COMMERCE NOTES

INTRODUCTION
Business is the activity of making one's living or making money by producing or buying
and selling products (such as goods and services).

Main Characteristics of Business

1. Entrepreneur: An entrepreneur is a person who combines the factors of production...
2. Business Enterprise:
3. Continuous Deals: Business consist of producing, purchasing or selling goods on...
4. Risk: There is an element of risk and uncertainty in every business.
5. Profit: The primary objective of every business

Business Objectives
o Economic Objectives.
o Social Objectives.
o National Objectives.

Functions of business

1. Organizing function:

It helps to organize all the activities. It organizes men, Machine, materials, money and
methods. It performs different activities and all activities are organized properly

2. Financing function:

It is related to money. It helps in maximum utilization of resources. Bank is a financial

company. All the activities related to money are defined in this function.

3. Production function:

The main function of business is to produce goods and commodities and transfer them to
right place at right time. It helps to complete needs of human beings.
 4. Distributing function:

It helps in the transfer of goods/services from producers to customers. It transfers right

product at right time in right place.

5. Personnel function:

It deals with human activities. It is related o the utilization of people to perform different
activities. It is also called staffing function. It helps in management of resources.

6. Managing function:

It helps in management of business. It includes planning, organizing, controlling,

coordinating, decision making and so on. It helps making activities of people effective.

7. Research and development function:

It helps in improvement of product. It works under the taste, desire and preference of the
customers. In it various marketing, strategies, skills, knowledge and experts are used.
Research and development is the main way to achieve profit with customer satisfaction

Objectives of business

a) Economic objectives

The economic objectives are related to earning profit through customer satisfaction. It is
to provide quality goods with reasonable price. Economic objectives can be defined in
terms of money too. Some of the major economic objectives are:

1. Earning profit:

The main economic function of business is earning profit. It includes supply of quality
goods and services to gain profit.

2. Production of commodities:

Production of goods and services are to be done according to the customer demand and
desired. Supply of commodities is also to be done according to needs of customer.

3. Creation of market:
Business can provide service only if demand of customers are fulfilled. When production
is made according to the requirements of the customers then there is creation of new
customer which creates new market.

4. Technical improvement:

Use of modern technology is the base for successful operation o business. When modern
tools, techniques and technologies are used then there is production of quality goods.

5. Innovation:

New ideas, methods, men, tactics and technology create the ways of better production
and services. It helps in survival of business too.

2.    Social objectives

Business is operated in society and use resource available in society. This is known social
objectives. It fulfills social expectation. All business operations are established in society,
grow in society and fulfill all its expectation in society. Some of the major social
objectives of business are:

1. Supply quality food:

It provides better quality of goods and services by charging reasonable price. It provides
right product at right time in right place. It involve in fulfillment of social objective.

2. Utilizing resources:A business house can’t continue its operation without utilizing
the resources available in the society. But there must be proper utilization of
resources and no any destruction in name of utilization. Maintenance of
environment is must.

3. Providing employment:

There are many people in the society. Human needs are the basic need for operation of
business. Many personnel are require dot fulfill the job of a business. Therefore a
business house without nepotism and favoritism must employ the human from the society
and provide employment opportunities to the optimum level.

4. Avoiding social stigma:

Big industries are the cause of environmental pollution. Constant noise, smoke from the
industries produces noise and air pollution. This is the social objective of the business to
control pollution and wastages. There must be establishment of industries far from
residential areas

c) .Human objectives

Human objectives are performed by different human activities. It is related with

satisfaction of employees, investors and other personnel. Some of the major human
objectives are

1. Satisfaction of employees:

The success of business depends on employees’ performance. It provides better working

environment to satisfy the employees. It provides salary, bonus, provident funds and job
security. It also provides financial and non financial supports.

2. Payment to creditors:

Creditors means supplier who supply goods and services. It is the objective to make duly
payment. Satisfaction of creditors helps in further expansion of business.

