Business Content, Opportunity, and Small Business Ideas, Businesses can privately own, not-for-profit or state-own. An example of an Online eCommerce industry is Google Searching Web and also Facebook Social Site.
While a mom-and-pop catering profession is a private enterprise. Every industry requires some form of investment and enough customers to whom its output can sale on a consistent basis in order to make a profit. An organization or economic system where goods and services stand exchanged for one another or for money.
A business (also known as an enterprise, a company, or a firm) is an organizational entity and legal entity made up of an association of people, be they natural, legal, or a mixture of both who share a common purpose and unite in order to focus.
Their various talents and organize, their collectively available skills or resources to achieve. Specific declared goals are involved in the provision of goods and services to consumers. A profession can also describe as an organization that provides goods and services for human needs.
Explaining, What is Partnership? and learn, How Does it work in Business?
A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may only govern by a contract. Also learn, What are the Features of Sole Proprietorship? Partnership: How Does it work in Business?
History!
Partnerships have a long history, they were already in use in Medieval times in Europe and in the Middle East. In Europe, the partners contributed to the Commercial Revolution which started in the 13th century. In the 15th, century the cities member of the Hanseatic League would mutually strengthen each other; a ship from Hamburg to Danzig, would not only carry its own cargo but was also commissioned to transport freight for other members of the league. This practice not only saved time and money; but also constituted the first step toward partners. This capacity to join forces in reciprocal services became a distinctive feature, and a long-lasting success factor, of the Hanseatic team spirit.
Meaning!
A partnership is a formal arrangement in which two or more parties cooperate to manage and operate a business. Various partnership arrangements are possible: all partners might share liabilities and profits equally, or some partners may have limited liability. Not every partner is necessarily involving in the management and day-to-day operations of the venture. Such as in the case of a “silent partner.” In some jurisdictions, partners enjoy favorable tax treatment relative to corporations.
Definition!
“A type of business organization in which two or more individuals pool money, skills, and other resources, and share profit and loss in accordance with terms of the partnership agreement. In absence of such agreement, a partnership is assumed to exit where the participants in an enterprise agree to share the associated risks and rewards proportionately”.
How does it work in Business?
Business-partners is similar to a personal-partners. Both business and personal involve:
Pooling money toward a common purpose.
Sharing individual skills and resources, and.
Sharing in the good and bad times.
A business-partners is a specific kind of legal relationship form by the agreement between two or more individuals to carry on a business as co-owners. Also, A business with multiple owners, each of whom has invested in the business. Some partners include individuals who work in the business. While other partnerships may include partners. Who has limit participation and also limited liability for the debts and lawsuits against the business?
As different from a corporation, is not a separate entity from the individual owners. The partner’s income tax is paid by the partners, but the profits and losses are divided among the partners, and paid by the partners, based on their agreement. As well as, a sole proprietorship, is a pass-through business, meaning that the profits and losses of the business pass through to the owners. Also learn, What is Leadership?
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Reference!
1. Meaning – //www.investopedia.com/terms/p/partnership.asp
Sole proprietorship highlights or characteristics or Features; It refers to a business organization in which enterprises are controlled or owned by a single person. The sole proprietorship is the oldest form of business enterprise in India. It is the simplest form of business and all the risks or losses are bearer by a single person. Also, if he wants any help they can get it from their friends, family, or relatives. It doesn’t require any legal recognition or formalities and the simplest way to open a business. Also learn, Sole Proprietorship: the Advantages and Disadvantages!
Explaining, What are the highlights or characteristics or Features of Sole Proprietorship?
Also, A sole proprietorship is a business owned by a single individual. This sole owner is responsible for the entire business and is the sole recipient of the business’s earnings. Unlike other legal structures, the sole proprietorship requires less paperwork and is subject to few business restrictions and regulations.
15 best Features of Sole Proprietorship:
The main highlights or characteristics or features of the sole proprietorship form of business can list as follows:
One Man Ownership:
In the proprietorship, only one man is the owner of the enterprise.
No Separate Business Entity:
No distinction is made between the business concern and the proprietor. Both are the same.
No Separation between Ownership and Management:
In the proprietorship, management rests with the proprietor himself/herself. The proprietor is a manager also.
Unlimited Liability:
Unlimited liability means that in case the enterprise incurs losses, the private property of the proprietor can also utilize for meeting the business obligations to outside parties. As there is no division between the business and the business person, accordingly the individual risk of the entrepreneur is boundless. If the business can’t pay its obligations and liabilities, at that point, the entrepreneur is responsible for the equivalent and pay them. For example, the proprietor needs to pay the forthcoming sum either by selling their resources or property, a house, care, and others.
All Profits or Losses to the Proprietor:
Being the sole owner of the enterprise, the proprietor enjoys all the profits earned and bears the full brunt of all losses incurred by the enterprise.
A Less-Formalities:
A proprietorship business can start without completing many legal formalities. Some businesses too can start simply after obtaining the necessary manufacturing license and permits.
Personal Organization or Common Identity:
A sole traders’ concern has no separate legal entity independent of the owner. The owner and the business concern are the same. The owner owns everything the business owns and he owes everything the business owns.
Capital:
In the sole traders, the capital is employing by the owner himself from his personal resources. He may also borrow money from his friends and relatives if he cannot depend solely on his personal resources.
Profits and Losses:
The surplus arising in the business of the sole trader entirely belongs to him and similarly, all the business losses and risks are to be borne by him alone.
No Special Legislation:
Sole traders are not governing by any special legislation. A partnership firm is governing by the Partnership Act, a joint-stock company is governing by the Companies Act, and a co-operative society by the Co-operative Societies Act. Any person who is competent to contract can start his business as a sole trader. However, he is subject to the common law, the law of contract, and the law of insolvency.
The concept of Unlimited Liability. As well as, the liability of a shareholder or member of a company or a co-operative society limits to the extent of the face value of the shares held by him. Forexample, if Mr. X subscribes to 100 shares of Rs. 10 each, his total liability is unto Rs. 1,000 only. If he has already paid Rs.5 per share, his liability will restrict to the unpaid portion of his shares, i.e., Rs. 500 only. Thus, there is a limit to the extent of liability of the shareholder of a company.
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No Legal Formalities:
There is no different law-related with a sole proprietorship to oversee it and accordingly, there is no presence of any arrangement of extraordinary standards just as guidelines to follow. Also, best of all, it doesn’t require either any enrollment or consolidation of any sort. Much of the time, we require just the permit to fire up the ideal business. Like that of the beginning, there are no legitimate tasks joined to the end methods. Along these lines, it gives effortlessness to start a business and do it with less issue.
Danger and Profit:
The proprietor of this business is the danger carrier in a sole exclusive. Since the business person is the main individual who put resources into the business monetarily, so all dangers have a place with him in particular. Regardless of whether the business fizzles or develops, the proprietor is the individual who gets influenced by the equivalent. Actually, he additionally appreciates all benefits acquired from the business. There is no compelling reason to separate and offer benefits with partners as there is no presence. Consequently, he bears all dangers and acquires benefits as well.
No different legitimate character:
In legitimate terms, the business and the proprietor are not treated independently as both are the one and same thing. No different legitimate element has a place with a sole owner and the proprietor is entirely and solely answerable for all business exercises and exchanges.
Progression:
As we as a whole realize that the business and the proprietor have a similar character. In this way, a sole proprietorship has altogether depended on the entrepreneur. A few variables influence a sole proprietorship, for example, retirement, craziness, demise, and detainment. In such a circumstance, the sole proprietorship puts to an end.
Control:
As all the business activities and duties lie with the sole owner, so he controls all the business solely. No other individual can participate in business exercises and the proprietor can alter or grow the business according to their solace and plans.
These are altogether highlights or characteristics or features of a sole proprietorship that will clarify what precisely the business structure and how it runs. Let us take a look at the upsides of selecting a sole proprietorship that we will write down underneath.
Sole Proprietorship Disadvantages and Limitations; A sole proprietorship is the simplest and most common legal structure someone can choose. It’s an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner. If you own a sole proprietorship, you are entitled to all profits and are responsible for all your business’s debts, losses, and liabilities. Also learn, How to Explain, What is Sole Proprietorship?
