Business definitions

A business is an organization or entity that sells goods or services for a profit. The important part
of this definition is that a business is something that operates in order to make a profit. Not all
businesses actually are successful enough make a profit, but their main purpose is to generate
profits.
Business is 'the organized effort of individuals to produce and sell, for a profit, the goods and
services that satisfy society's needs.' A business, then, is an organization which seeks to make a
profit through individuals working toward common goals. The goals of the business will vary
based on the type of business and the business strategy being used. Regardless of the preferred
strategy, businesses must provide a service, product, or good that meets a need of society in
some way.
The term business refers to an organization or enterprising entity engaged in commercial,
industrial, or professional activities. Businesses can be for-profit entities or they can be non-
profit organizations that operate to fulfill a charitable mission or further a social cause.
There are three key characteristics that must be met to have a business. First, businesses must be
the result of individuals working together in an organized way. Second, businesses must satisfy a
societal need. Third, businesses must seek to make a profit.
An organisation can be defined as an entity or a social unit that comprises several people who
work together to achieve a common goal.
Enterprise: The skill and risk taking ability of the person who brings together all the other factors
of production together to produce goods and services. Usually the owner or founder of a
business. In return the entrepreneur will make a profit (or a loss)
Impact of enterprise on a country’s economy
All governments around the world are following policies that aim to encourage more people to
become entrepreneurs. What are the claimed benefits to the economy of business enterprise?
Employment creation: In setting up a new business, an entrepreneur is employing not only
themselves (self-employment), but also, very often, employing other people too. Very often these
are members of the family or friends, but in creating such employment, the national level of
unemployment will fall. If the business survives and expands, then there may be additional jobs
created in the businesses that supply them.
Economic growth: Any increase in output of goods or services from a start-up business will
increase the gross domestic product of the country. This is called economic growth, and if
enough small businesses are created, it will lead to increased living standards for the population.
In addition, increased output and consumption will also lead to increased tax revenues for the
government
Firms’ survival and growth: Although a high proportion of new firms fail, some survive and a
few expand to become really important businesses. These will employ large numbers of workers,
add considerably to economic growth and will take the place of declining businesses that may be
forced to close due to changing consumer tastes or technology. So, in Trinidad and Tobago, the
relative decline of the sugar industry has been balanced out by the growth of the tourist industry,
which has itself been boosted by small guesthouse businesses operating as sole traders
Innovation and technological change: New businesses tend to be innovative and this creativity
adds dynamism to an economy. This creativity can rub of on to other businesses and help to
make the nation’s business sector more competitive. Many new business start-ups are in the
technology sector, e.g. website design. The increased use of IT by these firms, and the IT
services they provide to other businesses, can help a nation’s business sector become more
advanced in its applications of IT, and therefore more competitive.
Exports: Most business start-ups tend to of er goods and services that meet the needs of local or
regional markets. Some will expand their operations to the export market, however, and this will
increase the value of a nation’s exports and improve its international competitiveness.
Personal development: Starting and managing a successful business can aid in the development
of useful skills and help an individual towards self-actualisation – a real sense of achievement.
This can create an excellent example for others to follow and can lead to further successful new
enterprises that will boost the economy still further.
Increased social cohesion: Unemployment often leads to serious social problems and these can
be much reduced if there is a successful and expanding small business sector. By creating jobs
and career opportunities and by setting a good example for others to follow, entrepreneurship can
help to achieve social cohesion in the country.

SECTORS OF BUSINESS

 Primary Sector. The primary sector serves as the foundation of all business. Think of this
as the raw materials that support everything else.
 Secondary Sector. Once those raw materials have been cultivated, the secondary sector
turns them into products. ...
 Tertiary Sector. The vast majority of U.S. workers are employed in the tertiary sector,
which is the business segment that provides services to customers.
 Public Sector. Although government agencies and their employees technically provide
services to consumers, this section of the economy differs so dramatically from the
tertiary sector that it’s worth separate consideration.
business sector meaning pertains to the distinctions made between businesses. These distinctions
are made according to industry or sector. There are multiple ways to classify businesses by
sector. Some economists like to divide businesses according to corporate, nonprofit, and
government organizations.