3. Satisfaction of customers:

Production of goods and services are to be done according to the customer demand
and desired. Supply of commodities is also to be done according to needs of
customer. It provides better quality of goods and services by charging reasonable
price

4. Satisfaction of shareholder:

It returns to investors the amount they have invested in business in the name of profit
earn. They should be given reasonable returns of their investments. The objectives are to
provide reasonable rate of return to shareholder. It also provides the information about
plan of business.
Elements of a Business Plan

Your well-thought-out business plan lets others know you’re serious, and that you can
handle all that running a business entails. It can also give you a solid roadmap to help you
navigate the tricky waters. The seven components you must have in your business plan
include:

1. Executive Summary
2. Business Description
3. Market Analysis
4. Organization Management
5. Sales Strategies
6. Funding Requirements
7. Financial Projections

Starting a Business

Step 1: Do Your Research

Most likely you have already identified a business idea, so now it's time to balance it with
a little reality. Does your idea have the potential to succeed? You will need to run your
business idea through a validation process before you go any further.

Step 2: Make a Plan

You need a plan in order to make your business idea a reality. A business plan is a
blueprint that will guide your business from the start-up phase through establishment and
eventually business growth, and it is a must-have for all new businesses.

Step 3: Plan Your Finances

Starting a small business doesn't have to require a lot of money, but it will involve some
initial investment as well as the ability to cover ongoing expenses before you are turning
a profit.

Step 4: Choose a Business Structure

Your small business can be a sole proprietorship, a partnership, a limited liability

company (LLC) or a corporation. The business entity you choose will impact many
factors from your business name, to your liability, to how you file your taxes.
Step 5: Pick and Register Your Business Name

Your business name plays a role in almost every aspect of your business, so you want it
to be a good one. Make sure you think through all of the potential implications as you
explore your options and choose your business name.

Step 6: Get Licenses and Permits

There are a variety of small business licenses and permits that may apply to your
situation, depending on the type of business you are starting and where you are located.
You will need to research what licenses and permits apply to your business during the
start-up process.

Step 7: Choose Your Accounting System

Small businesses run most effectively when there are systems in place. One of the most
important systems for a small business is an accounting system.

Your accounting system is necessary in order to create and manage your budget, set your
rates and prices, conduct business with others, and file your taxes.

Step 8: Set Up Your Business Location

Setting up your place of business is important for the operation of your business, whether
you will have a home office, a shared or private office space, or a retail location.

Step 9: Get Your Team Ready

If you will be hiring employees, now is the time to start the process. Make sure you take
the time to outline the positions you need to fill, and the job responsibilities that are part
of each position. The Small Business Administration has an excellent guide to hiring your
first employee that is useful for new small business owners.

Step 10: Promote Your Small Business

Once your business is up and running, you need to start attracting clients and customers.
You'll want to start with the basics by writing a unique selling proposition (USP) and
creating a marketing plan. Then, explore as many small business marketing ideas as
possible so you can decide how to promote your business most effectively.
THE NATURE OF BUSINESS

Discussed below are a set of unique essential natures/ features/ characteristics of a

business.

A business:

i. Is an economic activity that deals with the purchase and sales of commodities and
services. Every activity undertaken by it is supported by the exchange of money.
Not only do businesses sell their goods or services for profit but they also purchase
raw materials. As a result of this purchase, businesses have to shed out funds in
order to acquire resources that can bring them profits.
ii. Focuses on profits because profits are the entrepreneur’s (and employee’s)
earnings. Profits are different that incomes or revenues. They refer to that margin
of income which is not a part of the cost price. Thus, profit = selling price – cost
price.
iii. Is a continuous process of buying and selling. Raw materials and inventories are
crucial for the functioning of a business. As a result of the business activities, the
raw materials and inventories undergo conversion into finished goods or services.
iv. Undergoes risks and uncertainties related to loss of goods via theft. Risks of
accidents within the business premises is a crucial matter that all firms must
address and prepare for. Insurance of the entire firm with the assets and inventories
is also very important.

