CU-BBA-SEM-III-Basics of Family Managed Business

 Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: GlobalBusiness Press 101 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8 FRANCHISING & COMPETITIVE 102 ENVIRONMENT STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Franchising – Meaning and Definition 8.3 Franchising Concept 8.4 Franchising – 7 Salient features 8.5 Types of Franchising 8.6 Franchising Environment 8.6.1 Franchising – Forms of Franchise Agreements 8.6.2 Franchising – Working of Franchising System 8.7 Franchising Laws in India 8.8 Four Ps of Franchising 8.9 Franchise Development Model 8.10 Services Provided by franchisor 8.11 Summary 8.12 Keywords 8.13 Learning Activity 8.14 Unit End Questions 8.15 References 8.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Know meaning and concepts of Franchising  Understand the franchising environment  Explain the franchising laws in India  Know the Franchise Development Model  Understand the services provided by the Franchisor CU IDOL SELF LEARNING MATERIAL (SLM)

8.1 INTRODUCTION Franchising is a long-term business agreement in which a franchisor grants a franchisee a licence to operate a business and provides support in areas such as organising, training, merchandising, marketing, and management in exchange for a fee. The franchisor offers an individual or company the right to run a business selling a product or providing a service under the franchisor's business structure and identified by the franchisor's trademark or brand. A modern franchise consists of a business model, a management system for running the business, and a shared trade identity. The franchisor contributes the initial capital investment, know-how, and experience, while the franchisee contributes additional capital investment, motivated effort, and operating experience in a range of marketplaces. Not only is franchising a buyer-seller relationship, but it is also a comprehensive commercial partnership. Between the franchisor and the franchisee, there is a great deal of interdependence. In essence, a franchisee pays an initial fee and ongoing royalties to the franchisor in exchange for the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor's business system and sell the franchisor's products or services. Aside from a well- known brand name, buying a franchise has a number of advantages that an entrepreneur starting a firm from scratch does not have. The most important benefit is that you will receive a tested system of operation as well as training on how to use it. Because the franchisor has already mastered everyday operations via trial and error, new franchisees can avoid many of the pitfalls that new companies make. Before selling a new franchise, reputable franchisors perform market research, so you can be confident that there is a demand for the product or service. In addition, the franchisor gives you a comprehensive image of the competition and how to set yourself apart from them. Finally, franchisees benefit from the power of numbers. You'll benefit from economies of scale when purchasing materials, supplies, and services like advertising, as well as when negotiating lease terms and locations. Independent operators, on the other hand, must negotiate on their own and often receive less favourable conditions. Some vendors will refuse to work with new firms or will reject your account because it is too small. In exchange for a fee, the franchisor, who has a successful product or business strategy, enters into a continuing contractual relationship with other firms called franchisees, who operate under the franchisor's trade name and usually with the franchisor's guidance. Companies use the franchise model to expand their distribution by partnering with local partners to create company outlets. The local partner owns or rents the shop space, while the corporation provides the commercial know-how and a tried-and-true business strategy. As a result, a franchise business is a way by which firms sell products or services through retail outlets held by a third-party operator known as the franchisee. The franchisor is the corporation that offers the franchisee the right to do business under its trade name and procedures. 103 CU IDOL SELF LEARNING MATERIAL (SLM)

The franchisee uses marketing tactics to conduct business, markets branded goods and services, and is able to capitalize on the franchisor's goodwill. Depending on the franchise agreement, the franchisee pays an initial fee and royalties to the corporation. The distribution of goods and services through outlets owned by the merchant or dealer is known as franchising. The owner of a patent or trademark licence offers items and services under a brand name under preset terms and conditions in this system. The entity that owns the product/service or brand is known as the franchiser. The franchisee is a partner who operates the business with the owner's consent. The framework that governs the relationship between a franchiser and a franchisee is characterised as franchising. Franchising is a method of achieving size without making significant expenditures in internal infrastructure. 8.2 FRANCHISING – MEANING AND DEFINITION A franchise is a contract or licence between two parties that allows a person or group of individuals (the franchisee) to market a product or service under another company's trademark (the franchisor). “A contractual arrangement between or licence between two parties (Franchisor & Franchisee) for the aim of creating and managing business, where the parties are mutually benefited,” according to the definition of franchising. One type of exclusive retailing is a franchise. It isn't just a retailing method, after all. It's a marketing strategy that falls between entrepreneurship and employment. A franchiser is a self-employed businessperson who follows the financier's marketing plan and pays him a fee for the use of his brand and know-how. In exchange for a fee, a company that already has a successful product or service (the franchisor) enters into a long-term contractual agreement with other companies (franchisees) that operate under the franchisor's trade name and usually under the franchisor's supervision. The concept of franchising can be thought of as a form of licence transaction. All contracts in India are governed by the Indian Contract Act, 1872, which is primarily based on English law principles. The franchise agreement is a conventional printed contract that details the licensor's and licensee's rights and obligations. The word \"franchise\" comes from the French word \"affranchir,\" which meaning \"to be free.\" In its most basic form, a franchise is a licence granted by the owner of a trademark or trade name to another person to offer a product or service under that name or mark. The value of franchising is that it allows huge organisations to expand their businesses and publicise their brand names without having to spend a lot of money. These businesses function as franchisors. The local dealer functions as a \"franchisee\" and operates at a lower cost by leveraging his expertise of the local market. By leveraging the franchiser's goodwill, the franchisee will be able to run a profitable firm without taking any risks. 104 CU IDOL SELF LEARNING MATERIAL (SLM)

“A franchising operation is a contractual relationship between the franchiser and the franchisee in which the franchiser offers or is obligated to maintain a continuing interest in the franchisee's business in such areas as know-how and training; where the franchisee operates under a common trade name, format, and procedure,” according to the International Franchise Association (IFA) of America. Every company's brand visibility is one of its most crucial actions. Today's competition is fierce in every field, and everyone wants to stay ahead of the pack. By engaging in business, one can stay ahead of the competition or gain an advantage. Taking advantage of one of the various franchise business opportunities is one of the finest ways to make your business thrive in today's competitive world. India's rise to prominence as a large economy with steady economic growth is truly remarkable. Even the global financial crisis of 2008 did not have the same impact on India as it had on Western countries. This demonstrates the economy's resiliency. India is one of the most important rising marketplaces for a wide range of goods and services, from basic necessities to high-end pleasures. Almost all sectors of goods and services connected to India's consumer markets were safe from foreign investors until 1991, thanks to the outdated Foreign Exchange Regulation Act, 1973 (FERA). Foreign investors found their way into India with the repeal of the Foreign Exchange Regulation Act (FERA) and the implementation of the Foreign Exchange Management Act (FEMA) in 1999. 8.3 FRANCHISING – CONCEPT We've all heard about the rising franchise industry. Every day, we see an increase in the number of franchise food and retail chains at malls and other major marketing destinations. A franchise is the right given to a person or group to advertise a company's goods or services in a specific territory or place. In other words, franchise business is when a firm decides to contract out the distribution of its products or services to an independent third-party operator. Everyone wants to keep ahead of the competition in today's cutthroat industry. Indulging in franchise business is one technique to gain an advantage over competition. The independent third-party operator who uses registered products and services is known as a franchisee, while the corporation that offers the franchisee the right to use its products and processes is known as a franchisor. Franchises make the greatest contribution to the development of independent entrepreneurs who desire to be their own boss. There are a lot of franchise firms that are run by self-motivated people all around the world. However, before purchasing a franchise firm, one must be aware of all the advantages and disadvantages. He must have a thorough understanding of the franchising industry. Franchises are unquestionably profitable, but their success is highly contingent on the strength of the brand and how it is managed. The term \"franchise\" refers to an agreement in which a manufacturer offers an individual or a business the exclusive right to sell the latter's product or service in a specific area, according to the agreement's terms and conditions. The 105 CU IDOL SELF LEARNING MATERIAL (SLM)

company that grants the licence is known as the \"franchisor.\" The “franchisee” or franchise holder is the person or business to whom the privilege is awarded. The franchise agreement is the contract that outlines the terms and conditions of the franchisee's sale. The agreement's terms and conditions vary greatly. However, in general, the franchiser commits to continue to be involved in the franchisee's business in areas such as site selection, staff training, financing, marketing, and promotion. He also gives permission to utilise his brand or trade name, as well as his standard operating procedure. In exchange, the franchisee undertakes to operate within the terms set out. He puts money into the business, advertises and sells the product as instructed, and agrees to pay the franchiser a commission or royalty. As a result, franchising is a contract between a franchiser and a franchisee. Franchises in India include McDonald's (quick food), Bata (shoes), NIIT (computer training), and Apollo Clinics (healthcare). 8.4 FRANCHISING – 7 SALIENT FEATURES  The following are the key features of the franchising system:  Two Parties - There are at least two parties in a franchise: the franchiser and the franchisee. There may be multiple franchisees.  Written Agreement - The franchiser and the franchisee have signed a written agreement.  Exclusive Right - The franchiser owns a brand or trademark and licenses it to the franchisee in a defined territory.  Payment - The franchisee pays the franchiser an initial fee for the licence and joins the franchiser's network. He also has to pay a recurring licence fee, which could be a proportion of sales or profits.  Assistance - The franchiser assists the franchisee with marketing, equipment and systems, employee training, and record keeping. The franchiser sets up the business for the franchisee to run at first.  Restrictions - The franchisee is obligated to follow the franchiser's policies and procedures when operating the business. He promises not to start a competitive business and not to reveal any sensitive information about the franchise. Except for \"good reason,\" the franchisee cannot terminate the agreement before it expires.  Specified Period - The contract is for a particular amount of time, such as five years. The agreement may be renewed at the end of this period with the mutual permission of both parties. 106 CU IDOL SELF LEARNING MATERIAL (SLM)

