Service Quality Dimensions That Affect Customer Satisfaction Commerce Essay

Service Quality Dimensions That Affect Customer Satisfaction Commerce Essay The objective of this chapter is to formulate the research question and develop the conceptual framework for the study. A detailed overview of how the research was conducted, the operationalisation of the variables, hypothesis formulation and the research methodology used which covers data collection methods used, sample selection and method used for data analysis are discussed. 3.2 Research Question Based on the review of literature and the research problem, the following question has been formulated in order to determine the relationship that exists between the various dimensions of customer expectation and the service quality by the insurance companies for motor insurance policy holders. It is important to understand this relationship as it would enable the companies in the insurance sector to improve their service quality and to match and to exceed customer expectations and create a knowledge base in order to stay ahead in the market. The following research questions were derived from the research problem and the review of the literature. What are the Service Quality Dimensions that affect customer satisfaction in the Motor Insurance industry in Sri Lanka? What is the extent to which customers are satisfied with the services received from the Motor Insurance Industry? What are the gaps between customer Service Quality and Customer Satisfaction of Motor Insurance policy holders? 3.3 Conceptual Framework Service Quality Dimensions Dependant Variable Independent Variables [Source: Developed by the Researcher] 3.3.1 Rationalization of the conceptual framework Conceptual framework was replicated based on Zeithaml, Parasuraman Berry (1991), to test this study in the Motor Insurance Industry in Sri Lanka. On the detailed literature review, the research identified five factors that impact value delivery to customer of Motor Insurance services. These five service quality dimensions of SERVQUAL Model by Parasuraman and Berry et el (1985), have been derived as independent variables. These variables fall under Service providers Perspective in the conceptual framework. The dependent variable was identified as Customer satisfaction. The gaps in quality of service will be identified by using these five dimensions. This is the gap between the Customers expectation and experience of the Motor Insurance service delivery, which will subsequently have an impact on customer satisfaction. Rust Oliver (1994) and the Nordic Model (Gronoos, 1992) too emphasizes the importance of meaning of the gap between expectations and the experience in service industry. Hence all these have been included in the conceptual framework. 3.3.2 Definitions for Variables Tangibles Modern Equipment and Technology, Visually appealing physical facilities neat appearing employees and agents, visually appealing materials associated with services. Appearance of physical facilities, equipment personnel and communication material (Parasurman et.al,1998 and 1990). Reliability Keeping promises when promises to do something by a certain time , offering products and services of utmost quality, issuing contracts with clear, transparent and non ambiguous terms, settling customers claims with no unnecessary delays, ,showing sincere interest when solving customers problems, offering services right the first time without unnecessarily discomforting customers, providing services within the specified contract time limits, issuing error free bills, statements, receipts, contracts, claims and other documents. Ability to perform the promised service dependably and accurately (Parasurman et.al,1998 and 1990). Responsiveness telling customers exactly when the services will be performed, doing their best to give prompt service to customers, always willing to help customers, never being too busy to respond to customers requests . Willing to help customer and provide prompt service (Parasurman et.al,1998 and 1990). Assurance Customers feeling safe in their transactions, behavior instilling confidence in customers, being consistently courteous with customers, having employees and agents with the necessary knowledge to give professional services to customers. Knowledge and courtesy of employees and their ability to convey trust and confidence (Competence, courtesy, creditability and security of the service), (Parasurman et.al,1998 and 1990). Empathy Giving customers individual services, operating hours convenient to all customers, giving customers personal attention, having the customers best interest at heart, understanding the specific needs of customers. Caring, individualized attention the firm provides its customers (Access to organizations representatives, communication and understanding the customer), (Parasurman et.al,1998 and 1990). As presented in the above conceptual model, the independent variable of dimensions of service quality will be studied. Price is also a relevant variable. However, the focus of this study is on service quality attributes and therefore is not within the scope of this study. Theoretical research has presented several different service quality definitions. However, Parasuraman et al. (1985) definition of service quality, which has been used in many industry studies before, was adopted. Service quality is defined as the degree of discrepancy between customers normative expectations for the service and their perceptions of the service performance. The SERVQUAL model developed by Parasuraman et al.(1998), is therefore used for this study. Hypotheses Formulation Hypothesis is a testable speculative statement delineating the relations between all the elements of a theory (Page Meyer, 2000). The development of hypothesis was categorized into two sections based on insurance companies customers. Accordingly five hypotheses were developed. The source for all hypothesis development was based on the conceptual framework. Furthermore, the hypotheses based on insurance companies were primarily related to the importance of each expectation. The hypotheses developed for customers were based on the service quality of obtaining Motor insurance policies. When developing hypothesis, Literature review under section 2.18, according to the study carried out in Greece and Kenya by Rand, (2006), it was proved that there is a relationship between service quality dimensions and expected and experienced service quality by the customers in the insurance industry. 3.5 Hypothesis Rationalization Expected Experienced Service Quality in relation to Reliability dimension in motor insurance According to Parasuraman et al (1985) Reliability dimension measures the ability to perform the promised service dependably and accurately. As per the research carried out by Rand (2006) , it says that the Reliability has a huge impact on the service quality in service industry. Especially in a industry like Motor insurance it has a huge effect. Consumers satisfaction choice of service provider and service quality evaluation are influenced by the expectations of the consumer, (Trinh et al.2000). As mentioned above in the research carried out in Kenyan Insurance industry by Rand (2006), it is noted that most of the researchers (Rand, 2006; Trinh, 2000) have identified that Reliable service always has a positive impact on the service quality provided by the company. Therefore it is worthy to investigate the relationship among Expected Experienced Service Quality in relation to Reliability dimension in motor insurance. It could be hypothesized that, H 1 0 There is no relationship between Expected Experienced Service Quality in relation to Reliability dimension in motor insurance H 1 There is a relationship between Expected Experienced Service Quality in relation to Reliability dimension in motor insurance Expected Experienced Service Quality in relation to Responsiveness dimension in motor insurance The Dimension Responsiveness explains about willingness to help customers and provide prompt service. Responsiveness factor significantly has a positive effect on Customer satisfaction. Quality service provision, customer satisfaction and customer loyalty has recently been emerging as important parameters for both researchers and practitioners in turkey. This has been proved through a research carried by Yale University in Turkey (2009) on Service Quality in healthcare. This research was also based on the service quality. To provide superior service quality responsiveness is a very important factor since service providers should always willing to help customers. Especially in an industry such as insurance it is a very decisive factor since the customer is expecting a prompt action for their problems. So responsiveness factor effectively contributes to reduce the gaps between the Expected Experienced Service quality by the motor insurance policy holders. Therefore it is worthy to identify the