Category: Business Studies

1. Social Responsibility

Social responsibility is the obligation of businessmen towards the society. Businessmen must review the impact of their decisions and actions on the other sections of the society.

According to Peter F Druker, “Social responsibility requires managers to consider whether their action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony.”

2. Need for Social Responsibilities

A businessman must perform social responsibilities because of the following reason

(i) Self interest
(ii) Better environment for business
(iii) Public image
(iv) Avoidance of government interference
(v) Social power
(vi) Resources used for moral justification
(vii) Contribution to social problems

3. The Case Against Social Responsibility

Some experts criticise the concept of social responsibility, some of the arguments given against social responsibilities are given below

(i) Motive of earning profit
(ii) Lack of social skill
(iii) Social responsibility involves cost
(iv) Dilution of basic goal of business
(v) Business are not moral agents
(vi) Reduction in competitiveness

4. Reality of Social Responsibility

After learning the case for and against social responsibilities, we can conclude that business is no longer a mere economic institution but it is also a social institution and businessmen are the trustees of different social groups.

The main reasons and factors which have forced businessmen to consider their responsibilities towards society

(i) Threat of public regulation
(ii) Pressure of labour movements
(iii) Impact of consumer consciousness
(iv) Development of social standard for business
(v) Relationship between social interest and business interest
(vi) Development of professional managerial Class

5. Kinds of Social Responsibilities

(i) Economic Responsibility

In an economic responsibility, business is expected to produce goods and services that are beneficial for society and society which wants and sell them at a profit.

(ii) Legal Responsibility

Every business enterprise is expected to operate within the legal frame work of our society. A law abiding enterprise gets no interference of government and is considered as a socially responsible enterprise.

(iii) Ethical Responsibilities

Ethics is much more than law, while behaving ethically businessmen should not be involved in adulteration, black marketing, etc.

(iv) Discretionary Responsibilities

This responsibility is purely voluntary. This includes contribution in charity. Participation in social service projects, setting up educational and training institutions etc helping people affected by flood, earthquake etc.

6. Social Responsibility towards Different Interest Groups

(i) Responsibilities towards Consumers

(a) Production of safe items by maintaining quality standards
(b) Being truthful in advertising
(c) To follow fair trade practices.

(ii) Responsibilities towards Employee

(a) Providing fair compensation and benefits
(b) Providing good and safe working conditions
(c) To give them opportunities to participate in decision making

(iii) Responsibilities towards the Owners / Shareholders / Investors

(a) To ensure safety of investment
(b) To ensure fair and regular return on investment
(c) To ensure appreciation of investment by proper utilisation of resources

(iv) Responsibilities towards the Government

(a) To abide by rules, regulations and laws
(b) To pay taxes and duties on time
(c) To help in solving social problem

(v) Responsibilities towards the Community

(a) To protect the environment from all types of pollution
(b) To provide more employment opportunities
(c) To help the weaker section of the society

(vi) Responsibilities towards Suppliers

(a) To ensure regular payment to the supplier
(b) To adopt fair dealing with the suppliers
(c) To protect and assist small scale suppliers by placing order with them

7. Business and Environment Protection

(i) Causes of Environmental Pollution

Environment pollution arises due to the following causes

(a) Air pollution
(b) Water pollution
(c) Land pollution

(ii) Need for Pollution Control

The main reasons to control the pollution are as follows

(a) To ensure safety
(b) Economic losses
(c) To maintain the natural beauty
(d) To ensure healthy life
(e) To lead a comfortable life

8. Role of Business in Environmental Protection

The businessmen should take following steps to control and check environmental pollution

(i) Making use of eco-friendly techniques of production
(ii) Recycling industrial waste
(iii) Treating the waste through technologies before discharging them into water or dumping in the land
(iv) Make use of eco-marks by producing eco-friendly products

9. Business Ethics It refers to the set of moral values or standards or norms which govern the activities of a businessman. Ethics defines what i, right and what IS wrong.

10. Elements of Business Ethics

Some of the basic elements of business ethics while running a business enterprises are

(i) Top management commitment
(ii) Publication of a ‘code’
(iii) Establishment of compliance mechanism
(iv) Involving employees at all levels
(v) Measuring result

1. e-business

e-business refers to “Carrying on business activities through internet.”

2. Scope of e-business

(i) B2B Commerce

Transaction taking place between business units are known as B2B transaction.