8.5 TYPES OF FRANCHISES Franchises are divided into four categories: Business Format Franchises, Product Franchises, Manufacturing Franchises, and Business Opportunity Ventures are the four types of franchises available. Business Format Franchises: a. Business Format Franchises: a. Business Format Franchises: a. Business Format Franchises: a. Business Format Franchises: This is the most typical franchise model. A firm expands by providing independent business owners with an established business concept/format, including its brand name, symbol, and/or trademark. The franchisee obtains the right to use or follow a business format, as well as the best practises and processes associated with it, under this agreement. The franchiser corporation usually helps independent business owners a lot with starting and running their businesses. In exchange, the franchisee receives fees and royalties from the business owners. As a result, the franchisee gains the right to use all aspects of a fully integrated firm. Fast-food outlets such as McDonald's, Domino's Pizza, and KFC are just a few examples. From the product offered to shop design, atmosphere, atmospherics, and internal infrastructure to service standards and delivery, such franchisees retain the design and stylistic characteristics established by the franchiser in their retail locations. b. Product Licensing The franchisee receives the right to use the franchiser's brand/trade names, trademarks, and/or products under these franchise agreements. Manufacturers allow merchants to distribute their products and use their brand names and trademarks under this type of agreement. They also keep an eye on and oversee how retail establishments distribute their goods. Store owners pay royalties/fees or buy a minimum number of products in exchange for these rights. Tommy Hilfiger, Arrow, Scullers, Cotton King Stores, Reebok Stores, and Bata Stores are some of the brands that operate under this type of franchise agreement. c. Manufacturing Franchises: In this scenario, the franchisee grants a manufacturer the right to make and sell goods under its brand name and trademark. Food and beverage corporations are particularly fond of this type of franchise. Soft drink bottlers and canners, for example, frequently gain franchise rights to make, bottle, and distribute soft drinks from soft drink businesses. The concentrate is supplied by the big soft drink corporations, which is then processed, packed, and distributed by regional manufacturing franchises. Gemini Distilleries Pvt. Ltd, Goa, for example, is a Bacardi Ltd production franchise for vineyard goods. d. Business Opportunity Ventures: This model is based on an independent business owner purchasing and distributing products from a single company. In exchange for providing the business owner with clients or accounts, the company charges the business owner a pre- 107 CU IDOL SELF LEARNING MATERIAL (SLM)

determined fee. For example, through this form of franchising agreement, business owners may gain vending machine routes and distribution rights (e.g., coffee vending machine). From a scale, regional coverage, and temporal viewpoint, retailer brands and enterprises generally look to franchising as a crucial operational model for expansion. Gap, for example, is eager to write a fresh chapter in India as it struggles to preserve client loyalty in countries around the world. Doris and Donald Fisher founded the company in 1969, and it now has a presence in 90 countries with 3,300 corporate-operated locations and 400 franchise stores. Arvind Lifestyle Brands, the company's Indian franchisee, opened its first store in Delhi five years after rival Zara did and just weeks before H&M announced its ambitions. Zara, Gap's Spanish competitor, has a joint venture with Trent of Tata. Even before they came to India, Gap, Zara, and H&M were well-known labels. As a result, Gap intends to capitalise on the Indian consumer's growing fashion savvy and latent awareness of its brands. Arvind has invested in infrastructure, while Gap is giving support in terms of brand name, products, layouts, fixtures, and so on, as part of their franchise agreement. Arvind gets his stuff from Gap's worldwide procurement department, to which he has direct access. Another strategic advantage for Gap is that it has manufacturing facilities in and around India. 8.6 FRANCHISING ENVIRONMENT There are a number of factors that can assist a company in deciding whether or not to franchise. The following are some of the most important aspects of franchising: 1. Market Expansion: The key to rapid market expansion is franchising. It enables a firm to grow quickly and expand its market reach without having to make huge investments. NIIT's computer education network is an excellent example of quick franchising growth. Through franchising, it has been able to establish a network of over 100 locations around the country. 2. Assists in Brand Building: Building a brand is a journey. Creating a brand is all about capturing the hearts and minds of customers. A brand embodies and communicates the values and characteristics that a company wishes to be associated with its product or service. Building a strong brand can be quite beneficial, and it is a path that businesses should take in order to be successful. 3. Creating Your Own Job Description: A business owner can delegate certain areas of the company to others, which results in the creation of a job description. A good job description is one that is not only useful to your staff, but also legally compliant and meets a variety of other criteria. 4. Lower Costs: It is nearly always less expensive to buy an existing firm through franchising. The business owners are living proof that \"you receive what you sow.\" 108 CU IDOL SELF LEARNING MATERIAL (SLM)

8.6.1 Franchising - Different Types of Franchise Contracts The following are the various types of franchise agreements used in franchising: 1. Individual franchise agreements in which a single franchise for a specific location is sold. 2. A franchise that allows a franchisee to own and run a certain number of locations in a certain geographic area. 3. Master franchise agreement, which is identical to the area finance agreement but differs in one significant way. In addition to having the right to open and run a certain number of stores or units, the master franchise also has the ability to offer and sell the franchise to others in the area. Sub-franchisees are those who purchase a franchise from a master franchisee. It is possible to buy the rights to operate from the franchiser and sell them to other people. They serve as subfranchise units. Sub-franchising is the term for this sort of franchising. Multi-unit franchising enables a franchisee to open many locations, allowing them to negotiate a higher per-unit pricing with the franchisor. The franchisee is likely to oversee the operation of the units at a higher level while selecting autonomous teams to run day-to-day operations in this type of operation. The steps for establishing a franchise are as follows: 1. Making a compelling financial case for franchising 2. Make a business plan that will serve as a blueprint. 3. Intellectual-Property-Related Aspects (IP) 4. Legal document preparation 5. Finding the best franchisee 8.6.2 Franchising - Franchising System Operation A continual contractual relationship between the franchiser and the franchisee is essential to the franchising system. A manufacturer or a service organisation can be the franchiser. The franchisee is a private company that purchases the right to run and operate a business using the franchiser's brand name or trade mark. A franchise agreement is based on the franchiser's ownership of a unique product or service. The effectiveness of a franchising system is dependent on both sides' mutual faith and confidence. Before Investing in a Franchise: I Examine the franchiser's financial situation critically; (ii) Look for a firm or a product with a significant market presence; and (iii) Determine whether the franchiser's business is merely fashionable at the moment or has the potential to be successful in the long run. 109 CU IDOL SELF LEARNING MATERIAL (SLM)

(iv) Have an expert solicitor double-check the franchise agreement (v) Compare notes with current franchisees about the franchisor's performance (vi) Consider the possibility that not every franchisee will be successful.. 8.7 FRANCHISING – FRANCHISING LAWS IN INDIA Franchising is a popular approach to establish a new business, but it comes with its own set of advantages and disadvantages. All of the negative aspects of the franchising business must be understood. There are numerous attractive franchise business options available. However, one must first determine the type of business into which he want to enter. In terms of western countries, the laws governing franchising are outstanding. The concept of franchising is still in its infancy in India. As a result, no law specifically addresses the franchiser's and franchisee's rights and responsibilities. Franchise agreements are governed by contract law in general. The franchise agreement must be legal and not in violation of Indian public policy. In India, a franchising agreement is treated similarly to a licence agreement, with the exception of the business's territorial operation. The following are some of the laws in India that concern franchising in a roundabout way: a) Intellectual Property Law and Franchising in India: In order for the franchising system to be successful, intellectual property rights must be strictly preserved in any country. Otherwise, when the franchiser expands into new territory with its products, the franchiser's product may be imitated and the brand name may be misused, affecting the franchiser's goodwill. b) The Trademarks Act of 1999: This Act was enacted to allow trademarks to be registered and properly protected, as well as to restrict the use of fake marks on commerce. Getting a trademark registered in India is the best approach to protect it. India has taken an important step in meeting its international responsibilities. c) The Designs Act of 2000: Design is now defined as just the shape, configuration, pattern, decoration, or composition of lines or colours applied to any product, whether two- dimensionally or three-dimensionally, or both. The owner of the design can file a design registration application in any class. Only one class is available for registration. From the date of registration, the proprietor of the Design has copyright in the Design for a period of ten years. d) The Copyright Act of 1957: When a franchisee wants to preserve his franchising handbook, he can apply the Copyright Act. The booklet explains how to run a franchise firm from start to finish. The handbook should not be used unlawfully or poorly by anyone else without the franchiser's consent, since this constitutes a breach of the franchiser's copyright. e) Labor Laws and Franchising: In India, there are a number of labor-related laws. In India, all franchise agreements are subject to labour regulations. The day-to-day working conditions 110 CU IDOL SELF LEARNING MATERIAL (SLM)

in a franchising system are governed by labour regulations. When a franchise outlet closes or closes, labour regulations play an important role in determining how much compensation the master franchisee, franchiser, or franchisee must pay to the franchise outlet's employees. 8.8 FRANCHISING – FOUR PS OF FRANCHISING The successful franchisee recognises the importance of setting and maintaining high standards, as well as working with the four ‘P's of franchising, early on. The four Ps are as follows: I Product: The franchise operation's product or service is perhaps the most significant and important part of its success. A franchisee is responsible for upholding the product or service's high quality and standards. It is critical that the franchise maintains a positive reputation and that you meet the needs of the customers. It must understand the value of the product or service not just meeting the consumers' current wants, but also anticipating their future needs. (ii) Process: For a successful franchisee, the business format process is critical. Marketing, promotion, brand awareness, management, training, accounting services, and financial assistance are some of the procedures that must be properly established and supported. To ensure the franchise organization's continuous success, the franchisee must implement effective processes. (iii) Profitability: The franchisee's primary goal is to make a profit. Franchisees are often interested in making a profit, not just in the short term but also in the long term. They should be able to calculate the profits, revenues, and even the expenses of items related with your franchise. Most pizza businesses, for example, have expenses of products sold and labour costs that do not surpass 50% of total sales. Another example is certain sit-down fast service restaurants, which charge between 29 and 32 percent for food and 15 to 18 percent for labour. You must be able to precisely calculate the key costs of items sold, labour costs, and expenses in your particular firm. In addition, the franchisee must be able to determine all start-up charges, franchising fees, royalty fees, advertising fees, and other payments that must be paid to the individual franchisor. The ‘franchisee should read this agreement thoroughly to ensure that he or she understands all of the costs and fees related with the running of the firm. (iv) Individuals: The individuals you work with will be the company's most valuable asset. These are the people who will help your company achieve and maintain the high levels of performance that you desire. If correctly explained, these people may share your vision. These are the people who will work with you, or against you, to grow your company. During busy business periods, many franchisees spend a significant amount of time away from their desks assisting their staff. This enables the franchisee to not only interact with the various personnel, but also 111 CU IDOL SELF LEARNING MATERIAL (SLM)