relationship between the Expected Experienced Service Quality in relation to Responsiveness dimension in motor insurance. So it could be hypothesized that, H 2 0 There is no relationship between Expected Experienced Service Quality in relation to Responsiveness dimension in motor insurance H 2 There is a relationship between Expected Experienced Service Quality in relation to Responsiveness dimension in motor insurance Expected Experienced Service Quality in relation to Assurance dimension in motor insurance Assurance dimension is all about, the knowledge, competence, and courtesy of service employees and their ability to convey trust and confidence. Ducker (1991) defines service quality as What the customer gets out and is willing to pay for rather than what the supplier (of the service) puts in? Hence, service quality is often conceptualized as the comparison of service expectations with actual performance perception (Bloemer, Ruyter et al. 1999; Kara, Lonial et al. 2007). Service science literature often relies on SERVUQAL as an instrument to measure quality of service provided. SERVQUAL scale was developed based on a marketing perspective with the support of the Marketing Science Institute (Parasuraman, Zeithaml et al. 1986). It is very important to keep the assurance on the agreement made the company to their customers. Specially in the insurance industry, it is crucial factor to offer the assurance of the services provided. Therefore it is worthy to identify the relationship betwee n the Expected Experienced Service Quality in relation to Assurance dimension in motor insurance. So it could be hypothesized that, H 3 0 There is no relationship between Expected Experienced Service Quality in relation to Assurance dimension in motor insurance H 3 There is a relationship between Expected Experienced Service Quality in relation to Assurance dimension in motor insurance Expected Experienced Service Quality in relation to Empathy dimension in motor insurance Empathy dimension is about caring individualized attention provided to customers. According to the expectancy disconfirmation model, customers satisfaction is a function between his/her service performance perception and expectation (Pizam and Ellis, 1999), and illustrated as Satisfaction=f (Perception-Expectation). It is very important to offer individual attention to the customers specially in the service industry. Trustworthiness is one of the critical factors in any industry for the customers. Empathy factor defines that. Keeping the customer complaints and criticisms is very important in the motor insurance industry as the competition is very high. If the organization looses one policyholder that may affect the organization immensely. Therefore it is worthy to identify the relationship between the Expected Experienced Service Quality in relation to Empathy dimension in motor insurance. So it could be hypothesized that, H 4 0 There is no relationship between Expected Experienced Service Quality in relation to Empathy dimension in motor insurance H 4 There is a relationship between Expected Experienced Service Quality in relation to Empathy dimension in motor insurance Expected Experienced Service Quality in relation to Tangibility dimension in motor insurance Tangibility is all about appearance of physical facilities, equipment, ambience, personnel and communication materials. The rewards to firms that establish a loyal customer base have been well documented (Armstrong and Symonds, 1991: Heskett et al. 1994: Reichheld amd Sesser, 1990). In general, increased loyalty leads to lower cost of servicing the firms customers, reduced marketing expenditure, increased business from the existing customer base and greater profits. The internal appearance and the facilities is also affecting the service quality. It in turn helps the company to retain their customer and reduce the unnecessary costs such as saving costs. Therefore it is worthy to identify the relationship between the Expected Experienced Service Quality in relation to Tangibility dimension in motor insurance. So it could be hypothesized that, H 5 0 There is no relationship between Expected Experienced Service Quality in relation to Tangibility dimension in motor insurance H 5 There is a relationship between Expected Experienced Service Quality in relation to Tangibility dimension in motor insurance 3.6 Operationalization Based on the SERVQUAL scale and using five service quality dimensions. Concepts Variable Indicator Measure Reliability Price/Premium Reasonable Premium rates In order to evaluate customer expectation and experience , a 5 point scale was used. To measure customer perception the rating scale , for 1 Not important and 5 Very Important . And to measure customer experience the rating scale, for 1 Not Experienced at all , to 5 Experienced at a high level Product Range Range of products offered, to suit individual requirements Physical Access Availability and convenience of facilities and branch network Electronic access Availability of Telephone and online facilities Service delivery Level of service as expected/promised Responsiveness Waiting time Average time taken to process a claim after an accident In order to obtain data on average time spent with the Insurance providing company to get an service rating scale from 1 to 5 was used . for 1 Not Experienced at all , to 5 Experienced at a high level . In order to evaluate customer expectation and experience , a 5 point likert scale was used. Level of responsiveness of the Insurance staff Time taken to respond to an issue Assurance Stability The guarantee of safety when making a claim In order to evaluate customer expectation and experience, a 5 point likert scale was used. Safety of the investment Making the actual cost Convenience to the holder Confidentiality Maintenance of confidentiality Product Knowledge The knowledge of the product/features by the staff members Empathy Benefits Special benefits and features for the customer In order to evaluate customer expectation and experience, a 5 point likert scale was used. Attention Personal attention to customers and recognizing regular customers Caring Helping customers in a pleasant and caring manner Approachability Easy to approach staff members Tangibles Environment Pleasant ambiance inside the company In order to evaluate customer expectation and experience, a 5 point likert scale was used. Facilities Facilities provided to the policy holders Parking Availability of adequate parking at the Insurance company Number of repair centers in Sri Lanka Directional signs and information Availability of adequate instructions and directions of counters and procedures and easy directions when filling forma and other documents Appearance of Staff members Staff members are dresses appropriately Layout Convenient layout of the company interior Customer Satisfaction Level Satisfaction Level of satisfaction of the insurance company in relation to each service quality dimension A 5 point likert scale was used to measure the likelihood of these indicators ranging from Very Likely to Highly Unlikely. In Order to measure the time length of the relationship the respondent has with the Insurance provider , 5 time slots were presented where by the respondent could select his/her most relevant time slot. Study was carried out to ascertain the validity and Reliability of the Questionnaire. This was done as the instrument to use collected data was not tested previously. 3.7 Research Methodology The Research methodology is the way research is conducted. Research methodology refers to the theory of how research should be undertaken (Saunders, et al 2005). The first step of the study is to assess the service quality gaps in relation to the customer expectations and experience among five leading Insurance Companies which deals with Motor insurance in Sri Lanka and with each of the five SERVQUAL dimensions. This study helps to determine the average service quality gap score (between customers expectations and experience) for each service quality dimensions and how it affects the overall customer satisfaction. The second step each Insurance companys gap scores for each service quality dimensions. This is to examine the differences within each insurance company when providing services to the customers and to compare the differences of the overall satisfaction of customers in each insurance company. Stage three measured the level of satisfaction of the customers and the fourth stage examines the relationship between the expected and experienced service quality gaps by the customers for each dimensions. The final Stage integrates the data obtained from the five insurance companies and conclusions were prepared in accordance to the findings. Based on research problem, preliminary data was the main source of data used in this research. Consistent with the deductive research method, data collection through questionnaires has been a long proven method to collect valid and reliable data (Page Meyer, 2000). The deductive method refers to the use of a theory to generate prepositions or hypothesis that can be tested. Thus, the research method has been chosen for this study is based on deductive method. 