEMENTS OF MARKETING ACTIVITIES

These are the requirements for marketing process to occur. It involves the following

1. There must be two or more parties to be involved

2. There should be needs or wants to be satisfied
3. There should be products or services to be exchanged and create satisfaction
4. There should be something in value to exchange

IMPORTANCE OF MARKETING

Why business firm engage in marketing activities?

The importance of marketing in a business firm can be divided into three aspects as follows

• To the buyers.
• To the producers (suppliers).
• To the nation (country’s economy).

IMPORTANCE TO THE BUYERS

32
 1. It helps them to get product they require at the right quality, quantity, place, time and
vender (seller).
2. It enables them to get the right information about the product changes, design, views and
features.
3. It enables them to get a wider choice (varieties) for the best products among many
products of different producers.
4. Enables them to acquire goods or services at an acceptable price.
5. Enable them to benefit from reliable and permanent flow of goods from producers thus
stabilize market and price.

IMPORTANCE TO THE PRODUCERS (SUPPLIERS)

1. It helps them to sell their products at the right consumers who are ready to buy and pay
the price accordingly.
2. It helps them to get information as regards to product they produce whether liked or
disliked, whether fast or slow moving items.
3. It enables them to raise the level of productivity hence achieving economies of scale.
4. It enables them to obtain economic value of goods hence provide the business with
potential income and surplus.

TO THE NATION

1. It acts as a tool of economic growth of a country.

2. It offers employment opportunities
3. It brings about the integration of various economic sectors like transport, industries.
4. It makes full utilization of resources of existing assets and other products.
5. It contributes to the development of entrepreneur and managerial class of people.

TYPES OF MARKETING

We may classify market into 3 groups

1. According to demand state.

2. According to the nature of products.
3. According to the firm marketing scale.

ACCORDING TO THE DEMAND STATE

The following types can be found

1. Negative demand.
2. Latent demand.
3. Flattering demand.
4. Irregular demand.
5. Full demand.
6. Overfull demand.

33
 7. Wholesome demand.

ACCORDING TO THE NATURE OF PRODUCTS

The following types can be found

1. Primary marketing.
2. Secondary marketing.
3. Service marketing.

1. ACCORDING TO THE FIRM MARKETING

The following types can be found

1. Macro marketing.
2. Micro marketing.

MARKETING FUNCTIONS

Marketing involves certain activities starting from product designing to after sales
services. Marketing function are classified as:

1. Exchange functions.

a. buying and assembling

[Link]

2. Physical functions.

[Link]

b. Transport

[Link] planning and development

3. Facilitating functions.

a. Financing

[Link]-bearing

[Link]

d. Marketing research

34
 e. Promotion

f. After sales services

[Link] PLANNING AND DEVELOPMENT

This is the function on which translates the customers demand by making sure production
follows market requirement e.g. production of high quality products.

Planning: is the setting out goals which are to be accomplished in future .it can be
forecasting the size of the market, sales volume etc.

Development: the conversion of ideas into a physical or recognizable product or

improvement over the existing products.

2. BUYING: Buying may be done either directly or through middlemen. Through buying
the buyer gets the title to the products.

3. ASSEMBLING: a collection of goods from different sources at a place for further

movements. When goods are bought from different producers scattered over a wide area
they are assembled together at a central place.

4. SELLING: The primary objectives of marketing is to sell the products at a profit.

5. TRANSPORTATION: When there is a distance between the production place and

consumption place movements of goods is very essential. Goods are sent to the market
through land, sea and air.

6. STORAGE: Products are preserved from the time of production to the time of
consumption .Production may be during a particular season but demand is regular.

7. FINANCING: Funds are required to hold the stocks and to meet the cost of marketing
.There are various kinds of finance needed-short term, medium term,longterm and
sources are commercial banks cooperative credit societies and other agencies.

8. RISK-BEARING: in marketing there arise numerous risk e.g. damage to goods,

physical loss, changes in values of goods.

9. STANDARDISATION: Division of commodities into distinct groups. Standards are

set for providing certain basic qualities to the goods for their use.

10. PROMOTION: is a wide term including advertising, personal selling, sales

promotion, publicity and public relations.

35
 [Link] RESEARCH: is objective and systematic collection, recording,
analysing, interpreting, and reporting about existing or potential markets, marketing
strategies and tactics to the applied in different markets.

MARKETING RESEARCH

This is a set of techniques for obtaining, analyzing and collecting information about the
market with a view of planning sales in that market

OR

Is an action of finding out ideas of the consumers about what they say on product or services
produced and consumed by them

Types of marketing research

1. Desk research: is the preliminary research where analysis of published information is made from
materials obtained from different publications such as government publications independent
research and institutions.
2. Internal research: This involves analysis of own records related to the performance of business
examples production report, sales report and financial report.
3. Consumer research; this is a field survey checking the buying habit and preferences of
consumers at the point of [Link] is conducted to obtain the reasons as to what they buy and
how they buy.
4. Motivation research: This involves establishing true reasons for buying a product and such
reasons help the manufactures to base their advertisements campaign and improve quality of
goods.
5. Product research: It is conducted to determine the acceptability of products in terms of features
such as quality, colour, size and tastes.
6. Advertising research: is conducted to determine the popularity and effectiveness of different
media. It also provides details about readers, viewers, listeners, and social characteristics.
7. Distribution research:is done to determine (middlemen) are ready (keen) or not ready to
distribute manufactured products.

OBJECTIVES OF MARKETING RESEARCH

1. To know what product can be marketed i.e. right quality, type, packing, color etc.
2. To know who are the buyers i.e. age, status, purchasing power, economic group etc.
3. To know how much to be marketed i.e. the amount to be supplied accordingly.
4. To know when goods are bought i.e. the right time to supply the products.
5. To know how can the goods be marketed i.e. the selling techniques to be applied e.g.
super markets, peddlers etc.
6. To know who are the competitors and how to compete with them.

SOURCES OF INFORMATION ON MARKETING RESEARCH

36
What are the sources of information?

The following are the sources of information for carrying out marketing research

• From the buyers (consumers)

• Middlemen (intermediaries)
• Trade fairs
• Trade association
• Chamber of commerce
• N.B.S (National Bureau Statistics)
• Other sources

Marketing research process

What are the steps?

In doing market research, the following process or steps/stages should be followed sequentially

1. Defining the problem and research objective

2. Developing research plan
3. Collecting the information
4. Develop research design
5. Analyze the information
6. Presenting the findings (research report)

WAYS OF CONDUCTING RESEARCH

The following can be used to get information from different sources. It includes

1. Interview
2. Questionnaire
3. Observation
4. Experiment
5. Survey
6. Mailing

RESEARCH SAMPLES

What is research sample?

A sample is a unit that is used to provide data (information) required for the problem researched
for. Among the samples to be used include;

• Random sample
• Cluster sample
• Stratified sample

37
 • Systematic sample
• Judgmental sample
• Convenience sample

Merchandising Activities

This refers to all activities necessary to make available to the market goods or services that will
satisfy/ fit the needs of consumers and create demand to them. It includes the following
activities;

1. Product planning and development

2. Buying and assembling
3. Standardizing and grading
4. Pricing
5. Selling
6. Packing and packaging
7. Sales and promotion

HOW THOSE ACTIVITIES MAKE AVAILABLE GOODS AND SERVICES TO THE

MARKET

[Link] PLANNING AND DEVELOPMENT

Is the strategy used in marketing to identify and design the product according to the buyers
needs. Also it involves the process of developing the product into 4 stages of;

1. Introduction
2. Growth
3. Maturity
4. Declining

[Link] AND ASSEMBLING

What is buying?

This is the procurement of goods for final re sale to consumers or industrial users. It is a first step
in marketing whereby either finished products or assembled items are being done before use

What are the methods of buying?

1. Buying by inspection
2. Buying by description
3. Buying by sample
4. Buying by grade

38
[Link] AND GRADING

→Standardizing; is the way by which products or services can be measured in terms of weight,
length and performance in the market.

→Grading; is the way of measuring the product in terms of quality and use.

What are the advantages and disadvantages of standardizing and grading?

1. It facilitates quality control.

2. Better price can be obtained for a well graded product.
3. Price can be quoted for buyers goods.

[Link]

This is the process of setting/fixing amount of money(value) on product or services in terms of

standard or grade. The following mechanisms can be used in setting prices of products or
services

1. Discounting pricing
2. Loss leader pricing
3. Discriminatory pricing
4. Odd pricing
5. New product penetration pricing

1. Discounting Pricing

Setting a price below the cost in looking about bulk purchase, quick payment, quality and
seasonal. Therefore; discount pricing can be

• Trade discount
• Cash discount
• Quantity discount
• Seasonal discount
• Loss Leader

Setting a price either at or below cost with the intention of inviting people into the shop where
they can buy other goods too.

1. Discriminatory Pricing

Is where the price differ from buyer depending on the frequency for the shop and quantity opt.

2. Odd pricing

39
Setting a price at queer number (odd number) for example 9’099 or 9’999’999.

3. New product planning

Where the product sold at the highest price when is new in order to gain profit for the newness
(skinning the cream).

4. Market Penetration Pricing

Where the product sold at the lowest price when it is new in order to gain famousness.

5. Selling Concept

This is a personal or impersonal process of assisting or persuading consumers to buy a product or

services. Normally selling will involve two important things known as

→Branding:Is a process of designing names, marks, symbols, colour which are given to
products.

→Trade mark:Is a brand which is given legal protection, it gives exclusives right to the owner to
use the brand after it has been registered.

a)Brand

Is a name, symbol, term or design mark, colour or combination of them which is used to identify
and differentiate goods or services of one seller to the other competitors.

What are the advantages of branding to consumers, manufacturers, wholesalers and retailers?

To Consumers

• Quality goods are easily available.

• Protect them from price hike (charged more price).
• Stabilized price.
• Branded products are mass produced and are easily available.

To Manufacturers

• Help them to distinguish his products with that of competitors

• Help them in widening and distribution of products with that of competitors.
• Easy to control price in the market

To Retailers and wholesalers

• -Less time is required to sell the product

• -It facilitates the introduction of new product that creates demand (dd)

40
 • -Assure market demand and control market share

NOTE: Trademark is a brand name that given legal protection therefore, all trademarks are
brands but all brands are not trademark

6. PACKING AND STORING PACKAGING

What is packing?

This is the wrapping and crating of goods before they are transported or stored in papers, boxes
or bags so as to preserve against wastage, spoilage or damage before delivery to buyers

While

Packaging is the placing of goods in small packages like containers, boxes, bottles etc before sell
to ultimate consumers

Why do we need packaging and packing? (reasons)

• To protects goods from damage while in transit

• To prevent the volatile products (dangerous) like gas, spirit, petrol from evaporation
• To protects goods against spoilage and leakage
• To protect goods against pilferage i.e minor theft
• To protect the quality of the goods

What are the qualities of good Package (6Ps)?

1. Proportional: size of the package should be proportion to the nature and characteristics of
a product.
2. Protection:Package must be designed in a such a way that products are protected from
damage,evaporation, spoillage,leakage.
3. Promotion A good package should facilitate advertising and sales promotion and be able
to be used in displaying.
4. Presentation; A package should be presentable in the eye of the customers.
5. Preservation; A package should be maintain quality of product over fairly a longer time.
6. Portable; A package should be made of materials that can facilitate handling transport
and storage of a product e.g. light but durable material.

What are the advantages of packing and packaging of goods?

1. It possess product prestige.

2. It stimulates demand of prospective consumers.
3. It creates product differentiation in the market.
4. Protects products on their way to consumers.
5. Packages ensure hygiene.
6. Packed products are convenient to carry.

41
 7. SALES AND PROMOTION

This is the way of motivating sales by applying different tools so as to attain higher turnover of
product and getting better profit. It includes the following tools

1. Personal selling
2. Free sample
3. Gifts and rewards
4. Trade fair
5. Publicity
6. Advertising

What are the advantages of sales promotion?

1. To make product get market

2. To increase turnover
3. To create awareness
4. Increase market share

PHYSICAL DISTRIBUTION

Is the element that makes the product flow smoothly from where it is produced to where it is
consumed in the market. Physical distribution will involve 2 important things

1. Storage
2. Transport

AUXILIARY SERVICES

These are activities that help marketing process to be effective. It includes the following

1. Marketing finance
2. Marketing risk

Marketing Finance

Marketing activities will involve the use of capital to meet financial requirements

The main source of finance in marketing will be bank credit and trade credit

marketing risk

Are the elements of uncertainty that may bring loss in marketing. It includes some unpredictable
events in future that may create disturbance in marketing. These can be;

1. Fall in demand of products

42
 2. Change in market condition
3. Human elements

How to protect marketing from risk?

There are two measures on which can be applied to preserve or minimize risk inn marketing in a
form of shifting or dividing the risk. It includes the following measures;

1. Through insurance
2. Through contract or purchase and sales
3. Through hedging
4. Through speculation

MARKETING MIX (4Ps)

These are tools necessary to make and implement plans to decide what offer to the market, how
much to offer and how to do so.

Also Marketing mix refers to description of combination of the four inputs which constitute the
core of company’s marketing system, thus it is combination of the product, the distribution
system (place), the price structure and the promotion activities.A brief description of the four
elements of marketing mix (4Ps) is

1. Product; Anything that can be offered to a market for attention acquisition, use or
consumption and that which might satisfy a wants or need. It includes physical goods and
services.

2. Price; is the value of commodity in terms of money. It is the amount of money which is
needed to acquire or exchange of a product and its accompanying services.

[Link] (distribution system);it is the movement of right quantity of goods to a right place at a
right time .this is physical distribution of products from where it is produced to where it is
consumed.

4Promotion;is the communicating information between sellers and potential buyers with the aim
of influencing altitude and behavior .It is a task of informing customers that a particular product
is available at a particular place at a particular price and stimulating them to buy.

COMPONENTS (elements, essential) OF PROMOTION OR PROMOTIONAL MIX OR

TOOLS
1. Advertising; A paid form of non-personal presentation of ideas, goods or services by an
identified sponsor.

Main features of advertising

a.A paid form of communication

43
b. Non-personal presentation i.e. No face contact between advertiser and customers.

[Link] must be issued by an identified sponsor

[Link] is to sell something being a product, service or idea.

2. Publicity; these is free advertising through the mass media used by a company to attract public
attention. A firm use unpaid for features in the media to publicize their products.

Advantages of publicity

[Link] company incurs no cost for the publicity.

b. It builds the seller’s image and goodwill.

[Link] has wide coverage due to the use of mass media

[Link] is credible as it is reported independently.

Disadvantages of Publicity

[Link] media may relate negative information about the business to the public.

[Link] is short lived and thus it may be missed by the target group.

[Link] a portion of the information given by the seller may appear in the media or information
may be twisted to suit the media’s objective.

3. Sales promotion; this refers to strategies or methods used to encourage customers to buy a
product. They are direct aimed at increasing the sales of a product.

The methods used includes/Forms of sales promotion

i. Trade fairs and exhibitions. Events at which different producers and supplier show and sell their
products to the public. Goods are demonstrated and there is immediate feedback from
customers.
ii. Direct mail. This refer to the use of the letters,postcards,greeting cards, catalogues or any other
printed matters to get in touch with customers. It is more effective if the right audiance is
targeted.
iii. Free Samples. These are representative products of what is actually being sold. They are given to
customers to try out or use free of charge. The assumption is that the people who try out such
products will actually purchase them in future.
iv. Displays. is a systematic and attractive arrangement of products that are sold in a shop. This
create ease when selecting what to buy. Most displays use color and designs to attract
customers.
v. Credit facilities. Traders normally offer trusted customers credit facilities to encourage them to
buy more products. Credit facilities enable the seller to increase sales.

44
 vi. Discounts. Sellers reduce the prices of some products to encourage customers to make large
purchases.

Advantages of sales promotion

a. The strategies used directly target customers.

b. It provides customers with an opportunity to see test the products before deciding to buy.

c. It results in increased sales.

d. It convinces more people to become users of product thus expanding the market.

Disadvantages of sale promotion

[Link] can be expensive e.g. use of free sample and gifts.

b. Credit facilities may result in bad debts.

[Link] strategies such as trade fairs displays require a lot of time and some cases the
services of specialist such as interior designers and [Link] selling (salesmanship).

[Link] selling (salesmanship) Is the process of assisting and persuading people to buy
products in a face to face [Link] involves a direct and personal contact between the buyer and
the seller or his representatives. Is an act of presenting a product or services so that the customers
appreciate the need for it. This method promotes products using sales persons who approach
potential customers and educate them about price, quality and use of a product.

PRODUCT LIFE CYCLE

Is a graphic depiction of a product sales history from its marketing inception to its withdrawal
from the [Link] recognizes different stages in the sales history of the product. Product life
cycle is a product life in a particular [Link] may be short for some products and long for some
other products. Product life cycle is associated with opportunities and problems with respect to
marketing strategies and profit potentials. Product life cycle is very useful in formulating better
marketing plans.

A. Introduction stage; this stage starts when the new products is first made available for
purchase.

Characteristics of introduction stage

1. Profit can be negative or low because of low sales and heavy distribution and promotion
expenses.
2. High price to cover cost.
3. Few competitors since the market is not ready for product varieties.
4. Usually high income earners are focused.
5. Low output and technological problems.

45
 6. Informative promotion.
7. Pricing strategies used are skimming pricing strategies and or penetration pricing strategy.

B. Growth stage; this is the stage when sales and profits increases rapidly due to new users and
move repeat buyers (people who have tried the product and being satisfied buy it again)

Characteristics of growth stage

1. More competitors are attracted by large profit.

2. Promotion emphasize on comparing the benefits of its product with competitors

3. Wide distribution as possible.

4. New product features are introduced by competitors.

5. Market expands.

6. Sales increase.

7. Increased numbers of distribution channels due to increased customers.

8. Prices may fall due to increased competition.

9. Promotional expenditures are maintained or increased.

10. Profit increases.

C. Maturity stage; this is a period of slow down and levelling in sales and profits. This stage
often lasts longer than the previous ones and it presents plenty of challenges to marketing
managers.

Characteristic of maturity stage

1. More competitors (very high competition).

2. Low sales and profits.

3. Price can be reduced.

4. Increasing advertising.

5. Products modification.

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D. Declining stage; this is the last stage where sales of most products and brands eventually
[Link] involves dropping a product from the product line i.e. a weak product identified and
dropped

Characteristics of declining stage

1. Low level of sales and profits as competitors take.

2. The market with newly introduced products.
3. Lowered price.
4. Reduced promotion.

Advantages of product life cycle

1. It helps the marketing manager to know the expected profit at each stage.
2. It facilitates the formulation of marketing strategies at each stage.
3. It facilitate economical allocation of resources to different products in a firm.
4. It assists marketing managers to predict levels of sales.
5. Distinct stages of product life cycle (PLC) help marketing managers to recognize opportunities
and challenges in the sales history of the product.

BUSINESS UNIT

This refers to firm or organization set up to carry out some production activities such as
provision of goods or services in order to achieve higher turnover,consumers satisfaction, low
cost and maximize profit.

OR:

Is an institutional arrangement to conduct one or other type of business activity.

A business unit is sometimes called an enterprise, a firm or business organization. It is formed

and owned by groups of people or by individuals, with the aim of making profit.

FORMS OR TYPES OF BUSINESS UNITS(UNDERTAKINGS)

There are two types of business ownership:

(i)Private owned (private sector)

(ii)Publicly owned (Public sector)

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Private sector. This consists of businesses owned by private individuals, either as sole traders or
as a group.
Businesses in this sector include:

• Sole trade or sole proprietorship

• Partnership
• Joint stock companies and
• Cooperatives

Public sector. This consists of businesses owned wholly by the government or they are semi-
government.
Businesses in this sector include:-

• Parastatals
• Public corporations
• Local government authorities, e.g. city council
• Municipal council and town councils and nationalized industries.

Various forms of business organization may be classified as under.

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Factors influencing the size of business units

The size of business units can be large, medium and small business units.

Factors:

1. Nature of industry. Businesses which require heavy capital in terms of machines and other
technical equipments are termed large scale businesses.

2. Nature of demand. If the nature of demand is steady and the product is more or less
standardized the business undertaking is likely to be large.

3. The size of capital. If the capital invested is heavy the business unit is likely to be big rather than
if the capital is small or little amount.

Factors influencing the form of business ownership.

• Ease of formation
• Amount of capital required and the method of raising capital to be adopted
• Managerial ability of the owner
• Rights of the members to manage the day to day business
• The extent of risk involved in running business
• Continuity of the organization (prospects)
• Maintenance of business secrets
• The extent of government control.

1. SOLE TRADE/ SOLE PROPRIETORSHIP

This is a business organization owned and operated by one person who raises capital either from
his own resources or who may borrow from friends or banks, but cannot appeal to the public to
subscribe. The owner is responsible for the success or failure of the business

OR

Sole proprietorship can be defined as a type of business organization in which one person owns,
controls and control and operates a business to earn profit.

Distinguished features/characteristics of a sole trade/sole proprietorship.

The main characteristics of sole proprietorship are as under.

1. Ownership. The ownership of the business unit is by one person

2. Management. In sole tradership, the owner is the active manager of the business unit. If the
business is large, he may deligate some of the powers to his trusted employees. However, the
final authority and overall control of policy is retained with the proprietor.
3. Finance. The capital necessary for operating the business is normally provided by the owner
himself. However if additional funds are required, the capital can be increased by borrowing.

49
 4. Size of the business unit. The size of business unit is usually small.
5. Risk. The sole proprietor operates the business for his own personal interest. Therefore, he is
responsible for all risks of business.
6. Unlimited liability. The liability of the sole proprietor is unlimited. In the event of insolvency of
the business, he will be responsible for making good the deficiency from his personal wealth
even to the extent of selling his personal assets.
7. Entity. The business is not a separate legal entity from the sole trader. It means that by law the
business and its owner is treated as one.
8. Freedom of action. Sole trade can take prompt and immediate action within a legal frame work.
9. Continuity. The continuity of the firm is based on the health of the owner.
10. No legal formalities. There are no legal formalities to set up the business. However, there may
be legal restriction on the setting up of a particular type of business.
11. Profit. As the owner bears full risk of the business, he therefore, retains all profit with
[Link] of a sole proprietorship business.

When an individual plans to start a business, his/her main objective is to earn profit. But there
are number of factors to be taken into consideration. For example, for any business to be
successful.

Planning and research. Proper planning and research is very essential before the business is
formed.
Kind of goods or services to be traded. A sole proprietors should be clear about the kind of
goods or services he/she wants to deal in.

Capital or investment. The kind of capital or investment available to start the business must be
taken into consideration.

Size and nature of the business. The sole proprietor should know the size and nature of the
business so that the required amount of capital can be raised.

Location of business. Many business have failed or succeed depending on the location. This
again depends on the nature of the business.

Legal formalities. These include registration of the name of business, licenses and some other
requirements depending on the kind of business.

Risk. Also the sole proprietor should know the risks involved in the particular type of business.

Kind of customers. The sole proprietor has to know the kind of customers the business is
targeting, for example it is the students, low income earners of high income groups.

Time factor. This is also important because every business has a low or high season. For
example a shop dealing in school books or uniforms will do good business during the back to
school season. Those dealing in clothes and shoes will do good business around festive seasons
like Christmas.

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Competition. During festive seasons like Christmas almost every business has competition from
other people dealing in the some kind of goods or services. Therefore before starting a business it
is very important to know the competition and how it will affect the business.

Management of sole proprietorship

In sole proprietorship the owner is usually in charge of day to day running of the business. If the
business is large he may give some duties to his trusted employees or family members but the
overall control and decision making powers rests with the owner. The sole proprietor decides on
how to manage the business in the most effective way. If his decisions are good the business will
prosper and if they are bad then it will adversely affect the business.

Some of the policies which are decided by the proprietor

(i) The time of operating the business

(ii)Promoting through advertising or special offers

(iii)Dealing with suppliers and customers

(iv)Bank transactions

(v)Whether to open other branches or remain in one premise.

(vi)Future planning

Sources of finance for the sole proprietor

For any business to start, availability of capital is the most important factor without capital it can
be very difficult for a new business.

Some of the sources of capital for a sole proprietorship business are:-

(i)Savings. Some people plan in advance to start a business and for that they start saving in order
to accumulate the required amount.

(ii)Assistance from friends and relatives. Some people ask their near and dear ones for some
assistance in the form of money to start a business. They either agree to return the money and
sometimes they are given as a donation.

(iii)Proceeds from a sale of asset(s). This is a common way of raising capital to start a business.
For example, if a person is intending to start a business has a house or a car then he or she can
sell that asset and use the money to start a business or expand the already existing business.

(iv)Bank loan. A sole proprietor may apply financial institutions. But this can be difficult at time
because a bank requires security against the loan and some time an individual who plans to start

51
a new business may not be able to fulfill the requirement. A security can be inform of property or
shares.

(v)Credit. Some people know big companies dealing in certain kinds of products and they can
approach them to give them goods on credit. This normally happens person to person. For
example, an individual has some friends or relatives who are either working in or owning on
manufacturing or a wholesale business. Such people can help the trader to get goods on credit
but this is usually based on trust. It is very important for the sole trader to have strict control and
discipline so that he can sell and pay back for those goods at an agreed time. In this way his
credit ratings will improve and he can expand business.

(vi)By ploughing back the profits. The business itself by ploughing back the profit.

(vii)Finding by NGO’[Link] some Non-Government organizations which helps some people to

start a business by providing capital assistance.

Closure/dissolution of sole trade business

This is the termination of the legal life of the business or end of the business

A sole trade may come to an end due to the following reasons:-

(i)By voluntary decision to do so

(ii)Death of the sole proprietor will cause an end to the business

(iii)Bankrupt. When a sole trader becomes bankrupt may cause an end to the business

(iv)Involving in illegal business. If the sole proprietorship is caught dealing with illegal business
e.g illegal drug, pedding or when the sole trade becomes unlawful due to changes in the law.

(v)Transfer of the business by the owner to another party.

(vi)Persistent losses incurred by the business.

(vii)Government policy that venders the activities of business illegal.

Merits/advantages of soletrade.

(i)Simplicity of formation.A person can undertake any lawful business activity for profit
motive. The person has to develop an idea set the goals and then develop it into a profitable
operation.

(ii)Personal incentive. A sole proprietor takes personal interest for the success of a business. In
this way, he can maximize his profits.

52
(iii)Close supervision. A sole proprietor can supervise his business closely and he has direct
contact with employees.

(iv)Need for small [Link] is easier to set up since it does not require a lot of capital.

(v)Business secrets can be preserved. Unique clues of business developed by his fact, foresight
can be preserved and these secrets may remain unknown to competition and others.

(vi)Quick decision and prompt action. The sole proprietorship need not consult others or seek
their approval. Quick decisions and prompt actions help to improve efficiency of business
operation.

(vii)Flexible. A sole trade can make a major policy decisions change the nature of the business
or its premises easily.

(viii)Economy in size and operation management of sole proprietorship is not expensive.

The proprietor controls all the activities with much each and may sometimes operate without the
need of assistants or if any are few numbers.

(ix)Close contact with customers and employees. A sole proprietorship due to its size is in a
position to maintain close contacts with his customers and employees.

(x)Economic and social utility. It provides opportunity for gainful employment to person with
limited capital. Also it enables individuals to earn a living independently using his still and
professional drive.

(xi)Sole authority. The proprietor being the sole authority, takes decisions of planning,
organizing, staffing, coordinating, controlling and directing of business unit.

(xii)A sole trader takes all the profits and bears all the losses. This provides to a sole trader
the high degree of incentive. Hard working can benefit a sole trader and mistakes can ruin
him/her.

(xiii)Easy of dissolution. A sole proprietorship can easily be dissolved as no legal procedures

are involved in it. Satisfaction of the creditors is the only claim in winding up the business.

(xiv)Location. This type of business is not limited to urban centers. It can be set up even in
remote area where a large business would not be quite as profitable or easy to establish.

(xv)Minimum legal restrictions. An individual enterprise is easy to form and simple to run as
minimum legal restriction are imposed on it.

Demerits/Disadvantages or limitations of sole proprietorship.

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There are certain serious disadvantages which a sole trader has to face in operating the business.
These limitations are as follows:-

(i)Unlimited liability. The proprietor is personally liable for all the debts of the firm. Fear of
loss of personal property due to failure of business makes the proprietor very caution and
conservation. As a result a business may fail to grow and keep pace with new development in its
particular field.

(ii)Limited capital. Financial resources of a sole proprietorship/sole proprietor are limited to

what one person has. Funds of an individual person are basically not enough to operate large
scale business

(iii)Limited managerial ability. A sole trade relies upon his or her own skills and judgment for
operating the business. Most of the proprietors do not possess all the management skills required
for financing, marketing, purchasing, producing and supervising the business.

(iv)Doubtful continuity. Business may come to an end or a stand still due to illness, insolvency
and death of proprietor. His successor may not be capable of enough to carry the business
successfully.

(v)Limited scope of expansion. Due to limitation of capital and management sole proprietorship
business cannot grow and expand to a large size. Its goodwill and bargaining position are also
weak.

(vi)Over worked. The proprietor is overburdened with so many task i.e financing, maging
advertising, and correspondence, account, records, e.t.c.

(vii)Unable to carry out research. The smallest of the capital and the fear of risks of loss may
stop the owner from carrying out the market rearch which would prove more paying.

(viii)Poor decisions may be made. One person is responsible for making decisions and may not
have anyone to consult.

(ix)Dependency. The life of the business depends on the ability and life of the owners i.e his/her
death brings about the end of the business

(x)Lack of collateral security. A sole trader cannot easily acquire loans from the bank and other
financial institutions because he/she has no collateral security e.g land title. Therefore, he/she
always operates on a small scale thus does not enjoy the benefits of large – scale operations.

(xi)Losses falling on owner alone. A sole trader bears all the risks and suffers all losses of
business alone because he/she has no partner to share the business burden with.

(xii)Inefficiency. The sole trader may sometimes be inefficient as he/she may not be always
available for his customers.

54
(xiii)Low discount given to sole trader. Small sole traders will not receive useful discounts
when purchasing materials or goods for resale, because unlike large organizations, they cannot
by in large quantities.

Conclusion. By examining the merits and demerits of sole proprietorship, one can easily
conclude that this form of business organization is most suitable in the cases:-

1. Where the business is carried out on small scale, and the capital to operate is small
2. Where there is ease of organization, and the owner can make independent decisions
3. Where the customers have individual tastes and require personal attention.

2. PARTNERSHIP

Partnership is a relationship between two or more persons carrying on a business in common and
sharing the profit or loss in agreed proportion. The liability of partner is unlimited unless the
partnership agreement provides for any limitations.

Features or characteristics of partnership

1. Agreement. There must be an agreement which form a basis of the partnership business. The
agreement may be express or implied.
2. Lawful business. The agreement must be to do business with a view to get profit and such a
business must be within the limits of law.
3. Sharing profit. Profit should be shared equally or according to agreement. In case of loss
partners have to share it too.
4. More than one person. There must be at least two persons to form a partnership and should
not exceed ten (10) in case of banking business, there is no maximum limit for professional
partnership like lawyers, e.t.c.
5. Mutual agency. Every partner is an implied agency of the other partners and of firm, i.e each
partner is bound by the acts performed by other partners on behalf of the business.
6. Restriction on transfer of capital. No partner can transfer his partnership rights to another
person without the consent of all other partners.
7. Unlimited liability. Each partner has an unlimited liability to the extent of the firms debts, i.e. if
the assets of the firm are inadequate to meet its debts in full even personal assets of partners
can be used to satisfy claim.
8. Utmost good faith. Partners are required to act in utmost good faith in business and render true
accounts to the firm.
9. Capital [Link] capital is contributed by partners.
10. Partnership has a limited life i.e. it may be ended any time by the death, withdrawal,
bankruptcy or incapacity of any partner.

Types of partnership

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There are four types of partnership.

1. Temporary partnership. This is a partnership formed for either a specific period or a specific
purpose. Purpose and at the end of agreed period the temporary partnership is dissolved or
after accomplishment of stated purpose. Example. A partnership formed for five years or for
construction of a certain road. A temporary partnership is also called a joint venture or
particular partnership. Partners of a temporary partnership have unlimited liability.

2. Limited partnership. This is a type of partnership formed when partners have limited liability. All
contribute capital during the formation but one partner actively manages the business and has
unlimited liability and he is given greater powers and responsibilities in the business.

3. Ordinary/general/unlimited partnership. This is a partnership where partners contribute capital

and they all have unlimited liability i.e. if business funds cannot meet the debts the personal
property of the partners is sold off to settle the debt.

4. Permanent partnership. This is the type of partnership formed to last forever. If a partner dies a
new partnership deed is drafted and the business continues. Permanent partnership is also
called partnership at will

Distinction between Limited partnership and General partnership

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Sources of capital

The major sources of capital for a partnership is the partners contribution. Other sources are

(i)Commercial banks and other financial institutions

(ii)Trade credit from suppliers

(iii)Re-investing profits obtained from the business

(iv)Hire purchase

(v)Leasing the business properties

(vi)Loan from non-governmental organizations (NGOS)

Formation of Partnership:

A partnership is usually set up using a Partnership deed/Agreement.

A Partnership deed or Agreement is a written agreement prepared by members who wish to

start a partnership business. It contains terms and conditions made between partners to govern
both the partners and the firm. It is an important tool in handling disputes, misunderstanding and
disagreements in the course of running the business. It must be signed and made available to all
partners and Notary public. The terms and condition in such agreement is called “Articles of
partnership deed”.

Contents of partnership deed

1. Name, address and occupation of each partner.

2. Name, address of the business and its location.
3. Rights and duties of each partner.
4. Salaries to be paid to partners if any.
5. The rate of interest to be paid on capital, drawings and loans allowed to the member.
6. It states the procedures when a partner decides to retire.
7. It states when and how books of accounts are to be kept.
8. It states the procedure of electing the management committee e.g. through voting.
9. States the procedures to be followed when solving disputes or misunderstanding among
partners.
10. States the procedure for admission of a new partner.
11. States the status of each partner in the firm eg. Dormant, minor or quasi partner.
12. States the duration of partnership. If it is temporary partnership.
13. It shows capital to be contributed by each partner.

57
 14. States the procedures to be followed when dissolving the partnership.
15. States the purpose for which the partnership business was established.
16. States the ratio in which profits and losses would be shared by the partners.

Note:

If a partnership deed does not exist the provisions of the Partnership act of 1890 are applied.

Contents or clauses of the partnership act of 1890

1. States that no salary is paid to any partner.

2. Profits and losses are shared equally.
3. No interest is allowed on capital contributed by partners and on drawings.
4. Partners have equal participation in matters of the business eg Decision making.
5. Decisions to be made are based on majority vote.
6. The native of the business should no be changed without the consent of partners and the
registrar of business.
7. Books of accounts should be kept at the main office and every partner has the right to inspect
them.
8. No partner should carry out any comparing business with the partnership
9. Every partner has the right to conduct business on behalf of the firm
10. In case of disagreement decisions may be taken by majority of the partners.
11. Interest of 5% is to be paid on any loan advanced by a partner to the business.

Registration of partnership.
The following documents have to be filled to the registrar before the issue of the certificate of
registration

1. A statement which is made in a form including details on:-

(i)Name of the firm.

(ii)Place of business.

(iii)Names in full and permanent addresses of the partners.

(iv)Duration of partnership where necessary.

2. The partnership deed duty prepared and signed

3. A receipt for fees paid for registration.
4. A trading license

Types of partners:

58
Partners are classified according to activity, capital contribution, age and liability

1. By activity

(i)Active partner. This is a partner who plays an active part in the day to day running of the
business.

(ii)Dormant partner or silent partner or sleeping partner). This is a partner who does not
take an active part in the running of the business.

2. By age.

(i)Minor partner. This is a partner who has not attained the age of majority eg 18 years in East
Africa. A minor partner share profit but not losses and has limited liability she/he cannot be
elected on the management committee of the business.

(ii)Major partner. This is a partner who has attained the age of majority. She/he is actively
involved in the management of the firm and liable for the debts incurred by the business.

3. By liability

(i)General partner/ ordinary partner/unlimited partner. A partner whose liability is

unlimited. Limited partner/special partner. This is a partner whose liability is limited.

4. By capital contribution

(i)Real partner. This is a partner who contributes capital and whose name may be used in
business transacting undertaken by the firm

(ii)Nominal partner. This is a partner who does not contribute capital into the business but
allows the business to use his or her name for prestige.

(iii) Quasi partner. This is a partner who has retired from active participation in the business but
whose capital is retained as a loan on which she receives interest.

(iv)Partner by estoppel. This is a partner who does not contribute capital to the business but has
interest in the business. His behavior makes him appear to be closely related to all partners, this
makes people believe he is a partner. He is not entitled to profit or loss, also has nothing to do
with the liability and management of the business.

5. By existence

(i)Retired/outgoing partner. This is a partner who has withdrawn from the partnership. He
withdraws his capital from the partnership.

59
(ii)Incoming partner. This is a partner who is administering as a partner in the existing
partnership business.

Rights and duties of partners

Duties of partners

1. Every partner is bound to carry on the partnership business.

2. Every partner must act faithfully with respect to other partners.
3. Every partner is bound to indemnify the firm for any loss caused by his neglect or fraud.
4. If a partner has a private business that competes with the partnership all profits made by him
should be surrendered to the partnership.
5. No partner can transfer or assign his partnership interest to another person without the consent
of the other partners.
6. Every partner is expected to carry on business of the firm whenever called upon.

Rights of partners

1. Each partner has a right to take part in the management of the business.
2. Each partner has a right to be conducted on all matters effecting the business.
3. Each partner has a right to access to all the records of the business eg. Financial statements of
the business.
4. Every partner has a right to be consulted before a new partner is admitted.
5. Every partner is a joint owner of the partnership property.
6. Every partner has a right to retire in accordance with the partnership deed.
7. No partner may be expelled without dissolving the partnership.

Advantages of partnership

1. Promotes specialization. Duties are allocated according to the expertise or skills of the partners.
This allows for effective running of the business.
2. More capital. Partners come together and contribute capital to start and operate a business.
This enables a business to expand.
3. Losses and liabilities are shared among the [Link] reduces the burden to every person
contributing to the payment of the debts.
4. Relatively few legal requirements are to be fulfilled to form a partnership.
5. Borrowing. Partnership is regarded as good credition by banks because it operates on a large
scale and has valuable assets.
6. Flexibility. Partners can easily change the line of business to another if they hope to get high
profits.
7. Better decisions are arrived at due to consultations among the partners.

Disadvantages of partnership

1. Partners have unlimited liability except for limited partners.

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 2. Decision making may be delayed due to consultation.
3. A partnership has limited life as it depends on the continued relationship of the partners.
4. Partners have to share profits thus each gets a fraction of the total profit.
5. Partners may have different needs this leading to disagreement.
6. No transfer his capital to another person without the consent of all partners.

Dissolution/winding up/disclosure/termination of a partnership business

This refers to the process of bringing the partnership to an end.

A partnership may be dissolved due to the number of reasons or circumstances.

1. Dissolution by the partners. This is where dissolution is determined by the actions of the
partners.

(i)When the duration stated in the partnership deed has expired.

(ii)Mutual agreement when the objectives for which the business was formed have been
achieved.

(iii)Withdrawal of general partner from the partnership and notifies other partners in writing on
his intention to dissolve the partnership.

2. Dissolution by court order. (Judical decree) a court may dissolve a partnership for the following
reasons:-

(i)Permanent insanity of a general partner.

(ii)Permanent inability of a general partner to fulfill his or her part of partnership agreement.

(iii)Unfavorable conduct of a partner e.g. fraud.

(iv)Internal disagreement among partners.

(v)Partnership operating at a loss.

3. Dissolution by the law. Some events are recognized by the law as grounds for the dissolution of
a partnership

(i)Death of a general partner

(ii)Bankruptcy of a general partner

61
(iii)If an event occurs that makes the partnership unlawful e.g. If a law banning the activities
carried out by the partnership is passed.

Differences between sole proprietorship and partnership

LIMITED COMPANIES /JOINT STOCK COMPANIES

Definition:

A joint stock company is a corporate association or group of people who combine capital to form
a business with the aim of earning profits.

A company is a corporate body that is it is created under law and has an entity of its own, quite
separate from the member that comprises it.

A company is a fictitious /artificial person that can enter into contract incur liabilities, sue others,
be sued by others and do anything for which it has formed.

62
Definition of A Limited Company

A company is an association of persons binded together for some particular object usually to
carry on business with a view of making profit, but in the name of company which itself has a
separate legal existence apart from shareholders.

A company must have members called shareholders or stockholders.

OR

A company is an artificial person created by law with capital divided into transferable shares or
stocks and with limited or unlimited liabilities possessing a common seal and perpetual
succession (continuous existence).

MAIN FEATURES / CHARACTERISTICS OF A JOINT STOCK COMPANY

The definition of the company brings out clearly the distinctive features of this form of
commercial organizations as follows:-

(a) Legal personality

Being association of persons created by law a company has an Entity separate from
shareholders and therefore:-

(i) It can hold property.

(ii) Contract debts in its own name.

(iii) Enter into contract with other organizations and individuals as well.

(iv) Can be sued and can also sue in its own name.

However a company is only an artificial person and hence does not all the personal rights of
natural person i.e can not marry, enter into partnership and can not committed for imprisonment.

(b)Capital divided into transferable shares.

The capital of a company is divided into a number of shares and each share is transferable
without the conset of other shareholders with the exception of private company where there is
certain restriction in the transfer of shares.
- Shares of a company can be sold and purchased in a share market.

(c)Common seal (Signature embodied in the company).

63
Since a company is a separate entity is will be necessary for it to sign papers and documents.
Such signature is embodied in the in the common seal of the [Link] seal is kept under the
safe custody of some responsible official so as to avoid its misuse.

(d) Perpetual succession / continuous existence.

A company exists indefinitely till it liquidated or wound up. Its existence is not affected by the
death or lunancy, insolvency, retirement or any calamity to its shareholders.

(e) Separate identity.

Members of the company are quite distinct and separate from the company

- They can not be sued for the debts or obligations of the company.

- No members can bind his company by his act or dealing with the third party.

- Only a company or the liquidator can take legal actions against him / company.

(f) Limited liability

Liability of the members of a limited company is limited to the face value of the share subscribed
by each of them. Their private properties are not liable for the debts incurred by the
[Link] is because the company is a separate legal entity from the shareholders.

(g) Centralized management / separation of ownership and control.

The owners of the business have no right to take part in day to day management of the business
of the company. Instead the responsibility is rested in the board of directors elected by members
in the general body meeting of the company.

(h) The business conduct.

A company can conduct only such business as stated in its memorandum of association.

TYPES OF COMPANIES
There are two major types of companies:

1. Statutory companies

2. registered companies.

3. Chartered companies (extra)

1. Statutory companies

64
There are companies created by the Act of parliament, owned and controlled by the government.

2. Registered companies

These are companies that are formed and registered under the companies Act of 1962 and they
are the most common type in Africa.

3. Chartered Companies

These are companies which are established under the royal charter.

TYPES OF REGISTERED COMPANIES

Registered companies may be classified basing on the following categories:

(a) According to the number of members.

(i)Private limited companies

(ii)Public limited companies

(b) According to the liability of members.

(i) Limited companies

(ii) Unlimited companies

(c) According to the number of shares.

(i) Companies limited by shares

(ii) Companies limited by guarantee.

65
A diagram showing different types of companies

1. PRIVATE LIMITED COMPANIES

This is a company with membership ranging from 2 – 50 according to the Companies Act
of 1890

Characteristics of private companies

(i) [Link] ranges from 2 shareholders to 50.

(ii) [Link]’s liability is limited to their capital contribution.

(iii) [Link] is registered under the companies Act with the world “Limited” at the
end of its name.

(iv) Transfer of shares. Ownership of shares cannot be transferred from one person to
another nor can the share be sold to the public.

66
 (v) Management. It is controlled by a board of directors elected by
[Link], the ultimate control rests with the

shareholders as they have the power to replace the directors.

(vi)Taxation. It is subject to corporation tax on the profits made.

(vii)Time to begin operating. A private company can begin operating as soon as it

receives a certificate of incorporation.

(viii)The business is separate legal [Link] is it owns property quite different from
the shareholders.

(ix) [Link] capital is divided into equal units called Shares

(x) The shareholders have no direct contact with the customer or employees. This is
because of the large size of the company
and the number of the employees in the business.

(xi)There is assured [Link] is not affected by the death, Bankruptcy, of one of the
members.

Advantages of private limited companies

(i) A limited company has independent legal status and hence the limited liability enjoyed
by its shareholders.

(ii) With limited liability the company is able to attract capital from people who would
not otherwise be prepared to invest.

(iii) In private company, the founders of the business can usually keep control of it by
holding majority of shares.

