What is economic system? Explain various typesof economic system.
Organized way in which a state or nation allocates its resources and apportions goods and services in the national community. Economic system appears in the definitions of the following terms: mixed economy, capitalism, metaproblem, laissez-faire economics, automatic fiscal stabilizers, economic dynamics, macroeconomics, business, success to the successful, international business
Economic system is in the Economics, Politics, & Society subject.
An economic system is a particular set of social institutions which deals with the production, distribution and consumption of goods and services in a particular society. The economic system is composed of people and institutions, including their relationships to productive resources, such as through the convention of property. In a given economy, it is the systemic means by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources. Examples of contemporary economic systems include capitalist systems, socialist systems, and mixed economies. Economic systems is the economics category that includes the study of respective systems.
Types of economic system:
Market Economy
In a market economy, national and state governments play a minor role. Instead, consumers and their buying decisions drive the economy. In this type of economic system, the assumptions of the market play a major role in deciding the right path for a country’s economic development.
Market economies aim to reduce or eliminate entirely subsidies for a particular industry, the pre-determination of prices for different commodities, and the amount of regulation controlling different industrial sectors.
The absence of central planning is one of the major features of this economic system. Market decisions are mainly dominated by supply and demand. The role of the government in a market economy is to simply make sure that the market is stable enough to carry out its economic activities properly.
Planned Economy
A planned economy is also sometimes called a command economy. The most important aspect of this type of economy is that all major decisions related to the production, distribution, commodity and service prices, are all made by the government.
The planned economy is government directed, and market forces have very little say in such an economy. This type of economy lacks the kind of flexibility that is present a market economy, and because of this, the planned economy reacts slower to changes in consumer needs and fluctuating patterns of supply and demand.
On the other hand, a planned economy aims at using all available resources for developing production instead of allotting the resources for advertising or marketing.
Mixed Economy
A mixed economy combines elements of both the planned and the market economies in one cohesive system. This means that certain features from both market and planned economic systems are taken to form this type of economy. This system prevails in many countries where neither the government nor the business entities control the economic activities of that country – both sectors play an important role in the economic decision-making of the country. In a mixed economy there is flexibility in some areas and government control in others. Mixed economies include both capitalist and socialist economic policies and often arise in societies that seek to balance a wide range of political and economic views.
Traditional Economic: Traditional economic system is an economic system in which resources are allocated by inheritance, and which has a strong social network and is based on primitive methods and tools. It's found today mainly in underdeveloped, agricultural parts of South America, Asia and Africa.
Define corporation with characteristics?
Definition:
The most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, call incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability). Incorporation also provides companies with a more flexible way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be both advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnerships.
A corporation is a legal personality, usually used to conduct business. Corporations exist as a product of corporate law, and their rules balance the interests of the shareholders that invest their capital and the employees who contribute their labour. People work together in corporations to produce. In modern times, corporations have become an increasingly dominant part of economic life. People rely on corporations for employment, for their goods and services, for the value of the pensions, for economic growth and social development.
according to Harvard University Professors Hansmann and Kraakman corporation is..
• delegated management, in other words, control of the company placed in the hands of a board of directors
• limited liability of the shareholders (so that when the company is insolvent, they only owe the money that they subscribed for in shares)
• investor ownership, which Hansmann and Kraakman take to mean, ownership by shareholders.[4]
• separate legal personality of the corporation (the right to sue and be sued in its own name)
transferrable shares (usually on a listed exchange, such as the London Stock Exchange, New York Stock Exchange or Euronext in Paris
Characteristics of a Corporation
A number of characteristics distinguish a corporation from a sole proprietor or partnership.
Unlimited life
As a corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation. Its charter may limit the corporation's life although the corporation may continue if the charter is extended.
Limited liability
The liability of stockholders is limited to the amount each has invested in the corporation. Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the corporation. Creditors are limited to corporate assets for satisfaction of their claims.
Separate legal entity
The corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, enter into binding contracts, borrow money, sue and be sued, and pay taxes. Stockholders are agents for the corporation only if they are also employees or designated as agents.
Relative ease of transferring ownership rights
A person who buys stock in a corporation is called a stockholder and receives a stock certificate indicating the number of shares of the company she/he has purchased. Particularly in a public company, the stock can be easily transferred in part or total at the discretion of the stockholder. The stockholder wishing to transfer (sell) stock does not require the approval of the other stockholders to sell the stock. Similarly, a person or an entity wishing to purchase stock in a corporation does not require the approval of the corporation or its existing stockholders before purchasing the stock. Once a public corporation sells its initial offering of stock, it is not part of any subsequent transfers except as a record keeper of share ownership. Privately held companies may have some restrictions on the transfer of stock.
