SHARES OF A COMPANY
A share or stock is a unit in which the capital of a company is divided.
OR
A share is a unit or portion of capital to raise funds
The money raised through the sale f shares is known as hare capital” profits distributed to shareholders are known as “dividends. Holders of shares are called shareholders or members of the company
Types of shares
(i) Ordinary /Equity shares
(ii) Preference shares
(iii) Deferred shares
1.Ordinary /Equity shares
These are shares held by real owners of Company/These shares are held by persons who are full responsible for the debts of the company.
In case the company is dissolved ordinary share have the last claim on the properties of the company. These type of shares give their holders the power to formulate policies for the company.
Characteristics of ordinary shares
i. They do not carry a fixed rate of return. The amount of profit allocated to them depends upon what remains after all the creditors and shareholders with prior claim have been paid.
ii. The owner of shares receives a dividend on them only if there is sufficient profit. If profits are two low or if there is a loss the company may not pay a dividends. When profits permit, each
shareholder will receive an equal amount for each ordinary share held.
shareholder will receive an equal amount for each ordinary share held.
iii. When the company is bankrupt, share hold will be paid if at all in only after all other debts have been paid
iv. There is no special security for such investments other then the soundness of the company
v. In exchange for the risk, the ordinary shareholder the ultimate control of the company, in that they have one vote for each share when it comes t electing the board of directors. Who are
responsible for the general policy of the company
responsible for the general policy of the company
vi. In good years shareholders may receive higher rates of dividends than other shareholders but in bad years there may be no return ate all
vii. When the Company is winding up, the shareholders are paid money after the other shareholders and creditors.
viii. Ordinary shares are the most important and popular type of shares, It is therefore called a entire capital of the company
viii. Ordinary shares are the most important and popular type of shares, It is therefore called a entire capital of the company
ix. The rate of divided on ordinary shares depends upon the profit of the Company.
x. The ordinary shareholder to not create any change on the assets of a company
xi. No burden on company resources since the dividend is t be paid out of the profit of the company, there fore they impose no burden on the resources of the company.
N.B The great risk of business falls upon the ordinary shareholders because.
They have no fixed rate of dividend.
The amount of profits allocated to them depends upon what remains after all the creditors and shareholders with a prior claim have been paid.
(ii) There is no special security for this investments other than soundness of the company
(iii) IN good years they may receive higher rates of dividends than the other shareholders but in bad years there may be no return at all.
(iv) In good years they may receive higher rates of dividends than the other shareholder but in a bad years there my a been return at all.
2. Preference shares
Preference shares, as the name suggests have certain preferential rights or privileges in respect of the payment of dividend or repayment of capital as compared to other types of shares.
Characteristics f preference shares
(i)They earn a fixed of dividend, say 5% or 10% preference shares
(ii) They have first priority in sharing dividends
(iii)In case of insolence the holder of preference shares receive their proceeds before ordinary shareholders
(iv)The dividends paid are higher than in case of ordinary shares.
(v)Those too are held by the owners of the Company and form part of the Company capital with a fixed rate of dividend.
(vi)Most preference shareholders have no say in the control of the Company, as they have a privileged position as respect to dividends.
Types of preference shares
(a) Cumulative preference shares, These are type of shares which are entitled to a fixed rate of dividend till they are paid, Holders of these are assured of their dividends every year. If a Company does not
pay dividend in one trading year, then payments are carried forward t the next year, In other words, dividends keep on accumulating till paid.
pay dividend in one trading year, then payments are carried forward t the next year, In other words, dividends keep on accumulating till paid.
Holders of these are assured of their dividends every year. If a company does not pay dividend in one trading year, then payments are carried forward to the next year. In other words, dividends keep on
accumulating till paid. That is to say if there are no dividend paid this year, next year or the next year after that the amount has to be paid.
accumulating till paid. That is to say if there are no dividend paid this year, next year or the next year after that the amount has to be paid.
(b) Non cumulative preference shares, This will be entitled to a fixed rate of dividend, but only for the year for which a dividend is declared. Otherwise, it does not accumulated and arrears are not carried
forwarded.
forwarded.
(c) Redeemable preference shares, These are shares offered by the Company for sale to the public but they can be bought back or repossessed by the company when necessary or after a specified period
of time. The shareholders are paid a high rate of interest when such shares are taken away from them. These are issued when the company wants more money temporarily.
of time. The shareholders are paid a high rate of interest when such shares are taken away from them. These are issued when the company wants more money temporarily.
(d) Irredeemable preference shares
These are shares offered to the public for sale and cannot be reposed or bought back by the company under any circumstances. If a shareholder wants to leave the company and wants his money back, he can sell his shares t the public
(e)
Participating preference shares
Participating preference shares
These carry a fixed rate of dividend and the holders are entitled to any extra profit which rains after all shareholders have received their dividends
(f) Guaranteed Preference shares
These shares are guaranteed for a fixed rate of dividend by a third party. If the profits of any one year are no sufficient to pay such dividend, the guarantor (s) have to pay the same off their private resources
(g) Convertible Preference shares
These are those shares which the holders can convert into equity (ordinary) share at specified period of time. The right of conversions to be authorized by the Articles of Association of the Company
3. Deferred shares
Here the business my want to convert to public limited company and with to retain powers of control and right to high profit. Thus they create a class of deferred shares giving them special voting powers and the rights to dividends
TERMS USED IN THE SHARE MARKET
- Share at par
This is when the money offered for purchase is equal to the face value of the value. For example if the face value nominal value of share is Tshs. 400, the amount offered for sale is Tshs 400. A share is above par, if it sells more than its nominal value and . A share is below par if it seller less than nominal value.
- Share at perineum
This is when the price paid for that share exceed the value of that share e.g the value of share is Tshs 500 and it is offered for Tshs. 600
Reasons why company decide to sell shares at premium
(h) Company finds it fair to sell shares to the existing share holders who may have paid more than the par value of their shares.
(i) Company might want to intercept parts of the company profits that would have gone to the speculators.
(j) The books of accounts require the premium to be shown separately in share premium account and not share capital account
(k) Premium is not trading profit therefore it may not be distributed as dividends it can be used to write off preliminary expenses, write off commission or debentures on issue of shares and raising new cash
from shareholders
from shareholders
FEATURES OF RIGHT ISSUE
(i) Right issue of shares is made by issuing provisional letter of allotment which shows the share, the member is entitled to take up and the price payable for the shares.
(ii) Members my take the issue wholly or may renounce the issue by selling his right to another party
(iii) It is apportioned to their present holding of shares of similar or specified shares.
(iv) An issue at less than market value of the existing share will lower the value of the existing ordinary shareholders equity.
(v) Company obtain a profit (premium) on the shares sold out to another party.
(vi) It is issued so as to raise additional capital offered first to existing holder then the public if existing holders do not take up
5. Underwriting of shares.
A public company is required to sell a minimum number of shares (called minimum subscription)
To secure the minimum subscription during the prescribed period the company may enter into contract (agreement) with an established source like banking institutions, Insurance firms or shares brokers to underwrite the issue. If the Company is not able to sell all the shares within the specified period them the contracting party ensures the sales of share is known as underwriting. That means that the underwriter undertakes to take the whole or portion of such of the offered shares which may not be subscribed for by the public. The underwriter make the payment of subscribed shares in fully to the company public. The underwrite is paid a commission as agreed between the parties and also authorized by the Articles. This is because the risk of the shares is transferred to the underwriters,
Advantages of underwriting
(i) They take up shares that are not taken up by the public
(ii) They help company in fulfilling statutory regulations and minimum subscription.
(iii)They assure quick sale of securities in the market.
(iv)Stimulates industrial development and creates more employment opportunities in the country
(v) They stand guarantee and help the promoters in undertaking the risk of starting or enlarging a project.
(vi)They provide information in regard to capital market condition, general responses of investors to issuing company.
(vii) When the issue is underwritten, the company is assured of the required capital
(viii) If the underwriters have good reputation in the market, it raises the status of the company
(ix)The company can get the benefit of specialized knowledge of the underwriters in the marketing of stock n and shares and this can help the company in future ventures.
(x) If the public subscribes to the share then the underwriting contract can also be dissolved
Share warrant
Is a bearer document of title to share and can be issued only by public limited Company and that to against full paid u shares. Only it cant be issued by private limited company because the share warrant states that the bearer is entitle to a number of hares mentioned in. It is a negotiable instrument and is easily transferable by mere delivery to another person. The holder of share warrant is entitled to receive dividend as decided by company
7.Stock
Is a type of security that shown ownership in a corporation (w) and represents a claim on part of the corporations assets and earnings. Ownership in company is demined by number of shares a person owned divide by total number of shares outstanding. Also called equity.
OR
OR
Stock is the name given to a block of shares. Shares may be converted into stock if there is a provision in the Articles of Association. Shares can be converted into stock only if they are fully paid up. That is how the word joint stock company was introduced to describe limited company
DISTINCTION (DIFFERENES BETWEEN SHARES AND STOCK
Difference between Transfer and Transmission of shares
- Transfer of share means transferring the shares on the name of same other person on a voluntary basis while transmission of shares means passing the property/title in shars by operation of law from member to his legal representative on either death, insolvency or lunacy of shareholder.
- Transferor or transferee takes initiative of transferring shares while the legal heir of the deceased shareholder takes initiative of transmission of shares.