(iv) Larger [Link] of being larger in membership, companies are in a better

position to raise much more money or
capital than sole traders and partnership.

(v) Assured continuity of business. Since the death, bankruptcy or withdrawal of any one
member does not affect the
company, companies have assured continuity.

(vi) Limited liability. All members can enjoy limited liability unlike in partnership.

(vii) Specialization is possible. Companies are financially strong enough to employ

specialist so specialization of activities
becomes possible.

67
 (viii) More source of funds. The sale of company share on the stock exchange stimulates
investment even from small servers.

(ix) Sharing of loss. Large members and the fact that the capital is divided into different
classes of shares means that the risk of loss
is also shared and spread among members.

(xi) Shareholder are safeguarded . Publicity of company accounts safeguard

shareholders against fraud.

Disadvantages of private limited company

(i) Any transfer of shares is restricted. It must be approved by board of directors.

(ii) A private company is not allowed to call upon the public for funds in the form of
shares or debentures. So it is difficult
to raise money for expansion.

(iii) Costly and difficult to establish. They required formal procedures like
registration, payment of fees an duties not often required
in small business.

(iv) Observation of state law and regulations. Companies are more subject to state
laws and regulations. Eg. No company is allowed
to undertake any form of business outside that agreed upon with registrar.

(v) Delay in decision making. Decisions may be delayed since business is conducted
by a few elected members. The Board of
Directors must meet before important decisions are reached.

(vi) Shareholders non – participation in management. A part from the largest

shareholders who sometimes become managing
directors the management of the company is separated from its governorship.
Shareholders may be mainly concerned with
dividends and overlook long term policies being handled by salaries officers.

(vii) Difficult to control the company control of the company. Is not easy as a
partnership because of its large size and as a firm
increases in size management become more complex and there are a few trained
managers to run such a business
successfully.
(viii)Poor workers relationship. Where there are no personnel officers to keep in touch
with the employees , personal relations
between the workers may be poor.

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 (viii) Higher taxes companies pay a higher tax on their incomes. This affects the
companies earnings.

2. PUBLIC LIMITED COMPANY

This is a company with a minimum of seven members and no specific maximum membership.
The maximum membership is normally determined by the number of authorized shares of the
company. The public limited company may have its name ending with “PLC” i.e Public Limited
Company (in Britain) or “Inc “ i.e incorporated ( in US ) . Its name must however, end with the
word “Limited”.

Features / characteristics of public limited company

(i) It has a minimum membership of seven persons and no specified maximum

membership.

(ii) It invites members of the public to subscribe to its shares.

(iii) It shares are easily / freely transferable from one person to another.

(iv) It must have a minimum of three directors. A director is a person who manages the
affairs of the company.

(v) It must have an authorized minimum share capital [Link] share capital is
the total value of all the shares that has been
authorized by the government.

(vi) A person wishing to leave the company must sell off his shares to another person.

(vii) It can only start normal operations after receiving a certificate of

commencement.(Certificate of trading).

(viii) The name of the company must end with the words Public Limited Company.

(ix) The liability of the company is limited.

(x) The entity is separated from the members who form it.

Advantages of Public limited Companies

(i)It has independent legal existence, limited liability for shareholders and continuity of
the business.

69
 (ii)It is allowed to appeal to the public for funds, whereas the promotes of a private
company have to rely on friends and
relations for capital.

(iii)There is no restrictions on the transfer of shares.

(iv) Public companies are normally larger than most others business. As a result
companies often benefit from economies of scale.
These result in the cost per unit of output falling as the level of output rises.

Disadvantages of Public limited company

(i) The formalities of farming a public limited company are quite complex.

(ii) Rising capital can be very expensive.

(iii) A public company may grow so large that it becomes difficult to manage.

(iv) Public companies are subject to so many government regulations. Regulations are
imposed to protect either shareholders or the
general public.

(v) Members have little control over the activities of the company.

(vi) The accounts of the company must be published. So, there can be little secrecy or
privacy about its affairs.

(vii) Risk of take – over bids by other company’s shares can easily be bought on the
stock exchange.

70
 ADVANTAGES OF JOINT STOCK COMPANIES (LIMITED
COMPANIES)

71
 (i) More capital/large capital. More capital can be raised since it has many
shareholders who subscribe it and a company can also
offered better collateral as security for loans.

(ii) Limited liability. Liability of members is limited. Their personal properties can not
be sold to repay company debts. Their stake
to the company is limited to their capital contribution.

(iii) Continuity is assured. It has perpetual life or succession. The death or withdraw
of a share holder cannot affect the existence
and operation of a business. This is because a company has a separated legal entity.

(iv) Expert staff. Employment of specialist staff is possible due to large [Link]
means that the probability of
their succeeding is high.

(v) Shares are transferable. In case of Public companies, shares are freely
transferable.A shareholder can easily convert his
shares in cash by selling them to another person.

(vi) Legal entity. It has a separated legal existence from its owners which ensures
there is no conflict between the company and its
members.

(vii) Governance by [Link] holder are safeguarded by the legal regulations

underlying these [Link] law , joint
stock companies cannot start operating without required legal guidelines.

(viii) Large profits. Large profit are realized than in case of sole trade. This is because
large capital is employed in the
business.

(ix) [Link] is elected democratically. This is done during the annual

general meeting, when all shareholders
converge to listen to the company reports.

(x) Open membership. People who have small capital which cannot enable them to
set up their own business, can subscribe
capital in joint stock companies. Every person is free to become a shareholder of a
public limited company by subscribing
towards its capital.

(xi) Acquiring [Link] large, companies have enough assets which can be
presented as a collateral security to the financial
institutions to get loan.

72
 Disadvantages of joint stock companies(Limited companies)

(i) Management is difficult. Being large, management is difficult. Some joint stock
companies possess many branches and
departments making supervision difficult.

(ii) Slow decision making. Decision making is normally slow, because a lot of
consultations must be made and consent from
major shareholders must be received or all proposals have to be approved by the
shareholders in a general meeting.

(iii) Confidentiality. It is difficult to keep the comparing financial affairs confidential

because shareholders and the public have a
right to see the company’s financial information.

(iv) Formation takes long. Its formation is long and expensive procedure, requiring
many legal documents. It involves
memorandum, articles of association, prospectus and many others.

(v) Double taxation. The shareholders suffer double taxation since the income of the
company is taxed as well as the dividends
paid to shareholders.

(vi) Profits are shared. The sharing of profit reduces the amount of dividends
received by each shareholders , unlike a sole trade,
who enjoys all the profits alone.

(vii) Initiative is limited. There is lack of personal initiation compare to sole trade.
This is because the business is collectively
owned and personal interest cannot influence its operations. So an innovative.

(viii) Shareholders don’t have direct control over the business. The directors of the
company are responsible for the day to
day running of the business and report to the shareholders at the annual meeting.

(ix) Conflict of interest. The directors may have their own interests which may be
different from those of the shareholders, and
thus may end up conflicting with the interests of the company.

(x) Restricted operations. Its operations are restricted to the activities specified in
its objects clouse in the memorandum of
association.

LIMITED LIABILITY CONCEPT

73
This is the fact that the liability of the company’s members is restricted to certain amounts of
investment in the company plus any other amounts that may be undertaken to contribute towards
the payment of company debts. The word ‘Limited’ indicates that the liability of members is
restricted to these stated amount and that members cannot be made to contribute any more
money or property beyond the stated amounts to settle the company’s debt.

A company may be limited by shares or by guarantee. These leads to the classification of

company according to the number of shares.

(i) Company limited by shares

These is a company whose member’s liability is limited to the value of shares held by them.
Thus, the liability of the members is limited to the value of share held.

(ii) Company limited by guarantee

This is a company whose members liability is limited to the amounts that the members have
undertaken to contribute to the business towards the payment of its debts. These contribution
may cover costs, charges, and any expenses of winding up.

OWNERSHIP AND MANAGEMENT OF COMPANY

A company is owned by the persons who have subscribed to and purchased its shares. These
people are known as shareholders, and their names are entered in the company’s share register.
Each shareholder has a claim on the properties of the company which is proportional to the
number of shares held. The shareholders, however, have an unlimited right to transfer or sell
their shares in the company Management .

Management
Management of a company is in the hands of a board of directors. The initial directors stay in
office until the first Annual General Meeting (AGM) is held, at which new directors are elected
by the members. The size of the board of directors is usually determined by the size of the
company. A small private company could have one director, who would be the managing
director of the firm. A public company must have a minimum of three directors, one of whom is
the managing director. A large company, however has a team of directors who make up the
board of directors. The board of directors is incharge of formulating the company’s policies and
overseeing their implementation. This board is normally supported by a team of professional
staff who are responsible for the day to day management of the various departments of the
company. The team of the professional staff is headed by the Chief Executive officer (CEO). It
is this team that is responsible for implementing the company’s policies and overseeing the day
to day management of the famous departments.

74
In the case of public limited companies, the directors are required by law to present a copy of the
audited financial statement at the AGM, which is then filed with the Registrar of companies.
However , private companies are not obliged to do so.

So, there are two power bases in a company which is responsible for management of the
company i.e The members (shareholders) general meeting and The board of Directors (BOD).

The management of the company follows the company structure depicted below:

1. SHAREHOLDERS

Shareholders are the owners of the company, they buy ordinary shares and given share
certificates which proves their ownership in the company. They do not own assets of the
company because, the assets of the company are legally owned by the company however they
have direct rights on the assets only when the company is liquidated after paying creditors,
debenture holders and preference shareholders.

75
The power and voting rights of the shareholders are exercised at the annual general meeting. The
voting right are determined by the number of shares each one holds on the basis of one – share –
one – vote.

At the annual general meeting they elect members of board of directors, and voting for changes
in the Memorandum and articles of association thus effecting the structural changes in the
company.

The general meeting is the highest power base in the company in which all the members or
shareholders are entitled to attend.

Shareholders and their rights

(i)Proprietary(ii)Managerial(iii) Statutory(iv)Documentary and(v)Remedial.

(i) Proprietary rights

• The right to dividend on their shares at the rate desire at their general annual meeting.
• The right to transfer their shares as per article of association.
• Other rights to receive bonus shares, participation in surplus assets income on liquidation of the
company, getting share certificates, etc.

(ii) Managerial rights

• Voting rights on all matters planed before the general meeting. A right to role on the principle of
one vote one share.
• Approval of alteration in memorandum of association and Articles of association and other
changes in the company set up.
• Election of directors, appointment of Auditors, appointment of managing director and other
personnel.
• Approval of accounts and declaration dividends.

(iii) Statutory rights

• To receive share certificates.

• To receive notice, agenda, circular reports, accounts and audit reports, etc
• To transfer shares
• To impact statutory banks of the company.
• To demand post on any resolution part at the writing.
• To requisition extra – ordinary general meetings for dissolve urgent matters.

(iv)Documentary rights

All right granted to them by company’s Memorandum and Articles with regards to voting,
election of directors, accounts, etc.

(v)Remedial

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Shareholders have the right to get the affairs of the company investigated in case of frauds,
dereliction of duties e.t.c so as to prevent oppressive management.

2. BOARD OF DIRECTORS

Board of directors is the main governing body of a company. It consists of directors who are also
referred to as TRUSTEES, they have to look after the company’s property and use the same to
promote the interest of the company.

Why company directors

A company is a separate legal entity from its members as a separate legal entity a company
cannot manage itself it needs people to manage it, that are directors.

The term director is applied to anyone instructed with management of a company who attends
board meetings and takes part in their decision – making activities.

(a) Appointment

The first directors of a company are appointed by the promoters and may also be named in the
Article of [Link] directors are elected by the shareholders at annual general
meetings of the company.

(b) Qualifications

• Only person holding the qualification shares can be elected as director.

• Number of value of shares are specified in the Articles of Association.
• A person of bank cannot be appointed as a director.
• A person who is adjudged insolvent is not qualified to be a director.
• A person who is convicted of offence and sentenced to imprisonment for more than six months
cannot be elected a director.
• A person who does not paid the calls on his shares due six months or more cannot be elected a
director.
• A person guilty of offence in promotion and Management of the company cannot be a director.

(c) Remuneration

Remuneration payable is determined either by the Articles in by resolution passed at the general
meeting of the company. A director may be paid specified amount of fees for attending the
meetings of the Board of Directors or of any committees of the Board.

(d) Powers, duties and liabilities of directors

• They are charged with the responsibility of recruiting the general managers of the company.
• The board of directors is also responsible for declaring dividends and determining what part of
the profits will be retained in the business for expansion .

77
 • They do also take major decisions affecting the day to day operations of the company and
expansion of business.
• The Board of directors is liable for their actions and fully accountable to the shareholders in the
general meetings.

3. MANAGING DIRECTOR

The management of the company is composed also the general manager (GM) or the Executive
Officer (CEO) or managing director (MD). The managing director is the director who has been
entrusted with “substantial powers” of management or by a resolution passed by the company at
its general meeting or by the Board of [Link] is the top executive functioning in a two fold
capacity as an elected director and also as a manager who is vested with additional powers in
respect to important matters of the management of the [Link] board may pick one among
them to become the Chief Executive Officer (CEO) in this case is called a Managing Director
(MD). He is given remuneration as a whole time director.

Departmental Managers

The general manager may be assisted by Deputy General Manager who in turn is assisted by
personnel manager, production manager, finance manager, marketing manager and the company
secretary.

[Link] employees

Under the departmental managers there may be middle management cadres as well as clerks and
other workers in their efforts to achieve the objectives of the company.

Company meetings

A meeting is defined as the assembly of two or more persons for exchange of their views and
suggestions on matters of business significance to the company. It is a corporate gathering of
members or owners of the company or Board to discuss and decide the specific issues.

Essentials of valid meeting

The condition essential for a regular and legally to able meeting are as follows;-

• [Link] would be given proper notice of meeting.

• [Link] to be considered must be listed and available to members.

• [Link] number of members to constitute a meeting should attend.

• Chairman.A chairman to preside the meeting must be present.

• [Link] placed for preview of the meeting.

78
 • [Link] passed at the meeting with requisite of the majority.

• Method of [Link] be prescribed to assistance the service of the meeting.

• [Link] of the meeting should be adequate.

The general Meetings

The general meeting is the highest power base in the company in which all the members or
shareholders are entitled to attend. The most important decisions are made in the General
Meeting. Under the companies Act, there are three types of General meetings namely: The
Annual General Meeting (AGM),the Extra – ordinary Meeting (EGM) and Statutory meeting.

1. Annual general [Link] is a shareholders meeting held every year to review the progress and
prospects of the company. It enables the directors to place before the members an amount of
their activities and achievements for the year and seek their approval for their plans and
programmes for the coming year.

2. Extra - ordinary Meeting (EGM). This is the meeting other than annual general meetings which
can be called by the directors or by requisition of members or by the registrar of the
[Link] purpose of such meetings is to permit the discussion and transactions of
business which cannot properly be postponed until the next general annual [Link] business
transacted at an Extra – ordinary meeting are treated as special business and must be specified
in the notice when calling the meeting.

3. Statutory meeting. This is the first meeting of shareholders at which they are given
details of various regulations and rules.

Resolutions of the general meeting

Decisions in general meetings are made by voting and such decisions are called resolutions. The
resolutions are the decisions taken on the proposals placed at the meeting:

There are two types of resolution grouped in the basis of the extent of majority which they have
been passed at the general meeting.

1. Ordinary resolution

It is a resolution that has been passed by members entitled to do so by voting in person or by

proxy. A proxy is a person representing a shareholder after obtaining the letter from the lawyer
permitting him or her to attend the meeting, when the shareholder is unable to attend the general
meeting. These resolutions require 51% and above votes of the member present. Matters which
can be decided or voted upon ordinary resolutions include: election of directors, appointment of
Auditor, declaration of dividend, adoption of accounts and directors report, and increase in the
authorized capital.

79
 2. Special resolution

Special resolution is one which is passed with at least ¾ th (75%) majority. Items requiring
special resolution under the company law include; Alteration of name clause, alteration of
objectives, alteration reduction of capital, commencement of new business, appointment of share
selling agents and voluntary winding up of a company.

FORMATION OF A JOINT STOCK COMPANY

Formation of a company is a complex process involving several legal formalities and

procedural decision.

Four main stages are involved in the formation of a company:-

1. Promotion
2. Incorporation
3. Floatation or capital subscription
4. Commencement of business.

A private company has to complete only the first two stages while a public company must
undergo all four stages inorder to start the business.

1. PROMOTION

The term refers to the sum of all activities by which a business is brought into existence.

Inorder to form a company, there must be people who will come with an idea of forming a
company and setting it in operations. These are founder members of the company and are known
as PROMOTERS.

To form a private limited company requires minimum of two (2) promoters and a public limited
company requires minimum of seven (7) promoters.

Role of Promoters

The promoters perform the following functions.

(i) Conceive a business opportunity or idea of starting a new business.

(ii) Conduct a pleminary analysis of the idea to determine its profitability and feasibility.

(iii) Carried out a detailed investigation inorder to determined the nature, scope and requirements
of the proposition.

(iv) Consult various people and persuade them to join in the proposes business as directors.

80
(v) Make provisional contracts for the purchase of assets

(vi) Make negotiation for purchase of existing business where necessary.

(vii) Make an issue and allotment of securities.

(viii) Appoint brokers, underwriters, solicitors and bankers for the company.

(ix) Get the necessary documents prepared and filed with the registrar.

Stages in promotion of a company

Promotion of a company involves the following stages:

(a) Discovery of business opportunity

(b) Conduct a detailed investigation

(c) Verification

(d) Assembling the proposition

(a) Discovery of business opportunity

Several ideas are collected in respect to prospects of a business.

(b) Conduct of detailed investigation

A through investigation is required or made with reference to the:

Extent of demand, degree of competition, estimated cost involved, source of supply of materials,
amount of finance required, location of the business, etc.

The services of experts such as accountants, engineers, marketers, e.t.c may be needed to prepare
a project report.

(c) Verification

The project report submitted by investigators must be verified by a separate team of impartial
experts. (Exparts who are independence having no interest on the company to be established).

The purpose of this verification is to eliminate errors in the report which may have been caused
by biases which are characteristic of all personal research work.

(d) Assembling the resources

81
Once the investigation and verification are confirmed on the feasibility and profitability of the
project proposal, the promoter assembles the resources necessary for the establishment of a
company.

The promoters should thereafter ensure the following:-

(i) Secure co – operation of the people who would be associated as directors or founders.

(ii) Make contracts with underwres , bankers , brokers, e.t.c for raising the necessary finance.

(iii) Make contracts for purchase of land and buildings, plant and machinery, furniture and
fixtures, e.t.c

(iv) Arrange for supply of materials and recruit of staff, e.t.c

(v) Make arrangement for installation of machinery.

(vi) Finalize the preparation of necessary documents required for incorporation of a company.

2. INCORPORATION OF A COMPANY

Incorporation of a company implies its registration as a corporate body under the companies Act,
2002.

It is a legal process involving the following steps:-

(i) Search for the name of company

(ii) Filing legal documents

(iii) Registration of the company

(iv) Issue of certificate of incorporation

(i) Search for and approval of name of the company

Before registration, its necessary to search and obtain approval of the name of the company. A
special application form is usually provided at a fee to this effect.

The exercise aims at finding out whether another company has already been registered with the
same name or not.

(ii) Filing the legal documents

Once the name is approved a file containing the following documents should be submitted to the
registrar of companies.

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 1. Memorandum of Association
2. Articles of Association
3. Registered office
4. Statement of norminal capital
5. List of directors
6. Declaration of compliance with the requirements of the companies Act.
7. Certificate of incorporation
8. Prospectus
9. Certificate of trading

Companies are required by the registrar of companies to prepare and present the first five (5)
documents listed above.

There documents are discussed in details below;-

(a) MEMORANDUM OF ASSOCIAION

This is the principal document filed with the registrar of companies upon incorporation of a
company under the companies Act. It is a charter or constitution of the company. It defines the
powers and limitations of the company. Also it lay out the relationship of the company with the
outsiders (general public).

The Memorandum of Association has the following contents or clauses each defining a particular
aspect of the company.

(1) Name clause

The clause states the name of the company.

A company may choose any name subject to the following conditions:-

- It must not be “undesirable” e.g too similar to that of an existing well known company.

- It must be displayed outside of every company office and on company stationeries , e.t.c. The
name should end with the with the world Limited (Ltd) to save as the reminder to the people
dealing with the company that the liability of members is limited.

- It also not use the name of the country e.g ((TZ) Ltd.

(ii) Domicile / Address / Situation / Location clause

This shows details of the company’s registered office. The registered office is the place where all
the statutory books and other documents of the company will be kept. All notices, circular and
other correspondences are sent by the registrar to the registered office. Also registered office
shows the location e.g Mwanza, Arusha, Dodoma etc , telephone and fax numbers, Website
address and e – mail contact a details. This enable the public to know where to find it in case of
contact.
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(iii) The objective clause

This outlines the aims and objectives for which the company is being formed, and the company
cannot act beyond the registered objectives. This helps the public to know exactly what they are
subscribing their money for. The promoters therefore world this clause carefully to include the
main and secondary activities to be undertaken by the company. Any contract entered into by the
company which is not within this clause is regarded as void by law.

(iv) Capital clause

This states the amount of authorized / registered capital the company wishes to have. It includes
the following:

Total amount of share capital, the units into which share capital is divided , types of shares
available to the public e.g cumulative, preference, ordinary, and the value of each share.

(v) Liability clause

This states that the liability of members is limited to their capital contribution.

In case of the company limited by guarantee, the liability of members is limited to the amount
has undertaken to pay at the time of liquidation of the company.

The debts of the company are paid off using the assets of the business.

(vi) Declaration clause / Association clause

This is a declaration made by the promoters showing that they desire to form themselves into a
limited company and they have agreed to take the stated number of initial shares in the capital of
the company.

The memorandum of association should be submitted duly signed by at least two (2) persons in
case of private company and at least seven (7) persons in case of a public company who agreed
to take at least one share each showing also their names and addresses. The promoters also
indicate that the requirements of the Companies Act have been followed.

The significance of Memorandum of Association.

- It is the basis of incorporation such that no company can be registered without it.

- It determines the limits of company’s activities. Any activities done outside the scope of
the Memorandum will be ultra vires and void (not binding).

- It informs the investors of the purposes for which their money will be utilized.

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- It makes known to the shareholders the extent of their liability.

- It defines the objectives of the company.

- It enable the outsiders to know whether the company is authorized to enter into a
particular transaction.

- It indicates the names and addresses of the people who have promoted the company and
the first shareholders.

Alteration pf the Memorandum of Association

The memorandum of association must be prepared by all companies . Alterations are possible. A
meeting of all shareholders is called and a resolution seeking alterations is passed by the
majority. The registrar is then informed of the changes.

The memorandum of association can be altered in accordance with the procedures laid down in
the company Act. 2002 on alteration of name clause.

If the name is similar to other company so one should pass an ordinary resolution so one should
pass an ordinary resolution to the registrar so as to approve the changes .

He should tell the registrar why name of the company is being changed and give the new name.

2. Alter situation clause

When you want to change the registered office to another region, one has to send an ordinary
resolution to registrar who will take it to high court of where you currently are situated and the
new place you want to go. Either one can go himself to both courts.

- To move from one district to another in the same region, one has to take ordinary resolution to
registrar of company but not to court.

- To move from one street to another, submit ordinary resolution to registrar.

3. Altering object clause

This clause shows what the company focus on. Ordinary resolution has to be submitted to
registrar on altering the clause. The registrar will not easily accept this alteration unless all the
creditors or guarantors or holders of the company agree to change this clause. If one of the holder
is not informed of alteration , then he can sue the company in court and get compensated.

Most of times, object clause is altered for the reasons to attain large number of customers if
company wants to carry some profitable activity , to enlarge areas of operation, to amalgamate

85
with any other company, to sell whole or part of the company’s to sell whole or part of the
company’s property, to attain its main purposes by new or improved means.

4. Altering liability clause

It can be changed by calling a meeting that takes place between all members, and if they agree to
change, the registrar will have no problem. A 21 days in advance notice is sent to them so as to
inform that the meeting has to take place. If majority come and others do not then the decision
will be taken with consent of majority and the rests decisions will not be considered as they were
not present during meeting.

5. Altering capital clause

Every holder who has contributed capital has to be notified of changes in this clause. Company
has to pay off all depts., cancel all paid up capital by paying shareholders. One has to submit
ordinary resolution to registrar and court will approve. There are reasons such as wanting to raise
more capital, consolidate and divide its capital into shares of higher denominations, cancel the un
– issued capital, convert fully paid up shares into stock and vice versa, reduce amount of share
capital, sub – divide shares into smaller denominations.

(b) ARTICLES OF ASSOCIATION

This is document clearly stats the rules and regulations that guide the internal operation of the
company.

The Articles of Association contain the following information:

(i) Organization structure

(ii) It states the rights and powers of each type of shareholders and the founders / promoters of
the company and powers of directors.

(iii) How to elect management committee

(iv) How and when to hold meetings

(v) Ways of raising finance for expansion.

(vi) How records of the company are to be kept .

(vii) It shows the salary to be paid to the management committee.

(viii) Borrowing, dividend and reserves policies.

(ix) It states whether shares are transferable from one company or person to another and how, e.g
by sales exchange , e.t.c

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(x) Book –keeping and auditing requirements.

(xi) Methods of dealing with any alteration of the capital.

(xii) Qualifications, duties, and powers of directors.

These articles of association thus serve as a guideline to the internal management of the
company. The articles of association should be duly signed by the subscribers of the
Memorandum of association.

The memorandum and Articles of association serves as constitution of the company.

The alteration of articles of association may be made fairly simply by calling a meeting of all
shareholders and the alteration resolution being passed by the majority. The resolution is then
forwarded to the registrar of the companies for effecting alteration.

Differences between the Memorandum and Articles of association

(c) List of directors

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This documentation contains details of names, address, occupations, shares subscriber, and a
statement of agreement to serve as directors.

(d) Registered office notice

This is the notice of where registered office of the company is situated.

(e) Statutory declaration

This forma states that all the necessary requirements have been fully complied with and directors
agree to act as such. This may be signed by the secretary or one of the directors or promoters of
the company.

(iii) Registration of the company

This is affected after the Registrar of companies is satisfied with correctness of the documents
tendered, who then ask the promoters to pay registration fees. Registration is affected by entering
the name of the company in the register and giving a registration number.

(iv) Issue of certificate of Incorporation

The registrar will give a certificate of incorporation after registering a company.

A certificate of incorporation is a conclusive proof of the fact that the company has been duly
incorporated and it gives a company legal existence. The company comes into existence from the
date of issue of the certificate of incorporation.

A private limited company can commerce business operations immediately after receiving a
certificate of incorporation but a public limited company should firs obtain a certificate of
trading before commencing business activities.

A certificate of incorporation shows:

1. Name of the company

2. Date when it is registered
3. Address and location of the company
4. Signature of the registrar.

Before commencing the business, a public company must proceed to issue a PROSPECTUS
inviting members of the public to buy its shares.

A prospectus

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This is a notice, circular, advertisement or other invitation offering the public the opportunity to
purchase the shares in the formed company. It is prepared by the directors of the company. It is
prepared by the directors of the company and must be signed by all. It gives detailed information
about the promoters and the directors of the company. The purpose of this document is to
provide the public with sufficient information about the company to encourage them to buy
shares of the company.

The prospectus will contain the following details:-

1. Name and address of the company.

2. Nature of the business (company)
3. Type of shares available

After reading the prospectus, members of the public who are interested apply for shares, and
send the application letter together with the application free.

After this, the directors allot shares to the applicants, and then successful applicants are called
upon to pay for the allotted shares. On payment, they become shareholders and the are issued
with share certificates. When the directors receive the necessary capital from the sale of shares,
they inform the Registrar of the companies and a Certificate of Trading is issued.

A public limited company can only be allowed to start business when the Registrar is
satisfied that:-

(i) The company has raised the minimum amount of capital as required by the Memorandum of
association.

(ii) Every director has paid to the company the minimum amount of money for the shares to be
taken by him or her, and

(iii) There is a declaration by one of the director that the company has complied

With all the regulations stipulated by the law that governs companies, Once the registrar is
satisfied with this issued to enable the public limited company to start its operation.

Certificate of Trading/Trading license

This is a document which empowers the public write company to start operating. It is issued by
the registrar of the Company after the Company has raised the minimum share capital.

NOTE;

If the Company has been in existence for sometime but wants to raise more capital contain the
company auditors reports cornering the profits or losses and dividends for the post year. The
latest balance sheet showing the assets and liabilities is also included.

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3. FLOATATION OF CAPITAL/CAPITAL SUBSCRIPTION

This include the following activities

(i) Invitation and offer shares for subscription

(ii) Appointment of a company banker and underwriter

(iii)Issue of share to the public

(i)Invitation and offer of shares for subscriptions.

The promoters should state the minimum amount which they need to commence the business
after receiving the certificate of incorporations.

The company should invite the public through press advertisement to subscribe for the share
capital of the Company. The promoters must prepare the prospectus and make it available for
issue to the prospective shareholders.

A prospectus is a documents prepared by promoters containing all the necessary information

about the Company together with an outline of the memorandum of association aiming at
inviting the people to apply for the shares and to become share holders in the formed company.

A prospectus duly prepared and printed is filed with the registrar of companies and ready for
issue to the public

A private Company

It can commence it immediately after receiving certificate of incorporation since it raises its
capital privately and not from the public. A private Company may have to raise its capita even
before incorporation. It however requires a certificate of incorporation to in uGu rate its business.

A public Company

It must first raise the necessary capital and obtain a certificate of commencement (trading
certificate) before it starts operating. The process and procedure requirements for raising capital
is referred as capital floatation/subscription.

Permission for capittalissue

Permission or approval of the controller of capital issue must be sought.

He following condition should be satisfied for such approval

(1)Debt – equity ratio (Ratio between capital and borrowings)

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Should exceed 2:1

(ii) Share should be issued at par

(iv)The rate of interest should not exceed the prescribe limit as in the Acts

(b)Appointment of banks and underwriter

The promoters appoint the bank which will distribute the prospectus, application forms and
receive the applications for the shares and money on behalf of the Company Underwriting

If the Company feels that it will not be able to sell all the shares it is offering, it may get a
commercial bank, or insurance company, or share broker to underwriter the issue. This means
that the underwriter will tae to buy any shares that my not be taken up by the public for a small
commission.

Advantages of underwriting

(i) It relieves the company procedures (or direction) of the risk and uncertainty of selling the
shares

(ii) It enable the promotes to have large amount of capital at agreed term and thus the company is
served from the worries about sufficient fund

(iii) The Company gets the benefits of expert advice of underwrites because they fully know well
as to where, when and how the shares are to be sold.

(iv) Underwriters are usually men or institution of considerable financial status and highly
established reputation. Association of such person or institution with the issue enlace the chance
of its successful sale

(iii) Issue of shares the public

An application is made to recognized stock exchange for the permission for dealings with shares
and debentures of a company. The following condition should be satisfied for such approval

- Debt equity ration 9 ration between capital and borrowing should not exceed 2:1

- Share should be issued at par (Nominal value) face value)

- The rate of interest should not exceed the prescribed form a long with application money are
received by the company bankers. The Company can issue shares to be paid fully at application
or to be paid on installment.

SELLING SHARES ON INSTALMENT

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A company may decide to sell some of the shares in installment called “CALLS” This is done to
encourage a large of people to apply for the shares

Procedures for issue of shares in Installment (rarely practiced in Tanzania

An advertisement may contain an application form or specify from where the application corms
are available. Applicants fill n the form stating the numbers of shares they wish to buy or
subscribe for and asked to pay application money, which gives the company an assurance that
the applicant is serious.

(ii) Allotment of shares

After the application period and the list closed, all applications are forwarded by the bankers to
the Company.

On the receipt of applications, the directors go through them and decide which ones are to be
allotted shares either on prorate basis or the other way though basis or the other way though by
them to be just and fair. Oversubscription and under subscription may happen.

Over subscription occurs if more shares have been applied for than the shares issued and the vice
versa is true for under subscription. Some of the applications may be rejected, the letters of regret
are sent to them with refund money they have paid. For those accepted are sent allotment letters
and asked to pay the allotment money in other words allotment is the acceptance by the company
of the subscribers application.

Should a share hold fail to pa pay the rest of installments (calls ) within a specified period, has
membership I cancelled and the already paid installment is not rounded.

(iii) Issue of share certificate.

On receipt of allotment monies, the successful applicants are issued with share certificate which
becomes an evidence e of membership to the company and all the names are written in the
register of shareholders. This warrants then to received dividends at the end of trading period.

(v) Making Calls

The shareholders will be asked to pay the balance of the par value in two or three installment
referred as call money

(vi) Forfeiture of shares

Shareholders who after having been allotted shares are forfeited and lose the money they may
already paid. Perfected shares are later re – issued by the company

4. ISSUE THE CERTIFICATE OF INCORPORATION AND COMMENCEMENT OF

BUSINESS UPON

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The certificate of Trading is a document that in powers a company to begin trading and
automatically makes provisional contracts already entered into effective and binding on the
company

To obtain the certificate of commencement a public limited company must file the following
documents with the Register of companies.

(i) A return of allotment containing the names addresses of shareholders and the number of
shares

(ii) A declaration that the director has applied for and obtained permission for its shares to be
dealt on the stock exchange.

(iii) A statutory declaration signed by a directors stating that the necessary formalities have been
duly complied with respect to the issue of shares

SHARE CAPITAL OF THE COMPANY

THE CAPITAL STRUCTURE OF COMPANY

The capital structure of a Company this refers to the different categories under which the
authorized capital of a company divided up. This is because the company does not normally
invite subscriptions for all of its nominal or authorized capital at one time. Payments is usually
by periodic amounts known as installments or calls.

The capital of the company is called share capital because it consists of and raised by selling
shares. The following are types of shares capital or company capital.

1. Authorized Capital/Nominal Capital Registered Capital

This is the maximum amount the Company expects to raise and operate with by selling shares
and it is stated in the capital clause of its memorandum of Association. Assume that the
Company share capital is made up of 100,000 ordinary share of shs. 10/=@

The nominal or authorized capital of the company is 100,000xshs10=sh1,000,000/= Once

registrar of companies expects such a firm to operate with this amount.

2. Issued and Unissued Capital

This is the part of the authorized capital which the company may actually has offered to the
public for subscription in the form of shares. The company issues shares according to its
requirements.

For example, out of the company authorized capital the directors may decide to put some of it to
the public so as to start subscribing for suppose they issue only 50,000 x sh. 10 = 500,000. The
remainder is 50,000 shares x sh. 10 = 5000,000. Therefore in issued

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capital is sh. 500,000

3. Called up share capital

Once the shares have been put to the public so as to start applying for , then the share hold are
called upon to subscribe or to pay. They may be called upon to pay for all the shares issued or
only a fraction of what was issued.

What was issued.

Assume that each shareholder is asked to pay shs 5 first for every share he taken up. Since
50,000 shares were issued the amount of called up capital is 50,000 x sh. 5 250,000. The
remainder is known as uncalled up capital i.e what share holders are asked to reserve for
sometime

4. Paid - up share capital

This is the actual amount received from the subscribers by the company out of the subscribers by
the company out of the called up capital. The amount unpaid is known as calls in arrears.

5. Reserve capital

A public company may create a special category of capital known as Reserve capital in respect
of called up capital of the company.

Reserve capital is the amount which is not callable by the company except in the case of the
Company being wind up. Reserve capital is created by means of a special resolutions passed by
the company in the general meeting.

6. Loan Capital

This is money provided by the issue of debentures or borrowing from the bank. Such capital is a
ability to the Company

7. Minimum share capital

This is the amount stated by the promoters when making application for the registration

Company as the minimum amount required commencing business effectively.

SHARES OF A COMPANY

A share or stock is a unit in which the capital of a company is divided.

OR

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A share is a unit or portion of capital to raise funds

The money raised through the sale f shares is known as hare capital” profits distributed to
shareholders are known as “dividends. Holders of shares are called shareholders or members of
the company

Types of shares

(i) Ordinary /Equity shares

(ii) Preference shares

(iii) Deferred shares

[Link] /Equity shares

These are shares held by real owners of Company/These shares are held by persons who are full
responsible for the debts of the company.

In case the company is dissolved ordinary share have the last claim on the properties of the
company. These type of shares give their holders the power to formulate policies for the
company.

Characteristics of ordinary shares

i. They do not carry a fixed rate of return. The amount of profit allocated to them depends upon
what remains after all the creditors and shareholders with prior claim have been paid.

ii. The owner of shares receives a dividend on them only if there is sufficient profit. If profits
are two low or if there is a loss the company may not pay a dividends. When profits permit,
each
shareholder will receive an equal amount for each ordinary share held.

iii. When the company is bankrupt, share hold will be paid if at all in only after all other debts
have been paid

iv. There is no special security for such investments other then the soundness of the company

v. In exchange for the risk, the ordinary shareholder the ultimate control of the company, in that
they have one vote for each share when it comes t electing the board of directors. Who are
responsible for the general policy of the company

vi. In good years shareholders may receive higher rates of dividends than other shareholders but
in bad years there may be no return ate all

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vii. When the Company is winding up, the shareholders are paid money after the other
shareholders and creditors.
viii. Ordinary shares are the most important and popular type of shares, It is therefore called a
entire capital of the company

ix. The rate of divided on ordinary shares depends upon the profit of the Company.

x. The ordinary shareholder to not create any change on the assets of a company

xi. No burden on company resources since the dividend is t be paid out of the profit of the
company, there fore they impose no burden on the resources of the company.

N.B The great risk of business falls upon the ordinary shareholders because.

They have no fixed rate of dividend.

The amount of profits allocated to them depends upon what remains after all the creditors and
shareholders with a prior claim have been paid.

(ii) There is no special security for this investments other than soundness of the company

(iii) IN good years they may receive higher rates of dividends than the other shareholders but in
bad years there may be no return at all.

(iv) In good years they may receive higher rates of dividends than the other shareholder but in a
bad years there my a been return at all.

2. Preference shares

Preference shares, as the name suggests have certain preferential rights or privileges in respect of
the payment of dividend or repayment of capital as compared to other types of shares.

Characteristics f preference shares

(i)They earn a fixed of dividend, say 5% or 10% preference shares

(ii) They have first priority in sharing dividends

(iii)In case of insolence the holder of preference shares receive their proceeds before ordinary
shareholders

(iv)The dividends paid are higher than in case of ordinary shares.

(v)Those too are held by the owners of the Company and form part of the Company capital with
a fixed rate of dividend.

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(vi)Most preference shareholders have no say in the control of the Company, as they have a
privileged position as respect to dividends.

Types of preference shares

(a) Cumulative preference shares, These are type of shares which are entitled to a fixed rate of
dividend till they are paid, Holders of these are assured of their dividends every year. If a
Company does not
pay dividend in one trading year, then payments are carried forward t the next year, In other
words, dividends keep on accumulating till paid.

Holders of these are assured of their dividends every year. If a company does not pay
dividend in one trading year, then payments are carried forward to the next year. In other words,
dividends keep on
accumulating till paid. That is to say if there are no dividend paid this year, next year or the
next year after that the amount has to be paid.

(b) Non cumulative preference shares, This will be entitled to a fixed rate of dividend, but only
for the year for which a dividend is declared. Otherwise, it does not accumulated and arrears are
not carried
forwarded.

(c) Redeemable preference shares, These are shares offered by the Company for sale to the
public but they can be bought back or repossessed by the company when necessary or after a
specified period
of time. The shareholders are paid a high rate of interest when such shares are taken away
from them. These are issued when the company wants more money temporarily.

(d) Irredeemable preference shares

These are shares offered to the public for sale and cannot be reposed or bought back by the
company under any circumstances. If a shareholder wants to leave the company and wants his
money back, he can sell his shares t the public

(e) Participating preference shares

These carry a fixed rate of dividend and the holders are entitled to any extra profit which rains
after all shareholders have received their dividends

(f) Guaranteed Preference shares

These shares are guaranteed for a fixed rate of dividend by a third party. If the profits of any one
year are no sufficient to pay such dividend, the guarantor (s) have to pay the same off their
private resources

(g) Convertible Preference shares

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These are those shares which the holders can convert into equity (ordinary) share at specified
period of time. The right of conversions to be authorized by the Articles of Association of the
Company

3. Deferred shares

Here the business my want to convert to public limited company and with to retain powers of
control and right to high profit. Thus they create a class of deferred shares giving them special
voting powers and the rights to dividends

TERMS USED IN THE SHARE MARKET

1. Share at par

This is when the money offered for purchase is equal to the face value of the value. For
example if the face value nominal value of share is Tshs. 400, the amount offered for sale is Tshs
400. A share is above par, if it sells more than its nominal value and . A share is below par if it
seller less than nominal value.

2. Share at perineum

This is when the price paid for that share exceed the value of that share e.g the value of
share is Tshs 500 and it is offered for Tshs. 600

Reasons why company decide to sell shares at premium

(h) Company finds it fair to sell shares to the existing share holders who may have paid more
than the par value of their shares.

(i) Company might want to intercept parts of the company profits that would have gone to the
speculators.

(j) The books of accounts require the premium to be shown separately in share premium account
and not share capital account

(k) Premium is not trading profit therefore it may not be distributed as dividends it can be used to
write off preliminary expenses, write off commission or debentures on issue of shares and raising
new cash
from shareholders

FEATURES OF RIGHT ISSUE

(i) Right issue of shares is made by issuing provisional letter of allotment which shows the share,
the member is entitled to take up and the price payable for the shares.

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(ii) Members my take the issue wholly or may renounce the issue by selling his right to another
party

(iii) It is apportioned to their present holding of shares of similar or specified shares.

(iv) An issue at less than market value of the existing share will lower the value of the existing
ordinary shareholders equity.

(v) Company obtain a profit (premium) on the shares sold out to another party.

(vi) It is issued so as to raise additional capital offered first to existing holder then the public if
existing holders do not take up

5. Underwriting of shares.

A public company is required to sell a minimum number of shares (called minimum

subscription)

To secure the minimum subscription during the prescribed period the company may enter into
contract (agreement) with an established source like banking institutions, Insurance firms or
shares brokers to underwrite the issue. If the Company is not able to sell all the shares within the
specified period them the contracting party ensures the sales of share is known as underwriting.
That means that the underwriter undertakes to take the whole or portion of such of the offered
shares which may not be subscribed for by the public. The underwriter make the payment of
subscribed shares in fully to the company public. The underwrite is paid a commission as agreed
between the parties and also authorized by the Articles. This is because the risk of the shares is
transferred to the underwriters,

Advantages of underwriting

(i) They take up shares that are not taken up by the public

(ii) They help company in fulfilling statutory regulations and minimum subscription.

(iii)They assure quick sale of securities in the market.

(iv)Stimulates industrial development and creates more employment opportunities in the country

(v) They stand guarantee and help the promoters in undertaking the risk of starting or enlarging a
project.

(vi)They provide information in regard to capital market condition, general responses of

investors to issuing company.

(vii) When the issue is underwritten, the company is assured of the required capital

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(viii) If the underwriters have good reputation in the market, it raises the status of the company

(ix)The company can get the benefit of specialized knowledge of the underwriters in the
marketing of stock n and shares and this can help the company in future ventures.

(x) If the public subscribes to the share then the underwriting contract can also be dissolved

Share warrant

Is a bearer document of title to share and can be issued only by public limited Company and that
to against full paid u shares. Only it cant be issued by private limited company because the share
warrant states that the bearer is entitle to a number of hares mentioned in. It is a negotiable
instrument and is easily transferable by mere delivery to another person. The holder of share
warrant is entitled to receive dividend as decided by company

[Link]

Is a type of security that shown ownership in a corporation (w) and represents a claim on part of
the corporations assets and earnings. Ownership in company is demined by number of shares a
person owned divide by total number of shares outstanding. Also called equity.

OR

Stock is the name given to a block of shares. Shares may be converted into stock if there is a
provision in the Articles of Association. Shares can be converted into stock only if they are fully
paid up. That is how the word joint stock company was introduced to describe limited company

DISTINCTION (DIFFERENES BETWEEN SHARES AND STOCK

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Difference between Transfer and Transmission of shares

1. Transfer of share means transferring the shares on the name of same other person on a
voluntary basis while transmission of shares means passing the property/title in shars by
operation of law from member to his legal representative on either death, insolvency or lunacy
of shareholder.

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 2. Transferor or transferee takes initiative of transferring shares while the legal heir of the
deceased shareholder takes initiative of transmission of shares.
3. The transmission is not a deliberate action but result of operation of law after he dies, becomes
bankrupt or insane while in transfer it is a deliberate action by shareholder
4. In transfer stamp duty is payable on market value of shares white in transmission duty is
payable
5. Transmission cant be refused as it is under operation of law while in transfer the directors can
refuse on certain ground. In transmission certain document like court order of insolvency, death
certificate are required while in transfer an instrument of transfer has to be duly excited by
transferor or transferee.