Learn and Study, What are the Limitations or Disadvantages of Sole Proprietorship? Explaining are, Easy Point, Trade, Multipoint!
In other words, the owner remains personally liable for any losses or debts that the sole proprietorship incurs. They can also, held legally responsible for violations committed by the business or its employees. A sole proprietorship can best sum up by the phrase, “You are the business”. Also learned, What are the Advantages of Sole Proprietorship?
Easy of the Limitations or Disadvantages of Sole Proprietorships:
Forming a sole proprietorship does involve some risks, mainly to the owner of the business, as legally speaking they are not treating separately from the business. Some limitations or disadvantages of sole proprietorships are:
Liability:
The business owner will hold directly responsible for any losses, debts, or violations coming from the business. For example, if the business must pay any debts, these will satisfy the owner’s own personal funds. The owner could sue for any unlawful acts committed by the employees. This is drastically different from corporations, wherein the members enjoy limited liability (i.e., they cannot hold liable for losses or violations)
Taxes:
While there are many tax benefits to sole proprietorships, the main drawback is that the owner must pay self-employment taxes. Also, some tax benefits may not be deductible, such as health insurance premiums for employees
Lack of “continuity”:
The business does not continue if the owner becomes decreasing or incapacitating since they are treating the same. Upon the owner’s death, the business is liquidating and becomes part of the owner’s personal estate, to distribute to beneficiaries. This can result in heavy tax consequences on beneficiaries due to inheritance taxes and estate taxes
Difficulty in raising capital:
Since the initial funds are usually providing by the owner, it can be difficult to generate capital. Sole proprietorships do not issue stocks or other money-generating investments like corporations do
So, while sole proprietorships do not necessarily create more liabilities, they do expose the business owner to a risk of being sue. Lawsuits can file against the business owner for legal violations, as well as to collect any outstanding debts.
Business; Proprietorship form of ownership suffers from some disadvantages or limitations also.
The important ones are:
1. Limited Resources:
A proprietor has limited resources at his/her command. The proprietor mainly relies on his/her funds and savings and, to a limited extent, borrowings from relatives and friends. Thus, the scope for raising funds is highly limited in proprietorship. This, in turn, deters the expansion and development of an enterprise.
2. Limited Ability:
The proprietorship is characterized as the one-man show. One man may be an expert in one or two areas, but not in all areas like production, finance, marketing, personnel, etc. Then, due to the lack of adequate and relevant knowledge, the decisions take him imbalanced.
3. Unlimited Liability:
The proprietorship is characterized by unlimited liability also. It means that in case of loss, the private property of the proprietor will also use to clear the business obligations. Hence, the proprietor avoids taking the risk.
4. Limited Life of Enterprise Form:
The life of a proprietary enterprise depends solely upon the life of the proprietor. When he dies or becomes insolvent or insane or permanently incapacitated, there is every likelihood of closure of enterprise. Say, the enterprise also dies with its proprietor. The Steps of Manpower Planning with Features!
Disadvantages of sole trading include that:
You have unlimited liability for debts as there’s no legal distinction between private and business assets.
Your capacity to raise capital is limited.
All the responsibility for making day-to-day business decisions is yours.
Retaining high-caliber employees can be difficult.
It can be hard to take holidays.
You’re tax as a single person, and.
The life of the business is limited.
7 best Limitations or Disadvantages of Sole Proprietorship:
The following limitations and disadvantages below are;
(i) Limited Resources:
The resources of a sole proprietor are limited. He makes investments from his family source only. There is a limit to which a single person can invest. He tries to raise finances from financial institutions also. These institutions want securities for their loans. The sole trader cannot offer much security, so he does not get much help from financial institutions. The capacity for expanding business operations is limited for want of resources, even when there is a scope for expansion. Other forms of ownership are better than the sole proprietor for raising financial resources.
(ii) Limited Managerial Ability:
One person may not be an expert in every function of the business. He will not be able to devote sufficient time to all types of activities. He will have to depend on paid employees. The employees may not take as much interest as the owner himself can take. What is the Process of Manpower Planning?
The managing capacity of the proprietor is limited. In the present competitive world, the complexities of managerial jobs are increasing every day. The sole proprietor may not be able to use the services of experts for want of resources. So one person will not be able to survive effectively. On the other hand, his limited resources will not allow him to use the services of professional people. Limited managerial capacity will hinder the growth of the business.
(iii) Unlimited Liability:
The liability of a sole proprietor is limited. His private property can also assign to meeting business obligations. A loss of business may deprive him of his private assets also. Unlimited liability also restricts his work. He tries to be cautious in taking the risk. It acts as a detriment to the growth of business activities.
(iv) Uncertain Continuity:
The business continues as far as the sole proprietor is there. In case of his mobility or death, the business is discontinuing. The successors of the sole proprietor may not have an aptitude or ability to continue in the business. The closure of a business will cause inconvenience to the consumers. It will also result in social loss.
(v) Limited Scope for Employees:
A sole trader cannot attract trained and qualified persons for reasons of limited career opportunities. Moreover, the continuity of sole trade business being uncertain the employees also remain under psychological pressure. A sole proprietor cannot offer financial incentives to employees because his activities are on a small scale. The employees will try to join good concerns whenever an opportunity arises.
(vi) No Large-Scale Economies:
A small-scale concern cannot economize in the purchase, production, and marketing. A large-scale enterprise will be able to have favorable terms for purchasing and selling of goods. In a sole trade concern, overhead expenses are also more. So this type of concern cannot enjoy the benefits of large-scale economies.
(vii) More Risk Involved:
A sole proprietor is to take all decisions by himself. So there is a possibility of taking wrong decisions. In other forms of organization, the decisions are taking by more than one person. So the possibility of mistakes and wrong decisions is minimizing. Lack of counseling may create difficult situations.
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Reference!
1. Easy and business Points – //www.legalmatch.com/law-library/article/advantages-and-disadvantages-of-sole-proprietorships.html and //www.yourarticlelibrary.com/sole-proprietorship/sole-proprietorship-features-advantages-and-disadvantages/40806
Sole Proprietorship Advantages; Proprietorship (also called sole trade organization) is the oldest form of business ownership in India. In a proprietorship, the enterprise is owned and controlled by one person. He is the master of his show, he shows, reaps, and harvests the output of this effort, he manages the business on his own. If necessary, he may take the help of his family members, relatives, and employ some employees. Also learn, How to Explain, What is Sole Proprietorship?
Learn and Study, What are the Advantages of Sole Proprietorship? Explaining are, Easy Point, Trade, Multipoint!
The sole proprietorship is the simplest and easiest to form. It does not require legal recognition and attendant formalities. This form is the most popular in India due to the distinct advantages it offers. William R. Basset opines that “The one-man control is the best in the world if that man is big enough to manage everything”. Also learned, Corporate Entrepreneurship Categories, and Organizational Thinking.
Some of the Easy Advantages of Sole Proprietorship:
There are many reasons why a person would choose to start their business up using a sole proprietorship structure. Some of the main advantages of sole proprietorships include:
Ease of formation:
Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorships to form without the double taxation standards applicable to most corporations. As well as, the proprietorship can name after the owner, or a fictitious name can be used to enhance the business’ marketing.
Tax breaks:
The proprietor of a sole proprietorship isn’t needed to record a different business charge report. All things considered, they will list business data and figures on their individual assessment form. This can spare extra expenses on bookkeeping and assessment recording. As well as, the business will charge at the rates apply to individual pay, not corporate assessment rates.
Employment:
Sole proprietorships can enlist representatives. This can prompt a considerable lot of the advantages related to work creation, for example, tax cuts. Likewise, companions of the entrepreneur can utilize without being officially proclaimed as a worker. Hitched couples can likewise begin a sole proprietorship, however, the obligation can just accept by one person.
Decision making:
Authority over all business choices stays in the possession of the proprietor. Also, the proprietor can likewise completely move the sole proprietorship whenever as they esteem important.
Some Advantages that proprietorship form of business offers are as follows;
1. Simple Form of Organization:
The proprietorship is the simplest form of organization. The entrepreneur can start his/her enterprise after obtaining licenses and permits. There is no need to go through the legal formalities. For starting a small enterprise, no formal registration is statutorily needed.
