Business Organizations: Forms, Characteristics, and Objectives

BBA II

(Sem III)

By

Smita D Dubal

Forms of business organization

:

1. Meaning and definition ,Types of business

2. Characteristics of Business Organization

3. Features of sole proprietorship, Joint Hindu Family &

co-operative society.

4. Features& types of partnership & joint stock company.

5. One person company, Producer Company and non

banking financial company as per companies act 2013.

Meaning

Business is any activity which is carried

out to make or earn profit.

Definition



A business (entity) is an organization or any other

entity engaged in commercial, professional, charitable

or industrial activities. It can be a for-profit entity or

a not-for-profit entity and may or may not have a

separate existence from the people/person controlling

it.



A business (activity) is a commercial activity which

involves providing goods or services with a primary

motive of earning profits



The business concept is the fundamental

idea behind the business. The business

model, plan, vision, and mission are

developed based on this concept.



Uber

, for example, was started on the

concept of aggregating taxi drivers and

providing their services on demand under

one brand. Every other business strategy was

developed based on this concept.



The business objective is what makes the

business go on and conduct its activities in a

long run.



According to the traditional concept, business

exists only to earn profits by providing the

goods and services to the customers.



According to the modern concept, the

underlying objective of every business is

customer satisfaction as this is what results in

most profits. If the customer is satisfied,

business excels.

1

. Economic activity          2. Buying and Selling

3. Continuous process           4. Profit Motive

5. Risk and Uncertainties

    Predictable factors are controllable to some

extent, such as:

a) Taxes

b) Change in the volume of expected sales

c) Cost of supplies and equipment

d) Overhead costs

e) Salaries

f) Cost of goods and services offered



Unpredictable factors include

:

a)

Changes in trends and tastes of customers.

b)

Impact of the local economy on customer

base.

c)

 Any unexpected action taken by your

competitors.

The calculation and management of the risk is

vital to ensure the success of a business firm.

Insurance and Risk management helps in

minimizing the risk associated with the

business

6. Creative and Dynamic          

7. Customer satisfaction

8. Social 

Activity                    

9. Optimum utilization

                                                          of resources:

10. 

Government control

Some important acts framed by the government

include:

i. The Competition Act, 2002

ii. Foreign Exchange Management Act, 1999

iii. The Environment Act, 1986

iv. Indian Companies Act, 1956

v. Consumer protection Act



Business Organization is one which performs

commercial activities for earning the profit.



It provides goods & services to customers as per

their needs. These have a well-defined structure

and works according to that. The size of the

business organization differs as per their objectives.



 It aims at achieving a healthy relationship between

employees, tasks, and various resources so that they

can work together to achieve common goals.



Meaning

A business enterprise is an institutional

arrangement to form any business

activity.



It is a one-man business and is owned by a single

person.



There is only one person to manage and run the

business.



It is very easy to set up and requires less cost

among all. It is suitable for small businesses setup.

It avoids the cost of creating a corporation

or partnership.



Here the owner faces unlimited liability. Creditors

can take personal assets of the owner if the

business does not pay debts.



It is the different form of business which exists

only in India.



 It is not legal in the rest of the world. It is run

and governed by the Hindu law.



 The eldest member of the family is head of a

business.

The head of the business is called ‘Karta’. He

manages all the finances of the business.



Family members are the co-partners of

business.



It is a business which is owned by two

or more persons. They together

contribute resources for the business.



The profit of the business is divided by

these partners.

Generally, in partnership, all partners

have unlimited liability.



They all are equally responsible for

business debts



It is a business which is run by a group of persons.



 It is operated by them for their mutual benefit.



These persons are called members of the business.



It may be corporate or in- corporated.



Its members join the business by their own choice.



Membership is open for all who have common

goals.



Minimum 10 members are required for this

business.



Profit of the business is divided among its

members.



It is a business which is owned together by its

shareholders.



Shareholders are the one which buys some stock in

the company.



Profit is provided to them as per their shareholding



These persons join the company as per their choice.



Finance of the company is provided by

shareholders.



These shareholders can transfer their ownership to

another person.



It is a business which sells goods for earning

money.



 It is run by two or more persons together.



The profit is also divided by these persons.



All its members are responsible for its debt and

operation.

There are certain which governs the working of

companies.



Every company has its own mission & objectives.



All its members work hard to achieve these goals.



Efficient Usage Of Resources



Better Communication



Easy Acquiring



Better Administration



Increase Productivity & Job Satisfaction



overall productivity at lower costs.