METHODS OF SHARE ISSUE

1. Offer by prospectus

Direct approach to the public share and sold and a fixed offered price.

2. Officer for sale

A company will sell its entire issue to an issuing house which then sells them to the public
at or slightly higher price to cover fees and expenses

3. Offer by tender

Rather than fixing the price in advance, company sometimes issued shares to the public
by inviting them to state a price at which they are prepared to buy. His issue price then fixed
according to
demand and anyone offering less this receives no share. (each person states minimum
price and company gives to person whose set maximum price.

4. Placing

A large number of share issue are placed by the issuing house with a selected group of its
clients, usually large financial institutions rather than the general public.

5. Rights issue

Existing shareholders are offered the right to buy additional shares in the company at
price lower than market price.

6. Bonus issue

Share issued free to existing holders in proportion to their holdings eg bonus issue for
every 10 share held. This makes shares more marketable by reducing their market price.

7. Scrip issue

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Sometimes instead of paying a cash dividend, a company offers shareholder a choice of
receiving inform of extra shares

WHY DO SHARE PRICES FLUCTUATE

1. It changes according to the market’s activity. The buyer and sellers cause prices to change and
therefore share prices change as consequence of demand and supply, Its this dance between
buyers and sellers, demand and supply that decides how valuable each share is
2. If more people want to buy share than sell it the prices goes up conversely, if more people want
to sell share then buy it, there is more supply than demand, the prices goes down.
3. Shares represent ownership in a company. So even if you own just one single share of a
company, you own a part of it no matter how minute. Therefore the price of share indicates
what investors feel the company is with.
4. If a company earning(profits) are good and its prices jump up. But if the company makes no
money, then the price of share will fall
5. Investors decision are influenced by their out look and opinions. When the outlook is positive
investors are eager to buy so prices rise but when its is negative they are eager to sell so price.
6. Technical factors. Stock pries move in trends. Investors are attracted by rising prices and
spooked by falling prices. Specialists make sure that prices contently change in order to draw in
buyers and sellers.
7. Changes in government policy such as restrictions an consumers spending will probably cause a
fall in the share price of company. Restrictions of spending cause a low money simply hence
prices of shares automatically decreases.
8. When the market conditions of a country is bad i.e there is recession then price of all
commodities will which means even price of shares will be low.
9. Changes n the rate of interest of the government securities will sometimes affect share hence
the price of shares decreases.
10. World political and economic events will have an effect on share of company especially those
which have large export trade. This is because those companies get affected with all the issues
going are in other areas where their goods are being exported to.

MINIMUM SUBSCRIPTION

A company can not allot shares unless the amount mentioned as minimum subscription I
received within 120 days of the date of the issue of prospectus. Minimum subscription is that
part of the issued capital which should be received within 120 das. It is the minimum amount
which in the opinion of the directory is necessary to provide for the following.

(i) Purchase price for any property

(ii) Underwriting commission if payable

(iii) Preliminary expenses

(iv) Repayment of money is borrowed for an of the above purposes

(v) Working capital or any other expenses

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(vi) Restriction of minimum subscription is meant to prevent the formation of companies with in
adequate capital so that only companies which can raise enough capital and meet the minimum
requirement are allowed to start their business

NOTE

When a company is unable to raise required capital through selling shares, it may resort to the
following;

- Through bank loans an overdraft

- Borrowing from friends

- Asking promoters to contribute more money

- By issuing debentures

DEBENTURE

The terms “debentures” is derived from the Latin word “ debere” means to own a debt. Therefore
a debenture is a long term finance raised by a company through public borrowing. If a company
finds its authorized share capital in adequate it can raise money by selling debentures for its long
term financial needs.

A debenture is a document (Loan certificate) that works as a poof evidence that a company has
borrowed a spiced sum of money advanced or lent to the company. Debentures are of fixed
amount say shs 1000 and bear a fixed rate of interest. The interest on debentures is an expense to
the company which must be paid where the company is running at a profit or not. Debenture are
loan or borrowed capital of the company.

Debentures are of fixed amount say shs 100 and bear a fixed rate of interest. The interest on
debentures is an expense to the company which must be paid where the company I stunning at a
profit or not. Debenture ar Lean or borrowed capital of the company. Debenture holders have no
control over the day to day running of the company, however in the event of company failure,
they have claim on the assets of the company after trading creditors but before preference
shareholders and ordinary shareholders

Main features of Debentures

(i) It is instrument indicating the indebtedness of the company

(ii) It has a nominal value like share

(iii) It is a document issued under the seal of the company

(iv) The terms of issue, the repayment of the principal are specified

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(v) A fixed rate of interest is paid on debentures’ This interest is a charge on the profit an loss
account of the company

(vi) Generally the debentures are covered company

(vii) In case of winding up debentures holders are paid their money before the shareholders

(viii) The rights and power of debenture holders are mentioned in the certificate issued at the
time of accepting loans.

TYPES OF DEBENTURES

Debentures may be classified into two ways (According the security pledged against them

1. Necked/ordinary/Simple/unsecured debenture

These are types of debentures which are not secured. No property is pledged against them. If the
company goes bankrupt or liquidated the holder of necked debentures are ranked amount
ordinary creditors of the company

[Link]/secured debenture

These are debentures which are secured. Some properties of the company are pledged against
them. If the company are pledged against them. If the company goes bankrupt such properties
can be sold to pay off the holders of mortgaged debenture.

b) According t redemption

1. Redeemable debentures

These are debentures which are bought or repayable back by the company such that the amount
borrowed again them is refunded by the company after a specified minimum period and before a
specified maximum period eg 2,3,4,5 or 20 years. The interest is paid periodically but he
principal amount is returned after a fixed period.

Irredeemable debenture

These are debentures which are never refunded or not repayable by the company refunded or not
repayable by the company, the money borrowed against them remains outstanding until the
Company is liquidated/winds up

c) According to registration

1. Registered debentures

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These are debentures which are issued in the name of the owners of the debenture, in that the
name of the owner appears on the face of debenture as well as in the books of the Company

2. Bearer debentures

This are debentures which do not show the name of the owners on the face of the debenture. Is
entitled to receive interest payment on the due dates

(d)According to convertibility

This are debentures which do not show the name of the owners on the face of the debenture.
The holders of bearer debenture is entitled to receive interest payment on the due dates

(2) In convertible debentures

These are debenture which can not be converted into shares of the company

DIFFERENCES /DISTINCTION BETWEEN A SHARES AND DEBENTURE

CONVERSION OF A PRIVATE COMPANY

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There are several restrictions on private company which may result in a limited financial
resources, limited production activities, limited technical and admistrative abilities. Due to these
factors business may not be expanded and private company faces high cost per unit, limited sales
and low profit. These hindrances constrain to decide in conversion of private company into t
public company.

In order to convert into public company, it is necessary to alter the articles of association by a
special resolution. The following alterations have to be brought in the provisions of articles of
Association.

(i) Shareholders may transfer their shares

(ii) They may invite the public for subscription of shares and debentures

(iii) Maximum number of shares i.e fifty will be struck off from the articles.

New Articles of Association will be submitted to registrars office within two weeks of such
alteration

The following necessary documents must be filed with registrars office a long with altered
articles of Association

(a) A list of persons containing their names addresses and other particulars who have agree to
act as directors

(b) The written consent of the directors

(c) Declaration of the directors that they have paid the qualification shares

(d) Declaration of the directors that they have paid their qualification shares or statement of the
fact that they have already taken up and paid for their qualification shares.

(e) A prospectus or statement of live of prospectus

(f) A declaration from the directors or secretary or advocate that all the provisions of the
company radiance have been fulfilled.

After submission of the foregoing document to the registrars office, private company may be
converted into public Company

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TERMINATION OF A COMPANY

(WINDING UP OR LIQUIDATION)

This means that the end of the life of a company. In simple words it’s the closing down of the
business.

A s we have discussed earlier that a company is created by law therefore it cannot die a
natural death like a human being. The termination of its existence is affected law. Thus winding
up of the company is a legal procedure.

When a company is a legal procedure. Its property is administered for the benefits of its
creditors and members it is called winding up or liquidation.

What is liquidation?

Is the process of closing or termination a company through selling of its assets normally for cash

A LIQUIDATOR

Is a person or institution appointed by shareholders or creditors to supervise the

liquidation of a potential company including the valuation of company assets and liabilities.;

- Deal the payment of company debts

- Work on any surplus or deficit after liquidation.

METHODS/WAYS/MODES OF WINDING UP OF A LIMITED COMPANY

(PRIVATE AND PUBLIC COMPANY)

1. Compulsory winding up by court

2. Voluntary winding up
3. Winding up under supervision of court
4. By having its name struck off the register by the registrar

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 1. Compulsory winding up by court. The main reason for winding up by the court are as under

(a)Special resolution

A special resolution has been passed by the company to be wound up by the court

(b) Failure to commence business

If a public company does not commence business within one year of the date of it incorporation
or suspends business for a certain period, the court may order its winding up

(c) Statutory report or Delay in meeting where default is made in not submitting the statutory
meeting within prescribed time or has not held two consecutive annual general meetings.

(d)Members reduced below minimum

A public limited company may be wound up by court if its members are reduced below seven (7)
and less than two (2) in case of primate limited company

(e)Inability to pay its debts

(f)Where the court is of opinion that it is jus and equitable that the company should be wound up

2. Voluntary winding up

Voluntary liquidation is imitated by resolution of the company itself. A company may be wound
up voluntary in the following circumstances

(i) When the period (if any) fixed by the articles for the duration of the company has
expired or when the event (if any has accrued upon occurrence of which the articles provide that
the company has passed an ordinary resolution requiring the company to be wound up

(ii) When the company has passé a special resolution redoing the company to be wound
up voluntary

(iii) When the company has passed an extra ordinary resolution to the effect that the
company cannot carry on business owing to its liabilities and that it is advisable to wound up

(iv) The death of the founder and owner may result in any shareholders choosing not
continue operations

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(v) Liquidation is actually a means of helping the company to continue. Companies that
are encountering a period of loss may choose to liquidate subsidiary companies as a means of
setting outstanding debts of the parent company.

(vi) The voluntary winding up of the company is of two kinds.

(a)Members voluntary winding up/shareholders voluntary winding up

A voluntary liquidation is an action that may be taken by hare holders of a company in order to
honor the outstanding dots of the company in order to honor the outstanding debts of the
company. With a voluntary approach to liquidation, the directors and shareholders agree to the
process and initiate the procedure willingly, with no outside pressure or other entity. In this case
the directors of the company are required to file a decoration of solvency.

The declaration of solvency is the document that states that states that the directors believe that
the assets of the company will be sufficient to pay off its debts. The directors will then appoint a
liquidator liquidators are professionals who task of identifying and selling off all the assets
associated with business entity.

A liquidator may be appointed by court as part of the dissolution process of a company or be

hired by the company as part of voluntary liquidation process. In this scenario, liquidations of all
major assets will commence. Once al assets are placed in news papers and other media for the
creditors to come forward to prove and claim heir debts, All outstanding debts are settled first,
the share holders thereafter divide the remaining assets and the company will be considered
closed. On the appointment of the company ease to exist. The liquidate calls the final meeting of
shareholders and he submits a final account of the company affairs to the members and sends a
copy to the registrar. Then after that then after that the company is dissolved and ceases its legal
entity.

(b) Creditors voluntary winding up

A company may pass a resolution at general meeting that it cannot continuous its business due to
heavy liabilities, Then a creditors meeting is called by sending each creditor with a written notice
for this purpose. The creditors are given the full statement of the company position the full
statement of the company position the list of creditors an their estimated claims. Then the
creditors appoint a liquidator who exercises his powers for the winding of the company and
supervises the sale of assets and payments to creditors. O completion of winding up, the
liquidator have to call a final general meeting of the members and a meeting of the creditors. The
notice for such meetings are usually are usually published in the news papers. In the meeting the
liquidation has to give reports regarding the accounts and assets of the company. A copy of the

110
report is also sent to the registrar. The register an receiving the accounts and other relevant
documents takes the action of dissolution of the company.

A copy of the report is also sent to the registrar. The registrar on receiving the accounts and other
relevant documents takes the action of dissolution of the company.

3. Winding up under supervision of court

A court can also order the winding up of the company under the following conditions.

(i) If the court is satisfied that the company is unable to pay its creditors.

(ii) When there are frauds or irregularities in the voluntary winding up

(iii) The liquidator performs his duties in a partial manner. In that case the court can
appoint an official receiver who carries on he process of winding

(iv) If the rules of the winding up are not completely followed.

(v) The liquidator is not taking a keep interest to dispose off the company assets

4. Striking off the register

A company may strike off the register by the register by the registrar. This may take place when
the registrar has reasonable ground for believing that the company is defunct. He give due notice
to company at its registered office of his intention to struck it off the register.

DISTINCTION / DIFFERENCES BETWEEN PARTNERSHIPS AND JOINT STOCK

COMPANIES

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PARASTATAL ORGANIZATIONS

Are those organization which are partly or wholly owned and managed by state (government)
which engaged in either production activities or previous of services.

These organization mostly established by the act of the parliament e.g. TRA , DAWASCO,
TANESCO, UDA etc

Types of parastatal organizations

There are two types of parastatal organizations namely as

1. Authority
2. Corporations

The following are the sources of finance to parastatal organizations

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 • Loans
• Share capital
• Dividends
• Grants
• Subsidies
• Other external aids

DIFFERENCES AND SIMILARITIES BETWEEN PARASTATAL ORGANIZATION

AND PUBLIC COMPANIES

DIFFERENCES

• Appointment of directors and their removal in parastatal is done by the president while in
public companies is done by shareholders
• Membership majority of shares in parastatal owned by the government while in
companies majority of shares owned by the public
• Parastatal do not prepare memorandum of association and articles while in preparation of
companies there must be
• Dividends, while dividends in parastatal is taken by the government while in public
companies dividends will be shared by shareholders

Similarities

• Both aimed at providing services to the public

• Both are managed by board of directors
• They both own properties like assets, stocks, bank etc
• They both subjected to liabilities like creditors liabilities

ANALYZE THE PROBLEMS FACED BY PARASTATAL WHICH MAKE THEM FAIL

TO EXIST

-Mismanagement and misappropriation of fund (fraudulent)

-Lack of competent and qualified personnel/staffs

-Lack of sufficient markets

-Market competition

-Bureaucratic capital

How these problems were solved

The decision taken by the government to solve problem faced by these parastatal organization
was to

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-Privatize

-Liberalize

WHAT IS PRIVATIZATION

Refers to the concept of changing public owned sectors like companies and parastatal
organizations to be owned by private people

WHAT IS LIBERALIZATION

Refers to the concept of creating free market and trade to bring about competition in the
provision of public services

What are the impacts of privatization and liberalization of trade in Tanzania

Positive impacts

• It attracts foreign strategic investors in a country

• It encourages competition
• It reduces government burden and responsibilities
• It facilitates transfer of new technology from foreigners
• Creation of employment opportunities
• Provision of varieties of choice due to existence of many industries
• It leads to the improvement of living standards of the people
• It creates international relationship between countries
• Act as a source of government revenue/income

Negative impacts of privatization

• It leads to the loss of jobs to unskilled labors due to the introduction of new technology
• It leads to destruction of culture
• It leads to the cost sharing policy on social services
• It may cause economic instabilities
• It leads to emergence of classes/inequality
• Increase in the cost of living
• Decline of domestic industries due to high level of foreign competition
• It increases dependent ratio in the country

Positive impacts of trade liberalization

• Competition
• Employment
• Reduction of government burden
• Revenue
• Attraction to foreign investors

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 • Varieties of choice
• Freedom of production and consumption

Negative impacts of trade liberation

• Decline of domestic industries

• Destruction of culture

Emergence of classes

• Loss of jobs
• Cost of living increased
• Economic instability

OPERATING A BUSINESS UNIT

All business units whether incorporated or unincorporated are operating within government
bodies called BRELA and TIC

WHAT IS BRELA?

Is the term refers to business registration licensing agency which is an agency of the government
given an authority and established to provide and ensure that all business are operated in
accordance with the laid procedures and regulations as well as sound commercial principles.

FUNCTIONS OF BRELA

1. To ensure that business comply with the laid down regulations to the satisfaction of
government and business community
2. To encourage and facilitate local and foreign business environment
3. To administer company and names laws
4. To administer intellectual property laws
5. To improve service delivery by the adaptation of modern business practice
6. To protect development of creativity in artist, literally works with the right of owners

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 CO-OPERATIVES

Introduction

The word “Co-operative” is formed from two words “Co” meaning together and “operate”
meaning work.

Hence a Co-operative society is a group of people who have agreed to carry out activities to
attain a common objective.

Definition:-

Co-operative is a voluntary association of individuals who make efforts to achieve interest of its
members.

OR

It is the type of ownership whereby people with common interest join together to achieve certain
economic and social objectives.

Co-operative societies differ from other major forms of business organization because they are
not set up to make profit, but to help the members.

A Co-operative society is formed by at least 10 people (members) who wish to help themselves.
Members of the society draft rules and regulations for the purpose of governing their society.

In Tanzania Co-operative societies started during colonial period with the prime objectives of
assisting farmers, in production and marketing crops.

Co-operative societies continued existing even after independence until 1976 when they were
abolished after failing to meet their primary objectives.

FORMATION OF A CO- OPERATIVE SOCIETY

In East Africa, a minimum of 10 people agaged 18 years and above may come together and form
a co-operative society. No member is allowed to subscribe more than 20 percent of the society’s
share capital.

The steps involved in the formation of a co-operative society are as follows:

1. Ten (10) or more people come together.

2. They draft the by-laws for the society.
3. The by-laws are submitted to the commissioner for co-operatives for approval and registration
of the society.

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 4. A certificate or registration is issued to the new society by the commissioner for Co-operatives.
Once this certificate has been obtained, the society can start operating.

FACTORS NECESSARY FOR THE SUCCESS OF CO-OPERATIVE SOCIETY.

1. Adequate financing/sound economic base.A co-operative society needs money for erecting
office and storage buildings, setting up processing plants, purchasing transport vehicles and
farm inputs, and for paying farmers promptly on delivery of produce.

2. Adequate volume of [Link] volume of business should be large enough to enable a

society to benefit from economies of large–scale operation.

3. Goals and objectives:-The goals and objectives of a co-operative must be clearly defined and
known by every member.

4. High level of managerial ability and [Link] management led to the collapse of many co-
operatives societies. Leaders must be honest. Managers and their staff should be trained on
how to run a business, including book-keeping.

5. [Link] should be no or little interference in the day to day activities of the

management staff by committee members.

6. [Link] members should be loyal to the co-operatives so that they can fully support the
societies activities.

PRINCIPLES AND CHARACTERISTICS OF CO-OPERATIVE SOCIETIES

These are the rules and regulations set to govern co-operative societies.

For an organization to be called a co-operative society, it must adhere to the following

principles:-

1. Open and voluntary [Link] is a voluntary association of people and membership is

open to all those who can fulfil the requirements of co-operatives. The minimum number
required is 10. Those wishing to join a co-operative must be adult (18 years of age and above).
Also member are free to leave and are not limited by social, political, tribal, racial or religious
differences.

2. Democratic [Link] affairs of the co-operative is and must be

administered/managed in a “democratic manner” Each member must have only “one vote”
even if the holds a great number of shares he sells or buys from the society in a large quantity.
The principal states “one man one vote”.

3. [Link] members in a co-operative society are equal regardless of their religion, race,
political status, tribe, height, sex, age, financial status, e.t.c.

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 4. Dividends or [Link] made by the co-operative society are distributed amongst
members in a form of dividends or repayments, at the end of the trading period according to
one’s contributions towards the co-operative. However, this is not based on capital
contributions, but according to how much a member has sold to co-operatives. (incase of
producers) or has purchased from the society. (incase of consumers).

5. Limited interest on share capital ideally, co-operative societies do not pay interest on share
capital. But if members provided for it in their constitutions, the interest given should be fixed,
and should be known by all members.

6. Share capital.A person is considered a member after contributing to the required capital by
buying the minimum number of shares. However, a member may hold several shares up to a
specified limit.

7. Promotion of [Link] is one of the duties of co-operative society to teach its members the
principles and techniques of co-operatives including how to produce economically, how to make
use of new technologies, etc.

8. [Link] principle states that co-operatives should not take sides in any political social or
economic affairs. A co-operative is expected to be free from the influence of politics, tribal
affiliation, religion and other bias that can affect its performance.

9. Cash [Link] all sales to the society and purchases from the society are made based
on current market prices and for cash only.
10. [Link] members must not be dishonest and selfish. All the activities must be carried on
honestly and [Link] the elected executive members of the society who manage the affairs
of the society should be men of character and integrity.
11. Co-operative with other [Link] should be co-operation among societies, not
competition. They have a lot in common and can learn from each other. Or Co-operative society
should co-operate with each other locally, nationally and internationally if they are to function
efficiently and serve their members better for instance, one society could help another to
transport its goods to the markets and another can assist it with the means of transport.

[Link] must be trust and confidence among members for the successful
operator of the society. The members must be united while taking any decision regarding certain
matters.

[Link] [Link] co-operative members should have mutual confidence and trust
in each other they should work like a team in achieving the objectives of the society. There must
be spirit of “self-help” amongst the members.

[Link] of the members of the society may be limited or unlimited. The members
can decide about their liability at the time of [Link] case of limited liability society, the
liability of members is limited to the amount payable on share held by [Link] in case of
society with unlimited liability the members are, on liquidation, jointly and severally liable for
all the obligations of the society.

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 [Link].
All the activities of the company must be carried on economically and members should try to
avoid unnecessary expenditure and wastage of the resources. The money should be spent wisely
and in the best interest of the society.

A cooperative is another form of business units under private sector. It involves an association of
individuals or firms whose purpose is to perform some business function for its members.

A cooperative society differs from other major forms of organization as it is set up not for
earning profit as its main motive but with the basic object of organizing to render services to its
members. The main rule of co-operative society is EACH FOL ALL and ALL FOR EACH.

MOTIVES FOR ESTABLISHMENT OF COOPERATIVES

Economic [Link] to improve man’s economic position through improved income and
better services.

Social [Link] to attain social recognition and protection.

Political [Link] the country encourage co-operative the cooperative members should abide
country’s rules and regulations and give moral and material support to encourage cooperative
organizations.

FEATURES OF COOPERATIVE SOCIETIES.

(i)Registration. A co-operative society is registered under the co-operative society Act of a

country. Being a co-operative body, it enjoys certain privileges which are subject to control and
supervision of the state.A co-operative society enjoys perpetual succession and has its own
common seal. It can enter into contact with other persons. It can file and defend suit’s, and also
open bank accounts in its name.

(ii)Values. co-operative are based on the values of self-help, self responsibility, welfare,
democratic, equity and solidarity. Members come together voluntarily for their mutual benefit in
the spirit of openness, social responsibility and caring for other.

(iii)One man – one [Link] co-operative society, member has only one vote irrespective of
shares held by him. The principles of one man vote makes the society truly democratic. All the
members are treated as equal control does not rest with few individuals as in other firms or
organization.
(iv)Service motive. A co-operative society is primary set up for rendering services to its
members in a particular field. A society however, is not prevented to earn profit on the services
provided to non-members.

(v)Religious, Tribal and Political Neutrality.A co-operative society, without considering

religious faith, ethnic and political affiliations works for the social and economic betterment of
its members. It enjoys autonomy and independence.

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(vi)Economic prosperity for the weak. A co-operative society aims to empower economically
weak people by looking after. Their own affairs in co-operative with another. In a country like
ours, wealth is in few hands. It has split up the society into two groups. i.e rich and poor. A co-
operative society can help the common man to get together with others like himself to safe guard
their common interest. There is economic participation of all the members which helps them
improve their standard of living.

SOURCES OF CAPITAL

A co-operative society can raise capital from the following sources.

a)Members.A co-operative society gets some of its capital from members in the following
ways:-

(i)Registration fees charged to members.

(ii)Amount contributed by members for the purchase of shares in the society.
(iii)Fees charged on the proceeds from the sale of members produce, and
(iv)Interest earned on money loaned out or farm inputs advanced to members.

b)Financial institutions.A co-operative society may also raise capital by borrowing from a bank
or any other financial institution. The amount borrowed is however repaid with some interest.
The co-operative may also earn interest on money it has deposited or invested in financial
institutions.

c)The co-operative itself.A co-operative society may decide to retain part of its profits in the
business with a view to expanding its operations. Retention of profits means that members would
be paid lower dividends.

FORMS /TYPES OF CO-OPERATIVE SOCIETIES.

Co-operative society is classified according to the activities they perform including:-

1. Producer co-operative societies.

2. Consumer co-operative societies.
3. Saving and credit (thrift and loan) co-operatives.
4. Service co-operatives.
5. Processing co-operatives.
6. Wholesaler co-operative societies.

1. Producers / grower or agricultural marketing co-operative societies.

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A producer co-operative society is owned and operated by producers to collect, process,
transport and market their products like cotton, tobacco, coffee, tea, fish and retain the profits for
the owners. Dividends are paid according to how much produce the farmer sells to the society.

The principal function of producers co-operative is to protect the producers against exploitation
by individual buyers. Examples of such co-operatives include agricultural marketing co-
operatives which are very common in many countries.

Advantages / Roles of agricultural/producers/ marketing co-operative societies.

(i)Buying of produce from farmers at fair price.

(ii)They provide transport to collect and deliver produce to the market.
(iii)Farmers get advice regarding better methods of production from co-operatives e.g through
seminars.
(iv)They normally sell farm tools and equipment (e.g hand hoes, bush knifes, ox ploughs) and
other agricultural inputs (e.g fertilizers,pesticides, animal drugs, herbicides) to farmers at
subsidized prices.
(v)They also extend short-term loans to farmers to improve and expand their operations.
(vi)They provide storage facilities for farmers produce before and after processing, hence
encouraging more output.

2. Consumers’ co-operatives.

These are societies which operate wholesale or retail shops and their main objectives is to assist
members. They give special consideration to co-operative members, to whom they supply
consumer goods and services at slightly lower prices than non-members.

Advantages of consumers co-operatives

(i)They offer goods to members to lower prices.

(ii)Goods are brought nearer to consumers which reduce the risk of accidents, robbers and
transport cost
(iii)The members enjoy credit facilities for essential goods e.g soaps, clothing, e.t.c
(iv)It promotes social understanding among members who live near each other.
(v)Members get a chance of getting advice from their colleagues.
(vi)The liability of members is limited to capital contributed. If the co-operative incurs debts
their personal belongings are not sold.
(vii)Members have equal rights as regards the co-operative affairs.

Types of consumers co-operative societies.

There are two types of consumer co-operative societies. Retail co-operative societies and
wholesale co-operative society.

1. Retail consumer co-operative societies.

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These are retail business owned and operated by a group of final consumers. Their major aim is
to buy goods cheaply and distribute them to members at minimum price. They normally provide
quality goods to their members. The retail co-operative societies own supermarkets where
members can shop. They not only serve the members but also general public to whom they sell
goods at the prevailing market price.

[Link] co-operative societies.

These are larger co-operative societies. They are composed of retail co-operative societies who
join together to form their own wholesale business from which they buy. They extend credit,
stock a wide variety of goods and provide storage facilities for the members.

Functions of wholesale co-operative societies

The wholesale co-operative society perform a wide range of functions. These include:-

(i)They import various kinds of goods and provide storage facilities for member society.

(ii)They extend credit facilities to member societies, hence enabling to continue operating.

(iii)Sometimes, they establish industries to produce the required goods. Thus, they facilitate the
country’s economic development.

(iv)They buy goods for their members and sell to members at fair prices.

(v)They distribute the profits according to the purchases made by members of the society.

3. Saving and credit (thrift and loan) co-operatives.

These are purely financial institutions aimed at encouraging members to save. They mobilize
savings from members, which they then use to provide members with loan facilities for
investment. Members deposit money in the society account, and are then given credit that is
proportional to their savings.

Other forms of co-operative societies.

There are also societies in other sectors or ancillary services with the aim of safeguarding
members interest like:

- Transport co-operative societies.

- Housing co-operative societies.

- Handcraft co-operative societies.

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THE COMMON / GENERAL FUNCTIONS OF CO-OPERATIVES.

Functions of co-operatives depend on the type of activity in which the society is engaged.
However, the common/general functions of those co-operatives include:-

(i) To cheapen the cost of living for their members by say providing fair prices of
commodities.

(ii)Reduce the marketing [Link]-operative reduce marketing cost to members because they are
able to handle (store, transport) large volumes of commodities, economics scale

(iii)Collect produce from [Link]-operative societies save farmers the costs of transporting
their produce to the market by sending lorries to collect the produce directly from farmers or
rural stores.

(iv)Storage of farmers [Link]-operative societies own stores where they store agricultural
commodities before transportation to the processing centres and markets. They also store farm
inputs and consumer goods before they are distributed to the members.

(v)Provide [Link] co-operative movement currently provides over 100 million jobs
and employs millions of people worldwide in various fields such as trade, transport, accounting,
banking, management, manufacturing and research.

(vi)Education and [Link] services are available to members including managers at all
levels. Through co-operatives, farmers are taught modern production and management
techniques so as to use resources efficiently.

(vii)Mobilize saving and advance [Link]-operatives offer an opportunity to the members to

save their funds, which are supplying farm inputs on credit, offering short-term loans, purchasing
transport vehicles, constructing stores and setting up processing plants.

(viii)Stabilize agricultural [Link] after the harvesting season, prices of agricultural

commodities tend fall so low such that farmers are unable to make any profit if they sell their
produce at that time. Sometimes the co-operative societies buy the commodities from members
at reasonable prices and store them until the prices normalize.

(ix)Process farmers [Link] co-operative are involved in processing farmers produce,

e.g milk processing, oil extraction from sunflower and simsim and cotton ginning. This adds
value to the product.

THE STRUCTURE OF CO-OPERATIVES.

The structure of co-operatives refers to the hierarchy of the co-operative movement. It shows the
level at which various co-operatives operate. The level at which a co-operative operates depends
on its membership.

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The following are the levels at which various co-operative operate.

a)Primary co-operatives

b)Secondary co-operative or co-operative union.

c)National co-operatives

d)Apex co-operatives

e)International co-operatives.

a)Primary co-operatives societies.

These are the registered co-operative societies whose members are individuals person within a
local area, such as villagers who joined together to achieve a common goal. They are small
entilies operating on small scale and with a limited amount of capital and human resources.
Services offered to the primary society members include provision of farm inputs and credit
facilities, purchasing farmers produce, providing storage and marketing the produce. They are
considered important in the co-operative movement because they form of foundation on which a
co-operative movement is built. They help in promoting small-scale rural agricultural
production. The society is normally set up to handle a specific commodity such as coffee, tea,
cotton, etc.

b)Secondary co-operative societies (co-operative union)

Primary societies identified certain activities that could be best done by number of societies
joining together, and this led to the formation of co-operative unions. Thus the co-operative
unions are an association made up of a number of registered primary co-operative societies. Co-
operative unions provide services required by member societies for production, processing,
transportation and marketing.

Secondary co-operation societies are larger than primary societies, and therefore have more
resources. They have better access to equipment, finance and skilled personnel needed to
perform the required work.

Functions of secondary co-operative societies.

i. They co-ordinate the marketing activities between farmers and the Apex co-operative societies.
They also act as a link between the farmers and marketing boards so that they have outlets for
their produce.

ii. The members are able to access credit through their primary societies.

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[Link] provide a centralized accounting system for primary co-operative societies.

iv. They provide transport for the produce of the members.

v. They coordinate and provide banking services to members.

vi. They organize and provide training to staff and members of the primary societies.

vii. They provide planting materials ( e.g, seeds, suckers and cuttings), fertilizers and other farm
inputs required by members of primary societies.

c)National co-operative Unions

National co-operatives form umbrella bodies for the various co-operative unions. Memberships
of such co-operative comprise all co-operative societies and unions operating in a particular
production line. National co-operatives promote the interests of the various member co-
operatives both in the local and international markets.

d)Apex co-operatives

These are overall co-operative bodies to which all other co-operatives (i.e primary co-operative,
co-operative unions and national co-operatives), are affiliated. It represents the interests of all co-
operatives at the international co-operative alliance (ICA). In Tanzania, all co-operative unions
are affiliated to the federation of co-operative unions of Tanzania (F.C.U.T)

Functions of the federation of co-operative Unions of Tanzania (F.C.U.T)

i. To provide services for standardized book-keeping, Accounting and other procedures as well
as audit services to the secondary societies.

ii. To promote and assist educational and advisory work related to co-operatives.

iii. To coordinate economic plans of the member societies and forward them far incorporation in
the national plan.

iv. To provide advice to member societies.

v. To represent members societies in collective bargaining.

vi. To reduce operating costs by making bulk purchases of various items.

vii. To represent member societies in international meetings.

e)The International Co-operative alliance (T.C.A)

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This is a worldwide body that brings together all co-operative organizations in various countries
it formulates the basic guidelines for operation of the whole co-operative movement.

The objectives of ICA

i. Provide co-operative education through conferences and publications.

ii. Encourage co-operation among co-operative societies by promoting business relationships.

iii. Help in financing, providing technical training with the major intention of promoting growth
of individual societies.

iv. Ensure that all co-operative societies follow the rules and guidelines of co-operative societies.

From the above discussion of the levels of co-operatives it is clear that co-operatives form a
certain hierarchical structure. The society at the highest level of the hierarchical draws its
membership from the various national co-operatives in the various countries of the world. The
hierarchy of co-operatives can therefore be represented diagrammatically as shown below.

Fig. HIERARCHY OF CO-OPERATIVE.

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Advantages of co-operatives

i. Low-cost [Link] offer services to members at low prices because of their low operating
costs.

ii. Improved welfare of [Link] improve the economic welfare of members by

enhancing their participation in economic activities.

iii. Encourage [Link] encourage members to save, enabling them to accumulate necessary
capital for their economic activities.

iv. Credit [Link] extend credit to members at low interest, thereby improving their
members’ economic welfare.

v. Limited [Link] liability of members is limited to the amount of capital they have
contributed to the society.

vi. Flexibility in [Link] can with draw their membership from the society and
have their shares refunded after giving two months notice to the management.

vii. Equality of [Link] of co-operative have equal rights in the society irrespective
of the number of shares held.

viii. Large capital [Link] co-operatives have a large capital base due to high membership.
They are therefore able to finance their operations easily for the benefit of their members.

Disadvantages of co-operatives.

i. Poor [Link]-operatives sometimes face management problems, mainly because their

system of choosing leaders does not take into account the skills and abilities that such people
have.

ii. [Link] and other people in authority could interfere with the leadership in
co-operative, they by creating unrest. This has happened in many primary co-operatives.

iii. Membership withdraw.A co-operative society may experience financial problems if many
members withdraw their membership at the same time. Withdraw is very easy since membership
is open and voluntary.

iv. Slow decision making process. Members of co-operative have to be consulted first before
any decision or policy is passed. Some of the societies are very large, thus slowing down the
process considerably.

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v. Lack of [Link] a co-operative is run by many people, its affairs cannot be kept secret.
Any activity that a co-operative wishes to undertake must also be approved by members.

vi. Control [Link] co-operative have a large membership. Controlling affairs of such a
gigantic (huge, extremely large) society becomes a problem.

CURRENT PROBLEMS FACING CO-OPERATIVES IN EAST AFRICA.

Despite the various roles played by the co-operative societies there are a lot of problems or
bottlenecks that hinder them from carrying out their work effectively.

i. Insufficient transport [Link]-operative societies lack lorries to transport the produce

from farmers to the collection centres and markets. Most of the agricultural production takes
place in rural areas yet there are no good roads to link these areas to the markets.

ii. Insufficient storage facilities. Co-operative lack sufficient storage capacity, especially in rural areas
where most of the production takes place. Sometimes they are forced to hire warehouses, and this
increases the marketing costs.

iii. Lack of collateral [Link]-operative societies do not have enough collateral security to
enable them to ecquire loans from financial institutions. Individual hesistate to render their
assets, such as land titles, to save as security for the co-operative to get a loan. Thus most co-
operative societies operate with inadequate funding.

iv. Lack of funds to facilitate the day to-day activities of the co-operatives. Most co-
operatives lack sufficient working capital because members have low incomes.

v. Lack of competent [Link] has led to mismanagement of the co-operatives. The

majority of farm workers are not very well educated and, therefore, cannot efficiently organize
and excute the daily activities of the co-operatives.

vi. Lack of government [Link] introducing the policy of trade liberalization, the
government stopped (financing) supporting co-operatives. As a result of structural adjustment
programmers in the country, the ministry of co-operatives and marketing was reduce to a
department under the ministry of Trade and Industry.

vii. [Link] of co-operative funds by some officials and corruption among

members worsened the situation of this made the co-operatives fail to achieve their potential.
Tribalism and nepotism are rampant in some area,and endanger the unity of members.

viii. Dishonest of some members. Some members of the co-operative banking sector are not
honest. They take out loans and fail to repay them. This may cause the society to close down.

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ix. Competition from private [Link] co-operatives are faced with stiff competition from the
private sector, where buyers of goods are ready to pay cash and higher prices which co-
operatives cannot afford.

x. Unstable prices of agricultural products. Prices of agricultural products both on the local
and international markets are unpredictable as they fluctuate so much that the co-operative
society cannot predict sales.

SOME SOLUTIONS TO THE PROBLEMS OF CO-OPERATIVES

(i)Putting up more storage facilities. Government can be of great help in this. Some storage
facilities have to constructed in some parts of the country.

(ii)Improving the co-operative management. Management skills can be improved through

inservice courses and seminars, e.g setting up of institutions where the managers can go for
further training.

(iii)Setting up payment schemes. Establishing crop finance to ensure that farmers are paid
promptly after delivering their produce.

(iv)Provision of farm inputs to the farmer members. Assistance for farmers in the form of
machines and tools, fertilizers, planting materials, agrochemicals, e.t.c.

(v)Provision of credit facilities with fair interest [Link] government may introduce the
credit scheme where farmers can borrow money to improve their agricultural production at a
very low interest rate.

(vi)Promotion of extension services. By the ministry of trade and industry, Agriculture, etc and
NGOs ( non-governmental organizations).

(vii)Expansion of both domestic and foreign markets. Foreign and domestic markets can be
expanded by expanding into Eastern and southern Africa (COMESA), by initiating barter trade
arrangements.

FORMATION, ORGANIZATION AND FINANCE OF CO-OPERATIVE SOCIETY

TANZANIA

FORMATION

In Tanzania the cooperative societies are normally formed under a co-operative society ordince.
Each co-operative make its own by-laws under the rules of the co-operative act ordinance. Such
rules have to be approved by the registrar of [Link] co-operative society or union
operates under the principles of cooperation.

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ORGANIZATION

The affairs of a co-operative are run by a committee which is elected by the members on a one
vote per member basis. The committee is assisted by salaried staff, responsible for general
running of the society. The committee remains off course, responsible to the general body of
members, and its position is closely analogous to that board of directors. The principal
differences are that the members are usually paid for their services and that they work on a part
time [Link] committee has power to and usually does employ to assist in its various functions.

ORGANIZATION STRUCTURE OF A COOPERATIVE SOCIETY.

FINANCE.

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 The main source of finance to a cooperative society is the money received from members on
entrance fee and cost of [Link] member is required at least one share. A small interest is
paid on share capital .Members are also required to pay small entrance freeman the time of
registration as a member to cover expenses involved in the issue of the share capital.A society
upon approval from members may retain a small part of the money received from the sale of
produce brought in by members as a reserve to strengthen the financial position of the
[Link] money received by a society is used to acquire fixed assets for the society and
covering several expenses.

Dissolution of co-operatives.
Co-operatives, just like companies, are formed to operate into unforeseen future. The following
circumstances may, however, occasion their dissolution.

(i)Agreement or disagreement of [Link] the shareholders of a co-operative persistently

disagree, they could mutually agree to discontinue their association. This they may do by
applying for deregistration. If their application is accepted, the co-operative ceases to exist.

(ii)[Link] a co-operative is unable to meet its debts, it may be declared insolvent. Its assets could
then be sold off and the proceeds used to pay the debts.

(iii)By court order. A court could also order a co-operative to be dissolved on application by one or more
of the members who has/have good reasons as to why the association should not continue.

(iv)The parent ministry (i.e, co-operative Development) may order the dissolution of a co-
operative in the interest of its members.

(v)Withdraw of members. Members of a cooperative may decide to join another cooperative

society, leaving the original society with less than ten members. This will automatically occasion
a dissolution as the minimum membership for a co-operative society required by the law is ten.

Differences between a co-operative society and joint stock company.

131
132
133
PUBLIC SECTOR (PUBLIC ORGANIZATION)

These consist of business organizations where the government is responsible for the profit and
loss in any business undertaking. It involves all those business, trade and industrial activities
which are carried on under the ownerships and management of the government.

It is regarded most essential to promote the welfare and economic activities of a

country.

FORMS OF PUBLIC ORGANIZATIONS

(i) Public corporations

(ii) Local authorities and

(iii) Parastatal bodies.

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Features of Public sector / organization

(i) Established by an act of parliament which define its powers and functions.

(ii) Government is responsible for profit and loss.

(iii) Its Board of Directors is formed by the government.

(iv) The share capital is raised by selling shares and the government buys most of the them.

1. PUBLIC CORPORATION

A public corporation Is a commercial organization owned by the state.

OR

A public corporation is a joint stock company in which the government holds 51% of shares and
the public holds or own 49 percent of shares.

In such business, the government has more say and can influence decisions such as the price at
which goods and services are sold, appointment and termination of mangers, etc. Public
corporation operate as an ordinary joint stock company and aims to make profit out of its
operations. Public corporation is similar to joint stock company because:-

(i) It is a legal entity.

(ii) It is self governed.

(iii) It is self – financing and operations on commercial lines.

Differences between Public corporations and Joint stock company

(i) A corporation is usually state owned by individuals.

(ii) A corporation has unlimited liability while joint stock company has limited liability.

(iii) Most corporations have monopoly while joint stock companies have no such status.

(iv) Corporations operate not only for profit but in public interest by the representatives of the
public while joint stock companies operations for profit only.

(v) Corporations are financial mostly by the Government while joint stock companies are
financed by individuals .

FORMATION:-

135
Public corporations are formed by specific Acts of Parliament which the ministries define their
powers, duties and overall mandate.

The law creating corporations also states the ministries under which they will operate legal
personalities (i.e they are body corporations. Some public enterprises are established under the
Companies Act but are controlled either wholly or in part by the government by virtue of the
shares that the government holds in the enterprise.

MANAGEMENT

The management of public corporation is under a board of directors. These directors are
appointed by the government, or by the government and the relevant join owners as the case may
be. The government therefore influences decisions in the corporation either directly , e.g on
pricing and investment, or indirectly through the board of directors.

SOURCES OF CAPITAL

A public corporation may get its capital from the government through donations, loans, or
express budgetary allocations, loans, or express budgetary allocations for specified purposes.
Where the government owns the corporation jointly. Capital is contributed by both the
government and the join owners. In most cases, public corporations do not issue shares to the
general public. If it issue shares to the general public, then it opens up its doors to public
ownership.

As a body corporate, a public corporation also has powers to borrow money from financial
institutions. It can also get trade credit from suppliers and buy [Link] summary, a public
corporation may
acquire its funds just like any other legal body such as a company.

FEATURES OF PUBLIC CORPORATIONS

A public corporation has certain features that distinguish it from, other business units. These
features include the following:

(i) Service motive. Public corporations are usually formed to provide certain essential services to
citizens welfare.

(ii) Formed by Act of parliament.

Public corporations are usually formed by Act of Parliament. The act states the governemtn
Ministry under which the corporation will operate, among other details.

(iii) Subsidized by the government.

Public corporations are usually subsidized by the government to enable them to provide
essential services and goods to the citizens at minimal fee. Where the corporation is not making

136
profits, to sustain
its operations, the government provides it with funds to enable the corporation to operate and
accomplish mandate.

(iv) Board of directors appointed by government.

The board of directors of a public corporation is usually appointed by the government. This
direct appointment enables the government to influence the policies of the corporation. However,
there could
also be representatives of other major shareholders on the board to represent the interests of
these shareholders if the corporation is jointly owned.

(v) Financed by the government.

A public corporation is usually financed by the government. This therefore means that even
where the corporation may get its finances from other sources, the government remains its
principal financed.

(vi) Legal personality.

A corporation is treated as a separate legal personality. This means that, once formed, the
corporation becomes separate and distinct from the government or any other owners. The
liability of the owners
is therefore restricted to the amount invested in the corporation .

(vii) Limited liability.

A public corporation is usually formed as a body corporate with separate rights and
obligations from its owners. The liability of the owners is therefore restricted to the amount
invested in the corporation.

