Classes of Shares

Classes of Shares

A SHARE in a company is one of the units into which the total capital of the company is divided. A share is the interest of a shareholder in the company measured by a sum of money for the purpose of liability and interest thereto. It is a fractional part of the capital of the company, which forms the basis of ownership and the interest of a subscriber in the company. A share cannot further be sub-divided. Each share is given a district number.

Capital for a new industry may be raised by public or private subscription of shares. Large amount of funds cannot be raised unless an appeal is made to the people of different temperaments. By issuing different classes of shares funds may be raised from the greatest risk taking persons to the most cautious one.

Shares of different denominations are issued to attract both rich and poor investors. Shares of high denominations usually have a restricted field of drawing capital for the company. people with small savings may not be able to purchase them.

Cost of financing, money market conditions and the time of issue are a few other factors which also suggest that different classes of shares be issued. Raising of capital by issuing different classes of shares may result in lesser cost as compared to issue of only one class of shares. During period of depression, preference shares and likely to find a better market than the equity shares, which can be marketed with greater ease during periods of rising prices.

Company, the income of which may not be certain or sufficient or which proposes to engage in a business of speculative nature, shall not be in a position to collect its capital by issuing preference shares. The only method available for such a company to raise its capital would be to issue equity shares.

The amount of capital which  a company may raise by means of shares is stated in its memorandum of association. The number of shares in which such capital is to be divided is also mentioned therein. The rights of each class of shares, are, however, laid down by the Articles of Association and fixed up by the terms of issue. It is open to the company to issue more than one class of shares.

The important classes of shares are as under:-

1. Preference Shares

a) Cumulative preference shares
b) Non- cumulative preference shares
c) Participating preference shares
d) Redeemable preference shares

2. Equity Shares
3. Deferred Shares

A brief discussion of the above classes is a s under:-

Preference Shares  

A preference share carries a preferential right over other classes of shares in respect of (a) a fixed dividend, and (b) repayment of capital in the event of the winding up of the company. 

Company law does not give any right to the preference share- holders to vote on any resolution except those which directly affect the rights attached to their shareholdings. But a preference shareholder may claim a right to vote similar to the equity shareholders in case the dividend on preference shares has not been paid. (i) for the last two years on the cumulative preference shares, or (ii) for three years on the non-cumulative preference shares, 

Cumulative Preference Shares 

Preference shares are always cumulative unless otherwise stated. A cumulative preference share has a right to claim the fixed dividend of the current year out of the future profits. the dividend, in their case, will go on accumulating unless paid. The accumulated areas of dividend shall be paid before anything is paid out of the profits to the holders of any other class of shares, If the company is unable to earn sufficient profits in any year to pay dividend on preference shares, the deficiency shall be made good out of the profits of the subsequent years.   

Non- Cumulative Preference Shares 

Dividend on non-cumulative preference shares shall be payable only out of the profits of the current year. It shall not be allowed to accumulate to be paid out of the profits of future years, The right to claim dividend will lapse if there are no profits in a particular year, 

Participating Preference Shares 

These preference shares carry a right: (i) to a fixed share in the surplus profits in addition to the dividend to which they are entitled after a certain minimum has been paid on other classes of shares, or (ii) in the surplus assets of the company on its winding up.

Redeemable Preference Shares 

Such shares the company is liable to redeem either on the expiry of the fixed period for which they were issued or at its own option. Companies act lays down the necessary conditions for the redemption of such shares. 

Equity Shares

They are very much similar to the ordinary shares which the companies have been issuing. All the shares other than the preference shares shall now be known as equity shares. Equity shares don not carry any preferential rights. All the equity shares shall enjoy the same rights with regard to voting, dividend and return of capital etc.  For the purpose of dividend and repayment of capital they rank after the preference shares. They enjoy all the profits left out after paying a fixed rate of dividend on the preference the shares. Equity shareholders participate in the profits of the company in proportion of the amount of capital that they own. They voting rights are proportionate to the amount paid upon those shares. Equity shares carrying on disproportionate voting rights cannot be issued.