Professional management
Investors in a corporation need not actively manage the business, as most corporations hire professional managers to operate the business. The investors vote on the Board of Directors who are responsible for hiring management.
Ease of capital acquisition
A corporation can obtain capital by selling stock or bonds. This gives a corporation a larger pool of resources because it is not limited to the resources of a small number of individuals. The limited liability and ease of transferring ownership rights makes it easier for a corporation to acquire capital by selling stock, and the size of the corporation allows it to issue bonds based on its name.
Government regulations
The sale of stock results in government regulation to protect stockholders, the owners of the corporation. State laws usually include the requirements for issuing stock and distributions to stockholders. The federal securities laws also govern the sale of stock. Publicly held companies with stock traded on exchanges are required to file their financial statements and additional informative disclosures with the Securities and Exchange Commission. Certain industries, such as banks, financial institutions, and gaming, are also subject to regulations from other governmental agencies.
Advantages and disadvantages of corporation.
Advantages
• Separate legal entity: corporation that conducts its affairs with the same rights, duties, and responsibilities of a person.
• Limited liability of stockholders: Stockholders are neither liable for corporate acts nor corporate debt.
• Transferable ownership rights: The transfer of shares from one stockholder to another, usually with no effect on the corporation or its operations.
• Continuous life: A corporation’s life continues indefinitely because it is not tied to the physical lives of its owners.
• Lack of mutual agency for stockholders: A corporation acts through its agents, who are its officers and managers.
• Ease of capital accumulation: Buying stock is attractive to investors because stockholders aren’t liable for the corporation’s acts and debts, stocks usually are transferred easily, the life of the corporation is unlimited, and stockholders aren’t corporate agents.
• Shares are Transferable: Corporate stocks are free to buy and sold. The corporate is not responsible to see who the shareholders are. The shareholders can sell their stock to the other people. Even after their death their stocks get transferred to his or her heirs. But this transfer of stock is restricted and as well as regulated by federal and state securities law
• Professional management: Investors in a corporation need not actively manage the business, as most corporations hire professional managers to operate the business. The investors vote on the Board of Directors who are responsible for hiring management.
Disadvantages
• Government regulation: A corporation must meet requirements of a state’s Incorporation law.
• Corporate taxation: Corporations are subject to the same property and payroll
• Complexity in forming: To form a corporation is very much complex than the other organization.
• Problems in quick decision: It is difficult to take quick decision in a corporation organization because of separate management committee.
• Lack of flexibility: corporate organization is not as flexible as the sole & partnership business.
Formation of corporation?
There is a formation of corporation of given below:
1: Selecting A Name
• Permissible corporate names. The laws of most states require that the name of a corporation "contain the term 'corporation', 'incorporated', 'company', or 'limited' or an abbreviation of any of these terms." For example, See Colorado Corporate Code, Section 7-90-601(3). Also, there are words that may only be used in the name of certain types of corporations. The following is California's prohibition on the use of certain terms: "The Secretary of State shall not file articles setting forth a name in which 'bank,' 'trust,' 'trustee' or related words appear, unless the certificate of approval of the Commissioner of Financial Institutions is attached thereto." California Corporate Code Section 201. Finally, the name of a corporation may not be deceptively similar to the name of another corporation incorporated with your state, another corporation registered with your state as a foreign corporation, a trade name registered with the state, or trade name previously registered with the state. For example, see Colorado Corporate Code, Section 7-90-601(2).
• Researching name availability. For all states that allow for online searching of their corporate database for name availability, we given the link on our corporate information page for that state. Please click on the name of your state found in the list on the right column of this page to be taken to the corporate information page for that state.
2: Articles of Incorporation
• In General. The "Articles of Incorporation" (also known as the "Certificate of Incorporation") is the founding legal document of a corporation. It is an application filed with the state to have an artificial legal entity known as a corporation brought into existence and sets forth basic information about the corporation that can also define or limit elements of the corporation's existence. To obtain articles for your state, please click on the link to your state in the upper right-hand column of this page. Click here for the Delaware Articles of Incorporation.
• The incorporators. These are the individual or individuals (most states allow for a single incorporator) who sign the articles of incorporation thus requesting the state to bring the corporation into existence. This is more than a mere administrative act as the incorporators have the power in most states to name the first board of directors of the corporation.
• Registered Agent. This is the individual or corporation located within the state of incorporation who receives all legal notices from the state relative to the corporation and is recipient of service of process should the corporation be sued. All states require that a registered agent be named in the articles of incorporation.