ADVANTAGES OF PUBLIC CORPORATIONS

(i) Raising initial capital is easy, since the government may provide the finances.

(ii) They are suitable for activities such as public utilities where competing firms would involve
waste, inefficiency.

(iii) They can accept responsibilities which is beyond the normal aims of private enterprise e.g
Sewerage and Garbage collection, although these are slowly been privatized .

(iv) Since the interest of the public is the main consideration, services are provided at fair prices.

(v) They are financially sound and can obtain loans easily on large scale at fair rates of interest
than privately owned business.

137
(v) There is democratic control through the state and local authority and profits are not a limited
number of shareholders.

Disadvantages of Public corporations

(i) Management may be week, since the directors are mostly political appointees.

(ii) Public corporations may not respond to the needs of consumers since some operations as
monopolies.

(iii) Public corporations normally suffer from political interference which sometimes makes it
difficult for them to fulfill their objectives.

(iv) Most managers of public corporations may not be honest, since they are not secure in their
jobs as they cold be sacked any time, especially with a change in government.

(v) Some public corporations are very large, thus decision making is slow and difficult.

(vi) Public funds may be wasted by keeping poorly managed public corporations running.

Dissolution of public corporation

It was started earlier on that public corporations are formed by a specific Act of
Parliament which defines their powers, duties and general mandate.

It therefore follows that, in order to dissolve such organizations, one would have to repeal the
Acts of parliament under which they were established.

Several reasons can lead to a repeal of the parliamentary Acts which established a public
corporation. Some of them include:

(i) Perpetual operation of the corporation at loss

(ii) Outright insolvency, and

(iii) Mismanagement which adversely affects the performance of the [Link] effect of
the repeal is to bring the activities of the corporation to an end, thereby occasioning its
dissolution.

2. LOCAL AUTHORITIES

Local authorities are wholly government owned institutions which enjoy a high degree of
independence (from the government) in their operations.

They consist such institutions like city and Municipal councils.

138
 They provide essential serves, which the private people are reluctant to invest due to being
unprofitable . Such services include, road maintenance, street cleaning, drainage, etc.

Local authorities are financed themselves using the money collected from their income –
generating activities e.g business taxes, income taxes and market dues got from markets. The
services are
offered to people living within those areas.

3. PARASTATAL BODES

A parastatal body is an organization set up by a government to perform specific functions.

Parastatal bodies carry either commercial activities like the Marketing bodies or non –
commercial functions such as Universities.

Features of Parastatal Bodies

(i) They are established by the government to perform some specific functions.

(ii) They are managed by the government appointed officials.

(iii) They don’t have to share capital. They are financed by the government using taxes paid by
the public.

(iv) Provide services which are essential to the well being of the population, e.g health care, food
supply, road construction e.t.c Examples of parastatal bodies include marketing boards.

The main difference between Parastatal bodies and Public corporations is that, Parastatal bodies
do not have share capital while Public corporations do have share capital.

And the main similarity is that the management of both parastatals bodies and public
corporations is appointed by the government.

Differences between Parastatals and Public corporations.

139
SIMILARITIES BETWEEN PARASTATALS AND PUBLIC CORPORATIONS

(i) They are all owned wholly or partially by the government.

(ii) They all aim at providing goods and services to public.

(iii) They are managed by people appointed by the government.

(iv) Their surplus is surrendered to the government.

(v) They are performed by act of parliament which defines their powers and functions.

(vi) They cover areas which private institutions cannot invest.

MARKETING BOARDS

These are trading organizations set up by government or the private sector to purchase
agricultural products from farmers and sell them to their consumers with an intention of
promoting agriculture within the state.

Marketing boards are classified according to the type of goods they handle and areas served.

140
 1. Commodity Marketing Boards

This is a type of marketing board which specializes in specific agricultural products. It is

responsible for buying and selling that particular product and takes its name from the product
handed e.g Coffee
Marketing Board.

2. Export marketing Boards

Such marketing boards concentrate on the marketing of various agricultural products to

foreign markets.

3. Advisory Marketing Board

Such marketing Boards concentrates on carrying out research and providing advisory
services to growers of various crops. They research on modern methods of farming and new crop
varieties and then
advise farmers accordingly.

4. Produce Marketing Boards

This is a type of marketing board which handles and sells a variety of agricultural
products.

5. Statutory marketing Boards

This is formed by government under an Act of parliament (stature) They are managed by a
chairman appointed by the government.

FUNCTIONS OF MARKETING BOARDS

1. Buying and selling produce

They buy agricultural products from farmers in various parts of the country at reasonable
prices and sell them to consumers both locally and internationally at favourable prices.

Marketing boards buy produce from farmers through the following channels:-

(a) Co – operative societies

(b) Direct sales

(c) Through agents appointed by the boards .

141
A figure below show channels through which farmers sell their produce to the marketing
boards.

2. Storage of produce.

They store agricultural products so as to protect them from damage by weather and to
maintain constant supply.

3. Provision of credit facilities / assistance.

They provide credit facilities to farmers associations by giving loans at low interest rate.
And also assist farmers by buying fertilizers,, pesticides, farm tools, from the board at reduced
price, the board
proved packaging materials to farmers like sacks, paper bags and polythene materials
depending on a particularly type of produce, They protect farmers produce against diseases and
pests by regular
supply.

4. Carrying out research.

Marketing boards use some of their capital to carry out marketing and agricultural
research. They send out officials to the fields to offer advisory services to farmers based on the
results obtained from
the research.

5. Control of production.

142
 They take suitable steps to control over – production of certain crops. They impose quotas
on various producers or co – operative societies, and any crop produced in excess of the quota is
rejected.

6. Stabilize prices.

Marketing boards stabilize prices thus encouraging produces to produce more. This is done
by using the process of buffer stock. They buy and stock products during period of excess supply
, and them
release them on the market during period of scarcity.

7. Transporting products to the markets.

Marketing boards collect and transport products from rural areas to urban areas for sale.

8. Provide statistical data to government.

They provide statically data such as the price of goods,, quality and quantity of goods on
the markets, etc,.

PROBLEMS OF MARKETING BOARDS

1. Political instability

This affects performance of marketing boards and farmers in any country due to reduced
funding from the government.

2. Over production

Some commodities are produced in large quantities than required in the market and as a
result prices of commodities go down (fluctuation of prices)

However the boards try to solve this problem by:-

(a) Searching for new markets.

(b) Donating the surplus to the need in the form of aid.

(c) Exporting the surplus to other countries at lower prices.

(d) Storing those products that are not perishable for future use when demand is high.

(e) Destroying the surplus. Some countries burn the excess products.

3. Lack of sufficient capital

143
 Marketing boards lack enough funds to be able to extend their services to farmers.

4. Poor transport

Most of the roads in East African countries where marketing boards operate are of
murram and in poor state. They are impassable during the rainy periods.

5. Poor quantity produce

Farmers produce mainly poor quality goods which cannot fetch high prices on the world
market. Some farmers mix poor quality products with good ones and this lowers the general
demand for such
products.

6. Lack of storage facilities

There are few warehouses for storing excess products until they are required.

There are not enough cold stores for perishable goods. As a result, most products end up
getting spoilt.

7. Illiteracy of farmers

Some of the farmers do not know how to read and write. Thus it is difficult to educate and
advise them on better production techniques to use.

8. Poor management of funds and lack of skills.

Managers of marketing boards are often political appointments. They may lack the
necessary management and financial skills to administer the funds set a side by the government
to boost agriculture.

9. Competition from business persons

Some business people have ready cash to pay for the produce. This encourages farmers to
sell to business people instead of the board which takes longer to pay.

Because of this, boards find themselves with insufficient quantities of produce to handle.

WHY GOVERNMENT PARTICIPATES IN THE OWNERSHIP OF

BUSINESS ENTERPRISES.

(causes /Reasons of Public undertaking)

1. High initial cost.

144
 Construction of roads, railways, schools and hospitals to improve the countries
infrastructure requires vast capital expenditure and therefore the government has to invest.

2. Provision of essential commodities and services. Water and sewerage corporation and waster
collection plants need heavy investment and are less attractive investments for private sector,
yet essential.

3. Prevention of monopolies.

Governments participate in commerce to deter the emergency of monopolies who exploit

the government.

4. Regional balancing.

The government invests in infrastructural facilities with the aim of attaining fair
distribution of development projects throughout the country.

5. Ensuring national security.

Production and distribution of certain goods such as money and ammunition is done
specifically by the government.

6. Promotion of political ideologies .

Political consideration may influence the government to own business enterprise.

7. Attract foreign capital.

Government enterprises attract more foreign capital and technology than the private
sector. Thus government participates and runs business with an aim of getting foreign capital
which if acquired,
facilitates development in the country.

ADVANTAGES OF STATE CORPORATIONS

(1) Provision essential facilities.

They are suitable for unprofitable enterprises in which the private sectors may not want to invest
e.g dam construction, road construction, education , garbage collection, etc.

(2) Large initial capital

Some business enterprises require large capital which cannot be raised by private sector
enterprise e.g provision of educational materials, electricity, etc.

(3) Risk ventures

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Some sectors of the country are very risk and too confidential for the private sector to get
involved e.g production of weapons, police and maintenance

(4) Relatively cheap

They provide goods and services to the public at lower prices than the private sector.

(5) Elimination of duplication of services

They help in elimination of duplication of services, which reduces wastage and inefficiency

(6) Source of government revenue

They create revenue to the government through their aim is not to make profits. The money
obtained is used to run development projects.

DISADVANTAGES OF STATE CORPORATIONS

Lack of competition.

Because there is a little or no competition .this may lead to the production of goods and service,
which are of poor quality. This reduces standard of living within the country.

(ii) Un economical.

The in profit ability and cost of production are passed on the public in the form of higher taxes
.the government tries hard to get fund to finance unprofitable business.

(iii) No personal interest.

People who work in state corporations may have no interest in the business.

This result in the provision of poor quality goods and service.

(iv) Bureaucratic tendencies there is too much red tape in state corporations .This leads to delay
in the supply of certain goods and services for decision to be made , it has to go through many
channels .

(v) Monopoly some state corporations have there monopoly of supply for providing certain
service e.g National water and sewerage corporations .This corporations has power to set prince
at a higher rate because there are no competitors

(vi) Lack of capital . Some of the businesses require large capital, which cannot be raised by the
government. This result in inefficiency in the production of goods and service

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(vii) Un profitability .Some business under takings are unprofitable and costly to run. The
government increases price and taxes to the consumers’ price and taxes to the consumers on
order to be able to manage them.

(viii) Limited skills the management and administration of the state corporations is often
influenced by sectarianism which is based either on tribal or political grounds and the workers
many lack the skills needed. In many cases the skills of the employees are not considered which
promotes inefficiency in the business.

PRIVATIZATION

Meaning

It is a transfer of government ownership of state enterprises from the government to the private
sector.

REASONS/ADVANTAGES OF PRIVATIZATION

1. To increase government revenue.

The government earns income by taxing private enterprises. These taxes enable the
government to get enough money to fund other development projects

This enhances economic growth and development.

2. To earn foreign exchange.

The privatized enterprises bring in foreign currency, especially if they are foreign owned.

This improves the balance of payments position of the country.

3. To reduce bureaucratic delays

In private enterprises, decision making is much quicker than in public enterprises because of
bureaucratic tendencies in public enterprises.

4. To private quality, goods and service.

Privatization brings about competition among producers and providers of goods and services.
Enterprises need to provide better quality products in order to capture the market. Consumers
benefit from
privatization.

5. To promote efficiency

Private enterprises are often more efficiency than state enterprises.

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 The owners of private enterprises carefully supervise them to ensure efficiency and reduce the
wastage of resources.

6. To reduce excessive government expenditure.

Most of the state – owned enterprises do not make profit the government spends a lot of
money on them . To avoid such expenditure, the government sells off such enterprises.

7. To create employment opportunities

Many jobs are created in the private sector because the owners are interested in the companies
and are keen to bring in new ideas, enabling the companies to expand.

DISADVANTAGES OF PRIVATIZATION

1. Exploitation of the public

Private investors tend to exploit the public by own over changing and provision of poor
quality goods and services, especially if monopoly exist.

2. Limitation for expansion

Private firm may not have adequate bargaining power for fund international financial
institutions like IMF and the World Bank, thus expansion may be difficult.

3. Profit caparatriation.

There are is capital out flow from the country that privatized the enterprises if the private
sector is dominated n by the foreigners.

This retard the level of economic growth and development.

4. Limited supply of essential but unprofitable services.

The private sector is reluctant to supply the essential but unprofitable services like street
cleaning garbage collection and road maintenance.

5. Continuity of business.

The existence of private enterprises largely depends on the life of the owner. If he /she dies the
business also dies.

6. Difficult to control the production of dangerous goods .

It is dangerous for the private sector to deal in the production of dangerous commodities, eg
making firearms.

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 BUSINESS CAPITAL

-Are those value of assets owned by the business. Or

-Are the money or properties used to start a [Link]

-Refers to the future of production which refers to the wealth used to produce other wealth.

FEATURES OF THE CAPITAL

What are they?

-Capital may be depreciated.

-It is made by human being.

-It results from accumulation of assets.

-It is less subjected to the law of diminishing return.

FUNCTIONS OF CAPITAL

-It encourages specialization which used to increase output.

-It leads to creation of employment opportunities.

-It enables full utilization of resources.

-It leads to increase production to the economy.

-It enables diversification of economy.

SOURCES OF CAPITAL
Before organization can start to generate any money, they need money to finance all their
activities. Organization can obtain finance from a number of sources which are given below:

1. Internal sources (self-financing). This is mainly from savings and retained profits.
2. External sources (finance from other sources).

(a) Short-term sources. These include overdrafts, factoring, leasing, trade credit and installment
selling.

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(b) Long-term sources. These includes shares debentures, mortgages ( sale and lease back) and
loans.

The figure below shows the sources of capital.

Internal sources of capital.

These are sources of capital that come from within the organization itself and the owner. This is
called self-financing. They include savings and retained profits.

1. Savings:This refers to the part of a person’s income that is retained for use at a later time. It
involves sacrificing current spending in the hope of benefiting in the future savings are one of
the most common sources of capital for new business; many new businesses are started using
inherited or saved money.

2. Retained profits:Organizations receive money from selling goods and or services. Any money
that remains after paying the costs and expenses incurred when selling those goods and/ or
services is the [Link] is the reward to the owner of the businesses for risking his/her
money and investing his/her energy and time in that business. Some business owner retain their
profit and reinvest it in the purchase of more assets so that the business can grow in size and
provide quality goods and services.

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 External sources.
These are sources of capital that come from outside business. They can be grouped into one of
the two categories. Long-term sources (needed for five or more years) and short-term sources of
capital chosen will depend on the amount of money needed and how long it may take the
organization to pay it back.

Long term sources of capital.

(1) Loans
A loan is an amount of money lent to someone or to a company. A business may raise capital
through borrowing from financial institutions, individual money lenders and friends.

Advantages of loans.

(i)The company knows the terms of loans (cost and repayment terms) that it is committed.
(ii)A loan provides supplementary funds to facilitate the smooth running of the business.
(iii)The external monitoring and added interest in the business operations enforce hard work and
efficiency hence promoting the growth of the business.

Disadvantages of loans.

(i)Loans that are repaid over long period can cost the business a lot of interest payments, thereby
increasing expenditure and reducing profit.
(ii)The borrower may be subject to external monitoring and control over the business.
(iii)It is expensive for the borrower as he/she is required to pay interest and other charges (e.g
Insurance, commitment fees) on the money borrowed.
(iv)The payment terms may be too light and cause the borrower to have cash flow problems.

Shares
Organization wishing to grow may choose to become private or public limited companies. Public
limited companies may choose to float their shares on the stock exchange.
Companies/Organization that has already floated may choose to issue new shares to raise more
capital. Selling shares allows people and companies to acquire very large amounts of finance.
Money received from selling shares can be used to buy fixed assets, to promote sales and
development of new products.

Debentures
A debenture is a certificate given by a business corporation and other business organizations as a
reception of money lent to a fixed rate of interest until the principal is paid when the business is
short of funds, it sells debentures to the public to raise the money needed e.g. to buy expensive
assets such as buildings and machinery.

Mortgages (sale and lease back)

This is an arrangement used by organizations that owns high value property, equipment or
machinery. They generate cash for the organization by selling those assets to a buyer for an
agreed extended period. This enables the organization to release money tied up in property (e.g.

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buildings, machinery) and to reinvest the money in more assets so as to improve the business
performance.

Advantages of a mortgage.
(i)It allow a company to raise money in a way that avoids selling shares and therefore avoids
having to share the profits and risks losing control over how the company is run.
(ii)Mortgage repayment repayment installments are relatively small compared to the size of the
finance obtained because the loans is paid for over long period. The repayments therefore do not
have a negative influence on the amount of cash flowing out of the company.
(iii)As long as companies keep up regular repayments, at the end of loan period, they own the
assets.

Disadvantages of a mortgage.
(i)The business cannot sell the mortgage property unless the outstanding amount on the mortgage
is settled. If the company fails to repay the amount agreed, then the lender forces the company to
sell the secured property in order to pay the outstanding debt or may even take over the
ownership of the property.
(ii)A company may be locked into a long-term mortgage, during which the value of yhe property
may depreciate (lose value).

Short-term sources of capital.

Bank overdraft.
Most companies have a current bank account. This account provides an overdraft facility, which
allows the company to draw out more money than it actually has in the account. The extra
amount withdraw is known as an overdraft. This is a short-term loan.
The company may only be able to withdraw up to an agreed limit called an overdraft limit on
providing security. Whenever the borrower has surplus funds, he may pay it into his current
account to reduce the overdraft. Interest is charged on the overdrawn amount on drawn basis.
Overdrafts are very useful to companies that may experience low sales (and therefore. Low
income) at certain times of the year.

Advantages of overdraft.
Money is borrowed only when the company needs it.

Disadvantages of overdraft.

(i)Usually overdrafts have higher rates of interest compared to ordinary short-term loans because
of their convenience.
(ii)An overdraft is usually repayable on demand. If the bank feels that a company is having
trading problems, it may request that the whole overdraft amount be repaid. And if they fail, the
court will declare the company bankrupt and their assets sold to repay their creditors.
(iii)Borrowers are charged a fee by a bank for using an overdraft facility.

Leasing
When organizations need expensive machinery equipment or vehicles, they may choose either to

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purchase them or to lease them for an agreed period. For example an organization may lease a
photocopier for three years. Leasing is similar to renting as the property belongs to the leasing
company.

Advantages of leasing.
(i)Companies do not have to take out expensive long-term loans or use their retained profits. This
money can be invested in research and development or marketing to improve to improve the
success of the business.
(ii)It is easy to organize leasers. The amount of paperwork is far less than when applying for a
loan.
(iii)Companies are enabled to access more expensive and improved equipment than they could
afford to buy through loans.
(iv)Leased equipment may be maintained and repaired by leasing company, saving the company
thousands of dollar/s shillings on maintenance costs.
(v)Leasing agreement may allow the companies to upgrade to newer equipment for a small
additional cost.
(vi)Repayment costs are usually fixed for the entire term of the lease.
(vii)Companies avoid being left with out of date machinery and equipment.

Disadvantages of leasing.
(i) The company will usually pay more over the term of the leasing agreement than the actual
cost of the equipment.
(ii) The company never owns the item so they cannot sell it and the organization may have to pay
lease payments even if it has stopped using the equipment before the expiry or the lease period.
(iii)Companies may depend on the agreement and repair costs.

Hire purchases
This is a source of capital for an organization that wishes to purchase equipment. Organizations
make regular payments for an item over a period. Until the last payment is made the equipment
remains the property of the hire purchase company. After the final payment the ownership passes
to the organization that hired the equipment. This system has advantages and disadvantages.

Trade credit.
This is an arrangement between organizations and their suppliers to buy goods or services on
credit. This means that they can receive goods and services but pay for them within an agreed
period e.g. six months. These gives organizations time to sell the goods to their customers and
receive payments for them.

Choosing the right source of capital companies/organizations need to consider carefully which
source of capital will b most suitable for their needs, For instance the purchase of new vehicle
would not be financed by using overdraft because overdrafts incur very high interest rates
compared to obtaining a loan or purchasing the car on hire purchase.

The following points should be considered when selecting source of capital.

(i) The types of business, its stage of development and the availability of finance. The
availability of certain types of finance may be limited, depending on what type of ownership an

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organization has it difficult to obtain a loan from banks unless it has property on which to secure
the loan.
(ii) The intended use of the capital. If a company needs to purchase high value equipment or
property, it would normally seek long-term capital such as loans or mortgage. If there is a lack of
working capital, then short-term loans are ideal. E.g. overdraft and trade credit.
(iii) The risk associated with the source of capital. When companies take out loans, mortgage or
debentures they run the risk of losing the property that has been secured against them. The loan
companies need to be certain that if a company is unable to make its repayment, they will be able
to sell the company property to get their money back.
Companies may choose share issues as a more secure source of finance as the company does not
have to pay dividends to shareholders if it makes a loss.
(iv) The costs involved. Some sources of capital are expensive. For example, if a company buys
a vehicle on hire purchase the total amount repair is much more than if they had secured a bank
loan.

FORMS OF CAPITAL
Is the money or physical items invested in the business by the owners or [Link] is
also regarded as the net worth of the business to the owner.

i. Capital owned

This is an amount of money invested in the business by the owner. It may also include
profit made by the owner .It is obtained by the following formula;

Total assets –Total liabilities=capital owned

NB; sometimes it is known as capital invested

ii. Working capital/Net current assets

This is the excess of current assets over current liabilities. It is obtained by taking ;

Working capital=total current assets-total current liabilities

NB; working capital also can be determined by ratio as follows;

iii. Borrowed capital.

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 Is a capital that is obtained from outside sources particularly from financial institutions
normally it takes the form of long term liabilities. it is obtained taking

[Link] =Total long term liabilities.

NB; Sometimes it is known as loan capital.

[Link] employed.

These are resources that have been invested in a business . It is obtained by

Capital employed= [Link] assets + Working capital

[Link] capital.

Is a type of capital which should be in the form of cash or items which easily converted into
cash(money) like debtors, stocks ,prepaid expenses etc. It is obtained by the following;

Liquid capital=Total current Assets - stocks

NB; Liquid capital also can be determined interns of ratio as follows;

NOTE; Sometimes it is known as Acid test ratio'

THE CONCEPT OF PROFIT

Is the benefit which arises from the use of capital by someone or a firm when conducting
business activities particularly in a certain period of time. Normally it is calculated by taking
revenue or selling price the deduct by all expenses incurred or cost price.

OR

Profit
This refers to the surplus of selling price over cost price. It is the money made by selling
something for more than its costs to buy or make it. The profit of a business is calculated in two
stages.

(a)Gross profit. This is the surplus of selling price over cost price. It is calculated by subtracting
the cost of sales from sales [Link] example, if a business dealing in computers bought one at
shs. 500,000 and sold it at shs. 1,000,000, the gross profit is shs. 500,000.(i.e 1,000,000 –
500,000 = 500,000).

155
(b) Net profit. This calculated by subtracting all business expenses from the gross profit.

THE CONCEPT OF MARGIN AND MARKUP.

[Link] refers to the gross profit expressed as a percentage of selling price or turnover.

For example, suppose Alex bought goods worth shs. 1,000,000 and sold them for a total of shs.
1,300,000. His profit margin equals.

[Link] is gross profit expressed as a percentage of cost price.

For example, if Alex bought goods worth shs. 1,000,000 and sold them at 1,300,000, his /her
mark up equals

Gross loss.
This is the excess of cost of sales over net sales. It happens when the cost of sales is bigger than
the value of the sales.

Net loss
This is the excess of expenses over gross profit. This is incurred by the business when the
administration expenses are more than the gross profit.

Carriage inwards.
These refer to purchasing expenses e.g. the cost of transporting the purchased goods from the
supplier to the business. This increases the expenses of purchases.

Carriage outwards.
This refers to a transport charge /expense incurred when transporting the sold goods to the buyer.
It is a business expense.

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 Purchases.
Goods bought with an intention of re-selling them at a profit.

Net purchases.
In a trading period, some goods already purchased and recorded in the books of the business may
returned to the suppliers for various reasons, e.g. they may be damaged or of poor quality. Goods
that are retained in the business for resale are termed as net purchased.

Total purchases – Return outwards = Net purchases.

Return outwards /Purchases returns. These are purchases that are turned to the suppliers.

Return inwards/sales return. These are goods which were sold but have been returned to the
business by the customer. The goods may be poor quantity or may be damaged.

CONCEPT OF STOCK TURN OVER

Is the rate which shows the number of stocks sold (turn over) during a particular period
,generally a year. It is calculated by;

Cost of sales

Average stocks

Example

ABC LTD. Produce the following information as at 31st .12.2010

Sales………………………………………..12’500/=

Gross profit ……………………………..3’000/=

Stocks(1.1.2010.)……………………..2’000/=

( [Link].) …………………..600/=

( [Link])……………800/=

Required; calculate the rate of stock turn over

Cost of sales = sales - gross profit

=12’000 – 3000

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 =9000

Average stocks =2000+ 600+800/3

=1133

=90000/1133 = 7.94

=8times

WAYS OF IMPROVING TURNOVER AND PROFITS.

Ways in which turnover can be increased include the following;

i. Increase the use of advertising and sales promotions to increase sales as well as profits.
ii. Reducing prices of goods and services to increase demand for goods and services.
iii. Improving credit terms. This may encourage customers to buy possibly in bulk thus raising sales
turnover and possibly profits.
iv. Reducing costs of supplies and expenses. This may raise gross profit as well as net profit because
the sales prices will be maintained at their original level.
v. Offering a wider range of products or services. This may attract more customers and thus
increasing sales.
vi. Expanding business operations. Companies may choose to open additional branch or retail
outlet to serve more customers or increase production of a particular product.
vii. Improvement in the methods of salesmanship.

THE CONCEPT OF COSTS

This refers to the amount of money paid by the firm in order to secure output.

TYPES OF COASTS

(a)Fixed costs.
These are costs which are incurred by the business but whose value does not change with output,
they are unavoidable. They include office rent, insurance premiums, salaries of top management
etc.

(b)Variable costs.
These are costs that change in relation to output e.g. raw materials, piece rate wags etc.

(c)Implicit costs.
These are costs which are not planned [Link] costs which are not be recognized when calculating
profits of the [Link] family labour.

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(d)Explicit costs,
These are planned for costs and are included in the budget of the business. E.g. Wages, Rent,
Transport, Advertising.

(e) Average costs.

This is the cost which incurred for producing one unit of [Link] is called cost per
unit.

Where, AC = Average cost

TC = Total cost.

Q = Quantity/Output.

(f) Marginal cost.

This is the additional in total cost incurred for producing extra unit of output.

Where, MC = Marginal cost

= Change in total cost

= Change in Quantity/ output.

(g) Total cost.

This is the total amount of money used in production process. The total cost comprise fixed costs
and variable costs.

(h) Cost of sales/Cost of goods [Link] refers to the purchase price of the goods that have
already been sold. It represents the cost of items disposed of or sold. It help in the calculation of
the gross
profit.

Turnover

This refers to net sales of the business in a given trading period.

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BREAK EVEN ANALYSIS

Break even analysis is a point or situation where a firm generates neither profit nor loss.

In such case a firm is only capable to cover fixed and variable cost. Break even analysis based on
the fact that

Selling price = variable cost + fixed cost

TERMS USED IN DETERMINING BREAK EVEN;

1. Contribution margin

Is the difference between selling price and variable cost.

CM = S.P – V.C

2. Break even point ( unit) BEP (BEP(U))

It is expressed as total fixed cost divide by contribution margin

BEP(u) = TFC/CM

iii.B.E.P(V) = TFC/C.M X S.P(U)

3. Profit volume ratio(PVR); this is the ratio measures in how much sales the firm incur
profit

PVR = ∆Profit/∆sales

Or

PVR = FC + Profit/Sales x 100

Or

PVR = CM(V)/Sales(u ) X 100

BREAK EVEN CHART

This is the diagram which shows sales revenue plotted against total cost. This is occurs
where plotted against total cost. This occurs where the sales line intersect the total costline.

Margin of safety

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This is the distance between break even point and the expected level of activity. It depicts
amount by which actual activity can fall short of expected activity before a loss is incurred.

Or

Is a measure of risk to the left of break even point from the profit zone

Example;

A certain organization provides to you a certain information concerning to production of toys;

Fixed cost……………………………………………….10’000/=

Variable cost………………………………………………….4/=per toy

Selling price……………………………………………….6.50/= per toy

Production batches were 1000 toys to 9000 toys.

Required ;(a)calculate BEP in terms of number of toys and sales volume

(b)Draw break even chart

Solution;

( a) B.E.P in terms of number of toys = Total Fixed cost/C contribution margin

Whereby; contribution margin = selling price – variable cost

= 6.50 – 4

=2.8

B.E.P = 10’000/2.50 = 4000

B.E.P in terms of number of toys = 4000 toys

OTHER TERMS AND FORMULAE USED IN BUSINESS CALCULATIONS

• Solvency;

Is a situation that happens when business has more assets than liabilities, which is a
capable to meet its debts from all sources.

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• Insolvency;

Is a situation that happens when a business has more liabilities than assets, which is not
capable to meet its debts from all source

• Bankrupt;

This happen when a business cease (stop) to function , sell its assets and distribute the
proceeds among creditors in the ratio of their debts

• Over-trading;

It happens when the business has no working capital.

Assets, these are items of value that belong to the business at a given period of time.
There are two forms of assets; fixed assets and Current assets.

Fixed assets; are items of valuable that are acquired for the use in business. E.g. land,
buildings, furniture and motor vehicles, machinery and equipment of all types such as
tools, computers and photocopiers. They are durable in nature.

Current assets; are items of value in the business that can be turned into cash within a
short period of time; they don’t last long in the business. They are also referred to as
liquid assets. They include stock of goods, debtors, and cash in hand and pre paid
expenses such as rent, water and electricity.

-Liabilities

Liabilities refer to anything a trader or business owes to someone. Liabilities are business
obligations that have to be settled. The person/party whom a debt is owed is called a
creditor. For example when a person purchased goods from XYZ coy ltd on credit, the
XYZ coy ltd is a creditor and that person who bought the vehicle is a debtor to XYZ coy
ltd.

There are two types of liabilities; Long-term liabilities and current or short-term
liabilities.

-Long term liabilities; Are business debts which are payable within a period long than
one year.

-Current or short-term liabilities; Are debts which are payable within a period of one
year.

-Sales. The total value of goods sold during the trading period. This may also be known
as Revenue.

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 -Stock. These are the unsold items in the business at a particular time. Stock comprises
two categories opening stock and closed stock.

Opening stock. Is the unsold goods in business at the beginning of a new trading period.

Closing stock. Refers to unsold goods that remain at the end of the trading period.

-Expenses/ Costs. These are costs incurred in the process of running the business. These
costs make the business to run efficiently and be successful. Costs include salaries and
wages, postage and telephone, transport, taxes, advertising, rent, repairs depreciation and
others.

THE ROLE OF GOVERNMENT IN TRADE

Government:

Is a group of people who officially rule a country like president, ministers and civil servants.

Function of Government

The government perform the following function.

1. Protective [Link] government is responsible to maintain peace and security in the

country and to defend the country against external aggression. For this purpose the government
maintain police and the armed forces.

2. Administrative [Link] government is responsible for the administration of the

country. Various administrative departments are established by government for this purpose.

3. Social [Link] government provides social services to public like education, health,
housing, transport and communication etc. These services are vital for the welfare of the society.

4. Development [Link] development of different sections of the economy is not possible

without the state help. The government should develop irrigation, transportation and
communications, industrial and agricultural systems of the country for the rapid increase in the
rate of economic growth.

5. Makes policies and laws and implement them so as to promote development of country.
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6. Trade [Link] trade within and outside the country.

Business.
Business applies to any activity carried with an intension of making PROFIT while standing a
risk of LOSS. Business can be in form of trading, farming, transportation, communication,
insurance etc.

THE ROLE OF BUSINESS

In economic theory business play two roles:

-They enter the market place as PRODUCERS of goods and services bought by consumers.
They buy factor inputs from households in order to produce those goods and services. They are
using various economic resources efficiently in order to attain high profits at a less cost.

GOVERNMENT INVOLVEMENT IN COMMERCE

The government can involve in business activities as follows:

1. Carrying out trading activities directly.

For this purpose, public corporations, parastatals, marketing bodies and local authorities are set
up. These government bodies may be responsible for the production of some specific items or
provision of specific services.

2. Controlling the activities of the private sector.

This is done by ensuring the production of better quality goods and protect the interests of the
consumers. The government can control the activities of the private sector in various ways, such
as consumer protection.

Consumer protection. Is the policy taken up by the government to protect consumers from
being exploited.

3. The government buys shares in private companies.

CONSUMER PROTECTION

Meaning:
This is the policy taken up by law to protect consumers from being exploited by the business
world. A consumer needs protection because he or she has to get support against unfair practice
from seller includes

a) Being charged higher prices

b) Misleading advertisements

164
c) Selling of defective / expired goods

d) False description

e) Wrong quotation of weights and measures

f) Ignorance of their basic rights

g) Selling unhygienic goods (food stuffs)

The need for consumer protection (Reason for consumer protection)

1. To avoid [Link] suppliers exaggerate the expenses they incur when buying
goods from manufacturers. These traders give excuse such as high transport charges, taxation
(e.g. VAT) and rental charges so that they can charge consumers very high prices.

2. To ensure correct weights and measures are used. Some traders use the wrong
measurements and weights when selling goods to customers thus cheating them. This is very
common with goods such as sugar, salt, beans, maize and wheat flour, rice which traders sell in
small, weighed units.

3. To guarantee safety of foodstuffs and [Link] traders sell foodstuffs and drinks from
unhygienic places and other traders sell foodstuffs and drinks that are out of date, half-cooked or
stale. To protect consumers, therefore the Ministry of Health sets up standards which must be
met by traders engaged in the sale of foodstuffs and drinks.

4. Eliminating misleading [Link] business owners use persuasive, attractive

and misleading advertisements to persuade customers to buy goods from them. Today it is
common to find such advertisements “IT WASHES WHITER THAN WHITE”. This is not
true as there is nothing whiter than white either something is white or not white but not whiter.
Also some dealers of used vehicles display misleading adverts on television showing such
vehicles jumping over buildings. This is very misleading as there is no vehicles which can go
over building unless it is an [Link] cosmetics advertisements have misleading phrases,
pictures and slogans.

5. To avoid sale of out of date (expired) drugs. In rural areas where drugs are scarce, drug
dealers sell out of dated drugs to unsuspecting illiterate consumers. Also some people pretend to
be doctors and prescribe wrong doses of drugs to consumers.

6. Consumer ignorance of their rights. Many customers do not know their rights. Therefore
it is the duty of the government to protect them.

BASIC CONSUMERS RIGHTS

The basic consumer rights includes the following:

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i. Right to [Link] means that right to be protected against the marketing of goods and
services which are hazardous to life and property. The goods and services available for sale
should not only meet their immediate needs but also fulfilling long term interests.

[Link] to be [Link] means to be informed about the quality, quantity, potency, purity,
standard and price of goods so as to protect the consumer against unfair trade practices.

[Link] to [Link] means right to be assured, wherever possible of access to variety of

goods and services at a competitive price.

[Link] to seek [Link] to seek redressing against unfair trade or unscrupulous

exploitation of customers. It also include right to fair settlement of genuine grievances.

[Link] to be [Link] right to be represented in various forums formed to be consider

consumers welfare.

[Link] right to satisfaction of basic [Link] means to have access to basic essential goods and
services, adequate food, clothing, shelter, health care, education and sanitation.

[Link] right to health [Link] means to live and work in environment which is not
threatening to the well being of the present and future generation.

METHODS OF PROTECTING CONSUMERS

There are three major ways of protecting consumers:

[Link] initiated methods.

[Link] initiated methods.

[Link] initiated methods.

(i) Government initiated methods

The government protect the consumers in the following ways as the measures adopted by the
government to protect consumers. In Tanzania the government has established some institutions
to protect the rights of consumers including.

[Link] and measures [Link] requires businessmen to use recommended

weights and measurements when selling goods to consumers. It requires manufactures to indicate
the correct weight on the goods or on the packing material. This department is under Ministry of
commerce and industries who officials travel around the country to check and confirm the
efficiency of the weighing scale.

2. Setting up bureaus of [Link] set up standards for the quality of various products made
or imported into the country. A standards bureau has a standardization mark that it puts on any goods

166
to be tested and approved. An example of such a bureau is the Tanzania Bureau Standards
(TBS)FUNCTIONS OF TANZANIA BUREAU OF STANDARDS(TBS)Tanzania Bureau Standards is a
government agency whose function is

[Link] ensure that high quality of goods produced by manufacturers by taking random samples.

[Link] take action against manufacturers who produce inferior goods.

[Link] ensure the quality standards of the product are maintained, produce locally or imported
from other countries.

[Link] of the standards relating to products, measurements, materials, quantity, weight

and moisture content etc.

[Link] of industrial products.

[Link] inspection of imports at legal ports of entry.

[Link] of measurement accuracies and dissemination of information relating to

standards.

[Link] keep close liaison with and render efficient service to industry, trade and commerce in
direct parts of the country.

3. Price control Act

This Act is meant to safeguard consumers from being overcharged. The government fixes the
price of certain goods especially essential commodities, so that the traders do not sell above the
fixed price. This is very common with essential commodities like sugar. Salt, soap etc. These
price are published by the Minister of finance when presenting the National budget every year.

4. Business premises Rent Tribunal

This tribunal ensure that reasonable rents are charged by the landlords from their tenants.

LAWS USED BY GOVERNMENT TO PROTECT CONSUMERS(Legal measures)

The various laws used by the government to protect consumers include the following

1. Sale of goods Act

This affords protection by setting down conditions and warrantees expressly by the seller to the
buyer. The Act provides for five conditions and two warranties in the protection or vulnerable
position of the buyer.

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 Conditions
i. The seller has the legal right to sell the goods.
[Link] goods sold by descriptions do in fact correspond with the description.
[Link] the goods are reasonably for the purpose intended by and made known to the buyer.
[Link] the goods are of merchantable quality.
[Link] when goods are sold by sample, the actual goods sold are of the same quality as the
sample.

Warranties.
[Link] the goods are free from any charge in favor of third person.
[Link] the buyer shall have and enjoy quite possession of goods purchased.

2. Food and Drugs Act

This provides protection of the public by prohibiting adulteration of foods, medicines etc. They
require manufacturers to list the ingredients used in the process of making them.

3. Weights and Measures Act

This provides protection to consumers by prescribing weights and measures for the use in
business transaction. Its require testing and sampling of all weight and measures used by
business concern and regular inspection to insure that all scales confirm to the established
standard. This makes it a criminal offence if the weight or any other form of measurement is
wrong.

4. Hire purchase Act

This lays down a prescribed form for the scale of goods by hire purchase or credit sale. This act
makes it necessary to detail the cash price, deposit, servicecharges, hire purchases or credit sale
value, repayments terms and time period covered. In addition, right and duties of the buyer are
set out in written agreement. Also the legal remedies are available as set out in the act.

5. Resale price Act

The resale price and maintenance act prohibited manufacturers and other suppliers imposing
conditions for the maintenance of minimum prices of resale. The act also prohibits the
enforcement of such prices by the withholding of supplies from those dealers who fail to observe
rules.

6. Trade description Act

This requires goods sold to the public to bear correct descriptions and trademarks. It’s also
protect customers from misleading advertisement, under this Act, it is a criminal offence,
punishable by fine or imprisonment to make a false or exaggerated claim to a goods or services.

7. Statutory merchandize marks Act

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 This is designed to ensure that the sale of goods under trademarks is genuine and hence to
protect consumers where false or forged trademarks or descriptions of goods of a misleading
nature is used.

(ii)Consumers Initiated methods

These are methods which are adopted by consumers to protect themselves through forming
consumers associations.

Consumers Associations
Is an association formed by consumers to safeguard themselves. The Tanzania Tenants
Association is a good example of consumers association in Tanzania.

Consumers association normally deal in:

• Protesting higher price charged by businessmen.

• Informing the government on their inferior quality products sold to them by manufacturers.
• Taking legal action against businessmen who abuse the consumers.

Consumers association can be explained as committees setup by consumers themselves to

safeguard their interests. This may be setup with help of local councils. Any consumer is free to
become a member of such an association payment of small fee. The association on carries out
investigation into product regarding quality, prices, design and gives the results to members
through published booklets. Consumers are then able to find out where the best bargains are.

(iii)Business Initiated Methods

These are methods which are adopted by businessmen to protect themselves through forming
Business Associations.

Business Associations
These are formed by businessmen and are concerned with bringing up sufficient and satisfactory
standards of goods and services to customers.A system known as Resale (Retail) Price
Maintenance (RPM) was introduced by association, which attempts to control the price at which
their products are sold to consumers, such that wherever the goods are found, the price is the
same or proximate to the required rate. In East African countries the system works well with
beer, soda, cigarettes, petroleum products and transport rates.

HOW CAN CONSUMER PROTECT HIMSELF OR HERSELF?

Consumer can protect himself or herself before and when buying by doing the following:

i.A consumer can gather enough information about the price of product before doing the actual
purchase. This can be by moving around several shops and reading various bulletins which
provides such information.

169
ii.A consumer should claim for necessary documents such as receipts, invoices warranty and so
on when doing purchases. These documents will help him or her during the period of
complication.
iii.A consumer should obtain the necessary advice from other people about a product which has
been advertised in order to protected them cheated by unfaithful leaders.

[Link] consumer can protect himself or herself via non government and non commercial
consumer organization in the market.

OTHER ROLES PLAYED BY THE GOVERNMENT IN THE DEVELOPMENT OF

COMMERCE

1. Price control advisory committee.

This is statutory committee set up by the government and representative of business, consumers
and public authorities. It is charged with overseeing the price structure, review of prices,
application from business concerns for price changes and recommendations to the Minister of
finance.

[Link] policies
These are policies created by the government to control trade. Examples of these policies include
the following:

a. Export promotion
Export promotion is done through
[Link] given to investors in the export sector of the economy
[Link] promotion organization (BET) Board of External Trade.
[Link] expansion through participation in existing international agreement e.g. Lome
Convection
[Link] of export tariffs

b. Protectionism
Protectionism is a part of the trade policy aimed at controlling imports and promoting exports as
a safeguard to the economy against the adverse effects of international trade.

Forms of protectionism
Protectionism can be in different forms as explained below:

[Link] tariffs/[Link] are taxes on goods imported .Import tariffs lead to an increase in
prices of imports in relation to local produced goods, the increase in price of imports influence
local consumers to opt for locally produced goods and thus leads to fall in imports.

[Link] [Link] import quota is a maximum amount of certain commodities to be imported

at certain period of time, quota also discourage import.

170
[Link] [Link] this measures the central bank provides limited amount of foreign
currency to importers to limit them from importing larger quantities of imports.

[Link]/Total [Link] is a policy of prohibiting import of certain commodities which have

some negatives cultural or economic impact such as ponography, cocaine and second clothes.

c. [Link] government deliberately reduces the value of its currency against other
currencies. This lower the general price of locally produced goods and makes imported goods
more expensive. In this way the consumers stops consuming imported goods and buy locally
produced goods. This discourages traders from importing goods from other countries.

[Link] is an action of the government of increasing the level of domestic currency.

Revaluation aims at making imports cheap.

e. Trade Liberalization (Free trade). Free trade in international trade refer to trade policy
where by a country eliminates all trade barriers such as tariff and import quota.

f. Business [Link] is permitting document that allow a businessman to carry out a certain
business. License are given by the government.

4. Fiscal [Link] are measures that influence economics activities by using taxes and
expenditures. The government can control trade by either lowering or increasing tax.

5. Government [Link] government facilities commerce by investing in the following:

a. Public [Link] government provides some services to the public. These are type of
services which cannot be provided by the private sector so efficiently e.g. Defence and law
enforcement.

b. Capital and securities [Link] governments is involved in capital market by issuing

stocks and extending loans. It participate in security market by buying security from the public
and selling them back to the public.

c. Public [Link] government establishes public corporations to engage in production

of goods and provision of services. E.g. Tanzania Electrical Company (TANESCO) ,Air
Tanzania Company Ltd National Insurance (NIC), Tanzania Broadcasting Corporation (TBC)
etc.

d. Provision of credits and [Link] government sometimes establishes special fund for
providing credits to business. It also provide subsides to producers.A subsidy is the government
assistance to local producers inform of funds or reduced price of inputs,subsidies enables
producers to produce goods at lower cost and thus reduce the price of local goods encourage
consumer to prefer domestic goods than imported goods which become relatively more
expensive.