- The transmission is not a deliberate action but result of operation of law after he dies, becomes bankrupt or insane while in transfer it is a deliberate action by shareholder
- In transfer stamp duty is payable on market value of shares white in transmission duty is payable
- Transmission cant be refused as it is under operation of law while in transfer the directors can refuse on certain ground. In transmission certain document like court order of insolvency, death certificate are required while in transfer an instrument of transfer has to be duly excited by transferor or transferee.
METHODS OF SHARE ISSUE
- Offer by prospectus
Direct approach to the public share and sold and a fixed offered price.
- Officer for sale
A company will sell its entire issue to an issuing house which then sells them to the public at or slightly higher price to cover fees and expenses
- Offer by tender
Rather than fixing the price in advance, company sometimes issued shares to the public by inviting them to state a price at which they are prepared to buy. His issue price then fixed according to
demand and anyone offering less this receives no share. (each person states minimum price and company gives to person whose set maximum price.
demand and anyone offering less this receives no share. (each person states minimum price and company gives to person whose set maximum price.
- Placing
A large number of share issue are placed by the issuing house with a selected group of its clients, usually large financial institutions rather than the general public.
- Rights issue
Existing shareholders are offered the right to buy additional shares in the company at price lower than market price.
- Bonus issue
Share issued free to existing holders in proportion to their holdings eg bonus issue for every 10 share held. This makes shares more marketable by reducing their market price.
- Scrip issue
Sometimes instead of paying a cash dividend, a company offers shareholder a choice of receiving inform of extra shares
WHY DO SHARE PRICES FLUCTUATE
- It changes according to the market’s activity. The buyer and sellers cause prices to change and therefore share prices change as consequence of demand and supply, Its this dance between buyers and sellers, demand and supply that decides how valuable each share is
- If more people want to buy share than sell it the prices goes up conversely, if more people want to sell share then buy it, there is more supply than demand, the prices goes down.
- Shares represent ownership in a company. So even if you own just one single share of a company, you own a part of it no matter how minute. Therefore the price of share indicates what investors feel the company is with.
- If a company earning(profits) are good and its prices jump up. But if the company makes no money, then the price of share will fall
- Investors decision are influenced by their out look and opinions. When the outlook is positive investors are eager to buy so prices rise but when its is negative they are eager to sell so price.
- Technical factors. Stock pries move in trends. Investors are attracted by rising prices and spooked by falling prices. Specialists make sure that prices contently change in order to draw in buyers and sellers.
- Changes in government policy such as restrictions an consumers spending will probably cause a fall in the share price of company. Restrictions of spending cause a low money simply hence prices of shares automatically decreases.
- When the market conditions of a country is bad i.e there is recession then price of all commodities will which means even price of shares will be low.
- Changes n the rate of interest of the government securities will sometimes affect share hence the price of shares decreases.
- World political and economic events will have an effect on share of company especially those which have large export trade. This is because those companies get affected with all the issues going are in other areas where their goods are being exported to.
MINIMUM SUBSCRIPTION
A company can not allot shares unless the amount mentioned as minimum subscription I received within 120 days of the date of the issue of prospectus. Minimum subscription is that part of the issued capital which should be received within 120 das. It is the minimum amount which in the opinion of the directory is necessary to provide for the following.
(i) Purchase price for any property
(ii) Underwriting commission if payable
(iii) Preliminary expenses
(iv) Repayment of money is borrowed for an of the above purposes
(v) Working capital or any other expenses
(vi) Restriction of minimum subscription is meant to prevent the formation of companies with in adequate capital so that only companies which can raise enough capital and meet the minimum requirement are allowed to start their business
NOTE
When a company is unable to raise required capital through selling shares, it may resort to the following;
– Through bank loans an overdraft
– Borrowing from friends
– Asking promoters to contribute more money
– By issuing debentures
DEBENTURE
The terms “debentures” is derived from the Latin word “ debere” means to own a debt. Therefore a debenture is a long term finance raised by a company through public borrowing. If a company finds its authorized share capital in adequate it can raise money by selling debentures for its long term financial needs.
A debenture is a document (Loan certificate) that works as a poof evidence that a company has borrowed a spiced sum of money advanced or lent to the company. Debentures are of fixed amount say shs 1000 and bear a fixed rate of interest. The interest on debentures is an expense to the company which must be paid where the company is running at a profit or not. Debenture are loan or borrowed capital of the company.
Debentures are of fixed amount say shs 100 and bear a fixed rate of interest. The interest on debentures is an expense to the company which must be paid where the company I stunning at a profit or not. Debenture ar Lean or borrowed capital of the company. Debenture holders have no control over the day to day running of the company, however in the event of company failure, they have claim on the assets of the company after trading creditors but before preference shareholders and ordinary shareholders
Main features of Debentures
(i) It is instrument indicating the indebtedness of the company
(ii) It has a nominal value like share
(iii) It is a document issued under the seal of the company
(iv) The terms of issue, the repayment of the principal are specified
(v) A fixed rate of interest is paid on debentures’ This interest is a charge on the profit an loss account of the company
(vi) Generally the debentures are covered company
(vii) In case of winding up debentures holders are paid their money before the shareholders
(viii) The rights and power of debenture holders are mentioned in the certificate issued at the time of accepting loans.
TYPES OF DEBENTURES
Debentures may be classified into two ways (According the security pledged against them
- Necked/ordinary/Simple/unsecured debenture
These are types of debentures which are not secured. No property is pledged against them. If the company goes bankrupt or liquidated the holder of necked debentures are ranked amount ordinary creditors of the company
2.Mortgage/secured debenture
These are debentures which are secured. Some properties of the company are pledged against them. If the company are pledged against them. If the company goes bankrupt such properties can be sold to pay off the holders of mortgaged debenture.
b) According t redemption
1. Redeemable debentures
These are debentures which are bought or repayable back by the company such that the amount borrowed again them is refunded by the company after a specified minimum period and before a specified maximum period eg 2,3,4,5 or 20 years. The interest is paid periodically but he principal amount is returned after a fixed period.
Irredeemable debenture
These are debentures which are never refunded or not repayable by the company refunded or not repayable by the company, the money borrowed against them remains outstanding until the Company is liquidated/winds up
c) According to registration
1. Registered debentures
These are debentures which are issued in the name of the owners of the debenture, in that the name of the owner appears on the face of debenture as well as in the books of the Company
- Bearer debentures
This are debentures which do not show the name of the owners on the face of the debenture. Is entitled to receive interest payment on the due dates
(d)According to convertibility
This are debentures which do not show the name of the owners on the face of the debenture. The holders of bearer debenture is entitled to receive interest payment on the due dates
(2) In convertible debentures
These are debenture which can not be converted into shares of the company
DIFFERENCES /DISTINCTION BETWEEN A SHARES AND DEBENTURE
CONVERSION OF A PRIVATE COMPANY
There are several restrictions on private company which may result in a limited financial resources, limited production activities, limited technical and admistrative abilities. Due to these factors business may not be expanded and private company faces high cost per unit, limited sales and low profit. These hindrances constrain to decide in conversion of private company into t public company.
In order to convert into public company, it is necessary to alter the articles of association by a special resolution. The following alterations have to be brought in the provisions of articles of Association.
(i) Shareholders may transfer their shares
(ii) They may invite the public for subscription of shares and debentures
(iii) Maximum number of shares i.e fifty will be struck off from the articles.
New Articles of Association will be submitted to registrars office within two weeks of such alteration
The following necessary documents must be filed with registrars office a long with altered articles of Association
(a) A list of persons containing their names addresses and other particulars who have agree to act as directors
(b) The written consent of the directors
(c) Declaration of the directors that they have paid the qualification shares
(d) Declaration of the directors that they have paid their qualification shares or statement of the fact that they have already taken up and paid for their qualification shares.
(e) A prospectus or statement of live of prospectus
(f) A declaration from the directors or secretary or advocate that all the provisions of the company radiance have been fulfilled.
After submission of the foregoing document to the registrars office, private company may be converted into public Company
TERMINATION OF A COMPANY
(WINDING UP OR LIQUIDATION)
This means that the end of the life of a company. In simple words it’s the closing down of the business.
A s we have discussed earlier that a company is created by law therefore it cannot die a natural death like a human being. The termination of its existence is affected law. Thus winding up of the company is a legal procedure.
When a company is a legal procedure. Its property is administered for the benefits of its creditors and members it is called winding up or liquidation.
What is liquidation?
Is the process of closing or termination a company through selling of its assets normally for cash
A LIQUIDATOR
Is a person or institution appointed by shareholders or creditors to supervise the liquidation of a potential company including the valuation of company assets and liabilities.;
– Deal the payment of company debts
– Work on any surplus or deficit after liquidation.
METHODS/WAYS/MODES OF WINDING UP OF A LIMITED COMPANY
(PRIVATE AND PUBLIC COMPANY)
- Compulsory winding up by court
- Voluntary winding up
- Winding up under supervision of court
- By having its name struck off the register by the registrar
- Compulsory winding up by court. The main reason for winding up by the court are as under
(a)Special resolution
A special resolution has been passed by the company to be wound up by the court
(b) Failure to commence business
If a public company does not commence business within one year of the date of it incorporation or suspends business for a certain period, the court may order its winding up
(c) Statutory report or Delay in meeting where default is made in not submitting the statutory meeting within prescribed time or has not held two consecutive annual general meetings.