More often, the economy is divided into three sectors: the primary, secondary, and tertiary
sectors. The only problem with this classification system is that it precludes the fourth sector,
including government agencies and agencies that are government-controlled.
The Primary Sector
The primary sector acts as a foundation for all other businesses. It creates the raw materials that
go on to support every other sector. Industries that fall within the primary sector include:
 agricultural
 farming
 fishing
 forestry
 mining
In developing countries, the primary sector constitutes a large part of their economy. In the
United States, the economy continues to see a gradual shift from the primary sector to the
secondary and tertiary sectors, due to advancements in technology.
The Secondary Sector
Once the primary sector produces raw materials, the secondary sector transforms them into
various products. The secondary sector includes the manufacturing industry, comprising a
significant portion of the United States workforce. However, the Bureau of Labor Statistics
expects employment in manufacturing to continue to decline.
Similar to the primary sector, technology is a major factor in the secondary sector's decline.
Technology allows manufacturers to get more done with fewer resources.
The Tertiary Sector
Most of the workers in the United States are members of the tertiary sector. This is the segment
that provides a service to the public. Examples include:
 hotels
 retail industry
 restaurants
 sales
Each of these sectors relies on the products produced in the secondary and primary sectors. The
tertiary sector also encompasses the transportation industry that goes on to deliver the secondary
sector's manufactured products to tertiary businesses.
Technology has created a subcategory within the tertiary sector known as the quaternary sector.
This category includes phone, cable, and internet providers.
The Public Sector
Even though government agencies also provide a service to the public, this section is different
from the tertiary sector. In fact, it requires a completely separate consideration.
Examples of the public sector include:
  libraries
 schools
The public sector includes any organization owned or operated by a government agency. Unlike
the private sector, these organizations rely on taxpayer dollars instead of revenue from customers
who are paying for goods or services.
These agencies may outsource work to private contractors which will then perform the work for
private and public sector clients.

BUSINESS STRUCTURE
Differences between Private and Public Sector
Private Sector
This sector comprises businesses owned and controlled by individuals or groups of individuals.
Such businesses are commonly found in the free market economy. Their main aim is to make
profit through the sale of private goods. Examples of business found in the private sector include:
i) Sole trader
ii) Partnership
iii) Private Limited Companies
iv) Public Limited Companies
v) Co-operatives
SOLE TRADER
Refers to a business in which one person provides permanent finance and, in return, has full
control of the
business and is able to keep all of the profits. It is owned by one person. However the owner may
employ other people. Examples are hair salons, bus operators, grocery stores etc.
Formation: No legal formalities are required
Ownership: owned by one person
Legal status : The business is not a recognised as a legal person. It is referred to as an
unincorporated business
Liability : The owner of the business suffer from unlimited liability. If the business fails the
owner may loose personal possessions (personal property)
Continuity : The business come to an end when the owner dies
Tax Issues: it does not pay corporate taxes, but rather the person who organized the business
pays personal income taxes on the profits made, making accounting much simpler
Advantages
1 –easy to form (less capital and legal requirements)
2 –owner has direct control of the business (makes decisions that best suit his/her conditions
3 –all profits go to the owner
4 –enjoys major exemptions from Government legislation
5 –no double taxation
6 –has personal contact with both customers and employees
7 –easy to terminate
Disadvantages
1 –unlimited liability
2 –can raise little capital
3 –limited management expertise
4 –poor quality decision making
5 –difficulty in attracting qualified employees
6 –lack of continuity when the owner dies
2 Partnerships
-a business owned by at least two but not more than twenty people. The partners agree to carry
on business together, with shared capital investment and , usually, shared responsibilities. To
enter into a partnership, partners can have a verbal agreement or otherwise write a Partnership
Deed/Agreement
which is a document setting out the following details:
a) amount of capital contributed by each member
b) salaries/wages to be paid to each member
c) rights and obligations of the partners
d) procedure for partnership dissolution) profit/loss sharing ratio
e) Name of firm - includes the name of the business entity.
f) Date of writing - includes simply the date that the contract was written.
g)Duration of partnership - includes how long the partnership should last. It is automatically
assumed that the death of one of the contracting parties breaks the contract, unless otherwise
stated.
h)Business to be done - includes exactly what will be done in this partnership. This section
should be very particular to avoid confusion and loopholes.