TANZANIA INVESTMENT CENTER (T.I.C)

171
THE ROLE OF T.I.C

• To promote investment (both local and foreign) in the country, this is done by way presenting
our investment opportunities, providing brochures, investors guides, e.t.c.
• To facilitate investors from the initial stage of their investment to the last. This is from
identification of land company registration, business licensing, work permit, residence permit,
tax issues, etc. as one stop facilitation Centre.
• To give investors after care services by visiting them and see if they have any problem that T.I.C
can help so that they can smoothly. continue with business and eventually expand.
• To advice government on investment policy issues.

GOVERNMENT MINISTRIES WHICH FACILITATE TRADE

The government has two ministries which are directly involved in facilitating commercial
activities in the country.
These ministries are

[Link] of Trade and industries

[Link] of Finance

[Link] MINISTRY OF COMMERCE AND INDUSTRIES

In Tanzania, the ministry concerning with business affairs in the Ministry of Commerce and
Industries. This ministries is responsible for the promotion and development of home and foreign
trade. The ministry regulated the retail and wholesale activities. It also responsible for providing
advisory services to traders. It controls all imports from other countries and protects home infant
industries from unfair competition from foreign multinational corporations.

ORGANIZATION
Even through organization of this ministry may always change, it is basically divided into the
following departments:
[Link] department [Link] of commerce [Link] of industries.

[Link] department (section)

This is charged with the responsibility of overall administration and formulating of the ministry’s
policies.

[Link] of commerce
This department is responsible for the promotion of commercial sectors i.e. Trading and
commercial services.
This departments is sub divided into:
[Link] trade section
[Link] trade section
[Link] trade guarantee section

1. Internal trade section

This section is concerning with the regulation of trading activities within the country. It is
responsible for:
[Link] that the weight and measures used by traders and businessmen are of required
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standards.
[Link] prices of essential commodities such as fuel, sugar, etc.
[Link] that the essential goods are equally distributed within the country.
[Link] of trading license to the prospective retailers and wholesalers.
[Link] of training and advisory services to traders and ministry staff.
[Link] business information and statistics to the business firms.
[Link] trade disputes.

2. External trade section

This section responsible for promotion and development of Tanzanian products in international
market. Most of its activities are performed by the Board of External Trade (B.E.T) which was
instituted in 1977 and started operations in the same year.

BOARD OF EXTERNAL TRADE (B.E.T)

It was set up with the main objective of keeping a continuous review of export promotion
policies in consultation with the concerned Trading and Industries Ministry. It makes an
intensive study of the problems facing export of the country and makes recommendations to the
government from the time to time for securing its policy adjustments to stimulate exports.
It gives particular attention to product development, improvement in export marketing
techniques, provision of commercial services to exporters, import substitution. Etc.

FUNCTIONS AND OBJECTIVES OF BOARD OF EXTERNAL TRADE

[Link] of Tanzanian products in the foreign market.
[Link] the manufacturers how to improve the quality of their products in order to get bigger
market overseas.
[Link] the trade fairs and exhibition. In foreign countries to introduce Tanzanian products
in those countries.
[Link] and providing information on the responsibilities of the expansion of exports.
[Link] training facilities on exporter matters.
[Link] trading delegations study terms for expert study teams of markets abroad.
[Link] the production and marketing of handcrafts.

3. Commercial services section

This section is responsible for regulation promotion and development of commercial services in
Tanzania for the benefit of producers, traders and consumers. Those commercial services
include: Insurance and communication warehousing etc.

4. Export credit guarantee section

This section provides insurance for exporters to cover risk of being unpaid where credit has been
allowed.

iii. Department of industries

173
This department is specifically responsible for the promotion and development of industries in
Tanzania.

The ministry through this department:

[Link] the industrial policy and encourage the establishment of new industry in both
public and private sector including foreign investors.
[Link] the industrialists to establish new industry in less developed areas.
[Link] with the department of commerce to give protection to the domestics industries
against the foreign competition.
[Link] of financial assistance to the industrialists.

2. THE MINISTRY OF FINANCE

This is the ministry responsible for control of all financial sectors of a country. The ministry of
finance applies instruments of fiscal policies i.e. Taxation and government expenditures to
regulate business [Link] example when there is low purchasing power due to
unemployment, the ministry increasing spending and reduces [Link] ministry of finance also
applies instruments of monetary policy such as open market operation (OMO) through the
central bank to control money supply in order to regulate the economy. For example when there
is inflation The central bank reduces money supply.

TAXATION

- This is a legal transfer of money from the public to government mainly as government revenue.

- A TAX is a compulsory contribution made by the taxpayers to the state towards its expenditure.

PURPOSE OF TAXATION

I. To raise government revenue. The main purpose of taxation is to raise revenue. The main
source of government revenue is taxation. Tax help to cover a daily revenue
expenditure e.g. education, defense, health.
II. Reduce income inequalities. Through PAYE (Pay as you earn), where the high income
earners reduce the gap between rich and poor.

174
III. To increase economic activities. Money collected from taxation can be utilized for
economic and social development e.g. schools,hospitals etc.
IV. To discourage consumption of harmful commodities. Imposing high tax on Commodities
such as beers, cigarettes so as to discourage their consumption.
V. To adjust balance of payment deficit. balance of payment is widened by high importation
and less exportation.
[Link] adjust inflation caused by high demand due to the more money in the circulation
taxation help to reduce money in circulation.
[Link] restrict importation for the purpose of protecting local industries By imposing heavy
custom duties, discourage importer for products which are locally produced.

CANONS /PRINCIPLES OF TAXATION

i. EQUITY. The burden of taxation ought to be distributed owing tax payers according to
their ability to pay. Taxes must be proportional to the income of the tax payers it
must conform
with his ability to pay its desirable to use income tax to ensure on equitable
payment of TAX for rich and poor rich to pay more and poor to pay his taxes
ii. CONVENIENCE. Tax should be easy to collect and not easy to evade, the time and
manner of collection must be convenient to both the state and the tax payers
[Link]. Taxes should not cause any hardship to the taxpayer. A taxpayer should
know exactly what he has to pay, the manner of payment and time of payment and
there must be no
confusion in this regard.
iv. ECONOMY. The cost of collection should be low and the state should receive the full
amount of the tax paid. The amount collected should afford to meet the cost of
administration
and collection.
v. PRODUCTIVITY OR HIGH YIELD. A tax should yield the revenue necessary to
meet the changing need of the economy, every tax imposed should give greater
income to the
government.

175
 vi. SIMPLICITY. The tax system must be simple to understand by both tax payers and
tax collectors since the high tax increases tax evasion.
vii. DIVERSITY. There must be different type of taxes so that the burden of these is an
different group of society.
viii. ELASTICITY. It should be possible to adjust the rate of a tax to meet changed
financial circumstances. It must be possible to increase or decrease the taxes
according to the
economic situation of the country e.g. during inflation taxes must be
increased and vice versa.

CLASSIFICATION OF TAXES

Taxes can be classified according to the following groups.

I. According to tax base A tax base is what are you taxing. The tax base is the taxable
income. under this we have a.
a) Income tax e.g. PAYE, corporation tax, development levy
b) Capital tax e.g. property tax capital gain tax, capital transfer tax
c) Consumption tax e.g. excise duties, VAT, sales Tax.
ii. According to the shift of incidence
- Direct tax
- Indirect tax
iii. Whether the tax is specific unit or advalorem
a) Unit or specific taxes are levied on the volume of what is to be taxed e.g.
excise duties
b) Advalorem tax is levied on the value of the tax base e.g. income tax, VAT

a) Regressive taxes. These increasing as income of people increase

b) Proportional taxes. These are constant taxes rate among all tax payers
Regressive taxes. These reduces as tax payers income increases.
DIRECT TAXES:Are taxes imposed on incomes of individuals or
properties of [Link] payee
ADVANTAGES OF DIRECT TAXES

176
 i. EQUALITY. Direct taxes are usually assessed in accordance with a
graded scale so that the rate of taxation arises in relation to income. it
is progressive.
ii. ECONOMICAL. Cost of collection of direct taxes are
comparatively low especially where the employer acts act as tax
collector , this save expenses of
iii. collection
iv. REDISTRIBUTION OF WEALTH. The direct tax plays significant role
in redistribution of incomes.
v. REVENUE. The yield from personal taxation is fairly certain and
can be calculated reasonably accelerate in advance.
vi. ELASTIC. If the government suddenly stands in need of more
revenue in an emergency, direct taxes can well serve the purpose.
vii. KNOWLEDGE TO TAX PAYER. The tax payer generally know
exactly how he has to pay.
viii.  STIMULATE SPENDING OF MONEY. The interest of the tax payer
in the spending of public money is stimulate.
DISADVANTAGES OF DIRECT TAXES

i. EVASION IS POSSIBLE. The assessors can submit a false return of

income and thus evade the tax that is why a direct tax is a tax honesty.
Evasion is encouraged more when rates of direct tax rate high
ii. DETERRENT TO WORK. A high rate of personal taxation may
cause people to workless. A progressive rate of tax means that over a
certain income people may prefer to have leisure rather than extra
earnings because a high proportion later is taken by the government
high rates of personal taxation will discourage the progression of extra
goods and services
iii. . DETERRENT TO SAVING. A high rate of personal taxation may
reduce consumers ability to save since it leaves them with less money
to spend indeed the effect might lead to a reduction in saving by who
are determined to maintain their present level of expenditure

177
 iv. DETERRENT TO ENTERPRISE. Corporation tax is a tax on the
profits of companies and such a tax may stifle enterprise effort and
enterprise may be revitalized and discouraged where rates of direct
taxation are highly progressive.
v. IT IS NOT FLEXIBLE. It is not easy to revise a system that is fair
for all classes.
INDIRECT TAXES
These are taxes imposed on goods and [Link] VAT,
ADVANTAGES OF INDIRECT TAXES
Indirect taxes are imposed on goods and services so that impact and
incidence are on direct persons
[Link] PAYMENT. Payment of indirect taxes in voluntary in
the sense that consumer can choose to avoid expenditure on taxed goods and
services e.g. if an
individual does not pay any tax on these
items.
ii. MEANS OF REACHING THE POOR. It is same principle that every
individual should pay something however little to the state the poor are always
exempted from
paying direct taxes they
can be reached only through indirect taxes.
iii. ADMINISTRATION. Indirect taxes offer certain administrative
merits, custom and excise duties are paid by importers and manufacturers
wholesalers is tax is
collected from wholesalers and retailers.
Hence indirect taxes are more different the evade and easier to collect than
direct
[Link]. Indirect taxes may be used to select to achieve
particular aim e.g. they can be used as an instrument of checking the consumption
of harmful

178
 commodities such as tobacco and alcohol and other
intoxicated are highly taxed.
[Link] IS CONVENIENT. The method of payment is convenient, the
tax payer does not feel the burden so direct commodity taxes enable foreign
visitors who would
otherwise be exempt from taxation to be
reached.

DISADVANTAGES OF INDIRECT TAXES

 REGRESSIVE. Indirect taxation is regressive in character
they fall more heavily on people with low income than those with high
income. The proportion of tax
payers income paid in indirect tends to diminish as
that income increase.
 UNCERTAINTY YIELDING REVENUE. They are
uncertain in yield unless necessaries are taxed. In case of goods with
elastic demand, the tax might not being in
much revenue the tax will raise the price and contact the
demand when the product is not purchased the question of the
tax payment does not
raise it is not easy to determine the incidence.
 COST OF LIVING. An increase in indirect taxes can raise
retail prices and hence the cost of living.
  ❖UNECONOMICAL. Indirect taxes are not
economical to the tax payer once he may pay more than the
amount actually received by the state
each middlemen taking margin may received a cancelled
increase.

179
  ❖HIGH COST OF COLLECTION. The real cost of
collection of indirect tax may be high.
 ❖ EASY TO SHIFT. The indirect tax may be
shifted onto those who were not intended to bear it.

THE ECONOMIC EFFECT OF TAXATION

I. Disincentive to work.
II. Disincentive to saving.
III. Disincentive to investment.
IV. Disincentive of production. Producer will diverge from higher taxed industries
to lower taxed industries taxation of some commodities may divert economic
resource from
high to low rated new industries particularly may be attached to places where
the rates are low.
V. inflationary. Where tax is shifted on o the consumer higher prices may give
rise to demands for higher wages loading to higher costs leading to higher prices
of other
commodities
FEATURES/CHARACTERISTICS OF TAXATION
• It is compulsory charge payable to the government.
• Only the government has power to levy taxes.
• Both citizens and non citizen are liable to pay tax of one kind or another.
• There is no consideration relation in taxation.
• Once the tax has been collected the government does not have obligation
to account for the way the revenue has been used.
• The payment of tax is made in monetary terms.
• The power of taxation is mainly to be used in collecting revenue is the
state and not is the accomplishment of other objectives.

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 THE TANZANIA REVENUE AUTHORITY

The Tanzania Revenue Authority Act No. 11 of 1995 established TRA. The Authority is a
semi-autonomous agency of the Government, responsible for the administration of the
Central Government taxes as well as several non-tax revenues. The Authority, which
administers a number of taxes, is under the general supervision of Board of Directors.
The list of tax laws administered by TRA is shown in Tax Laws administered by TRA.
Functions of TRA

The major functions of the Authority are to:-

- Assess, collect and account for all Central Government Revenue.

- Administer efficiently and effectively all the revenue laws of the Central Government.

- Advise the Government on all matters relating to fiscal policy.

- Promote voluntary tax compliance.

- Improve the quality of services provided to taxpayers.

- Counteract fraud and other forms of tax and fiscal evasion.

- Produce trade statistics and publications.

ADVANTAGES OF VAT

i. VAT is a kind of tax which is well known by taxpayer and simple to collect.

ii. VAT is charged only when the consumer bays goods or use certain services.

iii. It is open because the taxpayer knows exactly the amount of tax to pay and
when to pay it.

iv. VAT are charged from different products and business and thus distribute the
tax burden to large number of tax payers V. VAT encourage international
trade i.e. export for charging goods and services to be exported at zero
rating revel.

v. VAT encourages people to save and invest their money into the economic
sectors.

vi. VAT tend to reduce and sometimes solve the economic problems in the business.
TERMS IN TAXATION

181
 Corporation taxes. These are taxes levied on the profit of the
companies, corporation tax is paid by incorporated business.
 Taxes on capital as such is not taxed. Tax is paid when capital is
sold or transferred. The must important taxes are capital gain tax and capital transfer
taxes
 Capital gain tax (C.G.T). Capital gain tax may be paid when
assets are sold at a profit e.g. a saves who makes a capital gain of shs 8000 as a result of
buying and selling shares
may have to pay capital gain tax on the profit
 ❖Capital transfer tax. Capital transfer tax may have to be paid when
assets are transferred from are one person to another e.g. son, capital transfer tax may
have to be paid in this
is also called inheritance tax.

          ❖ TAX THRESHOLD. Is the income level at which a person

becomes liable to income tax after account has been taken of all allowance to which he his
entitled.

[Link] RESERVES. Is an amount set aside for payment of tax when due since taxes on
company profits are collected in arrears.

 ❖The marginal rate of tax. Is the amount of tax a person would pay
on each successive unit of legal tax base. The effective rate of tax or average rat of tax
the actual tax paid as
proportion of it we arrive at the effective rate of tax
Marginal rate of tax = increase in tax paid Or
Increase in income
marginal rate of tax = change in tax
Change in income
NB with progressive taxes. It is case that marginal rate is higher than the Average
rate.

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 CONTRACT OF SALES

Contract

Is an agreement with legal force. It is an agreement which has legal binding nature.

An agreement: It is an offer (proposal) by one party and acceptance by one party. Is where the
offeror and offeree relationship unconditionally. An offer made by one person is accepted by one
person whom the offer is made.

Essentials of a contract (features)

(a) Agreement: Offer and acceptance

(b) Intention to create a legal relationship. There must be evidence that the parties involved
intended to have a legally binding relationship. Example: An agreement for social interaction
cannot be enforced by law, example you can’t sue a person who fails to turn up for an
appointment to have cup of coffee with you.

(c) Consideration: something valuable whether tangible or intangible which is given in exchange
for another valuable thing eg: If I give you a watch in exchange for money, therefore watch is
consideration for money.

*Deed: A contract without consideration

(d) Contractual capacity: Parties to a contract must have contractual capacity e.g people with 18
years and above. There are people who are prohibited by the law to enter into a contract and
these people are minors, drunkenness impaired, insane. Agreement made by such people are said
to be Avoidable (because party lack contractual capacity so withdrawal from such contract is
allowed).

Avoidable contracts can also be caused by the induced , misrepresentation and undue influence

(e) Form: There are prescribed forms for certain contracts. Eg A contract for sale of land, legal
mortgages and leases must be writing.

(f) Definite term (contents of contract): Terms of the contract must be clear and explicit. If they
are ambiguous and difficult to understand the courts of law will not enforce them.

*Terms of contract are: issues which have to be discussed while negotiating a contract and have
to be agreed upon before the contract is made. The terms of contracts specify the rights and
duties of the parties to the contract. Terms of contract are express terms or implied terms.

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Express terms: Are those issues which have been specifically discussed and agreed upon by both
parties in the process of negotiating the contract.

They are subdivided into

(a) Conditions

(b) Warranties

a) A condition is a term which is fundamental to the nature of the contract. Breach of a condition
entitles the injured party to the right to cancel the contract, If he so wishes or to go ahead with it
and get damages for the loss suffered, eg. If we agree that Iam going to buy your goat at
15,000/= you cannot give me a sheep instead because it is the same size as the goat I agreed
to buy (this is breach of a condition).

b) A warranty: Is a minor issue which does which does not significantly affect the essence of the
contract. From the example above. If you deliver to me a goat which fits my requirements but
happens to have a broken horn (this is breach of warranty).

-A breach of a warranty allows the injured person to receive damages but not the right to
repudiate the contract.

II: Implied terms: Are those issues which may have been overlooked or deliberately ignored at a
time of negotiations, although their impact significantly affects the position of the parties to the
contract.

-They are subdivided into

(a) Ones implied by the court

(b) Ones implied by statutes

(g)Legal objects: any agreements which is contrary to public policy is void (it does not have any
legal force). Eg: All types of agreement to commit crime are not valid and if one party fails to
perform his part the other party has no recourse.

(h)Genuine concept- This requires parties to contract to reach agreement without the influence of
the acts such as fraud, Mispresentation, mistake, undue influence.

IMPORTANT CONTENTS OF A CONTRACT

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 A valid contract should possess the following contents;

• consideration
• time and date
• signature
• name and address of each party
• terms and conditions of the contract

CLASSIFICATION OF CONTRACTS:

[Link] and written contract

*Oral contracts are contracts that are made by words of mouth

*Written contracts are contracts that are put into writing.

2. Uni-lateral contract and Bi - lateral contract

∗ Uni - lateral contract is a contract where one party to contract makes a promise that the
other part can accept only by doing something eg: will give you 10,000 if you bring back my
wallet which was stolen yesterday.

* Bi-lateral contract. Is a whereby both parties makes the promise.

3. Executory and executed contracts

* Executory Is a binding agreement in which one or all parties to contract have done or
fulfilled its obligations.

*Executed:Is a binding agreement in which one or all parties to contract have done or
fulfilled its obligation

4. Valid or invalid contracts

* Valid contract is the contract that satisfies all the law requirements.

* Invalid contract: Is the contract that doesn’t satisfy the relevant law requirements.

(It may be void ,voidable or unenforceable contract)

* Void contract: Is the contract in which the parties have attempted to contract, but the
law did not give effect to the agreement because there are common mistake on some major
terms. In a void contract there are no contractual rights or obligations and so has no legal effect.

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Is an agreement that neither party may legally enforce. eg: the purpose of the agreement was
illegal or because one part lacked capacity to make it.

∗ Voidable contract: Is an agreement that because of some defects may be terminated by

wronged party but not by both.

NOTE

Not all contracts that contain illegal terms are necessarily void. An illegal term can

be removed from the contract to form a valid contract providing that the remaining terms of a
contract are sufficient.

* Unenforceable contract: Is a contract where the parties intend to form a valid bargain but
a court declares that some rules of laws prevents enforcing it.

DETAIL DISCUSSION OF SOME TERMINOLOGIES:

1. Parties: Any contract must have two parties. The parties may be natural person like Neema
Maganga or artificial person created by law such as corporate bodies like companies.
2. An offer (proposal): Is a statement that proposes definite terms and permit the other party to
accept the terms. The one who give an offer is called offeror or proposer.

-Characteristics of an offer:

(a) It must be made willingly i.e offeror must be willing to be bound by the terms she

(b) It must be clear and certain

(c) It must be final expression by the offeror of his willingness to be bound should
his offer be accepted

(d) It must be communicated orally, in writing or by conduct .

(e) It should be complete when it comes to the knowledge of the offeree.

NOTE

Contrary to above characteristics it is called invitation to treat (offer to chaffer): is

an invitation for other people to submit offers which may be accepted or rejected.

eg: Goods displayed in a shop. Advertisement, auction, inviting tenders.

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 Termination of an offer: An offer can be terminated as follows :-

(a) Revocation: withdraw before it is accepted,here the offeror can withdraw his
offer before acceptance by offeree.

(b) Lapse of time: If is time stated in the offer or after reasonable time.

(c) Failure of the acceptor to fulfill conditions.

(d) Death or Insanity of offeror or offeree

(e) Counter offer or rejection. Response acceptance with new terms can lead to
termination.

3. Acceptance: Is an agreement to terms of an offer, this converts the offer into legally binding
contract .

Characteristics of acceptance

(a) It is an assent to the proposal by the person to whom it was made.

(b) An acceptance should be absolute and unconditional to all terms set out in the Offer.
Acceptance must exactly mirror the original offer made.

(c) Acceptance must communicated to the offeror in writing or orally by an authorized

person.

(d) Acceptance is complete when it comes to the knowledge of the proposer.

(e) Acceptance by post is complete as soon as it is posted (provided it was implied in

negotiations)

4. Consideration: Is some rights, interest, profit or benefit acrueing to the one party,loss or
responsibility given, suffered or undertaken by the other eg one party provides money and the
other provides goods/services both money and goods/services are regarded as legal
consideration.

NOTE : In gift giving no consideration, therefore no contract

Characteristics of consideration

(a) Must be adequacy and sufficient: Must be fixed by the parties out of their own free will or
consent. It does not base on the market value only but also on the wishes of the parties

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 (b) Must have economic value: That is why sentimental motives such as natural love

and affection have no economic value therefore cannot qualify as good

consideration

(c) Must be legal

Types of consideration

(a) Executory consideration:

A consideration resulting from an exchange promises to perform acts in the future. Eg: A
promises to deliver goods to B and B agrees to pay for them.

(b) Executed consideration: Happens when one party promised to do something in return for the
act of another not mere promise of future performance.

(c) Past consideration: Comprises an act which was done before the promise was made and not
in response to sub-sequent promise(It is not a good consideration)

[Link] to contract: means competence to enter into a legally binding agreement because
both parties are mentally capable to understand a contract.

Factors considered or factors vitiating capacity : The following factors should be

considered when deciding on capacity to contract

(a) Age: A minor/infant is not competent to contract because she has not attained majority age/
contract age. In Tanzania the age of majority is 18 years and above. Below 18 years lack experience to
exercise sound judgements, she cannot protect herself. Except for necessaries and beneficial contracts.

(i) necessaries: goods suitable to the conditions in life of a minor and to his requirement at the time
of the sale and delivery.
(ii) beneficial contracts like training that is advantageous to the minor.

(b) Soundness of mind: A person who is of sound mind is a person capable of understanding the
contract and forming rational judgement eg Mentally disorder, drunkard have no sound mind.

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 (c) Personal disqualified by law: Persons disqualified by law are

(i) Bankrupt persons: the law disqualifies a person declared bankrupt to enter contract.

(ii) Unincorporated bodies eg club associations and societies can’t enter into contract because
they have no separate existence in law, they can do so through agents.

6. Free consent: contracting out of own free will i.e freedom of contract. Two or more person
are said to consent when they agree upon the same thing in the same sense.

Factors which undermine free consent:

(a) Coercion or Duress: Committing or threatening to commit any act unlawful,detain any
properly with intention of causing any person to enter into an agreement

(b) Undue influence occurs where the relationship between the parties such that one of the
parties are in a position to dominate the will of the other, and uses that position to obtain an
unfair advantage over the other.

(c)Mispresentation /Representation

(d) Mistakes: Entering the contract believing that something material exist while does not exist.

7. Legally /lawful object: The subject matter or object of the contract must be lawful or legal eg
supplying heroin is illegal,therefore heroin is lawful object. This is the matter of jurisdiction i.e
to be decided by law.

DISCHARGE OF CONTRACT:

Means the rights and the obligations of both parties to the contract have been properly fulfilled.
i.e the contractual relationship between them is terminated and none of them has any more
claims from or owes the other. Therefore obligating and rights come to an end. This is where
parties to contract are no longer under a duty to perform their part of agreement.

WAYS A CONTRACT CAN BE DISCHARGED

A. Discharge by performance: The common way of discharging contracts is by performing them
to the satisfaction of the parties involved i.e by fulfilling the agreement with free will. The
contract then comes to an end.

B) Discharge by agreement: Sometimes performance is impossible needing the parties to

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discharge the contract by natural agreement with free will. Discharge by agreement may take the
following forms:

(i) Satisfaction and accord: This is applicable to executory contracts where a contract has been
performed partly and a party which has performed its obligation (innocent party) may require
some compensation for what it performed.

(ii)Waiver: Here the innocent party (with the right to demand compensation) may agree to waive
her rights i.e not claim any compensation for the part it performed.

(iii) Novation: This happen where the existing contract is substituted for a new contract or a new
contract is formed to discharge the old contract with the free consent of all parties concerned.

C) Discharge by the subsequence impossibility (Frustration): A contract may become impossible

to perform because of certain circumstances. After a contract has been made by both parties
willing to perform their roles effectively, circumstances may change to the extent that it become
impossible or illegal or unreasonable to perform the contract. Circumstance can be :-

(i)Subsequent physical impossibility. Where it is impossible to physically fulfil duties and

obligations under a contract, the physical impossibility may however arise after the contract has
been made.

(ii) Subsequent illegality. This is where after a contract has been made there is new legislation
which makes the contract illegal, therefore the contract become illegal common law.

(iii) Disappearance of purpose of the contract: A contract which is made on the basis of a future
event occurring if that does event not happen a contract is frustrated and therefore discharged.

(iv)Distortion of the commercial viability of the contract: Sometimes changes which make a
contract an unreasonable undertaking take place after the contract has been made. Therefore it
may be rational to terminate the contract if this makes both parties better.

(v) Destruction of the subject matter i.e the subject matter being destroyed

(vi) Death, insanity, incapacity and illness, this is applied mainly for personal services eg
employment.

(vii) Acts of God like floods, famine, droughts, earthquake and the like of which their occurrence
frustrates the contract.

D) Discharge by breach: Breach of a contract is an actual failure by a party to a contract to

perform his obligation under that contract or an indication of his intention not to do so without
any justifying cause, therefore injured(not in breach) party may choose not to sue the other party
and treat the contract as discharged. Discharge by breach can be :-

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(i)Actual breach: occurs when obligations are violated having become due eg. seller fails to
deliver the goods on due date.

(ii)Anticipated breach: Takes place where obligations are violated before they become due eg. a
seller informs the buyer about his intention of failing to deliver goods.

REMEDIES FOR BREACH OF CONTRACT

Remedy means any of the methods available at law for the enforcement, protection or recovery
of rights or for obtaining redress. i.e where a party breach the contract the other party may be
favoured by one of the following remedies depending on the nature of the breach.

1. Damages: Injured party may claim compensation in money form to cover loss suffered due to
the breach. The aim is to put the injured party as near as possible in the same position so far as
money can do as if he had not been injured
2. Restitution: Remedy to an innocent party, here the injured party claims back his performance,
an item or its reasonable value(for item if an item can be traced)
3. Specific reliefs(equitable reliefs):These includes:

(i) Specific performance. Here the innocent party asks the court to order the other party to do
according to the terms of the contract. It is mainly applicable in respect of contracts requiring
personal services.

(ii) Injunction (stop order): Innocent party will ask the court to order the breaching party to undo
a breach of contract.

(iii) Rectification: This remedy will be granted where there has been a mistake not in the actual
agreement but which come into existance when the agreement is put into writing.

4. Quantum meruit (so much as deserves): Where the contract has been breached but one party
still enjoying the benefits out of the transaction, the party enjoying will be liable for the benefits
deriving to avoid unfair advantages. This is based on the implied condition that in a void
contract a party deriving benefits should pay for those benefits

SALE OF GOODS CONTRACT

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for money consideration called the price. It is an agreement to sell
where the transfer of property in goods is at a future date or subject to the completion of specific
[Link] sale of goods contract is complete when the terms and clauses set out in the
contract have been fulfilled and the transfer of property took place.

Essentials of sale of goods contract (characteristics)

1. Parties to contracts: The parties to sale of goods contract are seller and buyer

-A seller means a person who sells or agrees to sell goods.

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 -A buyer means a person who buys or agrees to buy goods.

2. Transfer of property: What is transferred in sale of goods contract is properly in goods

3. Subject matter of contract: The subject matter of sale of goods contract are goods.

[Link]: This is consideration which must be in terms of money. Goods for goods do not fall under
contract of sale of goods.

[Link] to sell and sale: Contract of sale includes sale and an agreement to sell

-Sale: There is immediate transfer of goods in property from seller to buyer.

-An agreement to sell a property in goods is transferred in future or on fulfillment of

certain conditions stipulated in a contract.

6. Formalities of a contract: The contract of sale of goods may be made in writing (either
with or without seal) , orally that is by word of mouth or as implied from the conduct of parties

7. Nature of parties: The capacity to buy and sell is regulated by general law of capacity to
contract (person entering into a contract must be competent). But under this contract persons
who are incompetent to contract can also enter into a contract to sale but these contracts must
be for necessaries and they will be liable to pay a reasonable price for them.

8. Value of goods: The value of goods is ascertained by price. It may be fixed by the
contract or may be left to be fixed in manner provided by the contract(eg. by valuation). It may
also be determined by the course of dealing between the parties eg: according to previous
transactions between them,custom of trade profession.

CONDITIONS AND WARRANTIES

Under the law of contract, two types of statement are made in the course of negotiating a contract
of sale of goods

[Link] pre-contractual i.e. Representations

[Link] statements or terms these being either conditions or warranties.

Implied condition and warranties in a contract of sale.

A: Title

i) Conditions as to title: Unless the circumstances show different interition, there is an implied
condition on the part of the seller that in case of a sell she has the right to sell goods, and in case

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of an agreement to sell will have the right to sell the goods at the time when the property is to
pass.

*The implication is that the person who buys goods to which the seller has no title is allowed to
recover the whole price even though she had some use and enjoyment from the goods before
they are dispossessed by the true owner.

ii) Warrants as to title: unless the contract show different intention there is an implied warranty
that the buyer shall have and enjoy quiet possession of the goods. Also there is an implied
warranty that the goods shall be free from any charge/encumbrance in favor of any third part not
known or declared to the buyer before or at a time when the contact is made.

[Link]

[Link] of payment: Unless a different intention appears from the contract by stipulations the
time of payment is not of essence so failure to pay on time is a breach of warranty no of
condition but a seller can provide expressly for right of resale in the absence of prompt payment
in case of perishable goods prompt payment is a condition not a warranty.

ii. Time of delivery: The act is silent but we use English laws where time of delivery is fixed by
the contract and breach of it is breach of condition and the buyer can reject the goods.

C) Quality and Fitness: This is governed by Caveat Emptor (buyer beware) i.e. When buying you
must be aware of all defects obtainable in the goods, except for :

[Link] implied condition of quality and fitness for any particular purpose of goods supplied: i.e.
when the buyer expressly or impliedly makes known to the seller the particular purpose for
which goods are required.

[Link] implied condition that the goods should be of merchantable quality where goods are bought
by description from a seller who deals in goods of that description.

[Link] implied condition or warranty as to quality or fitness for goods attached by the usage of
trade.

D) Sale by description: There is an implied condition that the goods shall correspond with the
description in case there is a contract for the sale of goods by description.

E) Sale by sample. In the sale by sample there is:

i) An implied condition that the bulk shall correspond with the sample in the quality.

ii) An implied condition that the buyer shall have a respond opportunity of comparing the
bulk with sample.

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 iii) An implied condition as to freedom from any defect, rendering them un-merchantable
which would not be apparent on reasonable examination of the sample.

EFFECTS OF CONTRACT OF SALE

Effect of contract of sales as provision of the act is divided into two parts

1. Transfer of property in goods

2. Transfer of title

TRANSFER OF PROPERTY IN GOODS

The provisions of act regarding the transfer of property in the goods are important due to the
following reasons:

[Link] parties to contract of sale do not usually express their intentions as to the passing of the
property.

[Link] risk normally passes when the property passes and the seller can in general terms only sue
for the price as distinct from damages if the property has passed.”Res perit domino” (a thing
perishes to the disadvantages of its owner).

Rules of ascertaining intention as time when property passes:

According to the sale of goods act the rules of ascertaining interition as to time when property
passes are five.

Rule 1. For the goods in a deliverable state the property in goods passes to the buyer when the
contract is made.

Rule 2. In case of the goods not in a deliverable state, the property doesn’t pass until the seller
puts them. Into a deliverable state and the buyer is notified thereof.

Rule 3. Where there is a contract for the sale of specific goods in a deliverable state but the seller
is bound to weigh, measure, test or do some other act or things for the purpose of ascertaining the
price, the property doesn’t pass until such act or thing is done and the buyer has notice thereof.

Rule 4. In case of sales on approval or in case of sale or return or other similar terms, the
property passes to the buyer by either of the two ways:

1. When the buyer signifies her approval or acceptance to the seller.

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 2. The buyer retains the goods without giving notice of rejection and then the property passes on
the expiry of a return period or reasonable time.

Rule 5. Where there is a contract of sale of ascertained / future goods by description and goods
of that description the transfer to buyer will only be made when the goods have been ascertained,
identified and valued.

2. TRANSFER OF TITLE

This is that transfer of the right to legal ownership, this is only possible with the presence of true
owner of the goods who possess a good title i.e. the buyer who takes goods from a seller with no
title receives no better title than the seller e.g. buying goods from a thief goods would then have
to be restored to the true owner possessing title when so claimed.

Exceptions to this rule: According to the sale of goods act:

i. Buying in good faith from mercantile agents who holds the goods with the owner’s consent.

ii. Where a second buyer, acting in good faith buys goods left in possession of the seller by
the first buyer.

iii. Where a second buyer, acting a good faith buys goods held by a first buyer who has not
fulfilled all the sellers conditions of purchase.

iv. Where a buyer, acting in good faith, buys goods without notice of any defect of title of the
seller.

[Link] the sale is ordered by the court, the buyer received a good title and where a seller has
led the buyer to believe in the formers title the buyer receives a good title.

PERFORMANCE OF CONTRACT OF SALE OF GOODS

(A) Duties and rights to parties

i) Duties of seller: To deliver the goods to the buyer or to allow delivery of the goods to
take place where the seller agree to deliver the goods at his own risk at a place than the place of
sale the buyer (unless agreed) take any risk of deterioration in goods in transit.

ii) Right of seller: To be paid the contract price for goods delivered. Where the ownership has
not passed to the buyer, the seller is free to act on goods. Where the buyer has not paid and
ownership has passed to the buyer the seller may exercise lien on the goods if they are still in his

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possession/stoppage in transit and the right of repossession and limited right of resale where the
goods are perishable or the right is reserved in the contract.

iii) Duties of buyer: To accept the goods and pay for them in accordance with terms of the
contract of sale. The buyer is deemed to have accepted the goods when the he has accepted them
or when the goods have been delivered to him or after lapse of a reasonable time or he retains the
goods without information the seller that he has rejected them. When the seller is ready and
willing to deliver the goods and the buyer does not with a reasonable time take delivery of the
goods, the buyer will be liable to seller for any loss and charge for neglect to take delivery.

iv) Rights of buyer: To receive goods under the terms of contract. When goods not previous
examined, are delivered by the seller, the buyer is not deemed to have accepted them unless and
until he examine them. A seller should give a buyer reasonable time of examining the goods.
Where the wrong quantity is delivered, the buyer has the right either rejected the delivery or
accepted and pay the contract price for what he has received.

To reject delivery by instalments, unless he has agreed to this procedures.

B) Delivery of the goods:

Definition; Delivery is a voluntary transfer of possession from one person to another. Delivery
may take any of the following forms:

[Link] physical transfer of the goods and where the goods are handled to the buyer with the
intention of transferring possession.

[Link] delivery of the means of control e.g. handle of the key.

[Link] attornment (where the goods are in possession of the third party) e.g. a warehouse man
who acknowledges to the buyer that he holds the goods on his behalf.

[Link] delivery of documents of title e.g. bills of loading representing the goods is delivered.

[Link] constructive delivery as where the buyers already has possession of the goods as a bailee
e.g. in a hire purchase.

Place of delivery: In absence of express agreement place of delivery is the place of business of
the seller or if he has no place of business his residence. Therefore the sellers duty to deliver
does not mean he must necessarity take or send the goods to the buyer. Therefore the buyer is
under a duty to collect the goods from the seller’s premises or storage center.

NOTE : For sales of specific goods which are found in some other place then the place of
delivery is where they are found.

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Time of delivery: Under the contract of sale, if the seller is bound to send the goods to the buyer
if no time for sending is fixed the seller is bound to send them within a reasonable time and at
reasonable hour.

*What is reasonable time/hour it is matter of fact.

C: Quantity of goods delivered

The provisions as to quantity delivered are

[Link] the sellers delivers to the buyer a quantity less than the contact quantity the buyer
may reject them but if he accepts them he must pay at the contractual rate.

[Link] the seller delivers to the buyer a quantity larger than he contracted the buyer may
accept the goods included in the contract and reject the rest or reject the whole.

[Link] the goods delivered are mixed with goods of different descriptions not included in
the contract the buyer may accept the goods in accordance with contract and reject the rest or he
may reject the whole.

NOTE : Usage of trade, special agreements or course of dealing between parties can lead to
exceptionals.

D) Delivery by instalments: Unless a greed, the buyer is not bound to accept delivery thereof by
instalments.

*If the agreement is the delivery by instalments and that the seller fails to make one or more
instalments delivery or the buyer neglects or refuses to take delivery or pay for one or more
instalments (depending on the terms of contract) the contract is repudiated or give rise to claim
for compensation.

E) Delivery to a carrier:

Where the seller is required to send goods to the buyer through carrier (whether named by the
buyer or not) for the purpose of transmission to the buyer it is deemed to be a delivery of goods
to the buyer.

Types of carries

a) Common carrier :Is the carrier who publicly hold himself out to carry goods of any
customers from place to place in accordance with specified routes and often scheduled timing. A
common carrier accepts all customers offered to him except where:

i) No room is left in his transport.

ii)The goods are not of kind which he advertises to carry.

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iii)The goods are improperly packed.

iv)The goods are of dangerous character.

v) Goods are not fit to be carried by the public carrier.

Duties of common carrier

1. To transport goods for any person on his schedules routes provided payment for the hire at
reasonable rates is tendered.

2. To carry goods without unnecessary delay or deviation and deliver in similar manner.

3. To deliver in good condition and responsible for loss or damage except for Act of God, war,
unsuitability of travel due to risk of injury (animals), negligence of the sender

b)Private carrier: Is a carrier who carry goods on selected routes for selective customers. He
deals with each customers according to his specific needs and contract accordingly. Unless
otherwise authorized by the buyer, the seller shall make contract with the carrier on behalf of the
buyer as having regarded to the nature and other circumstances. If the seller to otherwise and the
goods are lost/damaged in transit the buyer may hold the seller responsible.

BREACH OF CONTRACT OF SALE

The contract of sale may be either be breached by the seller or the buyer. The injured party is
entitled to certain remedies.

Remedies of the seller: This happens when there is a breach by the buyer. Remedies of the seller
is divided in two:

i) Real remedies against the goods: Even if the property in the goods has passed to the buyer the
unpaid seller of the goods has by implication of law the following remedies:

a)A lien on the goods or the right to retain them while he is in possession of them.

b)In the case of the insolvency of the buyer, a right of stopping the goods in transit.

c)A right to re-sale where the property has not passed to the buyer.

Definition of unpaid seller: A seller when the whole of the price has not been paid or tendered or
a seller when a bill of exchange or other negotiable instruments has been received as conditional
payment and the condition has not been fulfilled e.g. Dishonour

ii)Personal remedies against the buyer: In addition to the real remedies the seller has personal
actions against the buyer in the following ways:

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a)Action for the price: This is maintainable where the property in the goods has passed to the
buyer and the buyer neglects or refuses to pay for the goods according to the terms of contract.

b)Action for damage: This is maintainable WHERE the buyer neglects or refuses to accept and
pay for the goods.

Remedies of the buyer: This happens when there is a breach by the seller. Remedies of the buyer
is divided in to three:

i) Rejection of the goods: Where the seller breaches a condition the buyer may repudiate the
contract and reject the goods. The buyer is not bound to return the goods rejected but he must
inform the seller of his rejection.

ii) .Action for demages:This can be maintained when,

a)Non-delivery of goods: When the seller neglects or refuses to deliver the goods, the buyer may
maintain an action against seller for damages.

b)Breach of Warranty: In case of breach of warranty the buyer do not reject the goods but he
may maintain actions against the seller for damages.

iii) Right to specific performance: The court upon application by plaintiff may direct that the
contract shall be performed specifically without giving the defendant the option of retaining the
goods on payment of damages.

ORGANIZATION AND MANAGEMENT OF A BUSINESS

MANAGEMENT

Management as a process: A process of employing human and physical resource to the accomplishment
of pre- determined objectives of a firm.

Or

Is a process consisting of activities involved in the planning and controlling of performance to the
attainment of stated objectives using human and other physical resources.

Or

Management is a process by which managers create, direct, maintain and operate organizations through
systematic coordinated and cooperative human efforts.

Management as a group.

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A group of personnel who perform different functions for the accomplishment of certain goals. These
people are known as managers.

A manager: is a person who performs the managerial functions of planning, organizing staffing,
directing, controlling and coordinating.

Management as a discipline: Is both a science and an art.

As a science: The knowledge and principles which managers use in managing is referred to as the field of
management science.

As an art: The performance of managerial functions requires certain skills and tactics which are personal
possession.

MANAGEMENT AS A SCIENCE

Management has a systematic body of knowledge.

• Management has concepts hypothesis, theories, experimentation and principles.

• Management principles are universally accepted among other characteristics of science
discipline example.
• It should have a systematic body of knowledge including concept principles and theories.
• It should establish course and effect of relationship.
• It should have a method of scientific inquiry.
• Its principles should be verifiable.
• It should ensure predict results.
• It should have a universal application.

Management as an art

Art is bringing the desired result through application of knowledge and skills.

Note: Science seeks knowledge and art use knowledge to achieve results.

Art has the following features.

• It needs personal skills

• It signifies practical knowledge
• It help in achieving results
• It is creative in nature

Note: Every manager apply certain knowledge skills and personal creativity while dealing with people to
achieve the desired results.

MANAGEMENT AS PROFESSION

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To be judged as profession must have the following criteria

1. A body of knowledge: knowledge that can be learnt through illustrations for reasonable long
time
2. Competent application: utilization of knowledge in solving complex and important problems.
3. Social responsibilities: Desire to serve others and the community
4. Community sanction: High community respect based upon society’s recognition of the first
three criteria
5. Self control: Established code of conduct enforced by professional membership

OBJECTIVES OF MANAGEMENT

The main objective of any business is to earn profit by providing wants and satisfying goods and services
to customers

In order to attain that aim a firms management should fulfill the following

1. Produce and distribute goods to customers

2. Keep customers satisfied with good services and quality products
3. Build a team of knowledgable competent workers who are well taken care and happy.
4. Achieve workers cooperation for the attainment of organization’s goals
5. Maintain and achieve good relations with suppliers of raw- materials and finance so that
production can continue
6. Build a favorable public image of the firm and its product
7. Use resources economically by avoiding wastage
8. Improve the welfare of people surrounding the firm by maintaining environment and provision
of services

CHARACTERISTICS OF MANAGEMENT:

1. Management is milt-disciplinary

It takes the help of social sciences such as sociology, psychology and economics i.e much of
management literature is the result of the association of those disciplines.

2. Management is a universal activity: The principles and practice of management are universal in
use.

3. Management is activity based. The task of management is based upon a given productive based
activity

4. Management makes things happen: managers focuses their attention and efforts in bringing
about successful results i.e They known where to start, what to do to keep things moving.

5. Management is accomplished by with and through the efforts of others. It is the ability of the
person in getting work accomplished through people at work

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 6. Management is an integrative process. Management is the integration of human and other
resources that lead to effective performance.