• Corporate Purpose. In some states, one may merely state a general purpose for the corporation, such as: "to engage in any lawful act or activity for which a corporation may be organized under the general corporation law of California". In others, a specific corporate purpose must be named in addition to the general, i.e., "operation of an internet legal forms system and related activities". The instructions to the articles published by the state shall tell you whether a specific purchase must be named.
• Duration. The duration of a corporation is almost always listed as "perpetual" in the articles. This means there is no stated time limit at which point the corporation shall be dissolved.
• Initial Board of Directors. The following states require that the initial board of directors be named in the articles of incorporation: Alabama, Arizona, District of Columbia, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, Rhode Island, South Dakota, and Texas. Louisiana requires the filing of a form entitled "Initial Report" with the articles of incorporation and, in the initial report, the incorporators are to name the first board of directors. All others do not require that the initial board be named in the articles of incorporation; however, it is permissible to do so.
3: Publication
• Only Arizona, Georgia, and Nebraska require the incorporators to publish notice of the incorporation for a set period of time (usually once per week for four weeks). Please go to the Secretary of State's site for the state in question to obtain additional information on this subject (note: if you click on the state name above you shall be taken to a page containing the proper link).
4: Initial Board of Directors
• If the initial board of directors was named in the articles of incorporation, then you can skip this step.
• In all states, the incorporators (i.e., the individuals who signed the articles of incorporation) may elect the initial board of directors who serve until the first annual meeting of shareholders (at which time a new board is selected by the shareholders).
• There are two methods for electing the initial board of directors if done by the incorporators: (a) through a meeting for which prior written notice was given and (b) through unanimous written consent.
• Board Size. All states except the following allow the board of directors to consist of one board member without qualification: Arkansas, California, Massachusetts, Missouri, Ohio, Utah and Vermont (please click on the name of the state to see its statute relative to the required number of directors).
Definition of share? Types of share with explanation?
Share is a part of something; a financial instrument that shows that you own a part of a company that provides the benefit of limited liability; to give part of what one has to somebody else to use or consume; to have in common; to divide and distribute
there are some divination given below:
• A share is a unit of ownership in a corporation or mutual fund, or an interest in a general or limited partnership. Though the word is sometimes used interchangeably with the word stock, you actually own shares of stock.
• A unit of equity ownership in a corporation or mutual fund. Corporate shares are represented by stock certificates
• A share is a transferable security representing a portion of the capital of a limited company or a partnership limited by share.........
Types of Shares
The rights and duties of a member will depend on the articles of association of the company. Certain rights accrue only to members who are shareholders in a company. A member of a company limited by shares must be a shareholder in the company. Where a company has a share capital, it is presumed that all shares have equal rights but the company may in its memorandum or articles of association create a power to issue different classes of shares, including ordinary, preference and redeemable shares.
Ordinary shares
Ordinary shares generally carry the right to a vote. Where a company is wound up they generally have a right to participate in any surplus funds when all creditors have been discharged. This is beyond the fixed amount they originally invested in their shares.
Where ordinary shares carry weighted or differing levels of voting power, but carry equal entitlements in respect of dividends and capital, they are normally divided into classes- Ordinary Shares Class A, Ordinary Shares Class B etc.
Preference shares
Preference shares carry preferential rights, most commonly as a dividend or capital. A share which is preferred as to dividend usually entitles the member to be paid his dividend in priority to the ordinary shareholders.
Preference shareholders' entitlements to dividends are generally expressed as a right to a percentage per annum of the nominal amount of the share. A share which is preferred as to capital entitles the member to have his or her capital investment in the company repaid in full before the ordinary shareholders are returned their capital in a winding up.
Redeemable shares
Redeemable shares are shares which the company is entitled to buy back from its members. Where shares are redeemed, the company generally cancels them. However, a treasury share is a share which is retained on redemption by the company and can subsequently be re-issued.
Bonus shares
Bonus shares are shares issued to the shareholders in proportion to their existing shareholdings. They are issued as having been fully paid up so the shareholders are not required to pay for them. They are usually paid from accumulated profits that have been transferred to capital - capitalized.
Definition of debenture? Types of debenture with explanation?
Debenture
Debentures are fixed-interest securities or debt securities on which the issuer pays interest at a fixed rate and for a specific term. Generally, the level of income paid on debentures is higher than the rate paid on cash investments because of the longer term of the investment.
A certificate given in pursuance of law, by the collector of a port of entry, for a certain sum due by the United States, payable at a time therein mentioned, to an importer for drawback of duties on merchandise imported and exported by him, provided the duties arising on the importation of the said merchandise shall have been discharged prior to the time aforesaid.
Another definition...