Deferred Shares

Public limited companies cannot issue deferred shares carrying on disproportionate voting rights to the amount paid up thereon. However, private limited companies may issue such shares. Deferred shares rank for dividend and return of capital after all other classes of shares have received a fixed rate of dividend or have been paid out in the case of winding up of the company. generally, these shares are of very low denomination and are purchased by those who want to keep the control and management of the affairs of the company in their hands. they are mostly issued to the promoters as fully paid up. They get dividend only after an agreed rate of dividend has been paid to the preference and ordinary shareholders. "Though generally few in number and insignificant in nominal value the voting power which they command and the profits they share are often considerable."

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The Balance Sheet of A Bank

Every bank has to publish its balance sheet at fixed intervals as laid down by the law of the country. The real financial position of the bank can be known only after an analysis of its balance sheet. The balance sheet also tells us about the assets as well as the liabilities of the bank. 
Specimen of a Balance Sheet of a commercial bank may be as under:-

Liabilities 

The liabilities refer to those items on account of which the bank is liable to pay an amount to others. They represent others claims on the bank. The various items on the liabilities side of the balance sheet are the following:- 

1. Capital 

Capital of a commercial bank may take the various forms as under:

(a). Authorized Capital 

The authorized capital is the maximum amount of capital that the bank is authorized to raise from the public in the form of shares. Generally speaking, the entire authorized capital is not raised from the public. 

(b). Issued Capital 

That part of the authorized capital which is issued in the form of shares for public subscription is know as issued capital.

(c). Subscribed Capital 

Subscribed capital is that part of the issued capital which is actually subscribed by the public. There is no guarantee that the whole of the issued capital shall be subscribed by the public. A part of the subscribed capital may remain unsubscribed for a number of years.

(d). Paid-up capital

It is that part of the subscribed capital which the subscribers are actually called upon to pay. Generally speaking only a part of the subscribed capital is called to be paid and the other part is kept as a reserve.
 
The bank raised capital from the public by issuing various types of shares such as ordinary, Preferences, deferred shares etc.

2. Reserve Fund

Every bank maintains a reserve fund. This fund is constituted by the accumulated profits of the bank.It is used by the bank to offset its unexpected losses in certain years. The reserve fund of the bank should be equal to its paid-up capital. The bank is required by law to transfer 20 per cent of its annual profits to the reserve fund does not become equal to the paid-up capital.

3. Deposits

This includes those deposits which are received by the bank from the public. In fact, the deposits constitute the working capital of the bank. After keeping a certain cash reserve, the bank invests the balance in securities or utilizes it for giving loans and advances to its customers.

4. Loans From Other Banks.

Under this head, the bank shows those loans which it has received from other banks. As is well known, the bank takes loans from other banks especially the central bank, in certain extraordinary circumstances.

5. Bills Payable 

Under this head are included those bills which it is the responsibility of the bank to pay from its resources.

6. Bills For Collection 

Under this head, the bank shows the total amount of those bills which it has accepted from its customers for collection. the amount when collected is credited to the accounts of the customers. Hence, the amount under this head is shown in both the columns of the balance sheet.

7. Acceptance For Endorsements 

An important function of the bank, as already stated, is that of accepting or endorsing the bills of exchange on behalf of the customers. When the bank accepts the bill of exchange on behalf of its customers, it simply means that the bank accept the responsibility of paying the bill in case the customer fails to settle it at the time of its maturity. Hence, this is a liability for the bank.

8. Contingent Liabilities

Under this head, the bank shows those liabilities which are not known in advance or which are unforeseeable. Every bank makes some provision for these liabilities in its balance sheet.

9. Profit & Loss 

The profit earned by the bank in the course of the year is shown under this head. Since the profit is payable to the shareholders, it represents the liability of the bank.