3.7.1 Method of Data Collection In this study the primary data was collected through a self completion questionnaire from customers of the selected five Insurance companies. The study followed the Quantitative method to gather and analyze the data. The secondary data was collected from secondary source such Government publications (IBSL Annual Report 2010 Central Bank Annual Report 2010), Company Annual reports and from other publications. 3.7.2 Selection of Sample For the purpose of gathering data on customer expectation and customer experience, a total number of 250 questionnaires were distributed, from which a total of 224 valid Reponses were received and selected for data analysis. Individuals within a sample are chosen by chance rather than by the researcher or by being self-selected (Page and Meyer, 2000). A simple random sampling technique was used for this study, so that each unit of the population will have a known and equal chance of being selected. The sample was spread across Motor insurance policy holders of Five different Motor insurance providing companies in Sri Lanka. A brief description of selected five companies are given below, Aviva NDB Insurance PLCPLC Aviva NDB Insurance PLCtook wing as a leading player within Sri Lankas insurance landscape in the late 1980s. Over the years, the Companys good governance practices, ethics and innovation have helped it to soar to new heights. The dynamism and creativity of the Aviva NDB Family has been the engine of its evolution into a superior entity in the insurance and financial services sector. The Company has recorded a Consolidated Revenue of Rs. 7, 265 million with an impressive growth rate of 23.7% over the previous year. The Revenue reported for the current year includes Rs. 171.2 million being the gross-up of tax withheld at source on Government Securities. Excluding this, the growth for 2010 stands at 20.8%. Union Assurance PLC Union Assurance is a composite insurer transacting both Life and General business including personal insurance, in operation since 1987. A Public Quoted Company, UA entered the insurance arena at the time the private sector was permitted to set up in insurance, following the enactment of the Control of Insurance (Amendment) Act No. 42 of 1986. Committed to pursuing the highest standards of service and security, UA is backed by the corporate might of blue chip companies John Keells and Carson Cumberbatch. UAs reinsurers are world leaders, chosen for their dependability and total security. In short, they are the best in the business. The companys paid up capital as at 31 December 2009 is Rs 250 million and net asset base, Rs 1.6 billion, also indicates the companys  Ã‚   financial stability and strength, and places it firmly at the apex off private insurance service providers in Sri Lanka. Asian Alliance Insurance PLC Within a very short time period, Asian Alliance Insurance PLC has achieved what every company yearns for; it has touched the hearts of its customers with outstanding levels of professionalism and service. Asian Alliance commenced operations in December 1999 with 50 employees. Today the company has grown from strength to strength to become one of Sri Lankas leading players in the insurance industry. The company caters to an ever-growing client base that consists of corporate and individual clients. The secret behind the Asian Alliance Insurance success story lies in its ability to offer tailor-made insurance solutions to its customers. Sri Lanka Insurance Cooperation Sri Lanka Insurance Corporation which was established in 1962 as a State Owned Corporation was converted to a Limited Liability Company for a brief period of 6 years and was re-instilled in the state sector on the 4th June 2011, further strengthening the Corporation as the strongest and the largest Insurer in the Country. Sri Lanka Insurance is now backed by government protection and service excellence on par with the best in the private sector. At present Sri Lanka Insurance has over 120 Branches Island with an unparalleled assets base under management of over Rs.64.8 billion with a Life fund of over Rs.39 billion and over one million policies in force. The Motor Insurance Department has branched off into unrelated areas such as Theft only, Fire Only, Fire and Theft, 3rd Party Fire and Theft and Act only; once again, offering covers aimed at satisfying their clientele to a maximum. Ceylinco Insurance PLC From a solid and innovative start in 1939, Ceylinco Insurance Company Limited has faced numerous changes and challenges and has successfully weathered them all. Registered as Ceylinco Insurance Company Limited in 1987 and commenced business on the 14th of January 1988, in the spheres of Life and General Insurance, we have grown from strength to strength. Today, they have become the leading insurance company in Sri Lanka, with the largest network of branches and agents in the insurance industry. Their goals include becoming the leading provider of protection and financial security in Sri Lanka and in select international markets. 3.7.3 Structure of the Questionnaire Part one of the questionnaire focuses on demographic features of the respondents. Part two focuses on the dimensions. Questions from 1.14 entail in Reliability dimension and thereafter, based on Operationalisation, 10 questions focus on Responsiveness dimension 16 questions represents the Assurance dimension and 9 questions on Empathy dimension. Final dimension which is Tangibility has 10 questions. Each dimension has 2 columns to rate expected and experienced using a likert scale of 1.5, not important at all being No.1 and Very important being No.05. For the study, questionnaire was designed in accordance with the research objectives. The Questionnaire is based on the five SERVQUAL dimensions presented by Parasuraman et al (1985) and the Gap 5 which is also known as the Customer gap (the gap between customer expectation and experience) of the SERVQUAL mo del presented by Parasuraman et al (1985) , modified and tailored to specific service quality requirements of the Motor Insurance industry. Table 2: Structure of the Questionnaire Questionnaire Variables Measurement Items Section 1 Personal details Section 2 Measure Service quality perceptions of five insurance companies in general from individuals Section 3 Measure Service Quality dimensions separately to find out Expected Experienced service quality by each customer. 3.1 Reliability 3.2 Responsiveness 3.3- Assurance 3.4 Empathy 3.5 -Tangibility 3.7.4 Method of Data Analysis The Data was collected through a Questionnaire. The study was carried out using Descriptive statistics as well as Inferential Statistics. Under Inferential statistics an ANOVA analysis and paired sample two test were carried out. Descriptive Statistics Descriptive statistics  are used to describe the main features of a collection of  data  quantitatively. Inferential Statistics Inferential statistics are used to draw inferences about a  population  from a  sample. T-Test This test is used to compare the means of two samples (or treatments), even if they have different numbers of replicates. ANOVA test The Analysis Of Variance, popularly known as the ANOVA test, can be used in cases where there are more than two groups. The following methods have been used to analyze the data obtained from the study. Gap technique The gap technique will be used to analyze and identify the service quality gaps between expectation and experience of customers. Comparative Analysis A comparative analysis will be conducted in relation to the gap technique between the five Insurance companies using graphs and tables. Relationship Analysis Under Inferential Statistic analysis paired sample two test will be conducted to analyze the relationship between Expected service Quality and Experienced Service Quality by the customers. 3.7.5 Pilot Study Pilot study was carried out to ascertain the reliability and validity of the questionnaire. The instrument used to gather data in a research should be valid and reliable (Page Meyer, 2000). 3.8 Summary The purpose of this chapter was to explain and formulate the research questions and to provide a conceptual framework. The research question was formulated and thereafter the conceptual framework was designed using Service Quality as the independent variable and Customer Satisfaction being the dependent variable. Thereafter, the operationalization for the study was designed in accordance with the features/qualities of motor insurance industry. Given this, the methodology for the researcher was presented which included methods of data collection, selection of the sample, the questionnaire design and the methods of data analysis. Finally the limitations of the study were mentioned.