2. Owner’s Freedom to Make Decisions:
The owner, i.e. the proprietor is free to make all decisions and reap all the fruits of his labor. There is no other person who can interfere or weigh him down. Why is Intrapreneurship Better than Entrepreneurship?
3. High Secrecy:
Secrecy is another major advantage offered by proprietorship. This is because the whole business is handled by the proprietor himself and, as such, the business secrets are known to him only.
Added to it, the proprietor is not bound to reveal or publish his accounts. In the present-day business atmosphere, the less a competitor knows about one’s business, the better off one is. What the competitors can make is guesstimates only.
4. Tax Advantage:
As compared to other forms of ownership, the proprietorship form of ownership enjoys certain tax advantages. For example, a proprietor’s income is taxed only once while corporate income is, at occasions taxed twice, say, double taxation.
5. Easy Dissolution:
In the proprietorship business, the entrepreneur is all in all. As there are no co-owners or partners, therefore, there is no scope for the difference of opinion in the case the proprietor/entrepreneur-wants to dissolve the business. It is due to the easy formation and dissolution, the proprietorship is often used to test the business ideas.
Advantages of sole trading include that:
You’re the boss.
You keep all the profits.
Start-up costs are low.
You have maximum privacy.
Establishing and operating your business is simple.
It’s easy to change your legal structure later if circumstances change, and.
14 best Multipoint Advantages of Sole Proprietorship:
The following multipoint advantages below are step by step;
(i) Easy in Formation:
The sole proprietorship is the only form of organization where no legal formalities are requiring to perform. Also, Anybody wishing to start a sole trade concern can do so without loss of time. This business is absolutely free from legal formalities. On the other hand, if a joint-stock company is to form it needs the services of experts to get it incorporate, and it involves a lot of labor and money.
(ii) Better Control:
In this form of organization one man is responsible for all types of activities. He controls all functions of the business. He himself takes decisions at the appropriate time. The authority and responsibility lie with one man. He cannot afford to be complacent in taking decisions. If the responsibility is divided, then there can a possibility of shifting obligation to other persons (Everybody’s responsibility becomes nobody’s responsibility). Insole trade business, there is no such difficulty. As well as, the owner is all in all and he cannot escape his work. The business is controlled effectively.
(iii) Flexibility in operations:
A sole proprietorship concern is generally run on a small scale basis. In case a change in operation is requiring, it can be possible without involving much expenditure. Even if a new line of products is to take up, it will not involve many efforts. On the other hand, if the operations are on a large scale, then it becomes difficult to change the method of production.
A small-scale concern can adjust its production according to the changing demand pattern. It can increase and decrease its products as per requirements. Moreover, no legal formalities are requiring for making changes in operations. As well as, a joint-stock company cannot go beyond its objective clause. Because of being flexible in operations, a sole trade concern is most suitable for industries dealing with fashionable and seasonal goods.
(iv) Retention of Business Secrets:
A sole trader maintains business secrets. Being the sole proprietor, he is not expected to share his trade secret with anybody else. As well as, He is not expected to publish his accounts. He can maintain secrecy from his competitors. Secrecy is very important for small-scale concerns.
(v) Easy to Raise Finance:
An individual entrepreneur can create goodwill for his business. This helps him to establish his creditworthiness in the market. Secondly, the liability in a sole trade organization being unlimited, the creditors can have a claim over the private property of the owner. As well as, the creditors feel secure in extending credit to individual proprietors. Moreover, they try to repay the loans as quickly as possible so that they do not lose goodwill in the market. Once a sole trader loses his creditworthiness, he will not be able to get much help from the market.
(vi) Direct Motivation:
The proprietor takes a keen interest in the working of the business. He tries to put heart and soul into the business to earn as many profits as he can. There is a direct relationship between efforts and rewards. In other forms of organization, the profits are shared by more than one person. So everybody may not put in his best efforts.
(vii) Promptness in Decision Making:
All important decisions are taking by one person. He can take prompt decisions. He will not let an opportunity slip away. If more than one person is involving in decision making then delay is bound to occur.
(viii) Direct Accessibility to Consumers:
In insole proprietorship the scale of operations is small. The owner can have direct contact with customers and employees. He can know the relations and preferences of consumers. It enables him to make necessary changes in the quality and design of his products. It will help him to boost his sales. He can also emphasize consumer service.
(ix) Inexpensive Management:
The sole trader is the owner, manager, and controller of the business. He does not appoint specialists for various functions, he personally supervises various activities and can avoid wastage in the business, he does not create managerial paraphernalia. In this way, managerial costs are saving to a large extent.
(x) No Legal Restrictions:
There are no legal requirements for starting a business. No special acts are governing the work of a sole proprietor. As well as, the proprietor is not requiring to submit the results of his business to any authority. There is no restriction in changing the nature of the business. Even the dissolution of the business can easily undertake. The tax liability on a sole trader is also low. He is a tax as an individual and not as a business unit.
(xi) Socially Desirable:
One man business is generally on a small scale basis. Large numbers of sole traders have entered all types of business. It helps in avoiding the concentration of wealth. Large-scale business leads to wealth accumulation in a few hands. Also, the Sole trader business provides competition for other businesses. The consumers will not be dependent upon big business houses. So, the sole trade business is socially desirable.
(xii) Self-Employment:
The sole proprietorship form of organization offers the means of self-employment to those who do not want to serve others. As everyone cannot get a suitable job to earn his livelihood in a developing country, the individuals can easily start a small-sized business unit as a sole trader.
(xiii) Healthy Relations with Employees:
A sole trader is in a position to maintain direct relations with his employees. This enables the employer and the employees to understand and appreciate the difficulties of each other. Moreover, a sole trader can quickly solve the grievances of his employees. This results in healthy relations between employers and employees which is of vital importance to the success of the business.
(xiv) The benefit of Inherited Goodwill:
A sole trader passes on the business goodwill to his successor. Technically a sole trade business is dissolving on the death of the owner but in reality, the same business is continuing by an heir. Also, the goodwill which one person earns during his lifetime is passing on to those who continue that business.
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Reference!
1. Easy and business Points – //www.legalmatch.com/law-library/article/advantages-and-disadvantages-of-sole-proprietorships.html and //www.yourarticlelibrary.com/sole-proprietorship/sole-proprietorship-features-advantages-and-disadvantages/40806 2. Trade Points – //www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/sole-proprietorship-advantages-and-disadvantages 3. Main/Multipoint – //www.yourarticlelibrary.com/business/advantages-and-disadvantages-of-sole-proprietorship/42037
A sole proprietorship (In Hindi), also known as the sole trader or simply a proprietorship, is a type of enterprise. That is owned and run by one natural person and in which there is no legal distinction between the owner and the business entity. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss, etc. Also learn,What is Manpower Planning? Example, with Importance.
Learn and Study, What is Sole Proprietorship? Meaning and Definition.
A sole proprietor may use a trading name or business name other than his, her, or its legal name. They may have to legally trademark their business name if it differs from their own legal name. The process varying depending upon the country of residence. The sole trader receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. The proprietor owns every asset of the business, and all debts of the business are the proprietors. It is a “sole” proprietorship in contrast with partnerships (which have at least two owners).
Meaning of Sole Proprietorship:
A sole proprietorship, also known as a sole trader or a proprietorship, is an unincorporated business with a single owner. Who pays personal income tax on profits earned from the business. With little government regulation, a sole proprietorship is the simplest business to set up or take apart. Making sole proprietorships popular among individual self-contractors, consultants, or small business owners. Many sole proprietors do business under their own names because creating a separate business or trade name isn’t necessary. Alsolearn the Definition, Importance, and Affected Factors of Manpower Planning.
Definition of Sole Proprietorship:
Simplest, oldest, and most common form of business ownership in which only one individual acquires. All the benefits and risks of running an enterprise. In a sole-proprietorship. There is no legal distinction between the assets and liabilities of a business and those of its owner. It is by far the most popular business structure for startups because of its ease of formation. Least record-keeping, minimal regulatory controls, and avoidance of double taxation.