Formation: fewer legal formalities are involved
Ownership: owned by at least two to a maximum of twenty partners
Legal status : The business is not a recognised as a legal person. It is referred to as an
unincorporated business
Liability : The partners suffer from unlimited liability. If the business fails the owner may lose
personal possessions (personal property)
Continuity : The business come to an end when the key partner dies
Tax Issues: it does not pay corporate taxes, but rather the partners who organized the business
pays personal income taxes on the profits made, making accounting much simpler
Advantages
1 –easy to form (same as sole proprietor)
2 –more capital available
3 –diversity of skills and expertise
4 –quality decisions are made
5 –personal contact with employees and clients
6 –risk is spread over a number of people
7 –relative freedom from government control
Disadvantages
1 –unlimited liability i.e all of the owner’s assets are potentially at risk
2 –disagreements may easily lead to winding of the business
3 –all partners responsible for the acts of each other
4 –lack of continuity when the key partner dies or become insane
5 –profit/loss sharing ratio not necessarily equal
6-the partnership often face intense competition from large firms
7-the owner , by taking on a partner, will lose control of the business
Limited companies
Also known as Joint stock companies. These are businesses where a number of
owner(shareholder) pool in their resources to do a common business and to share the profits and
losses proportionally.
In a limited company, the debts of the company are separate from those of the shareholders. As a
result, should the company experience financial distress because of normal business activity, the
personal assets of shareholders will not be at risk of being seized by creditors. Ownership in the
limited company can be easily transferred, and many of these companies have been passed down
through generations.
General features of Joint Stock Companies / limited Companies
1 –separate legal entity
2 –shareholders have limited liability
3 –owners are called shareholders (buy shares)
4 –shareholders receive dividends as payments
5 –the Board of Directors manages the affairs of the company
6 –the company is governed by Memorandum and Articles of Association
7 –shareholders hold Annual General Meetings (AGMs)
NB: A share is defined as a certificate confirming part ownership of a company. This certificate
also entitles the shareholder the right to dividends. Shareholder- a person or institution owning
shares in a limited company
a)Private Limited Companies
Refers to a small to medium-sized business that is owned by shareholders who are often member
of the same family. This company cannot sell shares to the general public. They have two but not
more than fifty shareholders. The right to transfer shares is limited. The business should submit
financial statements and auditors reports to the Registrar of Companies
Formation: There are complex legal formalities. Two documents should be drafted by the
founders of the company and these documents include the memorandum and articles of
association
Ownership: owned by at least two to a maximum of fifty shareholder
Management and Control: it managed and control by the board of directors
Legal status : The business is recognised at law as a legal person. It is referred to as an
incorporated business
Liability : The shareholders enjoy limited liability. If the business fails the shareholders’ personal
assets cannot be taken. They only lose the capital they have invested in the business.
Continuity : There is continuity
Tax Issues: there is double taxation. The shareholders pay tax on their incomes and the business
also pay corporate tax
Advantages
1 –shareholders have limited liabilities
2 –more capital can be raised
3 –greater status than an unincorporated businesses
4 –easy to transform into public limited companies
5 –do not have to publish annual accounts in the press
Disadvantages
1–not easy to form (up to six months)
2–has to fill complex tax forms
3–cannot raise capital through the stock exchange
4- quite difficult for the shareholders to sell shares
b) Public limited companies
-a large business, with the right to sell shares to the general public. The share prices are quoted
on the national stock exchange. They have at least two shareholders to no maximum limit.
Shares are freely transferable. The public can be invited to subscribe to shares and debentures
through a prospectus. Can only start business after complying with all the requirements of the
Companies Act. Annual accounting reports (financial statements) are supposed to be published
in the press. Must keep a register of investors and directors’ shareholding
Formation: There are more complex legal formalities. Three documents should be drafted by the
founders of the company and these documents include the memorandum of association, articles
of association and the prospectus
Ownership: owned by at least two to no maximum limit of shareholder
Management and Control: it managed and control by the board of directors
Legal status : The business is recognised at law as a legal person. It is referred to as an
incorporated business
Liability : The shareholders enjoy limited liability. If the business fails the shareholders’ personal
assets cannot be taken. They only lose the capital they have invested in the business.