PURPOSE OF A BUSINESS

Discussed below are a set of purposes/ objectives of a business undertaking.

i. Profit motive – The primary motto or purpose of undertaking a business is to

make profits. Thus, the creation of profit is of paramount importance. Similarly,
along with profit creation, profit maximization is equally as important.
ii. Quality goods – Manufacturing firms and other technology firms should focus on
providing qualitative goods to their consumers or customers. A strong inspection
process should be in place. Consequently, any goods or products with defects must
be scrapped and not sold.
iii. Quality services – Consultancy firm, hospitals, law firms and other accounting
and bank sector firms should focus on providing qualitative services to their
customers.
iv. Avoiding loss – Incurring losses is never an option for businesses. It is best if the
business goes to extreme extents to work ethically and avoid incurring minute or
huge losses. A loss not only reduces the income but also decreases the
organization’s reputation and goodwill.
v. Abiding by regulations – Abiding by regulations laid down by the state and the
central government is of paramount importance. For instance, the Competition Act,
the Indian Companies Act, the Environment Act and many other Acts. A morally
strong ethical business ensures to undertake business activities within the limits of
these rules.
vi. Social responsibilities – It is the corporate social responsibility (CSR) of a
business to allocate a portion of their earnings to develop the surroundings. They
could either focus their CSR activity towards the environment, children welfare,
women welfare, animal welfare, etc. An ethical business would make their CSR
activities an important priority in order to enhance the welfare of the society
around them.
 PRODUCTION
Definition of Production:

“Production is the organised activity of transforming resources into finished products in

the form of goods and services; the objective of production is to satisfy the demand for
such transformed resources”.

Three Types of Production:

For general purposes, it is necessary to classify production into three main groups:

1. Primary Production:

Primary production is carried out by ‘extractive’ industries like agriculture, forestry,

fishing, mining and oil extraction. These industries are engaged in such activities as
extracting the gifts of Nature from the earth’s surface, from beneath the earth’s surface
and from the oceans.

2. Secondary Production:

This includes production in manufacturing industry, viz., turning out semi-finished and
finished goods from raw materials and intermediate goods— conversion of flour into
bread or iron ore into finished steel. They are generally described as manufacturing and
construction industries, such as the manufacture of cars, furnishing, clothing and
chemicals, as also engineering and building.

3. Tertiary Production:

Industries in the tertiary sector produce all those services which enable the finished goods
to be put in the hands of consumers. In fact, these services are supplied to the firms in all
types of industry and directly to consumers. Examples cover distributive traders, banking,
insurance, transport and communications. Government services, such as law,
administration, education, health and defence, are also included

Factors of Production:

Production of a commodity or service requires the use of certain resources or factors of

production. Since most of the resources necessary to carry on production are scarce
relative to demand for them they are called economic resources.
Resources, which we shall call factors of production, are combined in various ways, by
firms or enterprises, to produce an annual flow of goods and services.

Table 5.1: A Classification of Factors of Production:

(1) Land and Natural Resources:

In economics the term land is used in a broad sense to refer to all natural resources or
gifts of nature. As the Penguin Dictionary of Economics has put it: “Land in economics
is taken to mean not simply that part of the earth’s surface not covered by water,
but also all the free gifts of nature’s such as minerals, soil fertility, as also the
resources of sea. Land provides both space and specific resources”.
Characteristics:

Land has certain important characteristics:

1. Fixed supply:

The total land area of earth (in the sense of the surface area available to men) is fixed.
Therefore, the supply of lands is strictly limited. It is, no doubt, possible to increase the
supply of land in a particular region to some extent through reclamation of land from sea
areas or deforestation. But this is often offset by various kinds of soil erosion. The end
result is that changes in the total area are really insignificant. Of course, the effective
supply of agricultural (farm) land can be increased by drainage, irrigation and use of
fertilisers.

2. Alternative uses:

Although the total supply of land is fixed, land has alternative uses. The same plot of land
can be used to set up factories or to grow wheat or sugarcane or even to build a stadium.
This means that the supply of land to a particular use is fairly (if not completely) elastic.
For example, the amount of land used for growing tomato can be increased by growing
less of some other crop (e.g., cauliflower). The supply of building land can be increased
by reducing the area under agricultural operation.