Also, A sole proprietorship is an unincorporated business owned by one individual, making it the simplest form of business to start and operate. Over 20 million sole proprietorships are operating in the United States and Canada, making it by far the most popular form of business ownership.
The key feature of the sole proprietorship definition is that unlike an incorporated business or a partnership there is no legal separation between the business and the owner in a sole proprietorship – the business is considering to be an extension of the owner and as such the owner is personally responsible for any debts or liabilities incurred by the business.
An Example of a Sole Proprietorship:
Most small businesses start as sole proprietorships and change to different legal structures as they grow. For example, in 2005, Kate Schade started her company, Kate’s Real Food, as a sole proprietor. The company creates and sells energy bars, and it began as a local vendor in Schade’s town of Victor, Idaho. The sole proprietorship sold its energy bars at local farmer’s markets and then expanded to sell online and to a few accounts in Jackson, Idaho.
Personal liability for business debts:
A sole proprietor can hold personally liable for any business-related obligation. This means that if your business doesn’t pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions.
Examples:
Example 1: Lester is the owner of a small manufacturing business. When business prospects look good, he orders $50,000 worth of supplies and uses them in creating merchandise. Unfortunately, there’s a sudden drop in demand for his products, and Lester can’t sell the items he’s produced. When the company that sold Lester the suppliers demand payment, he can’t pay the bill. As the sole proprietor, Lester is personally liable for this business obligation. This means that the creditor can sue him and go after not only Lester’s business assets but his other property as well. This can include his house, his car, and his personal bank account.
Example 2: Shirley is the owner of a flower shop. One day Roger, one of Shirley’s employees, is delivering flowers using a truck owned by the business. Roger strikes and seriously injures a pedestrian. The injured pedestrian sues Roger, claiming that he drove carelessly and caused the accident. The lawsuit names Shirley as a co-defendant. After a trial, the jury returns a large verdict against Roger and Shirley as the owner of the business. Shirley is personally liable to the injured pedestrian. This means the pedestrian can go after all of Shirley’s assets, business, and personal.
By contrast, the law provides owners of corporations and limited liability companies (LLCs) with what’s called “limited personal liability” for business obligations. This means that, unlike sole proprietors and general partners, owners of corporations and LLCs can normally keep their house, investments, and other personal property even if their business fails. If you will engage in a risky business, you may want to consider forming a corporation or an LLC. You can learn more about limiting your personal liability for business obligations by reading Nolo’s articles on corporations and LLCs.
Registering your sole proprietorship:
Unlike an LLC or a corporation, you generally don’t have to file any special forms or pay any fees to start working as a sole proprietor. All you have to do is declare your business to be a sole proprietorship when you complete the general registration requirements that apply to all new businesses. Also, learn the advantages anddisadvantages of the sole proprietorship.
Most cities and many counties require businesses, even tiny home-based sole proprietorships, to register with them and pay at least a minimum tax. In return, your business will receive a business license or tax registration certificate. You may also have to obtain an employer identification number from the IRS, a seller’s permit from your state, and a zoning permit from your local planning board.
Also, And if you do business under a name different from your own, such as Custom Coding, you usually must register that name, known as a fictitious business name, with your county. In practice, lots of businesses are small enough to get away with ignoring these requirements. But if you are caught, you may be subject to back taxes and other penalties.
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Unlock the best learn Case studies on debt collection management. Understand the strategies used in the pursuit of unpaid debts and the role of collection agencies in this process.
Learn, Two Case Study on Debt Collection Management!
What is Debt Recovery? Debt recovery and debt collection are similar terms with one small, but very important distinction. The difference is who is trying to retrieve a debt. Debt collection is a creditor’s attempt to recover consumer credit and loans that have not been payback by a customer. Debt collection is the process of pursuing payments of debts owed by individuals or businesses.
An organization that specializes in debt collection is known as a collection agency or debt collector. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Also Learn, Case Study on Corporate Governance for Satyam Scam! Two Case Study on Debt Collection Management!
Debt recovery is when a loan such as a credit card balance continues to go unpaid, and a creditor hires a third party, known as a collection service, to focus on collecting the money. Debt recovery is important because it is directly correlating to your credit score. If you are being contacted by a debt recovery service, it means there is a record that you have defaulted on a loan and currently have delinquencies. These delinquencies get the report to the credit bureaus, damaging your credit score, which can potentially hurt any future loan opportunities.
Case Study 1: HDFC Bank Recovery!
Mr.Kaushik Agarwal, about 18 months back had purchased 1 Tata Indigo, finance from HDFC bank. His EMI for this month (May’08) bounce due to some reasons.
The recovery person calls him on the 22nd May for the payment of the same. He was out of town at that moment so Mr.Kaushik had asked him to send someone to his office on the 24th to collect cash.
Now on 24th, it slips out of Kaushik’s mind that he had to pay cash to HDFC Bank and hence he did not withdraw any cash from the bank. As it was a Saturday so when the person came for collection. He requests him to come on Monday, as the bank was already closed the day.
On this, the person, who had called Kaushik earlier on the 22nd, called him again and started shouting at him and speaking in a very bad language. The person told Mr. Kaushik that they know his Residence addresses. So if he doesn’t pay them today they will come to his house and will insult him in the neighborhood. The person also passed threat on him that if Kaushik doesn’t pay within 5 minutes it would be very bad for him. The person kept using foul words and shouting at him until he disconnected the phone.
After this Kaushik had no option to go to his local police station and lodge a complaint against that person. Mr. Kaushik has also decided to put a case against that person and HDFC bank in consumer court as well as the civil court.
Kaushik has also posted a complaint with HDFC Grievance cell, docket no. TF22534017. Kaushik requests the concerned authority to take some action on this. Also learn, Google’s Acquisition of Motorola Mobility for Case Study!
The ABC Bank gave XY’s Case to Z recovery agent, along with other overdue loans for recovery. The Z recovery agent called XY a couple of times and also visited him at his residence. As XY was not able to repay the amount in default. Z used abusive and harsh languages in front of XY’s wife and daughters to make recovery. During one of the visits to XY’s house, Z and his colleagues took away forcibly some of the things. That were available in XY’s house in front of his wife and daughters and also used threatening language for payment of the dues.
XY felt very much humiliated and also depressed. Being unable to repay the dues. XY committed killed themself. He left a suicide note, blaming Z for harassing him endlessly. Mentioned the abuses he had suffered at the hands of Z before his wife and daughters. Also mentioned the threat Z gave that he would suffer dire consequences if he failed to repay the overdue amount.
Following the suicide death of XY, the local police arrested Z and his colleagues (who used to accompany Z during his visits to XY’s house) on charges of abetment of suicide. A case was also filed against the ABC Bank, which has to pay an ex-gratia payment of Rs.20 lakhs to the deceased’s family. The incident has also been publishing in the press and has damaged the Bank’s reputation in public eye, at least for the time being.
Corporate Governance for Satyam Scam;Satyam Computers services limited was a consulting and an Information Technology (IT) services company founded by Mr. Ramalingam Raju in 1988. It was India’s fourth-largest company in India’s IT industry, offering a variety of IT services to many types of businesses. It is networking spanned from 46 countries, across 6 continents and employing over 20,000 IT professionals. On 7th January 2009, the Satyam scandal was publicly announced & Mr. Ramalingam confessed and notified SEBI of having falsified the account. Also learn,Tata Motors Acquisition of Jaguar and Land Rover for Case Study, Corporate Governance for Satyam Scam!
Learn, Case Study on Corporate Governance for Satyam Scam, Explanation.
What is Fraud? Fraud is a worldwide phenomenon that affects all continents and all sectors of the economy. Fraud encompasses a wide-range of illicit practices and illegal acts involving intentional deception, or misrepresentation. According to the Association of Certified Fraud Examiners (ACFE), fraud is “a deception or misrepresentation that an individual or entity makes knowing that misrepresentation could result in some unauthorized benefit to the individual or the entity or some other party”. In other words, mistakes are not a fraud. Indeed, in fraud, groups of unscrupulous individuals manipulate or influence the activities of a target business to make money or obtain goods through illegal or unfair means.