7. Management is intangible. Management is unseen force, its presence is evidenced by the

result of its efforts like adequate work output and good spirit of workers

8. Management is an art and a science. Managers use scientific and artistic way in dealing with the
human and physical resources of a company.

LEVELS OF MANAGEMENT

Refers to a line of democracy between various management positions in an organization

The number of levels increase when the size of the business and work force increase.

But there are generally three levels of management

1. Top management

2. Middle level management

3. Lower lever or first line management

NOTE: Management is best studied into three groups:

1. Managerial qualities.

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 2. General principles of management.

3. Elements of management(functions of management).

MANAGERIAL QUALITIES

The following are qualities required by managerial personnel.

1. Physical. Includes health, vigor and appearance

2. Moral: willingness to accept responsibilities, initiative, loyalty and dignity

3. General education

4. Special knowledge: knowledge and skills to functions performed

5. Qualities of experience. Knowledge and skills arising from the work.

Managerial skills

All managers have similar skills in three important areas .

1. Conceptual skills: Ability to solve long term problems. It involves looking at organization
problems from broad conceptual base and making decisions more consistent with organizational
objectives.
2. Human skills: ability to work effectively, ensure interpersonal relations motivate and influence
other to achieve organizational goals.
3. Technical skills: ability to use tools, apply specialized knowledge and manage processes.

PRINCIPLES OF MANAGEMENT

A principle is a fundamental statement of truth providing guide to the thought and action.

The management principles therefore enable the manager to approach problems systematically.

The principles serve as a guide for managerial [Link] principles include:

1. Division of work: To achieve efficiency, work must be divided for workers to specialize.
2. Authority and responsibility must be as par

i) Authority: is the right to give orders to subordinates.

ii) Responsibility: Duty which the subordinate is expected to perform by virtue of his
position in the organization.

iii) Authority and responsibility co exist and they must go hand in hand.

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3. Discipline: This implies obedience, respect of authority and observance of established rules and
regulations
4. Unity of command: an employee should receive orders from one superior and only one superior
at a time.
5. Unity of direction: There should be one head and one plan for a group of activities having the
same objectives
6. Subordination of individual common interest or interest to general of the company i.e Constant
supervision is necessary to prevent promotion of personal. Interest at the cost of the
organization.
7. Remuneration of personnel: method of remuneration payable to personnel should be fair,
reasonable and rewarding of effort.
8. Centralization: centralization of authority to the [Link] and
decentralization is a matter of [Link] proportion should be decided keeping in view the
circumstance of the particular case.

9. Scalar chain: Chain of superiors ranging from the ultimate authority to the lowest [Link] is
unbroken chain or line of command from the top to the bottom of the organization

10. Equity : There should be equity of treatment in dealing with subordinates and no discrimination.
11. Stability and tenure: This help to develop loyalty and attachment on the part of employees.
12. There must be spirit and coordination among members of an organization. Unity is strength and
strength of the company lies in the cooperation and harmony in individual efforts.

MANAGERIAL FUNCTION OR ELEMENTS/FUNCTIONS OF MANAGEMENT

Elements of Management common to all broadly are grouped into the following

i. Planning

ii. Organizing

iii. Staffing

iv. Directing

v. Coordinating

vi. Controlling

Operative functions

i. Production management.

ii. Purchasing management.

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 iii. Marketing management.

iv. Financing management.

v. Personnel management.

[Link]

Is deciding in advance what is to be done. It involves the selection of objectives policies procedures and
programmes from among alternatives.

A Plan: is a per-determined course of action which helps to provide direction for members of a business
organization.

Purpose of planning

1. Establish the goals of the organization.

2. Provide sense of security for managers and workers.
3. Establish a sense of direction future activities of the organization as a whole.
4. Coordinate activities in pursuit of objectives.
5. Enable a firm to respond to anticipated events.
6. Intervene and act positively in situations rather than react to them.
7. Synthesize and utilize data for the future use.
8. Reduce the gap between objectives and performance
9. Handle changes.
10. Review objects and determine priorities.

Requirement/Principles of a good plan

1. The plan should be simple:Simple to be understood and be worked upon by individuals and
groups in an organization.

2. The plan should be specific rather than general: objectives and goals should be clearly stated
and defined and the means of carrying out the plan should be specifically detailed.
3. The plan should be logical and practical: the facts and figure used should appeal and make sense
to those who use it.
4. The plan should be flexible in nature: the plan should accommodate changes if necessary .
5. The plan should be complete and integrated: The plan must be comprehensive enough to cover
all actions expected from the sections and individuals
6. The plan is integrated when the various administrative sub plans are engaged that the whole
organization operate efficiently.

BENEFITS OF PLANNING:-

Sound planning is the foundation of efficient management because it results the following

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Advantages:-

1. Emphasis on objectives:- The whole planning process is based and directed towards achieving
organization objectives.
2. Minimizes uncertainty:- Planning is for future which anticipate future events
3. Facilitates control: Plan lay down objectives and standards of performance which are essential
for performance [Link] is the act of checking performance against the agreed standard.

4. Improves coordination: Planning ensures unity of direction towards organizational

[Link]: is the unifying integrating and harmonizing the activities of different
departments and individuals.

5. Planning secures economy: Since planning leads to good location of resources thus lead to
optimum utilization of resources
6. Encourages Innovation: Planning is basically a deciding function. It therefore helps in innovation
and creative thinking to be put into use because new ideas must be accommodated and applied
to achieve results.
7. Improve competitive strength because planning means looking a head into the futures therefore
an organization give competitive advantage to the enterprise that do not have planning.

LIMITATIONS OF PLANNING

Planning may fall short of it objectives due:-

1. Expensive process: Money and effort should be spent in forecasting collection of information
evaluation of alternatives i.e. Services of experts may be necessary in order to have a good plan.
2. Non –availability of data: There are may be lack of enough historical and current data which
plans may be based.
3. In-ability of planners: If planners fails to use available information for the purpose of planning he
may not be able to produce a good plan.
4. Inaccuracy: Plan is based on certain premises relating to forecasts about the future this may fall
short and hinder prediction of changes in environment performance of objectives.
5. Time consuming:- Planning require much time. Therefore not suitable for sudden/immediate
action.
6. Psychological: Planning often implies changes which the executives may like to ignore hoping
changes may affect their position.
7. External limitation: Changes in business environment may restrict free planning e.g: Changes in
technology, Government policies.

CHARACTERISTICS OF PLANNING

1. Planning is an intellectual activity involved vision and foresightedness to decide the things to be
due in future.
2. Planning is basic to all management function:- All other managerial functions come after a firm
has plans.
3. Planning is related to objectives: An efficient plan details out the methods to achieve the
objectives with minimum cost and consequences.

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 4. Planning is a continuous [Link] process of production and distribution of plans is
continuously implemented and prepared. Plans have to be reviewed or modified to suit the
business environment.

5. Plan is selective in nature:- Planning involves decision making or choosing of the best
alternatives out of the many available alternatives.

STEPS IN PLANNING

A systematic approach to plan involves the following steps:-

1. Definition and description of objectives or problems: Need for planning arises for solving
problems or exploiting an opportunity that may arise in the future. I.e the problem to be solved
or opportunity to be utilized should be clearly defined with the help of policies, programmes,
procedures, rules, budgets and strategies.
2. Determination of planning [Link] premisses are the assumption about the future
they provide boundaries in which plans will be implemented.

i. Tangible and intangible premises: Assumptions which can be expressed in

quantitative terms e.g: capital investment, time available (tangible) and qualitative
in nature e.g:- Employees morale, goodwill of the business (Intangible premises)

[Link] and External premises. Assumptions about internal working condition of the
business like capital and machine (internal premises) and assumptions
factors outside the business like in technology, population growth, government
policy (external premises).

[Link] and Uncontrollable [Link] premises are policies and

programmes of the organization which can be fully regulated by the
management.e.g: Price policy.

· Uncontrollable premises are the external factors like political changes which are
beyond the control of the management.
[Link] and developing alternative: Collect and analyze all relevant information
so as to identify all possible alternatives.
v. Choose among the alternatives after detailed cost and benefit analysis.
[Link] of a plans.
[Link], make changes in plans.

[Link]

Is the managerial function that involves the determination of manpower requirements of the business
and providing it with the adequate competent people at all levels.

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Personnel Management: Is the planning, Organizing, Compensation, integration and maintenance of
people for the purpose of contributing to organizational, personal and societal goals.

A personnel Manager therefore performs the staffing functions of manpower planning, recruitment
selection, training, performance appraisal and compensation.

NATURE/SCOPE OR STAFFING

Staffing is a function which is done by Managers at all levels in the business organization. The scope of
staffing is as follows

i) Manpower planning. Determining the number and kind of personal required in various position
in he organization.

ii) Recruitment, selection and placement of personnel.

iii) Training and development of employees.

iv) Appraisal of performance of employees and taking corrective measures (steps) e.g: transfer
from one job to another.

v) Remuneration of employees.

vi) Motivation of workforce by providing financial incentives and promotion.

IMPORTANCE OF STAFFING

The importance of staffing has increased because of the following factors:

I. Advanced technology: Right type of workers for technology have to be identified and employed.
II. Increasing size of [Link] firms require the employment of thousands of workers.

III. Long –range needs for [Link] of manpower requirements in advance,

develop existing personnel.

IV. Staffing spend money so management must ensure staffing which will not lead to high cost
unnecessarily, i.e ensure staffing function is done in an efficient manner
V. Motivation: Workers are to be motivated properly through financial and non-financial
incentives.

3. MANPOWER PLANNING : Is the process of determining and assuring that the organization have
adequate number of qualified personnel.

SIGNIFICANCE OF MANPOWER PLANNING

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Manpower planning is essential activity due to the following:

1. Shortage of manpower will be revealed and corrective steps can be taken in time.
2. Manpower forecasting provides a base for recruitment, transfer and training of employees.
3. It reduces cost by avoiding over staffing.
4. It helps to identify talents available in the organization such that training for promotion can be
given to the talented employees.
5. It helps in the growth and diversification of business i.e. Suitable manpower is made available to
handle new jobs.

STEPS IN MANPOWER PLANING:

1. Current manpower inventory: Analysis of current manpower supply should be

undertaken by departments or by occupation.

2. Manpower forecasting. Management has to forecast manpower requirement. The

following factors have to be considered.

a) Expansion plans of business.

b) Nature of technology to be adopted.

c) Retirement schedule of employees.

d) Expected separation of employees.

[Link] [Link]-term employment program must be set out to deal

with forecast difficult of [Link] includes the steps like recruitment,
selection, placement, performance appraisal, transfer and promotion.

[Link] and development [Link] training needs in the organization because

employees need appropriate training so that they may learn the required
skills.

4. RECRUITMENT: Is the process of searching for prospective employees and stimulating

them to apply for jobs in the organization.

The process of recruitment involve

i. Identification of different sources of supply of labor.

ii. Assessing their validity

iii. Choosing the most suitable sources

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 iv. Inviting applications from the prospective candidates.

SOURCES OF RECRUITMENT: we have internal and external sources of recruitment.

External sources of recruitment: The commonly used external sources of recruitment are.

a) Direct employment or recruitment at factory [Link] is done by placing a notice on

the notice board of the organization specifying the details of the jobs available.

Advantages of external source of recruitment:

I. It involves no advertising costs.

II. It is the cheapest methods to fill up casual vacancies.

III. It helps to fill the vacancies or even get help if there is an emergency or rush
work.

b) Unsolicited application: Applications received not in response to any advertisement

but from individual who are looking for jobs. Firms can make use of these
applications to get workers.

c) Advertisements: These are placed in newspapers or trade and professional journals

are used when qualified or experienced personnel are required by firms.

Advantages

I. More information about the firm is given, job description and job specification also
made available.

II. It allows self screening by the prospective candidates.

III. Give a wider range of candidates to choose from.

Disadvantages

I. It is very costly due to advertising cost.

II. It gives in flood of responses end many times from unsuitable candidates.

d) Employment agencies or [Link] agencies bring the job givers in contact with job
seekers. They provide a national wide services attempting to match personnel demand and
supply.

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 5. SELECTION: This involves giving of various test to the candidates/intending employees and
interviewing them in order to select the suitable candidates.

Steps in staff selection/procedures:

1. Preliminary interview.

2. Application blank.

3. Employment tests.

4. Employment interview.

5. Physical examination.

6. Checking with references.

7. Final selection.

8. Induction or orientation.

[Link] INTERVIEW:- It consists of exchanging of information with respect to the

organization interest in hiring and the candidate [Link] is performed in order
to screen and identify those who are suitable or to reduce the
number of those who should move to the next step.

[Link] blank: These are forms used to obtain information in the applicant's own
handwriting sufficiently to identify him and make decision regarding suitability for
employment.

[Link] test: They are given to all candidates in order to know the level of each one’s
ability and knowledge his interest and aptitudes. This will require the the use of
intelligence test, aptitude personality test.

[Link] employment interview –Much information which could not be obtained from
application blank and employment tests are easily revealed here.

MAIN PURPOSE OF EMPLOYMENT INTERVIEW

I. To find suitability of the candidates (testing the qualities and capabilities of candidates)
II. To seek more information about the candidates.
III. To give the candidate the accurate picture of the job with details of the terms and conditions
and some ideas of organization policies

Limitations of employment interview

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 1. Interview is an expensive device
2. Interview can test only personality the candidate and not his skills and ability for the job.
3. Interviewers may be not experts and may be not able to extract maximum information from the
candidates
4. The device depends too much on personal judgement of the interviewers which may not always
be accurate
5. Prejudice may affect results of the interview.

[Link] references: Prior to final selection, the employer normally makes an investigation on
the references supplied by the applicants and undertakes more thorough
search on the candidate past employment, education, personal reputation, police records etc.

[Link]/medical/[Link]-employment physical examination or medical test of the

candidate is an important step in the selection [Link]/Medical examination has the
following objectives.

I. It helps to ascertain the applicants physical capabilities to meet the job requirements.

II. It help to protect the organization against the unwanted claims under workers
compensation law or against law suits for damages.

III. It help to prevent communicable diseases from entering the organization.

NOTE: A proper medical examination will ensure higher standard of health and physical fitness of the
employees and will reduce the rates of accident and absenteeism.

[Link] SELECTION

A Candidate who has cleared all steps, he is finally appointed by issuing an appointment [Link] letter
will give the date by which the candidate has to join the organization term and conditions of
employment, nature of job and pay scale.

[Link] OR ORIENTATION: This is concerned with introducing a new employee to the

organization its procedures, rules and regulations and the people with whom he will interact in doing his
job like supervisors and fellow [Link] also given orientation training before he is asked to occupy
a particular position e.g: Being introduced an organization software programme.

[Link]: This is an organized activity of increasing the knowledge and skills of people for a definite
[Link] makes newly recruited employees fully productive in the minimum of time.

NOTE Old workers may also attend refresher courses to update their knowledge and skills.

Advantages of training to an organization

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 1. Less learning period: Systematic training programmes helps to reduce the learning time to reach
the acceptable level of performance i.e Employees need not to learn by trial and error or by
observing others and waste time.
2. Better performance: Training increase knowledge and skills of employees leads to better
performance.
3. Uniformity of procedure: With the help of training methods and standards can be made
available to all employees.
4. Economy of materials and equipments: Trained personnel will make better use and economical
use of materials and equipments.
5. Fill manpower needs. Training can be used to obtain manpower to fill the vacancies.
6. Less supervision: Training reduces the need of detailed and constant supervision.
7. Good human relations: With the help of training dissatisfaction complaints, absenteeism can be
reduced among employees.

Advantages of training to an employee

I. New skills: Employees acquires new skills, knowledge with will help them to improve their
career.
II. High productivity: Efficiency of the workers increases as a result of training.
III. Less accidents: Trained workers can handle equipments carefully and able to use various safety
devices.
IV. Opportunity for promotion: After training workers can apply for higher job positions.
V. Increased mobility: Trained employees can shift from one organization to another is order to
advance there career or greener pastors.
VI. High morale: Trained employees know well their jobs and have greater job satisfaction this
increases their morale.

TYPES OF TRAINING PROGRAMMES

1. Induction or orientation training:Training concerned withe the problem of introducing or

orienting a new employee to the organization and its procedures rules and regulation.

Objectives of Induction training

a) To build up new employees confidence in the organization and in himself so that he may
become an efficient employee.

b) To give a new employee the information he needs like location of rooms cafeteria and other
facilities.

c) To promote a feeling of belonging and loyalty to the organization among new comers.

d) To ensure that new employee not form false impression regarding the new place of work
because first impression is the last impression.

2. Refresher training or retraining:The basic purpose of refresher training is for existing workforce
acquire the latest methods of performing their jobs and improve their efficiency.

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 Importance of refresher training

a) New technology is associated with new work methods and job requirements i.e Existing
workers need to learn new methods to use new technology in doing their jobs.

b) Workers require training to bring them up to date with the knowledge and skills and to learn
what they have forgotten.

c) New jobs which are created due to change in demand are to be learnt by existing employees.

3. Apprenticeship training:This involves imparting knowledge and skills in doing a craft or series of
related jobs.

· This training combines on job training and class-room instructions in particular

subjects.

· The trainee is placed under supervision of experienced person who teaches him the
necessary skills and observes his performance

4. Internship training:This is where vocational Institutes enter into arrangement with the business
organization for providing practical knowledge to its students by gaining actual work
[Link] training is usually meant for vocations where advance theoretically
knowledge is to be backed up by practical experience on the job.E.g: Medical students are sent
to big hospitals to get practical knowledge OR Engineers students are sent to big Industries.

METHODS OF TRAINING

1. On job training: Under this method, the worker is given training at work place by his supervisor.

· This method is practical oriental.

· It facilitate learning by doing.

· It permit the trainee to learn at the actual equipments and in the environment of the
job.

2. Vestibule training: This method is used when a large number of workers need to be trained and
where mistakes are likely to occur which will disturb production schedules.

· This training method is used when it is not possible to do on job training.

· Training job is entrusted to the qualified instructors.

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 · A vestibule school is an attempt to create environment as nearly as possible to the
actual work condition of the work place.

3. Special courses:These are conducted by the line managers of thee organization or specialists
from the vocational educational institutes.

· Many firms follow the practice of sending selected employees to training and
development programmes run by various educational institutions.

REMUNERATION OF WORKERS

A firm must offer good wages attracting competent employees in the organization.

· Workers must be adequately remunerated to support their families and raise their
standard of living.

· Compensation to workers will vary depending upon the nature of the job skills required
risk involved, working conditions etc.

WAGE AND SALARY

WAGE: The term used to denote remuneration to workers doing manual or physical work. Wages are
given to compensate unskilled workers for their services provided to the [Link] may be
based on hourly daily, weekly or even monthly basis.

SALARY: This refers to monthly compensation to office employed foremen, Managers, Professionals and
technical staff.

FACTORS AFFECTING WAGES

Wages paid to worker depend upon the following factors:

1. Demand for and supply of labor.

2. Ability of employers to pay.
3. Cost of living.
4. Productivity i.e the higher the productivity the higher payment.
5. Collective bargaining (trade unions).
6. Prevailing wage rates or wages paid for similar occupations in the industry.
7. The economy as a whole.
8. State [Link] on minimum wage, hours of work. These laws are enacted to bring about
a measure of fairness.

METHODS SYSTEMS OF WAGE PAYMENT

a) Those based on the time worked.i.e Time rate wage system.

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 b) Those based on quantity produced. i.e Piece rate wage system.

c) Those which combine the features of both time and piece wages.

d) Bonus wage system.

TIME WAGE METHOD

A worker is paid for the time spent on the job. I.e the worker is paid after the time fixed for work is
completed irrespective of output or completion of the [Link] can be determined by the following
formula.
wages = no of hours worked x Rate per hour

Advantages of time wages system

1. It is simple to calculate the amount earned and to measure the time spent on the job.
2. A worker knows in advance what will be his total pay at the end of the period.
3. Equality of wages: All workers doing the same job get the same rate, therefore sense of equality
prevails.
4. Better quality: The quality of work output is more important than quantity.
5. Less wastage:- Workers need not speed up their operations to earn higher wages, therefore
there will be less wastage of materials.
6. This method ensure stable income to all the employees.

Disadvantages

1. Inefficiency: No link between wages and productivity.

2. Lack of motivation: It makes no difference between an efficient worker and lazy one since both
are treated the same.
3. Increased supervision: Leads to lower productivity unless strictly supervision is provided.

PIECE WAGE SYSTEM

Under this system, the output of work is the basis of payment. The rate of wages is determined per unit
of output and is fixed in advance.

· An efficient worker will earn higher wages as compared to an inefficient worker.

· Wages can be determined by the following formulae

Wages = No of units produced × rate per unit

Advantages of piece wage system

1. Incentive for higher production i.e encourages workers to produce more.

2. Fairness: The system ensures fairness by correlating wages and productivity.
3. Costing: Cost of production become easier as wages are a constant factor of the units of output.

216
 4. Lesser supervision.
5. Personnel decision: Under this system decision can be made quickly about lazy workers e.g:
transfer of workers.
6. Economy: Total cost of output comes down with larger output.

Disadvantages (Drawbacks) Of piece wage system

1. Low quality: Due to high emphasis on the quality of production may lower the quality of
products.

2. Insecurity to workers: Workers feel insecure due to the fact that they would get lower
wages during the period when their efficiency is low.

3. Problem in industrial relations: The relationship between employees and management if

lower output is caused by management negligence.

4. More administrative work: Daily records of production for each worker.

7. MOTIVATION. Is the process of stimulating people to take the desired course of action.

• It is the act of inspiring subordinates to work hard, so that to achieve the goals of the
organization
• Needs wants are used to motivate workers.

Features of Motivation

1. Psychological concept: It is an internal feeling.

2. A person can not be motivated in part. I.e motivation is total and not peace-meal.
3. Motivation is a continuous process because human needs are ever –growing and never fully
satisfied.
4. Motivation directly influence the behavior and performance of a person.
5. Motivation is a task of every manager because every manager has to inspire his subordinate to
complete their jobs efficiently.
6. Motivation may be positive or negative.

(a)Positive motivation:- This involves inspiring people to work better and appreciating
work that is well done by offering rewards.

(b)Negative motivation:- This involves forcing people to work by holding out threats or
punishment.

NEEDS
These are requirements which are necessary for human existence. e.g [Link]
only unsatisfied needs motivate a person i.e In order to motivate a person it is
necessary to understand and satisfy their needs

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CLASSIFICATION OF HUMAN NEEDS

Abraham Maslow classified human needs into five categories

1. Physiological needs/survival needs: These are basic needs which should be satisfied before all
other needs e.g: Food, air.
2. Safety or security needs: These include physical safety against danger, economic security against
old age, sickness e.g shelter, clothing, health, Insurance, pension security.
3. Social needs: A man is social in nature. He needs love, affection, sense of belonging, association,
[Link] an Individual creates family, relatives and friends.

4. Ego or Esteem needs: Self esteem means self confidence, self respects, Esteem of others means
power prestige, Independence, achievement, and recognition.
5. Self-actualization needs: Desire to be come what one can become. It involves self fulfillment and
maximum possible degree of [Link] needs are Psychological and infinite i.e. An
individual is never satisfied interns of achievement because there is no limit to progress.

INCENTIVES

An incentive is inducement which stimulates a person to act in a desired direction.

• An Incentive has a motivational power because it helps to satisfy a needs

• Incentives are classified into monetary and non-monetary Incentives.

MONETARY [Link] are financial incentives

• They involve payment of reward in terms of money e.g: Cash awards.

• Money is a means of satisfying physiological, safety and social needs.
• Money is considered as a symbol of power, prestige and status.

NOTE: Employees do not work only for money, they need recognition, freedom, status, job satisfaction
etc.

NON-MONETARY INCENTIVES

These are non – financial because they do not involve the flow of money and do not add to the income
of the recipient

• They include challenging job, competitions, appreciation of work done, social recognition,
opportunity for growth, participation in decision making.
• These incentives are more helpful in satisfying higher level than physiological needs and safety
needs.

Different between monetary incentive and non –monetary incentives

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 1. Monetary incentives payment of money whereas non-monetary incentives do not involve use of
money.
2. Monetary incentives are tangible i.e Visible and measurable while non –monetary incentive are
invisible and non-measurable.
3. Monetary incentives are used to satisfy lower level needs e.g: food, clothing, shelter while non
monetary incentives are used to satisfy higher level needs like ago and self actualization.
4. Monetary incentives are used to motivate workers while monetary incentives are used to
motivate managerial personnel and can be used to supplement and support the monetary
incentives.

[Link]

Is an orderly arrangement of group efforts to provide unity of action in the pursuit of a common goal.

• It involves unifying, integrating harmonizing the activities of different departments and

individuals for the achievement of common goals or objectives.

ESSENTIALS OF EFFECTIVE COORDINATION

To achieve effective coordination, the following things must be observed

1. Clearly defined goals. Every individual must understand the overall objectives and contribution
of his job to the efficiency of the business.
2. Comprehensive policies and [Link] should be proper policies, programmes and
procedures to create uniformity of actions.

3. Clear line of authority: clear authority relationships facilitates mutual cooperation which is
essential for effective coordination.
4. Effective communication: Formal and Informal communication between members should be
encouraged.

PRINCIPLES OF COORDINATION

1. Coordination must not be directed in autocratic manner but rather encouraged in

democratic manner.

2. It should operate vertically as well as horizontally and effected at the most appropriate
time.

3. It should be effected by direct contact between persons as immediately.

4. It must commence at the earliest stage of planning and policy making.

5. It must b continuous process.

TOOLS FOR ACHIEVING COORDINATION

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 A. Committees: These the coordination because they.

I. Pool resources to solve problem.

II. Coordinating conflicting functions.

III. Ensures prior consultation hence lead to greater acceptance of decisions.

IV. Enable executives to be trained.

B. Staff meetings: These are helpful because they:

I. Give the sense of unity to the workers of the organization.

II. Provide opportunity to subordinates to question superiors and provide forum for
discussion.

III. Inform staff of any new development and problems.

C. Conferences:- These are methods of making group discussion. They are free discussion and help
company [Link] are usually organized for managers and supervisor.

D. Programmes: These are Instruments of coordination which help enables work to be performed
in a systematic [Link] also give an opportunity to compare results with standard and action
taken where [Link] communicate decisions and hence allow delegation.

[Link]

Is the measuring and correcting of activities of subordinates ensure that events conform to [Link] is
the process of checking actual performance against the agreed standards or plans with a view to ensure
adequate progress or satisfactory performance.

OBJECTIVES OF CONTROLLING

An effective system of control helps to achieve the following

1. Determining the progress of work.

2. Detecting deviations from the planned standards.
3. Investigating the causes of deviations.
4. Taking the corrective measures to check deviations.
5. Avoid loss due to faulty production.

FEATURES/CHARACTERISTICS OF CONTROL

1. It is performed by all managers of the organization

220
 2. Dynamic process: Review of performance ensuring results and taking corrective measures to
bring life to the organization.
3. Continuous process.
4. Formal looking: It is preventive and relatives to future providing checks to individuals and the
organization.
5. Action oriented: A good system of control facilitates timely action so that there is minimum
waste of timee and energy.

BENEFITS OF CONTROL

An effective control field the following advantages:-

a) Control provides the basis for future action.

b) An effective control system facilitates decentralization of authority.

c) Control and planning go [Link] – relationship between planning and control .

d) Control facilitates decisions taking.

e) The existence of control system has a positive impact on behavior of the employees.

f) Control helps in coordination of the activities of the various departments of the enterprise.

LIMITATIONS OF CONTROL

1. Business organizations can not control the external factors such as government policies and
technological changes.
2. Control is an expensive process because sufficient attention has to be paid to observe the
performance of the subordinates this require time and expenditure
3. Control loses us effectiveness when standards of performance can not be defined in
quantitative terms e.g: It is difficult to measure employee morale.
4. The effective of control depend on its acceptance by the subordinates, if subordinates resist if
they feel that it will reduce their freedom.

Features of a good control system

A good control system has the following features

1. Emphasis on [Link] of performance should base on the [Link] objectives

are not clear good results will not be achieved

2. Suitability: Control should be tailored to suit the need of the organization.

3. Simplicity: Simple to understand employees must know what is expected (their performance).
4. Flexibility: It should be able accommodate changes according to the circumstances i.e Control
procedures must be changed it can’t achieve its basic purpose.

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 5. Forward looking: Control system should be directed forward the future.

Qualities of a good standard of control

1. Simple and easy to understand.

2. Should be cable of being achieved with reasonable amount of effort and time.
3. Should be flexible not rigid they should be capable of being modified whenever necessary.
4. Should be consistent with the overall objectives of the organization.
5. Should be set scientifically i.e after a time studies.
6. If possible standards. Should be expressed in quantitative terms.
7. Should be set after consultation with people who are going to attain them.

TOOLS OF CONTROL

The common used tools are

1. Written report: Each manager prepares report on the performance of his subordinates and
submit the report to the general manager.
2. Budgets: Budgets pre-determine the extent of expenditure which can’t be exceeded i.e budget
control expenditure.
3. Key ratios: Pre-determined ratio of performance that must be achieved by organization. The
common ratio are the return on investment (ROI), ratios between current assets and current
liabilities, debt-equity ratio, etc

4. Accounting techniques: Financial and cost accounting techniques are useful in controlling the
use of finances of the organization.
5. Internal audit: offer independent control on the use of financial resources and human resources.
Periodic checks on the accounting procedures is the work of internal audit.

6. Break –even analysis: This useful in determining the volume of sales at which total costs are fully
covered and beyond which profit will be [Link] help the firm in guiding sales and
controlling costs.

CONTROL PROCESS :-

Control process consists of the following steps

1. Establishment of standards.A standard: Is the criterion against which actual performance can be
compared.

I. Physical standards i.e those expressed in physical terms eg no of units hours.

II. Monetary standards : Those expressed in monetary terms eg sales revenue, expenses

2. Measurement of performance: Actual performance is measured for individuals, groups and then
comparing with standards already set.

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 3. Investigate deviations: Comparing performance will reveal deviations from standards, then
investigate the causes of deviation.
4. Taking corrective actions: Taking appropriate actions so that deviations may not occur again and
objectives of organization can be achieved.

DIRECTING AND SUPERVISION

Is the management process which activates the members of the organization to work
efficiently and effectively for the attainment of the desired goals.
It is concerned with influencing, guiding, supervising and inspiring the subordinates to
accomplish pre – determined objectives

FEATURES OF DIRECTION

1. Management functions: It is through direction that management initiates actions in the

organization.
2. Continuing function: A manager must continuously guide inspire and supervise subordinates to
get things done.
3. Result oriented function: direction converts plans into performance and breath life into the
organization.
4. Pervasive function: Direction is the responsibility of each and every manager and it is performed
at all levels of management.
5. Linking function: It translates plans into performance and thereby provides the material for
control.
6. Human factor: Direction is concerned with human behavior. It is interpersonal aspect of
management.

Importance of direction

Effective direction provides the following advantages:

1. Initiate action: Planning, Organizing and staffing are merely preparation for doing work.

• It is directing which starts actual work to convert plans into results

2. Improve efficiency: A manager persuades his subordinates to work to the best of his ability
through direction.
3. Ensures coordination: Managers use various techniques of direction to integrate the efforts of
different individuals in the organization.
4. Facilitates changes: A manager can persuade her subordinates to accept and carry out changes
from time to time.
5. Helps stability and growth: Efficient direction helps an enterprise to survive and grow.

ELEMENTS OF DIRECTION

Direction consists of the following elements:

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 I. Issuing orders and instructions to tell them what to do and how to do it.
II. Supervising the subordinates to ensure that they are doing their jobs properly.
III. Motivating the subordinates in order to persuade them to work hard to the accomplishment of
organizational objectives.
IV. Providing leadership (guide) and advise subordinates.
V. Communicating with people to remain in constant touch with them.

NOTE Orders, supervision, motivation, leadership and communicating are elements of direction.

A. Issuing orders and instructions an order: is a command by a superior requiring a subordinate to

do something. Its purpose is to initiate or modify action.

• Order can be oral or written depending on the situation.

Features of a good order

a) Order should be simple and easily understandable by the subordinates.

b) The order should be consistent with the objectives and policies of the organization.

c) The orders should be reasonable and attainable.

d) Orders should be in a language and tone that is not offensive to the subordinates.

e) The orders should specify the time limit within which it should be implemented.

f) The orders should preferably be in writing.

Supervision

Is defined as seeing the subordinates at work from above to ensure that they are working according to
plans and policies of the organization.

• Supervision involves instructing guiding and assisting people towards better performance.
• A supervisor is also known as foreman, Gang-man charge-man, Overseer, Section officer or
super intendent.

Qualities of a good supervisor

A supervisor to be effective in his job he should posses the following attributes

1. Technical competence: Have a complete knowledge of the job supervised by him.

2. Managerial qualities
3. Leadership skills:- to be able to guide subordinates and promote harmony relations among
them.

224
 4. Skill in instructing: a good supervisor should be able to communicate clearly with subordinates.
End issue them orders without difficulty.
5. Human orientation: should treat his subordinates as human being and deal with them
accordingly to achieve good relation.
6. Decision making skills: should be competent to take managerial decisions.

-He should be mentally alert and have a thorough knowledge of the working and
surrounding environment.

FUNCTIONS OF A SUPERVISOR

1. Planning the work: Determines the work schedule to ensure steady flow of work.

· He assigns work to different workers according to their ability

· He makes arrangement for raw materials, machines, tools and equipment

2. Issuing orders: He tells the worker what to do and how to do.

3. Providing leadership: Providing necessary [Link] explains orders and instructions and
advises workers to do work assigned to them.

4. Motivating workers: Inspiring the workers for higher productivity and better quality
5. Enforcing discipline: Enforcing rules and regulations of the organization to maintain discipline
among workers.
6. Handling grievances: Listen to grievances and complaints to workers and takes all possible steps
to remove them.
7. Controlling output: Keeps check on the quantity and quality of [Link] takes necessary
actions to ensure that production takes place according to pre-determined standards.

8. Ensuring safety: Ensures that workers use safety [Link] carriers out regular inspection to
ensure that all machines and equipments are in proper condition.

9. Maintaining conditions of work:- Ensures that working conditions are [Link] suggests
improvements in lighting, ventilation, cleanliness to tom management.

10. Preserving records: Supervisor keeps records of output, attendance of each worker. He supplies
necessary information on output, costs to the top management.

Leadership

Is the ability to persuade/guide others to meet objectives.

A leader: is the one who guide and directs other people.A leader gives efforts of his
followers a direction and purpose by influencing their behavior

Qualities of a good leader

225
 a) Intelligence: Mental ability to think scientifically and analyze accurately the problems.

b) Physical features: Physical characteristics and level of maturity.

c) Emotional feature: He should posses a high level of emotional stability and cool
[Link] needs a high degree of tolerance and social maturity.

d) Vision and foresight: able to visualist event in [Link] should have a high degree
of imagination and determination.

e) Inner motivation: A leader must have a strong motivation to accomplish [Link]

initiate suitable action in proper time.

f) Acceptance of responsibility: He must be prepared to shoulder [Link]

responsible for any steps he takes.

g) Open mind(flexibility): A leader should be ready to absorb and adopt new ideas as may
be demanded by the situation.

h) Self confidence: he has confidence in himself whenever he initiates any course of

action.

i) Human relations attitude: A leader has to develop social understanding with other
people.

Functions of leadership

A leader performs the following functions

1. Determination of goals: He act as a guide to the goals and policies.

2. Organization: A good leader helps in structuring the organization on scientific lines with the view
of making its various components operate efficiently.
3. Coordination:- A leader reconciles the goals of the individuals with the the organizational goals
and creates a community of interest.
4. Representation: A leader is a representative of his group.
5. Providing guidance: He is available for advice whenever subordinate faces any problem.
6. Motivation.

LEADERSHIP STYLES

There are 3 important leadership styles.

1. AUTOCRATIC (AUTHORITARIAN) LEADER

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 Autocratic leader gives orders which he insists must be [Link] determines policies
for the group without consulting [Link] simply tells the group what steps they should
take criticism on his own initiative and he insist to be listen by the group for most of
the time.

2. DEMOCRATIC (PARTICIPATIVE) LEADER

Is a leader who gives orders after consulting the group.

· He sees to it that policies are worked out in group discussion and with the acceptance
of the group.

· Participative leadership increases the acceptance of management, ideas and reduces

resistance to changes.

· It increases the workers morale.

· It lead to reduction in number of grievances of the workers.

3. LAISSEZ FAIRE OR FREE REIN LEADER

A free rein leader leaves the group entirely to itself.

• He avoids using power, he largely depends upon the group to establish its own goals and work
out its own problem.
• Group members work themselves and provide their own motivation.
• The leader exists as a contact man with the outsider to bring for his group the information and
resources it need to accomplish its job.

OTHER LEADERSHIP STYLES

I. Task centered leader: A leader here is primarily concerned with performance of assigned task
using standards and methods.

· He believes in getting results by using better methods, keeping people constantly busy,
using rewards and [Link] is authoritarian in nature.

II. Employee centered leader: Is a leader who helps his subordinates in solving their problems.

· He gives them greater degree of freedom and allow them to participate in the decision
making process.

· He is democratic in nature .

NOTE: Task centered and employee centered are not two opposite ends, generally, managers have both
in different degrees depending on the task to be performed.

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 THE BUSINESS OFFICE
Definition of an office

An office is a place, a room or a building where clerical activities of the business are carried out
so as to provide control, direction and management of an enterprise.

IMPORTANCE OF THE BUSINESS OFFICE FOR MODERN COMMERCE

1. Office is the concrete proof of the instance of a commercial [Link] office and its
branches are identified with the business they transact. In case of banking and insurance
enterprises, office is the only visible embodiment of the business which is carried on”.

[Link] is a place where plans for the business are prepared and policies are formed.A trading
concern has to plan ahead its purchases, sales
campaigns, financial resources, etc keeping in mind the trends and tendencies in the
markets. Specialized personnel are appointed to work out
the plans they prepare appropriate plans for the guidance of executive authorities in the
office. On the basis of plans,the policies are framed by
the administrative heads of the office. These activities of the office are fundamental to the
prosperity of the business.

[Link] is through office that the administrative policies of the business are executed. Different
departments are se up to put into effect the policies
decided earlier office is constituted by the operative group of executive personnel whose
function is to implement the business plans and
policies laid down by the higher administrative authorities. Progress and prosperity of a
business enterprise is preconditioned by effective
managerial control. This managerial control is exercised through office organization.

[Link] which is a constructive force in modern business is one of the main

functions of business [Link] letters are handled
through the medium of office. Incoming letters are forwarded to the concerned
departments for prompt and suitable replies. Business office act
like the clearing house of correspondence.

[Link] office is storehouse of [Link] letters are filed for future reference.
Similarly copies of outgoing letters are for the purpose of
records. Trading returns, financial materials are also filed for ready reference. Business
office thus preserves records intact and makes them

228
 available as and when required. Thus a modern office is the fountain- head of planning,
control , co-ordination,communication and records.

BASIC FUNCTIONS OF AN OFFICE

The following are the basic functions of an office

1. It receives information from internal and external sources.

The office informations are obtained by ways of letters, telephone orders invoices and
reports of various activities of the firm from various sources.

[Link] information.

The office keeps information in relevant records eg files, registers books and references
required by law. Required information is essential for
management to make decisions when required.

[Link] and arranging information.

Preparing such information as invoices, statistical statements, balance sheet, reports and
visual and aids like graphs, pie chart [Link] is
arranged in such a way it is useful to the management.

[Link] records.

The office through different departments should keep and protecting its records for benefit
of the firm or an organization. Information is secured
for confidential purposes eg from competitors.

[Link].

The information received or prepared in the office is communicated to the relevant parties
concerned verbally or in writing to such matters as
orders for materials to suppliers, estimates to customers and instructions to departments
issued on behalf of the management.

ADMINISTRATIVE FUNCTIONS

(i) Management functions

Like planning, Organizing, staffing, directing, communicating etc.

(ii) Personal functions

The office assists personnel department in personnel related matters.

229
 (iii) Safeguarding the assets. To take care the assets of the business.

(iv) Public relations

To keep good relations with the general public.

(v) Planning schemes and policies

The office assists in planning schemes and policies through collecting and processing
information.

FACTORS CONTRIBUTING TO THE GROWTH OF OFFICE WORK

Due to the expansion of economic activities the work has been increased manifold. The
following factors have contributed to the growth of office work

(i) The management needs proper and timely information on all aspects of business
operations in order to arrive at intelligent decision- making.

(ii) When the business grows office work also grows proportionately.

(iii) The work concerned either the preparation of returns to government, financial
statements, dealing with employees, etc increase office work.

(iv) With increase of service activities such as accounting, banking, advertising,

marketing, insurance damages, etc. the proper work has increased tremendously ( very great).

(v) The importance of office in relation to customers is of great [Link] act as

the channel that links the business organization with its customers.

ACTIVITIES OF MODERN OFFICE

Office work differs from enterprises to enterprise. However, there are certain activities, which
are performed by all offices. Some of these activities are listed below:-

1. Handling incoming and outgoing mail.

2. Developing office systems, procedures and methods.
3. Maintenance of records ( filling and indexing).
4. Designing and procuring at office forms stationery etc.
5. Recruiting and training of office staff.
6. Maintenance of furniture, machines, appliances.
7. Preparation of statements, reports etc.
8. Maintaining of accounts and other financial records.
9. Preparing up to date information for the whole firm.
10. Handling telephone calls and inquires.
11. Arranging the data in a quickly accessible form for use.
12. Safeguarding the assets.

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 13. Keeping a prompt and accurate handling of inquiries, orders.
14. Maintaining efficient flow of work in the office.

RELATION OF OFFICE WITH OTHER DEPARTMENTS

Large organizations are divided into various departments such as office, production, purchase,
sales, finance, personnel etc. It is the office which is concerned with receiving, recording,
arranging, analyzing and giving of information. All the departments depend upon the office for
various information needs. The office serves as the co-coordinating link in any organization. For
coordinating the activities of different departments in an organization, office has to keep
relations with each and every department E.g. orders for raw materials, sales complaints,
appointments e.t.c are passed through office only office needs information of many kinds from
different functional departments for framing general policies office supplies information needed
in performing the functions of production, sales, personnel etc and collects information from
these departments for general policy framing and co-ordination.

A diagram showing relationship of office with other departments of an organization

The two way relationship of office with other departments is related as follows

Office and production Department.

Office work provides the necessary information for planning and control of production [Link]
renders clerical services like typing, duplicating.

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An office maintains records of inventory work in progress, cost of production.

Office and marketing/sales department.

An office maintains contacts with the customers.

It supplies information about the current fashion and competition to the marketing department .
customers make enquiries and place orders through the office.

It provide clerical work like typing duplicating and maintaining sales records on behalf of the
marketing department.

Orders are executed by the sales department and the bills is sent through office.

Complaints from the customers are received by the office and conveys them to sales department.

When sales go down, the office helps in market research to find out the reasons for low sales.
The reasons are known to departmental heads, who take step to overcome the situations.

Office and purchase Department.

Materials, stores, plant, machineries etc needed for purchase department is arranged by the
office. Office assists the purchase department in inviting quotations or tenders in sending orders,
receiving invoices, making payments.

It also gives general services to purchase department and [Link] Journals, ledger

Office and Accounts/finance Department.

The accounts department maintains all the records of all business transactions with the help of an
office.

The office prepares various financial statements and reports for the top management.

Correspondence on behalf of accounts department is conducted by the office.

It renders assistance to maintain the books of accounts, budgets, salaries and books of accounts,
budgets, salaries and wage bills, invoices, collection of debt.

Office and personnel management

The personnel department depends highly upon the office for performing its work.

The office gives advertisement for job vacancies, receives applications, sends interview and
appointment letters etc on behalf of the personnel department.

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It maintains the personnel files of employees.

IMPORTANCE OF AN OFFICE

No business concern can exist without an office. An office can be described as the never centre
of the whole concern. The importance of the office is as follows

(i) Office renders valuable services to all other departments. The important services
provided by the office include clerical and other services to other department, divisions, sections,
etc of the organization and they can not operate without an office.

(ii) Office as an information centre or memory centre.

Office is the information centre of a business is an organization, office is as important as the

brain in the human body. As such office is the brain of the organization it collects useful pieces
of information, from different sources, i.e internal and external, and records them. It arranges and
analyses them and makes them available to the management whenever needed. Thus office acts
as an information centre or store house or memory centre. All kinds of information, past or
present are available in the office.

(iii) Office as an intermediary.

It connects outsiders with different departments and vice versa. All the sales orders are received
through the office. It connects the organization with the customers, suppliers, government and
general public office act as channel that link the business organization and its customers. Their
enquiries, orders complaints etc are taken care by an office

(iv)Office as an administrative nerve centre an office is the heart of all business activities from
here information on purchase, sales, finance and communication entrusted to it.

(v) Office as a control centre.