Better Working Relationship



Sole proprietorship means a business

owned, financed and controlled by a single

person who is recipient of all profit and

bearer of all risks.



It is SUITABLE IN AREAS OF

PERSONALISED SERVICE like beauty

parlor, hair cutting saloons & small scale

activities like retail shops.



Features

1. Single ownership

2. Control

3. No separate legal entity

4. Unlimited liability

5. No legal formalities

6. Sole risk bearer and profit recipient



Merits

1. Easy to start and close

2. Quick decision making

3. Sense of accomplishment

4. Unlimited liability

5. No legal formalities

.

6. Sole risk bearer and profit recipient



LIMITATIONS

1. Limited financial resources

2. Limited Managerial ability

3. Unlimited liability

4. Uncertain life

5. Limited scope for expansion



SUITABILITY

:



Sole trader ship is suitable-

• Where the personal attention to customer is

required as in tailoring, beauty parlor.

• Where goods are unstandardized like artistic

jewellery.

• Where modest capital and limited managerial

skills are required as in case of retail store

• Business where risk is not extensive i.e. lesser

fluctuation in price and demand i.e. stationery

shop.



It is owned by the members of undivided

joint Hindu family and managed by the

eldest member of the family known as

KARTA.



It is governed by the provisions of Hindu

law.



The basis of membership is birth in a

particular family



FEATURES

1. Formation 

2. Membership by birth –

There are two systems which govern membership

Dayabhaga System-

 It prevails in west Bengal and

allows both male and female member to co-parcencers.

Mitakshara System

-

 It prevails all over India except

West Bengal and allows only male members to be

coparceners

3. Liability

4. Continuity 

5. Minor members 



MERITS



1. Effective control



2. Continued business existence



3. Limited liability 



4. Secrecy 



5. Loyalty and Co-operation



LIMITATION



1. Limited capital



2. Unlimited liability of karta 



3. Dominance of karta



4. Hasty decisions



5. Limited managerial skills of karta



Meaning:

Partnership is a voluntary association of two

or more persons who agree to carry on some

business jointly and share its profits and

losses

.



FEATURES

1. Two or more persons

2. Agreement

3. Lawful business

4. Decision making & control 

5. Unlimited liability 

6. Mutual Agency 

7. Lack of continuity 



MERITS

1. Ease of formation & closure 

2. Larger financial resources 

3. Balanced Decisions 

4. Sharing of Risks 

5. Secrecy 



LIMITATIONS

1. Limited resources 

2. Unlimited liability

3. Lack of continuity 

4. Lack of public confidence 



TYPES OF PARTNERS

1. General / Active Partner

2. Sleeping or Dormant Partner 

3. Secret Partner 

4. Nominal Partner 

5. Partner by Estoppels

6. Partner by holding out 

7. Minor as a Partner



Types of Partnership

A. Classification on the Basics of

Duration

Partnership at will

Particular Partnership

B. Classification on the basis of Liability

General partnership

Limited Partnership



The written agreement on a stamped paper

which specifies the terms and conditions of

partnership is called the partnership deed.



It generally includes the following aspects –

• Name of the firm

• Location / Address of the firm

• Duration of business.

• Investment made by each partner.

• Profit sharing ratio of the partners

Cont…

• Terms relating to salaries, drawing, interest

on capital and interest on drawing of

partners.

• Duties & obligations of partners.

• Terms governing admission, retirement &

expulsion of a partner, preparation on of

accounts     & their auditing.

• Method of solving dispute



Registration is not compulsory it is optional.

But it is always beneficial to get the firm

registered. The consequences of non-

registration of a firm are as follows:



 A partner of an unregistered firm cannot file

suit against the firm or the partner.



The firm cannot file a suit against third party.



The firm cannot file a case against its partner.



A co-operative society is a voluntary

association of persons of moderate means

who unite together to protect & promote

their common economic interests.



FEATURES

1. Voluntary association

2. Legal status

3. Limited liability

4. Democratic control

5. Service motive

6. Bound by govt.’s rules

7. Distribution of surplus



MERITS

1. Excise of formation

2. Producer’s Co-operative Society 

3. Marketing Co-operative Society 

4. Farmer’s Co-operative Society 

5. Credit co-operative Society 

6. Co-operative Housing Society 



Joint stock company is a voluntary

association of persons for profit, having

a capital  divided into transferable shares,

the ownership of which is the condition of

membership.



