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Unit 1: Introduction To Business and Business Forms

1. The document provides an introduction to business concepts, forms, and objectives. It defines business as regular activities involving production, purchase, and sale of goods/services for profit. 2. Business activities are classified into industry and commerce. Industry involves extraction, production, and manufacturing of goods, while commerce refers to buying, selling, and distribution of goods and related services like transportation and banking. 3. The primary objective of any business is to earn an economic profit to sustain operations and growth. Additional objectives include satisfying customers and creating customer demand.

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0% found this document useful (0 votes)
221 views11 pages

Unit 1: Introduction To Business and Business Forms

1. The document provides an introduction to business concepts, forms, and objectives. It defines business as regular activities involving production, purchase, and sale of goods/services for profit. 2. Business activities are classified into industry and commerce. Industry involves extraction, production, and manufacturing of goods, while commerce refers to buying, selling, and distribution of goods and related services like transportation and banking. 3. The primary objective of any business is to earn an economic profit to sustain operations and growth. Additional objectives include satisfying customers and creating customer demand.

Uploaded by

Suraj Rouniyar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Unit 1

Introduction to Business and Business forms


Business-Concept
Actually, meaning of business is the state of being busy. But technically the word business
includes all human activities concerned with earning profit. Business is an activity in which a
various person exchange something of value for mutual profit. It involves regular and systematic
activities of production, purchase and sales of goods and services with the purpose of earning
profit through the satisfaction of human needs. Goods and services involved in business are
human activities, such as purchase and sales, not for self-consumption.
Some of the important definition of business are:
According to L.H. Haney business may be defined as a human activity directed towards
producing wealth through buying and selling of goods.
According to R.N. Ownes Business is an institution organized and operated to provide goods
and services to society under the incentive of private profit.

Nature of business
1. Economic activity: business is an economic activity function as it involves production
and distribution of goods and services for the satisfaction of human being. However,
business operates in a society and it reflects the norms and values of people.

2. Production or exchange: Business involves regular and systematic activities of


production and exchange of goods and services for the satisfaction of human being.
Buying and selling of goods and services for a price are the importance of business.

3. Dealing in goods and services: Every business organization deals in goods and services.
Goods production and sold goods may be of consumer goods such as clothes, shoes, milk
etc. capital goods such as materials, tools and machinery etc. services includes drinking
water, electricity, tele-communication

4. Regularity in dealing: Regularity of economy transaction is the importance of business.


There should be regularity and continuity of exchange of goods and services for progress
motive. A simple transactions cannot be called business.

5. Risk and Uncertainty: All business activities involve some element of risk and
uncertainty. There is no certainty that business should be always result into profit.
Change in the taste of consumers change is demand of goods and services, pricing, policy
of government etc. are the few reasons for the risk and uncertainty.

6. Profit motive: The primary objective of every business is to earn profit. Profit motive
makes continuity in the business. Profit is also important for the growth and development
of the business.
7. Consumer satisfaction: A business organization most satisfy its customers. Customers
satisfaction is the prime objective of any business.

8. Creation of utility: Business creates various types of utility. For example, form utility,
place utility and time utility it produces goods and services supplies there to consumer at
reasonable price.

Scope of Business

Industry Commerce

1. Extractive industry 1. Trade


2. Genetic industry a. Home trade
3. Manufacturing b. Foreign trade
industry 2. Business services
4. Construction industry Banking
Transport
Communication
Insurance
Advertising
Warehousing

Business activities can be classified into two categories


1. Industry
2. Commerce
Industry: Industry refers to the production of consumers and capital goods through the utilization
of various resources. It is a process of changing raw materials into some products of human
needs. Thus, the activity of extraction, production, conversion, processing of fabrication of
products is described as industry on the basis of nature of goods produced, industry can be
classified as follows:
1. Extractive industry: Extractive industries are engaged in raising products from the soil,
air, water or from beneath the surface of the earth. Mining, fishing, hunting, oil refineries,
afforestation, farming, timbering etc are the main examples of extractive industries.
2. Genetic Industries: Genetic means heredity. Genetic industries are, therefore engaged in
the reproduction or multiplication of certain species of plants and animals. Plant
nurseries, poultry farms, fish hatchery, animal husbandry etc are the main examples of
the genetic industries.