These transactions may involve

(a) Creation of utility
(b) Collaborations
(c) Commercial negotiations
(d) Inviting tenders

(ii) B2C Commerce

The transaction taking place between business units and customers are known as B2C transaction.

B2C transaction may involve

(a) Selling and distribution
(b) After sale service
(c) Promotion and other marketing activities

(iii) C2C Commerce

The transaction taking place between customer and customers are known as C2C transaction

C2C transactions may involve

(a) Selling used books, clothes etc
(b) Selling antique items
(c) Information about the quality and durability of products etc

(iv) Intra b-commerce

This refers to transactions between the parties or persons who are the part of one firm only.

Intra b-commerce transactions may involve

(a) Interaction between any two departments of one firm
(b) Placing orders and giving instructions of suppliers
(c) Recruitment selection and training of employees.

3. Merits

(i) Easy to form and lower investment is required
(ii) Convenience
(iii) Speed
(iv) Global reach
(v) Cost saving
(vi) Movement towards a paperless society

4. Limitations

(1) Low personal touch
(ii) Delay in delivery
(iii) Requirement of hardware
(iv) Risk
(v) Low ethics

Most of the limitations discussed can be over come with due care and diligence. Some of the way to over come problems are taken up

(i) Websites are becoming more and more interactive
(ii) The speed and the quality of communication is improving
(iii) India has undertaken 150 such projects to diffuse e-commerce in all nooks and corners

5. On Line Transactions

e-business refers to shopping through internet or on-line.

On-line opens up the whole world as one shop.

There are three phases of doing business in e-business or on-line.

(i) Registration Before on-line shopping one has to register with the on-line vendor by filling up a registration form.
(ii) Placing an Order In on-line transactions the order can be placed by picking and dropping the items in the shopping cart.
(iii) Payment Mechanism In an on-line purchase payment is made through

(a) Cash on delivery
(b) Through cheque
(c) Net banking transfer
(d) Credit or debit card
(e) Digital cash

6. Security security Problems Related to e-commerce

The main security problem of e-commerce are

(i) Transactional risk
(ii) Data storage risk
(iii) Risk of thread to intellectual property and privacy

7. Resources Required for Successful e-business Implementation of e-business

(i) Computer hardware
(ii) Technically qualified staff
(iii) Computerised system of receiving payment
(iv) Well designed website
(iv) Telecommunication facilities

8. Outsourcing Concept BOP refers to getting a business task accomplished through an outside agency.

(i) Advantages

(a) Concentration on core competence
(b) Reduction in cost
(c) Help to avoid labour problem
(d) Benefits of latest development

(ii) Limitations

(a) Confidentiality
(b) Sweat shopping
(c) Protest in home country
(d) Ethical concerns

(iii) Types of Outsourced Services

(a) Financial Services Big companies often need services of specialists for managing finance. e.g., estimating the finance required, how and when to issue shares, debentures.

(b) Advertising Services For a long time the firms are depending upon outsourcing services. The business firms hand over the task of designing and carrying on advertisement campaign to outsourcing firm.

(c) Courier Services Courier services refers to postal services provided by the private firms for carrying mails, parcels etc. The common problem of government postal services was delay. The private outsources offer speedy movement of parcels and samples so business firm relay on them.

(d) Customer Support Services All durable goods require after sale or customer support service to register and attend the complaints of the customers. So firms prefer to outsource these services to outside agencies which are specialised in these tasks.

1. Service Sector Service sector includes commercial firm engaged in banking. communication. transport, insurance, warehousing etc. The service sector constitutes the basic infrastructure which is a must for smooth flow of business activities.

2. Nature of Services

Basic features of services are

(i) Intangible
(ii) Lack of Inconsistency
(iii) Inventory
(iv) Non-transferability or Inseparability
(v) Involvement

3. Classification or Types of Services

Services can be broadly categorised into three categories

(i) Business Services Business services are these services which are used by business enterprise to carryon business activities more smoothly, e.g., banking, insurance, transportation warehousing, communication etc.

(ii) Social Services Social services are carried voluntarily to achieve social goal to the society at large.

(iii) Personal Services Personal services are experienced by different customers. These depends upon the customer demands and preferences. Example: Tourism, Restaurants etc.

4. Various Categories of Business Services

(i) Banking
(ii) Insurance
(iii) Communication
(iv) Warehousing
(v) Transportation

5. Banking A bank is an institution which attracts money on deposits for the purpose of being lent to industry or trade.

According to Indian Banking Regulation Act, 1949, “Banking means accepting deposits of money from the public for the purpose of lending or investment”.