to help them understand his or her strong desire to give high-quality service and products to the customer. Quality spreads like a virus. The franchisee must develop this passion for excellence in all staff by leading by example. 8.9 FRANCHISING – FRANCHISE DEVELOPMENT MODEL Unless otherwise noted, the following comments apply to unit franchises, development and master franchise agreements, as well as development and master franchise agreements. a) The Grant: In a franchise, the franchisor grants the franchisee certain rights over a specific territory for a set length of time. The franchisor and the prospective franchisee must agree on what those rights, the location, and the time period are. Domestic franchising leaves little room for discussion, if any, whereas international franchising does not, and both sides must carefully consider what they want out of the relationship to make it viable. b) System and Intellectual Property Rights: Any franchise agreement must allow the franchisee to use the franchisor's system, as well as the name and trademarks of the franchisor. It is vital to include clauses that protect this intellectual property and ensure that franchisees do not misuse it. c) Territory: It's common for a franchisee to demand as much territory as possible in order to get the best return on his investment. However, the franchisor must only select what territory he is willing to provide after considering a variety of factors related to the territory and the franchisee. The region should be a single geographical, political, cultural, and economic unit, allowing for a strategic approach to franchise development. A Memorandum of Understanding (MOU) is a legal document that outlines the terms of a bilateral or multilateral agreement between two or more parties. It shows a convergence of will between the parties, indicating a desired agreed course of action, although it does not always entail a legal commitment. It's a more formal version of a gentleman's agreement, but it doesn't always have the same binding effect as a contract, depending on the wording. d) Rules: These are the guiding principles or regulations that control behaviour, activity, process, and arrangement. e) Standards: The current middle-class norm of two children per household is an example of a standard, model, or pattern that is considered usual. Rules are something that should be followed, while norms are something that happens on a regular basis. f) Joint Venture: As the name implies, these are situations in which the franchisor and the franchisee invest together in the firm (the space typically would be provided by the franchisee). They'd then share operational tasks, working capital, and profit-sharing in a way that both parties could live with. 112 CU IDOL SELF LEARNING MATERIAL (SLM)

g) Exclusivity: The franchisee will almost certainly desire exclusivity so that he can rest assured that he will not be competing with a third party and that his investment will be safe. From the franchisor's perspective, exclusivity should not be a problem as long as the franchisee has been well vetted, the territory size has been wisely determined, and a reasonable development timeline has been agreed upon. h) Renewal: Franchisee agreements are often given for a term of five to ten years, however this is not always the case. 8.10 SERVICES PROVIDED BY THE FRANCHISOR: Throughout your franchise journey, the franchisor delivers value-added services that help you maintain and improve your business operation. Start-up assistance, site selection, building design, equipment purchase, store layout, standardised accounting systems, cost-control systems, record-keeping systems, standard monthly operating statements, financial assistance, training programmes, field support services, advertising, marketing, and promotional programmes, new products, new services, custodial services, and custodial services are just a few of the services available. In many circumstances, the franchisor's marketing and advertising programmes generate more than enough revenue for the business through increased sales and services. For example, one of the key reasons why many people continue to return to McDonald's and Wendy's establishments and purchase their products is because of their commercials. Advertising helps to maintain top-of-mind awareness and keeps brands and services in consumers' minds. In addition, the franchisor provides excellent field support. Representatives from the headquarter organisation typically visit franchisees' stores to assess the goods, presentation, and markets. 8.10.1 Franchising - Franchisee and Franchisor Perspectives 1. Franchisee's Perspective: I Leveraging the well-known brand name, business model, and know-how (ii) Leveraging the franchisor's experience in business execution (iii) Continual franchisor assistance (iv) Leveraging the franchisor's promotional efforts (v) Franchisor training and support 2. The Franchisor's Point of View: I Franchising is the most cost-effective option to enter a new market without making substantial investments in foreign nations. (ii) With local experience, localization of the brand and products becomes simple (iii) The franchise is in charge of manpower concerns (iv) Expansion into new areas with less investment Master Franchise and Master Franchisee 113 CU IDOL SELF LEARNING MATERIAL (SLM)

8.10.2 Franchising Uniformity and consistency are important in franchising. The entrepreneur must follow the franchise agreement, which usually limits the franchisee's expansion. The franchisee's expansion potential is limited depending on the location's potential. An innovative business owner will frequently expand by purchasing other franchise territory or maturing into a master franchise. A master franchise, according to the US Department of Commerce's Franchise Opportunities Handbook, is a contract that allows an entrepreneur to open several locations within a particular region or geographic area. In this case, the franchisee has the rights of a regional franchiser and can either open several outlets in the region or function as a sub franchiser who can contract independently and appoint franchisees for various sites within his territory. Master franchisees are available in a variety of locations and nations. These master franchisees establish regional administration that considers local needs and decentralizes distribution and decision-making authority. Master franchisees are chosen from a pool of well-established entrepreneurs (typically current franchisees) with the capacity to manage quick expansion and resources. 8.10.3 Franchising - Franchise Selection Before choosing a franchisee, an entrepreneur should be certain that he wants to be a franchisee rather than starting his own firm from the ground up. He should consider the advantages and disadvantages of being a franchisee vs starting his own firm. He should also identify and clarify his abilities and desires, ensuring that they are compatible with the franchisee's criteria and role demands. He should choose the product or service he is interested in and look for a suitable franchiser after determining the market potential for it. Franchiser information can be found in a variety of business and trade periodicals, as well as from a current franchisee. Because franchise regions are usually protected, most franchise owners will be willing to share information about their company and the persons who should be contacted in order to secure a franchise. When approaching a franchiser, the prospective franchisee must demonstrate his or her bona fides, abilities, and sincerity. A franchiser typically prequalifies a prospective franchisee before proceeding, and only after analysing the prospective franchisee gives crucial company information. The franchisee then wants information from the franchisor that is appropriate and sufficient for a full assessment of the business. According to US federal law, every franchisee must issue a disclosure statement to all prospective franchisees in the form of a \"Uniform Franchise Offering Circular (UFOC).\" This is so they can make an educated decision regarding the franchise. There is no law in India that governs franchising. An entrepreneur considering purchasing a franchise, on the other hand, should request information that will allow him to assess the business's chances. Important information that a franchisee should provide to a business owner: 114 CU IDOL SELF LEARNING MATERIAL (SLM)

1. The franchiser's financial statements for the prior three years. 2. Information on the first franchise fee and additional payments that may be due, such as security deposits. 3. A breakdown of the franchise's initial investment, including opening inventory, working capital, fixed assets, real estate expense, furniture and design, and so on. 4. Profit-sharing and royalty arrangements. 6. A list of names and addresses of another franchisee. 5. Audited performance statistics, such as sales volume, costs, and profits. 7. The franchiser will provide support services such as employee training, merchandising and promotion programmes, equipment purchase or leasing options, on-site consistency, and so on. 8. Detailed copies of all agreements, as well as legally binding documents that the parties must sign. Entrepreneurs interested in purchasing a franchise should read these materials carefully and analyse the franchisor critically. While the franchiser's information is necessary for evaluating the business proposal, it is usually insufficient for signing the contract. Entrepreneurs are encouraged to undertake their own market research to ensure that their business prospects are sound. Wherever an entrepreneur has a choice between two or more franchisers for a similar product or service, it is recommended that the comparative statistics be analysed and used in discussions with the franchisers. The entrepreneurs negotiate with the franchiser armed with all of these judgments. Many business owners prefer to handle their own accounting, purchasing, employee training, leasing, and other tasks. They may choose to collaborate with the franchiser on the location selection. The discussions, on the other hand, provide the decision-makers very limited leeway when it comes to amenities and innovative designs. Franchise fees, royalties, inventory, brand management, patents, trademarks, and other terms are often non-negotiable. Before signing the franchise agreement, have the negotiated proposal reviewed by a chartered accountant or an attorney with skill in due diligence investigation. It is normal practise with franchisees in the United States, and it is much more critical in India, because there is no law overseeing franchise disclosures or any other component of franchising. Before signing the agreements that are usually produced by franchisers, the lawyer should tell the entrepreneur about his legal rights. All contractual agreements are dependent on both parties acting in good faith and in a fair manner. “It is the responsibility of each party to a franchise to act in a fair and equitable manner toward each other in order to ensure that each party is free from coercion, intimidation, or threat of compulsion.” 115 CU IDOL SELF LEARNING MATERIAL (SLM)

8.10.4 The Franchisor Assists You With Franchising Because a franchise is a ready-made business available to an entrepreneur, it is a more appealing option than starting a firm from scratch. From the start, the franchisee receives a semi-established business. The company is similar to the other businesses in a well- established chain. The franchisee must receive all necessary help from the franchisor in order to launch and operate the business. Typically, the franchiser is required to assist the franchisee in the following areas: 1. advertising and offering a marketing strategy 2. Educating the workforce 3. The equipment is chosen 4. Office design and layout, for example. 5. Policies and processes that are consistent 6. Site selection and logistics assistance 7. Assist with legal issues. In addition to professional assistance, the franchisee receives other intangible benefits. Like everything else, the franchise has its drawbacks, such as a lack of freedom, distinct identity, and a long-term commitment that is difficult to cancel. Franchises typically blend personal ownership with large-scale corporate infrastructure. Franchising is also beneficial to the franchisee because it allows them to grow quickly while using other people's money. It aids him in geographically growing his business into numerous locations, especially rural ones. He can handle a smaller group of workers and thereby avoids many labor-related issues. Franchisees are more devoted and work longer hours than managers because they are independent owners of multiple chain stores. In addition to the benefits listed above, franchising allows an entrepreneur to quickly enter a market with minimum resources. Even larger corporations are becoming interested in franchising, reducing franchising to a purely profitable business for the franchisee. Franchises are gaining popularity because they promise rapid success and are thought to be the least risky method to become an entrepreneur. However, as franchising has grown in popularity, these perks are now only available to franchisees of a few well-known brands. 116 CU IDOL SELF LEARNING MATERIAL (SLM)