3. No cost of production:

Since land is a gift of nature, it has no cost of production. Since land is already in
existence, no costs are to be incurred in creating it. In this sense, land differs from both
labour (which has to be reared, educated and trained) and capital (which has to be created
by using labour and other scarce resources or by spending money).

4. Differences in fertility:

Another important feature of land is that it is not homogeneous. All grades (plots) of land
are not equally productive or fertile. Some grades of land are more productive than
others. And Ricardo argued that rent arises not only due to scarcity of land as a factor but
also due to differences in the fertility of the soil.

5. Operation of the law of diminishing return:

Finally, we may refer to a special feature of land, not shared by other factors. In fact,
production on land is subject to the operation of the law of diminishing return. As Alfred
Marshall has put it “while the part which nature plays in production shows a tendency to
diminishing return, the part which man plays shows a tendency to increasing return”.

Mobility:

Land is not geographically mobile. But, it is occupationally mobile. In most parts of

India, for example, land has many alternative uses. It might be used for farmland, roads,
railways, airlines, public parks, playgrounds, residential housing, office buildings,
shopping complex, and so on. Some of the land, for example, in hill area, of say,
Shillong, or Darjeeling, has an extremely limited degree of occupational mobility, being
useful perhaps for sheep grazing, golf course or as a centre of tourism.

Return:

The income received by the owner of land is known as rent. It may be noted that rent is
usually paid for something more than the use of land or another natural resource, but
includes also an element of payment for another factor which is involved in making the
resource available in a usable form.

(2) Labour:

Like land, labour is also a primary factor of production. The distinctive feature of the
factor of production, called labour, is that it provides a human service. It refers to human
effect of any kind—physical and mental— which is directed to the production of goods
and services. ‘Labour’ is the collective name given to the productive services embodied
in human physical effort, skill, intellectual powers, etc.

Land and Labour:

Labour differs from land in an important way. While land is a stock, labour is a flow. The
term ‘labour’ is used to refer to the flow of labour service per unit of time. So labour is
perishable. If we do not make use of today’s labour power, a correspondingly large
amount is not made available tomorrow (and in future).

Peculiarities of Labour as a Factor:

In examining labour markets, it is important to recognise that labour has a number of

special characteristics which distinguish it from ordinary commodities.

1. First, labour market transactions are particularly significant for:

First, labour market transactions are particularly significant for the individual worker.
Much of a person’s life style and relations with other people depend on the job he or she
does. Furthermore, the employment of labour involves a continuing personal relationship
between employers and employees, whereas transactions in market for goods are often
brief and impersonal.

2. Labour is an end and means in itself:

A commodity is only a means of production and the object of production is its

consumption by labour. Labour, therefore, becomes a means to its own end.

3. Thirdly, the individual sells his services but not himself:

The employer, however, must be able to exert some control or authority over the actions
of employees. This is not a very simple matter, which can be covered unambiguously by
a contract of employment. A great deal of energy has been devoted to planning systems
for the direction of employees, and even a brief examination of the state of industrial
relations in most countries shows that still much remains to be done.

4. Labour is inseparable from the labourer:

In other words, labour and the labourer go together. When the seller sells a commodity he
does not necessarily go with the commodity. But the labour can supply his labour only
when he goes with it. Moreover, when a seller sells a commodity he parts with it. But
when a labourer sells his labour, he retains the quality with him. He may gain the
satisfaction of his services, but he cannot be separated from the labour.

5. Fifthly, the individual must be present when the labour services are used and thus
a fifth feature is that labour services are not transferable:

For example, a person who has agreed to carry out certain tasks cannot transfer his
services to someone else to do the work, while he does something else. This contrasts
with commodities which can be transferred among individuals.

6. Sixthly, labour services cannot be stored:

Labour cannot be ‘saved’ or stored for future use (although rest may enhance
performance to some extent).

7. Labour is perishable:
A commodity, if it is not disposed off today, can be disposed off the next day and it may
not lose its value. Labour, however, is perishable in this that if the labourer is not able to
sell his services for a day he cannot get the value for that day. It is lost forever; it is
because of this that labour has a weak bargaining power.