Banks can be classified into following categories

(i) Commercial Banks Commercial banks are governed and regulated by Indian Banking Regulation Act, 1949 and according to it banking means accepting deposits from public for the purpose of lending investment.

There are Two Types of Commercial Banks

(a) Public Sector Banks
(b) Private Sector Banks

(ii) Co-operative Banks These banks are governed by provisions of state Co-operative Societies Act and are formed to provide loan and advances to its members on easy terms.

(iii) Specialised Banks These banks are formed to cater to specific needs of industries, export units. There are foreign exchange banks, industrial development bank, export-import banks etc.

(iv) Central Banks Central bank of any country controls regulates and supervises the activities of commercial banks, it is known as banker of banks.

6. Functions of Commercial Banks The main functions of commercial banks are

(i) Collection of Deposits Commercial banks is that they accept deposits from their clients. The common types of deposits accepted by bank are

(a) Saving account deposits
(b) Current account deposits
(c) Recurring deposits
(d) Fixed term deposits

(ii) Lending of Funds The commercial bank is to provide loans and advances out of the money received through deposits. These advances can be made in the form of overdraft cash credit etc.

(iii) Cheque Facility The banks collect the cheques for their customers drawn on other banks. To collect cheques banks have clearing houses.

(iv) Agency Functions Bank pay insurance premium on behalf of their clients. Bank also collect divided premium, interest, pension etc.

(v) Allied Services In addition to above functions bank also provide allied services such as bill payments, locker facilities etc.

7. e-banking Internet banking means any user with a PC and a browser can get connected to the banks website to perform any of the virtual banking functions and avail of any of the bank’s services.

There are various benefits of e-banking provided to customer which are

(i) e-banking provides 24 hours. 365 days a year services to the customer of the bank.
(ii) Customers can. make some of the permitted transactions from office or house.
(iii) Greater Customer satisfaction by offering unlimited access to the bank.

The banks also stand to gain bye-banking

(i) e-banking provides competitive advantage to the bank.
(ii) e-banking provides unlimited network to the bank.

8. Insurance Insurance is a contract between the insurer and insured in which insurer agree to make good the loss of insured on happening of an event in consideration of a regular payment called premium.

(i) Functions

(a) Protection
(b) Distribution of risk
(c) Competitiveness
(d) Specialisation
(e) Beller utilisation of capital
(f) Promotes foreign trade
(g) Credit facility
(h) Capital formation
(i) Social welfare

(ii) Principles

(a) Principle of utmost. good faith
(b) Principle of insurable interest
(c) Principle of indemnity
(d) Principle of contribution
(e) Principle of subrogation
(f) Principle of causa proxima
(g) Principle of mitigation of loss

9. Types of Insurance

Insurance contracts are of following types

(i) Life Insurance It may be defined as a contract in which the insurer in consideration of a certain premium either is a lump-sum or by other periodical payments. agree to pays to the assured or the person for whose benefit the policy is taken. The life insurance lli related with two types of risks

(a) Risk of dying to early
(b) Risk of dying to late

Types of life insurance policies are given below

(a) Whole Life Policy Under this policy the insured sum is paid only on the death of the insured Which means the policy is to run for the whole life of assured,

(b) Endowment Life Assurance Policy Under this policy the insurer pays a particular sum at the death of the person or on attaining a particular age.

(c) Joint Life Policy This policy is taken up by two 01′ more persons. The premium IS paid jointly or by either of them in instalments.

(d) Annuity Policy Under this policy the assured sum or policy a certain money is payable after the assured a attains age in monthly. quarterly. half yearly.

(e) Children’s Endowment Policy This policy is taken by a person for his/her children to meet the expenses of their education or marriage.

(ii) General Insurance

(a) Fire Insurance Fire insurance is a contract under which one party in return for a consideration agrees to indemnity the other party for the financial loss.

Kinds of fire insurance policies are as follows

• Specific Policy
• Double Insurance
• Reinsurance

(b) Marin Insurance Marine Insurance is a contract between the insured and the insurer. The insured may be cargo owner or ship owner or fright receiver.

The different types of marine insurance are

• Cargo Insurance
• Hull Insurance
• Freight Insurance

10. Communication Services Communication refers to exchange of ideas, views or message between two or more persons.

According to William H Newman, “Communication is an exchange of facts ideas, opinion or emotions by two or more persons”.