FEATURES

1. Incorporated association 

2. Separate Legal Existence 

3. Perpetual Existence 

4. Limited Liability 

5. Separation of ownership and control 



MERITS

1. Limited Liability 

2. Transfer of Interest 

3. Perpetual Existence 

4. Scope for expansion 

5. Professional management 



LIMITATIONS

1. Legal formalities 

2. Lack of secrecy 

3. Lack of Motivation 

4. Delay in decision making 

5. Oligarchic management 

On the basis of ownership, companies can

be divided into two categories

Private & Public.

       Private  Co.



It has minimum 2 and

maximum 50 members.



It cannot invite general

public to buy its shares

and debentures.



There are certain

restrictions on transfer

of its shares.



It can commence

business after

incorporation.

           Public Co.



It has minimum 7 and

maximum unlimited.



It invites general public to

buy its shares and

debentures.



Its shares are freely

transferable.



It can commence business

after obtaining certificate of

commencement of

business.

        Private  Co.



It has to write Private

Ltd. After its name



Ex- Tata Sons, Citi

Bank, Hyundai Motor

India.



In its minimum

capital required is

one lakh.

              Public Co.



It has to write only

limited after its name



Ex- Reliance

Industries Ltd.,

Wipro Ltd. ,

Raymond’s Ltd.



In its minimum

capital required is

five lakhs.

Formation of a company means bringing a

company into existence and starting its

business. The steps involved in the formation of

a company are:

(i) Promotion

(ii) Incorporation

(iii)Capital subscription

(iv) Commencement of business.

A private company has to undergo only first two

steps but a public company has to undergo all

the four stages.

Promotion means conceiving a business

opportunity and taking an initiative to form a

company.

Step in Promotion:

1. Identification of Business Opportunity 

production of new product or service.

2. Feasibility Studies

detailed studies of technical, Financial,

Economic feasibility of a business.

Cont…

3. Name Approval

4. Fixing up signatories to the Memorandum of

Association

5. Appointment of professional:

 Promoters

appoint merchant bankers, auditors 

5.

Appointment of professional:

 Promoters

appoint merchant bankers, auditors etc.

6. Preparation of necessary documents:

 The

promoters prepare certain legal documents such as

memorandum of Association, Articles of

Association which have to be submitted to the

Registrar of the companies. etc.

Incorporation means registration of the company as body

corporate under the companies Act 1956 and receiving

certificate of Incorporation.

Steps for Incorporation

1. Application for incorporation: 

Promoters make an

application for the incorporation of the company to the

Registrar of companies.

2. Filing of necessary documents: 

Promoters files the

following documents:

     (i) Memorandum of Association.

(ii) Articles of Association.

(iii) Statement of Authorized Capital

.

   (iv) Consent of proposed director.

(v) Agreement with proposed managing director.

(vi) Statutory declaration 

3. Payment of

fees:

 Along with filing of above documents,

registration fee has to be deposited which depends

on amount of the authorized capital.

4. Registration:

 The Registrar verifies all the

document submitted. If he is satisfied then he

enters the name of the company in his Register.

5. Certificate of Incorporation:

 After entering the

name of the company in the register. The Registrar

issues a Certificate of Incorporation. This is called

the birth certificate of the company

A public company can raise funds from the public by

issuing shares and Debentures. For this it has to

issue prospectus and undergo various other

formalities:

Step required for raising funds from public

:

1. SEBI Approval:

 SEBI regulates the capital market

of India. A public company is required to take

approval from SEBI.

… Cont

2. Filing of Prospectus:

 Prospectus means any

documents which invites offers from the public to

purchase share and Debenture of the company.

3. Appointment of bankers, brokers,

underwriters:

 Banker of the company receive the

application money. Brokers encourage the public

to apply for the shares, underwriters are the person

who undertake to buy the shares if these are not

subscribed by the public. They receive a

commission for underwriting.

4. Minimum subscription:

 According to the SEBI

guide lines minimum subscription is 90% of the

issue amount. If minimum subscription is not

received then the allotment cannot be made and the

application money must be returned to the

applicants within 30 days.

5. Application to Stock Exchange:

 It is necessary for

a public company to list their shares in the stock

exchange therefore the promoters apply in stock

exchange to list company shares.

6. Allotment of Shares:

 Allotment of shares means

acceptance of share applied. Allotment letters are

issued to the shareholders. The name and address of

the shareholders submitted to the Registrar.

To commence business a public company has to obtain a

certificate of commencement of Business. For this the

following documents have to be filled with the

registrar of companies.

 1. A declaration that 90% of the issued amount has

been subscribed.