Debenture -- an unsecured debt instrument or bond backed only by the general credit standing and earning capacity of the issuer. Debentures are used to obtain capital funds.
Historic definition...
Debenture -- A certificate of debt issued by a corporation. Unless secured by a mortgage it is simply a promise to pay, or in other words, a promissory note. It differs from an income bond only in that it contains a promise to pay a certain amount of interest at stated periods. In Great Britain a debenture bond or stock is generally thought to be secured by mortgage on real property ; but this is not necessarily the case. -The word merely means a debt or promise to pay. By universal custom, however, the debenture bonds or stocks of British companies rank before the preference and ordinary capital ; and as a rule they are secured by a charge on the companies' real property.
Types of debentures
Usually, Debentures are categorized into the following types and their Definitions are also given below:
• Convertible Debentures: This is a debenture which can be converted into some other type of securities (for example stocks).
• Corporate Debentures: Corporate Debentures are Debentures issued by companies and they are insecure in nature.
• Bank Debentures: This type of Debentures is issued by banks.
• Government Debentures: These include Treasury Bond (T-Bond) and Treasury Bill (T-Bill) issued by the government. They are usually regarded as risk-free investments.
• Subordinated Debentures: This is a particular type of Debenture, which ranks below regular Debentures, senior debt, and in some instances below specific general creditors.
• Corporation Debentures: Corporation Debentures are issued by various corporations.
• Exchangeable Debentures: They are like Convertible Debentures, but this Debenture can only be converted to the common stock of a subsidiary company or affiliated company of the Debenture issuer.
Also, there are some other types of Debentures, such as Senior Debentures, Secured Debentures, Exchange Debentures, Secured Convertible Debentures, Convertible Senior Debentures, Unsecured Convertible Debentures, Subordinated Convertible Debentures, Senior Secured Convertible Debentures, Junior Subordinated Debentures, Senior Subordinated Debentures, and Senior Secured Debentures etc.
Definition of Multinational Corporation? Characteristics of multinational corporation?
Corporation that has production facilities or other fixed assets in at least one foreign country and makes its major management decisions in a global context. In marketing, production, research and development, and labor relations, its decisions must be made in terms of host-country customs and traditions. In finance, many of its problems have no domestic counterpart-the payment of dividends in another currency is called Multinational Corporation.
Some definition of Multinational Corporation given below:
• A corporation with operations in more than one country.
• A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management. Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as "transnational corporation".
A multinational corporation is a large company owning subsidiaries and producing in a number of countries.
Characteristics of Multinational Corporation:
• Eternal Life: As a multinational corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation. Its
charter may limit the multinational corporation's life although the multinational corporation may continue if the charter is extended.
• Limited Liability: The liability of stockholders is limited to the amount each has invested in the multinational corporation. Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the multinational corporation. Creditors are limited to corporate assets for satisfaction of their claims.
• Separate Entity: The multinational corporation is considered a separate legal entity, conducting business in its own name. Therefore, multinational corporations may own property, enter into binding contracts, borrow money, sue and be sued and pay taxes.
• Dexterous Management: Investors in a multinational corporation need not actively manage the business, as most multinational corporations hire professional managers to operate the business.
• Huge Capital: A multinational corporation can obtain capital by selling stock or bonds. This gives a multinational corporation a larger pool of resources because it is not limited to the resources of a small number of individuals. The limited liability and ease of transferring ownership rights makes it easier for a multinational corporation to acquire capital by selling stock and issuing bonds.
• Many Branches: Multinational Company has many branches through the world. So that it is regarded as the largest business organization in the world. And it is much profitable business organization also.
• Taxation: Multinational Company has to give tax to the government based on their profit. As it have many branches through the world, it has to payment tax to that government in which country it has branch.
Define Co-operative with Characteristics, Principles, Advantages and Disadvantages.
Co-operative:
Co-operative is a form of organization where in the person voluntarily associate together as human being on the basis of equality for the promotion of economic interest of themselves.
Some character of co-operative business-
• Some members
• It is formalized By co-operative law
• Middle class and lower class people are the member.
Characteristics of Co-operative:
The characteristics of Co-operative are given bellow-
• Nature of Formation: Some entrepreneurs format these types of business on their own wishes by abiding the laws of co-operative business. For this they need to application to the registration officer.
• Objectives: The first and foremost aim of this business is to welfare to the members of this business, not to be profitable. It is a gospel of self sufficiency and service.
• Member: According to the law of 2001 8(1) to format a co-operative business if need at least 20 persons and the highest member is unlimited.
• Nature of Members: The upper class or wealthy persons are not member of this business. The middle class and lower class persons are mainly the members of this business. That is why it regards as “Citadel of the exploited.”
