Unit 1 : Introduction to Business

1.1 Concept, Nature and Type of Business

 Introduction:

All Human beings where ever they may be require different type of goods and
services to satisfy their needs. Business is a major economic activity in all modern
societies concerned with production and sale of goods and services required by the
people. It is aimed at earning money by satisfying human demands.

 Meaning:

Literal meaning of Business is “BUSY”.

Business is defined as an economic activity

involved in the production and sales of goods and services

undertaken with the motive of earning profit

by satisfying human needs in the society.

 Characteristics of Business activities:

 An Economic activity: It means an activity aimed at earning money. Business is

also aimed at earning money or livelihood by satisfying human needs.
 Production and procurement of goods and services: Every business enterprise
must either manufacture the goods or it acquires from producers. Goods may be
consumer goods or Capital goods. Services means facility offered to consumers
like banking, insurance etc.
 Sale or exchange of goods and services: Business involves transfer or exchange of
goods and service for value.
 Dealing in goods and services on a regular basis: It should be a regular activity.
One time sale or exchange will not be considered as business.
 Profit earning: Business always aims at earning profit.
 Uncertainty of earning: There is always a possibility of less amount of profit or
even loss in business.
 Element of Risk: There is always a possibility of Uncertainty of earnings.
  Comparison of Business, Profession and Employment:

Basis Business Profession Employment

1. How to Start? Based on Getting Getting an

entrepreneurs membership of a appointment
/owners professional body letter
decision

2. What is its nature? Providing Rendering of Performing work

goods and personalized expert as per service
services to the services contract
public

3. Qualification/Who No minimum Requires Requires

can start? qualification qualification and qualification and
training in a training
specific field

4. Return/What will Profit Professional Fees Salary

you get?
5. Capital/How much Requires Requires limited No capital
you need to start? capital as per capital required
the size of the
Business

6. Risk involved More risk Less risk No risk

7. Transfer of Interest Is possible Not possible Not possible

– Can you transfer? with some
formalities
8. Code of conduct No code of Professional code Code of conduct is
conduct is of conduct to be prescribed by the
prescribed followed employer to be
followed

Classification of Business Activities:

 Industry: Production or processing of goods and services. It is concerned with

changing the form of the products. It gives form utility to the products. It is
classified into the following:
 Industry

(Producing or processing of Goods as well as breeding of animals)

1. Primary 2. Secondary 3. Tertiary

Extraction and Processing the Support services

production of natural materials got in the to primary and
resources and primary industries secondary
reproduction and industries
development of
living organisms,
plants etc.

1. Primary Industry

a. Extractive Industry b. Genetic Industry

Mining, lumbering, Breeding plants and

hunting and fishing animals, Poultry
operations farming and fish
hatchery
2. Secondary Industry

a. Manufacturing Industry b. Construction Industry

Production and Construction of

processing of goods Buildings, dams,
creating form utilities bridges, etc.,

2.a. Manufacturing Industry

(i). Analytical (ii). Synthetical (iii). Processing (iv).

Assembling
Industry Industry Industry
Industry
Separates Combines Involves series Assembles
different various of activities different
elements from ingredients components
Eg., Sugar and
the same
Eg., Cement, Paper Eg., Television,
materials
Textiles, etc., Car, Computer,
Eg., Petrol,
Diesel,etc.,
 Commerce: It includes all those activities which are concerned with removing
all the hindrances in the movement of goods from the manufacturer to the
consumers. It includes the following activities.

COMMERCE

INDUSTRY TRADE

Commerce includes the following activities :

1. Industry
2. Trade – Export, Import
3. Transport and communication
4. Banking
5. Insurance
6. Advertisement
7. Packaging
8. Warehousing etc.,
 Trade : Trade means exchange of goods and services between sellers and buyers
with profit motive.

 Auxiliaries to Trade:

1. Transport and communication : Physical movement of goods from the place

where there is no demand to the place where there is demand. Creates place
utility to the product.

2. Banking and Finance : Helps in removing financial hindrances. Facilitates production,

buying and selling by providing funds by way of loans.

3. Insurance: It facilitates business by ensuring compensation for various types of risks.

4. Warehousing: It keeps the goods in tact till they are in demand. It creates time utility
to the product.

5. Advertising: It provides information about availability of goods and services. It

induces the consumers to buy the product.
 Role of Profit in Business:
 It is source of income for the business man.
 It provides funds for expansion
 It is an indicator of efficiency of business man.
 It builds up reputation.
 Innovation

Productivity
Innovation
Physical and
vvity
financial resources

Objectives of Business
Earning profits

Manager performance and

development

Worker performance and

attitude

Social Responsibility

 Business Risk: It refers to the possibility of inadequate profits or even losses due
to uncertainties or unexpected events.