(d)Members reduced below minimum
A public limited company may be wound up by court if its members are reduced below seven (7) and less than two (2) in case of primate limited company
(e)Inability to pay its debts
(f)Where the court is of opinion that it is jus and equitable that the company should be wound up
- Voluntary winding up
Voluntary liquidation is imitated by resolution of the company itself. A company may be wound up voluntary in the following circumstances
(i) When the period (if any) fixed by the articles for the duration of the company has expired or when the event (if any has accrued upon occurrence of which the articles provide that the company has passed an ordinary resolution requiring the company to be wound up
(ii) When the company has passé a special resolution redoing the company to be wound up voluntary
(iii) When the company has passed an extra ordinary resolution to the effect that the company cannot carry on business owing to its liabilities and that it is advisable to wound up
(iv) The death of the founder and owner may result in any shareholders choosing not continue operations
(v) Liquidation is actually a means of helping the company to continue. Companies that are encountering a period of loss may choose to liquidate subsidiary companies as a means of setting outstanding debts of the parent company.
(vi) The voluntary winding up of the company is of two kinds.
(a)Members voluntary winding up/shareholders voluntary winding up
A voluntary liquidation is an action that may be taken by hare holders of a company in order to honor the outstanding dots of the company in order to honor the outstanding debts of the company. With a voluntary approach to liquidation, the directors and shareholders agree to the process and initiate the procedure willingly, with no outside pressure or other entity. In this case the directors of the company are required to file a decoration of solvency.
The declaration of solvency is the document that states that states that the directors believe that the assets of the company will be sufficient to pay off its debts. The directors will then appoint a liquidator liquidators are professionals who task of identifying and selling off all the assets associated with business entity.
A liquidator may be appointed by court as part of the dissolution process of a company or be hired by the company as part of voluntary liquidation process. In this scenario, liquidations of all major assets will commence. Once al assets are placed in news papers and other media for the creditors to come forward to prove and claim heir debts, All outstanding debts are settled first, the share holders thereafter divide the remaining assets and the company will be considered closed. On the appointment of the company ease to exist. The liquidate calls the final meeting of shareholders and he submits a final account of the company affairs to the members and sends a copy to the registrar. Then after that then after that the company is dissolved and ceases its legal entity.
(b) Creditors voluntary winding up
A company may pass a resolution at general meeting that it cannot continuous its business due to heavy liabilities, Then a creditors meeting is called by sending each creditor with a written notice for this purpose. The creditors are given the full statement of the company position the full statement of the company position the list of creditors an their estimated claims. Then the creditors appoint a liquidator who exercises his powers for the winding of the company and supervises the sale of assets and payments to creditors. O completion of winding up, the liquidator have to call a final general meeting of the members and a meeting of the creditors. The notice for such meetings are usually are usually published in the news papers. In the meeting the liquidation has to give reports regarding the accounts and assets of the company. A copy of the report is also sent to the registrar. The register an receiving the accounts and other relevant documents takes the action of dissolution of the company.
A copy of the report is also sent to the registrar. The registrar on receiving the accounts and other relevant documents takes the action of dissolution of the company.
- Winding up under supervision of court
A court can also order the winding up of the company under the following conditions.
(i) If the court is satisfied that the company is unable to pay its creditors.
(ii) When there are frauds or irregularities in the voluntary winding up
(iii) The liquidator performs his duties in a partial manner. In that case the court can appoint an official receiver who carries on he process of winding
(iv) If the rules of the winding up are not completely followed.
(v) The liquidator is not taking a keep interest to dispose off the company assets
- Striking off the register
A company may strike off the register by the register by the registrar. This may take place when the registrar has reasonable ground for believing that the company is defunct. He give due notice to company at its registered office of his intention to struck it off the register.
DISTINCTION / DIFFERENCES BETWEEN PARTNERSHIPS AND JOINT STOCK COMPANIES
PARASTATAL ORGANIZATIONS
Are those organization which are partly or wholly owned and managed by state (government) which engaged in either production activities or previous of services.
These organization mostly established by the act of the parliament e.g. TRA , DAWASCO, TANES
CO, UDA etc
CO, UDA etc
Types of parastatal organizations
There are two types of parastatal organizations namely as
- Authority
- Corporations
The following are the sources of finance to parastatal organizations
- Loans
- Share capital
- Dividends
- Grants
- Subsidies
- Other external aids
DIFFERENCES AND SIMILARITIES BETWEEN PARASTATAL ORGANIZATION AND PUBLIC COMPANIES
DIFFERENCES
- Appointment of directors and their removal in parastatal is done by the president while in public companies is done by shareholders
- Membership majority of shares in parastatal owned by the government while in companies majority of shares owned by the public
- Parastatal do not prepare memorandum of association and articles while in preparation of companies there must be
- Dividends, while dividends in parastatal is taken by the government while in public companies dividends will be shared by shareholders
Similarities
- Both aimed at providing services to the public
- Both are managed by board of directors
- They both own properties like assets, stocks, bank etc
- They both subjected to liabilities like creditors liabilities
ANALYZE THE PROBLEMS FACED BY PARASTATAL WHICH MAKE THEM FAIL TO EXIST
-Mismanagement and misappropriation of fund (fraudulent)
-Lack of competent and qualified personnel/staffs
-Lack of sufficient markets
-Market competition
-Bureaucratic capital
How these problems were solved
The decision taken by the government to solve problem faced by these parastatal organization was to
-Privatize
-Liberalize
WHAT IS PRIVATIZATION
Refers to the concept of changing public owned sectors like companies and parastatal organizations to be owned by private people
WHAT IS LIBERALIZATION
Refers to the concept of creating free market and trade to bring about competition in the provision of public services
What are the impacts of privatization and liberalization of trade in Tanzania
Positive impacts
- It attracts foreign strategic investors in a country
- It encourages competition
- It reduces government burden and responsibilities
- It facilitates transfer of new technology from foreigners
- Creation of employment opportunities
- Provision of varieties of choice due to existence of many industries
- It leads to the improvement of living standards of the people
- It creates international relationship between countries
- Act as a source of government revenue/income
Negative impacts of privatization
- It leads to the loss of jobs to unskilled labors due to the introduction of new technology
- It leads to destruction of culture
- It leads to the cost sharing policy on social services
- It may cause economic instabilities
- It leads to emergence of classes/inequality
- Increase in the cost of living
- Decline of domestic industries due to high level of foreign competition
- It increases dependent ratio in the country
Positive impacts of trade liberalization
- Competition
- Employment
- Reduction of government burden
- Revenue
- Attraction to foreign investors
- Varieties of choice
- Freedom of production and consumption
Negative impacts of trade liberation
- Decline of domestic industries
- Destruction of culture
Emergence of classes
- Loss of jobs
- Cost of living increased
- Economic instability
OPERATING A BUSINESS UNIT
All business units whether incorporated or unincorporated are operating within government bodies called BRELA and TIC
WHAT IS BRELA?
Is the term refers to business registration licensing agency which is an agency of the government given an authority and established to provide and ensure that all business are operated in accordance with the laid procedures and regulations as well as sound commercial principles.
FUNCTIONS OF BRELA
- To ensure that business comply with the laid down regulations to the satisfaction of government and business community
- To encourage and facilitate local and foreign business environment
- To administer company and names laws
- To administer intellectual property laws
- To improve service delivery by the adaptation of modern business practice
- To protect development of creativity in artist, literally works with the right of owners
CO-OPERATIVES
Introduction
The word “Co-operative” is formed from two words “Co” meaning together and “operate” meaning work.
Hence a Co-operative society is a group of people who have agreed to carry out activities to attain a common objective.
Definition:-
Co-operative is a voluntary association of individuals who make efforts to achieve interest of its members.
OR
It is the type of ownership whereby people with common interest join together to achieve certain economic and social objectives.
Co-operative societies differ from other major forms of business organization because they are not set up to make profit, but to help the members.
A Co-operative society is formed by at least 10 people (members) who wish to help themselves. Members of the society draft rules and regulations for the purpose of governing their society.
In Tanzania Co-operative societies started during colonial period with the prime objectives of assisting farmers, in production and marketing crops.
Co-operative societies continued existing even after independence until 1976 when they were abolished after failing to meet their primary objectives.
FORMATION OF A CO- OPERATIVE SOCIETY
In East Africa, a minimum of 10 people agaged 18 years and above may come together and form a co-operative society. No member is allowed to subscribe more than 20 percent of the society’s share capital.
The steps involved in the formation of a co-operative society are as follows:
- Ten (10) or more people come together.
- They draft the by-laws for the society.
- The by-laws are submitted to the commissioner for co-operatives for approval and registration of the society.
- A certificate or registration is issued to the new society by the commissioner for Co-operatives. Once this certificate has been obtained, the society can start operating.
FACTORS NECESSARY FOR THE SUCCESS OF CO-OPERATIVE SOCIETY.
- Adequate financing/sound economic base.A co-operative society needs money for erecting office and storage buildings, setting up processing plants, purchasing transport vehicles and farm inputs, and for paying farmers promptly on delivery of produce.
- Adequate volume of business.The volume of business should be large enough to enable a society to benefit from economies of large–scale operation.