Joint Stock Company

Joint Stock Company Company A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. It is an association of individuals for the purpose of earning profit. It has a capital divided into a number of shares, of which each member possesses one or more shares and which are transferable by its owners. Joint Stock Company has been defined by many eminent authors, jurists and institutions. Some of these definitions are given below – According to L. H.Haney – â€Å"A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. † According to Company Act 1994 – â€Å"Company means a company formed and registered under this Act or any existing company. † [Section 2(1. c)] According to Chief Justice Marshall – â€Å"A company is an artificial being invisible, intangible and existing only in the eyes of law. † T he system of joint stock organization is very useful for large undertakings for which large capital is required.It is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit. Characteristics of Joint Stock Company The most distinguishing characteristics of a joint stock company can be stated as follows – 1. Incorporated association : A company is an incorporated association. It comes into existence only after registration under the Companies Act. 2. Voluntary association : A company is an association of many persons on a voluntary basis. So, a company is formed by the choice and consent of the members. . Artificial legal person : A company has a legal personality and as such it is regarded by law as an artificial legal person. A company has the right to acquire and dispose of the property. 4. Separate legal entity : A company has a legal entity distinct from its mem bers. It has an independent existence. 5. Common seal : The common seal with the name of the company engraved on it, is used as a substitute for its signature. 6. Perpetual succession : The company has perpetual succession as its existence is not affected in any way by the death, insolvency or exit of any shareholders. . Transferability of shares : The shareholders can transfer their shares to any person of their choice. It enables a shareholder to increase or decrease his investment in a company at any time. 8. Limited liability : Liability of the members of a limited company is restricted to the face value of the shares purchased by them. The personal property of the members cannot be attached to satisfy the claims of creditors of a company. 9. Separation of ownership from management : The company is not managed by all the members because the number of members may be large.The authority to manage the whole affairs is conferred to elected representatives of members known as directo rs. 10. Statutory regulations and government control : The company is governed by the Company Act and it has to follow various provisions of the aforesaid Act. A company has to comply with numerous statutory requirements. 11. Rigidity of objects : The type of business in which the company would participate must be mentioned in the ‘object clause’ of its Memorandum of Association. 12.Strict legal formalities to commence business : In order to form a company, it is necessary to submit certain documents to the Registrar Companies such as memorandum of association, articles of association, prospectus, list of directors etc. 13. Social benefits : Company form of business enables better utilization of available resources and thus ensures that society have benefited. 14. Accountability to shareholders : All the affairs of the company are to be disclosed to the shareholders so that they may come to know about the prospects and other problems of the company as a whole. 5. Public confidence : The financial statements of a company are published every year. Thus public can have clear idea about the activities of the company so a company enjoys greater public confidence. 16. Scope for expansion : A company is better placed as regards the facilities of the growth, development and expansion of its business. Memorandum of association According to Company Act 1994 – â€Å"Memorandum means the memorandum of association of a company as originally formed or as altered in pursuance of this Act. â€Å"According to Lord Cairns – â€Å"The memorandum of association of a company is its charter and it defines the limitation of the power of the company. † So we can say that the memorandum governs the relationship of the company with the outside world and it is the foundation upon which the super-structure of the company is built. Clause of Memorandum of association 1. Name clause : The name of the proposed company is mentioned in this clause. The name of a company must end with the word ‘Limited’ the word ‘Public Ltd† and the word â€Å"Private Ltd†. All the time of selecting the name of the company the promoter should follow the following things – . The name should not be identical with the name of any existing company. b. The name should not create and impression that the company is carrying on the business of some other existing companies. c. The name should exclude words like crown, emperor, empire, president or prime minister’s name. 2. Address clause : The memorandum must contain the full address of the register office. 3. Object clause : This is the most important clause in the memorandum which states what the company can do. The object must include all the possible lines of business in which company is likely to be engaged.Usually this clause is so drafted that the company may enjoy wide fields for activities in future. 4. Liability clause : This clause states the nature of l iability of the members of the company. a. Incase of a company limited by shares, member’s liability is limited to face value of the shares. It means that when the shares are fully paid up, members are free from any liability. b. Incase of a company limited by guarantee, the liability clause must state the extent of liability of each individual member in the event of its being wound up. c. Incase of an unlimited company, the liability clause does not appear in the memorandum of association. . Capital clause : This clause states the amount of capital with which the company is registered or authorized to conduct business and the division of capital into equity share and preference share capital should be mentioned. 6. Association clause : This clause contains a declaration by the person(promoter) who signed the memorandum to form the company in a legal way for a legal purpose and to take minimum share of the company. Memorandum of association According to Company Act 1994 †“ â€Å"Memorandum means the memorandum of association of a company as originally formed or as altered in pursuance of this Act. â€Å"According to Lord Cairns – â€Å"The memorandum of association of a company is its charter and it defines the limitation of the power of the company. † Articles of association The Articles of Association is the second important document of Joint Stock Company. It contains the rules and regulations for the internal management, administration and organization of the company |Memorandum of association |factors of distinguish |Articles of association | |Memorandum is the fundamental charter of a |Nature |Articles are subsidiary to the charter. |company. | | | |Memorandum states the relationship between |Scope |Articles contain provisions for internal management of| |the companies an outsider. | |the company. | |Memorandum defines the objects of the |Objectives |Articles define the rules for carrying out the objects| |company. | |of the company. | |Memorandum can’t be altered easily.It |Alteration in the document |Articles can easily be altered without the | |requires court information. | |confirmation of the court. | |Registration of memorandum is compulsory |Registration |Registration of articles is not compulsory for a | |for any company. | |public company. | |Memorandum of association is based on the |Application of rules |Articles of association are based on the doctrine of | |doctrine of constructive notice. | |indoor management. |It has no optional. |Optional |Public company may optional for table A for the | | | |incorporation purposes. | |Memorandum of association is always |Misunderstandings. |Articles of association can be changed in | |unchanged in misunderstandings. | |misunderstandings. | |Any work out of its subject matter is |Illegal work |Any work can be done beside it but in the range of | |illegal. | |memorandum. |Memorandum definite the working area. |Working area |Articles are not any wo rking area. It orders process. | Dissolution means dissolve or close. Dissolution of company means to close or dissolve of any existing company. The process by which a company can be closed is called company’s dissolution or winding up of a company. Company is an artificial personality organized by an individual organization created by law. According to 1994 company act, â€Å"To dissolve or winding up of any existing company the activities of company’s is called dissolution of company. † A company is said to be dissolved when it ceases to exist as a corporate entity. † —C. B. Gupta â€Å"Winding up company is a process by which its life comes to end and the assets of company is utilize for the help of creditors and members. † —Prof. Gower In 1994 company act section 234(1) there mentions three methods of dissolution of company. These are: 1. Mandatory dissolution by court. 