Continuity : There is continuity
Tax Issues: there is double taxation. The shareholders pay tax on their incomes and the business
also pay corporate tax
Advantages
1 –easy to raise capital through floating shares on ZSE
2 –can operate on a large scale
3 –unlimited life
4 –employees can become shareholders-increases loyalty
5 –managers and directors have room to work independently therefore prove their expertise in
their areas of specialization
6-shareholders enjoy limited liability
Disadvantages
1 –difficult to form
2 –files always open for inspection by members of the pubic
3 –decisions take time to make due to large size of the company
4 –no personal touch between employees and customers
5 –conflict of interest-shareholders are usually interested in expanding the business

Co-operatives
-Is an association of persons united voluntarily to meet common economic, social and cultural
needs.
Usually members join together to purchase or sell goods that they cannot afford individually.
Main features
1 –formed by people who want to work together
2 –is voluntary
2 –members make equitable contributions
4 –risks and benefits are shared equally
5 –are democratically controlled
6-the name ends with Co-op
Formation
Members should have a common goal. These members will then draft the constitution and the
management committee is elected usually at an annual general Meeting
There are different types of co-operatives:
Housing cooperative
Retailers' cooperative
Worker cooperative
Consumers' cooperative
Agricultural cooperative
Advantages
 It is easy to form e.g any ten adults form a co-operative
 No legal formalities are involved
 Membership is open to everyone
 Members enjoy limited liability
 Members get goods and services at reasonable prices
 There is continuity
 Surplus is shared amoung members
 State patronage ( government provides special assistance to the co-operatives to enable them
to achieve
their objectives successfully
 They are usually tax exempted
Disadvantages
 unable to raise large amount of financial resources
 It is managed by members who may be lacking the required management skills
 Can be affected by conflict since it is an association of people from different social, economic
and academic background
 Absence of rewards discourage the members to put maximum effort in the society
Franchising
Refers to an agreement where one party (the franchisor) grants another party (the franchisee) the
right to use its trade mark or trade name as well as certain business systems. The franchisee sells
the franchisor's product or services, trades under the franchisor's trade mark or trade name and
benefits from the franchisor's help and support.
In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the
sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over
how products are marketed and sold and how their business idea is used.
Well-known businesses that offer franchises of this kind include: Pizza, Bata, McDonalds,
Nandos etc
Contractual Obligation
 A franchise agreement should be drafted and signed by both parties. This is a legal contract in
which the
franchisor gives the franchisee the right to use the business’s trade mark.
 The franchisor is not allowed to open a similar business nearby
 It must specify the franchise fee as well as monthly royalty payment
 The agreement lays out details of what duties each party needs to perform
 It also state the duration of the franchise contract
Advantages to the franchisee
 Franchisee benefit from pre-opening support e.g site selection, design, financing
 Franchisor assist in training staff
 Franchisor advertise goods on behalf of the franchisee ( saves money)
 Franchisee enters into an existing market which increases the chances of business success.
 Risk is reduced and is shared by the franchisor.
 Relationships with suppliers have already been established.
Disadvantages to the franchisee
 The franchisor might go out of business, or change the way they do things.
 The franchise agreement usually includes restrictions on how you run the business. You might
not be
able to make changes to suit your local market.
 The franchisee must pay initial fee and continuing fees to continue to use the trade mark
 The franchisee cannot sell goods from other suppliers
 Breach of contract can result in a penalty charge
Advantages to the franchisor
 It’s a source of income to the franchisor (royalties received)
 Risk of the business is spread amoung different franchisees
 A network of outlets gives the business a far better chance of success
Disadvantages to the franchisor
 Other franchisees could give the brand a bad reputation.
 Franchisor must provide the franchisee with on-going support which then requires constant
research
 Setting up a franchise requires a lot of money
Joint Ventures
It occurs when two or more businesses agree to work closely together on a particular project and
create
a separate business division to do so. Joint Venture is not a long term business relationship but a
short term relationship based on a single business project. The business is not a separate legal
entity. Once the joint venture has met it’s goals, the entity ceases to exist. An example include
Sonny and Ericson formed Sonny Ericson to produce handsets.