- Goals and objectives:-The goals and objectives of a co-operative must be clearly defined and known by every member.
- High level of managerial ability and honest.Weak management led to the collapse of many co-operatives societies. Leaders must be honest. Managers and their staff should be trained on how to run a business, including book-keeping.
- Interference.There should be no or little interference in the day to day activities of the management staff by committee members.
- Loyalty.All members should be loyal to the co-operatives so that they can fully support the societies activities.
PRINCIPLES AND CHARACTERISTICS OF CO-OPERATIVE SOCIETIES
These are the rules and regulations set to govern co-operative societies.
For an organization to be called a co-operative society, it must adhere to the following principles:-
- Open and voluntary membership.It is a voluntary association of people and membership is open to all those who can fulfil the requirements of co-operatives. The minimum number required is 10. Those wishing to join a co-operative must be adult (18 years of age and above). Also member are free to leave and are not limited by social, political, tribal, racial or religious differences.
- Democratic administration.The affairs of the co-operative is and must be administered/managed in a “democratic manner” Each member must have only “one vote” even if the holds a great number of shares he sells or buys from the
society in a large quantity. The principal states “one man one vote”.
- Equality.All members in a co-operative society are equal regardless of their religion, race, political status, tribe, height, sex, age, financial status, e.t.c.
- Dividends or repayments.Profits made by the co-operative society are distributed amongst members in a form of dividends or repayments, at the end of the trading period according to one’s contributions towards the co-operative. However, this is not based on capital contributions, but according to how much a member has sold to co-operatives. (incase of producers) or has purchased from the society. (incase of consumers).
- Limited interest on share capital ideally, co-operative societies do not pay interest on share capital. But if members provided for it in their constitutions, the interest given should be fixed, and should be known by all members.
- Share capital.A person is considered a member after contributing to the required capital by buying the minimum number of shares. However, a member may hold several shares up to a specified limit.
- Promotion of education.It is one of the duties of co-operative society to teach its members the principles and techniques of co-operatives including how to produce economically, how to make use of new technologies, etc.
- Neutrality.This principle states that co-operatives should not take sides in any political social or economic affairs. A co-operative is expected to be free from the influence of politics, tribal affiliation, religion and other bias that can affect its performance.
- Cash payment.Basically all sales to the society and purchases from the society are made based on current market prices and for cash only.
- Honest.Its members must not be dishonest and selfish. All the activities must be carried on honestly and fairly.Even the elected executive members of the society who manage the affairs of the society should be men of character and integrity.
- Co-operative with other societies.There should be co-operation among societies, not competition. They have a lot in common and can learn from each other. Or Co-operative society should co-operate with each other locally, nationally and internationally if they are to function efficiently and serve their members better for instance, one society could help another to transport its goods to the markets and another can assist it with the means of transport.
12.Solidarity.There must be trust and confidence among members for the successful operator of the society. The members must be united while taking any decision regarding certain matters.
13.Mutual confidence.The co-operative members should have mutual confidence and trust in each other they should work like a team in achieving the objectives of the society. There must be spirit of “self-help” amongst the members.
14.Liability of the members of the society may be limited or unlimited. The members can decide about their liability at the time of registration.In case of limited liability society, the liability of members is limited to the amount payable on share held by them.But in case of society with unlimited liability the members are, on liquidation, jointly and severally liable for all the obligations of the society.
15.Economy.
All the activities of the company must be carried on economically and members should try to avoid unnecessary expenditure and wastage of the resources. The money should be spent wisely and in the best interest of the society.
13.Mutual confidence.The co-operative members should have mutual confidence and trust in each other they should work like a team in achieving the objectives of the society. There must be spirit of “self-help” amongst the members.
14.Liability of the members of the society may be limited or unlimited. The members can decide about their liability at the time of registration.In case of limited liability society, the liability of members is limited to the amount payable on share held by them.But in case of society with unlimited liability the members are, on liquidation, jointly and severally liable for all the obligations of the society.
15.Economy.
All the activities of the company must be carried on economically and members should try to avoid unnecessary expenditure and wastage of the resources. The money should be spent wisely and in the best interest of the society.
A cooperative is another form of business units under private sector. It involves an association of individuals or firms whose purpose is to perform some business function for its members.
A cooperative society differs from other major forms of organization as it is set up not for earning profit as its main motive but with the basic object of organizing to render services to its members. The main rule of co-operative society is EACH FOL ALL and ALL FOR EACH.
MOTIVES FOR ESTABLISHMENT OF COOPERATIVES
Economic factors.Desire to improve man’s economic position through improved income and better services.
Social factors.Desire to attain social recognition and protection.
Political factors.As the country encourage co-operative the cooperative members should abide country’s rules and regulations and give moral and material support to encourage cooperative organizations.
FEATURES OF COOPERATIVE SOCIETIES.
(i)Registration. A co-operative society is registered under the co-operative society Act of a country. Being a co-operative body, it enjoys certain privileges which are subject to control and supervision of the state.A co-operative society enjoys perpetual succession and has its own common seal. It can enter into contact with other persons. It can file and defend suit’s, and also open bank accounts in its name.
(ii)Values. co-operative are based on the values of self-help, self responsibility, welfare, democratic, equity and solidarity. Members come together voluntarily for their mutual benefit in the spirit of openness, social responsibility and caring for other.
(iii)One man – one vote.In co-operative society, member has only one vote irrespective of shares held by him. The principles of one man vote makes the society truly democratic. All the members are treated as equal control does not rest with few individuals as in other firms or organization.
(iv)Service motive. A co-operative society is primary set up for rendering services to its members in a particular field. A society however, is not prevented to earn profit on the services provided to non-members.
(v)Religious, Tribal and Political Neutrality.A co-operative society, without considering religious faith, ethnic and political affiliations works for the social and economic betterment of its members. It enjoys autonomy and independence.
(vi)Economic prosperity for the weak. A co-operative society aims to empower economically weak people by looking after. Their own affairs in co-operative with another. In a country like ours, wealth is in few hands. It has split up the society into two groups. i.e rich and poor. A co-operative society can help the common man to get together with others like himself to safe guard their common interest. There is economic participation of all the members which helps them improve their standard of living.
(i)Registration. A co-operative society is registered under the co-operative society Act of a country. Being a co-operative body, it enjoys certain privileges which are subject to control and supervision of the state.A co-operative society enjoys perpetual succession and has its own common seal. It can enter into contact with other persons. It can file and defend suit’s, and also open bank accounts in its name.
(ii)Values. co-operative are based on the values of self-help, self responsibility, welfare, democratic, equity and solidarity. Members come together voluntarily for their mutual benefit in the spirit of openness, social responsibility and caring for other.
(iii)One man – one vote.In co-operative society, member has only one vote irrespective of shares held by him. The principles of one man vote makes the society truly democratic. All the members are treated as equal control does not rest with few individuals as in other firms or organization.
(iv)Service motive. A co-operative society is primary set up for rendering services to its members in a particular field. A society however, is not prevented to earn profit on the services provided to non-members.
(v)Religious, Tribal and Political Neutrality.A co-operative society, without considering religious faith, ethnic and political affiliations works for the social and economic betterment of its members. It enjoys autonomy and independence.
(vi)Economic prosperity for the weak. A co-operative society aims to empower economically weak people by looking after. Their own affairs in co-operative with another. In a country like ours, wealth is in few hands. It has split up the society into two groups. i.e rich and poor. A co-operative society can help the common man to get together with others like himself to safe guard their common interest. There is economic participation of all the members which helps them improve their standard of living.
SOURCES OF CAPITAL
A co-operative society can raise capital from the following sources.
a)Members.A co-operative society gets some of its capital from members in the following ways:-
(i)Registration fees charged to members.
(ii)Amount contributed by members for the purchase of shares in the society.
(iii)Fees charged on the proceeds from the sale of members produce, and
(iv)Interest earned on money loaned out or farm inputs advanced to members.
(i)Registration fees charged to members.
(ii)Amount contributed by members for the purchase of shares in the society.
(iii)Fees charged on the proceeds from the sale of members produce, and
(iv)Interest earned on money loaned out or farm inputs advanced to members.
b)Financial institutions.A co-operative society may also raise capital by borrowing from a bank or any other financial institution. The amount borrowed is however repaid with some interest. The co-operative may also earn interest on money it has deposited or invested in financial institutions.
c)The co-operative itself.A co-operative society may decide to retain part of its profits in the business with a view to expanding its operations. Retention of profits means that members would be paid lower dividends.
FORMS /TYPES OF CO-OPERATIVE SOCIETIES.
Co-operative society is classified according to the activities they perform including:-
- Producer co-operative societies.
- Consumer co-operative societies.
- Saving and credit (thrift and loan) co-operatives.
- Service co-operatives.
- Processing co-operatives.
- Wholesaler co-operative societies.
- Producers / grower or agricultural marketing co-operative societies.
A producer co-operative society is owned and operated by producers to collect, process, transport and market their products like cotton, tobacco, coffee, tea, fish and retain the profits for the owners. Dividends are paid according to how much produce the farmer sells to the society.
The principal function of producers co-operative is to protect the producers against exploitation by individual buyers. Examples of such co-operatives include agricultural marketing co-operatives which are very common in many countries.
Advantages / Roles of agricultural/producers/ marketing co-operative societies.