2. A declaration that all directors have paid in cash in

respect of allotment of shares made to them.

3. A statutory declaration that the above requirements

have been completed and must be signed by the

director of company.

Important documents used in the formation of company:

1. Memorandum of Association 

– It is the principal

document of a company. No company can be registered

without a memorandum of association and that is why it is

sometimes called a life giving document.

Contents of Memorandum of Association:

1. Name clauses 

– This clause contains the name of the

company

2. Situation clauses 

– This clause contains the name of the

state in which the registered office of the company is to be

situated.

3. Object clause 

– This clause defines the objective with

which the company is formed.

4. Liability Clauses 

– This clause limits the liability of the

members to the amount unpaid on the shares held by them.

5. Capital clause 

– This clause specifies the maximum capital

which the company will be authorized to raise tough the

issue of shares called authorized capital.

Important documents used in the formation of company

2

. Articles of Association

:

The articles of Association are the rules for the internal

management of the affairs of a company the articles defines the

duties, rights and powers of the officers and the board of

directors.

Contents of the Article:

1. The amount of share capital and different classes of shares.

2. Rights of each class of shareholders.

3. Procedure for making allotment of shares.

4. Procedure for issuing share certificates.

5. Procedure for forfeiture and reissue of forfeited shares.

6. Rules regarding casting of votes and proxy voting

7. Procedure for selection and removal of directors

8. Dividend declaration and payment related rules

9. Procedure for capital readjustment

10. Procedure regarding winding up of the company.

CHOICE OF FORM OF BUSINESS ORGANISATION

The following factors are important for taking decision about

form of organization:

1. Cost and ease in setting up the organization:

 Sole

proprietorship is least expensive and can be formed without

any legal formalities to be fulfilled. Company is also

expensive with lot of legal formalities.

2. Capital consideration:

 Business requiring less amount of

finance prefer sole proprietorship & partnership form,

where as business activities requiring huge financial

resonances prefer company form.

3. Nature of business:

 If the work requires personal

attention such as tailoring unit, cutting saloon, it is

generally setup as a sole proprietorship. Unit engaged in

large scale manufacturing are more likely to be organized in

company form.

4. Degree of control desired:

 A person who desires

full and exclusive control over business prefers

proprietorship rather than partnership or company

because control has to be shared in these cases.

5. Liability or Degree of Risk:

 Projects which are

not very risky can be organized in the form of sole

proprietorship partnership whereas the risky

ventures should be done in company form of

organization because the liability of shareholders

is limited.



One Person Company concept led to the

recognition of a completely new way of starting

businesses that accorded flexibility which a

company form of entity can offer, while also

providing the protection of limited liability that

sole proprietorship or partnerships  lacked.

Definition

Section 2(62) of Companies Act defines

a one-person company as a company that has only

one person as to its member. Furthermore,

members of a company are nothing but

subscribers to its memorandum of association, or

its shareholders. So, an OPC is effectively a

company that has only one shareholder as its

member.

Difference between OPCs and Sole Proprietorships

A sole proprietorship form of business might seem very similar

to one-person companies because they both involve a single

person owning the business, but they’re actually exist some

differences between them.



The main difference between the two is the nature of

the 

liabilities

 they carry. Since an OPC is a separate legal

entity distinguished from its promoter, it has its own assets

and liabilities. The promoter is not personally liable to repay

the debts of the company.

On the other hand, sole proprietorships and their proprietors

are the same persons. So, the law allows attachment and sale

of promoter’s own assets in case of non-fulfilment of the

business’ liabilities.

Features of  One Person Company

i.

Private company

: 

Section 3(1)(c) of the Companies

Act says that a single person can form a company for

any lawful purpose. It further describes OPCs as

private companies.

ii.

Single-member

: 

OPCs can have only one member

or shareholder, unlike other private companies.

iii.

Nominee

:

 A unique feature of OPCs that separates

it from other kinds of companies is that the sole

member of the company has to mention a nominee

while registering the company.

iv.

No perpetual succession

:

 Since there is

only one member in an OPC, his death will result in

the nominee choosing or rejecting to become its sole

member. This does not happen in other companies as

they follow the concept of perpetual succession.

v.

Minimum one director

:

 OPCs need to have

minimum one person (the member) as director. They

can have a maximum of 15 directors.

vi.

No minimum paid-up share capital

:

 Companies

Act, 2013 has not prescribed any amount as minimum

paid-up capital for OPCs.

vii.

Special privileges

:

 OPCs enjoy several privileges and

exemptions under the Companies Act that other

kinds of companies do not possess.