3. Manufacturing Industries: Manufacturing industries involve conversion of raw material


into finished products. Such industries change the scope and form of materials produced
by extractive and genetic industries. They create form utility. Manufacturing industries
can further be classified as analytical industry, processing industry, synthetic industry,
and assembly industry. Cotton, sugar, textile, jute, cement, soap, television, petrol, diesel,
etc. are some examples of manufacturing industries.

4. Construction industries: Construction industries are engaged in the construction of


buildings, bridges, roads, dams, canals etc. these industries use the products of
manufacturing industries, such as iron and steel, cement, lime, bricks, etc. and also the
products of extractive industry such as stone, marble, etc. These play a vital role in the
progress of a country.
Commerce: Commerce is concerned with the buying, selling, and distribution of goods. It is an
organized system for the exchange of goods and services between the members of the business
world and also the rest of the society. Commerce includes buying and selling of goods, transport,
warehousing, bank, insurance, and all other related activities for the betterment of exchange of
goods and services. Commerce creates place, time and possession utility.
1. Trade: Trade means buying, selling and exchange of goods for money or moneys worth.
It is the final state of business activity. It helps traders to transfer goods to the final
consumers. Trade constitute the central activity around which the services functions like
banking, transportation, insurance. Trade may be classified into two broad categories as
follows:

a. Home or internal trade: Home trade consists of buying and selling of goods within the
boundaries of a country and the payment for the same is made in national currency.
Home trade may be further sub-classified into wholesale trade and retail trade.
b. Foreign or external trade: Foreign or external trade refers to buying and selling of
goods and services between two or more countries. In foreign trade, a businessman is one
country buys from or sells to another businessman in a different country.

2. Business service: The term business service means subsidiary activities which facilities
business organization. Banking, insurance, warehousing, transport, service activities.
a. Banking: Banks and other financial institutions provide financial assistance and
credit facilities to business organization. Banks are also facilities business activities
by providing remittance to the business organization.
b. Transportation: It provides the function of carry goods from producer to trader and
finally to consumers. Quick and economically means of transport such as roadways,
airways, and ropeways have widened the scope of trade to include transaction.
c. Insurance: Business involves several types of risks. These can be covered with the
help of insurance. Insurance company undertake to make good the loss to traders to
payment of insurance premium.
d. Warehousing: It refers to the holding of goods until they are finally consumed.
Goods have to be stored at every stage in the process of exchange. Warehousing
performs a useful function by matching supply with demand.
e. Communication: It gives information of new product to individuals and business
community, telephone, letter correspondence, newspaper, radio, TV etc. the
importance means of communication. These services facilitates, the business
transactions and help in the improvement of efficiency.
Objective of business:
Every business has objectives and goals. Objectives of business means the purpose for which the
business is established to run. Objective of business can be classified into three broad categories.
They are:
1. Economic objective
2. Social objective
3. Human objective
Economic objective: Business is primarly a economic activity, and therefore, its objective is to
show economic outcomes. The economic objective of business mainly includes the following:
i. Earning profit: Profit earning is the fundamental economic objective of business. Profit is
an absolute necessity for every business enterprises. Profit is necessary to provide
adequate return on capital, to provide funds for innovation and growth. And to provide
better working conditions to the employees.
ii. Creating customer: The business can survive only if there is demand for its goods and
services. It must create new customers and satisfy their needs. Continuous search for new
customers is necessary for earning adequate profits.
iii. Innovation: In these days of competition, innovation is the soul of business. Innovation
means research and development activities. It involves changes in management,
production, selling, servicing method of personnel and accounting etc.
iv. Optimum utilization of resources: Every business is expected to make the best use of
men, machine and materials which are considered to be scarce resources. This objective
can be achieved by employing efficient personnel, making full use of machines and
reducing wastage of materials and financial resources.
Social Objective: Business is a part of society and services in the society. It can, thus, achieve
its economic objective only by having deep roots in the society. Business should meet the
various aspirations and social needs of the society. The social objective of business are as
follows:
i. To provide better quality goods and services at reasonable prices to the customers.
ii. To provide employment opportunities for the society.
iii. To pay taxes to the government honestly
iv. To provide fair return to the investors
v. To follow socially desirable and fair trade practices.
Human Objective: The human objective of business are as follows:
i. Fair remuneration to employees
ii. Sympathy towards employee/workers
iii. Satisfactory working conditions for them
iv. Employees/workers participation
v. Profit sharing to the workers.
vi. Better quality goods at reasonable prices to the customers.
vii. Handsome return to investors on their investments.