Assets

We shall now analyses the various items on the assets side. The term "assets" refers to those items on account of which the bank is to receive an income others. The various items that figure on the assets side of the balance sheet are as follows:

1. Cash

Every bank has to keep some cash with itself to meet the requirements of its depositors. In addition, the bank also maintains some cash reserve with the other banks or with the Central Bank of the country.

2. Call Money

Under this head are shown those loans which are repayable to the bank on demand. Such types of loans are given to the customers for a maximum period of 15 days and the bank can recall them at its own option. The call loans are of three types; (1). Loans which are given for one night only; (2) Loans which can be recalled by the bank without notice; and (3) Short-period loans which are repayable to the bank within 15 days. 

3. Bills Discounted

Under this head, the bank shows the total amount of those exchange and treasury bills which it has discounted itself. The bank collects the amount of these bills when they mature. In case, the bank needs cash before the maturity of these bills, it can be get them re discounted by the Central Bank of the country.

4. Bills For Collection 

As already stated, this item figures both on the liabilities as well as on the assets side. Before collection, these bills represent the assets but after collection they become the liabilities of the bank. Hence, this item appears on both sides of the balance sheet. 

5. Investments 

Under this head, the bank shows the total amount of its profit- yielding assets. The different types of investments are shown separately in the balance sheet. The amount invested in government and non-government securities is also indicates separately.

6. Loans & Advances

Under this head, the bank shows the total amount of loans and advances that it has extended to its customers. These loans and advances are given against certain physical securities offered by the borrowers. This item represents the "Fourth Line of Defense" of the bank.

7. Building, Furniture And Other Properties

Under this head is included the total volume of the movable and immovable properties of the bank. It includes the office buildings, furniture, stationery and other miscellaneous assets of the bank. This is often referred to as "dead stocks".

The relative importance of different types of assets or the proportion in which the bank distributes its total resources among the different assets varies form country to country, depending upon the economic and financial situations in the country. It is, therefore, not possible to lay down certain ratios or norms of distribution to be followed by all the banks in all the countries and at all times.

 

 

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Universality of Management

Although like medical and accounting, management, has not yet achieved professional status, yet the techniques, principles, and process of management are universal. Universality of management refers to the transferability of its principles, techniques, functions, and skills from one time, place, or job to another. All these management practices are equally practicable and applicable everywhere in the world irrespective of the nature of the job, differences in the customs, habits, and social laws. Managerial functions, techniques can be practiced in every organized effort. Whether it is a business, shop, industry, government office, educational, social, profitable or nonprofitable organization, management principles, functions and techniques are profitably and productively applied. A successful manager of a company or a field can be equally successful in the other. That is why a manager of a company can be safely transferred from one department, company, or area to another. A captain of a cricket team can be successful as a manager of the bank. A retired army general can successfully hold a position of chairman in a company or president of a country.

Arguments For Universality

Different experts have thrown light favorably on the universality of management whose points are as follows.

1. Apart from the nature of the job, management level, industry, company, or country, every manager performs the same functions. He has to plan, organize, lead, and control, no matter he is working in the capacity of a junior or senior manager, head of an organization, army general, or president of the country.
 
2. According to Fayol and Urwick, management has some principles, like unity of command or division of work which can be ignored nowhere.
 
3. Every organized effort has some basic principles, factors, and rules. Every business, educational, government or religious organization has common basic managerial principles. If there is a difference at all, it is that of a technical skill or nature of a job. Universality never means that one particular job should be performed by every manager. But it means that all jobs have principles in common that must be followed by every type of manager.
 
4. Universality of management can be judged from the fact that a hockey captain can become
an efficient manager in a bank. An army general can effectively hold a position of a company or a country, although the nature of technical work is quite different in both the places; but the principles of performing the jobs are the same.