Joint Venture Agreement Should cover:
 The parties involved
 The objectives of the joint venture
 Contributions made by each party
 Dispute resolution procedure
 How the joint venture is terminated
 Non-disclosure agreements
 Day to day management
Advantages
 Provide companies with the opportunity to gain new capacity and expertise
 Allow companies to have access to new technology
 Access to greater resources, including specialised staff and technology
 Sharing of risk with a venture partner
Disadvantages
 The business failure of the partner would put the whole project at risk
 Styles of management and culture might be so different that the two teams do not blend well
together
 The parties don’t provide enough leadership and support in the early stages
 Errors and mistakes might lead to one blaming the other for mistakes
Strategic Alliances
A strategic alliance is an agreement between two companies that have decided to share resources
to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less
permanent than a joint venture. The main purpose is to allow two organisations, individuals or
other entities to work toward common or correlating goals. Unlike a joint venture, firms in a
strategic alliance do not form a new entity to further their aims but collaborate while remaining
apart and distinct.
Examples of Strategic Alliances
An agreement with a Local University- finance is provided by the business to allow new
specialist training courses that will increase the supply of suitable staff for the firm
An agreement with a supplier- to join forces in order to design and produce components and
materials that will be used in a new range of products.
An agreement with the competitor- to reduce the risk of entering a market that neither firm
currently operates in.
Holding Companies
Refers to a business organisation that owns and controls a number of separate businesses, but
does not unite them into one unified company. They are not a different legal form of business
organisation, but they are an increasingly common way for business to be owned.
Family Owned Businesses
Refers to businesses that are actively owned and managed by at-least two members of the same
family.
Decision making is influenced by multiple generations of a family related by blood.
Strengths of family business
 Stability- family positions typically determines who leads the business and as a result, there is
longevity in leadership. Family leaders stay usually stay in the positions for many years until a
life event such as illness, retirement or death results in change
 Commitment- since the needs of the family are at stake, there is a greater sense of
commitment
and accountability. The family owners often show dedication in seeing the business grow,
prosper and get passed on to future generations. This level of dedication is almost impossible
to generate in non-family firms
 Flexibility- you won’t hear “Sorry but that’s not my job description”. In a family business,
family members are willing to wear several different hats and to take on tasks outside of their
formal job on order to ensure the success of their company.
 Long term outlook- non family firms think about hitting goals this quarter, while family firms
think years, and sometimes decades, ahead. This ‘patience’ and long term perspective allows
for good strategy and decision making
 Decreased costs- family members working at family businesses are willing to contribute their
own finance to ensure the long term success of the organisation. This could mean contributing
capital or taking a pay cut. This advantage comes in handy during economic down turns, where
it is necessary to personally suffer in order for the firm to survive.
Weakness of family businesses
 Family conflicts- deep seated, long lasting bitter fights and quarrels can affect every single
person within the firm and can draw divisive lines. These conflicts are usually difficult to solve
and result in a premature ending of the business.
 Unstructured governance- governance issues such as internal hierarchies and rules, as well
as the ability to follow and adhere to corporate laws, tend to be taken less seriously at family
businesses. There is little interest in setting clear and formal business practices and procedures
and this situation can lead to inefficiencies
 Tunnel vision- there lack of outside opinions and diversity on how to operate the business.
Family members are given jobs for which they lack the required skills, education and experience.
This has got far- reaching effects on the success of the business.