11. Postal Services The government at national and international level provides postal services.

(i) Features

(a) All the postal services arc controlled by the government.

(b) The postal department provides services at national as well as international level.
(c) Post offices also started speed post service to compete with courier service.

(ii) Drawbacks

(a) Slow in speed
(b) Bureaucratic in nature

12. Telecom Services Telecom services are the backbone of every business activity. In the absence of Telecom service every business activity will remain as a dream only.

The various types of telecom services are

(i) Cellular mobile phone
(ii) Radio paging services
(iii) Fixed line service
(iv) Cable service
(v) VSAT services
(vi) DTH services

13. Transportation It refers to physical movement of goods from one place to other. Transportation comprises of freight services.

The transportation services is necessary to remove the place gap between the producer and consumer.

14. Warehousing Services Warehousing means holding and preservation of goods from the time of their production or purchase and until their sale or use.

(i) Functions

(a) Consolidation
(b) Break the bulk
(c) Stock pilling
(d) Value added service
(e) Price stabilisation
(f) Financing
(g) Risk Bearing

(ii) Types of Warehouses

Warehouses may broadly be classified into five categories

(a) Private warehouse
(b) Public warehouse
(c) Co-operative warehouse
(d) Government warehouses
(e) Bonded warehouses

1. Private Sector and Public Sector There are all kinds of business organisations small or large organisation, privately owned or government owned existing.In our country. These organisation affect our daily economic life and therefore become part of the Indian Economy.

Since the Indian Economy consists of both privately owned and government owned business enterprises. it. is known as mixed economy.

2. Form of Public Sector Enterprises Public sector organisations are formed in three different forms

(i) Departmental undertaking
(ii) Public corporation/Statutory corporation
(iii) Government company

3. Departmental Undertakings This is the oldest form of public sector considered as enterprises. The departmental undertaking one of the departments of government. It has is no separate existence than government.

(i) Features

(a) They are a part of government only, there is no separate entity.
(b) They are financed from the annual budgets of the government.
(c) The revenues of departmental undertakings arc civil servants and recruited and compansated as per the rules of civil servants.
(d) They can be sued in the same manner as one can file a suit against the government.

(i) Merits

(a) Easy formation
(b) Effective control
(c) Optimum utilisation of funds
(d) Accountability
(e) Public revenue
(f) Secrecy

(iii) Demerits

(a) Inflexibility
(b) Lack of motivation
(c) Lack of financial autonomy
(d) Inefficient management
(e) Red tapism and bureaucracy

4. Public Corporation/Statutory Corporation A statutory corporation is a body corporate formed by Special Act of Parliament or by the central or state legislation. It is fully financed by the government.

(i) Features

(a) It is created by an Act of Parliament or central or state legislature.
(b) The powers, objectives and limitations of public corporation are defined in the out only.
(c) It operates under total control of Central or State Government.
(d) It is managed by the board of directors who are nominated by the government.
(e) The main motive of public corporation is service to general public.
(f) The Accounts of Public Corporation are generally audited by the Controller and Auditor General.

(ii) Merits

(a) Administrative autonomy
(b) Quick decision
(c) Service motive
(d) Efficient staff
(e) Professional management

(iii) Demerits

(a) Autonomy on paper only
(b) Lack of initiative
(c) Rigid structure
(d) Unfair Practices

5. Government Companies Government Company means any company in which at least 51% of the paid up share capital is held by the Central or State Government or partly by Central or State Government.

For example, Steel Authority of India

(i) Features

(a) Registration
(b) Ownership
(c) Management
(d) Separate legal entity
(e) Ministerial control
(f) Financial autonomy
(g) Efficient staff
(h) Accountability

(ii) Merits

(a) Administrative autonomy
(b) Greater flexibility
(c) Efficient staff
(d) Collaboration

(iii) Demerits

(a) Autonomy on paper only
(b) Political Interference
(c) Board packed with government representatives,

6. Role of Public Sector

(i) Development of Infrastructure The infrastructure consists of services like transportation. communication, irrigation etc. The infrastructure is considered as the backbone of economic growth. So government set up various public sector enterprises to under take the task of developing infrastructure of our country.

(ii) Regional Balance The government tries to locate new public sector enterprises in the backward areas so that the people of that area get opportunity to work and these can also be developed ensuring balanced regional development.