Arguments Against Universality

There are many management experts who oppose management principles as universal. Opposing arguments are as follows:
 
1. Though management functions, principles, techniques, and practices are equally acceptable in diversified environment and conditions, their practicability has some natural limitations. As far as human, analytical, managerial skills, and decision making abilities are concerned these are of course transferable. But if a job demands a particular technical skill, it can be performed only by its expert or specialist. Doctors and physicians cannot do engineer jobs. The pilot of an airplane cannot steer a ship. An accountant cannot as a production engineer. A manager of one culture, environment, or custom may not adapt to another.

2. Universality of management refers to transferability of its principles, techniques, functions, and skills from one time, place, or job to another. But in actual situation it is not practicable. An Army general who has acquired austere discipline and rigidity cannot become a successful head of a university. Applying this principle, experience and rigid discipline in the university will spoil the atmosphere of soft-disciplined university. Inversely, if the discipline of a university is applied in the army, what will happen? The army will be destroyed.

3. Objectives of every company are different. They may not be transferable. A manager, accustomed to a unique atmosphere in a charitable institution which has a liberal policy to distribute funds to the needy people, is sure to fail in a bank which has to be austere and rigid in advancing loans. 

4. .Most management principles are based on personal experiences and have no scientific footing. Hence, they are conflictory or they have to be violated.

5. The principle of functional authority is actually a violation of the principle of unity of command. The first principle necessitates two bosses of a subordinate. The second principle, on the other hand, requires only one boss for a subordinate. Matrix organizations i also a violation of unity of command. Matrix allows a subordinates to have as many as five bosses over him.

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Principles & Techniques of Coordination

Coordination is ever present at every level of management, and pervades all managerial functions. It has been defined as an orderly synchronization or unification of individual and group efforts. It facilitates harmonization of individual and group goals. the bigger the organization and the resulted complexity, the more essential becomes the coordination. Coordination is reconciling differences in approach, interpretation of plans, timing, efforts, and interests of individuals, subordinates, compeers, and superiors.

Principles of Coordination 

Mary Parker Follett has great contribution in the development of coordination principles. These principles are:

1. Principle of Direct Contact 

Direct contact plays a vital role in the accomplishment of coordination. direct contact may be top down, bottom-up, and horizontal. It facilitates face-to-face communication, understanding, exchange of ideas, and harmonized interpretation of plans, policies and procedures.

2. Principle of Achieving Coordination At Early Stages

Coordination is necessary to achieve at an early stage of planning. Unification of activities becomes difficult after plans are put to operation.

3. Principle of Reciprocity of All Factors

According to this principle all factors, affairs, matters, or problems are interrelated in a given situation. These factors are so much interwoven and correlated that they cannot be viewed and analyzed separately or they will mislead the manager.

4. Horizontal Coordination Is More Important Than Vertical 

This principle states that vertical coordination is not so much difficult because of incessant, regular, and direct contact between the boss and his subordinates. The real test of coordination is at horizontal level. horizontal coordination is necessary to interchange information, interpret plans, implement schedules, accommodate the requirements of each other, and smooth the working of the company as a whole. All the heads and personnel of different departments should maintain links between themselves to exchange information, know changed situations and conditions, increase understanding, and make it sure that plans are going ahead as per schedules.

Techniques of Coordination 

By the following techniques the manager can achieve coordination

1. Supervisor 

Supervisors should teach their subordinates concept, principles and application of coordination. He should ensure that his subordinates and their work are related with other individuals and groups.

2. Organization 

Good organization itself is a good device to accomplish coordination. Good organization means proper grouping of activities, clearly defined jobs and duties, clear-cut delegation of authority, distinct correlation between different divisions, and a well directed system of responsibilities.

3. Written Communication 

Written communication is very useful and effective to achieve coordination. Written communication includes letters, memos, reports, bulletins, policies, procedures, programs, and other plans.

4. Group Meetings 

Group meetings are conscious efforts to accomplish a high quality of coordination. Its purpose is to facilitating unification and relating the efforts of various groups and departments.