2. Dissolution by own will. . Dissolution by court’s su pervision. 1. Mandatory dissolution by court [Section 234-1(A)]: In circumstances the causes by which a company can be dissolved mandatorily by the law of court by the application of company’s shareholders, creditors or company’s registrar are: 1. Taking decision of dissolution in special meeting. 2. Failing to start a business in one year after the date of registration. 3. To close any company one or more year continuously without any legal reason. 4. Lacking of minimum members of a company according to law. 5. Failure to pay the loan five thousand or above. . Any reason of followings: a. Inefficiency in direction. b. Related with illegal job. c. Facing loss continuously. d. Neglecting of shareholders or their rights etc. Based on above causes court can take the decision of winding up and recruit a liquidator who firstly distributed the asset between third parties and rest of between shareholders. B. Dissolution by own will [Section 234-1 (B)]: Creditors or shareholde rs of any company can dissolve their business whenever they wish. In this circumstances, shareholders and creditors can winding up the business without taking any help of court.Causes by which a company can be dissolved by own will: 1. Taking decision of dissolution in special meeting by creditors or shareholders. 2. Formed any company for pre-determined purpose or objective. 3. If any company is not able to pay their liabilities. 4. Direction of company is proved not profited. C. Dissolution by court’s supervision [Section 234-1 (C)]: In the circumstances of company’s dissolution by own will by the application of any parties a company can be dissolved by court’s supervision. Causes of dissolution by court’s supervision: 1.To take decision for mistreating with creditors or shareholders. 2. Collection and selling of company’s asset illegally. If court takes responsibility of dissolution for any reason it recruits a liquidator to solve dissolution pr ocess. (Section 319) Share is a unit of capital. Capital is created by selling of shares or exchange. But, share can be different according to their price, rights, transferability, advantages etc. Mainly share is divided into four types. Such as: 1. General share. 2. Preference share. 3. Deffered share. 4. Special share. 1.Ordinary share: Ordinary shares are those shares on which no special privilege is attached. In other words, all the shares except preference shares are called ordinary shares. It also known as equity share. Ordinary shareholders collect their profit after distributing profit among the shareholders of the preference share. But, the rights, responsibility, duties etc. of the company are performed by them. â€Å"All the shares except preference are called equity share. † —J. K. Mitra Some characteristics of ordinary share are given below: . Ordinary shareholders get their profit after distributing to the preference shareholders. 2. In case of dissolutio n of company they have equal rights to get their assets. 3. They can take participation to direct the company. 4. They can take part in company’s meeting. 2. Preference share: Preference shares are those shares to which some preference is attached in terms of: (a) payment of dividend, (b) return of capital. (c) both. In the first case, the preference shareholders are entitled to receive a fixed rate of divided before the dividends given to equity shareholders.In the second case, preference shareholders are entitled to get back their capital in priority to equity shareholders in the event of liquidation of the company. Some characteristics of preference share are given below: 1. Rate of return is guaranteed. Thus, the amount of dividend to be received is certain. 2. Preference shares are better suited for conservative investors, who care more for security of investments and certainty of income. 3. The holders of this share get a fixed rate od dividend even if the company makes a larger amount of profit.Preference share can several types. Such as: 1. Cumulative preference share: Preference share are cumulative where the preference dividend, if not paid in one year is carried forward to succeeding years. 2. Non-cumulative preference share: The holders of these shares have no claim for the arrears of dividend. They are paid a dividend if there are sufficient profits. 3. Participating preference shares: These share holders are entitled to participate in the surplus profits of the company in addition to their usual fixed rate of dividend. 4.Non-participating preference shares: Preference shares on which only a fixed rate of dividend is paid, are known as non-participating preference shares. 5. Redeemable preference share: The holders of redeemable preference shares can get back their capital at the expiry of a certain period or at the option of the company as may be mentioned in the articles of association. 6. Irredeemable preference share: The preference sha res that can’t be redeemed unless the company is liquidated are known as irredeemable preference shares. 3. Deffered share: The owner of those shares get chance to take profit or to exchange capital after meeting.To bear the preliminary or other expenses company provide these shares in exchange of cash. 4. Special share: Some special shares are given below: 1. Bonus share: Company can’t provide all of its profit to shareholders. It deposits some part of profit at the reserve fund. When the amount of reserve fund is more than sufficient or in crisis of company; the amount of reserve fund is brought to company as capital as like as cash and shares are distributed to shareholders. According to J. K. Mitra,† Shares which are issued free of cost to the existing equity shareholders are known as bonus shares. 2. Right share: Sometimes Company increases their capital by distributing new shares. Old shareholders are get preferences at the time of distribution of new share s. In this case new shares are divided among them by their profit ratio. 3. Non-par value share: Non-par share refers those shares which are not fixed from the beginning but it determines based on asset after a specific year is called non par value share. In Bangladesh it is not popular. Minimum subscription means the minimum amount of capital which a company requires for the starting of the business.The minimum subscription should be received within 120 days after the date of the issue of the prospectus. A company can’t allot any shares unless the minimum subscription has been raised through the application for shares. If this minimum amount is not collected within the stipulated time period, the amount received from the applicants must be returned within the next 10 days (i. e. within 130 days after the issue of shares) â€Å"The minimum subscription is to be fined by the directors or by the persons who have signed the memorandum. —Sen. & Mitra â€Å"Minimum subscr iption is the minimum amount which is the opinion of the directors or of the signaturories of the memorandum arrived at after due enquiry. † —M. C. Shukla The amount of minimum subscription is fixed by the directors. Minimum subscription is necessary to cover the following expenses: 1. Preliminary expenses. 2. Underwriting commissions on sale of shares. 3. Working capital. . The cost of any property purchased or to be purchased. 5. Payment of any money borrowed for the above purpose. 6. Any other necessary expenditure. A prospectus is a document inviting the general public to subscribe to the share capital of a public company. A prospectus is issued by a public company after obtaining the â€Å"Certificate of Incorporation’ from the register. â€Å"Document containing offer of shares or debentures for sale to be deemed a prospectus. † –According to company act 1994 section 142 A document containing detailed information about the company and invit ation to the public subscribing to the share capital and debentures issued is called prospectus. † —S. S. Sarkar and Others From the view point of above discussion we can say that- 1. Prospectus is an invitation letter to public. 2. It must be served from company. 3. It is a complete description of shares and debentures. Finally it can say that to raise capital from public limited company issues prospectus.If the shares are divided between the partners then to start the business, partners should prepare an additional prospectus. To apply for commencement it is necessary to submit prospectus or additional prospectus. 