SECTION 1 THE NATURE OF BUSINESS SECTION 2 INTERNAL ORGANIZATIONAL ENVIRONMENT SECTION 3 ESTABLISHING A BUSINESS SECTION 4 LEGAL ASPECTS OF BUSINESS BUSINESS CONCEPTS AND DEFINITIONS 1. Enterprise: This refers to the taking of risks in establishing a business. 2. Entrepreneurship: The act of combining all the other factors of production (land, labour and capital) with the aim of establishing a profitable venture for the production of goods and services. 3. Barter: The exchange of one good/service for another. 4. Profit: The surplus funds which remain after all expenses have been covered. 5. Loss: The situation which exist when total sales are not enough to cover all expenses. 6. Trade: The buying and selling of goods and services. 7. Organisation: A social arrangement which pursues collective goals such as the production of goods and services.
The system within a country which determines the production, exchange and consumption of goods and services. 9. Producer: Any individual or organisation which makes goods and services. 10. Consumer: Any individual or organisation which uses goods and services. 11. Exchange: The voluntary trade of goods and services. 12. Goods: Tangible products which have been produced. e.g. car, rice, clothing etc. There are different types of goods Free goods- These are available to all without charge. They are gifts of nature e.g. air, sea, sunshine etc. Public goods- These are goods which can be consumed by all and are usually paid for by taxation. Consumption by one person does not exclude consumption by others. E.g. national defence. Merit goods- These goods can provide benefits to the consumer as well as to the rest of society e.g. health services and education. 13. Service: banking, transportation, Intangible products which have been produced. e.g.
14. Market: Any place where buyers and sellers meet to engage in trade. It is also referred to as the demand for a product. 15. Commodity: Any final good used for some purpose. 16. Capital: Money which is used in the organisation to acquire assets. It also refers to items (factories, equipment, machinery etc.) used to create final products. 17. Labour: This is the physical and mental contribution of individuals to the creation of goods and services. 18. Specialisation: This is the division of labour into specific tasks. A whole process is divided into several tasks. This helps to speed up the process and may result in an increase in productivity and a decrease in unit cost.
Over the centuries, as commerce has developed, so have the various instruments of exchange. In early times, people cultivated the land and reared animals to provide for their needs. The most basic of these needs were food, clothing and shelter. This production was the earliest form of man as an ‘economic animal’ and is known as direct production or subsistence economy. As production increased, there was a surplus of goods. However, no individual could produce all their needs and the system of barter resulted. This is where an individual exchanged one item for another, starting the earliest forms of trade. It was simple and helped to create wealth but there were also problems. These include: A double coincidence of wants -People could only trade with those who had something they wanted. An exchange rate -How much of one good was another worth e.g. how many chicken was a cows worth. Divisibility of goods -Some goods could not be broken done into smaller parts. E.g. Live animals could not be sold in portions. Storage of wealth -Many goods could not be saved/stored for the future e.g. fruits/meat spoil easily. To solve many of these problems, a system of ‘money’ was developed where things such as shells, beads, arrowheads, fishhooks, gold and animal teeth were used. Eventually
the form of notes and coins. It also includes: Credit cards- Credit company pays for goods/services while consumer makes payments to credit company Debit cards- Payment for goods through access of consumer’s bank account Cheques- Payment represented on paper to be taken from consumer’s bank account. Electronic transfer- Funds are transferred from one bank to another via computer. Tele-banking- The use of the telephone to manage bank accounts to make payments. E-commerce- The use of the internet to make purchases. Payment can then be made via electric transfer, credit card etc. PRINCIPLES OF BUSINESS REASON TO START A BUSINESS 1. Financial independence 2. Wanting to be your own boss 3. Self-fulfilment 4. There is a need for a product/service, which is not being met 5. Redundancy 6. Poor job prospects FUNCTIONS OF A BUSINESS 1. The provision of goods and services 2. The provision of jobs
4. To make a profit 5. Contribute to economic growth PRINCIPLES OF BUSINESS FORMS OF BUSINESS ORGANIZATIONS 1. SOLE TRADER : A person who owns his or her business Characteristics 1. Easy to set up 2. Financed by the owner 3. Bears all risks and keeps all profits 4. Provides a personal service 5. Has no one to account to Advantages 1. Easily and quickly formed and dissolved 2. Close relationship with customers 3. Decisions can be made quicker
5. Pays lower personal tax not company tax Disadvantages 1. Limited capital and it is not easy to get loans 3. Long working hours 4. Business usually dissolves if owner dies 4. Lack of specialized staff Formation The are usually no legal formalities needed excepted that in some cases, a special licence (e.g. liquor licence, health certificate) may be needed. The sole trader is usually required to register their trade name. Management The business is managed personally by the sole trader and the organisational structure is simple since it is usually only the owner and in some cases a few employees. This makes reporting and decision making quick. Since the owner is usually providing a personal service, he/she is able to set their own hours of work. There is no need to disclose the business affairs of the business to the public as is the case of a company, except for tax purposes ad creditors when seeking loans
An association between 2- 20 people operating a business with the common goal of making a profit. There are two types of partnership a) Ordinary Partnership where all profits and losses are shared equally b) Limited Partnership where the limited partner stand to lose only up to the amount which was invested. Characteristics 1. Minimum of 2 and maximum of 20 for formation. However for professional such as lawyers, accountants a maximum is not give since they are not allowed to form companies. 2. Capital is provided by the partners 3. A limited partner cannot take part in the management of the partnership 4. Profits share equally unless stated in agreement Advantages 1. Relatively easy to set up 2. More capital can be obtained than sole trader 3. Business will not end if one partner dies (continuity) 4. Specialization can occur thus leading to greater efficiency
5. Pays lower personal tax not company tax Disadvantages 1. Unlimited liability 2. Personalities of partners may cause difficulties in decision making. 3. Some difficulty in raising capital. 4. In the absence of an agreement all profits must be shared equally regardless of individual effort. Formation A partnership deed is usually written up to form the arrangement. This agreement usually indicates the number of partners, amount of capital from each partner, how profits are to be divided, name of partnership, salary to be paid, how partnership is to be dissolved, role of each partner, etc. Management This is carried out by the ordinary partners. 3. CO-OPERATIVES Businesses that are formed, owned and operated by its members.
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