(iii) Economies of Scale Public sector industries require large base to function economically which was only possible with government resources and large scale production.

(iv) Check Over Concentration of Economic Power The public sector can invest in heavy sector and thus income does not go in a few hands of private sector but it gets shared by a large number of employees and workers. This prevents concentration of wealth in private sector.

(v) Import Substitute These enterprises are making us self-reliant and saving huge amount of foreign exchange.

7. Global Enterprises

According to Global Enterprises by Niel H Jacoby. “A multinational corporation owns and manages business in two or more countries

(i) Features

(a) Giant size
(b) International operations
(c) Professional management
(d) Centralised control
(e) Oligopolistic powers
(f) International market

(ii) Merits

(a) Employment opportunities
(b) Advanced technology
(c) Foreign capital
(d) Growth of domestic firm
(e) Foreign exchange
(f) Standard of living
(g) Healthy competition
(h) Managerial revolution

(iii) Demerits

(a) Obsolete technology
(b) Creation of monopoly
(c) Restrictive clauses
(d) Excessive remittance
(e) Threat to national sovereignty
(f) Depletion of National resources

8. Joint Venture When two or more firms join together to Establish a new enterprise then it is known as joint venture. For example, Tata Iron and Steel Company joined hand with IPCOL to promote IPITATA Sponge Iron Limited,

(i) Merits

(a) Reduces competition
(b) Reduces risk
(c) Protection for small companies
(d) Advanced technology
(e) Better competence
(f Large capital
(g) Reduction in cost

(ii) Demerits

(a) Problem in sharing capital
(b) Legal restrictions
(c) Conflicts
(d) Mergers and monopolies
(e) Lack of co-ordination

1. Introduction A business enterprises is an organisation which is engaged in some business or commercial activity. Every business enterprises is a separate and distinct unit of business.

Various forms of business organisation from which one can choose the right one include

• Sole Proprietorship
• Joint Hindu Family Business
• Partnership
• Co-operative Societies
• Joint Stock Compan

2. Sole Proprietorship A business owned, managed and controlled by a single individual is known as a sole proprietorship organisation.

(i) Features

• Formation and closure
• Liability
• Sole risk bearer and profit recipient
• Control
• No separate entity
• Lack of business continuity

(ii) Merits

• Quick decision making
• Confidentiality of information
• Direct incentive
• Sense of accomplishment
• Ease of formation and closure

(iii) Limitations

• Limited resources
• Limited life of a business concern
• Unlimited liability
• Limited managerial ability

3. Joint Hindu Family Business The business carried out by the male members of a Hindu undivided family is known as Joint Hindu Family Business.

There are two conditions for existence of Joint Hindu Family Business, These are

• Minimum two male members must be there in the family
• Existence of some ancestral property

Under Hindu Law there are two systems of inheritance. These are Dayabhaga and Mitakshara.

(i) Features

• Formation
• Liability
• Control
• Continuity
• Minor members

(ii) Merits

• Effective Control
• Continued business existence
• Limited liability of members
• Increased loyalty and co-operation

(iii) Limitations

• Limited resources
• Unlimited liability of karta
• Dominance of karta
• Limited managerial skill

4. Partnership Partnership is an association of two or more persons who have agreed to share the profits of the business carried on by all 01′ any of them acting for all.

According to LH Honey, “Partnership may be defined as the relation between the person who agree to carry on a business in common with a view to private gain.

(i) Features

• Formation
• Liability
• Risk bearing
• Decision making and control
• Continuity
• Mutual agency
• Membership

(ii) Merits

• Ease of formation an closure
• Balanced decision making
• More funds
• Sharing of risks
• Secrecy

(iii) Limitations

• Unlimited liability
• Limited resource
• Possibility of conflicts
• Lack of continuity

5. Types of Partner

• Active Partner The active partner participates in the management of the firm.
• Sleeping or Dormant Partner The partner who does not participate in the management of the firm.
• Secret Partner Secret partner is one whose association or relation With the firm is not known to outsiders.
• Nominal Partner The nominal partners are not the real partners of the firm. He only lends his name and reputation for the benefit of the firm.
• Partner by Estoppel A person is considered a partner by estoppel if, through his own initiative, conduct or behaviour, he gives an impression to others that he is a partner of the firm.
• Partner by Holding Out A partner ‘holding out’ is a person who though is not a partner in a firm but knowingly allows himself to be represented as a partner in a firm.

