Classification of Business Combination- basis of Nature of Formation - QS Study
QS Study

The business combination is a method of economic organization by which a common control of greater or lesser completers is exercised over a number of firms which either one operating in competition or independently.

Classification of Business Combination on basis of nature of formation or function of combination:

There exists another approach to the classification of a business combination as nature of formation is divided into two types.

Simple association: Simple association is the union of persons to make a whole or group for achieving some predetermined objectives. In simple association partnership and joint-stock company may be treated as the combination. Simple associations one divided into three types of combination. These ones-

  • Trade Association: Trade association non-profit organization of independent business concern in the same industry or trade. It does not produce any business on its own account, but it primarily attempts to promote the interest of its members. As the members of the trade association one competitors. It attempts to restrict the competition among them and attempts to assist them in many ways.
  • Chamber of Commerce: Whenever the business persons of the same region make a business combination to protect their interest and to develop the condition of the industry then this type of business combination is called the chamber of commerce. For example Dhaka Chamber of Commerce and Industries.
  • Informal Agreement: Competitive businessmen sometimes make a verbal contract to do business properly such as commission payment, market distribution, determination of sales price, control production etc are the subject matter of that type of informal agreement.

Federation: Federation is an alliance of independent and autonomous business enterprises or powers for mutual support or mutual benefit in relations external to any member. It implies that outside of such external relations members joining such federation we independent in their internal affairs. Federation may be two types. There are-

  • Pool: A Pool is a working agreement that is based upon a definite contract, is usually in writing, and frequently provides penalties for violation of the terms and conditions of the agreement. The main objects of forming a pool are to control markets volume of production on prices.
  • Cartel: Cartel means an alliance of producers who combine together is retaining their identities for the purpose of perusing a monopoly policy in their joint efforts. It is a voluntary agreement between the associations on independent enterprises of similar type to secure a monopoly often market. Moreover, it has been defined as an association of independent undertaking which enforces obligation as to the treatment of out pool, market purchase, price calculation on trade terms and therefore serves to influence the market against the working of free competition.