Formation of One Person Companies



A single person can form an OPC by subscribing his name

to the memorandum of association and fulfilling other

requirements prescribed by the Companies Act, 2013.



Such memorandum must state details of a nominee who

shall become the company’s sole member in case the

original member dies or becomes incapable of entering

into contractual relations.



This memorandum and the nominee’s consent to his

nomination should be filed to the Registrar of Companies

along with an application of registration.



 Such nominee can withdraw his name at any point in

time by submission of requisite applications to the

Registrar. His nomination can also later be canceled by

the member.

Membership in One Person Companies



Only natural persons who are Indian citizens and

residents are eligible to form a one-person company in

India.



The same condition applies to nominees of OPCs.

Further, such a natural person cannot be a member or

nominee of more than one OPC at any point in time.



It is important to note that only natural persons can

become members of OPCs.



This does not happen in the case of companies wherein

companies themselves can own shares and be members.

Further, the law prohibits minors from being members

or nominees of OPCs.

Conversion of OPCs into other Companies



Rules regulating the formation of one-person

companies expressly restrict the conversion of

OPCs into Section 8 companies, i.e. companies that

have charitable objectives.



OPCs also cannot voluntarily convert into other

kinds of companies until the expiry of two years

from the date of their incorporation

.



A producer company can be defined as a legally

recognized body of farmers/ agriculturists with the

aim to improve the standard of their living, and

ensure a good status of their available support,

incomes and profitability.



Under Companies Act 1956, a Producer Company

can be formed by 10 individuals (or more) or 2

institutions (or more) or by a combination of both

(10 individuals and 2 institutions) having their

business objective

Their business objective as one of the following:



Procurement



Production



Harvesting



Grading



Pooling



Handling



Marketing



Selling, or



Export



The main objective of the producer company is to facilitate

the formation of co-operative business as companies and

to make it possible to convert existing co-operative

business into companies.



The objects given under section 581B are as follows:



“The objects of the Producer Company shall relate to

all or any of the following matters, namely: (as given

in the law)



Production, harvesting, procurement, grading, pooling,

handling, marketing, selling, export of

primary production of the Members or import of goods or

services for their benefit, provided that the Producer

Company may carry on any of the activities specified in

this clause either by itself or through other institution.



Processing including preserving, drying, distilling,

brewing, vinting, canning, and packaging of the

produce of its Members



Manufacture, sale or supply of machinery,

equipment or consumables mainly to its Members.



Providing education on the mutual assistance

principles, to its Members and others.



Rendering technical services, consultancy services,

training, research and development and all other

activities for the promotion of the interests of its

Members.



Generation, transmission, and distribution of

power, revitalization of land and water resources,

their use, conservation and communication

relatable to primary produce.



Insurance of producers or their primary produce.



Promoting techniques of mutuality and mutual

assistance.



Welfare measures or facilities for the benefit of

Members as may be decided by the Board.



Pre-Incorporation Checklist



Any 10 or more producers (Individuals) can join together to

form a production company but there is no upper limit on

the number of members.



Or, any 2 or more producer institutions can form a

producer company.



A minimum capital of Rs. 500,000 is required to

incorporate a producer company.



There should be minimum 5 directors (maximum of 15) in

a producer company.



It can never be converted into a public company however it

can be converted into a multi-state co-operative society.

Registration Procedure



The process of registering a Producer Company is similar to that

of a Private Limited Company.



  Digital Signature (DSC) and Director Identification Number

(DIN) must be obtained first for the proposed first Directors of

the company.



Once, Digital Signature (DSC) and Director Identification

Number (DIN) are obtained, an application for name reservation

is to be filed with the relevant Registrar of Companies (ROC).



There is a requirement under the Act that the name of a producer

company must end with the words “Producer Limited Company”.



Once, the suggested name is approved by the Registrar of

Companies (ROC), an application for incorporation is to be filed

in the prescribed format for the incorporation of the Producer

Company.



Once the Registrar is satisfied with the application and the

required documents filed for incorporation of Producer Company,

he will approve the same and issue Certificate of Incorporation.

Benefits for Producer Companies

following are the benefits enjoyed by a Producer Company

:-



The members of the producer company initially will

receive the value for the produce pooled and supplied as

determined by the directors. This amount will be given

out later in the form of cash/ kind/ equity shares.



The members of the producer company will be entitled

to get bonus shares in the same proportion to the shares

held by them.



The surplus (after providing provision for payment of

limited return and reserves) may be given as patronage

bonus* to the members of the producer company.