5. Liaison Officer

Like supervisor, liaison officer is a good medium for achieving coordination. A liaison officer is appointed to unify departmental and group activities. He keeps in touch with all departments and convey necessary information to them.

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5 Functions of A Manager

In this article i am going to tell you the functions of a manager. Every manger should follow and learn these functions:

1. Planning 

It means selecting the objectives, formulating the policies, programs, and procedures to achieve these objectives. Objectives are grouped into those of individuals, departments, and the enterprise. Planning involves decision making and selecting a definite course of action from among various alternatives. The responsibility of planning goes on the shoulders of managers, whether they are at the top, middle or bottom of the organization structure. It is looking ahead and concerned with the future. Planning is what to do, when to do, how to do, who and why is to do. It provides yardstick against which actual performance is measured.

2. Organizing

The next function of the manager is organizing. It involves the establishment of definite structure of roles. It includes grouping of activities, assignment of these activities to organizational groups, the delegation of authority and co-ordination of the authority delegated. Since one man can not perform all the functions, the activity must be split off into buying, selling, producing, accounting to achieve business enterprise objectives. In organizing a business a full advantage of specialization is enjoyed. The organization must fit the task and not vice versa. The organization structure is not an end in itself but a means to an end.

3. Staffing 

It includes hiring, selecting, placing, transferring, and firing. It is the function of a manager to define man power requirements for the job to be done, determine workman's compensation and train the workers. The objectives of staffing is to create such a team which is loyal to company and its objectives. Wage and salary administration, pension, bonus, gratuity, group insurance, provident fund, employees welfare, transfer, promotion, retirement, leave, medical come under the purview of personal administration. Personnel administration is the new term, used for staffing. Staffing starts even before hiring and continues even after firing.

4. Directing or Leading 

It involves guiding, supervising of sub-ordinates. The superior manager must teach his subordinates the enterprise tradition, history, objectives and policies. Subordinates must learn the organization structure, interdepartmental relationship of activities and responsibilities. The should also know their duties and authorities.
 
Directing improves the performance of the workers. It motivates them to work them to work with zeal and confidence. The supervisor's leading, communicating, motivating, and persuading come under the function of directing. Now better term leading is used for directing.

5. Controlling 

Controlling measures actual performance and corrects the weakness in the performance. It also ensures to accomplish plans. Control compel events to talk plays according to plan. Through controlling workers are made responsible for the errors they make and then they are corrected to improve the performance. controlling means to look back, while planning is to look ahead. There are three basic control processes.

1. Establishing Standards

2. Measuring Performance

3. Correcting Deviations From Standard And Plans.

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What is Branch Banking

Though the functions of banks are almost the same in every country, there are difference in the organizational set-up and the lending practices of banks in different countries. We can divide banking organization under two heads: (1). Branch Banking, (2). Unit Banking, depending upon the organization and scale of operations of the banks. Again, we can classify banking under two heads on the basis of the lending practices adopted by them: (1). Pure Banking, (2). Mixed Banking.
 
Branch Banking is that system under which a large bank carries on banking business through a large network of branches spread all over the country. The bank's huge financial resources enable it to carry on its activities on a large scale all over the country. Branch banking is popular in the U.K, Canada, Australia, India and Pakistan. In the beginning even the British Banks were developed as Unit Banks with only one office located in a town or a city. Later on, the small banks were amalgamated into a few big banking companies and opened their branches all over the country. At present, there are five major banks in the U.K. which have opened branches all over the Britain and even in foreign countries.

Advantages of Branch Banking

In the words of Prof. Sayers, "A comparison between Unit Banking and Branches Banking is essentially a comparison between small-scale and large-scale operations."Following are the main advantages.