Business as a system
Business as a system is a combination of business commerce, occupations, and
organizations that produces and distributes the goods and services that create value for
people in a society.
A business system is an organized or complex or whole, combination of things or parts
forming a complex or unitary whole.
A business system is an established arrangement of components which leads to the
attainment of particular objective according to plan.
The system in business includes: Input, process and output.
Business system can be a system of task and authority relationship that coordinates and
controls the interactions between people so that they work toward a common goal.

Business and Environment interface


1. Awareness of the socio-economic situation
2. To estimate the availability of resources
3. To estimate present and future production
4. Changing methodology of production
5. To analyze the consumer behavior
6. To understand cultural changes.

Forms of Business Organization


Sole Trading/Sole Proprietorship
Sole trading concern is the oldest and the simplest form of business organization. A sole trader is
a person who carries on business exclusively by and for himself.
According to Peterson and Plowman A sole proprietorship is a business unit whose ownership
and management are vested in one person. The individual assumes all the risk of loss and failure
of the enterprise and receives all profit from its successful operation.
Characteristics of sole trading concern:
1. Sole ownership
2. Unlimited liability
3. No legal entity
4. No profit sharing
5. Limited area of operation
6. Freedom in action
Advantages and disadvantages of Sole Trading Concern
Advantages Disadvantages
1. Easy to start and dissolve 1. Limited liability
2. Quick decisions 2. Limited managerial ability
3. Secrecy 3. Unlimited liability
4. Direct Motivation 4. Uncertain life
5. Personal Relation 5. Loss by absence
6. Flexibility 6. Limited scope of expansion
7. Easy to get loans
8. Social Benefits

Partnership: Meaning
Partnership is an association of two or more persons who agree to combine their financial and
managerial abilities to run a business. Persons who have entered into partnership are individually
called partners and collectively known as a firm.

Characteristics/Nature of Partnership firm


Two or More Persons
Mutual Agreement
Lawful Business
Sharing of Profit
Unlimited liability
No separate Entity
Mutual Agency
Restriction on Transfer of interest
Advantages and Disadvantages of Partnership firm
Advantages Disadvantages
Easy to start & dissolve Limited resources
Large Capital Unlimited liability
Combined abilities Mutual conflicts
Quick decisions Uncertain life
Secrecy Delay in decisions
Direct Motivation Abuse of implied authority
Flexibility No transfer of interest
Protection of minority interest

Difference between Sole Trading & Partnership


Basis Sole Trading Partnership

Number of Owned by one person Minimum No of Partners: 2


members
Maximum No of Partners: 20 ( 10 in
case of Banking)

Agreement No agreement It is formed as a result of agreement


between partners i.e. Partnership
Deed
Capital Limited Capital Can raise more capital than sole
trading
Management Governed by single person Active partners are involved in
management

Sharing of Profit Sole trader enjoys the entire profit Profit is shared among the partners
in Profit Sharing Ratio