A manufacturer-wholesaler franchise partnership is an example of exclusive dealership. Retail and service franchises are very new in India, and they differ significantly from the existing manufacturer-retail franchise system. One retail shop is duplicated through a retail- retail arrangement. It can range from the Kwality chain of restaurants, where the franchisee has a lot of autonomy and pays a royalty for using the brand, to Wimpy or Pizza King, where the franchiser makes all of the decisions, including recruitment and training. In this case, the franchisee functions as an extension of the franchisor. Each franchise location has a striking resemblance to the franchisors. It's similar to storefronts, but with different owners and investors. A franchise is similar to a marriage. On both sides, the stakes are tremendous. The franchiser relinquishes his most valuable asset, the brand, and the franchisee relinquishes his independence and right to operate independently. The connection between the franchisee and the franchiser is built on implicit trust. Product or trade name franchises or business format franchises are the most common types of franchise agreements. The former entails a product-distribution agreement inside a defined geographic area. A petrol pump, for example, is both a product and a trademark franchise. A business format- franchise includes not only a product and a trade name, but also operational procedures such as design facilities, accounting procedures and practises, employee relations, quality assurance standards, and the overall image and appearance of the business, for example, restaurants and convenience stores. 8.11 SUMMARY  Franchising is a business arrangement in which the franchisor (one party) grants or licenses certain rights and authorities to the franchisee (another party). 117 CU IDOL SELF LEARNING MATERIAL (SLM)

 Franchising is a well-known business expansion marketing approach.  A contract is formed between the Franchisor and the Franchisee. The franchisor grants the franchisee the ability to sell their products, goods, and services as well as the right to utilize their trademark and brand name. And the franchisee acts as if he or she is a dealer.  Franchising is a continuing relationship in which a franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing, and managing in return for a monetary consideration  Franchising is a form of marketing and distribution in which the franchisor grants to an individual or company the right to run a business selling a product or providing a service under the franchisor’s business format and identified by the franchisor’s trademark or brand  A modern franchise includes a format for the conduct of the business, a management system for operating the business and a shared trade identity  Franchising is a comprehensive business relationship, not just a buyer-seller relationship. There is considerable interdependence between the franchisor and the franchisee  A franchisee pays an initial fee and on-going royalties to a franchisor; in return, the franchisee gains the use of a trademark, on-going support from the franchisor, and the right to use the franchisor’s system of doing business and sell its products or services  Franchising is a system by which goods and services are distributed through outlets owned by the retailer or dealer  A franchise is an agreement or license between two parties, which gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor).  Franchising can be defined as “a contractual agreement between or license between two parties (Franchisor & Franchisee) for the purpose of organizing and managing business, where the parties are mutually benefited”.  Franchise is one form of exclusive retailing. It in fact, is not just a method of retailing. It is a method of marketing which is lying between entrepreneurship and employment 8. 12KEYWORDS  Franchise - an authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities, for example acting as an agent for a company’s products 118 CU IDOL SELF LEARNING MATERIAL (SLM)

 Franchisor - an individual or company that sells or grants a franchise for the sale of goods or the operation of a service.  Franchisee - an individual or company that holds a franchise for the sale of goods or the operation of a service.  Franchising Environment - Franchising is a form of marketing and distribution in which the owner of a business system (the franchisor) grants to an individual or group of individuals (the franchisee) the right to run a business selling a product or providing a service using the franchisor’s business system.  Law - the system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties. 8.13LEARNING ACTIVITY 1. Learners are instructed to meet any of the franchise company to know the function of a franchise company. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are advised to stand in circle. Each student come forward and share their views on franchising. ___________________________________________________________________________ ___________________________________________________________________________ ______ 8.14UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write the concept of franchising. 2. What is the meaning of franchising? 3. What is the definition of franchising? 4. State the forms of franchise agreements. 5. What is franchise development model? 119 CU IDOL SELF LEARNING MATERIAL (SLM)

Long Questions 1. Examine the salient features of franchising. 2. Explain the meaning and definition of franchising. 3. Discuss the franchising environment. 4. Explain four Ps of Franchising. 5. What are the services provided by franchisor? B. Multiple Choice Questions 1. Using an established brand to promote different kinds of products is called a. line promotion b. line extension c. branding d. None of these 2. How does a franchise differ from a license? a. A license grants the right to use a name or image on a product, while a franchise agreement provides that right plus marketing, training, and other support. b. A license grants the right to start a business and run it exactly as the licensor wants it to be, while a franchise agreement grants the right to use a name or image on a product. c. A franchise owner runs a business for the person who actually owns the license. d. All of these 3. Which business is not an example of a franchise? a. Federal Express b. McDonald’s c. Midas Mufflers d. Burger King 120 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Which of these is a disadvantage of operating a franchise? a. lower marketing and promotional costs b. many federal and state regulations c. growth with minimal capital investment d. None of these 5. __________ an individual or company that sells or grants a franchise for the sale of goods or the operation of a service. a. franchisor b. franchisee c. franchise d. None of these Answers 1-b, 2-b, 3-a, 4-b, 5-a 8.15REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: 121 CU IDOL SELF LEARNING MATERIAL (SLM)

GlobalBusiness Press 122 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 9 CONTROL OF FAMILY BUSINESS STRUCTURE 9.0 Learning Objectives 9.1 Introduction 9.2 Control of Family Business 9.3 Family Business Terms and Conditions 9.3.1 Use and Accuracy 9.3.2 Intellectual Property 9.3.3 Disclaimers and Limitations of Liability 9.4 Applicable Laws and Jurisdictional Issues 9.5 Legal Agreements for Family Business 9.6 Summary 9.7 Keywords 9.8 Learning Activity 9.9 Unit End Questions 9.10 References 9.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Understand the control of family business  Explain the terms and conditions of family business  Know the disclaimers and limitations of liability  Recognize the legal agreements for family business 9.1 INTRODUCTION Family-owned businesses are the backbone of the economy because they generate money, create jobs, and are deeply anchored in their communities. They appear to have been present for a long time. A family-owned corporation, as the name implies, is a company held mostly or exclusively by family members. It can be difficult to run a business with only family members as it grows, and publicly traded corporations can take away significant power from the family members who created the company. 123 CU IDOL SELF LEARNING MATERIAL (SLM)

9.2CONTROL OF FAMILY BUSINESS Articles of Incorporation and Bylaws  The articles of incorporation and bylaws of a private business provide important information on the ownership structure. Some businesses require family members to participate on the board of directors or run the company, while others just nominate family members to serve on the board of directors or run the company. If your company goes public, your board of directors will be in charge of making decisions, and creating bylaws requiring family members to make up all or part of the board can help you keep family control. Owner-Operator  An owner-operator model is used by many smaller family-owned businesses. A store owner may act as its manager and hire his children, siblings, or spouse to work in various capacities inside the company. The family keeps ownership while maintaining significant control over the business's daily operations and management under this approach. Majority Shareholder  Limiting the number of shares accessible to non-family members is one strategy for families to ensure that the family keeps control even if the company goes public. For example, the family or a single family member could own 52 percent of the company's stock, giving the family considerable power over the company and a veto vote at board meetings. Board of Directors' Control  Whether a corporation is public or private, family-owned businesses ensure that the board of directors is dominated by the family. Some businesses insist that the board of directors be mostly made up of family members. Others need at least one family member to serve on the board, as well as the board to provide the family with regular reports.  Emotions. Family issues will have an impact on the business. Family members face severe political conditions as a result of divorce, separations, health or financial issues.  Informality. For family members, there are no set policies or business norms.  The ability to see through a tunnel. There is a lack of outside perspectives and variety in how the company is run.  There is no written strategy. There was no written blueprint or long-term planning. 124 CU IDOL SELF LEARNING MATERIAL (SLM)

 Issues with compensation for family members. Non-participating family members' dividends, salaries, benefits, and compensation are not properly defined and justified.  Role ambiguity. The roles and responsibilities of each individual must be clearly stated.  A scarcity of talent. Hiring relatives who are unqualified or lack the necessary skills and competencies for the job. Inability to fire them when it is obvious that they are not performing well.  Non-family members have a high rate of turnover. When employees believe that the family \"mafia\" will always have the upper hand over outsiders, and when they believe that management is inept.  Planning for Succession. Most family groups lack a strategy for transferring power to the next generation, resulting in major political squabbles and divides.  Estate and retirement planning. Long-term planning to address the needs and reality of older employees when they retire.  Training. When bringing family members into the organisation, there should be a specialised training programme in place. This should include precise information on the position's aims, expectations, and responsibilities.  Paternalistic. Instead of appropriate management methods, control is concentrated and influenced by tradition.  Excessively conservative. Older members of the family try to maintain the status quo and fight change. Particularly strong opposition to the younger generation's ideas and proposals for change.  Issues with communication. Role ambiguity, emotions (envy, fear, fury), political conflicts, or other relationship issues can all be triggers.  Methodical thinking. Day-to-day decisions are made in reaction to difficulties. There is no long-term or strategic planning.  A plan for getting out. There is no clear strategy for selling, closing, or exiting the business.  Valuation of the company. No understanding of the business's worth and the elements that increase or decrease its value.  Growth. Issues arising from a shortage of funds and new investment, as well as a reluctance to reinvest in the firm.  • Vision. Each family member has a unique perspective on the firm and a separate set of objectives. 125 CU IDOL SELF LEARNING MATERIAL (SLM)

 • Operational control. Controlling other family members is difficult. Inability to participate in day-to-day tasks and supervision. 9.3 FAMILY BUSINESS TERMS AND CONDITIONS Every corporate organisation faces its own set of problems and challenges. Many of these issues exist in corporate settings, but they can be amplified in a family business. Over time, family businesses go through several stages of development and expansion. When the second and following generations enter the business, they will face many of same issues. “Father, creator of the company, son affluent, and grandson poor,” goes a popular saying in Mexico concerning family-owned businesses. The founder works hard to develop a firm, his son takes over and is unprepared to manage and grow it, but he enjoys the wealth, and his grandson gets a defunct company and an empty bank account. The following terms and conditions govern your use of this Web site, and by accessing, viewing, or using the Site's material, you acknowledge that you have read, understood, and agree to be legally bound by them. If you do not desire to enter into an agreement about the Terms and Conditions, you should not use this site. 9.3.1 Application and Accuracy Unless otherwise stated in an article, you may download and make a copy of the content retrieved from the Web site, as well as other downloadable materials displayed on it, as long as (a) it is used only for personal, non-commercial purposes, and (b) the copyright notice and other notices are not removed or obscured. No part of this Web site, including but not limited to materials retrieved from it and the underlying code, may be reproduced, reprinted, copied, communicated, or distributed in any form or by any means, unless expressly provided otherwise. Furthermore, without previous written permission from Family Business, materials from this Web site may not be stored in any information storage and retrieval system. This site is intended to provide general information about Family Publishing Company's operations and services. While we make every effort to keep these materials accurate and up- to-date, Family Business makes no representation or warranty, express or implied, that the information contained or referenced herein is up-to-date, accurate, or complete, and Family Business shall not be liable in any way for any errors or omissions in the contents hereof. Furthermore, we retain the right to change the content of this Site, as well as the terms and conditions under which it is supplied, at any time and without notice, and we will not be liable in any way for the consequences of such changes. In the event that you breach these Terms and Conditions, Family Business reserves the right to cancel your access to the Site or any portion of it without notice. 126 CU IDOL SELF LEARNING MATERIAL (SLM)