Fraud cheats the target organization of its legitimate income and results in a loss of goods, money, and even goodwill and reputation. Fraud often employs illegal and immoral, or unfair means. Organizations must build processes, procedures, and controls that do not needlessly put employees in a position to commit fraud and that effectively detect fraudulent activity if it occurs. The fraud involving persons from the leadership level is known under the name “managerial fraud” and the one involving only the entity’s employees is named “fraud by employees’ association”.
Raju confessed that Satyam’s balance sheet of 30 September 2008 contained:
Inflated figures for cash and bank balances of Rs 5,040 crores (US$ 1.04 billion) [as against Rs 5,361 crores (US$ 1.1 billion) reflected in the books].
An accrued interest of Rs. 376 crores (US$ 77.46 million) which were non-existent.
An understated liability of Rs. 1,230 crores (US$ 253.38 million) on account of funds which were arranged by himself.
An overstated debtors’ position of Rs. 490 crores (US$ 100.94 million) [as against Rs. 2,651 crores (US$ 546.11 million) in the books].
The letter by B Ramalinga Raju where he confessed to inflating his company’s revenues contained the following statements:
“What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly [annualized revenue run rate of Rs 11,276 crores (US$ 2.32 billion) in the September quarter of 2008 and official reserves of Rs 8,392 crores (US$ 1.73 billion)]. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. Also, the aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten”. Also learn, Intrapreneurship Better than Entrepreneurship!
The Scandal:
The scandal all came to light with a successful effort on the part of investors to prevent an attempt by the minority shareholding promoters to use the firm’s cash reserves to buy two companies owned by them i.e. Maytas Properties and Maytas Infra. As a result, this aborted an attempt of expansion on Satyam’s part, which in turn led to a collapse in the price of company’s stock following with a shocking confession by Raju, The truth was its’ promoters had decided to inflate the revenue and profit figures of Satyam thereby manipulating their balance sheet consisting non-existent assets, cash reserves and liabilities.
The Probable Reasons:
Deriving high stock values would allow the promoters to enjoy benefits allowing them to buy real wealth outside the company and thereby allowing them to derive money to acquire large stakes in other firms on another hand. There could be the reason as to why Raju’s family build its shareholding and shed it when required. Also learn, What is Bookkeeping?
After the scandal, on 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. On 5th February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. Also learn, What is Organizational Climate? The board consisted of:
1) Banker Deepak Parekh.
2) IT expert Kiran Karnik.
3) Former SEBI member C Achuthan S Balakrishnan of Life Insurance Corporation.
4) Tarun Das, chief mentor of the Confederation of Indian Industry, and.
5) T N Manoharan, former President of the Institute of Chartered Accountants of India.
Investigation: Criminal and Civil Charges!
The investigation that followed the revelation of the fraud has led to charges against several different groups of people involved with Satyam. Indian authorities arrested Mr. Raju, Mr. Raju’s brother, B. Ramu Raju, its former managing director, Srinivas Vdlamani, the company’s head of internal audit, and its CFO on criminal charges of fraud. Indian authorities also arrested and charged several of the company’s auditors (PwC) with fraud. The Institute of Chartered Accountants of India ruled that “the CFO and the auditor were guilty of professional misconduct”. As well as, The CBI is also in the course of investigating the CEO’s overseas assets. There were also several civil charges filed in the US against Satyam by the holders of its ADRs.
The investigation also implicated several Indian politicians. Both civil and criminal litigation cases continue in India and civil litigation continues in the United States. Some of the main victims were: employees, clients, shareholders, bankers and the Indian government. In the aftermath of Satyam, India’s markets recovered and Satyam now lives on. India’s stock market is currently trading near record highs, as it appears that a global economic recovery is taking place. Civil litigation and criminal charges continue against Satyam. Tech Mahindra purchased 51% of Satyam on April 16, 2009, successfully saving the firm from a complete collapse. With the right changes, India can minimize the rate and size of accounting fraud in the Indian capital markets.
Corporate Governance Issues at Satyam:
Every quarter, Satyam’s earnings grew. Mr. Raju admitted that the fraud which he committed amounted to nearly $276 million. In the process, Satyam grossly violated all rules of corporate governance. As well as, The Satyam scam had been the example of following “poor” CG practices. It had failed to show a good relationship between the shareholders and employees. CG issue at Satyam arose because of the non-fulfillment of the obligation of the company towards the various stakeholders. Of specific interest are the following: distinguishing the roles of board and management; separation of the roles of the CEO and chairman; an appointment to the board; directors and executive compensation; protection of shareholder’s rights and their executives. Also read it, Dell Social Business Strategy for Case Study!
Lessons Learned from Satyam Scam:
The 2009 Satyam scandal in India highlighted the nefarious potential of an improperly governed corporate leader. As the fallout continues, and the effects were felt throughout the global economy, the prevailing hope is that some good can come from the scandal in terms of lessons learning. Here are some lessons learning from the Satyam Scandal:
1] Investigate All Inaccuracies:
The fraud scheme at Satyam started very small, eventually growing into $276 million white-elephant in the room. Indeed, a lot of fraud schemes initially start small, with the perpetrator thinking that small changes here and there would not make a big difference and is less likely to detect. This sends a message to a lot of companies: if your accounts are not balancing, or if something seems inaccurate (even just a tiny bit), it is worth investigating. Dividing responsibilities across a team of people makes it easier to detect irregularities or misappropriated funds.
2] Ruined Reputations:
Fraud does not just look bad on a company; it looks bad on the whole industry and a country. “India’s biggest corporate scandal in memory threatens future foreign investment flows into Asia’s third-largest economy and casts a cloud over growth in its once-booming outsourcing sector. Also, the news sent Indian equity markets into a tail-spin, with Bombay’s main benchmark index tumbling 7.3% and the Indian rupee fell”. Now, because of the Satyam scandal, Indian rivals will come under greater scrutiny by the regulators, investors, and customers.
3] Corporate Governance Needs to Be Stronger:
The Satyam case is just another example supporting the need for stronger CG. All public companies must be careful when selecting executives and top-level managers. These are the people who set the tone for the company: if there is corruption at the top, it is bound to trickle-down. Also, separate the role of CEO and Chairman of the Board. Splitting up the roles, thus, helps avoid situations like the one at Satyam.
The Satyam Computer Services scandal brought to light the importance of ethics and its relevance to corporate culture. The fraud committed by the founders of Satyam is a testament to the fact that “the science of conduct” is swayed in large by human greed, ambition, and hunger for power, money, fame, and glory. Also Learn, Good for Company, The Corporate Entrepreneurship Categories, and Organizational Thinking!
Case Study on Corporate Governance for Satyam Scam, Image from Online.
Motorola Mobility, which was previously known as the mobile devices division of Motorola, until January 2011 when it was separated. The company produces smartphones, set-top boxes, an end to end video solutions and cable modems. As soon as automobiles were becoming popular, Motorola helped with entertaining the passengers, as it introduced the world’s first commercial portable cell phone. On the other Hand, Google a privately held company, founded by Larry Page and Sergey Brin, two Ph.D. students at the University of Stanford, it has been focused on technology innovations to help its users find the information with unprecedented levels of ease, accuracy, and relevancy. Also learn, Dell Social Business Strategy, Google’s Acquisition of Motorola Mobility for Case Study!
Learn, Google’s Acquisition of Motorola Mobility for Case Study!
Google primarily concentrated on the areas of search, advertising, operating systems and platforms, enterprise and hardware products. These programs include AdWords, AdSense, Google Display and Google Mobile, with Android and Google Chrome serve as its operating system and platforms. Google generate revenues primarily through delivering advertising to promote products and services for businesses. Currently, it moves to the new area, except for providing specific features to mobile device users, Google also operates in the mobile segment, as it made an acquisition of Motorola Mobility Holdings Inc. (Motorola) on May 22, 2012.
Strategy, Finance, and Valuation Behind the Acquisition!
Google is considered as one of the top web property in the global market. It provides different organization from all sizes with measurable results. The base of Google is located in Silicon Valley, however, they have offices all over the world. In 2011, Google managed to buy Motorola at a share price of $40 per share. This acquisition will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.
