Page 18 - DMGT207_MANAGEMENT_OF_FINANCES

Unit 1: Introduction to Financial Management

The President or Chief Executive Office (CEO) is responsible for managing day-to-day operations Notes
and carrying out the policies established by the Board. The CEO is required to report periodically
to the firm's board of directors.
The corporate form of business is subject to strict control by Regulatory Agencies including
Companies Act, 1956, SEBI, etc.

Table 1.3: Strengths and Weaknesses of the Common Forms of Business Organizations

Sole Proprietorship Partnership Company

Strengths Owners receive all profits Can raise more funds Owner’s liability is
and incur all losses. than sole proprietorship. limited to the extent

paid on their shares.
Low organizational costs Borrowing powers Can achieve large size
enhanced by more via sale of shares.
owners.

Income is included and More available Ownership (share) is
taxed on owners manpower and readily transferable.
personal tax return. managerial skill.

Independence Income included and Long life of the firm.
mixed on individual

partner’s tax return.
Secrecy Can have professional
managers.

Ease of dissolution Has better access to
financing.

Receives some tax
advantage.

Owner has unlimited Owners have unlimited Taxes generally
liability towards debt of liability and may have to higher, because
the firm cover debts of other corporate income is
partners. taxed and dividends
paid to owners are also

taxed (the latter has
Weaknesses Limited fund raising Partnership is dissolved been exempted at the
power limits growth when partner dies. hands of the
shareholders in India).
Proprietor must be Difficult to liquidate or More expensive to
jack-of-all trades. transfer partnership. organize than other
forms of business.
Difficult to give Subject to greater
employees long-run control by regulating
career opportunities. authorities.

Lacks continuity when Lacks secrecy since
proprietor dies or unable the shareholders must
to operate. receive financial
reports at periodic

intervals.

Self Assessment

Fill in the blanks:
13. In the area of financing, funds are procured from ………………. sources as well as
………………. sources.

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