6. Types of Partnership

Based on the basis of time period, there are three types of partnership firm

• Partnership at will
• Fixed period partnership
• Particular partnership

On the basis of liability of members, there are two types of partnership. These are

• General partnership
• Limited partnership

7. Partnership Deed

The common contents of Partnership Deed are

• Name of the firm
• Name and address of the partners
• Nature of business the firm will carry on
• lace of business
• Capital contribution by each other
• Profit sharing ratio of partners
• The right and duties of the partners
• The mode of maintaining accounts
• The rate of interest payable to partners on their capital
• The rate of interest to be paid by partners on amount withdrawn by them
• The amount of salary payable to partners
• Provision regarding retirement and dissolution
• Methods of solving disputes
• Whether interest is payable on the loan provided by partners etc.

8. Registration of Partnership Firm The procedure for registration of the partnership firm

(i) Co-operative Society A co-operative form of business enterprise. In this form the main motive is not earning profit but the main motive of co-operative organisation is mutual help. It work with the principle of each for all and all for each.

(a) Features

• Voluntary membership
• Legal status
• Limited liability
• Control
• Service motive

(b) Merits

• Equality in voting status
• Limited liability
• Stable existence
• Economy in operations
• Support from government
• Ease of formation

(c) Limitations

• Limited resources
• Inefficiency in management
• Lack of secrecy
• Government control
• Difference of opinion

(ii) Types of Co-operative Societies

• Consumer’s co-operative societies
• Producers co-operative societies
• Marketing co-operative societies
• Former co-operative societies
• Credit co-operative societies
• Co-operative housing societies

9. Joint Stock Company

Definition by Prof Honey. “Joint Stock Company is a voluntary association of individual for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership”.

(i) Features

• Artificial person
• Separate legal entity
• Formation
• Perpetual succession
• Control
• Liability
• Common seal
• Risk bearing

 

(ii) Merits

• Limited liability
• Transfer of interest
• Perpetual existence
• Scope for expansion
• Professional management

(iii) Limitations

• Complexity in formation
• Lack of secrecy
• Impersonal work environment
• Numerous regulations
• Delay in decision making
• Oligarchic management
• Conflict in interest

10. Types of Companies On the basis of ownership the companies can be classified in to following categories

(1) Private Company According to the Companies Amendment Act, (2000), a private company is one which

• Has a minimum of two and maximum of 50 members excluding the employees.
• Restricts the right of members to transfer their shares.
• Does not offer its shares to general public.
• Does not invite general public to invest deposits in the company.
• Has minimum paid up capit.al of~ one lakh.

(ii) Public Company A public company is the one which

• Has a minimum of seven members and maximum no limit.
• Permits easy transfer of its shares.
• Invites general public to subscribes to its public deposits.
• Invites general public to subscribes to its shares and debentures.
• Has minimum paid up capital of five lakh.
• Any private company which is subsidiary of a public company.

11. Choice of Form of Business Organisation

• Cost and ease in setting up the organisation
• Liability
• Continuity
• Management ability
• Capital consideration
• Degree of control
• Nature of business

1. Economic Activities Activities which are under taken by people with the object of earning money are known as economic activities. e.g., production of goods in 8 factory, distribution of goods by a wholesaler or retailer.

2. Types of Economic Activities Economic activities can be divided into three categories

• Business
• Profession
• Employment

3. Non-Economic Activities The activities which are undertaken by an individual with a motive of getting psychological satisfaction are known as non-economic activities e.g., going to temple, charily, social service etc.

4. Concept of Business Business is a wide term. It includes all occupations in which people are busy in earning income either by production or purchase and sale or exchange of goods and services to satisfy the needs of other people with the main objective of earning profit.

According to Lewis H Honey. “Business is a human activities directed towards producing or acquiring wealth through buying and selling goods”.

5. Characteristics of Business Activities

• An Economic Activity Business is considered as an economic activity as it is undertaken with the aim of earning looney.
• Production or Procurement of Goods and Services Every business enterprise either produce or procures goods or services from producers.
• Sale or Exchange of Goods and Services Directly or indirectly, business involves transfer of exchange of goods and services for value.
• Dealings ill Goods and Services on a Regular Basis Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase, therefore, does not constitute business.
• Profit Earning One of the main purpose of business is to earn income long without by way of profit. earning profit. No business can survive for
• Uncertainty of Return There is always a possibility of losses being incurred, in spite of best efforts put into the business.
• Element of Risk Risk is the uncertainty associated with an exposure to loss.