Google made a deal with Motorola Mobility to buy the latter company for the sum of 12.5 billion dollars. Motorola was the only smartphone company that didn’t join Microsoft windows phone reboot, which was rewarded by Google which bought the company for $12.5 billion. The move Google made showed a bold move into the hardware business. Google plans included Motorola whereas they would run Motorola Mobility as a separate business that only licenses the software. The reasons behind the acquisition of Motorola, was none other than the intellectual property, whereas the patent portfolio of the company was described as an asset that will strengthen the position of Google with respect to threats coming from Apple and other companies such as Microsoft.
According to the founder of Google and the CEO Lary page, he said ” “Motorola Mobility’s total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners, and developers. I look forward to welcoming Motorolans to our family of Googlers.” The Corporate Entrepreneurship Categories and Organizational Thinking!
On the other hand, Motorola Mobility Holdings, Inc., is a manufacturer of cellular phones, whereas it combines innovative technology with human insights in order to connect people and enrich their lives. They are not solitary focused on cellular phones, as they manufacture wireless accessories, data delivery; and management solutions. During that time, Motorola was struggling in their market, to keep up with Samsung and HTC in Android innovation.
For Motorola to get $12.5 billion for the company would be a great thing, as it is 63% premium over the share price. Even though the company was enjoying the launch of Droid and Droid X, however, it was losing after Motorola XOOM wasn’t selling, furthermore, delays occurred with the launching of the 4G smartphones. So the amount paid by Google only shows the how the CEO of Motorola Sanjay Jha has the ability to capitalize on a company desperate for patent protection.
According to Sanjay Jha, the CEO of Motorola Mobility, the transaction between Google and Motorola will offer major value to the stakeholders, offers new opportunities to the employees, customers, and partners around the world. The partnership will take the Android platform to another level, a level that will enable them to deliver better mobile devices.
Before the acquisition, took place, Google wanted to buy Motorola for a high-$20s, low-$30s per share, they made their first bid on the 1st of August, where they offered $30 per share, after 10 days from making the initial bid, Google made 2 more bids, the second bid was for the price of $37 and the final bid was for $40. But our question is, how could a company like Google, that is fond of number reach to this amount?
It all started n July, when Sanjay Jha, said that it would be hard for Motorola to stay alone as an entity if it sold a large number of patents. This prompted Google to buy Motorola Mobility, so they requested to buy the company for the price of $30 per share in cash since Motorola has almost 299 million shares, the total bid equated to $9 Billion in Cash.
However, Motorola used Quatalyst partners (Investment Bankers) to make contact with Google in August Whereas they suggested that Google should pay the amount of $43.5 per share (New York times), that’s when Google increased the bid up to $37 per share, which was later declined by both Motorola and Quatalyst partners, but Google still had a chance, as they replied with an offer of $40.5 per share or higher.” Google made the offer of $40.00 per share, or $11.96 billion. With the addition of options, the total amount reached up to $12.5 billion in Cash, which was finally agreed to by Motorola Mobility.
Google’s acquisition of Motorola Mobility is considered the largest in the company’s history, reaching the value of $12.5 billion, it is considered as the strongest merger and Acquisition within the sector of high-tech since the year 2007 according to data from Thomson Reuters.
This acquisition is considered overpriced to the media, as 63% premium is paid on the below par device makers. However many analysts and the media around the world believe that the purchase was only because of Motorola Patents, for this reason, Google should prepare itself to stand in court in case of lawsuits.
Some would argue that the reason behind the purchase is to start a war with Apple. After all, Google will start the process of manufacturing phones that could run on the Android platform, this means that Google is looking for a head to head battle with the iPads and iPhones manufacturers that use Apple platform. With this acquisition, Google managed to enter into the business of manufacturing phones.
Regulatory Implications!
In order for the acquisition to take place, Google had to get the approval from the US government, European Commission and the Chinese government. Google managed to get approval from the US government and European Commission in February 2011. The US government had its doubts to give approval as it wasn’t sure if the acquisition would harm the Cell phone market. As the government is on guard to see if Google would use patents in the wireless device industry and “will not hesitate to take appropriate enforcement action” against violators.
On the other hand, the Chinese government took more time to approve the transaction. As the Chinese law clearly states that any company that is selling its products with a revenue greater than $63 million domestically or $1.5 billion globally must get the approval from its ministry of commerce. However, Google must keep the operating system of Android free for all users and open for at least five years, in order to give approval of the acquisition.
Is Google’s acquisition of Motorola Mobility Working Out?
Everyone was surprised by the Google’s acquisition of Motorola Mobility, there are many good reasons why the business world was shocked. To begin with, its really rare to see a software company, moving into the hardware business. Could Motorola be the right choice for Google to purchase?
The main reason behind the Google’s acquisition of Motorola Mobility was the 17,000 portfolio of patents owned by Motorola mobility plus 7000 pending patent applications, which are mostly related to the mobile technologies. Before Google actually bought Motorola, they had lost around 6,000 patents that belonged to Nortel. A group of investors from different companies such as Microsoft, Sony, and apple, who pitched in to pay the sum of $4.5 billion. This left Google out cold and started one of Google’s now-infamous screed against the patent system. Google had to look for another source of patents, that’s why it settled for Motorola Mobility.
At the start of the merger, Google posted its first revenue report in July 2012, the report included Motorola acquisition, the overall numbers shown were actually good, which came as a shock. The total revenue reaches up to $12.1 billion, which was 21% more than the same quarter of last year. On the other hand, Motorola who had lost cash in 14 out of the last 16 quarters, was expected to drag Google’s cash flow down. Even though it was true, it wasn’t as bad as many analysts thought.
As almost $1.25 billion that Google earned came from none other than Motorola, plus almost $840 million that came from selling Motorola Handset. Even though the sales of Low-end phones were still decreasing, other phones such as Motorola’s Droid Razr Maxx was selling really well. If it was still working as a separate entity, it would have almost the total sum of $38 million, which is not really a huge number, as it only forms about 3% of the total revenue generated.
But is it really working out between the two companies? As Google’s main reason behind the acquisition was the patents. These patents, are with no doubt bringing Google healthy royalty revenue. However, since the acquisition took place, Google tried to assert the patents owned by Motorola against other competitors such as Apple and Microsoft with no luck, it also tried to protect Android, but still, there are no produced results. Instead of showing good result, the acquisition is actually attracting negative attention from around the world, as it was from Judges, Regulators or even both. According to Duncan, he says ” Google may have turned the patent fight between high-tech companies from a high-stakes bout to an old-school, 40-round, bare-knuckle brawls — and that’s pretty much the opposite of what patents are supposed to do”.
Google Sells Motorola to Lenovo!
After one and a half year, Motorola Mobility LLC, which owned by Google has been sold again to Lenovo, which a Chinese company whom an expert in a computer manufacturing for only $2.91 billion. Most of the people said that Google’s decision to sell Motorola Mobility is a fool.
Google has several reasons why they sell Motorola Mobility to Lenovo. The first reason is Google only bought Motorola Mobility for its patents, not for manufacturing. Because Motorola had a massive patent library that can be used defensively against Apple’s patent attacks on Android licensees which makes the Android or Google’s customer worried. Google acquired Motorola Mobility, including its approximately 17,000 patents for $12.4 billion in May 2012 (all figures in US dollars). They sold the set-top box business (and 1,000 patients) to Arris in December 2012 for $2.35 billion in cash and stock. And now they’ve sold the handset business (and 2,000 patients) to Lenovo for $2.91 billion.
Now, the purchase of Motorola came with $2.9 billion in cash, so what we’re left with is $4.24 billion for around 14,000 patents. (You can shrink that number further by taking into account things like $2.4 billion in deferred tax assets Google obtained in the original acquisition, but we’ll set that aside for the sake of this argument.) According to regulatory filings, Google had valued the original 17,000 patents at $5.5 billion (by far the biggest piece in their valuation of the acquisition).
Now, anyone in the patent licensing business will tell you calculating a per-patent valuation for a portfolio is an over-simplification. But with all necessary disclaimers, this works out to around $294,000 each, and that they paid $303,000 each for the 14,000 they still have. That’s pretty close to their original valuation. And does that valuation hold water? Probably the easiest checkpoint is Rockstar’s purchase of around 6,000 Nortel patents for $4.5 billion. That’s $750,000 per patent.