9.3.2 Intellectual Property All content on this site is protected by law, including copyright and trademark laws in the United States, as well as other state, national, and international laws and regulations. Except when otherwise noted, all content on www.familybusinessmagazine.com is the property of Family Business Publishing Company, and any commercial usage requires Family Business's express consent. The copyright in this Site as a collective work and/or compilation, as well as in the selection, coordination, arrangement, organisation, and enhancement of such content, belongs to Family Business. You may use, reproduce, distribute, or reprint materials from this Site for personal and non-commercial purposes, provided that I proper copyright notices appear in all reproductions, (ii) no documents or related images are modified in any way, and (iii) no graphic images from this Site are used, copied, or distributed separately from accompanying text. No changes to the text materials on the website are permitted. FAMILY BUSINESS MAGAZINE, FB FORUM, and any other marks denoting Family Business's services are proprietary trademarks of Family Business, and their use or abuse is explicitly banned and may violate federal and state trademark laws. Please be aware that Family Business will vigorously defend its intellectual property rights to the maximum degree permitted by law. 9.3.3 Disclaimers and Liability Limitations You use this website solely at your own risk. The risk of injury is exclusively yours, and neither Family Business nor any of its affiliates are accountable for the consequences of relying on any information published on or provided to the site. These contents are supplied \"as is,\" with no express or implied warranties of any kind, including, but not limited to, implied warranties of merchantability or fitness for a specific purpose. This Site may provide connections to other Internet Web sites to assist users in locating information that may be of interest to them. These sites are maintained by third parties over which Family Business has no authority, and as a result, Family Business expressly disclaims any responsibility for the content, accuracy of information, and/or quality of products or services offered by or advertised on these third-party sites. The inclusion of links to other Web sites by Family Business does not imply any endorsement of the content on such Web sites or any affiliation with their operators. 9.4 APPLICABLE LAWS AND JURISDICTIONAL ISSUES You must follow all relevant federal, state, and local laws when using this Web site, including those pertaining to libel, slander, defamation, trade libel, product disparagement, harassment, invasion of privacy, and copyright or trademark infringement. Without regard to its choice of law rules, these Terms and Conditions will be governed by and construed in conformity with the laws of the Commonwealth of Pennsylvania, United States of America. All activity associated with the site is assumed to take place in the 127 CU IDOL SELF LEARNING MATERIAL (SLM)

Commonwealth of Pennsylvania. Furthermore, by accepting these Terms and Conditions, you consent to the jurisdiction of the federal and state courts in Pennsylvania, agree to accept service of process by mail, and waive any and all jurisdictional and venue defences otherwise available. If any part of these Terms and Conditions is declared invalid or unenforceable under applicable law, that provision will be automatically adjusted to the minimum extent necessary to conform to the requirements for validity as declared at the time, and will be incorporated as a part of these Terms and Conditions as if it had been originally included, with the remaining parts continuing to apply. In any proceeding relating to these Terms and Conditions, a printed version of these Terms and Conditions, as well as any notice given in electronic form, shall be acceptable to the same extent as if written and signed by each party. a) Waiver of Liability You agree to hold Family Business, its affiliates, and all of their respective directors, officers, employees, representatives, proprietors, partners, shareholders, servants, agents, predecessors, successors, assigns, and attorneys harmless from and against any and all claims, proceedings, damages, injuries, liabilities, losses, costs, and expenses relating to your use of the Site and its affiliates. a) Letters and e-mails Family Business appreciates hearing from visitors to our website and encourages your comments and suggestions for how to improve it. Unfortunately, we must request that you do not email us any copyrighted or confidential information. If you give such information to Family Business, it will be considered and will remain its property. Any ideas, suggestions, or other materials sent to us through this Site will be deemed to grant us permission to adopt, publish, reproduce, disseminate, transmit, distribute, copy, use, or act on them without further approval or consideration, and you hereby waive any claim to the contrary. b) Export Restrictions Family Business controls and operates this site from its headquarters in the United States. Family Business makes no claim that the Site's materials are suitable or accessible for use in other areas, and access to them from territories where their contents are unlawful is prohibited. Those who choose to access this Site from other locations do so at their own risk and are solely responsible for adhering to local laws. You undertake not to export or re-export software, information, or data to any nation, person, or business whose export is restricted by the United States. d) Completion This Agreement is in existence until either party terminates it. Regardless of whether either party has terminated the agreement, the jurisdictional terms of this Agreement will apply to any dispute arising from earlier actions on this Site. We retain the right to make changes to this Agreement at any time and without prior notification. You will not be relieved of your 128 CU IDOL SELF LEARNING MATERIAL (SLM)

responsibilities under earlier versions of this Agreement as a result of updates. Acceptance of the terms of the agreement in effect at the time of use is implied by using this site. f) The Complete Agreement These Terms and Conditions, as well as any other terms and conditions available on the Site, represent the complete agreement between you and Family Business regarding your use of the Site. You recognise that Family Business has relied on your commitment to be legally bound by these Terms and Conditions in granting you access to and use of the Site. 9.5LEGAL AGREEMENTS FOR FAMILY BUSINESS a) Family Business Contract A family business agreement establishes expectations for what each family member can and cannot do. It specifies each family member's tasks and obligations, as well as the procedures that must be followed when making key business choices. One example would be laying out how one family member will be in charge of the business's marketing and sales while another will be in charge of the bookkeeping. This agreement would also include the numerous responsibilities that the family member will perform as part of each function, as well as what he or she is permitted to undertake. You will avoid many of the challenges and roadblocks that have ruined other family businesses if you have this agreement in place. The Broccoli brothers' narrative from 1998 is an example of this. One of the brothers pulled money out of the company as a loan for another family- owned business in this case. This resulted in a family feud that ended up in court because no agreements had been made on who may authorise business loans and for what purposes. It eventually ruined the company that the brothers' father had started in 1955. Unfortunately, all of this could have been avoided if each family member had signed a family business agreement outlining their roles, responsibilities, and expectations. a) Buy-Sell Agreement for a Family Business This is a crucial legal document that you must have in place before launching a family business. This paper spells out what will happen to your company if one or more of the original family members dies or is injured in a sad accident, rendering them unable to go on with their normal business activities. This document serves as insurance for each family member, ensuring that their rights as founders and major stakeholders in the firm are preserved. A family company buy-sell agreement can protect things like the number of shares each family member owns or the amount of money they'll get if they sell their stake of the business one day. They also shield the company against third-party meddling, which can include family members. The case of Etienne v Miller is an example of this. In this case, two brothers had to defend their buy-sell agreement against third parties who were trust beneficiaries and 129 CU IDOL SELF LEARNING MATERIAL (SLM)

questioned the commercial value that the brothers had established. In the end, the two brothers triumphed because they already had a legally binding buy-sell agreement that the courts could enforce. You must have this paperwork in place before starting a business with family. a) A Prenuptial Agreement; b) A Postnuptial Agreement; c) A Post A Prenuptial Agreement is a legal document that governs the marriage of a couple. Marriages do not always work out for a variety of reasons. This could have a significant impact on the future of the family business. Before beginning a business with family, you should seek a prenuptial agreement that spells out exactly what will happen to the company if the couple divorces. This is true in any marriage and family business, but it is especially true when one person starts a business, then gets married and joins the company with their spouse. The last thing you want to happen in this case is for your husband to take over your business in the event of a divorce... 9.6SUMMARY  If a family member is in control of operations, he or she should be able to negotiate among family members in order to make the best decisions for the firm.  Hiring a manager who is not a family member can help you establish more objective control and oversight in a family-owned business in some instances.  With any alternative, the roles and obligations of all employees, including family members, should be clearly defined, as should the manager’s power to suspend or terminate any employee who violates company standards.  In a family business, fairness is critical, and management will be ineffective if special accommodations are provided.  Family-owned businesses are the backbone of the economy as they create wealth, provide jobs, are locally rooted and connected to communities  For a private corporation, the articles of incorporation and bylaws convey key information about the ownership structure  Owner-Operator: Many smaller family-owned corporations use an owner-operator model. A store owner might serve as its manager and hire his children, siblings or spouse to fill various roles within the business.  Emotions. Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.  Informality. Absence of clear policies and business norms for family members 130 CU IDOL SELF LEARNING MATERIAL (SLM)

 A famous saying about family-owned business in Mexico is “Father, founder of the company, son rich, and grandson poor”.  A family business agreement sets out expectations about what can and can’t be done by each member of the business  A Prenuptial Agreement is a legal document that governs the marriage of two people 9.7KEYWORDS  Board of Directors - A board of directors is essentially a panel of people who are elected to represent shareholders.  Shareholder - an owner of shares in a company.  Family Business Agreement - A family business agreement sets out expectations about what can and can’t be done by each member of the business.  Prenuptial Agreement - A Prenuptial Agreement is a legal document that governs the marriage of two people.  Terms and Conditions - Terms and Conditions is the document governing the contractual relationship between the provider of a service and its user 9.8LEARNING ACTIVITY 1. Learners are asked to go throw the terms and conditions of family business. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are guided to prepare a list of words related to terms and conditions of family business. ___________________________________________________________________________ ___________________________________________________________________________ ______ 9.9UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is intellectual property? 131 CU IDOL SELF LEARNING MATERIAL (SLM)

2. State the laws involved in family business. 3. Define – Control of family business. 4. What are legal agreements? 5. Mention the limitations of liability. Long Questions 1. Explain – Control of family business 2. What are the terms and conditions of family business? 3. Discuss the applicable laws and jurisdictional issues. 4. Explain – Legal agreements for family business. 5. What are the disclaimers and limitations of liability? B. Multiple Choice Questions 1. The structure in which there is separation of ownership and management is called: a. Sole proprietorship b. Partnership c. Company d. All business organization. 2. The maximum number of partners allowed in the banking business are : a. Twenty b. Ten c. No limit d. Two. 3. All agreements are ------------------ if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. a. Standard forms of contracts b. Contracts c. Enforceable Contracts d. Quasi contracts. 132 CU IDOL SELF LEARNING MATERIAL (SLM)