8. Labour is affected by surroundings:

A commodity is usually very much affected by its surrounding; a labourer is very much
affected by the surroundings because he is a living being. Therefore, any change in
atmosphere has an effect on his health feelings etc.

9. The supply of labour is independent of its demand:

In case of most commodities we see that supply usually varies with demand but in case of
labour its supply is in no way related to demand. Both are determined by different
factors.

10. Finally, labour services are enhanced by training:

Skill acquisition is often a lengthy and costly process. However, adjustments in the
labour market, such as increasing the supply of a particular skill, often requires a long
time. This also means that individuals do not usually train for more than one occupation
as they only have a limited working life over which to justify the investment.

Mobility of Labour:

The mobility of labour has two aspects:

(a) The spatial or geographical mobility of labour, which relates to the rate at which
workers move between geographical areas and regions in response to differences in
wages and job availability (e.g., a worker from West Bengal moving to Mumbai) and

(b) The occupational mobility of labour which relates to the extent to which workers
change occupations or skills in response to differences in wages or job availability (e.g., a
jute mill worker joining a tea garden).

Reward:

The reward or price that is paid to labour in return for the services it performs is known
as a wage or salary. A man’s wages are associated with his productivity or efficiency and
this, in its turn, depends on a variety of factors including the education and job training he
has received, his innate skill and the extent to which he is motivated to put his best effort
in the work he is doing.

(3) Capital:

Capital, the third agent or factor is the result of past labour and it is used to produce more
goods. Capital has, therefore, been defined as ‘produced means of production.’ It is a
man-made resource. In a board sense, any product of labour-and-land which is reserved
for use in future production is capital.

To put it more clearly, capital is that part of wealth which is not used for the purpose of
consumption but is utilised in the process of production. Tools and machinery, bullocks
and ploughs, seeds and fertilizers, etc. are examples of capital. We have already identi-
fied certain things described as capital in our discussion on producers’ goods.

Classification of Capital:

Capital can be classified in two broad categories that which is used up in the course of
production and that which is not.

Fixed and Circulating Capital:

Fixed capital means durable capital like tools, machinery and factory buildings, which
can be used for a long time. Things like raw materials, seeds and fuel, which can be used
only once in production are called circulating capital. Circulating capital refers to funds
embodied in stocks and work-in- progress or other current assets as opposed to fixed
assets. It is also called working capital.

Two Features of Capital:

Two important features of capital are:

Firstly, it entails a sacrifice, since resources are devoted to making non-consumable

capital goods instead of goods for immediate consumption. Secondly, it enhances the
productivity of the other factors, viz., land and labour.

In fact, it is this enhanced productivity which represents the reward for the sacrifice
involved in creating capital. Hence we can predict that new capital is only created so long
as its productivity is at least sufficient to compensate those who make the sacrifices
involved in its creation. These two features may now be discussed in detail.
Capital Formation:

People use capital goods like machines, equipment, etc. because capital goods are the
creators of other goods. But this is not the whole truth. People use capital for another
important reason to produce goods with less effort and lower costs than would be the case
if labour were not assisted by capital. But in order to use capital goods people must first
produce them. This calls for a sacrifice of current consumption.

Factors Affecting Capital Formation:

The creation of capital depends on two things:

(a) Savings and (b) a diversion of resources (from the production of consumption goods
to meet current needs to the production of capital goods to meet future needs). Saving is
the difference between current income and current consumption. In other words, it is the
act of foregoing current consumption.

In short, capital formation depends on savings, which, in its turn, depends on two
things:

(1) The capacity to save and

(2) The desire to save.

The capacity to save depends on income and the existence of savings institutions like
banks, insurance companies, post offices, stock exchanges, etc. If income is low, savings
will also be low. Even if income is high savings will be low in the absence of the above-
mentioned savings institutions.

The desire to save depends on

(1) the rate of interest and (2) stability in the value of money (i.e., the rate of inflation).

If the rate of interest is high people will be eager to save more by curtailing their current
consumption. People will also be eager to save more if they expect that there will exist
reasonable price stability in the economy in future.