It is the medium for translating the policies into action. Then management makes but plans and
policies and directs business activities in profitable ways and each department office is
responsible for the function entrusted to it.

(vi) Office as a [Link] aids management to bring about co-ordination. A central

office co-ordinator the activities of departmental offices the office provides the necessary data.
The management brings about co-ordination.

QUESTIONS

1. What is an office? What are the functions of an office?

233
 2. What is an office? Bring out its importance.

3. “Office work is unproductive clerical work” explain.

4. The office is a co- ordinating factor. Explain

5. The office is the nerve centre of an organization. Explain

6. What are the functions of modern office? Explain its organization and Management.

7. An office may be regarded as a place where the central mechanism for an organization is
located comment on this statement and explain the importance of modern office.

8. No organization worth the name can exist without an efficient office” comment on this
statement and bring out clearly the functions of modern office.

9. The office is to a business, what the mainspring is to a watch explain.

10. What is the relationship of office with other departments in the business firm?
11. Office does not produce any article for sale therefore, office work is relatively unimportant” do
you agree? Give reasons for your answer.

12. “Office work is concerned with records and statistics with computing with planning and
scheduling”. In the light of this statement, discuss the administrative
management functions of an office.
13. The essential feature of the office is the work itself, not who does it or where it is done”
.Discuss.

OFFICE ACCOMMODATION AND LAYOUT

Introduction

Office manager aims at getting the work done in the office at the lowest possible cost through
proper selection and training cost through proper selection and raining of staff. Office staff work
efficiently if they are properly accommodated. Employees have to spend long hours in the office.
Bad and insufficient accommodation can course boredom, monotony and frustration among them
which will affect their efficiency among them which will affect their efficiency adversely.
Suitable accommodation, modern adversely. Suitable accommodation, modern equipment and
proper working conditions are important factors in improving efficiency and reducing costs. The
office people can work well when there is a good and pleasing atmosphere in the office, because
the clerks who are engaged in the office, use their mind and brain in the work. Concentration of
mind is an essential point. Therefore the important factor of office management is to provide
proper and adequate office facilities to the staff so as to get maximum results.

The office manager has to play the major role in determining the arrangement of office.

The following points are to be considered;-

234
(i) the site or location of office building

(ii) Size and shape of office

(iii) Layout of office

(iv) Light

(v) Health

(vi) Noise

(vii) Sanitation

(viii) Safety

(ix) Open office or private office

(x) Convenience to staff and visitors

(xi) Physical conditions of office

(xii) Ventilation and air condition

The site/location of the office building

Factors to consider in providing the right type of office accommodation

(i) Location of office building

(ii) Size, shape and cost of office

(iii) Light and ventilation of the space

(iv) Layout and facilities for office organization

(v) Customer and staff conveniences

(vi) Safety of the staff, etc

1. LOCATION OF OFFICE BUILDING

This refers to the physical place where an office should be located.

235
While selecting a building for office present as well as future requirements will be considered. In
future the office may have to be expanded if office is a situated unsuitably, it may cause
inconveniences both to the staff and to the customers.

Merits of an office in Urban areas:-

(i) The staff and the customers can easily reach the office because of the transport
facilities prevailing in the city.

(ii) It facilitates to make purchases and sales in city rather than in suburban are because city
abounds in dwellers, shops etc when buyers want to make purchases they go to cities

(iii) One is able to enjoy the available facilities such as post offices, banks, insurance
companies, etc in rural areas such facilities are not easily available.

(iv) There is a general tendency among the staff to prefer to work in a city. Therefore a
good recruitment of staff can be easily made for the office, it is in the city.

(v) A goodwill can be created in the minds of the buyers by providing service after sales at
the proper time. Immediate action can be taken and customers too are satisfied.

(vi) The important government offices like income tax, sales tax, register of companies etc
are situated in the cities. It will be convenient to make easy contact with such offices.

(vii) Electricity, water supply, skilled labour, easy communication, specialized agency etc
are easily available.

Demerits of an office in urban area

(i) In the initial stage the firm may not be able to construct its own building and will have
to go for rented accommodation. Often heavy rent will have to be paid.

(ii) It may not be possible always to have adequate space for the office because cities are
overcrowded

(iii) Expansion facilities are also limited, because of the non-availability of building high
rent etc

(iv) Generally in cities, dust and noise prevail in the atmosphere, hence the concentration of
mind and physical condition which are necessary for smooth working in the office are affected

236
(v) With high cost of living, the staff may demand higher wages, resulting in high
expenditure.

Merits of an office in Rural area

(i) The wages of the labourers will be low.

(ii) The rent of building will be low. The cost of construction of a building will also below.

(iii) There will be possibility of expansion, because of the space available.

(iv) The atmosphere will be clear and good for health.

(v) Insanitary conditions will not prevail.

(vi) Cost of living is lower for the employees.

Demerits of an office in Rural areas

(i) There will be no proper transport and accommodation.

(ii) Electricity will not be available.

(iii) There will not be any facilities for repairs and maintenance.

(iv) Skilled labourers will not be available.

(v) There will be delay in getting the essential materials, because shops may not be there.

(vi) Specialized agencies- banking, engineering insurance, etc will not be available.

(vii) Important government offices may situated in cities, as such regular contact is
impossible.

(viii) Odd sales or purchases are not possible.

(ix) Staff may not be willing to serve in the rural area.

(x) There will be no scope for the expansion of business, because of the low sales. After
having decided the are rural or urban for office purpose the next step should be not rent or own
premises.

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 OWNED Vs RENTED PREMISES

FACTORS TO BE CONSIDERED IN ACQUIRING OFFICE LOCATION

While choosing the location for office, consider the following;-

(i) Good location

To choose a location which create good impression among workers, customers and other person.

(ii) Availability of basic services

The office to be located in places where there are such services as water, electricity,
communication, banks, insurance.

(iii) Availability of customers

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The office should be located in areas where there are suitable customers of business.

(iv) Expansion

The site should allow the expansion of office in the future.

(v) Availability of labour

Office should be located near the source of availability of labour.

(vi) Acquiring cost “Cost should be minimum and efficiency must be maximum”

The cost of acquiring the office site should correspond with the true financial position of the
business.

(vii) If necessary, the location of office.

Should be preferred nearer to other units, like go down, branches, factory etc for better function.

(viii) Suitable atmosphere the office should be sited in areas which have access to light,
temperature, cleanliness, etc . Also the office building must be located in a quite and health
neighbourhood from noise, dust-fumes, bad smell etc.

THE SIZE AND SHAPE OF THE OFFICE

The size and shape of the office should be conductive to the present requirement as well as for
the future expansion. Ample room is prerequisite for the most efficient performance of the staff
and the optimum utilization of equipment. Each worker in the office must be given facilities to
do his job freely. In deciding the size of the building both the area and shape are also to be
considered. Because time will be wasted in walking. It will be good to select a square or
rectangular shape for office.

OFFICE LAYOUT

Meaning:-

Is a systematic and scientific arrangement of different departments and equipments on a well

defined plan, so as to get a maximum benefit from the space available.

Or

Refer to decide on the arrangement of furniture and equipments within each office.

Objectives of office layout

The office layout has the following objectives

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(i) To facilitate the best possible utilization of available space without wastage.

(ii) To ensure smooth of work without interruption.

(iii) To provide good working condition to office staffs.

(iv) To achieve co- ordination among different departments.

(v) To facilitate control and supervision.

PROCEDURES IN OFFICE LAYOUT

Steps towards effective planning of office layout

The following sequence of steps are involved in planning layout of an office

(i) First step

Determination of the floor space in available given office.

(ii) Second step

Preparation of the graphical sketch of the floor to show the location of departments, partitions,
window and so on.

(iii) Third step

Consultation with heads of departments and supervisors to know their needs to space.

(iv) Fourth step

Preparation of the detailed plan of tentative layout.

(v) To obtain the approval of the ( previously procedures) from the management.

Merits of good layout

A good layout is a good investment. A food office layout offers the following advantages.

(i) A good layout makes supervision more effective.

(ii) A good layout promotes. Efficiency as it follows the flow of work.

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(iii) A good layout aim at making the most economic and effective use of available floor
space.

(iv) There is better communication among all departments.

(v) The layout provides for joint use of machines and equipment optimum use.

(vi) The process of production, planning are control is greatly facilitated.

(vii) It is easy to bring about co- ordination in the organization.

(viii) It reduces the cost of cooling, heating air-conditioning etc and their maintenance costs.

(ix) A good layout aims at providing working conditions. This improves morale of staff.

(x) A good layout projects good impression about the enterprise on customers and visitors.
This results in better goodwill.

OFFICE PLANS

Office plans refer to how the office premises are to be divided up for the purpose
of carrying out the different functions of an office

TYPES OF OFFICE PLANS

(i) Open or landscaped office

(ii) Partitioned/private/cell/traditional office

1. OPEN/LAND SCAPE OFFICE

This is a large room or hall wherein all workers with their managements are seated, such an
office may occupied by administrative officer, office supervisor, typists and filling clerks.

Advantages of an open/landscaped office

(i) the pace is used well as there are no partitions.

(ii) Easy supervision of employees to oversee the office activities.

(iii) Easy communication among units.

(iv) Better working position is possible.

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(v) The layout of an office can be changed without any cost.

(vi) Reduce long movement of staff.

(vii) Decoration, cleaning and maintenance can be done in expensively.

(viii) Uniformity of layout increases tidiness.

(ix) Cheap to build.

(x) No wastage of space.

(xi) There is feeling of togetherness’s among the office staff.

(xii) Easy control of heating and lighting.

(xiii) There is competition among employees for improved work performance.

Disadvantages of an open/landscaped office

(i) Secrecy can not be maintained to large population in the same hall( no privacy).

(ii) The office appears to be crowded.

(iii) Infectious diseases can easily be spread.

(iv) The executives usually not feel comfortable in the open office.

(v) It is not easy to for supervisors to supervise a big hall.

(vi) Internal noises due to conversations and talks among workers and visitors’ and office
machines which results to no throughout concentration on one’s work.

(vii) Generally, documents are not safe.

(viii) There is neither a feeling of respect nor, identity. In Tanzania, many organizations does
not use this type of office plan due to the above disadvantages.

2. PARTITIONED/PRIVATE/CELL/TRADITIONAL OFFICE

This is the type of an office whereby office is divided into small rooms which under different or
particular department. Every department under its manager have its own room and in that room
document and other facilities are kept their. Most of different organizations on our country
(Tanzania) they use this method.

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Advantages of partitioned/private/cell traditional office

(i) The place is quite.

(ii) There is private privacy is confidential work and discussion is possible.

(iii) Concentration of mind among workers possible leading to more efficiency.

(iv) It gives prestige and importance to top executive in the organization.

(v) Better ventilation is possible as it ensures better health of workers.

Disadvantages of partitioned/private/cell traditional office

(i) Much space is wasted for partitions.

(ii) It affects the flow of work.

(iii) Supervision is costly as more supervisors are needed to watch the work done in offices.

(iv) It is more expensive to build separate offices.

(v) There is more expenses to provide adequate light.

(vi) Cleaning of the office becomes a tedious work.

(vii) The office layout will be a complicated one.

(viii) More expensive furniture arrangement is needed than open office or general office.

(ix) Extra means of communication are needed for each room.

(x) Clerks, messengers have to waste time to see whether the concerned is there or not in
the private room.

QUESTIONS

1. Discuss the importance of office layout what factors would you take into account while laying an
office?

2. What do you understand by an “open office” what are its merits and demerits.

3. You have been asked by your employer to choose an office location. What factors would you
consider in doing so?

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 4. Discuss the merits and demerits of an open office as compared to separate office rooms.

5. Define office layout and its objectives. On what principles office layout should be based.

6. “layout is very important for office operations” explain.

7. What are the merits of own office building?

8. What points should be taken into consideration when arranging an office accommodation and
layout? Describe them briefly.

9. What is meant by office accommodation? What factors influence office location?

10. What are factors that determine the size of office?

Advantages of open office over traditional office

Open office is large room where many employees of different sections work together. Such an
office may be occupied by administrators officers, office supervisors, typist and filling clerks.

The advantages of an open office over traditional office includes the following

(i) It facilitate better utilization of office space because unnecessary partitions is

eliminated.

(ii) It makes supervision easier and less expensive. One supervisor is able to supervise a
large number of staffs.

(iii) It facilitates better placing and joint use of machines and equipment.

(iv) It ensure effective communication between staffs as they can see each other.

(v) It makes office layout more flexible furniture and equipments can be rearranged as and
when required.

(vi) Economical. It is cheap as no part ions are required.

(vii) It allows free low of natural light and hence good working condition.

ESSENTIAL OF AN EFFICIENT OFFICE ORGANIZATION

The location of the premises, the layout the equipment of the office determine and display the
grace underlying the entire organization

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 1. Location

The central parts of a city or town ideal sites for locating the office. The site must be easily
accessible to customer proximate to other services like banks, post offices, transports insurance
government offices etc.

2. Premises of the office

Office should be housed in spacious premises with cheerful surroundings. The building must be
large enough to meet the requirements of the business and sufficient scope for possible
expansion or extension when necessary. Light, ventilation and sanitation are important to be
attended to in office organization.

3. Layout

Various departments in the office. Should be systematically arranged in order to ensure quick
work and more effective supervision and control. Layout of an office should be highly attractive.
Inner layout also should be such that it has good effect on the customers and other visitors. “A
well- arranged, well kept office is a grater asset on account of the favorable impression it
produces.

4. Furniture

All the office rooms should be well furnished. Adequate tables, chairs racks, cupboards, etc
should be provided in each department according o its requirements. Suitable furniture has much
to do with the efficiency of the staff.

5. Stationery and equipment

Stationery used in the office should be of standard quality. The high tone stationery produces
favorable impression. Catalogues, price list, invoice letter- heads, envelopes e.t.c, should be of
suitable size and the paper used in preparing them should be of superior quality papers of
different colours are also used for distinguishing different categories of correspondence ink,
type- ribbons, files, folders, diaries paper weights, e.t.c should also be of good variety. In
addition, labour saving devices like copying machines, Dictaphones, cheque and address writing
machines, etc are employed in offices of large undertakings in order to enhance their working
efficiency.

6. Office staff

Appointment of office personnel is the most significant aspect of office organization. Various
department in the office should be adequately staffed to ensure smooth business operations.
Office staff should be well-qualified and experienced. There should be provision of giving
training to fresh recruits so that they will be able to handle their respective jobs with confidence
and competence

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 7. Functional division of labour

The main principles in allocation of office work are specialization, correlation and business
connection. Division of duties among different individuals would lead to greater diligence in
their work.

OFFICE ENVIRONMENT

Introduction

Office environment has an important bearing on the efficiency of employees conditions

particularly those influencing development and growth. Environment can be described as a
combination of circumstances or conditions that influence the efficiency of the employees. The
emotional response of workers is better if the environment is good. A poor office environment
often results in decreased levels of production and employee morale.

The working conditions and efficiency have direct correlation between them. Therefore one of
the earliest way to improve conditions. It is the duty of the office manager to provide an
environment which is pleasant, comfortable and conducive to good working habits. This is
because employees spend more time at work in the office.

THE EFFICIENCY OF OFFICE WORKER

The efficiency of office worker depends on various factors including Favorable working
environments or physical conditions like;-

1. Proper light
2. Ventilation
3. Interior decoration
4. Furnishing
5. Office furniture
6. Freedom from Noise and dust
7. Safety
8. Sanitary arrangements
9. Security
10. Secrecy

( i ) Light

There must be proper and adequate lighting in the office to avoid eye strain. Poor light or
powerful light will cause troubles. If the light is not proper, mistakes may be committed or
accidents may occur. Improper arrangements of office light will lower the efficiency of staff

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through delay, errors and mistakes if natural light is not easily available, artificial lights must be
arranged.

Points to be borne in mind

(i) Right power of light should be provided according to the nature of work. There should
be any sharp glare or dazzle either directly or indirectly.

(ii) There should not be any sharp shadows over the table where the clerks have to work.

(iii) There should not also be any glare directly or indirectly on the table.

Points to remember

(i) Good light will facilitate an increased output, efficiently and economically.

(ii) Lighting arrangement should be well designed.

(iii) Walls may be painted with suitable colours to increase the light. Care must also be
taken to reduce the glare and at the same time to improve the vision.

(iv) If natural light is not available, make proper supplementary arrangement through
artificial lighting.

Types of artificial lights

(i) Fluorescent light

It is widely used and popular. We get diffused or scattered light. Electricity consumption is also
low. In offices, it is good system of lighting. It does not matter that the initial expenses are high.

(ii) Direct light

The lamp is fitted against the ceiling with shades. It gives a direct downward fall of light. The
ceiling portion will be in the dark. This type of lighting system is giving place to fluorescent
light.

(iii) Indirect light

This system is the reverse of the above. The fittings are made facing the ceiling. The fittings
throw light upward and the ceiling reflects it on the tables. This system gives unshaded light
without glare but for clerical work, it is not advisable.

(iv) Individual desk light

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When a particular work requires more light, then an individual desk light can be provided in
addition to the common light it is expensive. Since the light is place on working table, it may
cause fatigue and eye train. It is not common at the present age.

Advantages ( benefits) of good light in an office are

(i)Output can be increased

(ii) Quality of work can be increased

(iii) Eye strain can be reduced

(iv) Improve the morale of the staff

(v) It create good impression on visitors

1. VENTILATION

The office should be quite airy fresh air will reduce fatigue and remove the irritable feelings of
the clerks. Low height of the office, small or few windows, opening to a narrow courtyard etc,
obstruct the flow of air through the office. If the office has no fee flow of air, particularly in
summer, workers get tired and in rainy season they feel drowsy. These will lead to low efficiency
of the clerks. Artificial circulation of too cool or hot air will also cause irritation of the workers
adequate, clean and fresh air at the required temperature can help the clerks to do their work
smoothly. Air conditioner can be used but it is expensive to install and maintain them. If natural
and fresh air is not freely moving “fans, exhaust fans, filters e.t.c may be used to draw natural ir
duly filtered. This is less expensive.

1. INTERIOR DECORATION AND FURNISHING

Interior decorations means pleasant coloring of doors, windows and walls. The main aim of
interior decoration is to make stimulates better performance on the part of staff and creates a
better impression on the minds of visitors. The colour used on the walls must be of pleasing
nature walls of the office should be in light colour dark colours includes design of furnishings,
floor coverings etc. pleasant colouring and good furnishings will create cheerfulness in the minds
of workers. Furnishings ( curtains, chairs, table and sofa covers and floor mattresses etc) should
also be of pleasing colour. They have a protective as well as decorative value. For example,
curtains not only decorate a door or window but also prevent glare and sunshine coming into a
room directly on the table of the office worker.

The floors, stair ways, corridors etc should be of attractive colour. For example, green and blue
induce, the feeling of coolness, orange and yellow induce the feeling of warmth. Some paintings
and other art pieces can be attractively displayed in the office. A pleasing decoration will
increase the prestige of the firm as well as of the employees.

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Floor coverings are used to reduce noise and to add to the beauty of the place. Floor coverings
are carpets, thin rubber, linoleum or foam mattresses.

The decoration of an office can have a noticeable effect upon the morale of the staff. Drab
surroundings are depressing, pleasant surroundings are conducive to good work. They have a
protective as well as decorative value. For example, curtains not only decorate a door or window,
but also prevent glare and sunshine coming into a room directly on the table of the office worker.

The floors, stairways, corridors etc should be of attractive colour. For example green and blue
induce the feeling of coolness, orange and yellow induce the feeling of warmth. Some paintings
and other art pieces can be attractively displayed in the office. A pleasing decoration will
increase the prestige of the firm as well as of the employees.

Floor coverings are used to reduce noise and to add to the beauty of the place, floor coverings are
carpets, thin rubber, linoleum or foam mattresses.

The decoration of an office can have a noticeable effect upon the morale of the staff drab
surroundings are depressing, pleasant surroundings are conducive to good work.

iv. FREEDOM FROM NOISE AND DUST

Noise may be defined as unwanted sound in or outside the office. Noise may be an occasional or
an unusual loud sound or a constant loud sound. When employees are at work, there should not
be any disturbance. Noise will create irritation to the office people. Clerical work involves great
concentration of mind. Therefore the mental concentration mind. Therefore the mental
concentration of workers should not be disturbed by noise. It brings about errors, mistakes,
delays, mental fatigue etc and in turn, leads to inefficiency and lowering output. Unexpected
sounds or loud noise will take their mood off from the work. Naturally, when people are working
in an tolerable, because people are accustomed to it. There are internal noise as well as external
noise.

Internal noise are created by the following

1. Movements of machines.
2. Movements and conversation of clerks, peons, visitors etc.
3. Cracking doors.
4. Calling bells, telephone bells.
5. Shifting of furniture from one place to another.

Measures to prevent internal noise

1. Carpets or rubber mats spread on the floor will reduce the sounds caused by the movements of
the clerks and other people.

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 2. Below the office machines which create noise in operation, felt pads can be placed which reduce
the noise.
3. Calling bells can be replaced with buzzers
4. Banging or cracking doors should be fitted with rubber or left stops to reduce sound. Proper
oiling of the hinges of the door will also reduce noise. Automatic door springs, rubber pads, etc
can be fitted.
5. Telephones may be kept in sound- proof booths to reduce the sound.
6. Clerks must be instructed to maintain calmness.
7. When the office is fee from the noise calmness prevails, clerks will automatically be discouraged
to make sounds by talk or gossip.
8. Workers must be engaged fully during the office hours so that they don’t waste their time over
idle gossip.

External noise are caused by the following

1. Street sounds
2. Noisy industrial process etc the sound seldom inter the office through the open windows and
doors

Measures to prevent external noise

1. As far as possible the location of the office should be away from the noise creating places
2. Doors and windows may be kept closed
3. Walls of the office should be made at sound-proof materials

DUST

In certain area, the amount of dust in the surroundings is much greater than in other area. For
example in areas where cotton, jute or cement mills are working, the atmosphere is constantly
dust taden. When dust enters the office, it spoils the decoration of the office, it spoils the
decoration of the office, affect the health of staff, reduce the life of machines, equipments, etc it
is difficult to check entry of dust into the office dust should be cleaned quite regularly.

[Link]

Safety precautions are a must. Accidents are undesirable. Whenever any accident occurs, it leads
to a wastage of time the person involved in the accident and the fellow workers

Causes of accidents in the office

1. Slip on floor.
2. Fall on stair case.
3. Leakage of electric wire.

Precautions

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 1. A first- aid box be provided and must be under the custody of a trained person it must placed at
a visible and convenient.
2. Place.
3. Five precautions methods. Fire extinguishers must be provided and the staff be trained to use
them.
4. Fluorescent lamps and fans must be checked periodically. All the electrical fittings must be
checked and tested to confirm the absence of leakage.
5. Files should not be placed on the top of almirah, because when taking one file, others may fall
down.
6. There should be regular inspection of machines, equipments e.t.c.
7. Smoking should not be allowed within the office premises.

VI. SANITARY ARRANGEMENT

The office and its surroundings must be kept clean and free from all bad odour and infection.
Insanitary conditions affects the health of staff adversely. Cleanness of the office contributes to a
good atmosphere, and it creates a pleasant and healthy attitude to the clerks work in. the unclean
office affects the prestige of the clerk too.

Hints to be noted

1. Office must be cleaned everyday.

2. There must be special cleaning, at least once a week, so as to keep clean the filing cabinet,
cupboard, shelves, furniture, equipment etc.
3. The room should not only be clean but fee from bad odour and infection.
4. Office should be sprayed often with disinfectant.
5. Waste paper and other waste materials must be placed in a waste-box and disposed of daily in
the evening hours, preferably after the office hour.
6. Daily after cleaning the floor of the office, the furniture should also be dusted.
7. Air purifiers must be used which must be replaced in time.
8. A sufficient number of spittoons should be provided in every building at convenient places.
9. Effective arrangement should be to provide a sufficient supply of wholesome drinking water at
suitable places.
10. Adequate cloak rooms, toilets and washing facilities should be provided at convenient palace.
11. Neat and clean canteens under the combined management of employers employees, must be
arranged to supply quality food to staff interior decoration may be done in pleasing colours,
inside the canteen.
12. Office should have provision for rooms where workers may go and rest during rest intervals.

VII. SECURITY

One of the vital functions of a modern office is to keep and preserve documents and records for
future guidance.

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Important and valuable documents are kept in office safes or bank locker. Office files,
correspondence e.t.c are kept in safe places so that outsiders may not have access to them.

People entering the building should properly identified and entry passes should be issued to
them. For any intruder the cash department or cash sections the most tempting target. It is thus
necessary to locate it in a very safe part of the building and restrict entry to this part. It is
essential to install alarms and warning systems so that emergencies are made with effectively an
in time.

VIII. SECRECY

There are some records about the business which must be kept secret from the junior staff and
outsiders. They may be known as business secrets disclosures of such secrets may entail heavy
loss to the firm. It may lower down the reputation of the business. The management must
determine what type of information must be kept secret and must make arrangements for keeping
them secret.

The following information should be kept secret

(i) Tenders

Tenders which the organization submits or invites should not be disclosed to anyone till the date
of tenders. If disclosed anyone till the date of tenders. If disclosed the organization may lose
valuable contract.

(ii) Cost information

If the clerical staff possess knowledge of cost data, there are possibilities of its leakage to
competitors. Therefore disclose of cost information to staff should be avoided.

(iii) Labour policy

The personal policy of management should be kept secret and should be disclosed at appropriate
time. If leaked out, it may lead to strikes, lockouts and other unpleasant activities.

(iv) Dividend declaration

If the rate of dividend to be declared by the company is disclosed, before its annual general
meeting, such disclosures may have impact on the market value of its shares.

(v) Financial position

The financial position of a company is to be depicted in its balance sheet at the end of every year.
If unfavorable conditions, if any, is between the year, it will reduce the credit worthless of the
business share prices may go down, sales may be affected adversely etc

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QUESTIONS

1. Discuss the consideration you will take into account while planning for office lighting, ventilation
and efficiency of work.

2. Discuss, the various factors which influence the physical environment f an office.

3. Describe the importance of proper lighting and ventilation from the point of view of efficiency of
office work.

4. Discuss the impact of noise in relation to clerical work and the ways in which it can be reduced.

5. “Interior decoration is now an important part of office environment”. Discuss

6. What are different types of artificial lighting used in modern office.

7. A scooter manufacturing company employing 3,000 factory workers and 500 office employee is
contemplating the moving of its operation from Madurai city to suburban [Link] question
has been raised whether the company should maintain its office in Madurai city or whether to
house the office in the same building as the manufacturing operations in meluri. There is
prestige factor to be considered in having a Madurai city [Link] in the order of their
importance, the factors to be considered in locating the office in suburban or in Madurai city.

OFFICE FURNITURE

Office furniture includes chairs, desks, tables and tools

Factors to consider before acquiring the office furniture

1. Suitability. To suit particular job or jobs.

2. Cost. Should be within the financial ability of an enterprise.
3. Comfort. Tables and chairs should make the worker not feel fatigue.
4. Durability. Furniture to be durable enough for longer business uses. Metal furniture probably
last longer than ordinary wooden furniture.
5. Design of the furniture should match with the actual work to be done.
6. Appearance of the furniture should pleasing enough to impress the workers and visitors.
7. Hygiene. How easy it is to clean and to clean the floor under earth it.
8. Space saving. Furniture should occupy a minimum space.
9. Portable easy to carry the furniture from the space.
10. Fire risk. Again metal furniture is better fire risk than wooden.
11. Safety. Plate glass topped furniture may not be safe in use.
12. Supervision. To work being done in office should be over looked due to structure of furniture.

Basic principles in selecting furniture

1. Suitability

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The selected furniture must be suitable for the job. The working area of the table should be
sufficient. It must also have space to keep files( incoming and outgoing) stationery e.t.c

2. Comfort

The seat of the workers, shape of the chairs and tables must be so designed that the workers will
not feel any fatigue while doing their jobs. This will result in efficiency in turn more output. The
equipment, forms, stationery, e.t.c must be within easy reach. Those items frequently used,
should be placed at the hand.

3. Design

Prior to purchase, one must have an idea of the size height and design of the furniture. The
decision regarding the choice of furniture say table, desk, chairs etc as to its size and design
depends on the officer who uses it.

4. Durability

Metal furniture is more costly than wooden furniture. But the maintenance charges of metal
furniture. Nowadays, metal i.c steel furniture is more popular because it is more durable than
wooden furniture. Moreover steel furniture is safe against fire, burglary e.t.c

5. Weight

As the business expands, the size of the also increases. The existing layout of the furniture has to
be regarded according to the required comfort it may become often necessary to move the
furniture from one place to another. Therefore, it is better to have light, there will be less
breakage and wear and tear when the furniture is shifted.

6. Space saving

Furniture which would occupy minimum space should depend upon the space available in the
office and the number of persons who work there

7. Cost

The cost of the furniture should not be neglected when selecting it. It should be kept within the
financial limits

8. Hygiene

The outlay of the furniture should be so made that it will be easy to clean the furniture as well as
the floor underneath it.

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 9. Usefulness

The furniture should selected according to the nature of the particular job. When it is not needed
for the department, it can be easily transferred to another department, where it may be useful.

1. Appearance

Furniture should have a good appearance and be leasing to the eyes. This will impress the
workers and visitors. Wooden furniture looks attractive. Furniture of high quality good is
durable. It has a warm look and gives comfort to the users. Many varieties and designs of
furniture can easily be made

1. Multi- purpose uses

Furniture should be adoptable to multi-purpose uses, wherever possible. This permits

standardization in the purchase of multi-purpose used, wherever possible. This permits
standardization in the purchase of multi-purpose desks and enables office workers to perform
more than one type of work workers to perform more than one type of work with the help of the
same kind of furniture

TYPES OF FURNITURE

Office furniture may be of different type, the usual types are as follows;-

1. Executive furniture

The term “executive” is applied to those persons who are responsible for making decisions and
policies. Generally executives included section managers and officers above them. Therefore,
different executives will prefer different types of furniture to suit their job and status

Diagram of executive table

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 1. Desks

The desk is the work-bench of the office worker. Most office work is handled one desk, over a
desk, through a desk or across a desk. The primary function of any desk is to provide a suitable
surface for writing, checking, sorting, examining and conferring. The desks selected for office
should multi-purpose in use.

Types of desks

(a) Executive desks

These are designed to suit individual tastes and quite often they are designed as a show piece of
an organization. Their purpose is also to impress visitors with the prestige and importance of
persons using them. Table top of executive desk is covered with a sheet of glass. Some
executives use full top glass while other prefers to cover writing area.

(b) General purpose desks

These are of less elaborate design being single pedestal with less desk space.

(c) Typist desk

This may be fitted with either a fixed well for the typewritten or a collapsible well into which the
typewriter is fixed.

[Link]

In many government and other office, tables still server as clerical desks and this they may be
fitted with one or two drawers. Tables are ordinarily needed for sorting of mail, housing of files,
file- tray, holding meetings etc

3. Chairs

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Chairs are perhaps the most important item of furniture from the point ot view of the worker
since he sits in them all through the day in office. Comfortable sitting in the office not only
reduces fatigue but also maintains the health of the employees, thus benefiting the firm by less
absenteeism, few errors and large volume of work. The back of the chair should be such which
gives support to the back and sufficient relaxation. It will be better if the back is adjustable. A
revolving chair may be ideal in most cases since it allows for movement without getting into
ground.

4. Fittings and accessories

Generally office fitting include desk lamp, telephone stand, waste basket etc when choosing or
selecting such items, their colour may be considered, because the colour of these must not ruin
the pleasing atmosphere of the office.

Clerks should be provided with certain accessories in order to perform their work efficiently.
Such items may be penholders, sorting trays, boxes, cabinets, special lamp etc

QUESTIONS

1. What are different types of furniture in an office?

2. What are the factors to be considered when selecting furniture for a business.
3. Discuss the principles of selection in the furniture layout.

OFFICE MACHINES (APPLIANCES)

Introduction

Although it is possible for office work to be carried out manually without the use of any machine
the output of this effort would be of poor quality and high cost that, it would not be accepted by
many business firms of today. Machines do perform several office tasks, more than what can be
produced by some office staff. Machines produce work in a better way, more quickly thus saving
costs and improving efficiency.

OFFICE MECHANISATION

Refer to a process whereby office machines and equipments are introduced in the office with a
view to aid administrative process

IMPORTANCE OF MECHANIZATION

(i) Office works can be done quickly and effectively through the means of office
machines.

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(ii) To err ( to make a mistake) is human, but machines seldom err. Therefore to promote
accuracy of work, machines are employed.

(iii) A single machine may substitute two or three persons eg a typewriter. Thus, labour cost
can be reduced.

(iv) Machine operations relieves manual drudgery ( hard boring work) and fatigue and to
that extent machine improve morale the employees.

(v) Speed work is possible, in addition economy. Thus much time can be saved.

(vi) Mass of information can be secured ease. At present, business concerns need detailed
information. For this many clerks may be required. But through machines the cost of the
information can reduce and at the same time more result is at ease and economy.

ADVANTAGES OF MECHANIZATION

(Introduction of machines and equipments in the office)

Mechanization has become an important part of modern office administrative process. It offers
may advantages, chief of which are as follows:-

(i) Ensures greater accuracy with more economy. The machine information is clear,
complete concise and correct.

(ii) Guarantee greater speed. It is an accepted fact that the office work performed through
labour savings devices is done at a greater speed than the same work done by clerks.

(iii) Reduces operating cost.

The initial cost to introduce machines may be high. But in the long run the machine work will
prove to be cheaper.

1. Uniformity, standardization, simplification of work can be maintained.

2. Labour savings. Work performed by a machine requires very few staff and thus there is labour
saving and reduction of salaries and wages due to fewer workers needed.
3. Facilitate control. From the management point of view greater control is possible and much
more information is available.
4. Reduce overtime. When the office is mechanized, or greater amount of overtime is also
reduced.
5. Prestigious. The product of machines is more presentable.
6. Reduces fraud. They assist in avoiding errors and frauds.
7. Economical. Cost per unit of job done by machines usually works out to be less than that done
manually e.g. computer is more economical than working with hands.
8. Relieves monotony many jobs in the office are repetitive in nature. Clerks instructed with the
task of doing jobs get tired, both physically and mentally, if such jobs are done through the help
of machines operated by skilled office staff, the same work becomes pleasant and interesting.

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 9. Saving in time. Use of the machines in the offices quickens the pace of office work and thus
saves time.
10. Satisfactory services t customers. Prompt replies to inquiries, delivery of goods in time,
preparation of correct invoices, keeping of accurate and up to date accounts etc are all essential
to build up goodwill for the concern. Mechanical devices are helpful in doing all this and much
more speed accurately and neatly. Thus, customers get satisfactory services.

DISADVANTAGES OF MECHANIZATION

(Limitations of machines and equipments in the office)

(i) Need the operation of human beings unlike human beings machines cannot think and need
staff to operate them or to prepare work to be used by them. For example can not get data from
other sources
than human beings.

(ii) Uneconomical for some job. Machines may be more expensive if the volume of work is
small.

(iii)High initial capital the introduction of machines in an organization requires large sums of
money.

(iv)Machine may lead to unemployment. The use of machines in offices contribute to lack of
employment in such countries where labour is not cheap.

(v) Obsolescence. Machines are subject to become out of use due to introduction of new and
modern machines. This cause high cost and seriously problems to a business.

(vi)Breakdown. Machines are subject to break down which affects work and do depreciate.

(vii)Effect on staff machines may examinate staff morale and initiatives.

(viii)Standard forms. Machines use particular stationery and equipments which can cause
dissatisfaction among workers.

FACTORS JUSTIFYING THE USE OF OFFICE MACHINES

The following factors may influence in one way or another introduction of office machines:-

(i) Volume of work if volume of work is large and unable to complete it timely.

(ii) Accuracy requirements. If the degree of accuracy required needs the use of machine.

(iii) Speed. If it is considered potential to meet deal lines.

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(iv) Routine work. If monotony is such that employees cannot be retained longer for the job.

(v) Reduce cost. If the use of machine lead to the reduction in costs.

FACTORS TO CONSIDER BEFORE ACQUIRING (SELECTING) OFFICE

MACHINES AND EQUIPMENT

(i) Initial capital outlay. The amount required for purchasing them.

(ii) Operation cost. When the machine is in operation, its running and
maintenance/cost/expenses must be minimum. Cost of additional machines, if any, and supplies
must be minimum too.

(iii) After sale services. Services. Provided by suppliers or manufacturers.

(iv) Purpose. The need for a particular feature eg. Better presentation or control on frauds.

(v) Effect on existing system. Eg need to change some system or stationery which is in use
before machines are introduced.

(vi) Simple in operation. Easy operation of the machine, less fatigue to the operators and
good results are required operators may be trained effectively at less expenses.

(vii) Flexibility. The machine must have flexibility to adopt for multiple purposes, when the
cost of machine is high.

(viii) Durability. There are different conditions and therefore the machines must be strong and
durable. Breakdown of the machine means investment is waste.

(ix) Portability. In modern times, the machine is reduced into portable size. When the
machines are small it is convenient to handle and easy to move from one place to another.

(x) Benefit. When manual labour is replaced by machine, greater accuracy and better result
must be produced. There must be a qualitative change in the office when a machine is
introduced.

(xi) Style. Pleasing design and clour is preferred. When one looks at a machine, it must be
attractive, apart from satisfactory operation.

(xii) Prestige. The good image to be reflected by organization you deal with customer.

MODERN MACHINES AND EQUIPMENTS USED IN AN OFFICE

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The equipment and machines used in office may be categorized as follows

(a) ADMINISTRATION AND CORRESPONDENCE

1. Telephone

It is an important instrument of modern office communication. It facilitates speedy exchange of

information. The customers and the firm can get into touch with one another and directly. This is
an external system which connects the business house eith the outside world such as customers,
suppliers etc.

2. Dictaphone

This is a mechanical appliance used for dictating replies to correspondence or any other matter to
be recorded.

Advantages of Dictaphone

(i) The dictator dictate matters at any time.

(ii) It ensures speed and accuracy and saves time.

(iii) The typist can type well without knowing short-hand.

(iv) It increases accuracy and efficiency.

(v) Telephone dictation can also be recorded in Dictaphone.

(vi) It is portable, and like a book can be carried anywhere.

3. Combination of telephone plus

The conversation of the both parties can be recorded on the dictating machine. It is useful in
newspaper offices.

4. Ipsophone

It records telephone messages and speaks for its owner and repeats the messages when required.
When the telephone rings, the ipsophone will start its work, by speaking its number and asking
for messages to be recorded. Thus all the messages and calls are recorded in the machine.

5. Auto abstract

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Is an electronic machine which is used to read lengthy reports, letters, etc these types of
machines are much useful to company secretaries, managers etc

(b) 1. Typewriters

This may be manual or electric. The letter require little physical effort to use and the typist can
do continuous work without getting too tired. The execution of work through a typewriter is
accurate legible and fast. Typewritten letters are more attractive than handwritten letter.

Types of typewriters used in firms

(i) Portable typewriter

These are light typewriters for travelling workers like salesmen

(ii) Standard and silent ( noiseless ) typewriter

These make no noise when in use. Such noiseless machines are invaluable as the typist can do
the work in the same room where the executive officer is also seated.

(iii) Variable type typewriter

Typewriters which have different variety of style and size of types are so adjusted that according
to the requirements, the type of letters can be changed- Italic type, small type, big size ( bold
type0 types are used when correspondence is little and small type is used when correspondence
is lengthy. This is useful particularly in preparing reports where different styles of types can be
used to distinguish one set from another

(iv) Electric typewrite

This type is now in general use. The expenses is more. The advantages of such machine are
operator will have less fatigue in one operation 20 or 25 copies can be obtained against 6 on
standard typewriter. the operator need not exert himself much. The typist can type faster

(v) Automatic electric type typewriters

These use work prepared on a pre- punched tape, edge punched cards or tabulating cards or
recorded on magnetic tape, sheet or desk which is “played back” on the automatic typewriter. It
is also referred to as “work – processors” it may have a screen as well as display the message
being typed.

6. Stenographic machine/shorthand machine

This is used to take down messages phonetically.

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 7. Duplicating machine

Is used when several copies of documents are required. The type-writers produce only a few
copies of documents.

Types of duplicating machines

(i) Spirit duplicating/hectograph

The master copy is prepared on art paper by means of a hectograph carbon paper. A reverse
image is obtained on the back of the master copy,the master copy is fitted round the from on the
machine exposing the carbon image to the outside. The papers pass first on the paper dissolves a
very little of the carbon on the master copy and thus gives an impression on the copying paper. It
can be operated by hand or electricity.

(ii) Stencil duplicators ( mimeograph)

In this system, stencil is cut on a typewrite or by hand ( if by hand a type of pencil known as
stylus is used).

The typed matter will be within the frame marked in the stencil. When stencil is cut, the ribbon is
so adjusted that the typist will ct the stencil directly.

With the letters. Any error, if happens, can be erased by using correcting fluid. The cut stencil is
placed in a duplicating machine, the cylinder of machine is inked with a special type ink. The
machine is rotted till the ink is read over the rollers. There maybe two trays on each side. One for
carries papers of the correct size and another tray receives the printed papers. When machines is
switched on, the machines feeds papers automatically and after that leaves the printed paper on
the other tray. The copies produced also counted automatically in the machine. Itself. The stencil
is removed and kept for reuse.

(iii) Photostat ( photographic duplicators)

This method can also be used whenever an exact copy of any document is required. In this,
photography of the documents is first taken out through camera. No dark room is required for
this. The produced copies are soon developed and when dries are ready for use; copies of larger
or smaller size than the original document can be taken in any colour.

8. Paper shredders

For destroying unwanted documents to avoid them getting into wrong hand.

c) ACCOUNTING

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1. Calculating machine

Calculating machine replaces the human labour in operations of adding, subtracting, multiplying
and viding of arithmetical figures. These machines are also used for calculation including
interest, commission discount, exchange etc. these machines can perform four or five times the
work done by a man.

Calculators

These may be manual or electric. The simplest ones will add and subtract. The more complicated
electric machines will add, subtract, divided and multiply and give sub-totals and totals.

Calculating machines include:-

(i) Portable calculators

These are small calculators which can easily be moved along wit. They add, subtract, multiply
and divide.

(ii) Non-listing calculators

Only display figures but do not produce a copy of the figure put into the machine.

(iii) Listing/printing calculators

Is like an adding machine which gives the result in printed form.

(c) POSTING OR MECHANIZED ACCOUNTING MACHINES

These perform various functions like posting simple ledger, balancing accounts, invoicing,
payroll and stock records. These includes such machines like

(i) Recorder machine

It is useful in modern accounting and record keeping. The photographic method used and it is
known as microphotograph used and it is accurate and has not very high speed it can take 2,500
copies at a time, here a camera is used inside the machine.

(ii) Book – keeping machine

Entries in the accounts books are made and ledgers are prepared and quick preparation of final
account is possible there will be no mistakes.

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(d) CASH OFFICE EQUIPMENTS

(i) Cash register

It is a mechanical appliance for recording and checking cash receipts. The amount paid by the
customers is shown on the dial and it is also at once printed on the sheet. Some of the latest cash
registers will issue receipts to the customers and at the same time total the amount receive.

(ii) Coins counting machine

Coins can be counted by this machine it is like a box and there are many trays according to the
types of coins, in the first or the top tray there is only one hole. By this hole all the small coins
will go down. Big coins remain at the top. The trays are arranged one below the other.

Thus the coin sorter is a device which sorts out coins at different denominations, in different
trays, meant for them. Coin counter will count the changes.

(iii) Cheque writing machine

This machine only writes on the surface of the cheque, but it shreds of the paper, the being the
filled with acid proof, ink such a machine saves time and protects the drawers. Cheque writing
machine is also known as cheque protector.

(iv) Cheque signing machine

When there are hundreds of cheques to be signed the cheques signing machines can profitably be
used.

(v) Notes counting machines

(e) MAIL ROOM EQUIPMENT

(i) Stapling machine

This is used for affixing letters and enclosure or other pages together.

(ii) Letter opener

This could be a hand- operated device shaped. Like a knife or an automatic device which trims a
narrow strips of one edge of envelopes. Many openers will trim several envelopes at one time.
Care should be taken when using a device not to destroy the contents of an envelope.

(iii) Letter or parcel scale

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To weigh correspondence to ensure correct postage.

(iv) Stamp moistening device

For wetting stamps or envelopes to affix to seal. It is usually a moistered sponge in a container.

(v) Stamping machine

Rolls of stamps are purchased from the post office. The stamps are place in the machine. Water
is kept in a part of the machine. The stamps are automatically moistened and affixed on the
envelopes as required.

(vi) A date stamp

Which records the date on which the letter was received. It also stamps a number on the letter.