The second reason is Google can become a neutral company as an operating system broker for many vendors and make the money circulate faster than when with Motorola. Because, once Google bought Motorola, many big companies like Samsung and LG start to create their new operating system for mobile like Samsung’s Tizen. From these two reasons, Google’s decision to sell Motorola Mobility to Lenovo is a wise decision and profitable.
Dell Social Business Strategy;Dell Inc. is one of the world’ largest multinational technology corporation. That manufactures sells and supports personal computer and other computer related. Dell was founded as PC’s Limited in 1984 by Michael Dell, with start-up money totaling $1,000. When he was attending the University of Texas. Michael Dell started his business with a simple concept that selling computer systems directly to the customer would be the best way to understand their needs and give them the most computing solutions. Also learn, Tata Motors Acquisition of Jaguar and Land Rover for Case Study! Dell Social Business Strategy for Case Study!
Learn, Explaining, Dell Social Business Strategy for Case Study!
Dell Social Business Strategy; The first product of the company is a self-designs computer call Turbo PC which had lower prices than major brands. PC’s Limited was not the first company to do this but was the first to succeed, grossing $73 million in its first year trading. Dell Social Business History: The company changed its name to Dell Computer Corporation in 1988.
They try to sell computer through stores in 1990 but was unsuccessful and they return to sell directly to customers. Dell was including in Fortune Magazine as one of the world’s 500 largest companies in 1992. Four years later, Dell began to sell computer through its website. In 1999, Dell beat Compaq and became the biggest seller PCs in the US with $25 billion in revenue. In 2003, the company’s name was changed to Dell Inc.
The Case Discussion for Dell Social Business Strategy:
First, How to manage the social media presence and what strategy the company should adopt for its social media presence?
Second, How to engage employees and other stakeholders in the social media platforms and how to use the information in organizational decision making?
Third, How to generate good ROI from social media marketing initiatives and profit from social media presence?
And last, What technologies and platforms are to use for social media and how to measure ROI?
In June of 2005.
Jeff Jarvis bought a Dell Lemon and paid a premium for the four-year in-home service plan. He started to face problems with the machine immediately and he contacted Dell for fixing the problems, but there was no proper response from Dell. Dell did not provide good service to Jarvis and with no other option, he posted his angry bust on poor Dell Service on his blog Buzz Machine titled “Dell lies. dell sucks”.
His blog post generated severe criticism of Dell and other unhappy customers joined and the whole blogosphere started a critical discussion of the poor quality of products and how bad is Dell Technical Support service. Dell which was already struggling with poor revenues and blogosphere criticism added fuel to the poor financial performance and hurt Dell reputation badly.
The problem of poor customer service and quality of products was not new as Dell was not listening to the customer complaints for long and the blogs had just publicized and gave an opportunity for the aggrieved customers to vent their anger. Dell had the first-hand experience of how social media can impact the business and how critical it is to listen to customer complaints and fix them fast.
In 2006.
It took one year for Dell to realize the extent of damage caused by the blogs and forced the company to announce a new business plan, called Dell 2.0 in 2006 that included an additional $150m investment in their customer service. The investment included sales channels, both in sales contacts & its online presence, in its website front and back end and expand the scope of Dell Connect, which enables a Dell technician to take control of a customer’s system should they be encountering problems. More Read it, What is Organizational Structure for Corporate Entrepreneurship?
In March 2006 a community outreach team was forming that including the group of technical support experts with good interpersonal skills that listen, monitors and reaches out to bloggers around the world who have questions or may require assistance. Direct2Dell was launching in July 2006 and in August Dell expand blog outreach to include any conversations about Dell.
Initially, Direct2Dell blog was receiving with negative skepticism, but chief blogger Lionel Menchaca convince bloggers that Dell was seriously listening to the bloggers and he diligently respond and link to critics. Dell’s team staunched the flow of bad buzz and by Dell’s measure, negative blog posts about it have dropped from 49% to 22%. Dell even engaged an external agency to monitors online conversations about Dell.
In February 2007.
Dell launched IdeaStorm that allowed Dell users to provide feedback & valuable insights about the company and its products and vote for those they find most relevant. The Linux community used this platform and suggested Dell brought back XP as an option for customers who wanted it, reduced trialware and listen to customers discuss ideas in real time.
StudioDell (January 07) is a place where Dell users could share videos about Dell-related topics and videos and podcasts were using to educate users on various emerging technologies and also offers tips, tricks, and support to get the best out of a Dell product.
Dell operated blogs and forums for dedicated customer engagement topics, joined Twitter (June 07) with a number of ids. Dell set up a centralizing team, appointed a separate leadership and resources were taken from multiple teams (IT, online) to test and launch social engagement tools and websites quickly. This team has developing formal social media strategy and set of social media policies and governance was set in place.
In 2008.
Dell social media presence started to yield results in terms of ROI and social media has become part of the business strategy and the various business units were provided specific targets for social media. Employees were trained and encouraged to actively participate in various social media channels, provide customer support through blogs, twitter, etc and community managers who were responsible for listening and resolution, content planning, technology testing, planning, and measurement was the name for various business units.
Dell even went further with its social media initiatives a blog for the channel community was launching, online communities were launched for Dell’s environmental efforts called Regeneration and technophiles called Digital Nomads and social content appeared on Dell.com (homepage navigation, product pages with ratings & reviews). The Dell outlet, small business, and home offer available on Twitter had $500,000 in revenues. Dell started a page focusing on SMBs and fan pages on Facebook.
In 2009.
due to the recession pressure, social media team had to reduce headcount. Which led to the departure of key people in the social media facing teams within the Dell. The departures had an impact on the Dell social media presence had seen consolidation in the number of blogs & twitter accounts, slow down in response and lack of experience had further worsened the situation.
But Dell managed to keep up and the worldwide community has grown to more than 3.5 million people across the social web, including places like Twitter, Facebook, Direct2Dell, and IdeaStorm. @DellOutlet had close to 1.5 million followers on Twitter with $3 million in revenue and in total Twitter has resulted in more than $6.5 million in revenue. Dell launched the Dell Tech Center in 2009 to revitalize the brand and increase awareness of Dell’s solutions capabilities as customers valued a trusted advisor relationship.
In 2010.
Dell consolidated its social media strategy in 2010 with the appointment of new leadership to social media. Division and together with the old members of the Dell social media team, Dell tried to regain its focus. Another effort from Dell to maintain its focus on social media was to open up. A Social Media Listening Command Center in Austin Texas under the leadership of Chief Listening Officer. Where real-time data is collect and visualize by Radian6 and display across rows of monitors. That shows a unique dashboard, offering instant insights into things like customer sentiment, the share of voice and geography.
Dell also started on Customer Advisory Panel events with a goal to bring key customers and key advocates to Dell HQ in June 2010 to understand their delights and frustrations. Other DellCAP events were held in China in November 2010, in Germany in January 2011 and again in Round Rock in March 2011, focus on Sustainability topics. Think New, Why is Intrapreneurship Better than Entrepreneurship?
In 2011.
Now, Dell continued to improve its social media presence in 2011 and the Social Media Listening Command center is playing a critical role in these efforts. Also, Dell is tracking 25,000 online mentions both posts and tweets about Dell every day and understand this information based on topics, sentiment, the share of voice, geography, and trends and use it answer customer questions, address their concerns, build better products, and improve the overall customer experience.
Dell has around 5000 employees trained as Social Media professionals and turned them. Into frontline social marketers who engage in Twitter, Facebook, LinkedIn, blogs, and more on the company’s behalf. As, Dell views employees’ social media participation as an asset rather than a liability and accordingly doesn’t restrict team members from utilizing mobile devices, apps or social media.
Dell is using social media as a platform to support various campaigns and using it in the promotion of its first Customer Event. Dell World and launches a website, Techpageone.dell.com (Formerly EnterpriseEfficiency.com). Which is a microsite feature daily, topical blogs written by InformationWeek editors and writers as well as Dell executives to gain insights?
Now more Opportunity for Dell Social Business Strategy.