3. Distinguish between Private limited Company V/S Public Limited Company. |Private limited company |Basis of differentiation |Public limited company | |Two |Minimum number of members |Seven | |Fifty Maximum number of members |Unlimited | |Restricted |Transferability of shares |Freely transferable | |Not allowed |Raising capital from public |Allowed | |Mini mum-Two |Number of directors |Minimum-Three | |Maximum-Unlimited | |Maximum-A specified by the articles | |After obtaining certificate of |Commencement of business |After obtaining certificate of | |incorporation | |commencement. |Not required |Holding of statutory meeting and submission of |Required to be submitted to the | | |statutory report |registrar of the companies. | |Not required |Filing of prospectus or a statement in the lieu of |Required | | |prospectus | | |Name must end with the words |Name of company |Name must end with the word ‘Limited. ’| |‘Private Limited. | | | |Two |Quorum at the annual general meeting |Five | |Need not retire by rotation. |Rotation of directors |Retire by rotation. | |Simple and cheap. |Procedure for formation |Complicated and relatively costly. | |No need to maintain |Index of members |Index to be maintained. | |Low protection |Protection to members |High protection. | |Possible. |Ability to make quick decisions |Not possibl e. | |Small |Financial and managerial resources |Large. | |Low Scope for expansion |High. | |Not allowed. |Disposal of shares |Allowed. | |Less liquid. |Liquidity of investment in shares |Greater liquidity. | 4. What is artificial personality? Joint Stock Company is an organization which is formed and directed by company act 1994. According to 1994 company act,† Any Company is formed and registered under this act is called company. † â€Å"A company is an artificial being invisible, intangible and existing only in contemplation of law† —John Marshal Company is an incorporated association which is an artificial person created by law having a common seal and perpetual succession,† —Sherlekar and Sherlekar Artificial personality of the company means the personality as like as person. These are: 1. Lawful: It is formed and registered by company act. 2. Common seal: It has a common seal which is used in all documents. 3. Lawful rights: Company act gives some right to it. 4. Transaction by own name: It can deal by its own name like other person. 5. Direction of case: A company can able to case on another company like person. 6. Fixed existence: A company is formed by law.So, it has fixed existence. From the above discussion we can say though company is not any person but it seems as a person because it is created by law. So Y. K. Bushan said,† A company may be defined as an artificial person recognized by law. † 5. Who is underwriter? The person or organization who takes responsibilities to sale the shares of public limited company by an agreement is known as underwriter. Underwriter takes responsibilities to sale the shares of public ltd. company by a certain commission. If the underwriter fails to sale the shares then he takes the liability for rest of the shares. Functions of underwriter are known as underwritten. The term underwriter means any person who has purchased from an issuer with a view to, or sells for an issuer in connection with. † —Securities act 1933 2(11) â€Å"A person who underwrites issue of stocks,bonds etc. † —Webster’s new World Dictionary â€Å"A person or company that underwrites an issue of securities. † —Charles J. Woelfel From the above definitions we found some characteristics of underwriter: 1. Underwriter may be any person or organization. 2. It can be performed underwritten activities as a part of business. 3. They purchase shares, bonds, debentures etc. for a certain commission. 4. They provide surety to sale shares, stock, debentures of company. 5. They take all responsibilities though the shares are not sold.Finally it can be said that underwriter is a businessmen who helps company to collect capital by selling shares, debentures etc. 6. Method of retirement of company directors. Director of the company means the members who are voted for directing the company. They are also determined company policies and man y other activities for business. Directors take their position by the vote of members, board of directors, company act as well as government. To remove the director for its place is also maintain some rules. Such are given below: 1. Special decision: In special meeting, by the decision of shareholders any directors can be removed from his post. 2. Statutory removal: In company act 108(1) is said,† The position of director can be removed if- 1.If the director failed to gain preference share in given time. 2. If the director is announced mentally sick. 3. If the director be 4. If he failed to pay the call money in between six months. 5. If the director was absent in meeting of board of directors without permission. 6. If the director make any agreement without the permission of board of directors. 7. If the director involved in any illegal work. 8. If the director involved in crime. 3. Removal by government: Director can be removed from his post by government and also by shareho lders and creditors with the help of government. 7. What is an article of association? Articles of AssociationThe Articles of Association is the second important document of Joint Stock Company. It contains the rules and regulations for the internal management, administration and organization of the company. They define the power, rights and duties of directors or other officers of the company and regulate the relations between the company and its members. The main purpose of articles of association is to execute the object clause of the memorandum. â€Å"Articles are the internal laws of a company. Article devise ways for the internal management of the company. † —Lord Brobene The articles of association are the regulations or bye-laws which govern the internal management and conduct of the affairs of the company. † —M. C. Shukla It must be framed within the items of the memorandum of association and provisions of the Company Act. A company limited by sh ares (Public Limited company) may adopt ‘Table A’ a model-Article as provided by Company Act as its articles. But a Private Limited company or a company limited by guaranty must have their own articles. 8. What is ‘Certificate of commencement’? A private company can commence business immediately after the grant of Certificate of Incorporation.A public company cannot commence business until it obtains a ‘Certificate of Commencement’ in addition to the ‘Incorporation Certificate’ from the register of companies. At first public limited company submit a application to registrar according to Company Act 1994 Section- 4. If all the responsibilities are performed by public limited company accurately then registrar gives a letter or certificate to public limited company. The matters which are included in certificate of commencement are described at below: 1. Name and address of registered office. 2. Issuing date of Certificate of commencem ent. 3. Date of Commencement. 4. Certificate no. 5. Office seal. 6. Name and profession of registrar with seal and signature. 7. Description of conditions. (If exists. )The ‘Certificate of commencement’ is issued in favour of a public company by the registrar, only when the following conditions are fulfilled: 5. Describe the advantages of public limited company than private limited company. Private limited company: A private company is an incorporated body registered under the Companies Act with three important respective provisions in the ‘Articles of association’. Public limited company: A public limited company is an association consisting of seven or any higher number of members, which is registered under the Companies Act. The advantages of public limited company over private limited company are described at below: 1. Liability: In public limited business the liability of each share holders are limited by their shares.But, in private limited company th e liability of shareholders is huge. 2. Sufficient capital: The shareholders of public limited company are more than private limited company. So, public limited company enjoys more capital than private limited company. 3. Membership: In public limited company there is no upper limit to the number of members. But, in private limited company it is limited. 3. Financial resources: Public limited company generally refers a huge organization. So, collection of financial resources is comparatively more than private limited company. 4. Economies of large scale production: Huge financial resources lead to a phenomenal growth in the size of the company.Economies may relate to greater division of labour, specialization, more effective use of resources, bulk purchase of raw materials at lower prices etc. Private limited company can’t get sufficient advantages as like as public limited company. 5. Large size: Private limited company is not a large size business. It generally established in one specific area. Public limited company is a large scale business. It has branches at all over. 6. Transerferibility of shares: The shares of private limited company are not easily transferable. But, the shares of public limited company are simply transferable. 7. Perpetual succession: Public limited company is formed by law.So, it the company is not being closed for the poor condition of shareholders. But, private limited company can be closed on its measurable condition. 8. Public confidence: Public limited company is directly related with public. So, they can acquire confidence of public. But, in private limited company this possibility is not exist. 