(i)Buying of produce from farmers at fair price.
(ii)They provide transport to collect and deliver produce to the market.
(iii)Farmers get advice regarding better methods of production from co-operatives e.g through seminars.
(iv)They normally sell farm tools and equipment (e.g hand hoes, bush knifes, ox ploughs) and other agricultural inputs (e.g fertilizers,pesticides, animal drugs, herbicides) to farmers at subsidized prices.
(v)They also extend short-term loans to farmers to improve and expand their operations.
(vi)They provide storage facilities for farmers produce before and after processing, hence encouraging more output.
(i)Buying of produce from farmers at fair price.
(ii)They provide transport to collect and deliver produce to the market.
(iii)Farmers get advice regarding better methods of production from co-operatives e.g through seminars.
(iv)They normally sell farm tools and equipment (e.g hand hoes, bush knifes, ox ploughs) and other agricultural inputs (e.g fertilizers,pesticides, animal drugs, herbicides) to farmers at subsidized prices.
(v)They also extend short-term loans to farmers to improve and expand their operations.
(vi)They provide storage facilities for farmers produce before and after processing, hence encouraging more output.
- Consumers’ co-operatives.
These are societies which operate wholesale or retail shops and their main objectives is to assist members. They give special consideration to co-operative members, to whom they supply consumer goods and services at slightly lower prices than non-members.
Advantages of consumers co-operatives
(i)T
hey offer goods to members to lower prices.
(ii)Goods are brought nearer to consumers which reduce the risk of accidents, robbers and transport cost
(iii)The members enjoy credit facilities for essential goods e.g soaps, clothing, e.t.c
(iv)It promotes social understanding among members who live near each other.
(v)Members get a chance of getting advice from their colleagues.
(vi)The liability of members is limited to capital contributed. If the co-operative incurs debts their personal belongings are not sold.
(vii)Members have equal rights as regards the co-operative affairs.
(i)T
hey offer goods to members to lower prices.
(ii)Goods are brought nearer to consumers which reduce the risk of accidents, robbers and transport cost
(iii)The members enjoy credit facilities for essential goods e.g soaps, clothing, e.t.c
(iv)It promotes social understanding among members who live near each other.
(v)Members get a chance of getting advice from their colleagues.
(vi)The liability of members is limited to capital contributed. If the co-operative incurs debts their personal belongings are not sold.
(vii)Members have equal rights as regards the co-operative affairs.
Types of consumers co-operative societies.
There are two types of consumer co-operative societies. Retail co-operative societies and wholesale co-operative society.
- Retail consumer co-operative societies.
These are retail business owned and operated by a group of final consumers. Their major aim is to buy goods cheaply and distribute them to members at minimum price. They normally provide quality goods to their members. The retail co-operative societies own supermarkets where members can shop. They not only serve the members but also general public to whom they sell goods at the prevailing market price.
2.Wholesalers co-operative societies.
2.Wholesalers co-operative societies.
These are larger co-operative societies. They are composed of retail co-operative societies who join together to form their own wholesale business from which they buy. They extend credit, stock a wide variety of goods and provide storage facilities for the members.
Functions of wholesale co-operative societies
The wholesale co-operative society perform a wide range of functions. These include:-
(i)They import various kinds of goods and provide storage facilities for member society.
(ii)They extend credit facilities to member societies, hence enabling to continue operating.
(iii)Sometimes, they establish industries to produce the required goods. Thus, they facilitate the country’s economic development.
(iv)They buy goods for their members and sell to members at fair prices.
(v)They distribute the profits according to the purchases made by members of the society.
The wholesale co-operative society perform a wide range of functions. These include:-
(i)They import various kinds of goods and provide storage facilities for member society.
(ii)They extend credit facilities to member societies, hence enabling to continue operating.
(iii)Sometimes, they establish industries to produce the required goods. Thus, they facilitate the country’s economic development.
(iv)They buy goods for their members and sell to members at fair prices.
(v)They distribute the profits according to the purchases made by members of the society.
- Saving and credit (thrift and loan) co-operatives.
These are purely financial institutions aimed at encouraging members to save. They mobilize savings from members, which they then use to provide members with loan facilities for investment. Members deposit money in the society account, and are then given credit that is proportional to their savings.
Other forms of co-operative societies.
There are also societies in other sectors or ancillary services with the aim of safeguarding members interest like:
– Transport co-operative societies.
– Housing co-operative societies.
– Handcraft co-operative societies.
THE COMMON / GENERAL FUNCTIONS OF CO-OPERATIVES.
Functions of co-operatives depend on the type of activity in which the society is engaged. However, the common/general functions of those co-operatives include:-
(i) To cheapen the cost of living for their members by say providing fair prices of commodities.
(ii)Reduce the marketing cost.Co-operative reduce marketing cost to members because they are able to handle (store, transport) large volumes of commodities, economics scale
(iii)Collect produce from farmers.Co-operative societies save farmers the costs of transporting their produce to the market by sending lorries to collect the produce directly from farmers or rural stores.
(iv)Storage of farmers produce.Co-operative societies own stores where they store agricultural commodities before transportation to the processing centres and markets. They also store farm inputs and consumer goods before they are distributed to the members.
(v)Provide employment.The co-operative movement currently provides over 100 million jobs and employs millions of people worldwide in various fields such as trade, transport, accounting, banking, management, manufacturing and research.
(i) To cheapen the cost of living for their members by say providing fair prices of commodities.
(ii)Reduce the marketing cost.Co-operative reduce marketing cost to members because they are able to handle (store, transport) large volumes of commodities, economics scale
(iii)Collect produce from farmers.Co-operative societies save farmers the costs of transporting their produce to the market by sending lorries to collect the produce directly from farmers or rural stores.
(iv)Storage of farmers produce.Co-operative societies own stores where they store agricultural commodities before transportation to the processing centres and markets. They also store farm inputs and consumer goods before they are distributed to the members.
(v)Provide employment.The co-operative movement currently provides over 100 million jobs and employs millions of people worldwide in various fields such as trade, transport, accounting, banking, management, manufacturing and research.
(vi)Education and training.These services are available to members including managers at all levels. Through co-operatives, farmers are taught modern production and management techniques so as to use resources efficiently.
(vii)Mobilize saving and advance loans.Co-operatives offer an opportunity to the members to save their funds, which are supplying farm inputs on credit, offering short-term loans, purchasing transport vehicles, constructing stores and setting up processing plants.
(viii)Stabilize agricultural prices.Just after the harvesting season, prices of agricultural commodities tend fall so low such that farmers are unable to make any profit if they sell their produce at that time. Sometimes the co-operative societies buy the commodities from members at reasonable prices and store them until the prices normalize.
(ix)Process farmers produce.Some co-operative are involved in processing farmers produce, e.g milk processing, oil extraction from sunflower and simsim and cotton ginning. This adds value to the product.
(ix)Process farmers produce.Some co-operative are involved in processing farmers produce, e.g milk processing, oil extraction from sunflower and simsim and cotton ginning. This adds value to the product.
THE STRUCTURE OF CO-OPERATIVES.
The structure of co-operatives refers to the hierarchy of the co-operative movement. It shows the level at which various co-operatives operate. The level at which a co-operative operates depends on its membership.
The following are the levels at which various co-operative operate.
a)Primary co-operatives
b)Secondary co-operative or co-operative union.
c)National co-operatives
d)Apex co-operatives
e)International co-operatives.
a)Primary co-operatives societies.
These are the registered co-operative societies whose members are individuals person within a local area, such as villagers who joined together to achieve a common goal. They are small entilies operating on small scale and with a limited amount of capital and human resources. Services offered to the primary society members include provision of farm inputs and credit facilities, purchasing farmers produce, providing storage and marketing the produce. They are considered important in the co-operative movement because they form of foundation on which a co-operative movement is built. They help in promoting small-scale rural agricultural production. The society is normally set up to handle a specific commodity such as coffee, tea, cotton, etc.
b)Secondary co-operative societies (co-operative union)
Primary societies identified certain activities that could be best done by number of societies joining together, and this led to the formation of co-operative unions. Thus the co-operative unions are an association made up of a number of registered primary co-operative societies. Co-operative unions provide services required by member societies for production, processing, transportation and marketing.
Secondary co-operation societies are larger than primary societies, and therefore have more resources. They have better access to equipment, finance and skilled personnel needed to perform the required work.