• Collection of Capital: The capital of this business is little but its share is allotted in equal price. By selling share they collect capital. Besides, members submission their money in the fund.
• Liability of members: In the co-operative business the liability of members is limited by their share. For this reason they need not to bear unlimited liability.
• Separate Entity: As it is registered by the co-operative law, it has own and free entity. For this reason it is regard as everlasting entity.
Principles of Co-operative:
The principles of co-operatives are given bellow-
• Unity: “Unity is strength” – the co-operative business depends on this proverb. It needs to be unified for succeed of this business.
• Co-operation: The members of this business should co-operate with each others. It brings succeed to the business. The proverb goes – “Co-operative is the best relation.”
• Honesty: Each member should be honest. Because – “Honesty is the best policy”. If there is lack of honesty the business will dissolve.
• Service: “Service is the principle motto of Co-operatives”. Actually, co-operative is formed for better servicing to the helpless people.
• Democracy: Every member opinion is considered as equal in a co-operative business. Because the members of this business believe that “Democracy is the best system in management”. Everybody gets equal rights in co-operative.
• Friendship: Every member is just like a good friend in co-operative. So everybody should come forward to help his/her friend. If they maintain this relation they will reach their goal.
• Impartiality: Everybody should impartial in the co-operative. They should respect the co-operative laws and regret responsibility. Thus they can reach their goal.
• Distribution of Profit: From the profit of the business 20% should keep into the fund. Then other profit divided commensurately among the members as their share by the co-operative law.
Advantages:
There are some advantages in co-operative business –
• Limited Liability: In the co-operative business the liability of members is limited by their share. For this reason they need not to bear unlimited liability.
• Democratic Management: Every member opinion is considered as equal in a co-operative business. Because the members of this business believe that “Democracy is the best system in management”. Everybody gets equal rights in co-operative. And that is why; there is democratic management in co-operative.
• Tax Relief: It needs not to tax to the government from the profit of a co-operative business. For this, the members allocate their profit easily.
• Stability: As it is registered by the co-operative law, it has own and free entity. For this reason it is regard as everlasting entity.
• Creating the savings Tendency: People become interest in saving their earned money. As for saving it is easy to invest in the co-operative business and getting profit.
• Advantages of Loan: Members can borrow money less interest than bank or others money lender institute. So it helps to be profitable easily.
• Development of living Standard: Co-operative creates the opportunity of earning to the middle class or lower class peoples. It also creates employment opportunity for the unemployment people of the society. Thus it upgrades the living standard of people.
Disadvantages:
There also are some disadvantages in co-operative business –
• Complexity of Formation: It needs to maintain some formalities in formation of co-operative business. Such as encouraging people, collecting capital, then taking initiative, application for registration, collection of registration certificate, commencement etc. So it is really complex to format a co-operative business.
• Lack of Secrecy: As there is more then one man in a co-operative business, all the members know about the secrecy of the business. If anyone abdicates from the business, he/she may divulge the secrecy of the business which is harmful for the business. It fells the business into a hard competition.
• Lack of Co-operation: Though it consists based on the principle of co-operation, there is so much lack of co-operation in this business. Everybody wants to be powerful. For this reason, the members fall into conflict.
• Lack of Honesty: Every one knows that “Honesty is the best policy”. But it is only on their mouth not mind. In fine, it is seen that the business falls into loss.
• Little Capital: Most of the members of this business are lower class. They can’t save huge amount of money. So there is a little capital in this business.
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Define Insurance with Characteristic, Purposes in Insurance Business. (How Many Insurance Business in Bangladesh)
Insurance:
Insurance is a protection, through specified money compensation or reimbursement for loss, provided by written contract against the happening of specified chance or unexpected events. In the other hand, Insurance is a way of reducing uncertainty of occurrence of an event. In addition, Insurance is a financial arrangement that redistributes the costs of unexpected losses.
Characteristic of Insurance:
• Sharing of Risks: Insurance is kinds a means of which shares risks among the persons or companies. It is a source of distribution of loss of few persons into many persons. Insurance is a co-operative form of distribution a certain risk over a group of persons who are exposed to it.
• Co-operative Device: Insurance is kinds of co-operative device. In this device many parties come to term with insurance company by premium. So it is easy to help the effected people.
• Legal Contract: Insurer and underwriter come to term in legal way for insurance of any valuable thing. It is contracted legally by the insurance law.
• Premium: Premium is kinds of consideration. That means when a person wants to give a amount of money to the company for insurance. In addition, its means the periodic payment required to keep a specific insurance policy in force.