9. Creation of employment: Pubic limited company is a huge company. So, the opportunity of creation of employment is more than private limited company. 10. Research: Public limited company always tries to distribute their products worldwide. So, they always research to develop their product more and more. In that case private li mited company is not so superior.Finally we can say that public limited company is more advanced than private limited company. But, private limited company has enjoyed some special advantages which can’t be enjoyed by public limited company. Merits or Advantages of a company form of organization The following are the merits of a joint stock company – 1. Accumulation of huge financial resources : The company form of business facilitates mobilization of large amounts of capital for investment in industries. 2. Economies of large-scale production : The company form of business can enjoy all the benefits of large-scale production such as minimum cost of production and maximum profit. 3.Scope for expansion : A company can easily expand its managerial capacities and financial resources. It has great potential for diversification and growth. 4. Stability of existence : The organization of a company as a separate legal entity gives it a character of continuity. As an incorpora ted body, a company enjoys perpetual existence. 5. Transferability of shares : The shares of a public company are freely transferable. The shareholders are at full liberty to dispose of their shares to any person they desire. 6. Democratic control : The company is managed on the principle of democracy. The boards of directors who manage the company are elected by the shareholders.The directors are responsible and accountable to the shareholders. 7. Managerial efficiency : A company can secure the services of highly qualified persons who are experts in different fields of business management. 8. Stimulation to savings and investments : The company is an effective media of mobilizing the scattered savings of the community and investing these savings for commercial purposes. Insurance companies, banks and other financial institutions invest their money in the shares of different joint stock company. 9. Tax relief : The company enjoys greater tax relief as compared to other forms of bus iness. Company pays lower tax on a higher income as it pays tax on the flat rates. 10.Diffused risk : The membership of a public company is large. The business risk is divided among several members of the company. 11. Statutory regulation and control : Formation and working of companies are well regulated by the provisions of the Company Act. These strict regulations safeguard the interests of shareholders and people who deal with the company. 12. Public confidence and popularity : A company is guided and controlled by strict regulations and government control. These ensure public confidence and popularity. 13. Social responsibilities : Due to the existence of the company form of business, society is benefited in different ways.So we can say that the joint stock company constitutes an important advancement in the modern emerging commercial structure with its different advantages. Demerits or disadvantages of Joint Stock Company The following are the disadvantages of a joint stock co mpany – 1. Adherence of too many legal formalities : The formation of a company requires adherence of too many legal formalities. The establishment and running of a company would prove to be troublesome because of complicated legal regulations. 2. Concentration of power in few hands : Shareholders of the company have practically no say in the affairs of the company. The directors of the company become self-centred and they do not care for shareholders. 3.Excessive Government control : A company has to observe too many provisions of different laws imposed by the government. 4. Undue speculation in shares of the company : Undue speculation in shares of a company is injurious to the interests of the shareholders. 5. Fraudulent management : The promoters and directors may indulge in fraudulent practices. The unscrupulous directors may present a rosy picture of the company in its annual report. 6. Bureaucratic control : Quick decisions and prompt action are absent in the managemen t of a company. It makes a company an inflexible enterprise. 7. High nepotism : In companies, employees are selected not on the basis of ability but on the basis of personal interest of the management. 8.Inflexibility in management : A company cannot quickly adjust with the changing conditions in the market because of its complex structure and legal obligations. 9. Monopolistic control and exploitation of consumers : Joint stock companies facilitate formation of business combinations which ultimately lead to monopolistic control and exploitation of consumers. 10. Social abuses : Evils of factory system like installation, pollution, congestion of cities are attributed to the company form of organization. Moreover, the close and cordial relationship between the management and employees is difficult to maintain. Formation of Joint Stock Company Joint Stock Company is formed under the Company Act followed by the country where the company is established.In Bangladesh a joint stock compan y whether a public or a private may be formed by registration under the Company Act 1994. The whole process of company formation in any country may be divided into three Distinct stages – a. Promotional stage : The process of conceiving an idea and developing it into a concrete of project to be accomplished by the incorporation and floatation of company is called promotion. The number of promoter in Public Limited company who take necessary steps are minimum two and maximum 50 in case of Private Limited company and minimum seven, maximum contains by share in Public Limited Company. These are four main stages in the promotional stage of a company – ) Identifying the idea : The promoters at first conceive an idea and identify the business opportunities. ii) Detail investigations : Detail investigations of – a. Market condition b. Demand for the products c. Estimated cost of production d. Estimated profit margin e. Capital requirement iii) Assembling: After a throu gh investigations of project the promoters decides whether they will take risk or not. iv) Selection of the name of the company and submission : In this step, the company prepare two documents – a. Article of association b. Memorandum of association b. Incorporation stage : When the promoters can finish the primary arrangements, they apply in prescribed from to the register of joint stock company.And along with the application, they submit with the register, the registration fee as per Table(B) of the Company Act and a copy of each of the following documents for the registration of the company. a. A copy of the memorandum of association b. A copy of the articles of association c. A statement of nominal capital d. The address of the registered office of the company (selected by the registrar) e. A declaration to the effect that all legal requirements have been duly complied with. Incase of Public Limited Company the following document is to be estimated – a. A list of d irectors b. A written contest of each director to act as such and to take up the qualifications shares.The registrar will examine all this documents and if he is satisfied that every thing is in order, he will then enter the name of the company on the register maintain his office and issue a certificate known as the Certificate of Incorporation which gives the company a legal existence. c. Floatation stage : When a company has been incorporated it has to raise capital sufficiently to commence business and to carry it on with satisfactory. The Private Limited Company may obtain this capital from friends and relatives. A Public Limited company raises the greater part of the capital from the general public by issuing a prospectus. d. Commencement: A Private company can start its business after obtaining a Certificate of Incorporation but a Public Limited company cannot. It must receive another certificate known as Certificate of Commencement.The registrar will issue this certificate on fulfillment of the following requirements – a. Minimum subscription has been raised. b. The direction has been taken up and paid for their qualification shares. c. The prospectus on the statement in lieu of prospectus has been filled. d. A declaration has been made to the effect that all legal requirements have been duly complied with. It is to be noted that, a Public Limited company is to start business within one year from the date of receiving the Certificate of Commencement. Memorandum of association According to Company Act 1994 – â€Å"Memorandum means the memorandum of association of a company as originally formed or as altered in pursuance of this Act. â€Å"According to Lord Cairns – â€Å"The memorandum of association of a company is its charter and it defines the limitation of the power of the company. † So we can say that the memorandum governs the relationship of the company with the outside world and it is the foundation upon which the su per-structure of the company is built. Clause of Memorandum of association 1. Name clause : The name of the proposed company is mentioned in this clause. The name of a company must end with the word ‘Limited’ the word ‘Public Ltd† and the word â€Å"Private Ltd†. All the time of selecting the name of the company the promoter should follow the following things – d. The name should not be identical with the name of any existing company. e.The name should not create and impression that the company is carrying on the business of some other existing companies. f. The name should exclude words like crown, emperor, empire, president or prime minister’s name. 2. Address clause : The memorandum must contain the full address of the register office. 