Loans and Investments



As mentioned above the Producer Company consist of

individuals who are primary producers, and thus, are in

need of financial support from time to time. Hence, a

special provision under the companies acts 1956 was passed

for giving loans to producer members. A Producer

Company can provide financial assistance to its members

through:-



Credit facility

 : This is available to any member for a

period not exceeding six months (such facility must be in

connection with the business of the Company).



Loans and advances

:

 These are provided to the producer

member against security, repayable within a period not

exceeding seven years from the date of disbursement of

such loans or advances.



NABARD Loan

:

 NABARD provides support and financial

assistance to meet the needs of Producer Companies. In

2011, NABARD set up a Rs. 50 crore Producer Organization

Development Fund (PODF), out of its operating surplus

.



A Non – Banking Financial Corporation is a company

incorporated under the Companies Act 2013 or 1956.

According to section 45-I (c) of the RBI Act, a Non –

Banking Company carrying on the business of a financial

institution will be an NBFC.



It further states that the NBFC must be engaged in the

business of Loans and Advances, Acquisition of stocks,

equities, debt etc issued by the government or any local

authority or other marketable securities.



 A non-banking institution which is a company and has

principal business of receiving deposits under any scheme

or arrangement by any mode, is also a non-banking

financial company (Residuary non-banking company).



The NBFC business does not include business

whose principal business is the following:



– Agricultural Activity

– Industrial Activity

– Purchase or sale of any goods excluding

securities

– Sale/purchase/construction of any immovable

property

– Providing of any services

The NBFCs are categorised on the basis of liabilities and

activity.

Are all NBFCs required to be registered with RBI?



The following NBFCs are not required to obtain any

registration with the Reserve Bank of India under the idea

that they are regulated by other regulators:

1.

Core Investment Companies – (assets are less than 100

crore or public funds not taken)

2.

Merchant Banking Companies

3.

Companies which are engaged in the business of stock-

broking

4.

Housing Finance Companies

5.

Companies engaged in the business of Venture Capital.

6.

Insurance companies holding a certificate of registration

issued by IRDA.

7.

Chit Fund Companies as defined in the Sec 2 clause (b)

of the Chit Fund Act, 1982

8.

Nidhi Companies as notified under Section 620(A) of

the Companies Act 1956



How do you incorporate an NBFC?



The procedure to incorporate an NBFC is:

1.

A company should first be registered under the

Companies Act 2013 or should already be registered

under Companies Act 1956 as either a Private Limited

or a Public Limited Company.

2.

The minimum net owned funds of the Company

should be Rs. 2 Crore.

3.

1/3rd of the Directors must possess finance experience.

4.

The CIBIL records of the Company should be clean.

5.

The company must have a detailed business plan for

five years.

6.

The company must comply with the requirements for

capital compliances and FEMA.

7.

After all of the above conditions have been satisfied

the online application on the website of RBI should be

filled and submitted along with the requisite

documents.

8.

A CARN Number will be generated.

9.

A Hard copy of the application also has to be sent to

the regional branch of the Reserve Bank of India.

10.

After the application is properly scrutinized, the

License will be given to the Company.



What are the guidelines that an NBFC must follow?

Once the Company gets a valid license it has to adhere to

the following guidelines:

1.

They cannot receive deposits which are payable on

demand.

2.

The public Deposits which the company can take

should be for a minimum time period of 12 months and

a maximum time period of 60 months.

3.

The interest charged by the Company cannot be more

than the ceiling prescribed by the Reserve Bank of

India from time to time.

4.

The repayment of any amount so taken by the

Company will not be guaranteed by the Reserve Bank

of India.

5.

All the information about the company as well as any

change in the composition of the Company has to be

furnished to the Reserve Bank of India.

6.

The deposits taken by the Public will be unsecured.

7.

     The Company has to submit its audited balance

sheet every year.

8.

A statutory return on the deposits taken by the

company has to be furnished in the form NBS – 1

every year.

9.

A Quarterly Return on the liquid assets of the

company has to be furnished.

10.

A certificate from the auditors had to be taken

stating that the company is in a position to pay

back all the deposits or money taken from the

Public.

11.

A half-yearly Asset Liability Management (ALM)

return has to be given by the company which has a

Public Deposit of Rs. 20 Crore and above or has

assets worth Rs. 100 Crore and above.

12.

The credit rating has to be taken every 6 months

and submitted to the RBI.

13.

A minimum level of 15% of the Public Deposits

has to be maintained by the Company in Liquid

Assets.