6. Comparison of Business, Profession and Employment

• Business refers to those economic activities which are connected with the production, purchase, sale or distribution of goods and services with the main aim objectives of earning profit. Profession refers to the activities which require special knowledge and skill to be applied by an individual in his work to earn a living.
• Employment refers to an activity in which an individual work regularly for another person and gets remunerated in return.

7. Classification of Business Activities

Various business activities may be classified into two broad categories

(i) Industry Industry refers to an activity which converts raw material into useful products. Industry includes activities related to production and processing as well as activities related to rearing and reproduction of animals 01′ other living species.

Industries may be divided into three broad categories namely primary, secondary and tertiary.

(a) Primary Industry These includes all those industries which are concerned with extraction of natural resources and reproduction of living species.

These industries can further be classified into two categories

• Extractive Industries
• Genetic Industry

(b) Secondary Industry  The secondary Industry makes use of products which arc extracted and produced by primary industry as their raw materials and produce finished products. e.g., meaning of iron ore is done in primary industry but steel manufacturing is done in secondary Industry.
There are two kinds of Secondary Industry

• Manufacturing Industries These industries are engaged in the process of conversion of raw materials or semi- finished goods in to finished products.
• Construction Industry These industry are concerned with the construction of buildings, dams. roads etc.

(c) Tertiary 0r Service Industry It is concerned with providing services with facilitate a smooth flow of goods and services. The various types of services provided by Tertiary Industry are Transport, Banking. Insurance, Warehousirrs. Advertising.

(ii) Commerce Commerce refers to all those activities which help directly or indirectly in the distribution of goods to the ultimate consumer.

(a) Functions of Commerce

• Helps in Removing the Hindrance of persons.
• Helps in Removing the Hindrance of place.
• Helps in Removing the Hindrance of time.
• Helps in Removing the Hindrance of Exchange.
• Helps in Removing the Hindrance of Risk.

(b) Classification of Commerce

• Trade
• Aids to Trade

8. Trade Trade is an integral part of commerce. It refers to buying and selling of goods and services.

Trade can be classified into two types

(i) Internal Trade Internal Trade refers to buying and selling of goods or services with in the geographical boundaries of a country. It is also known as Home Trade.

The internal trade of two types.

1. Whole sale trade
2.  Retail trade

(ii) External Trade It refers to the buying and selling of goods and services beyond the geographical limits of the country. It is also known as trade between two or more countries.

External trade is of following types

• Export trade
• Import trade
• Entrepot trade

9. Aids or Auxiliaries to Trade

• Transport and Communication Transport refers to the movement of goods from one place to another. Communication helps in exchange of information between producers, consumers and traders etc.
• Banking and Finance Bank and financial institutions provides credit facility, loan etc. to provide finance for smooth now of business activities.
• Insurance Businessmen have to bear various types of risks, Insurance provides protection from SOme kinds of risk such a risk of loss due to fire, theft, accident etc.
• Ware Housing Ware housing helps to businessmen to over come the problem of storage. Ware houses are constructed keeping in mind the nature of goods.
• Advertising Practically It IS impossible for a manufacturer and trader to contract each and every customer. Advertisement helps to over come this problem.

10. Objectives of Business Objectives are needed in every area that influences the survival and prosperity of business. The main objectives are

• Market standing
• Innovation
• Productivity
• Physical and financial resources
• Earning profits
• Manager performance and development
• Worker performance and attitude
• Social responsibility

11. Business Risk Business risk refers to the probability of losses or inadequate profits due to uncertainties or unexpected events, which are beyond control.

12. Nature of Business Risk

• Business risk arises due to uncertainties
• Risk is an essential part of every business
• Degree of risk depends upon the nature and size of business
• Profit is the reward for bearing the risk

13. Causes of Business Risk

• Natural Causes The natural causes are such type of uncertain factors that human being cannot make any preparation against.
• Human Causes Human Causes are related to a chance of loss due to human beings or employees of the organization.
• Economic Causes Economic Causes are related to a chance of loss due to change in market condition.
• Other Causes These are unforeseen events like political disturbances, mechanical failures such as the bursting the boiler.

14. Starting a Business-Basic Factors

• Selection of line of business
• Size of the firm
• Choice of form of ownership
• Location of business enterprises
• Financing the proposition
• Physical facilities
• Plant layout
• Competent and Committed worked force
• Tax planning
• Launching the enterprise