1. Large-Scale Operations

A big bank possessing huge financial resources and having a number of branches, can enjoy certain advantages of large-scale operations. Its huge financial resources enable it to recruit skilled, qualified and experienced personnel to carry on its banking activities. It can also introduce the principle of division of labor in the field of management. The presence of an efficient managerial staff is always an asset with the bank. Moreover, a big bank with huge resources and a number of branches, comes to acquire public confidence an account of its standing among the people.

2. Geographical Spreading of Risks

The spreading of risks geographically is another importance advantage of the branch banking system. Since there is diversification of risks under branch banking there is no danger of failure to the bank concerned. Moreover, under branch banking, if certain losses are incurred in depressed areas they can be offset by earning profits in the prosperous areas. But in the case of a Unit Bank the danger of failure is ever present. If the unit bank suffers losses, they cannot be offset by profits earned elsewhere since there are no other branches of the unit bank.

3. Facilities Regarding Transfer of Funds

Since the branches of the ban, under branch banking, are spread all over the country, it is easier and cheaper for it to transfer funds from one place to another. But this advantage is not available to the unit bank.

4. Economy In Cash Reserves

Branch banking results in an economy of cash reserve. A huge bank, with a number of branches in different parts of the country, can afford to manage with a lower cash reserve ratio in each of its branches. A unit bank, on the other hand, is deprived of this advantage. It has to keep sufficient cash reserves to meet the requirements of its depositors. The keeping of large cash reserves naturally reduces the profitability of the unit bank.

5. Equality In Interest Rates

Branch banking has the additional advantage of bringing about equality in interest rates. If the demand for money goes up in a certain part of the country then, under branch banking, the funds can be transferred to it from another branches where there are excessive reserves. Thus, the rate of interest can be prevented form rising in the former place.

6. Proper Use of Capital

Under branch banking, the bank can make a proper use of its financial resources. If a branch of the bank happens to have a plenty of deposits, but no opportunities for investments, it can transfer its surplus funds to other branches which can make a profitable use of such funds for trade and industry.

7. Wider Scope For Selection of Securities 

Branch Banking presents a wider scope for the selection of different types of securities and investments. This ensures a higher degree of safety and liquidity for the bank.

8. Increase In Banking Facilities 

Under branch banking, the banking facilities can be made available to all cities, towns and even backward areas in the country. One the country, it is rather difficult to set up unit banks in smaller towns and underdeveloped areas in the country on economic grounds. 

9. Greater Public Confidence 

A bank, with huge financial resources and a number of branches spread all over the country, can command great public confidence than a small unit bank with limited resources and one or a few offices located in a particular area of the country. 

10.More Effective Credit Control 

Branch banking is conducive to a more effective implementation of credit controls by the central bank because, under branch banking, the Central Bank has to deal only with a few big banks controlling a large number of branches. It is always easier and more convenient to regulate and control the credit policies of a few big banks than to regulate and control activities of a large number of smaller unit banks. 

11. Better Training To Staff 

Since the banking were becomes more extensive under branch banking, the employees and the officers of the bank get better opportunities to acquire knowledge and experience about the various aspects of banking business in the country. 

12. Contracts With The Whole Country

Under branch banking, the bank maintains continual contacts with all parts of the country. This helps it to acquire correct and reliable knowledge about economic conditions in various parts of the country. This knowledge enables the bank to make a proper and profitable investment of its surplus funds. 

Disadvantages of Branch Banking 

Following are the disadvantages of branch banking:-

1. Difficulties of Management Supervision/ Control 

Since there are hundreds of branches of a bank under this system, this leads to a number of difficulties in the management, supervision and control of banking activities. The management of the bank automatically gets concentrated at the Head office. 

2. Lack of Initiative 

The branches of the bank under this system suffer from a complete lack of initiative on important banking problems confronting them. No branch of the bank can take decision on important problems without first consulting the head office. This makes the banking system rigid and inelastic in its functioning.

3. Possibility of Monopoly 

Under branch banking, there is always the possibility of the emergence of monopoly in banking. The reason is that the activities of all the branches are controlled by the head office. A handful of high bank officials dominate the entire working of the bank.