Nature Of Business Risks

 Business risks arise due to uncertainties

 Risk is an essential part of business
 Degree of risk depends upon the nature and size of
business
 Profit is the reward for risk taking.

 Causes of Business Risks:

 1. Natural Causes : Risk may be due to Flood, earth quake, lightning, heavy
rains etc.
2. Human Causes: It includes dishonesty, carelessness or negligence of
employees, strikes, riots, etc.
3. Economic Causes: It includes uncertainties relating to demand for goods,
competition, price, collection of dues from customers, changes in economic
policies etc.
4. Other Causes: It includes political disturbances, mechanical failures etc.

 Basic factors to be considered before starting a Business:

1. Selection of Line of Business: Based on the requirements in the market
nature and type of business to be selected.
[Link] of the Firm: Based on the amount of funds available and demand for
the product in the market size of the firm i.e small scale or medium or large
scale to be decided.
[Link] of form of ownership: Based on the amount of capital required,
legal formalities to be filled in, liability of the owner, etc. the form of
ownership is to be decided.
[Link] of the Business enterprise: Based on the availability of raw
material and infrastructure facilities location of the Business is to be
selected.
[Link] the Proposition: Requirement of Capital and its sources must be
decided.
[Link] facilities: Availability of physical facilities including machines and
equipment, building and supportive services to be considered before
starting a business.
7. Plant layout: Plant layout should draw to show the arrangement of these
facilities.
[Link] and committed worked force.: Every business needs work
force. So careful planning should be about selection, training and
motivation of employees.
 9. Tax Planning: Tax liability and its impact on business to be considered.
10. Launching the enterprise: After fulfilling the formalities entrepreneur
can launch the business.

FORMS OF BUSINESS ORGANISATION

Sole proprietorship Partnership Hindu Undivided Co operative

Company

Family Society

Meaning Of Sole Proprietorship:

Sole means only

Proprietor means owner

Merits of sole proprietorship:

1. A sole proprietor can take decision quickly.

2. Information can be kept secretly without any leakage.

3. No need to share profits.

4. He gets self satisfaction for the work he has done.

5. Easy to start and to close because of less rules and regulations.

  Partnership
Types of Partners :

1. Active partner: An active partner is a partner who gives capital,

participates in management, shares the profits and losses and has
unlimited liability.
2. Sleeping partner: A Partner who do not take part in the business
activities.
3. Secret partner: A partner who has association with the firm but unknown
to the public.
4. Nominal partner: A partner who allows his name to be used by the firm
5. Partner by estoppel: A person who by behaviour sets an impression to
others that he/she is a partner of the firm.
6. Partner by holding out: A person who is not a partner but allows himself
to be represented as partner in a firm.

Consequences of Non Registration:

1. A Partner of an unregistered firm cannot file a case against the firm or

other partners.
2. The firm cannot file a case against third parties.
3. The firm cannot file a case against the partners.

Types Of Companies
 COMPANY

PRIVATE PUBLIC

 Public Company:
1. Members: Minimum 7, Maximum unlimited
2. Minimum number of directors: 3
3. Minimum paid up capital: 5 lakhs.
4. Index of members: Compulsory.
5. Transfer of shares: Shares can be transferred easily from one person to
another.
6. Invitation to public: It can invite the public to purchase the share and
debentures
 Private Company:
1. Members: Minimum 2, Maximum -50.
2. Minimum number of directors: 2
3. Minimum paid up capital: 1 lakh
4. Index of members: Not compulsory.
5. Transfer of shares: Shares cannot be transferred from one person to
another.
6. Invitation to public: It cannot invite the public to purchase the share and
debentures.

 Memorandum of Association:
1. It defines the objects for which the company is formed.
2. This is the main document of the company.
3. This defines the relationship of the company with outsiders.
4. Every company has to file Memorandum of Association.
5. Alteration of Memorandum of Association is difficult.
Articles of Association:

1. It defines the objectives of the company that are to be achieved.

2. This is the subsidiary document of the company.
3. Articles define the relationship of the members and the company.
4. It is not necessary for the public limited company.
5. It can be altered by passing a special resolution.

Learning Trade Associations and Chamber of Commerce

Trade Associations

A trade association, also known as an industry trade group, business

association or sector association, is an organization founded and funded
by businesses that operate in a specific industry. An industry trade association
participates in public relations activities such as advertising, education, political
donations, lobbying and publishing, but its main focus is collaboration between
companies, or standardization. Associations may offer other services, such as
producing conferences, networking or charitable events or offering classes or
educational materials. Many associations are non-profit organizations governed by
laws and directed by officers who are also members.