Functions of secondary co-operative societies.
i. They co-ordinate the marketing activities between farmers and the Apex co-operative societies. They also act as a link between the farmers and marketing boards so that they have outlets for their produce.
ii. The members are able to access credit through their primary societies.
i. They co-ordinate the marketing activities between farmers and the Apex co-operative societies. They also act as a link between the farmers and marketing boards so that they have outlets for their produce.
ii. The members are able to access credit through their primary societies.
iii.They provide a centralized accounting system for primary co-operative societies.
iv. They provide transport for the produce of the members.
v. They coordinate and provide banking services to members.
vi. They organize and provide training to staff and members of the primary societies.
vii. They provide planting materials ( e.g, seeds, suckers and cuttings), fertilizers and other farm inputs required by members of primary societies.
c)National co-operative Unions
National co-operatives form umbrella bodies for the various co-operative unions. Memberships of such co-operative comprise all co-operative societies and unions operating in a particular production line. National co-operatives promote the interests of the various member co-operatives both in the local and international markets.
d)Apex co-operatives
These are overall co-operative bodies to which all other co-operatives (i.e primary co-operative, co-operative unions and national co-operatives), are affiliated. It represents the interests of all co-operatives at the international co-operative alliance (ICA). In Tanzania, all co-operative unions are affiliated to the federation of co-operative unions of Tanzania (F.C.U.T)
Functions of the federation of co-operative Unions of Tanzania (F.C.U.T)
i. To provide services for standardized book-keeping, Accounting and other procedures as well as audit services to the secondary societies.
i. To provide services for standardized book-keeping, Accounting and other procedures as well as audit services to the secondary societies.
ii. To promote and assist educational and advisory work related to co-operatives.
iii. To coordinate economic plans of the member societies and forward them far incorporation in the national plan.
iv. To provide advice to member societies.
v. To represent members societies in collective bargaining.
vi. To reduce operating costs by making bulk purchases of various items.
vii. To represent member societies in international meetings.
e)The International Co-operative alliance (T.C.A)
This is a worldwide body that brings together all co-operative organizations in various countries it formulates the basic guidelines for operation of the whole co-operative movement.
The objectives of ICA
i. Provide co-operative education through conferences and publications.
i. Provide co-operative education through conferences and publications.
ii. Encourage co-operation among co-operative societies by promoting business relationships.
iii. Help in financing, providing technical training with the major intention of promoting growth of individual societies.
iv. Ensure that all co-operative societies follow the rules and guidelines of co-operative societies.
From the above discussion of the levels of co-operatives it is clear that co-operatives form a certain hierarchical structure. The society at the highest level of the hierarchical draws its membership from the various national co-operatives in the various countries of the world. The hierarchy of co-operatives can therefore be represented diagrammatically as shown below.
Fig. HIERARCHY OF CO-OPERATIVE.
Advantages of co-operatives
i. Low-cost services.They offer services to members at low prices because of their low operating costs.
i. Low-cost services.They offer services to members at low prices because of their low operating costs.
ii. Improved welfare of members.They improve the economic welfare of members by enhancing their participation in economic activities.
iii. Encourage saving.They encourage members to save, enabling them to accumulate necessary capital for their economic activities.
iv. Credit facilities.They extend credit to members at low interest, thereby improving their members’ economic welfare.
v. Limited liability.The liability of members is limited to the amount of capital they have contributed to the society.
vi. Flexibility in membership.Members can with draw their membership from the society and have their shares refunded after giving two months notice to the management.
vii. Equality of members.Members of co-operative have equal rights in the society irrespective of the number of shares held.
viii. Large capital base.Most co-operatives have a large capital base due to high membership. They are therefore able to finance their operations easily for the benefit of their members.
Disadvantages of co-operatives.
i. Poor management.Co-operatives sometimes face management problems, mainly because their system of choosing leaders does not take into account the skills and abilities that such people have.
i. Poor management.Co-operatives sometimes face management problems, mainly because their system of choosing leaders does not take into account the skills and abilities that such people have.
ii. Interference.Politicians and other people in authority could interfere with the leadership in co-operative, they by creating unrest. This has happened in many primary co-operatives.
iii. Membership withdraw.A co-operative society may experience financial problems if many members withdraw their membership at the same time. Withdraw is very easy since membership is open and voluntary.
iv. Slow decision making process. Members of co-operative have to be consulted first before any decision or policy is passed. Some of the societies are very large, thus slowing down the process considerably.
v. Lack of secrecy.Since a co-operative is run by many people, its affairs cannot be kept secret. Any activity that a co-operative wishes to undertake must also be approved by members.
vi. Control problems.Some co-operative have a large membership. Controlling affairs of such a gigantic (huge, extremely large) society becomes a problem.
CURRENT PROBLEMS FACING CO-OPERATIVES IN EAST AFRICA.
Despite the various roles played by the co-operative societies there are a lot of problems or bottlenecks that hinder them from carrying out their work effectively.
i. Insufficient transport facilities.Co-operative societies lack lorries to transport the produce from farmers to the collection centres and markets. Most of the agricultural production takes place in rural areas yet there are no good roads to link these areas to the markets.
i. Insufficient transport facilities.Co-operative societies lack lorries to transport the produce from farmers to the collection centres and markets. Most of the agricultural production takes place in rural areas yet there are no good roads to link these areas to the markets.
ii. Insufficient storage facilities. Co-operative lack sufficient storage capacity, especially in rural areas where most of the production takes place. Sometimes they are forced to hire warehouses, and this increases the marketing costs.
iii. Lack of collateral security.Co-operative societies do not have enough collateral security to enable them to ecquire loans from financial institutions. Individual hesistate to render their assets, such as land titles, to save as security for the co-operative to get a loan. Thus most co-operative societies operate with inadequate funding.
iv. Lack of funds to facilitate the day to-day activities of the co-operatives. Most co-operatives lack sufficient working capital because members have low incomes.
v. Lack of competent managers.This has led to mismanagement of the co-operatives. The majority of farm workers are not very well educated and, therefore, cannot efficiently organize and excute the daily activities of the co-operatives.
vi. Lack of government support.After introducing the policy of trade liberalization, the government stopped (financing) supporting co-operatives. As a result of structural adjustment programmers in the
country, the ministry of co-operatives and marketing was reduce to a department under the ministry of Trade and Industry.
country, the ministry of co-operatives and marketing was reduce to a department under the ministry of Trade and Industry.
vii. Corruption.Embezzlement of co-operative funds by some officials and corruption among members worsened the situation of this made the co-operatives fail to achieve their potential. Tribalism and nepotism are rampant in some area,and endanger the unity of members.
viii. Dishonest of some members. Some members of the co-operative banking sector are not honest. They take out loans and fail to repay them. This may cause the society to close down.
ix. Competition from private sector.The co-operatives are faced with stiff competition from the private sector, where buyers of goods are ready to pay cash and higher prices which co-operatives cannot afford.
x. Unstable prices of agricultural products. Prices of agricultural products both on the local and international markets are unpredictable as they fluctuate so much that the co-operative society cannot predict sales.
SOME SOLUTIONS TO THE PROBLEMS OF CO-OPERATIVES
SOME SOLUTIONS TO THE PROBLEMS OF CO-OPERATIVES
(i)Putting up more storage facilities. Government can be of great help in this. Some storage facilities have to constructed in some parts of the country.
(ii)Improving the co-operative management. Management skills can be improved through inservice courses and seminars, e.g setting up of institutions where the managers can go for further training.
(iii)Setting up payment schemes. Establishing crop finance to ensure that farmers are paid promptly after delivering their produce.
(ii)Improving the co-operative management. Management skills can be improved through inservice courses and seminars, e.g setting up of institutions where the managers can go for further training.
(iii)Setting up payment schemes. Establishing crop finance to ensure that farmers are paid promptly after delivering their produce.
(iv)Provision of farm inputs to the farmer members. Assistance for farmers in the form of machines and tools, fertilizers, planting materials, agrochemicals, e.t.c.
(v)Provision of credit facilities with fair interest rate.The government may introduce the credit scheme where farmers can borrow money to improve their agricultural production at a very low interest rate.
(vi)Promotion of extension services. By the ministry of trade and industry, Agriculture, etc and NGOs ( non-governmental organizations).
(vii)Expansion of both domestic and foreign markets. Foreign and domestic markets can be expanded by expanding into
Eastern and southern Africa (COMESA), by initiating barter trade arrangements.
Eastern and southern Africa (COMESA), by initiating barter trade arrangements.
FORMATION, ORGANIZATION AND FINANCE OF CO-OPERATIVE SOCIETY TANZANIA
FORMATION
FORMATION
In Tanzania the cooperative societies are normally formed under a co-operative society ordince. Each co-operative make its own by-laws under the rules of the co-operative act ordinance. Such rules have to be approved by the registrar of cooperatives.Each co-operative society or union operates under the principles of cooperation.
ORGANIZATION
The affairs of a co-operative are run by a committee which is elected by the members on a one vote per member basis. The committee is assisted by salaried staff, responsible for general running of the society. The committee remains off course, responsible to the general body of members, and its position is closely analogous to that board of directors. The principal differences are that the members are usually paid for their services and that they work on a part time basis.The committee has power to and usually does employ to assist in its various functions.
ORGANIZATION STRUCTURE OF A COOPERATIVE SOCIETY.
FINANCE.
The main source of finance to a cooperative society is the money received from members on entrance fee and cost of shares.Each member is required at least one share. A small interest is paid on share capital .Members are also required to pay small entrance freeman the time of registration as a member to cover expenses involved in the issue of the share capital.A society upon approval from members may retain a small part of the money received from the sale of produce brought in by members as a reserve to strengthen the financial position of the society.The money received by a society is used to acquire fixed assets for the society and covering several expenses.
Dissolution of co-operatives.
Co-operatives, just like companies, are formed to operate into unforeseen future. The following circumstances may, however, occasion their dissolution.
(i)Agreement or disagreement of members.If the shareholders of a co-operative persistently disagree, they could mutually agree to discontinue their association. This they may do by applying for deregistration. If their application is accepted, the co-operative ceases to exist.
Co-operatives, just like companies, are formed to operate into unforeseen future. The following circumstances may, however, occasion their dissolution.