• Insurable Interest: In the insurance contract there needs to interest in insurable thing. Insurable interest can be defined as the legal right to insure arisigout of financial relationship, recognized at law between the insured and the subject-matter of insurance.
• Contract of Good Faith: Insurance contract much more depends on good faith to whole party. As the underwriter knows nothing and the man who comes to him to ask to insure underwriter without being asked of all the material circumstances, this is expressed by saying it is a contract of utmost good faith.
• Certainty: There is mentioned the value of the insured thing in the insurance contract as well as the term of risk. So it is important to mention the certainty of insured thing.
Purposes in Insurance Business:
The Purpose of insurance is divided into two ways-
• Purpose of Policy Holder:
Financial Security: The Main purpose of policy holder is to protect his/ her valuable thing from equivocal disaster. An accident may ruin ones everything which is very important for their life standard. If he/she does insurance against this, he/she can feel mental peace to their wealth.
Reducing Risk: There is much risk on a person’s life or he/her wealth. Men are always leading equivocal life. Only insurance can reduce this risk from their life.
Mental Peace: The insurance policy holder owner always thing that his/her life or wealth is always in safe. So he/she feels mentally peace in his/her life.
Security of Old-age: When a policy holder become old or disable, he/she gets security of financial help from the policy company from their saving money. So insurance bears the responsibility of a person life.
Financial Savings: For life insurance, a person has to give premium in a definite time (that may be monthly, half-yearly or yearly). He/she has to save money to give this premium. Besides, after completing time of the insurance s/he gets a amount of money. Sometimes s/he gets bonus from company.
• Purpose of Insurer:
Formation of Capital: The aim of insurer is to be profitable. By encouraging people about the facility of insurance he gets money which is known as premium. By getting premium from many people the company formats a huge amount of capital.
Investing: As their aim is to be profitable, like the banking business the insurance company also invests their collected capital in a profitable business. Thus they reach their goal.
Development of Trade and Commerce: The insurance makes sure and reduces risk and takes the responsibility of a business organization. For this reason a business organization becomes more interested to broad their business to be profitable. Thus insurance develops and helps to broad trade and commerce rapidly.
Economic Growth: By investing their huge capital in a profitable business, it helps the growth of economy of a country. Besides, they also make employment facility in the business organization for the unemployed people. That removes unemployment problem from the society.
Insurance Business in Bangladesh:
After the liberation war 1971, 75 insurance companies were belonged to 5 companies as the insurance ordinance of (95) by the president. Then in 1973 these 5 companies were again belonged to 2 companies. That is –
1. Life insurance company
2. General insurance company
The first alien non-government insurance company “American Life insurance” began their activity in 1974 by the permission of government. After then according to “The insurance (Amendment) ordinance 1984, insurance company open light in non-government sight.
Now there are some governments and non-government insurance companies exist in Bangladesh. Some of these are given bellow-
1. Life insurance company:
• Life Insurance Corporation
• Postal Life Insurance
• National Life Insurance Co. Ltd.
• The Delta Life Insurance Co. Ltd.
• The Sandhani Life Insurance Co. Ltd.
• Golden Life Insurance Co. Ltd.
2. General insurance company:
• General Insurance Corporation.
• The Bangladesh General Insurance Co. Ltd.
• The People Insurance Co. Ltd.
• The Green Delta Insurance Co. Ltd.
• Bangladesh Co-operative Insurance Co. Ltd.
• Pragati General Insurance Co. Ltd.
• Janata Insurance Co. Ltd.
• The Eastern Insurance CO. Ltd.
Define State Enterprise with Characteristic.
State Enterprise:
The enterprise which is formed by the government or by the ordinance of president is called state enterprise. It is conducted and controlled by the government. The state enterprise is managed directly or indirectly by the government. So it may be said that that state enterprise is –
• Formed by the government or president ordinance
• The owner is the government
• All internal and external activities are controlled by government.
Characteristic of State Enterprise:
• Formation: A state enterprise is formed by the ordinance of president. The bill of this organization is passed by the parliament .It may be also formed by the ordinance of government by nationalization.
• Capital: Generally government is the capital supplier of state enterprise. But in case of joint proprietorship, the government and people provide capital for the state enterprise.
• Ownership: The ownership of this organization is government. But sometimes government provides some share to the multitude if necessary. Then this types of enterprise is regard as a joint proprietorship.
• Separate Entity: As it is formed by the ordinance of president or government and has some laws, it is regarded separate entity. So it can be dissolved only by the ordinance of government or president. Generally this kinds of organization is regarded as everlasting organization.
• Objective: To be profitable is not the aim of this organization. Welfare to the people of the country is the aim of this organization. Such as – making employment for the unemployed people, economic growth of the country, provincial development etc.