4. A ------------------ is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. a. Contingent contract b. Quasi Contract c. Express of Implied Contract d. Indemnity Contract 5. ____________ an owner of shares in a company. a. directors b. family members c. head of the family d. shareholders Answers 1-c, 2-b, 3-b,4-a, 5-d 9.10REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: 133 CU IDOL SELF LEARNING MATERIAL (SLM)

GlobalBusiness Press 134 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 10 HANDLING OPERATIONS MANAGEMENT STRUCTURE 10.0 Learning Objectives 10.1 Introduction 10.2 Performance management 10.3 Performance Appraisal 10.3.1 Performance Appraisal Methods 10.4 Problems in Performance Appraisal 10.5 Estate Planning 10.6 Ownership Planning 10.6.1 Requirements of Ownership 10.6.2 Rights of Owners 10.6.3 Basic Qualifications of Owners 10.7 Summary 10.8 Keywords 10.9 Learning Activity 10.10 Unit End Questions 10.11 References 10.0LEARNING OBJECTIVES After studying this lesson, you will be able to:  Understand the Performance Management  Explain the performance appraisal  Know the estate planning  Recognize the ownership planning 10.1 INTRODUCTION Family businesses are steeped in tradition and pride. While it may appear that corporations have taken over the economic world, smart management has allowed many family-owned businesses to prosper. The possibility of a family business surviving for numerous generations increases when a management plan is developed. Continuity in small business 135 CU IDOL SELF LEARNING MATERIAL (SLM)

management fosters the company's core principles and assists future generations in taking on leadership roles. Make a good family business plan that explains the current state of the company and its future objectives. Put everything down on paper and discuss it with the family members who will eventually take over the business. Make adjustments to the business plan on a regular basis. Create an atmosphere that invites free dialogue. This encourages family members to work together and build trust. It also aids the firm's transfer to the next generation of management. Clearly define the company's positions. Create comprehensive job descriptions that outline the objectives and responsibilities of each role. Hold all staff, including family members, to those standards. This ensures that all employees have a fair working environment while also maintaining a high level of quality. Organize regular meetings with staff to discuss workplace issues. Don't bring up work when you're at home. If at all feasible, postpone the issues until the meeting. This aids in the separation between work and personal life. Hire a financial counsellor or accountant from outside the family to manage the company's finances. This provides an objective source of data that will help the organisation make wise financial decisions. Collaborate to achieve the family business's objectives... 10.2 PERFORMANCE MANAGEMENT Performance management (PM) is a goal-oriented process aimed at ensuring that organisational mechanisms are in place to maximise employee, team, and organisation productivity. It is a key component of achieving organisational strategy since it entails determining and improving the value of the workforce. So that the link may be readily understood and conveyed, PM contains incentive targets and the related incentive values. There is a strong link between incentives and performance. One of the key focuses in business today is performance management systems. Despite the fact that every HR function contributes to performance management, training and performance appraisal are more important. Performance management differs from performance appraisal in that it is a dynamic, ongoing, and continuous activity. The PM system involves everyone in the organisation. For continual organisational effectiveness, each component of the system, such as training, appraisal, and rewards, is integrated and linked. Every employee's effort should be aimed toward accomplishing strategic goals when using PM. If a worker's abilities need to be improved, he or she will require training. Training has a direct link to attaining organisational effectiveness with PM systems. Furthermore, remuneration and performance are linked to the achievement of corporate objectives. “Performance management is the single largest contributor to corporate effectiveness,” said Robert J. Greene, CEO of Reward Systems Inc. You will fail if you do not pay attention to performance management.” 4 Organizations must approach performance evaluation in a more strategic manner. Organizations must integrate the company's goal, vision, and values into 136 CU IDOL SELF LEARNING MATERIAL (SLM)

their performance management systems, rather than relying on the old \"check the box, write a remark\" routine.. 10.3 PERFORMANCE APPRAISAL A formal approach of reviewing and evaluating individual or team task performance is known as performance appraisal (PA). The word formal is important in the definition because, in reality, supervisors should be examining an individual's performance on a regular basis. PA is extremely important for performance management to succeed. Although performance appraisal is only one part of performance management, it is critical because it immediately reflects on the effectiveness of the organisation. 10.3.1 Methods of Performance Appraisal A variety of appraisal approaches are available to managers. The type of performance appraisal method that is employed is determined by the goal. A traditional system, such as rating scales, may be useful if the main focus is on choosing employees for promotion, training, and merit pay increases. Employee development may be better served by collaborative strategies that include input from the employees themselves. a) 360-Degree Feedback Method of Evaluation The 360-degree feedback evaluation approach is a popular performance review method that incorporates feedback from several levels within the organisation as well as external sources. Unlike traditional performance assessments, which only provide employees input from their bosses, the 360-degree method gives employees feedback from all of their coworkers. People all around the rated individual, including senior managers, the employee himself or herself, supervisors, subordinates, peers, team members, and internal or external customers, may provide ratings using this method. Around 90% of Fortune 500 organisations use 360-degree feedback in some way for employee appraisal or development. Many businesses use the outcomes of 360-degree programmes for a variety of purposes, including succession planning, training, and professional development. 360-degree feedback, unlike previous methods, focuses on abilities that are required across organisational boundaries. Many typical appraisal errors can also be mitigated or eliminated by delegating evaluation duties to more than one individual. Managers can issue the ratings fast and easily with the help of software. The 360-degree feedback method could provide a more objective assessment of an individual's performance. When various sources' perspectives are combined, a larger picture of the employee's performance emerges, potentially reducing biases that arise from limited views of behaviour. The use of numerous raters also improves the legality of the procedure. However, all stakeholders must be aware of the evaluation criteria, the means for receiving and summarising feedback, and the intended use of the feedback. An appraisal system with a large number of evaluators will inevitably take longer and thus be more expensive. 137 CU IDOL SELF LEARNING MATERIAL (SLM)

However, the way businesses are organised and operated may necessitate creative alternatives to typical top-down evaluations. The 360-degree feedback system, according to some supervisors, has flaws. “We've found that use of the 360 is really inversely connected with financial results,” says Ilene Gochman, director of Watson Wyatt's organisation effectiveness practise. 25 Former GE CEO Jack Welch claims that his company's 360-degree system was \"gamed,\" with people speaking lovely things about one another, resulting in all good ratings. 26 Another opposing viewpoint is that feedback from peers, who may be competitors for raises and promotions, may purposefully misrepresent the data and destroy the colleague. However, because so many companies use 360-degree feedback evaluation, it appears that many have figured out how to avoid the drawbacks. Google takes a unique approach to 360-degree feedback by allowing managers and employees to designate \"peer reviewers\" from any location within the company. “People are quite frank in their feedback,” says Melissa Karp, the company's manager of HR technology and operations. What happens at Google when people leave unconstructive comments, one would wonder? “Managers are urged to use that as a ‘coachable moment,'\" Karp said, \"to speak with the person who posted something unconstructive.\" However, at Google, this hasn't been a major issue.” Confidentiality is the most significant danger associated with 360-degree feedback. Many companies outsource the process to give participants the assurance that the information they submit and receive is fully confidential. However, the information is extremely sensitive and, in the wrong hands, may have serious consequences for their careers. b) Using Rating Scales The rating scales technique is a performance appraisal approach that assigns a score to employees based on a set of criteria. Evaluators use this method to write down their ratings of performance on a scale. The scale has numerous categories, usually 5–7, with descriptors like \"excellent,\" \"meets expectations,\" and \"needs work.\" Although many systems produce an overall score, the method usually allows for the use of many performance criteria. The success of the rating scales approach can be attributed to its simplicity, which allows for quick evaluations of a large number of personnel. When the ratings are quantified, the method allows for easier comparison of employee performance. Job-related and personal qualities are the most common types of elements used for evaluation, with personal components including behaviours like interpersonal skills and traits like adaptability. The rater (evaluator) completes the form by noting the degree to which each component most accurately describes the employee's performance. The points in each segment are totaled and then averaged in this diagram. The average is then multiplied by a factor that represents the weight assigned to each part. The amount of each section's scores determines the employee's final score (total points). Some companies provide space for the rater to comment on each factor's evaluation. 138 CU IDOL SELF LEARNING MATERIAL (SLM)

When the rater offers an extreme rating, either the highest or lowest, this activity may be highly encouraged, if not necessary. If, for example, an employee's teamwork is assessed as needing development (a 1 on the sample form), the rater provides textual rationale for this low rating. The goal of this criteria is to keep the focus on fixing flaws rather than making arbitrary and hasty decisions. b) Method of Critical Incidents The critical event approach is a performance appraisal technique that requires employees to retain written records of both very favourable and unpleasant job activities. When such an action, known as a \"critical incident,\" has a major good or negative impact on the department's effectiveness, the management records it. The rater analyses these records, along with other data, to evaluate employee performance at the end of the appraisal period. This strategy ensures that the appraisal covers the full evaluation period rather than just the last few weeks or months. d) Essay Structure The essay technique is a method of performance evaluation in which the rater writes a brief narrative about the employee's performance. Instead than focusing on ordinary day-to-day performance, this strategy tends to focus on extreme behaviour in the workplace. This form of evaluation is primarily reliant on the evaluator's ability to write. If a supervisor has good writing abilities, he or she can make a low-performing employee sound like a star performer. Because there are no universal criteria, comparing essay ratings might be challenging. Some managers, on the other hand, believe that the essay method is not only the easiest but also the most accepted manner of evaluating employees. f) Workplace Standards The work standards method is a type of performance evaluation that compares each employee's output to a predetermined standard. The output of an ordinary worker working at a normal pace is reflected in standards. Work standards can be applied to almost any sort of job in a company, but production tasks get the most attention. The impartiality of employing standards as appraisal criterion is clear. Employees, on the other hand, must understand how the standards were established in order to believe that they are objective. Any adjustments to the standards must also be justified by management. f) Method of Ranking The ranking technique is a type of performance evaluation in which a rater ranks all employees in a group in order of overall performance. The best employee in the organisation, for example, is ranked first, while the worst is ranked last. This technique is repeated until all employees have been ranked. When everyone has performed at the same level, there is a problem (as perceived by the evaluator). Paired comparison is a rating approach in which each employee's performance is compared to the performance of every other employee in the group. This comparison is frequently based 139 CU IDOL SELF LEARNING MATERIAL (SLM)