(i)Agreement or disagreement of members.If the shareholders of a co-operative persistently disagree, they could mutually agree to discontinue their association. This they may do by applying for deregistration. If their application is accepted, the co-operative ceases to exist.
(ii)Insolvency.If a co-operative is unable to meet its debts, it may be declared insolvent. Its assets could then be sold off and the proceeds used to pay the debts.
(iii)By court order. A court could also order a co-operative to be dissolved on application by one or more of the members who has/have good reasons as to why the association should not continue.
(iii)By court order. A court could also order a co-operative to be dissolved on application by one or more of the members who has/have good reasons as to why the association should not continue.
(iv)The parent ministry (i.e, co-operative Development) may order the dissolution of a co-operative in the interest of its members.
(v)Withdraw of members. Members of a cooperative may decide to join another cooperative society, leaving the original society with less than ten members. This will automatically occasion a dissolution as the minimum membership for a co-operative society required by the law is ten.
Differences between a co-operative society and joint stock company.
PUBLIC SECTOR (PUBLIC ORGANIZATION)
These consist of business organizations where the government is responsible for the profit and loss in any business undertaking. It involves all those business, trade and industrial activities which are carried on under the ownerships and management of the government.
It is regarded most essential to promote the welfare and economic activities of a country.
FORMS OF PUBLIC ORGANIZATIONS
(i) Public corporations
(ii) Local authorities and
(iii) Parastatal bodies.
Features of Public sector / organization
(i) Established by an act of parliament which define its powers and functions.
(ii) Government is responsible for profit and loss.
(iii) Its Board of Directors is formed by the government.
(iv) The share capital is raised by selling shares and the government buys most of the them.
1. PUBLIC CORPORATION
A public corporation Is a commercial organization owned by the state.
OR
A public corporation is a joint stock company in which the government holds 51% of shares and the public holds or own 49 percent of shares.
In such business, the government has more say and can influence decisions such as the price at which goods and services are sold, appointment and termination of mangers, etc. Public corporation operate as an ordinary joint stock company and aims to make profit out of its operations. Public corporation is similar to joint stock company because:-
(i) It is a legal entity.
(ii) It is self governed.
(iii) It is self – financing and operations on commercial lines.
Differences between Public corporations and Joint stock company
(i) A corporation is usually state owned by individuals.
(ii) A corporation has unlimited liability while joint stock company has limited liability.
(iii) Most corporations have monopoly while joint stock companies have no such status.
(iv) Corporations operate not only for profit but in public interest by the representatives of the public while joint stock companies operations for profit only.
(v) Corporations are financial mostly by the Government while joint stock companies are financed by individuals .
FORMATION:-
Public corporations are formed by specific Acts of Parliament which the ministries define their powers, duties and overall mandate.
The law creating corporations also states the ministries under which they will operate legal personalities (i.e they are body corporations. Some public enterprises are established under the Companies Act but are controlled either wholly or in part by the government by virtue of the shares that the government holds in the enterprise.
MANAGEMENT
The management of public corporation is under a board of directors. These directors are appointed by the government, or by the government and the relevant join owners as the case may be. The government therefore influences decisions in the corporation either directly , e.g on pricing and investment, or indirectly through the board of directors.
SOURCES OF CAPITAL
A public corporation may get its capital from the government through donations, loans, or express budgetary allocations, loans, or express budgetary allocations for specified purposes. Where the government owns the corporation jointly. Capital is contributed by both the government and the join owners. In most cases, public corporations do not issue shares to the general public. If it issue shares to the general public, then it opens up its doors to public ownership.
As a body corporate, a public corporation also has powers to borrow money from financial institutions. It can also get trade credit from suppliers and buy property.In summary, a public corporation may
acquire its funds just like any other legal body such as a company.
acquire its funds just like any other legal body such as a company.
FEATURES OF PUBLIC CORPORATIONS
A public corporation has certain features that distinguish it from, other business units. These features include the following:
(i) Service motive. Public corporations are usually formed to provide certain essential services to citizens welfare.
(ii) Formed by Act of parliament.
Public corporations are usually formed by Act of Parliament. The act states the governemtn Ministry under which the corporation will operate, among other details.
(iii) Subsidized by the government.
Public corporations are usually subsidized by the government to enable them to provide essential services and goods to the citizens at minimal fee. Where the corporation is not making profits, to sustain
its operations, the government provides it with funds to enable the corporation to operate and accomplish mandate.
its operations, the government provides it with funds to enable the corporation to operate and accomplish mandate.
(iv) Board of directors appointed by government.
The board of directors of a public corporation is usually appointed by the government. This direct appointment enables the government to influence the policies of the corporation. However, there could
also be representatives of other major shareholders on the board to represent the interests of these shareholders if the corporation is jointly owned.
also be representatives of other major shareholders on the board to represent the interests of these shareholders if the corporation is jointly owned.
(v) Financed by the government.
A public corporation is usually financed by the government. This therefore means that even where the corporation may get its finances from other sources, the government remains its principal financed.
(vi) Legal personality.
A corporation is treated as a separate legal personality. This means that, once formed, the corporation becomes separate and distinct from the government or any other owners. The liability of the owners
is therefore restricted to the amount invested in the corporation .
is therefore restricted to the amount invested in the corporation .
(vii) Limited liability.
A public corporation is usually formed as a body corporate with separate rights and obligations from its owners. The liability of the owners is therefore restricted to the amount invested in the corporation.
ADVANTAGES OF PUBLIC CORPORATIONS
(i) Raising initial capital is easy, since the government may provide the finances.
(ii) They are suitable for activities such as public utilities where competing firms would involve waste, inefficiency.
(iii) They can accept responsibilities which is beyond the normal aims of private enterprise e.g Sewerage and Garbage collection, although these are slowly been privatized .
(iv) Since the interest of the public is the main consideration, services are provided at fair prices.
(v) They are financially sound and can obtain loans easily on large scale at fair rates of interest than privately owned business.
(v) There is democratic control through the state and local authority and profits are not a limited number of shareholders.
Disadvantages of Public corporations
(i) Management may be week, since the directors are mostly political appointees.
(ii) Public corporations may not respond to the needs of consumers since some op
erations as monopolies.
erations as monopolies.
(iii) Public corporations normally suffer from political interference which sometimes makes it difficult for them to fulfill their objectives.
(iv) Most managers of public corporations may not be honest, since they are not secure in their jobs as they cold be sacked any time, especially with a change in government.
(v) Some public corporations are very large, thus decision making is slow and difficult.
(vi) Public funds may be wasted by keeping poorly managed public corporations running.
Dissolution of public corporation
It was started earlier on that public corporations are formed by a specific Act of Parliament which defines their powers, duties and general mandate.
It therefore follows that, in order to dissolve such organizations, one would have to repeal the Acts of parliament under which they were established.
Several reasons can lead to a repeal of the parliamentary Acts which established a public corporation. Some of them include:
(i) Perpetual operation of the corporation at loss
(ii) Outright insolvency, and
(iii) Mismanagement which adversely affects the performance of the corporation.The effect of the repeal is to bring the activities of the corporation to an end, thereby occasioning its dissolution.
- LOCAL AUTHORITIES
Local authorities are wholly government owned institutions which enjoy a high degree of independence (from the government) in their operations.
They consist such institutions like city and Municipal councils.
They provide essential serves, which the private people are reluctant to invest due to being unprofitable . Such services include, road maintenance, street cleaning, drainage, etc.
Local authorities are financed themselves using the money collected from their income – generating activities e.g business taxes, income taxes and market dues got from markets. The services are
offered to people living within those areas.
offered to people living within those areas.
- PARASTATAL BODES
A parastatal body is an organization set up by a government to perform specific functions.
Parastatal bodies carry either commercial activities like the Marketing bodies or non – commercial functions such as Universities.
Features of Parastatal Bodies
(i) They are established by the government to perform some specific functions.
(ii) They are managed by the government appointed officials.
(iii) They don’t have to share capital. They are financed by the govern
ment using taxes paid by the public.
ment using taxes paid by the public.
(iv) Provide services which are essential to the well being of the population, e.g health care, food supply, road construction e.t.c Examples of parastatal bodies include marketing boards.
The main difference between Parastatal bodies and Public corporations is that, Parastatal bodies do not have share capital while Public corporations do have share capital.
And the main similarity is that the management of both parastatals bodies and public corporations is appointed by the government.
Differences between Parastatals and Public corporations.
SIMILARITIES BETWEEN PARASTATALS AND PUBLIC CORPORATIONS
(i) They are all owned wholly or partially by the government.
(ii) They all aim at providing goods and services to public.
(iii) They are managed by people appointed by the government.
(iv) Their surplus is surrendered to the government.
(v) They are performed by act of parliament which defines their powers and functions.
(vi) They cover areas which private institutions cannot invest.
MARKETING BOARDS
These are trading organizations set up by government or the private sector to purchase agricultural products from farmers and sell them to their consumers with an intention of promoting agriculture within the state.
Marketing boards are classified according to the type of goods they handle and areas served.
- Commodity Marketing Boards
This is a type of marketing board which specializes in specific agricultural products. It is responsible for buying and selling that particular product and takes its name from the product handed e.g Coffee
Marketing Board.
Marketing Board.