Mobility of Capital:
Capital is both geographically and occupationally mobile. However, a certain portion of a
nation’s capital stock which consists of such things as railway networks, blast furnaces
and shipyards are highly specialised equipment and are virtually immobile in the geo-
graphical sense. It is physically possible to dismantle them and move them to different
sites or locations, but the cost of doing so will be so great that it will not be economically
feasible to do so.

Return:

The earning of capital, i.e., the price that has to be paid for it, is known as interest. If it
stated as percentage of the principal, representing the sum paid by a borrower who needs
finance to purchase a piece of capital equipment.

(4) Enterprise (Organisation):

Meaning:

Organisation, as a factor of production, refers to the task of bringing land, labour and
capital together. It involves the establishment of co-ordination and co-operation among
these factors. The person in charge of organisation is known as an organiser or an
entrepreneur. So, the entrepreneur is the person who takes the charge of supervising the
organisation of production and of framing the necessary policy regarding business.

Functions or Role of the Entrepreneur:

The entrepreneur in modern business performs the following useful functions:

1. Decision-making:

The primary task of an entrepreneur is to decide the policy of production. An

entrepreneur is to determine what to produce, how to produce, where to produce, how
much to produce, how to sell and so forth. Moreover, he is to decide the scale of
production and the proportion in which he combines the different factors he employs. In
brief, he is to make vital business decisions relating to the purchase of productive factors
and to the sales of the finished goods or services.

2. Management Control:
Earlier writers used to consider management control one of the chief functions of the
entrepreneur. Management and control of the business are conducted by the entrepreneur
himself. So the latter must possess a high degree of management ability to select the right
type of persons to work with him. But the importance of this function has declined, as the
business nowadays is managed more and more by paid managers.

3. Division of income:

The next major function of the entrepreneur is to make necessary arrangement for the
division of total income among the different factors of production employed by him.
Even if there is a loss in the business, he is to pay rent, interest; wages and other
contractual income out of the realised sale proceed.

4. Risk-taking and uncertainty-bearing:

Risk-taking is perhaps the most important function of an entrepreneur. Modern

production is very risky as an entrepreneur is required to produce goods or services in
anticipation of their future demand. Broadly, there are two kinds of risk which he has to
face.

5. Innovation:

Another distinguishing function of the entrepreneur as emphasised by Schumpeter, is to

make frequent inventions- invention of new products, of new techniques and discovering
new markets—to improve his competitive position, and to increase earnings.

Reasons for Government’s Intervention in Private Business

1. Provision of Non-market Products and Indivisible Services

Certain products and services are necessary for the very existence of the society. They
include nation’s defense and related services, price protection, flood control, protection of
public monuments, buildings etc. These services are called non-excludable public
services or goods. The market mechanism cannot and shall not provide such services.
Hence, they  cannot be left to the market mechanism.

2. Provision of Basic Infrastructure

The provision of basic infrastructure like power, communication, port facilities, banking
and other institutional facilities is sin qua non for the growth of the national economy. It
involves a huge capital outlay.
At the same time, the return is very poor when compared to the capital investment
involved in them. Moreover, it is not also advisable to leave them in the hands of private
individuals or market participants to bear the burden. Moreover, they may also exploit the
society if they have a free hand in them.

3. Improvement in Market Functioning

Perfect market in its original sense, does not exist anywhere in the world. Even developed
economies are no exception to this. The Government cannot correct the imperfections in
the market absolutely. However, as pointed out by Gerald Sirkin, these imperfections are
capable of at least partial correction by the Government action. He further declared that
the state might help to correct some of the imbalances in the market mechanism in the
following ways.

4.Provision of Correct Information

Market system will work better only when the individual participants i.e. consumers,
resource owners and entrepreneurs have perfect and correct information on various
aspects. They need information regarding the quality and prices of raw materials, end
products, factor costs, labour exchanges and so on.

5. Promotion of Competition

Competition, in its real sense has never existed in all free market economies. The past
history shows that how business people and industrialists avoided Competition and
exploited the society by using certain devices like mergers and amalgamations,
syndicates, pools and cartels.

The Government in this regard can help in many ways. In particular it can

Control the size of private enterprises i.e. monopoly houses.