on a single criterion, such as overall performance. The highest ranking is given to the employee who receives the most favourable comparisons. g) Method of Behaviorally Anchored Rating Scales The behaviorally anchored rating scale (BARS) approach is a performance assessment method that combines features of traditional rating scales and critical incident methods; several performance levels are displayed on a scale, each of which is characterised in terms of an employee's individual job behaviour. A section of the BARS system, which was created to evaluate college recruiters, is shown in the table. Assume the criterion for evaluation is the ability to project a positive image of the company. “Makes a terrific impression on college recruits” would be on the highly positive end of this factor. Explains the company's favourable aspects in detail. Listens to the applicant and responds to queries in a positive way.” “Even with repeated instructions, continuing to produce a lousy impression.” is on the very negative end of this category. This interviewer is likely to turn off college applicants interested in working for the firm.” 10.4 PROBLEMS IN PERFORMANCE APPRAISAL As stated at the outset of this chapter, performance appraisal is continuously subjected to criticism. The method of grading scales appears to be the most sensitive. However, to be fair, many of the issues raised are due to poor implementation rather than fundamental flaws in the approach. Firms may, for example, fail to offer proper rater training or utilise rating criteria that are too subjective and unrelated to the work. The sections that follow illustrate some of the more frequent issues. a) Dissatisfaction with the appraiser Conducting performance assessments may be a time-consuming and frustrating aspect of human resource management. Edward Lawler, a management guru, pointed out that there is a lot of evidence that performance rating methods don't drive people or effectively lead their development. Instead, he claims, they cause friction between bosses and subordinates, as well as dysfunctional conduct. This qualifier is crucial. Employees will dislike receiving performance reviews, and managers will despise giving them, if the system is poorly designed or administered. In truth, some managers have long despised the time, paperwork, difficult decisions, and discomfort that the appraisal process generally entails. Going through the procedure takes time away from a manager's high-priority tasks, and it can be particularly painful if the employee in question has not performed well. a) The absence of objectivity The absence of objectivity in traditional performance rating systems is a possible flaw. Commonly utilised factors like attitude, looks, and personality, for example, are difficult to 140 CU IDOL SELF LEARNING MATERIAL (SLM)

measure using the rating scales technique. Furthermore, these variables may have minimal bearing on an employee's job performance. Employee appraisals based solely on personal traits may put the evaluator and the organisation in an uncomfortable position with the employee and equal employment opportunity guidelines, despite the fact that subjectivity will always exist in appraisal systems. It may be difficult for the company to demonstrate that these elements are related to the job. d) The Halo/Horn franchise When a management generalises one favourable performance attribute or incident to all aspects of an employee's performance, resulting in a higher rating, this is known as a halo error. For example, accounting supervisor Rodney Pirkle placed a high emphasis on neatness, which is a factor in the company's performance rating system. Rodney remarked that his senior accounting clerk, Jack Hicks, was a very neat person while evaluating his performance, and he gave him a high rating on this point. Rodney also allowed the high score on neatness to transfer over to other aspects, giving Jack undeservedly high ratings on all factors, whether deliberately or unconsciously. Of course, the opposite could have happened if Jack hadn't been so tidy. The horn error is a type of evaluation error in which a management applies one bad performance attribute or incident to all areas of an employee's performance, resulting in a lower rating. d) Strictness/Leniency Some bosses are either too lavish with praise or too harsh with criticism. “It is not OK to have performance graded differently from manager to manager since these decisions effect remuneration, development, and succession planning,” said Dick Grote, a performance management expert and president of Grote Consulting Corporation, a management consulting business in Dallas. The practise of bestowing undeservedly good ratings on an employee is known as leniency. This behaviour is frequently motivated by a wish to avoid appraisal debate. It's particularly common when extremely subjective (and difficult to explain) performance criteria are employed, and the rater is forced to speak with employees about the conclusions of the review. Managers are more tolerant when evaluating employees for administrative goals, such as salary raises, than when reviewing performance for the sake of employee development. However, leniency may lead to a failure to notice and correctable flaws. It's also possible that the practise will exhaust the merit budget and diminish the awards available to exceptional personnel. Furthermore, it will be difficult for a firm to fire low-performing individuals who consistently receive good feedback. Strictness is defined as being too critical of an employee's work performance. Although leniency is more common than strictness, some managers apply an evaluation more severely than the business standard on their own initiative. This behaviour could be the result of a lack 141 CU IDOL SELF LEARNING MATERIAL (SLM)

of knowledge about numerous evaluation elements. The worst case scenario is when a company has both lenient and harsh management who do little to even out the playing field. e) Tendency Central A central tendency error happens when employees are incorrectly ranked towards the average or middle of a scale during an evaluative appraisal. Some rating scale systems may encourage this behaviour by requiring the evaluator to defend exceptionally high or extremely low ratings in writing. By using this approach, the rater can avoid any potential controversy or criticism by merely offering average ratings. Employees do not often complain because these ratings tend to cluster in the entirely satisfactory area. Nonetheless, this inaccuracy exists, and it has an impact on the accuracy of assessments. Pay increases are typically offered in response to an employee's performance. When a manager assigns an average rating to an underachiever or an overachiever, the pay system is jeopardised. g) Bias in Recent Behavior Anyone who has witnessed young children's behaviour in the weeks leading up to Christmas may attest to the problem of recent behaviour bias. In anticipation of the gifts they hope to get from Old Saint Nick, the neighborhood's craziest kids become heavenly personas. People in the workplace are not children, but they are human beings. Almost every employee is aware of when their performance review is planned. An employee's conduct often improves and production tends to climb several days or weeks before the scheduled evaluation, even if his or her actions are not conscious. It's only natural that a rater remembers recent behaviour more vividly than behaviours from the past. Formal performance appraisals, on the other hand, usually encompass a set length of time, and an individual's performance over that time should be taken into account. This difficulty can be avoided by keeping track of performance during the appraisal period. g) Personal Prejudice When managers allow individual variances to influence the evaluations they offer, they fall into this trap. If these are criteria to avoid, such as gender, colour, or age, not only is this a concern for employee morale, but it is also clearly illegal and can lead to expensive lawsuit. Cultural bias, or stereotyping, can have a significant impact on evaluations. Managers form mental images of what they regard to be ideal average employees, and employees who do not fit this image may be harshly assessed. Discrimination in assessment can be caused by a variety of circumstances. Employees with a soft demeanor, for example, may be given a lower rating since they do not object seriously to the outcomes. This is in stark contrast to the more talkative employee, who frequently demonstrates that the cliche \"the squeaky wheel gets the grease\" is true. h) Manipulation of the Assessment 142 CU IDOL SELF LEARNING MATERIAL (SLM)

Managers have complete control over practically every part of the assessment process in some cases, allowing them to manipulate the system. For example, a supervisor may desire to award a certain employee a wage raise, or the supervisor may just \"like\" one person over another. 39 To justify this behaviour, the supervisor may award the employee an undeservedly high performance rating while lowering the rating of a less well-liked but equally productive employee. 40 Alternatively, if a supervisor wants to get rid of an employee, he or she may give him or her an unjustly poor rating. In either case, the system is skewed, and the performance appraisal goals cannot be met. Furthermore, if the employee is a member of a protected group, the company may find itself in court. The organisation may suffer severe financial loss if it is unable to effectively support the evaluation. 10.5 ESTATE PLANNING Estate planning is a legal arrangement that specifies who will possess and manage a person's assets when they die or become incompetent. Estate planning is significant because it relieves legal successors of the burden of paying the taxes associated with transferring assets if the estate had not been structured. It's a prevalent fallacy that only rich people need to worry about estate preparation. This misunderstanding can result in excessive estate expenditures and additional obligations for your loved ones. The creation of an estate plan is beneficial to almost everyone. Whether you're young or old, wealthy or middle-class, an estate plan can help you save money on taxes and fees, simplify and speed up the transfer of assets to the next generation, and protect your heirs. An estate plan specifies how your assets will be held, managed, and maintained during your lifetime, as well as how they will be distributed after your death. The plan also addresses the crucial choice of who will manage your estate. When properly drafted, an estate plan can accomplish the following: Feature Advantage -Orderly asset transfer Your preferences are clearly stated, and there is no ambiguity about what is intended to happen Your estate administration is simplified to move as swiftly as possible Your dependents’ immediate needs are taken into account When they require money, it is readily available. Taxes and other fees are minimised, allowing the estate to be as large as feasible. Strategies such as joint ownership of property or naming beneficiaries on life insurance and registered plans can be utilised to pass property straight to beneficiaries at no cost. You can include friends, extended family, or charities who would not otherwise share in your estate You can ensure that vulnerable people are protected You can establish terms and conditions under which your estate will be distributed You can control exactly how your estate is shared by having a will. You can appoint the best competent person (or professional) to be the executor in charge of the estate, alleviating the load of a 143 CU IDOL SELF LEARNING MATERIAL (SLM)

year's work from persons you don't want to burden. Make a succession plan for your firm. To keep the firm functioning, bill payments might be handled. To reduce capital gains taxes, strategies such as estate freezing might be adopted. Beneficiaries who work in the firm and those who work outside the business can inherit assets in different ways. Make plans in case you become incapacitated. In the event that you become mentally disabled, you can select someone you trust to handle your financial affairs. You can leave instructions about what kind of medical treatment you want, or don't want, if you are unable to speak for yourself, by obtaining a Health Directive. Family enterprises are frequently developed via substantial emotional and financial sacrifices, as well as hard work. Most owners are preoccupied with realizing their vision and overseeing the day-to-day operations of their company. What happens when it's time to think about leaving the company? How do business owners employ succession and estate planning to ensure that their transition strategy maximizes economic benefits? Early consideration of a wealth transfer plan can assist an owner in ensuring that their finances are in order for their family, business, and future generations. Early planning and regular evaluation of the plan guarantees that an owner can modify their plan to unforeseen changes in the business, family, or economy, and that they will be ready for a transition or sale when the time comes. When it comes to the sale or transfer of a business, a business owner without a strategy runs the danger of being unprepared. A wealth transfer plan can assist you in keeping your finances in order for your family, business, and future generations. It is particularly critical for business owners. However, a sizable chunk still has work to do in terms of wealth transfer planning, with 22% of business owners having yet to begin any form of wealth transfer planning. An Approach with Multiple Facets For business entrepreneurs, there are numerous wealth planning difficulties that do not apply to other people. As a business owner, your business assets are likely to make up a significant portion of your personal assets. Furthermore, a business owner's assets are frequently illiquid, necessitating a more comprehensive strategy. A comprehensive wealth transfer plan for a business owner should include a broader range of considerations, such as business succession planning and family dynamics, in addition to common planning considerations for individuals – tax and estate planning, retirement planning, and inheritance planning. Begin the Discussion The first step in the process is for an owner to speak with a reputable financial or legal expert. This person can assist the owner in identifying some of the areas on which they should ponder as they begin their planning. To establish a comprehensive long-term strategy that satisfies their objectives, the business owner will eventually need the help of tax, legal, and wealth planning professionals. This may appear to be costly, but it can be the key to 144 CU IDOL SELF LEARNING MATERIAL (SLM)