- Export marketing Boards
Such marketing boards concentrate on the marketing of various agricultural products to foreign markets.
- Advisory Marketing Board
Such marketing Boards concentrates on carrying out research and providing advisory services to growers of various crops. They research on modern methods of farming and new crop varieties and then
advise farmers accordingly.
advise farmers accordingly.
- Produce Marketing Boards
This is a type of marketing board which handles and sells a variety of agricultural products.
- Statutory marketing Boards
This is formed by government under an Act of parliament (stature) They are managed by a chairman appointed by the government.
FUNCTIONS OF MARKETING BOARDS
1. Buying and selling produce
They buy agricultural products from farmers in various parts of the country at reasonable prices and sell them to consumers both locally and internationally at favourable prices.
Marketing boards buy produce from farmers through the following channels:-
(a) Co – operative societies
(b) Direct sales
(c) Through agents appointed by the boards .
A figure below show channels through which farmers sell their produce to the marketing boards.
- Storage of produce.
They store agricultural products so as to protect them from damage by weather and to maintain constant supply.
- Provision of credit facilities / assistance.
They provide credit facilities to farmers associations by giving loans at low interest rate. And also assist farmers by buying fertilizers,, pesticides, farm tools, from the board at reduced price, the board
proved packaging materials to farmers like sacks, paper bags and polythene materials depending on a particularly type of produce, They protect farmers produce against diseases and pests by regular
supply.
proved packaging materials to farmers like sacks, paper bags and polythene materials depending on a particularly type of produce, They protect farmers produce against diseases and pests by regular
supply.
- Carrying out research.
Marketing boards use some of their capital to carry out marketing and agricultural research. They send out officials to the fields to offer advisory services to farmers based on the results obtained from
the research.
the research.
- Control of production.
They take suitable steps to control over – production of certain crops. They impose quotas on various producers or co – operative societies, and any crop produced in excess of the quota is rejected.
- Stabilize prices.
Marketing boards stabilize prices thus encouraging produces to produce more. This is done by using the process of buffer stock. They buy and stock products during period of excess supply , and them
release them on the market during period of scarcity.
release them on the market during period of scarcity.
- Transporting products to the markets.
Marketing boards collect and transport products from rural areas to urban areas for sale.
- Provide statistical data to government.
They provide statically data such as the price of goods,, quality and quantity of goods on the markets, etc,.
PROBLEMS OF MARKETING BOARDS
- Political instability
This affects performance of marketing boards and farmers in any country due to reduced funding from the government.
- Over production
Some commodities are produced in large quantities than required in the market and as a result prices of commodities go down (fluctuation of prices)
However the boards try to solve this problem by:-
(a) Searching for new markets.
(b) Donating the surplus to the need in the form of aid.
(c) Exporting the surplus to other countries at lower prices.
(d) Storing those products that are not perishable for future use when demand is high.
(e) Destroying the surplus. Some countries burn the excess products.
- Lack of sufficient capital
Marketing boards lack enough funds to be able to extend their services to farmers.
- Poor transport
Most of the roads in East African countries where marketing boards operate are of murram and in poor state. They are impassable during the rainy periods.
- Poor quantity produce
Farmers produce mainly poor quality goods which cannot fetch high prices on the world market. Some farmers mix poor quality products with good ones and this lowers the general demand for such
products.
products.
- Lack of storage facilities
There are few warehouses for storing excess products until they are required.
There are not enough cold stores for perishable goods. As a result, most products end up getting spoilt.
- Illiteracy of farmers
Some of the farmers do not know how to read and write. Thus it is difficult to educate and advise them on better production techniques to use.
- Poor management of funds and lack of skills.
Managers of marketing boards are often political appointments. They may lack the necessary management and financial skills to administer the funds set a side by the government to boost agriculture.
- Competition from business persons
Some business people have ready cash to pay for the produce. This encourages farmers to sell to business people instead of the board which takes longer to pay.
Because of this, boards find themselves with insufficient quantities of produce to handle.
WHY GOVERNMENT PARTICIPATES IN THE OWNERSHIP OF BUSINESS ENTERPRISES.
(causes /Reasons of Public undertaking)
- High initial cost.
Construction of roads, railways, schools and hospitals to improve the countries infrastructure requires vast capital expenditure and therefore the government has to invest.
- Provision of essential commodities and services. Water and sewerage corporation and waster collection plants need heavy investment and are less attractive investments for private sector, yet essential.
- Prevention of monopolies.
Governments participate in commerce to deter the emergency of monopolies who exploit the government.
- Regional balancing.
The government invests in infrastructural facilities with the aim of attaining fair distribution of development projects throughout the country.
- Ensuring national security.
Production and distribution of certain goods such as money and ammunition is done specifically by the government.
- Promotion of political ideologies .
Political consideration may influence the government to own business enterprise.
- Attract foreign capital.
Government enterprises attract more foreign capital and technology than the private sector. Thus government participates and runs business with an aim of getting foreign capital which if acquired,
facilitates development in the country.
facilitates development in the country.
ADVANTAGES OF STATE CORPORATIONS
(1) Provision essential facilities.
They are suitable for unprofitable enterprises in which the private sectors may not want to invest e.g dam construction, road construction, education , garbage collection, etc.
(2) Large initial capital
Some business enterprises require large capital which cannot be raised by private sector enterprise e.g provision of educational materials, electricity, etc.
(3) Risk ventures
Some sectors of the country are very risk and too confidential for the private sector to get involved e.g production of weapons, police and maintenance
(4) Relatively cheap
They provide goods and services to the public at lower prices than the private sector.
(5) Elimination of duplication of services
They help in elimination of duplication of services, which reduces wastage and inefficiency
(6) Source of government revenue
They create revenue to the government through their aim is not to make profits. The money obtained is used to run development projects.
DISADVANTAGES OF STATE CORPORATIONS
Lack of competition.
Because there is a little or no competition .this may lead to the production of goods and service, which are of poor quality. This reduces standard of living within the country.
(ii) Un economical.
The in profit ability and cost of production are passed on the public in the form of higher taxes .the government tries hard to get fund to finance unprofitable business.
(iii) No personal interest.
People who work in state corporations may have no interest in the business.
This result in the provision of poor quality goods and service.
(iv) Bureaucratic tendencies there is too much red tape in state corporations .This leads to delay in the supply of certain goods and services for decision to be made , it has to go through many channels .
(v) Monopoly some state corporations have there monopoly of supply for providing certain service e.g National water and sewerage corporations .This corporations has power to set prince at a higher rate because there are no competitors
(vi) Lack of capital . Some of the businesses require large capital, which cannot be raised by the government. This result in inefficiency in the production of goods and service
(vii) Un profitability .Some business under takings are unprofitable and costly to run. The government increases price and taxes to the consumers’ price and taxes to the consumers on order to be able to manage them.
(viii) Limited skills the management and administration of the state corporations is often influenced by sectarianism which i
s based either on tribal or political grounds and the workers many lack the skills needed. In many cases the skills of the employees are not considered which promotes inefficiency in the business.
s based either on tribal or political grounds and the workers many lack the skills needed. In many cases the skills of the employees are not considered which promotes inefficiency in the business.
PRIVATIZATION
Meaning
It is a transfer of government ownership of state enterprises from the government to the private sector.
REASONS/ADVANTAGES OF PRIVATIZATION
1. To increase government revenue.
The government earns income by taxing private enterprises. These taxes enable the government to get enough money to fund other development projects
This enhances economic growth and development.
2. To earn foreign exchange.
The privatized enterprises bring in foreign currency, especially if they are foreign owned.
This improves the balance of payments position of the country.
3. To reduce bureaucratic delays
In private enterprises, decision making is much quicker than in public enterprises because of bureaucratic tendencies in public enterprises.
4. To private quality, goods and service.
Privatization brings about competition among producers and providers of goods and services. Enterprises need to provide better quality products in order to capture the market. Consumers benefit from
privatization.
privatization.
5. To promote efficiency
Private enterprises are often more efficiency than state enterprises.
The owners of private enterprises carefully supervise them to ensure efficiency and reduce the wastage of resources.
6. To reduce excessive government expenditure.
Most of the state – owned enterprises do not make profit the government spends a lot of money on them . To avoid such expenditure, the government sells off such enterprises.
7. To create employment opportunities
Many jobs are created in the private sector because the owners are interested in the companies and are keen to bring in new ideas, enabling the companies to expand.
DISADVANTAGES OF PRIVATIZATION
1. Exploitation of the public
Private investors tend to exploit the public by own over changing and provision of poor quality goods and services, especially if monopoly exist.
2. Limitation for expansion
Private firm may not have adequate bargaining power for fund international financial ins
titutions like IMF and the World Bank, thus expansion may be difficult.
titutions like IMF and the World Bank, thus expansion may be difficult.
3. Profit caparatriation.
There are is capital out flow from the country that privatized the enterprises if the private sector is dominated n by the foreigners.
This retard the level of economic growth and development.
4. Limited supply of essential but unprofitable services.
The private sector is reluctant to supply the essential but unprofitable services like street cleaning garbage collection and road maintenance.
5. Continuity of business.
The existence of private enterprises largely depends on the life of the owner. If he /she dies the business also dies.
6. Difficult to control the production of dangerous goods .
It is dangerous for the private sector to deal in the production of dangerous commodities, eg making firearms.