4. Continuance of Non- Profitable Branches 

Under branch banking, weak and non-profitable branches continues to be fed by the stronger and profitable branches of the bank. On the contrary, under unit banking, if a bank suffers losses, it shall cease to exist automatically after some time.

5. Unnecessary Competition 

The great disadvantage of branch banking that there arises under it unhealthy type of competition among different banks. Under this system, the branches of different banks get concentrated at certain places, particularly in big towns and cities in the country. This gives rise to unhealthy competition among them.

6. Duplication of Banking Facilities 

There is unnecessary duplication of banking facilities when the branches of different banks are opened at the same place.

7. Expensiveness 

This system is much more expensive than the unit banking system. when a bank opens a number of branches at different places then there arises the problem of coordinating their activities with each other. It naturally adds to the expenditure which is not in the interests of the bank.

8. Saving of Smaller Places Invested In Bigger Towns

Under branch banking, the savings collected from the smaller places and backward areas are transferred for purposes of investment to bigger industrial and commercial centers in the country. This hinder the economic development of smaller places and backward areas which are thus deprived of the use of their legitimate savings.

9. Losses By Some Branches Affect Others

When some branches suffer losses due to certain reasons, this has its repercussions on other branches of the bank.

10.  Difficulties In Foreign Countries

Under this system, a bank opening branches in foreign countries has to face a number of difficulties and problems. The reason is that the banking laws, trade conditions, monetary and credit policies are different in foreign countries. In addition, the bank has always to face the threat of nationalization of its branches by the governments of foreign countries.

 

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Principles of Management Listed By Fayol

Henri Fayol advanced the following fourteen principles of management which he considered as flexible and universal regardless of changing environment.
1. Division of Work
When an organization come into existence work must be divided according to skill and specialization. Specialized activity when performed increases the efficiency of the organization.
2. Authority And Responsibility
According to Fayol authority must be delegated to get the work done. Authority is the combination of official and personal factors. Official authority is the power which has been given by the company, and personal authority is the intelligence, experience, moral worth etc., which are personal.
3. Discipline
Discipline is obedience and respect for obedient leading to company's goals. Without discipline there will be chaos and confusion, and company's goals will not be accomplished. Discipline requires good superiors at all levels.
4. Unity of Command
According to Fayol, employees should receive orders from only one superior who is immediately above him in the line, otherwise there will be a clash of authority and activities owing to which the work will not be performed smoothly.
5. Unity of Direction
According to it, each group of activities having the same objective must have one plan and one head.
6. Subordination of Individuals to General Interest
When there is a clash between two employees the management must reconcile their differences, otherwise it would be difficult to reach company goals.
7.  Remuneration 
Remuneration to the employees must be fair and based on equity. Salaries and fringe benefits must be enough to motivate workers. 
8. Centralization 
By the principle of centralization Fayol means that how much authority should be delegated to the employees and retained by the super. The larger the organization the higher will be the degree of delegation of authority. Decentralization is the division of work and delegation of authority. 
9. Scalar Chain
There should be a chain of superiors down from the highest to the lowest echelon. Superfluous (excessive) levels should be avoided.
10. Order
By order Fayol refers to material and social order. It means a place for every thing or everyone, and every thing or everyone in its or his place.
11. Equity 
Management must maintain equity among the employees. Equity will facilitate to draw maximum loyalty from employees.
12. Stability to Tenure 
Job security should be provided to the employees to get their maximum of output. High lobor turnover causes greater costs and involves many hazards.
13. Initiative 
It means thinking out and executing a plan. Those who are high achievers and have initiative should be encouraged. They get satisfaction only when there ideas are honored. 
14. Esprit De Crops
It refers to team work and collective force of employees which must be used in the best interest of the organization. Team spirit makes it possible to get maximum of output with a minimum of input. 

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