Chamber of Commerce

Characteristics

A Chamber of Commerce and Industry is

an autonomous organisation of
businesses and individuals
aimed at promoting commerce and industry.
It may be a private set-up with voluntary membership (as in Singapore)
or one established under public law, with compulsory membership (as in
Germany) or one regulated under public law status with voluntary
membership (as in Japan).

It could take the form of ...

• a national establishment eg. the Thai Chamber of Commerce
• a provincial body eg. the West Java Chamber of Commerce and Industry
• a town or district setup eg. the Dhaka Chamber of Commerce
• an ethnic grouping eg. the Singapore Chinese Chamber of Commerce and

Industry.
Mission

Despite their wide diversities, Chambers of Commerce and Industry generally

share a common mission, which is to promote, develop and further the economic
well-being of members by providing
• a collective voice in advocacy to represent and
protect members' interests
• quality services to help members enhance their
competitiveness and succeed in their businesses
thereby contributing significantly to the economic progress of the
nation.

Agenda

To achieve their mission, Chambers of Commerce and Industry have on their

agenda, a broad range of functions and services. These include ...
• representation
• networking
• information services
• business and trade development
• training and consultancy services
• membership development
• special export promotion services, etc.
The following table lists in general, the range of activities*1 covered under the various
functions .

Functions Activities
Representation hold regular dialogues with government to advocate, provide
feedback on, and help fine-tune policies and legislations
affecting business practices
serve on statutory boards and government committees to
help formulate policy guidelines and set standards that will
enhance business climate and members' competitiveness
Networking forge strategic alliances with local and foreign business
organisations to establish and develop mutually beneficial
relationships via Memoranda of Understanding, Joint
Consultative Committees, etc.
join a global network of Chambers of Commerce to facilitate co-
operation (eg. ASEAN-CCI, CACCI, etc)
provide leadership to co-ordinate members' efforts to trouble-
shoot, address, solve common problems/issues affecting business
operations
 Functions Activities
Membership Build up a membership base through recruitment of new members
Development and retention of existing ones. This is achieved by ...
• launching membership drives to supplement on-going
recruitment
• sustaining members' interest by offering quality services,
enhancing membership status and privileges
• encouraging co-operation and fraternity amongst members by
organising social and sports events
Information provide relevant business information to members such as
Services information on business opportunities, technological
advancements, government rules and regulations, etc2
maintain a trade library for members' use
conduct market surveys and economic research and
circulate findings to members through newsletters,
economic bulletins, general membership circulars or IT
tools
 Functions Activities
Trade and publish a directory of members, their businesses and capabilities
Business process trade enquiries
Development operate a business matching center to provide services such as ...
• arranging buyer-seller meetings
• providing facilities and secretarial services for meetings
between trade visitors and members
identify trade and investment opportunities and help members
maximise these through
• organising trade and investment missions
• arranging meetings between members and visiting trade and
investment missions
• organising trade fairs and exhibitions
• co-ordinating members' participation in trade shows
maintain a product display center to showcase members' products
(product display centers are usually sited within the chamber's
premises for easy access to trade visitors but if finances allow, they
could be sited in major overseas markets as in the case of the
Hongkong Trade Export Council)
Special Export issue certificates of origin, ATA carnets
Services
Functions Activities
Training and operate a training center*3 that will offer human resource
Consultancy/ development programmes, skills and technological
Advisory upgrading courses, etc
Services organise meetings, conferences, workshops, seminars to
provide members with fora for exchange of views and
experiences
encourage member companies to enhance competitiveness
through • quality management - eg. set up quality circles; adopt
"good housekeeping" practices; help members to attain ISO
standards
• improved product design - eg. organise competitions to
reward good product and packaging designs
encourage members to computerise their operations and take
other IT initiatives to achieve greater efficiency
maintain a list of consultants, resource personnel, professionals,
etc to whom referrals can be made if members require their
services
Functions Activities
Training and render basic in-house consultancy services by Chamber staff - eg.
Consultancy/ on energy conservation, environmental issues, etc as in the case
Advisory of the German Chambers of Small Businesses
Services offer arbitration/mediation/conciliation services to help resolve
(cont'd) trade disputes

Other Services
In addition to the above list, some Chambers of Commerce and Industry offer special
services, eg.
• the Singapore Confederation of Industries (formerly known as the Singapore
Manufacturers' Association) operates the Singapore Article Numbering Council
which issues bar-codes to members
• the Pune Chamber of India operates an employment service to help their members
recruit qualified staff
• the Chamber of Commerce and Industry in Colombo conducts tea auctions
• the Chamber of Commerce and Industry in Angeles (Philippines) runs a credit
program

• the provincial Chamber of Commerce and Industry in Jogjakarta (Indonesia) offers

telecommunications facilities to its members and the general public.