Risk Bearing Sole trader bears all the risk Risk is borne jointly and
individually by all the partners

Secrecy Business secrets are not open Business secrets are open to partners
Decision Making Quick Decision making Delayed decision making

Joint Stock Company


A company is an artificial person created by law having a separate entity with a perpetual
succession and a common seal.
A joint stock company is an association of persons having a separate legal existence, perpetual
succession and common seal. Its capital is generally divided into shares which are transferable
subject to certain conditions.
Characteristics of Joint Stock Company
1. An artificial Person
A company is an artificial person created by law having a separate existence of its own. A
company has a personality of its own. Like a person it can buy, own or sell the property in its
won name, it can file a suit against others and can be sued against. It can conduct a lawful
business and enter into contract with others.
2. Separate legal entity
A company which is itself a person, has naturally a separate entity from its members. A company
cannot be held liable for the actions of its members. Similarly, a shareholder cannot be held
liable for the acts of the company. A creditor of the company is not a creditor of its members.
Members of the company cannot be sued by creditors for the debts of the company. As such, a
company has got a separate legal existence in the eyes of law. There can be a control between a
company and its members.
3. Perpetual Succession
A company is created by law and only the law can liquidate it. The death, insolvency, inability or
lunacy of members does not affect the life of a company. It continues to exist even if all its
members dies. It is rightly said Members may come, members may go, But the company goes
on forever
4. Limited Liability:
The liability of every member of a company is limited to the extent of the face value of the
shares purchased by him. Even if the assets of the company are not sufficient to pay the claims of
the creditors, no member can be pay the claims of the creditors, no member can be called to pay
anything more than what is due from him.
5. Common Seal:
Being an artificial person, a company cannot act and sign itself. It acts through its officers. A
common seal is the official signature of the company. All the acts of the company are authorized
by its common seal. The company seal is affixed on all important documents as a token of the
companys approval. In the absence of the common seal, the liabilities of the company cannot be
accepted
6. Transferability of Shares:
The capital of a company is divided into parts. Each part is called a share. These shares are
generally transferable. A shareholder is free to withdraw his membership from the company by
transferring his shares.
7. Representative management:
The ownership and the management are two different hands of a company. Shareholders of a
company have no right to participate directly in day-to-day management of the company. They
elect their representatives, called directors, who manage the company on behalf of the members.
Directors are the legal representations of the shareholders.

Cooperative organization
Co-operative organization is the form of organization where in persons voluntarily
associate together as business being a basis of equality for promotion of economic
interest of themselves.
It is established for economical and social development of weaker section of the society.
The associations can be registered under Nepal Cooperative Act, 2048. The concept of
cooperatives was developed to minimize the economic and social imbalances caused
by industrial revolution. Economic hardships and exploitations suffered by labour and
other weaker section of society compelled them to think of mutual help in order to better
their economic conditions. This led to worldwide cooperative movement in various
fields, such as consumer cooperative in Nepal

Nature/Characteristics of cooperative organization


Voluntary Organization
Equality
Democratic motive
Service motive
Legal Existence
Cash transactions
Liability
Multinational Company
The term Multinational consists of multi and national
The word multi means many, while the word national refers to nations or countries.
Multinational company refers to a company or corporate form of business organization
which has its head office in one country but its business operations in a number of other
countries.
A multinational corporation owns and manages business in two or more countries.
(Neil H. Jacoby)

Characteristics of Multinational Company


1. Productive organization
2. Global area
3. Mass production
4. Management and control
5. Advanced technology
Advantages and Disadvantages of Multinational Company:
Advantages Disadvantages
Technology for growth and Increased dependence
development Decrease sovereignty
Technology for modernization Increased exploitation
Skills for local industry Inappropriate technology
Access to foreign markets Displacement of local firms
Provision of employment Outflows of foreign exchange
Contribution to balance of trade
Increase in Tax Revenue

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