(vii) Addressing machine

Used to print names and addresses on envelopes, labels, wrappers etc regular customers or
correspondents small plates bearing the name and address are prepared as stencil or metal plates.
They are then passed through the machine for printing on envelopes.

(viii) Shredding machine

This machine destroys secrets and confidential material if no longer required or to avoid them
getting into wrong hand.

(ix) Punch

Used to put holes in a document ready for filling

(x) Scissors to cut paper

(xi) Stapler remover to remove pins from paper

(xii) Envelope sealing machine

This is a machine which automatically seals the envelopes. It will dampen the gummed flaps of
the envelopes; thus sealing of the envelopes becomes very easy

(xiii) Folding machine

The letters after being signed, reach dispatch section which sends them placing or housing them
in envelopes if a large number of letters are there this machine can be used to fold letter in one or
two or three parallel for with additional cross folds at a greater speed.

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(xiv) Dating machine

Dates are written on the letters by this machine. It is mostly used in offices where a large number
of letters are written every day.

(xv) Franking machine

(xvi) Used to print postal stamp impressions on the develops. Where arranged can also be used
to print advertising slogans on envelopes as it prints postal stamps impression.

(xvii) Guillotine

Used for cutting and trimming papers to the required size.

(xviii)Composite machine

This performs three functions i.e. folds the document, insert them in envelopes and deals the
envelopes.

(xix) Photocopy machine

Used to photocopy reports, correspondence from suppliers and clients and other officer related
assignments.

(xx) Laminating machine

used for laminating single documents like license, identity cars certificates etc

(xxi) Binding machines

Used for binding meeting reports, sales reports, list of customers and other documents for the
office.

(xxii) Electronic computers

Is an electronic device by which data is processed electronically at great speed. It is used to solve
business problems through decision- making techniques it process data and communicate the
results.

Uses of computer

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A computer is a giant mechanical brain which can process, analyse, store or supply information
instantaneously. It can perform the following functions

(i) To receive one or more programmes of instructions, store them and obey them as and
when required.

(ii) To take new information through one or more input channels and store them for
references as required by any of the
programmes.

(iii) To perform any arithmetical calculation, which may be repetitive in nature, as required
by the programme.

(iv) To select and carry out alternative courses of action, according to the information it
produces.

(v) To apply checks to the data it receives or produces and if a test indicates a failure,
produce a record or signal to
produce human intervention.

(vi) To store the data produced for future reference.

(vii) To select information from the store arrange it in any sequence, and discharge it
through one or more output channels
to be printed for human use, or to be recorded for subsequent computer uses. Also a
computer can be used for
preparation of payrolls, stock control, sales and purchase accounting records, costing,
budgetary control, production
control, hire- purchase accounting etc.

Advantages of computer

(i) It possesses a high speed in operation.

(ii) Many staff members can be substituted with a computer. Thus, operation costs are
reduced.

(iii) There is greater accuracy of work.

(iv) Since information is correct, sound future policy can be drawn.

(v) Monotonous jobs of the staff can be removed by computers.

(vi) Any type of complicated calculation can be solved with advantages.

Disadvantages of computer

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(i) Initial cost is very high.

(ii) If installed, maintenance cost is very high.

(iii) Trained, experienced and capable staff are very rare if available, high salary is to be
paid.

(iv) Breakdown is very common.

(v) If errors happen, it is very difficult to correct them.

OFFICE STATIONERY AND FORMS

Stationery:

Is a general term referring to all writing materials used in the office. Almost the whole of the
work done in an office involves the use of stationery. Stationery items include papers, stencils,
pins, pens, clips, ruler, erasers, carbon papers, typewriter ribbon etc.

The purchase, storage and issue of stationery may be controlled by the office manager. It is an
area where costs and wastage can be very high. It is therefore, necessary to maintain effective
control on use of stationery to reduce cost and ensure that the stationery projects the correct
image of the company.

Stationary control

The office workers should be provided with the best stationery items in order to produce the best
work.

The following points are to be borne in mind in controlling office stationery.

i. Cost

The cost of the stationery not only includes the price paid but also includes the interest on capital
tied up, labour cost of keeping the items, depreciation of storage equipment, etc therefore e, a
proper control is essential to keep down the cost to the minimum.

ii. Avoidance of wastage

Wastage in stationery may happen because of careless handling, deterioration of items, poor
quality, over-stocking etc. All these are to avoided. Proper control of stationery must be followed
by proper issue control

iii. Standard

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Standard items alone should be purchased substandard items bought have, less life and go waste
soon. The envelope and letter if of poor quality will repel the readers.

Management of office supplies

In order to achieve effectiveness and efficiency in office operations, proper management of

supplies is a must overstocking or under-stocking of supplies have their own demerits if they are
purchased in abundance (over-stocking).

Demerits/disadvantages of overstocking

(i) Bigger amount of capital is blocked.

(ii) Extra storage space is needed.

(iii) Risk of obsolescence.

(iv) Risk of obsolescent.

Guide-lines to ensure that the stationery in the office is not overstocked or run out of
stock

(i) The stationery should be bought centrally and in bulk to secure quantity discounts,
but overstocking should be avoided.

(ii) The issuing system must be planned properly to eliminate wasteful consumption as
fair as possible. Before issues are made requisitions
must first be received, signed by authorized officers and some sort of records kept to
record the movement of stationery in a given period
and by each section.

(iii) The proper control over the use of stationery must be included in the duties of office
supervisors. This is done by drawing a budget for
each section and section heads ensuring that they operate within the budget.

(iv) The stock must be maintained as little as possible, bearing in mind quantities for
economic buying and constant supplies.

(v) The good quality paper must be used for important documents to customers so as to
maintain the company’s good will. This is achieved
by avoiding false economies.

(vi) The possible re-use of stationery items ( like used envelops, for internal mail used
pins and paper chips) should be explored.

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 (vii) The stationery storage must be arranged so as to prevent deterioration, and to save
space, lighting and heating.

(viii) The stock levels must be set out to avoid running out of items of stationery which
are important or over-stocking.

OFFICE FORMS

Definition:

A Form is a printed piece of paper or card on which entries are made against marked headings.

Or

A form is a standardized record used to accumulate and transmit information for reference
proposes. Examples of forms are factory orders requisition, bills, quotations, orders etc.

Importance of forms

Forms serve as the vehicle by which various data are collected and brought together for use by
management. That is why; they are also described as the basic tools of the office. Nothing
happen in the office except to, or by means of pieces of paper. Forms are the medium to bear the
record of the enterprise and save as the basis of records management. Information can be
collected, processed and supplied in a systematic way with the help of office forms. Forms
increase the efficiency of office work and help in achieving economy in office operations.

SIGNIFICANCE OF OFFICE FORMS

(i) Clerical work becomes easy.

(ii) Output can be increased.

(iii) Unnecessary information means waste of time. This can be avoided by adopting
printed forms, with necessary queries.

(iv) Collection and compilation of statistical data become easier to study from the
information form than form a letter.

(v) In a printed form, the writer has to fill in al the columns, so as to finish information
without suppression.

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 (vi) The writer or the typist can be at ease in filling the forms in the appropriate place, by
writing a few words.

(vii) Understanding and transmission of information from the forms are quick and clear.

(viii) They help to identify records and facilitate easy filing for future reference.

(ix) Data entry, processing and reference becomes easy.

(x) They facilitate rapid processing of data since information appears in a standard form
and at fixed places.

ADVANTAGES OF FORMS

(i) Only necessary information can be had through the form and irrelevant information
can be avoided.

(ii) The work of the writer or the typist who is to write or type the information in few
words is made easy. It is easy for him to fill in the
required information correctly.

(iii) There will be no difficult in analyzing the data collected through the forms. If it is in
a letter form, there will be much difficulty in
analyzing and understanding the data collected.

(iv) The presentation of information will be uniform which accelerates the clerical job.

(v) Forms reduce the cost of operation work in the office.

(vi) Forms are helpful to fix the responsibility of the work done( forms are duly signed
by the writer).

(vii) Transmission of information, which is based on the forms will also be correct.

(viii) Forms make for uniformity in appearance and format. They facilitate identification
of records and simplify filling and sorting operation.

(ix) Forms make clear what information should be gathered. Thus, office forms simplify
office systems and routine.

(x) Since forms preserve records, they aid the organization in better planning.

To make the forms more effective

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 (i) Forms should be properly designed and drawn up, to avoid confusion in the mind of
the writer.

(ii) Forms should be predetermined with all necessary columns, to avoid waste of
energy and time.

(iii) Forms must be simple and easy to understand; otherwise it will be tedious to fill in.

TYPES OF FORMS

Forms may be classified as follows

1. On the basis of operation or function on performed by the form, as function performed by the
forms, as for instance, purchase form, material requisition form, application form. Etc

2. On the basis of use of forms

(a) Internal office forms.

Which are received or used by the employee of the business, for examples
accounting forms, application form, memorandum form,
requisition form etc.

(b) External contact forms.

Which are sent to customers, creditors etc for examples, form purchase order
form etc.

3. On the basis of copy

(a) Single copy form

Which are complete in themselves and often become the source documents.

(b) Multiple copies forms

Which are made in duplicate or more copies and which may be used to transmit
information or serve the function of providing additional
records.

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 FORM CONTROL

Meaning;-

Forms control is a means of exercising management control over the costs of

producing and processing forms. Forms are important in
any organization, therefore, there should be proper management control of them to
ensure that they are efficient and economical in
design as well as in use.

Objectives of form control

The following are objectives of form control, in brief

(i) To ensure regular supply of various forms.

(ii) To economical use of forms for the firm.

(iii) To reduce clerical work.

(iv) To minimize the use of number of forms.

(v) To make necessary changes in the existing forms if they are not
satisfactory.

(vi) To make reviews, whenever needed.

(vii) To introduce new forms which are really necessary.

(viii) To retain and use only those forms that are necessary for office
systems.

(ix) To study where the introduction of new forms or revision of old forms
is essential.

(x) To evaluate forms design on the basis of time required to use them

(xi) To review periodically all forms in use to find out their current utility.

(xii) To eliminate absolute and irrelevant forms, to consolidate different

forms doing the something and to introduce only such
forms that really necessary.

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 The form no longer required, should be disposed of after obtaining
proper approval of the officer concerned, the approval
will be pasted on the form. In the form book, marked as dead if possible
along with date.

QUESTIONS

1. Discuss the need for and importance of stationery and supplies in office work.

2. Describe the complete plan of stationery control.

3. Forms are the basic tools of all office works discuss the statement.

4. Forms are foundations of clerical system explain.

5. Why is control of forms desirable?

6. What are the advantages to be driven from the use of office forms?

QUESTIONS

(Office machines furniture and equipments)

1. What factors would you take into account in deciding whether to go for the purchase of labour-
saving devices for office?
2. Describe the important labour-saving devices for smooth running of the office work.
3. What are the objects of introducing office machine? State the relative advantages
4. In selecting a machine, what are the points to be considered?
5. State the criteria for the selection of office machines?
6. What are the uses of computer?
7. What are the benefits obtained from the use of computer and show its limitations.
8. What are the advantages and disadvantages of office machines?
9. Explain the uses of a computer and how it helps in the modern business.
10. What is office furniture? Discuss the main components of office furniture.
11. Discuss the factors which influence the choice of office equipment.
12. Discuss the importance of the records of equipment, machines and stationery.

RECORDS OF EQUIPMENT, MACHINES AND STATIONERY

Proper records of office equipment, machines, furniture and stationery must be maintained
adequately. These records serve the following
purposes:

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 1. These records ensure the proper use of all assets of the firm.
2. These records prevent the theft or misuse of some items are missing the appropriate action can
be taken to locate them without delay.
3. The records help to find out the correct value of assets of the company.
4. These are needed to ensure the expenditure incurred on these items.
5. These avoid the wastage or inappropriate use of stationery.

RECORDS MANAGEMENT

Records

Meaning

Records are written data that are made for possible future use.

The records may be classified into:

(a) Personnel records

(b) Correspondence records

(c) Accounting records

(d) Legal records

(e) Other business records

Record s management

Is the management control of records much more than the methods of filling or the systems
of classifications, important of these are indexing,
central filling, records retention follow up and micro-photography, all these receive attention
in the present day office.

OBJECTS(PURPOSE) OF MAINTAINING BUSINESS RECORDS

(i) Policy making.

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 Past records event, progress, etc are very necessary to decide future policies and
plans. in the absence of records, the policies and
plans may not be successful.

(ii) Comparison of business ( period wise/state wise)

Past records make it easy and possible to compare the performance of one
period with that of another period, one place with
another, one result with another, etc by comparison, one can know wether there
is progress or not.

(iii) Proper study of the position of the firm.

Records of past transactions are the basis on which further study can be made.
The preserved records are the contributory factors,
without which a good and proper study of the position of the firm cannot be
made and statement can not be prepared.

(iv) Accounts of progress kept in an orderly way.

To measure the progress of the concern or to find out other facts, a history of the
firm is needed. And the past records, history of
the business, recount the dealings.

(v) In case of disputes.

The need for referring to these records or documents often arises for the
settlement of disputes in transaction. All information can
not be remembered.

(vi) Legal requirements.

Certain records are to be kept for a number of years from the legal point of view.

(vii) Evidence

Records are good evidence in the court of law, in the case of suits.

(viii) General use

Some customers may simply refer to the previously correspondence by quoting

the number and date. In such case, if the letters have
been filed properly, it easy to comply with the needs of the customers otherwise,
there is a wastage of time and money.

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 (ix) Facilitate to detect errors and wastes and identifying the wastes occurring in the
organization. Thus management can eliminate the
errors or wastes.

PRINCIPLES OF RECORD MANAGEMENT

In order to be successful, the record management must be based on the following

principles

1. Verification.

Records can be verifies whenever needed.

2. Justification.

Records must be maintained with some justifiable purpose. Otherwise, it will be a waste of
money, space and time.

3. Classification.

Records must be classified according to their use. It may be classified according to time or
chronological or subjects.

4. Information.

The required information must be available whenever needed.

5. Elasticity.

The record system must be elastic in capacity so that expansion or contraction of records is
possible.

6. Reasonable cost

The cost of record management must be reasonable one. For more important records larger
amount may be spent and for less important
records only small amount should be spent.

Other definition of records management

Records management refers to the activities designed to control the life cycle of record
for its creation to its ultimate disposition

Stages of life cycle of records

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 1. Creation stage

The first stage involves design and control of office forms. Data should be recorded in the
forms accurately and completely. The time period
for which the records are kept should also be determined properly.

2. Storage stage

Under this stage records are properly classified and put into appropriate file covers. The
records should be stored at accessible location and
arrangements should be made for their protection.

3. Retrieval stage

The purpose of maintaining records is to make them available for future is to make them
available for future reference. Therefore,, an efficient
filling procedure should be designed to retrieve the records in time. There should be a
proper procedure for the issue of files.

4. Disposition stage

This stage is concerned with disposition of obsolete and unnecessary records valuable
documents are preserved, in water- proof and fie- proof
cabinet. The documents which are no longer required should be destroyed. Less important
records which are not in current use should be
transferred from high cost storage area to low cost storage area.

ESSENTIAL OF RECORDS MANAGEMENT SYSTEM

In order to achieve the above mentioned objectives, record keeping must have the
following essentials:

1. Simplicity

There should be simplicity in record keeping. Records should be maintained according to

the requirements of the organization so as to facilitate comprehension.

2. Accuracy

Records should be preserved accurately so as to reduce the chances of errors and frauds.

3. Economy

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 cost of maintaining and providing records is also an important factor which the office
manager has to keep in mind.

4. Usefulness

Record should be useful for better management of the affairs of the business. Record-
keeping should avoid retention of papers not needed.

FILLING

Meaning:

Is a system arrangement and keeping of business correspondence and records so that

they may be found and delivered when needed for future reference

Or

Filling is a process of classifying and arranging records so that they can be without
delay

Objects (purpose of filling)

(i) It keeps the records, protects letters and documents.

(ii) It makes past records easily available.

(iii) It provides suitable storage functions.

(iv) Proper filling leads to economy in space.

(v) It improves the appearance of the office considerably.

(vi) It is less expensive and consumes less time to take out records.

FUNCTIONS OF FILLING

Functions of filling can be classified into:-

1. information function

Records are protected and maintained to supply information.

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 2. administrative function

Files help the executive in framing business policies. For this previous records are
maintained.

3. library function

The records are stored for future references. Thus it performs the Library function.

4. Historical function

Files preserve important records of the progress of the business in a systematic manner.
Thus it performs historical function.

Advantages of filling

An efficient filling system claims the following advantages:

(i) Often customers refers to their past letters or orders by writing only the date and in
such cases filling serves purpose of ready reference.

(ii) When past records are maintained through a good filling system they save time and
also increase efficiency.

(iii) A proper filling system safeguards the documents against loss.

(iv) Old or past records save as a reliable basis for future planning and action.

(v) Past records are good evidence in a case of disputes.

(vi) Certain documents are to be kept in order to fulfill legal obligations.

(vii) A proper control is facilitated. According to the importance of letters they can be
disposed of quickly.

ESSENTIAL OF A GOOD FILLING SYSTEM

(Characteristics of good filling system)

An efficient filling system should have the following essentials/characteristics:

(i) Simplicity.

It must be simple in operations, so that every staff of the office can easily understand
the filling system.

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 (ii) Suitability.

The filing system should be completely applicable to the firm concerned and suit the
nature and requirements of the business for which it
is introduced.

(iii) Accessibility.

The files should be so arranged that the required letter or document for reference be
picked up without loss of time. Of course it is
possible through a good index system.

(iv) Protection (safety).

The filed documents must be available to the person, who needs them. They are easily
available when they are filed properly and securely.
Documents should not be damaged by dust, insects,thefts, mishandling, fire, rain etc.
certain documents have to be kept for a longer time
or for the life-time of the concern. They must be housed in suitable equipment.

(v) Economy.

Cheap system of filing is to be adopted. The cost incurred by the system must be
proportionate to the results obtained. The desired result
must be obtained by using minimum finance, time, clerks
etc.

(vi) Adaptability.

The system must be adaptable to the changes that occurs in business.

(vii) Less space.

Economy of space is of great importance in all concerns, because of the high rent. So
it is necessary to see that the system requires
minimum space . for this dead papers, older files which are not at all needed should
be removed. A regular removed of such documents
and files can save space.

(viii) Cross- reference.

References should be provided where necessary. Files removed should be noted on

out guides and know with who the missing file is lying.

(ix) Elastic/flexibility.

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 If there is any expansion of work in the business concern, then the filing system can
be expanded. So it must be flexible.

(x) Compactness.

It should not take up too much space especially floor space for the filing cabinet.

(xi) Co-ordination and control.

A good system of filling must permit constant co-ordination among all departments
and to have an effective control over.

(xii) The guide.

Whenever a file or document is taken out, an indicator should be placed at the same
place, if possible with signature of the recipient, to
show the file or document has been removed. When it is returned, the indicator will
be removed.

PLANNING OF FILING SYSTEM

The mode of filing system should be formulated on the basis of objects and nature of
records. When one prepares a system for filing, the first
job is to make out a list of records and documents to be stored. The following steps may
be considered while planning a filing system:

1. Period of storage

The period of storage must be determined with the consultation of various departmental
heads of the organization. All documents are not
needed for a long time while others may be needed for a considerable time.

2. Storage space.

Nature of the organization and availability of funds are the basis to layout a storage plan.
Arrangement s should also be made to protect the
records from losses or damages.

3. Arrangements in storage.

Storing arrangement should be kept in a view of the frequency of use of the documents and
departmental heads who will need the records.

4. Determining equipments need.

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 Various types of filing equipments should be produced to store the records. Availability of
funds and importance of records decide the choice of
filing equipment five proof equipment must be preferred.

5. System of classification.

A proper system of classification adopted is to be selected. The system should be simple,

economical and efficient.

6. Training.

Proper arrangements should be made to train the staff who handles the files. The filling
procedure should be designed to fit the needs of the
organization.

ORGANIZATION OF FILLING

The filing function should be organized in such a way that it helps in proper maintenance of
records. It is important to note that the records
should be made available whenever required. The office manager has to decide whether the
filing should be centralized or decentralized.
Centralized filing and decentralized filing both have their own merits and demerits.

1. Centralized filing system

Is a system where all records relating to the various departments of a concern are filed at one
place or in a central office. In other words,
individual departments or sections of an organization do not do the filing of records.

Merits of centralized filing

(i) It is put under control of specialists and this facilitates more efficiency.

(ii) Space available is used economically.

(iii) There will be effective control over them.

(iv) There will be no duplication of filing equipment and work ( as in decentralized

system) and as such there is economy in filing.

(v) There is uniform standard to file the papers and to take them out. This enables
speed location of documents.

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 (vi) People, who do the same work again and again become specialists in their work.
This adds to greater efficiency.

(vii) Papers will be filed the same day.

(viii) The location of missing files or papers is easily know (by proper use of
indicator).

(ix) The location of missing files or papers is easily known (by proper use of
indicator).

Demerits of centralized filing system

(i) When a departmental head is in urgent need of any letter, it will not reach him in
time because of the long procedure, this is the
main drawback.

(ii) Errors may creep in.

(iii) Much time is consumed if the filling department is located in distant rooms.

(iv) Rigid rules are there in giving and returning file. The rules become more
important than the dealings.

(v) Secrecy cannot be maintained.

[Link] filing system/departmental filing system

Is the filing system in which every department has to keep its own files. Every
department installs separate equipment and appoints staff to look after the filling work.

Merits of decentralized filing

(i) Suitable, simple and easy methods can be adopted according to the convenience
of the department.

(ii) The files are easily and quickly available.

(iii) Quick availability of file facilitate more efficiency.

(iv) Secrecy can be maintained.

(v) Receiving clerk, will file the letter without mistakes, because the has to deal with
a few letters only.

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 Demerits of decentralized filling system

(i) In one organization, in different departments, different methods of filling will be

followed. As such no standard system will prevail.

(ii) The filing clerk has many other jobs he cannot become a specialist in filing
system.

(iii) Inter-department transfer of clerks will fail to understand the filing system of
other departments.

(iv) If one document relates to two or more departments, there will be difficult in
filing a document.

(v) Filing will be done at the convenience of a clerk, who has many other jobs to do
along with the filing. As such he may misplace the
letters or keep them in other registers or leave them unnoticed.

FILING EQUIPMENT

There is a wide range of equipment available for the storage of information in an

organization. Filing equipment consists of covers, folders,
filling cabinets,etc.

Purpose of filing equipment

Filing equipment must serve the following purposes

(i) Protection of document against any loss through careless handling, damage by five,
water or deterioration through dust.

(ii) Prevention of theft or unauthorized use.

(iii) Insertion, location and extraction of documents must take less time or effort.

(iv) Easy traceability of files.

A file is a collection of papers or documents dealing with one person or topic. The
equipment in which they are kept is known as file cover or
binder

Types of file covers

(i) Box files

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 These have a solid box- like construction and a spring loaded compression pad
which holds down the filed material firmly. Box files
may be used to keep letters leaflets, catalogues, e.t.c

(ii) Lever arch files

These contain metal devices opened and closed in the centre of the folder operated
by the lever.

(iii) Concertina files

These are made up of number of succession pockets into which similar documents
can be collected ready for [Link] are
suitable for temporary documents awaiting processing like petty cash vouchers
and such documents which do not need to purchased
eg. Certificates e.t.c

(iv) Ring binders

These are made of hard covers and two or more rings which open to allow the in
section and removal of documents.

Filing cabinets

Several kinds of filing cabinets are in use, the common one being vertical,
horizontal, lateral and circular.

(i) Vertical filing cabinets

These are fitted with drawers in which files or folders are kept in vertical
[Link] cabinet may accommodate fullscape paper
papers, A4 or A5 take cards or micro films. They are either made of steel or wood.
For security purposes, cabinet are also provided with
special locking devices including combination locks.

(ii) Horizontal filling cabinets

These are made of several drawers in which files or folders are laid horizontally.
They are used for storing stationery, photographs,
maps, stencils, drawings etc. than for files. This is because files are on top of each
other which makes it difficult to refer to the
document.

(iii) Lateral filling cabinets

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 These are made of suspended filing packets and files kept in their vertical position.
The filing cabinets are held laterally along the
shelves of the cabinet, rather than in drawers.

(iv) Circular rotary filling cabinets

These enable a great, many records to be filed in wallets or pockets around a

central vertical pillar. They economize space very
accessible and can be used by several filling clerks at the same time.

FOLDERS

Folders are the basic of vertical filing they are made of manila paper or some other
strong paper and are used to hold papers and
documents.

FILING METHODS

This refers to how file cover or binder are kept in the filing cabinets

Factors influencing the choice of filing methods/systems

(i) Simplicity- to be affordable to new employee.

(ii) Elastic- room for expansion and capacity to accommodate new files.

(iii) Cost- cost of keeping files should be minimum.

(iv) The number of file and documents to be retained.

(v) Reference- there should be easy reference of documents.

Filling methods/systems include:

[Link]/horizontal filing.

Is the keeping of files in the drawers, racks or in shelves when one is on top of,
another lying horizontally.

Advantages of horizontal filing

i. It is simple to operate. It is easy to file documents.

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 ii. It facilitate easy references of documents as they are filed in chronological ( date- wise) order.
iii. It is flexible system.
iv. It can keep letters in proper order with the help of spring fastening device.
v. The letters can be referred without moving them from the file. Thus, risk of being lost is
maintained.

Disadvantages of Horizontal filling

i. It is unsuitable where the volume of records is very high

ii. To take out any proper , other papers have to be dislocated as the paper are kept in the order in
which they are received.
iii. When a large number of papers are stored in one file, their location becomes somewhat
difficult.
iv. This system is less flexible and takes more time as compared to vertical system.

[Link] filing

Is the keeping of files within the drawers, racks or in shelves when they are standing up-
right north to north

Advantages of vertical filing

i. Vertical filing allows ready reference of papers and documents. The heading of each folder is
visible from the extended edge of the back- sheet.
ii. It is really adoptable. The folders can be arranged according to any classification such as
alphabetical numerical and subject-wise.
iii. It is economical compared to the horizontal equipment as it can accommodate more papers.
iv. It provides ample scope for expansion while installing this type of equipment adequate
provision for expansion of the number of folders can be made in the drawers.

Disadvantages of vertical filling

1. Vertical filing is not as fast as the other methods of filing such as visible card filing and rotary
card filing.
2. There is always a possibility of folders shipping down the drawers. This may lead to unnecessary
wear and tears of various folders.

[Link] filing.

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 Is the keeping of files vertically while metal bars are affixed on sides of a filing cabinet
drawer to prevent them from falling off from the filing
cabinets.

4. Lateral filing.

This is where the files are stored on shelves or on pockets suspended side by side from
frames.

5. Open shelf filing

Is a method of filing in which open shelves are used in the library to store folders. Under this
method open shelves or wooden or steel racks are
utilized for keeping files and [Link] open shelves,filing may be done horizontally or
vertically, and any method of classification may be
adopted. This method of filing is especially used where papers are kept in envelope of
packets or some other covered jackets.

6. Visible card filing

This method use a visible card equipment. This equipment is developed on the principle
“look at the record, not for it” the main characteristic of
visible filing is that, the main reference on each card is visible at all times. Generally , the
cards are laid in a flat shallow tray or in a metal hinge.
The cards are put in transparent covers before arranging them in trays. Each card is so
arranged into a metal hinge that it overlaps the one before
it in such a way that a narrow strip at the bottom containing name, telephone number of the
subject remain visible.

CLASSIFICATION OF FILES

(Classification system of documents)

Classification system is the basis of arranging documents in the folder.

Or

Classification is the process of selecting headings under which documents are grouped or
classified on the basis of common characteristics
before filing takes place.

CHIEF METHODS OF CLASSIFICATION OF FILES

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 1. Alphabetical classification

This is where documents are filed according to the first letters of either the name of sender or
the subject. The arrangement is similar to words in
an English dictionary or names in telephone directory. If a number of files are kept, each file
is given a title and the files a re arranged in the
alphabetical order in the filing cabinet.

Advantages of alphabetical classification

1. Training is not needed for the clerks to perform the filling.

2. It is easy and convenient to group papers by names of persons, firm, products etc.
3. Direct filing is possible without the help of an index. It is self-index.
4. Files can be located immediately.
5. Number of files can be reduced or introduced without disturbing the classification.

Disadvantages of alphabetical classification

1. In large systems it takes longer time to find papers.

2. Mistakes creep in under common names i.e when there are several persons having the same
name.
3. There is also difficult if the names are mis-spelt.
4. For large organizations, papers may be reasonably be filed under different headings.
5. It is difficult to forecast space requirements for different letters of the alphabet.

2. Numerical classification

In this system documents are arranged according to numbers rather than letters. A number is
allotted to each customer and the same number is
put on all papers or documents relating to transaction with him thus, the number allocated to
each correspondent becomes his file number. If one
file contains records of more persons, decimal system may be used e.g. 21.1 donates one
person; 21.2 donates another and so on and these are
file No.21 an index is necessary for locating the correct file.

Advantages of numerical classification

1. Accuracy in filling system is greater.

2. Reference is made by numbers.
3. They have unlimited possibilities for expansion. New documents are added to the file as they
arise.
4. If files are misplaced, it can be noticed promptly.
5. It is easy to operate, numbered files can easily be located and arranged serially in comparison to
alphabetical index.
6. The filling index may be used for other purposes ( for example a mailing list) as well.

Disadvantages of numerical classification

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 1. Transposition of figures causes mis-filing.
2. A separate index must be provided.
3. It takes time for a new employee to fully understand the system.
4. Filing and finding is indirect.
5. It takes longer to file material as it involves two operations i.e the recording of paper number on
the card index and the filing of the document.

3. The alphabetical- numerical or alpha- numerical classification

It is a combination of the alphabetical system and numerical system. In this system and
numerical system. In this system each letter or
sub-letter is given its own number and an index card is placed behind the guide card for each
alphabetical [Link] names and numbers of all
the folders are mentioned in a numerical order behind each card. The coloured guide cards
are used to sub-divide for folders into groups to
facilitate their speedy location. The names and numbers of all the folders are mentioned in a
numerical order h=behind each card. The coloured
guide cards are used to sub-divide for folders into groups to facilitate their speedy location
for instance, all files are arranged alphabetically and
the first group is Aa- Ag. The folder of ABC firm, Agra book stores are first and second in
order within this group; the first folder will bear the
number A/1 and the second folder will bear the number A/2 and so on.

Advantages of alpha-numerical classification

i. It has all the advantages of the alphabetical and numerical classification.

ii. I t is an elastic classification.
iii. It facilitates quick reference.
iv. Geographical classification.

[Link] classification.

Is the arrangement of files according to their place of origin. For example files can be arranged
by countries, towns or by province in a country or by districts in a province. Files within each
group are arranged alphabetically. This system is generally profitably used by banks, insurance,
departmental stores etc.

Advantages of geographical location

1. It is simple to operate.
2. Statistical data can be collected easily.
3. Suitable for companies that have several branches spread over different parts of the world or a
country. For example, oil companies and commercial banks.
4. Convenience of reference where the location is known.
5. Direct access for filling purposes.

Disadvantages of geographical location

292
 1. Possibility of error where knowledge of geography is weak
2. Geographical location on must be known in addition to correspondent’s name
3. Index necessary for occasional reference

5. Subjectwise classification

In this, records are filed according to the nature of their subjects or contents. Papers are first
arranged subjectwise and then in alphabetical order.
Papers on a particular subject are arranged and put together, rearranged alphabetically or
numerically and filed accordingly, there may be order
file invoice file, complaint file, e.t.c

For examples:-

Main subject classified:

Purchase

Sales

Promotion

Sub-division of classified subjects:

Sales- cycle parts

Sales- scooter parts

Sales – motor parts

Advantages of subjectwise classification

i. All documents referring to a particular subject or matter are kept together in one place.
ii. The files can easily be expanded or contracted by simply adding or subtracting old ones.

Disadvantages of subjectwise classification

i. Determining the of divisions is difficult and requires someone with a knowledge of the business
and its files.
ii. Determining under which subject heading it should be filed requires a trained and careful
employee.

Chronological classification
Under this system various records are identified and arranged in strict date order and
sometimes even according to the time of the day. For

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 examples, newspapers, current prices, market reports, [Link] is a useful system if dates are
known.

Advantages of chronological classification

i. Useful if dates are known.

ii. If provides for unlimited scope of expansion.

Disadvantages of chronological classification

i. It is not always suitable.

ii. Incoming letters might become separate from outgoing ones.

Factors influencing choice of a filing system

The method of classification to be used will depend on the need of the business concerned.
The following are general guide-lines for any
organization to choose a classification system.

1. The number of files and documents that need to be retained.

2. Simple in use and easy to explain to a new employee. It should be the one could take up after a
brief explanation e.g Alphabetical filing.
3. There must be room for expansion and capacity to accommodate new files without the need to
change the existing documents( i.e. their sequence order).
4. There must be easy reference and minimum possibility of misfiling.
5. A document need not have more than one file or filed under different subjects.
6. The cost of keeping files must be minimum. Filling classifications have different equipment and
maintenance costs of keeping them.

INDEXING

Indexing means to guide [Link] index is an indicator, indicating any subject

[Link] filing, index helps the location of any letter,
record, files et. Thus it provides quick reference, which is essential of a good filing
system. A index can be seen in almost all books, in last
pages. The index will indicate the pages. The index will indicate the page number, where
the particular subject is dealt [Link] index is device
for finding the position of a document or file in a system quickly and easily.

Difference between classification and indexing:

Classification is a method of filing and the manner in which the files of different subjects
are arranged.

While

294
 Indexing is a method of making reference to the [Link] index is a finding tool. It
furnished the key as to how the material are arranged.

Importance of indexing

i. Indexing is an essential part of a good filing system as it is a guide.

ii. It provides a ready reference.
iii. It facilitate easy location of files.
iv. Even if the files are arranged in self- indexing method index will further speed the work.
v. It possesses minimum information.

Essentials of a good system of indexing:

A good system of indexing should possess the following essentials

1. It must be simple to operate and use

2. It must be economical in terms of money, space and effort
3. It should be flexible to allow for expansion
4. It should allow for speed
5. It should be suitable for the particular business
6. It should have locking arrangement

METHODS OF INDEXING

The following are the important type of indexing:

1. Bound book index

This system normally consists of a bound book, each page of which is allotted tone letter or more
letters of the alphabet. Each page of this book has a tab which indicates the letter or letters of
alphabet allotted to it, for example, if it is desired to see the number of the page in which the
account of Mr. Anil is kept, the page marked ‘A’ will be seen or against the name of Anil ill
appear page number, that is, page number on which anil’s account appears.

Such an index may take the form of a separate book or an index in the front or at the back of the
book. A bound book index is a vey simple method of indexing. No special training is required
for office clerks to operate it. The pages cannot be lost as they are bound.

2. Vowel index

Here each letter of the alphabet is sub- divided into six divisions according to five vowels that is
A, E, I, O, U and [Link] there are many names beginning with the same alphabet, they can be again
sub-divided on the basis of vowels. For example, rams name will be written on the page of the
register marked “Ra”. The Rekha will be written on the page of register “Re” and so on. This
type of index can be used for small and medium size concerns.

Advantages of vowel index

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 i. It is a permanent record.
ii. It is safe, because it will not be lost.
iii. It is always in the register itself and no time is spent in searching the index.

Disadvantages of vowel index

i. In the book index, the names of persons are written, as and when occurred. So it takes much
time to search a name. there are many pages allotted to the same letter. But vowel index is an
advantage.
ii. The system is in elastic.
iii. The names of the persons, who are no dealing with the firm have to be truck off.

[Link] leap index

This is another form f book index. Loose leaf is a sheet ruled like the pages of ordinary
index. The sheets are inserted in or taken of from metal
hinges or screws, as and when required. It is arranged as the library card index system.
Each person (correspondent) is allotted a card on
which the name of the person, the address, the file number etc are entered. The loose leaf
index diagrammatically.

Examples of loose leaf index diagrammatically

Advantages of loose leaf index

i. Index of dead files can easily be removed.

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 ii. The system is elastic.
iii. Complete information can be had.
iv. Additional information can be written or typed easily.
v. It save time and material.
vi. It is very economical.
vii. The dispatch of monthly statements and trade circulars is easy.

Disadvantages of loose leaf index

i. It is possible that cars, are torn quickly by constant use.

ii. Equipments are needed to keep the cards, therefore this system is expensive.
iii. There is possibility of cards being misplaced, when they are inserted or taken out.
iv. For small firms it is a mere waste.

[Link] index
This is another method of preparing index. The index is prepared in cards, each card is
allotted for one information e.g. customers, firms, etc.
the details of the reference are shown on cards. Cards of equal and uniform size are used.
The cards may be of different colours of getting a
good appearance or for distinguishing one group of cards from another. The card bears the
number of file and the names of references along
with particulars. The cards are placed in drawers, which are specially made for them. The
cards are arranged in the dictionary order. E.g. if the
file of Rama medical is to be taken of, first we have to look for the card, in the index
drawer under Ra section indicated by the guide card, Ra.
After a look at the index, the file number of Rama medicals can be known. Then find out
the file from the filing [Link] cards are kept in
drawers. A rod is put through them to hold the cards. So the chance of misplacement is
reduced. The cards may be placed clerically or
horizontally.

Advantages of card index

i. Any type of ruling can be adopted for the cards.

ii. Insertion or removal of cards is easy.
iii. It is capable of being expanded.
iv. Location of card is easily.
v. Rearrangement of car as is possible.
vi. The system ensures quick and accurate references.
vii. Foldable card can also be used.

Disadvantages of card index

i. It is complex and elaborate.

ii. There is the danger of the cards being lost or misplaced.
iii. It is not suitable for small firms.
iv. It requires special equipment and specialized clerks.

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 5. Visible card index

The cards are placed flat in transparent covers in a shallow tray or metal frame it is so placed
into a metal hinge that the name and address is
visible without touching another card. Then trays or frames are fitted vertically to metal
stands or fitted horizontally into cabinet. The cards are
placed according to alphabetical, numerical or alpha numerical order. The writer can write
on the card (either on the back or on the front) without
removing it from the frame.

Advantages of visible card index

i. It is compact and requires less space.

ii. As it is visible, there will be speed in work.
iii. It is useful to management as it provides quick information.
iv. It helps management in controlling purchases, sales e.t.c
v. It gives a list of customers easily visible to the eyes on the frame and requires less expense and
minimum effort.

6. Wheel index

Is a system according to which cards are mounted round the hub of a wheel. The wheel
moves or rotates on ball bearings. When a particular file is
needed, the wheel is rotate and the required card referred to this system is economical as well
as flexible.

7. Strip index

This system consists of strips of cards or thick paper fitted in a frame is such a way that the
strips can be taken out or inserted. The frames are
fixed in a shelf or in a book form. Dead strips can be removed and new strips can be
inserted.

Cross-reference

It is possible for a correspondence to be filed in 2 or 3 different files, but only one copy is
available. A good cross- reference system is needed. It
is in the form of card or folder directing a person to where a document which can be filed
under more than one file found. For example, a letter
Akola- okubu might be filed under Okola- okubu file or in Okubu –Okala file. Where a letter
from Akola – Okubu is filed under Okubu- Akola file, a
cross-reference card put under Akola- Okubu file to direct where it is located.

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 selection of suitable indexing system

Every system of indexing has its own merits and demerits. Some methods are rigid while
others are flexible though expensive. The installation of a
suitable indexing system depends mainly on the following:

i. The type and the extent of information needed.

ii. Cost of equipment in each system.
iii. Cost of labour in each system.
iv. The requirement of space required for each system.
v. The frequency of adding or deleting.
vi. The purpose of keeping an index.

Marking absent files

If a file is likely to be removed for a couple of days, “marked’ folders should be inserted in the
place to collect any papers referring to the absent
file. At times, it is referred to as an “out card”. “A loan registry” book should also be used to
note down when files are taken out. The names of the
person who has taken it, noted, when returned , a signature by the loaner will cancel the entry.

Released for filing

Before letters can be filed, they must have been replied to any person responsible for
replying letters will usually mark in the corner of the letter
with an agreed upon release symbol i.e letter ‘F’ putting his initials, etc alternatively he will
place it in a basket that is labeled “for filing”.

Retention of records

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 Documents and records are not all expected to be kept permanently in the filling cabinets.
When records become destroyed or transferred to
reserve storage. Because of small space available for storage. Because of small space
available for storage, unnecessary records should never be
held for unduly long periods. This does not mean that records that may b needed later are
destroyed. For this reason, organizations have specific
period of time, records are expected to be kept in the organization. That is what is referred to
as “the retention period” such retention periods
should be noted on the records and extracted from the cabinets on the expiry periods.

The length of period for which records are retained depends upon cost, space, future need
and nature of the documents enough space is available
and these records are needed in future then these can be retained for a longer period and vice
versa.

MICRO-FILMING

This is a method of retaining or keeping information by photographic records to produce

them when needed. The records are micro- photographed
and kept either on roll film, micro fish a picture or card or jacket. When needed for reference,
the negative is shown on a screen or a copy can be
made micro-filming is only important when a great multitude of permanent records must be
kept e.g in office of registrar of births, records of
rainfall e.t.c

Advantages of micro-filming

i. Saves space and weight-bulky files are replaced by compact cartons of films.
ii. Documents can be sent abroad. Micro-filming reduces cost of postage if information has to be
sent by expensive air-mail.
iii. There is little risk of misplacing there is no possibilities of records on micro-film to be misfiled as
it would be with lose papers in a folder.
iv. A film is more durable than paper and provides a much move permanent record film is more
wear- resistant than paper.
v. Film can be enlarged on to paper, thus providing quick and accurate duplicate copies of the
original documents.
vi. There is saving in filing equipment as well as floor space.

Disadvantages of micro-filming

i. Relatively slow because the film has to be viewed through the reader ( a machine with projects
the film on to a screen).
ii. No indexing is possible and thus location of a particular frame may be difficult causing delay and
frustration.
iii. Micro-filmed information cannot be altered which is a disadvantage because sometimes it is
necessary to make corrections or make insertions to the stored information.
iv. There is great loss in case of one film I lost as one film will be keeping so many documents.

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 v. In case of poor processing with stale chemicals, the film may be unreadable.

Filing documents in the computer

A computer can store work in the same way as a conventional filing system. The document
in a computer are kept in [Link] computer can be
called an electronic filing cabinet. Within folders are sub-folders that works like drawers in
the cabinet and helps you organize the different
areas of your work. For example if you create a folder for office work, you could then create
sub-folders for business correspondence and accounts.
As with any filing system, its vital to organize it well right from the start. You should first
decide which folders you are likely to need. Begin by
creating a folder for each area of your work. You can then decide which sub-folders to create.

In a well organized system, it becomes easier to save and retrieve your work, whether in
office or [Link] can access your computer filing
system through a handy facility called “window explorer’ through this you can move folders
and files around, make new folders and even copy or
duplicate folders and [Link] is also important that your files should be named logically
so that, should you misplace one and not remember
its full name, you can still activate a search for it.

FILING ROUTINE

Establishment of a filing routine is essential to avoid misfiling and misplacement of files. It

is also essential for any papers bearing the record
cannot be handled and preserved without any proper arrangement.

Filing routine refers to receiving papers and documents and placing them in files.

Or

It also refers to issuing files for reference and use.

The followings are the steps in filing routine;

1. Instruction for filing

Some responsible officer should issue an instruction for filing papers. The authorized
officer should write “file” on the paper along with his
signature and date. no document should be filed unless this produce has been followed.

2. Classifying

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 The responsibility for deciding the heading under which an document should be filed must
be clearly defined. This task may be done by the
senior filing clerk or by the executive himself.

3. Indexing

The documents to be filed are then coded. The cord is written on them and then they are
indexed.

4. Cross reference

Sometimes certain documents relate to more than one file. They are to be filed under the
most appropriate heading but a cross-reference card is
inserted n every other r relevant file for easy referencing.

5. Filling

After the papers have been classified, indexed and codified, they may be filed in the
appropriate files or folders in the chronological order.

6. Follow up

Certain documents or papers require a follow- up action, like a letter. The concerned
executive put on the follow-up instructions and filing clerk
prepares a follow-up slip to act as a reminder. The follow-up document slip is filed in a
follow up file along with the, copy of the paper and the
original document is filed. The filing clerk sends the needed document to the concerned
officer on the specified date.

7. Issue of the file for reference.

Whenever a paper or a file is needed by an executive, he should send a requisition slip, on

the receipt of which the filing clerk will prepare a
“charge out” slip, he will also prepare “ out slip” ship, he will also prepare on “ out slip”
which indicates the where about of the file and is kept in
the place vacated by the file issued. The out slip should be taken out when the file has been
returned to its place.

8. Disposal of dead files

In office the filing department should transfer the inactive files into the central room but
when the paper has become dead, it should be
destroyed according to the instructions of the officer responsible for retention of records.

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