• Allocation of Profit: Though to be profitable is not the aim of state enterprise, as a business organization it gains profit. This kind of profit is submission to the government fund and is spent for the welfare of the country and people.
• Management: The management of this organization is conducted by government or board of directors. Generally, board of director is elected by government or president. But in join ownership, there is a definite law for management.
• Limited Liability: The liability of state enterprise is limited. If any person and any organization are the share holder of state enterprise, they have to bear liability.
• Dissolution: The dissolution of state enterprise depends on the wishes of government. But generally we see that this type of organization is never dissolve.
CARTEL
Defination
Cartel is an international business agreement to fix prices and divide, in addition to other kinds of co-operation. Cartel usually occurs in oligopolistic industries. Its concept developed in Germany and the firms in that country developed rapidly by forming cartel by the direct inspiration of the government. Now a day, it is permissible and even encouraged in many countries.
There are some definition given below,
• An association of firms in the same line of business that regulates prices on an international basis by restricting output and competition.
• A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members.
• An agreement made between corporations to work together in addressing mutual business concerns such as price fixing, supply limits, and sales quotas, all to stifle competition
Finally, we can say that, Cartel an association of independent businesses organized to control prices and production, eliminate competition, and reduce the cost of doing business.
Characteristics of cartel The major characteristics of cartel are given below,
• A cartel is an international business agreement of fix prices and divides markets.
• It is a group firms of a country that agree to act as monopoly.
• Its member maintains their independent status.
• It generally controls selling goods.
• Formation of cartel is very easy.
• The members enjoy much independence to form and leave the cartel.
• The capital and operating expenses are minimal.
• The members produce and sell according to allocated quata.
• It deals in addition other kinds of corporation.
Advantages of cartel
• The member units in the cartel do not lose their identity.
• It is more stable than pool.
• Easy formation.
• The members can reduce the cost of production with efficient organization structure.
• The members can earn monopoly profits if the market bears it.
• The firms have not to incur expenditure on publicity.
• It is economical to market the commodities as a single seller.
• The cartel is better market condition as compared to the competing firms which often resort to undercutting.
• The inefficient firms are able to keep its head above water in cartel as they have not to face any competition.
• It is a sector of earning more profit.
Disadvantages of Cartel
• The cartel like the pools has proved to be ineffective organization.
• The procedures of different firms are not able to maintain uniformity in producing standard products.
• The customers are charged higher prices and the wealth gets concentrated in few hands only.
• The companies which don't join cartel and fall in the same line of the business create competition for its members.
• The high profits earned by the syndicate encourage the growth of new firms in the country who mostly compete with cartel in the sale of goods.
• It harms people by monopoly business.
• It is a threat for small business organization.
• Many poor countries are exploited by it.
In conclusion it can be said that although cartel gives various benefits to its members and various countries but its more expansion is harmful to mankind and many poor countries. The poor people and countries are becoming poorer day by day as a result of such an agreement. So we have to keep in mind besides making profit.
TRUST
Definition
A business is an organization engaged in production of goods and services to make profit. Trust means belief within two companies and trust is also a union of firms. When the shareholders of a number of firms submit their interest or share to another supervising or trustee organization it is called trust. The objectives of trust are to reduce competition and to have control over the supply. Under the business trust, a trustee or group of trustees is legally permitted to do business. The trustees issue shares-called trust certificates- to inventors. These shares show that the holder has transferred funds to a trustee and has the legal right to benefit form the success of the investments. Shareholders have no right to vote for trustees or to have a voice in management. They do have the right to sell their trust certificates to a buyer of their choice.
Characteristics of trust: The characteristics of trust are given bellow-
• Huge capital & Adept Management: As different persons of various firms associate in trust, they invest capital commensurately. And they have vast knowledge about business. So there is a combination of capital and skill.
• More Profit: Trust is large areas of business organization shareholder’s invested a lot of capital and directs the business efficiency. It creates a opportunity to earn more profit.
• Large Production & Distribution: A trust can take the facility of large production and distribution for having sufficient capital, efficient manpower, a lot of machinery and raw material, efficient management and monopoly domination in market.
• Avoiding Competition: Modern business world is more competitive. It can be avoided excessive and unequal competition by organizing trust. Because it creates no competition among some natured business organizations.
• Centralization of Resources: Wealth and resources of the trust country are centralized by trust. Although the shareholders of the trust enjoy its benefit but poor people of the country become poorer.
• Threat for small business organization: The excessive expansion of trust is a threat for small business organizations.
Advantages of trust: There are some advantages of trust –
• Capital & Skill: As different persons of various firms associate in trust, so there is a combination of capital and skill.