maximising economic rewards for business owners who are exiting the industry. Those who do not have a strong plan are far more likely to miss out on the financial advantages that those who have an estate plan and a tax strategy enjoy. Wealth Transfer Strategies A team of professionals – To build a long-term plan, business owners might benefit from the advice and guidance of skilled tax, legal, and wealth planning professionals. Take inventory and get ready – • Business Valuation — knowing how much your company is worth will help you make an informed decision. • Buy-sell agreement — a contract between a buyer and a seller that specifies triggering circumstances for a sale, such as voluntary termination, death, or total disability, as well as price and other terms. • Shareholder agreements and business ownership documentation The company you've worked so hard to build may one day become your legacy. However, deferring crucial decisions until a transition period might lead to unneeded stress and financial pressure, which aren't ideal conditions for reaching a satisfactory agreement. Establishing an exit or succession plan, as well as a wealth transfer strategy, can help ensure that your business and estate run smoothly when the time comes. 10.6OWNERSHIP PLANNING Supportive owners are the unsung heroes of high-performing family enterprises. When owners believe in their company's goal, support long-term investments and performance- oriented management, and are satisfied with consistent dividends, companies can develop strong performance cultures and achieve extraordinary long-term results. Management becomes disoriented and concentrates on short-term and safer benefits when shareholders are divided on a mission and/or want excessive short-term financial rewards. The number of owners tends to increase with each generation, and the owners' expectations of the organisation become increasingly diversified. Some shareholders are involved in the firm, while others are not. Shareholders who work in the family business are better knowledgeable about the company and more willing to support its mission than shareholders who work outside the family business. However, both groups can be valuable supporters of the family business, and both should be nurtured and handled with respect. Because owners play such an essential role in the family business, it's better to think of ownership as a job that must be done well rather than a birthright that all family members are entitled to. If you were orienting a new employee to a position, you would start by explaining the job's responsibilities. The legal responsibilities of the ownership position are essential, although they only include electing directors to the board of directors and changing the company's bylaws on a regular basis. 145 CU IDOL SELF LEARNING MATERIAL (SLM)

10.6.1 Ownership Requirements • Be knowledgeable about the company's operations, performance, and basic financial condition (including the ability to read the company's financial statements at a basic level) • Be able to make suggestions to and ask constructive questions of management and the board in appropriate settings (such as shareholder meetings) without interfering with management 10.6.2 Owners' Rights After learning about their responsibilities, family members should be taught about their rights to: • Information about the company, including how it is managed and its financial accounts; • A reasonable distribution of dividends that prioritises the company's performance; and • Elect capable directors (not necessarily to serve as directors themselves) who will look out for their and the company's interests. • Establish the company's bylaws and agreements among the owners. Because they have never been instructed, most family owners are unaware of their responsibilities and rights as owners. Obviously, the family should have conversations about these obligations and rights. These discussion boards will begin to show who in the family will approach ownership as a job. Family businesses have a higher percentage of supportive shareholders, which is one of the reasons they perform better. However, in order to ensure a firm foundation of ownership, the links between the company and its owners must be cultivated. Too many family business leaders make the mistake of assuming that just because the owners are related, they will eventually unite and that it isn't necessary to treat them as non-family owners would— understanding their goals and constraints, providing information about the company, periodically engaging them in discussions about the company, growing the value of their investment, and distributing profits to them. Ignoring shareholder relationship management is problematic because family shareholder issues tend to pile up quietly before exploding; they do not appear gradually. As a result, preventative medicine is the most effective treatment for ensuring a strong shareholder base. Choosing owners who want to and can do the work of ownership is the single best method to build a strong ownership foundation for the family business and avoid ownership difficulties. 10.6.3 Basic Owner Qualifications Members of the family that are eligible to be owners include: • Put the company's needs ahead of the family's interests—they don't demand excessive financial resources from the business or demand jobs in the company for unqualified relatives are interested in the family business and willing to learn about it, attend meetings, contribute to discussions, and perform formal shareholder duties 146 CU IDOL SELF LEARNING MATERIAL (SLM)

• Can disagree with other owners and business leaders on certain issues, but they get along reasonably well with other owners and respect the business leaders. • Are willing to sacrifice for the business—reduce or forego dividend income if necessary, and even contribute capital to the business if necessary. These are basic, not severe, requirements, but not everyone in the family wants or can meet them. When family members are not eligible to be shareholders, you might strive to pique their interest in the company and improve their abilities, as well as repair any strained relationships that may harm the shareholder group. If family members still do not meet the basic qualities of family business owners after these steps, they should not be forced into a position they will not enjoy, as this will erode the ownership group's cohesiveness and harm the company's overall performance. We've all experienced the difficulties that arise when family members don't want to be owners or don't qualify to be owners but are nevertheless handed ownership. Why should you provide ownership to family members who don't want or deserve it? As a result, the future generation will be burdened with challenges that will limit its ability to perform at its best. Parents are in the ideal position to separate poor-performing owners from the ownership group in order to maintain it strong, but they rarely do so because they \"don't want to treat their children differently.\" There are options for getting out of this bind. Families can build alternative assets to pass on to children who do not qualify to be business owners. They can also give non-qualified children non-voting shares so they don't have a say in ownership decisions, or they can give them a promissory note requiring the company to buy out their interests over time. There are ways out of the jam that will benefit everyone involved. In a family business, producing effective owners starts with the elder generation teaching the following generation to respect the family business, not to expect the business to totally support them financially, and to learn the skills and understandings necessary to participate as owners. These conversations and activities might take place at family gatherings, seminars attended by family members, and private education programmes. The connection between shareholders is a two-way street, a compact. In exchange for their continued dedication, shareholders gain from their association with the company. Family owners value financial benefits (dividends, other cash distributions, stock value appreciation), social benefits (networking made possible by being an owner) and business family (feeling like part of the family), and psychic benefits (mostly pride in being associated with the family, company, and their missions). Owners should establish relationships with the company such that the financial benefits of ownership are a minor motivator for them. In fact, when the financial benefits of ownership become the primary rewards, a family business's ability to think and act long-term, which is a key competitive advantage, is often lost.. 147 CU IDOL SELF LEARNING MATERIAL (SLM)

10.7 SUMMARY  Performance management is a corporate management tool that helps managers monitor and evaluate employees' work.  Performance management’s goal is to create an environment where people can perform to the best of their abilities to produce the highest-quality work most efficiently and effectively.  Family businesses are frequently founded on significant emotional and financial sacrifices, as well as good old-fashioned sweat equity. Owners are frequently preoccupied with realizing their vision and managing the day-to-day operations of their company.  The greatest – and most dangerous – misperception in the realm of family business is a lack of understanding that family business ownership necessitates a set of options. Indeed, failing to grasp your ownership alternatives might ultimately cripple your firm, causing it to lose its competitive advantage and even ending in unwanted buy- outs or sales.  The easiest way to avoid these problems is to understand that there are various methods to run a family business. Although there are hybrids, most family businesses follow one of five ownership patterns.  Tradition and pride are ingrained in family enterprises. While it may appear that corporations have taken over the economic world, numerous family-owned firms thrive due to competent management.  Performance management (PM) is a goal-oriented process directed toward ensuring that organizational processes are in place to maximize the productivity of employees, teams, and ultimately, the organization.  It is a major player in accomplishing organizational strategy in that it involves measuring and improving the value of the workforce.  PM includes incentive goals and the corresponding incentive values so that the relationship can be clearly understood and communicated. There is a close relationship between incentives and performance.  Performance management systems are one of the major focuses in business today. Although every HR function contributes to performance management, training and performance appraisal play a more significant role.  Performance management is the single largest contributor to organizational effectiveness. If you ignore performance management, you fail.” 148 CU IDOL SELF LEARNING MATERIAL (SLM)

 Performance appraisal (PA) is a formal system of review and evaluation of individual or team task performance.  A critical point in the definition is the word formal, because in actuality, managers should be reviewing an individual’s performance on a continuing PA is especially critical to the success of performance management.  The 360-degree feedback evaluation method is a popular performance appraisal method that involves evaluation input from multiple levels within the firm as well as external sources  Google has a different approach to 360-degree feedback as it provides managers and employees to nominate ‘peer reviewers’ from anywhere across the organization 10.8 KEYWORDS  Performance management - Performance management is an ongoing process of communication between a supervisor and an employee that occurs throughout the year, in support of accomplishing the strategic objectives of the organization. The communication process includes clarifying expectations, setting objectives, identifying goals, providing feedback, and reviewing results.  appraisal - an act of assessing something or someone.  performance appraisal - The term performance appraisal refers to the regular review of an employee's job performance and overall contribution to a company.  Estate planning - Estate planning in simple terms refers to the passing assets / investments down from one generation to another.  Ownership - Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until the nineteenth century, human beings. 10.9LEARNING ACTIVITY 1. Learners are asked to take roles of owner and worker of a company. And instructed to initiate a conversation between them. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are given chance to visit the owners of family business. 149 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ ______ 10.10UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is performance appraisal? 2. Mention the performance appraisal methods. 3. Define – Estate Planning. 4. What is Ownership Planning? 5. What is performance management? Long Questions 1. Define performance management and describe the importance of performance management. 2. Identify the various performance appraisal methods. 3. List the problems that have been associated with performance appraisal. 4. Describe Estate Planning. 5. Explain – Ownership Planning B. Multiple Choice Questions 1. Which of the following terms refers to the process of evaluating an employee's current and/or past performance relative to his or her performance standards? a. Recruitment b. Employee selection c. Performance appraisal d. Employee orientation 2. Which of the following is an example of an adverse consequence that can result from a lack of estate planning? a. The estate incurs less tax liability b. Court costs are lowered because no probate is required 150 CU IDOL SELF LEARNING MATERIAL (SLM)