Dell Social Business Strategy; Social media has provided an opportunity for Dell not only to interact with customers. Understand their opinions and needs but also provided a marketing platform wherein. They can advertise their products, improve the brand image and loyalty and improve their revenues with the rise in sales. Dell initially entered into social media not to sell its products but to respond to its customer complaints and feedback but customers wanted to access to special deals from its social feeds that link to products, reviews or discounts.
Dell is committed to improving the overall level of customer service continuously which is 24×7 “always-on” customer service philosophy. Through social media and has made it a critical part of the business strategy with clearly defined policy and is considering as one of the top companies in the world. That is significantly profiting through the use of Social media.
Jaguar and Land Rover; Tata Motors is the largest multi-holding automobile company in India and it is the fourth largest truck producer in the world. In addition, TataMotors.com is also the second largest bus producer in the world. With the revenues of US$ 8.8 billion in the financial year 2008. Since its establishment in 1945, Tata Motors has grown significantly in the past 60years with the strategies of the joint venture.
Learn, Explaining, Tata Motors Acquisition of Jaguar and Land Rover for Case Study!
Acquisition and launched new products in different market segments (i.e. passenger cars, commercial vehicles, and utility vehicles). A significant breakthrough for Tata was the development and commercialization of the truly Indian cars and they are Tata Indica (1998) and Tata Indigo (2002). Also learn, What is the Growth Strategy for Case Study Starbucks? Tata Motors Acquisition of Jaguar and Land Rover for Case Study!
Tata Motors has experienced many joint ventures with Daimler Benz, Cummins Engine Co. Inc., and Fiat. In the year 2008, there were two most significant events which have had a momentous impact on the scale of the Company’s operations and its global image. The launching of Tata Nano, the world cheapest car and the acquisition of Jaguar and Land Rover.
The two iconic British brands have made Tata Motors well known to the people in the world. Tata Motors has proven excellence over the years through continued strong financial results. Market expansion, acquisition, joint ventures and improvement and introduction of new products, it seems to have a promising future.
But it failed the expectation as the company was in trouble right after. The acquisition of Jaguar and Land Rover (JLR) in June 2008 due to the arrival of the global financial crisis. The bridge loan of US$ 3 billion which used to fund the acquisition of JLR was due on June 2009 and yet at the end of the year 2008, Tata was only able to repay the US$ 1 billion.
The declining revenues and tight credit conditions were hurting the company’s cash flow. The questions arise is whether Tata Motors able to repay the bridge loan? Will it be able to build up investors’ confidence and increase sales in the future? Could Tata Motors survive or going into bankruptcy?
Tata Motors Acquisition of Jaguar and Land Rover!
On June 02, 2008, India-based Tata Motors completed the acquisition of the Jaguar and Land Rover (JLR) units. From the US-based auto manufacturer Ford Motor Company (Ford) for US$ 2.3 billion, on a cash free debt free basis. JLR was a part of Ford’s Premier Automotive Group (PAG) and were considered to be British icons. Jaguar was involved in the manufacture of high-end luxury cars, while Land Rover manufactured high-end SUVs.
Forming a part of the purchase consideration were JLR’s manufacturing plants, two advanced design centers in the UK. National sales companies spanning across the world, and also licenses of all necessary intellectual property rights. Tata Motors had several major international acquisitions to its credit. It had acquired Tetley, South Korea-based Daewoo’s commercial vehicle unit, and Anglo-Dutch Steelmaker Corus.
Tata Motors long-term strategy included consolidating its position in the domestic Indian market and expanding. Its international footprint by leveraging in-house capabilities and products and also through acquisitions and strategic collaborations. Analysts were of the view that the acquisition of Jaguar and Land Rover. Which had a global presence and a repertoire of well-established brands? Would help Tata Motors become one of the major players in the global automobile industry.
On acquiring JLR, Rattan Tata, Chairman, Tata Group, said, “We are very pleased with the prospect of Jaguar and Land Rover being a significant part of our automotive business. We have enormous respect for the two brands and will endeavor to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth while holding true to our principles of allowing the management and employees to bring.
Their experience and expertise to bear on the growth of the business.” Ford had bought Jaguar for US$ 2.5 billion in 1989 and Land Rover for US$ 2.7 billion in 2000. However, over the years, the company found that it was failing to derive the desired benefits from these acquisitions. Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. The company acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5 billion.
After Ford acquired Jaguar, adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. The sales of Jaguar in many markets declined, but in some markets like Japan, Germany, and Italy, it still recorded high sales. In March 1999, Ford established the PAG with Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for US$ 6.45 billion, and it also became a part of the PAG.
Ford Sells Jaguar and Land Rover!
In September 2006, after Allan Mulally (Mulally) assumed charge as the President and CEO of Ford. He decided to dismantle the PAG, In March 2007. Ford sold the Aston Martin sports car unit for US$ 931 million. In June 2007, Ford announced that it was considering selling JLR. More Read it Case, Case Study of “Starbucks Entry to China” with Marketing Strategy!
The Deal!
On March 26, 2008, Tata Motors entered into an agreement with Ford for the purchase of Jaguar and Land Rover. Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition of the businesses of JLR. As part of the acquisition, Tata Motors did not inherit any of the debt liabilities of JLR – the acquisition was totally debt free.
The Benefits!
Tata Motors’ long-term strategy included consolidating its position in the domestic Indian market and expanding. Its international footprint by leveraging in-house capabilities and products and also through acquisitions and strategic collaborations.
Tata Motors stood to gain on several fronts from the deal. One, the acquisition would help the company acquire a global footprint and enter. The high-end premier segment of the global automobile market. After the acquisition, Tata Motors would own the world’s cheapest car – the US$ 2,500 Nano, and luxury marquees like the Jaguar and Land Rover. Two, Tata also got two advanced design studios and technology as part of the deal.
This would provide Tata Motors access to the latest technology. Which would also allow Tata to improve. Their core products in India, for eg, Indica and Safari suffered from internal noise and vibration problems. Three, this deal provided Tata an instant recognition and credibility across the globe which would otherwise have taken years. Four, the cost competitive advantage as Corus was the main supplier of automotive. High-grade steel to JLR and other automobile industry in the US and Europe.
This would have provided a synergy for TATA Group on a whole. The whole cost synergy that can create can see in the following diagram. Five, in the long run, TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATA’s revenue). Along with it due to TATA’s footprints in South East Asia will help JLR do diversify. Its geographic dependence on the US (30% of volumes) and Western Europe (55% of volumes).
The Road Ahead!
Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors. As it had increased the earnings volatility. Given the difficult economic conditions in the key markets of JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to the US$ 2.3 billion it had spent on the acquisition.
Tata Motors had also incurred huge capital expenditure on the development and launch of the small car. Nano and on a joint venture with Fiat to manufacture some of the company’s vehicles in India and Thailand. This, coupled with the downturn in the global automobile industry, was expected to impact the profitability of the company in the near future.
Worldwide car sales are down 5% as compared to the previous year. The automobile industry the world over is rationalizing production facilities, reducing costs wherever possible, consolidating brands and dropping model lines and deferring R&D projects to conserve funds. The Chinese and Indian domestic markets for cars have been exceptions.
While China has witnessed a significant reduction in its automotive-related exports and supplies to automobile companies. The Chinese domestic car market has grown by 7%. In India, the passenger car market has remained more or less flat compared to the previous year.
Since then, its fortunes have been unsure, as the slump in demand for automobiles has depressed. Its revenues at the same time Tata has invested nearly $400 million in the Nano launch and struggled to pay off. The expensive $3 billion loans it racked up for the Jaguar/Land Rover shopping bill. Within the space of a year, Tata Motors has gone from being a developing-world success story to a cautionary tale of bad timing and overly ambitious expansion plans.
Tata Motors standalone Indian operations profits declined by 51% in 2008-09 over the previous year. All through the fiscal year ended March 2009, the company bled money, losing a record $517 million on $14.7 billion in revenues, just on its India operations. Jaguar and Land Rover lost an additional $510 million in the 10 months Tata-owned it until March 2009. In January 2009, Tata Motors announces that due to lack of funds. It may force to roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. The financial burden on Tata Motors was expected to increase. Further with the pension liability of JLR coming up for evaluation in April 2009.
Tata Motors Acquisition of Jaguar and Land Rover for Case Study!