3. Object clause : This is the most important clause in the memorandum which states what the company can do. The object must include all the possible lines of business in which company is likely to be e ngaged. Usually this clause is so drafted that the company may enjoy wide fields for activities in future. 4. Liability clause : This clause states the nature of liability of the members of the company. d.Incase of a company limited by shares, member’s liability is limited to face value of the shares. It means that when the shares are fully paid up, members are free from any liability. e. Incase of a company limited by guarantee, the liability clause must state the extent of liability of each individual member in the event of its being wound up. f. Incase of an unlimited company, the liability clause does not appear in the memorandum of association. 5. Capital clause : This clause states the amount of capital with which the company is registered or authorized to conduct business and the division of capital into equity share and preference share capital should be mentioned. 6.Association clause : This clause contains a declaration by the person(promoter) who signed the memoran dum to form the company in a legal way for a legal purpose and to take minimum share of the company. Articles of Association The Articles of Association is the second important document of Joint Stock Company. It contains the rules and regulations for the internal management, administration and organization of the company. They define the power, rights and duties of directors or other officers of the company and regulate the relations between the company and its members. The main purpose of articles of association is to execute the object clause of the memorandum. It must be framed within the items of the memorandum of association and provisions of the Company Act.A company limited by shares (Public Limited company) may adopt ‘Table A’ a model-Article as provided by Company Act as its articles. But a Private Limited company or a company limited by guaranty must have their own articles. Private Limited Company A private company is an incorporated body, registered under t he Company Act with three important restrictive provisions in its ‘Articles of Association’. A private company is one which – 1. Restricts the rights of its members to transfer their shares in the company. 2. Limits the number of its members to fifty. 3. Prohibits any invitation to the public to subscribe for any shares or debentures of the company.

Endeca Technologies Essay

Executive Summary Endeca Technologies is a software company that established by Steve Papa on September 4th 2001. In the case, the company is currently looking for a Series C round funding to reduce the expected pre-money valuation multiple times because of the NASDAQ had fallen. In the end, the company got a rough pre-money valuation of $25M. At this time, there are two different term sheets that each of them contains some pros and cons putting in front of Papa to let him choose. Overall, Papa should choose the first term sheet because the benefits in that term sheet are more than the second term sheet, and at the same time it has less cons. Does Endeca look like a good investment at this time? Overall, Endeca looks like a risky choice for investors to invest. Since Endeca is a technology software company, this industry is very competitive and intensive; everyday there are new firms emerge in this industry with new technologies and ideas. At the beginning, Endeca planed to make a Series C round funding in around November and Decemeber in 2000. However, because of the NASDAQ was falling, the CEO Papa realized that raising funding at that time was vey hard. Thus, Papa extended the funds from Series B to an extra six months. Papa’s action gave many other firms to have the chances to catch up and build up their technologies and management strategies. Thus after this six-months delay, Endeca needs to put in more effort to gain back its market status. What are the motivations for BVP and Venrock? Ampersand? Bessemer Venture Partners and Venrock invested in the second round on Endeca. Because Papa had connections with Venrock, where he had served a summer internship while at HBS. Papa and Venrock built the good relationship at that time, thus Venrock is willing to invest in Endeca, which is his motivation to invest in the firm. Ampersand is a new potentially company that will invest in Endeca in Series C. This is a very diversified company and so far they didn’t invest in any technology company similar to Endeca  yet. First, because Ampersand never invested in any firm in this industry yet, as a diversified investing firm, they are willing to take the chance to try new thing to invest on Endeca. Secondly, Ampersand has a long-standing connection to Endeca’s top management team, which is also Ampersand’s motivation to invest in Endeca. How has the CEO handled the C round? Would you do anything different? The CEO Papa hasn’t handled the Series C round well due to many different reasons. First, as mentioned before, because at that time the NASDAQ was falling, in order to avoid the bad investment situation and wished the market will get better again, Papa stretched the Series B investment for an extra six months. However, this turned out to be a bad decision. The fact is that the market didn’t improve later and the company was having difficult to get the term sheet from investors. Secondly, even though fortunately Papa got two term sheets in the end, what he did wrong was that he made a verbal commitment to the insider-led and a potential client DGSCP says that one offer is better than the other one. If in the end Papa choose the other offer, he might be risky on breaking his words in front of DGSCP and losing business with them. If I were responsible for handling the C round, I would definitely do things differently. First of all, I would not delay the Series C round investment. I think investment funds are extremely important on doing a business; it is always better to prepare for enough funding rather than need it but cannot get the money. In addition, I would not bring the insider-led and the potential client DGSCP into the deal to give any verbal commitment before I made my decision. Provide a detailed discussion of the pros and cons of the two term sheets. Which is more favorable to Endeca? Evaluate the two term sheets both financially (in terms of value) and non-financially (other terms.) Which provides them with a higher probability of survival and success? First Term Sheet Pros Cons Many investors who invested before, easier for the transition Barely dilutes Venrock Original Price equals to Liquidation Preference Made verbal commitment before Potential client DGSCP involved Lower price per share, $0.985/share Less Capital Low valuation Second Term Sheet Pros Cons Higher Price per share, $1.25/share More capital Bring in new investors, new opportunity Lose Anger Series B investors and DGSCP in the C round More complicated because of new investors Ampersand doesn’t have much experience in investing this industry Accrued dividends and redemption rights As the chief representative for Endeca’s shareholders, which deal should recommend to the Board? Why? As the chief representative for Endeca’s shareholders, I think Papa should choose the first term sheet. According to the analysis above, the first term  sheet has more benefits over the second term sheet and less cons compared to the second term sheet. The only thing I concern about the first term sheet is the capital is less than the second term sheet. However, in reality the capital that the second term sheet provided is still far from what Papa initially wanted for Series C. Most importantly, because Papa made the verbal commitment with the potential DGSCP client that he would choose the first term sheet, consider the future cooperation and business that Papa would probably do with DGSCP, I think it is a wise choice to choose the first one at this point.

Comparative Perspective

Definition: The comparative perspective is based on the idea that a society or social system cannot be fully understood without comparing it with other societies or systems. The main limitation of this perspective is that societies differ in so many ways and therefore may not always be compared meaningfully.