• More Profit: Trust is large areas of business organization shareholder’s invested a lot of capital and direct the business efficiency. It creates a opportunity to earn more profit.
• Large Production & Distribution: A trust can take the facility of large production and distribution for having sufficient capital, efficient manpower, a lot of machinery and raw material, efficient management and monopoly domination in market.
• Economy: A trust maintains economy in every sector of the firms. As result all kinds of expenses are reduced. It brings progress of the business.
• Reducing Competition: Modern business world is more competitive. It can be avoided excessive and unequal competition by organizing trust. Because trust creates no competition among some business organizations.
Disadvantages of trust:There are some disadvantages of trust. These are given bellow
• Doing harmful to the people by monopoly business: Trust cases greater harm to people by monopoly business. Monopoly business is harmful to poor people and small business organization. People are misinterpreting by it. So, it is a huge disadvantage of trust.
• Centralization of Resources: Wealth and resources of the trust country are centralized by trust. Although the shareholders of the trust enjoy its benefit but poor people of the country become poorer.
• Threat for small business organization: The excessive expansion of trust is a threat for small business organizations.
• Creating Social Problems: Trust also creates various kinds of social problems. At last we can say the expansion of trust is harmful in social viewpoint. Considering the harmful effects of trust, the government of the U. S. A. declared trust illegal by the Sherman act of 1890.
HOLDING COMPANY
Definition
A holding company is a company that owns part, all, or a majority of other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather its only purpose owns shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. In the U.S., 80% or more of voting stock must be owned before tax consolidation benefits such as tax-free dividends can be claimed.
A company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors also called parent company.
Corporation that owns enough voting stock in another corporation to influence its board of directors and therefore to control its policies and management. A holding company need not own a majority of the shares of its subsidiaries or be engaged in similar activities. However, to gain the benefits of tax consolidation, which include tax-free dividends to the parent and the ability to share operating losses, the holding company must own 80% or more of the subsidiary's voting stock.
Among the advantages of a holding company over a Merger as an approach to expansion are the ability to control sizeable operations with fractional ownership and commensurately small investment; the somewhat theoretical ability to take risks through subsidiaries with liability limited to the subsidiary corporation; and the ability to expand through unobtrusive purchases of stock, in contrast to having to obtain the approval of another company's shareholders.
Among the disadvantages of a holding company are partial multiple taxation when less than 80% of a subsidiary is owned, plus other special state and local taxes; the risk of forced Divestiture (it is easier to force dissolution of a holding company than to separate merged operations); and the risks of negative leverage effects in excessive Pyramiding.
The following types of holding companies are defined in special ways and subject to particular legislation: public utility holding company (see Public Utility Holding Company Act), Bank Holding Company , Financial Holding Company, railroad holding company, and air transport holding company
Advantages of holding company:
• Easy formation: formation of holding company is comparably easy from any other business organization. Without giving importance to other shareholders, one can format a company by buying maximum shares.
• Efficient management: several companies can perform under the central management system act by the holding company.
• Huge capital: as it is a large company holding company can invest huge capital. If a subsidiary company face shortage of money, it can be easily solve by taking money from other subsidiary company.
• Separate entity of subsidiary companies: as subsidiary company runs under a central management system there’s no chance of eliminating their separated entity.
• Advantages of large scale business: it can be easily transferred to a large scale business as a huge capital and proper management is available in this business.
• Reducing business risk: it can reduce business risk. As a holding company involves different types of business, risk is allocated to the companies. For example if a company falls in loss in a year it can be equalized by another company.
• Reducing operating costs: subsidiary company has no power to make a decision. So there is no chance of extra management fee.
• Production and marketing control: holding company can reduce the competition in market, as there’s a number of subsidiary company under there.
• Advantages of Joint Stock Company: it can also get the benefit of Joint Stock Company.
• Stability: though it can be easily turn into a large company its stability is going higher and higher.
Disadvantages
• Complexities in management: there are some complexities in management system when the organization expands its scope they are facing a problem with control management system.
• Irregularities in management: for the purpose of business under the holding company a subsidiary company often exchange money to each other. There is a chance of facing some sort of problems and irregularities.
• Over capitalization: in a huge company there have sufficient capital. But many times the company can not invest all its capital. On the other hand subsidiary company cannot utilize the capital. So the company earns a little profit.
• Responsibility and authority: there are some problems about the responsibility and authority between holding and subsidiary company.
• Monopoly effect: holding company reduced competition in market. So there’s seen a monopoly effect in the market.
• Economic discrimination: holding company harms the regular activities of micro institution. It accumulated all the money by amplifying in the market. So there is seen an economic discrimination over the market.