 Issues of fair remunerations can be ‘a can of worms’- the issue of wages and salaries can
be a highly sensitive subject. The question is how the pie is going to be divided. Paying family
members and dividing the profits amoung them can be a difficult affair. Many people usually
feel that they are underpaid and family members too. We have family members who comments
like this, ‘uncle Jack sits around and gets more than I do’
Public Sector
Refers to all the businesses that are owned by the government on behalf of the public. They can
be district councils or public corporations. They are established by an Act of Parliament. They
are corporate bodies with a separate legal entity -they are managed by a Board appointed by the
Minister -the Minister can be questioned by parliament over activities of the corporation
Advantages
 They provide important goods and services at reasonable prices
 Provide employment to the majority
 Implement government policies e.g charge low prices to reduce inflation
 They are a source of income to the government
Disadvantages
 They are inefficient and very wasteful due to the lack of profit motive
 They tend to provide poor quality goods and services due to the absence of stiff competition
 Lack of motivation amoung workers leads to inefficiency
 They suffer from excessing political interference
Public Sector and Private Sector contrasted
Usually the aim of public sector business is to provide services to the community. For example if
the transport system is owned by the government and it is running a bus service to an interior
village and it is not getting enough customers, the government might still continue it as its main
objective is to provide service and not to maximise profits. Whereas private sectors business give
priority to profits and may end the service if it does not find it profitable to run the service.
Secondly Public sector strives to create employment whereas Private sectors main aim is to
become efficient and cut cost and in this process they might cut jobs.
Public sector business usually locates in regions where there is underdevelopment so as to create
jobs and income for local population. Private sectors might not keep these things in consideration
and will look for external economies of scale.
Privatisation involves selling state-owned assets to the private sector
Advantages of Privatisation
1. Financial Resources
The main advantage of privatization is to generate financial resources for the government in
order to generate resources disinvestment of public sector enterprises.
2. Optimum Utilisation of Resources
It has been observed that the public sector has failed in the optimal use of national
resources. The private sector may success in the optimum use of resources by maintaining
efficiency.
3. Fostering Competition
Most of the public Enterprises enjoy the status of monopoly. It results in inefficiency and
losses. Privatization creates a situation of competition for public Enterprises and they are
forced to improve their efficiency.
4. Reduce Fiscal Burden
Privatization reduces the fiscal burden of the state by relieving it of the losses of the public
enterprise and reducing the size of the bureaucracy.
5. Economic Democracy
Privatization helps to control government Monopoly. It helps to attract more resources from
the private sector. It emerges economic democracy by private participation in Economics
sphere.
6. Better Industrial Relations
Privatization may increase the number of workers and the common man who are
shareholders. This could make the Enterprises subject to more public vigilance.
7. Reduction in Political Interferences
The process of privatization reduces political interferences in the public sector enterprises by
giving more representation to the private sector in the management of Public Enterprises.
8. Reduction in Bureaucracy
Public Enterprises become synonyms bureaucracy. They can be made from bureaucracy by
the process of privatization.
9. More Productivity
The private sector can improve productivity by maintaining efficiency in its operations.
Advantages and Disadvantages of Privatization
Disadvantages of Privatisation
1. Problem of Price
The government usually want to sell the least profitable Enterprises, those that the private
sector is not willing to buy at a price acceptable to the government.
2. Opposition from Employees
Disinvestment tends to arise political opposition from employees who may lose their jobs,
from politicians who fear short-term unemployment consequence of liquidation of cost
reduction by private owners, from bureaucrats who stand to lose patronage and from those
sections of the public who fear that national assets are being concerned by foreigners, the
rich or a particular ethnic group.
3. Problem of Finance
In the developing countries under the developed capital market sometimes makes it difficult
for the government to float shares and for individual buyers to finance the large purchase.
4. Improper Working
The main disadvantage of the private sector is that it has fallen much short of what this
sector is capable of or what it has achieved in some other countries. The private sector is not
interested in cost reduction and quality production.
5. Independence on Government
There has been an excessive Regulation and control of the private sector by the government.
This has prevented and competition from becoming a generalized phenomenon of the
economy.
6. High-Cost Economy
Another problem with the private sector is that its cost, in general, are large and the price of
products are unduly high.
7. Concentration of Economic Power
The private sector emerges Monopoly and the concentration of economic power in the hands
of few.The private sector operates on the principle of maximization of the Monopoly profits. It
is harmful to consumers and society as a whole.
8. Bad Industrial Relations
An unfortunate aspect of the private sector is the recurrence of industrial disputes which
9. Widespread Sickness
The private sector Industries such as Textiles, engineering, Chemicals, iron, and steel and
people are suffering from the problems of industrial sickness.