Regulate and prohibit monopolistic, restrictive and unfair trade practices.

Prevent mergers and amalgamation of competing units.

In extreme cases, it can even open domestic market to foreign competition, streamline its
own licensing etc.

6.Allocation of Resources among Better alternative Uses

The investors will prefer to invest their surplus only in profitable avenues. On the other
hand, they will hesitate or even avoid investment in areas, which are socially desirable
but less profitable. Such a situation will really restrict the movement of resources among
alternatives uses, which is undesirable from the competition point of view. Only state
intervention can remedy this.

7.Provision of Institutional Support

Government can provide cheap credit facilities to certain sectors and stimulate their
growth. Examples of such sectors are small business and agriculture. These sectors
provide employment opportunities to millions of people but the private credit agencies
are not extending a helping hand to this sector.

8.Standardization of Business Practices

Standardized commercial practices are necessary to bring stability in commercial inter

change. Customs, trade usage etc. are of course, there. But they are only voluntary. It is
now recognized all over the world (including U.S.A.) that the Government is the only
competent agency to set standard business practices.

9.Stabilization of Aggregate Demand

One of the most important functions of the Government is to provide a sound monetary

system, which is necessary for conducting business transactions. The rules and
regulations relating to the money system constitute the official monetary policy. Whether
the amount of money in circulation is to be increased or decreased also depends on the
Government policy. Hence the Government through its appropriate monetary and fiscal
policies can facilitate smooth functioning of the market at the full employment level.

10.Correction of Inherent Defects in the Market Mechanism

Free market in its literal sense does not exist anywhere in the world. The market
mechanism has certain inherent defects, which cannot be corrected without the
intervention of the state. Situations, which call for state intervention, include the
following.

Five Areas of Government Regulation of Business

1.Advertising

Laws pertaining to marketing and advertising set in motion by the Federal Trade
Commission exist to protect consumers and keep companies honest about their products,
according to Business.gov. Every business in the country is required to comply with the
truth-in-advertising laws and could face lawsuits for violation.

2.Environmental Impact

The carbon footprint and the effect of businesses on the environment is regulated by the
Environmental Protection Agency alongside state agencies. The EPA enforces
environmental laws passed by the federal government through educational resources,
frequent inspections and local agency accountability.

The Environmental Compliance Assistance Guide exists to help businesses--small and

large alike--achieve environmental compliance, and serves as an educational resource
more than an enforcer.

4.Privacy Protection

Sensitive information is usually collected from employees and customers during hiring
and business transactions, and privacy laws prevent businesses from disclosing this
information freely. Information collected can include social security number, address,
name, health conditions, credit card and bank numbers and personal history. Not only do
various laws exist to keep businesses from spreading this information, but people can sue
companies for disclosing sensitive information.

5.Safety and Health

The Safety and Health Act of 1970 ensures that employers provide safe and sanitary work
environments through frequent inspections and a grading scale. A company must meet
specific standards in order to stay in business. This regulation has changed frequently
throughout the years alongside the changing sanitary and workplace standards.
 RECORDING BUSINESSTRANSACTIONS

A business can be set up in two ways-

i) Owner supplying all theresources

ii) Owner supplying some of the resources and

the rest being supplied by outside parties.
The two cases bring out the accounting equation also called book- keeping
equation

Case one: owner supplying all the resources

In this case we say that-

Resources in the business = Resources supplied bytheowner……………

(i)

Resources in business are called assets and resources supplied by the owner
are called
capital
 Therefore equation (i)

can be re -written as-

ASSETS = CAPITAL

Case two: resources supplied by owner and outside parties

In this case we say that-

Resources in business = Resources supplied by the owner + Resources

supplied by
out- side parties…......................................................(ii)

The new term in the equation is resources supplied by out side

parties, in accounting, we call them liabilities.

Therefore equation (ii) can be re-written as

ASSETS = CAPITAL+ LIABILITIES…...............................................................(ii)

Components of accounting equations

Assets: An asset is a resource controlled by a business entity/firm

as a result of past events for which economic benefits are
expected to flow to the firm.
An example is if a business sells goods on credit then it has an
asset called a debtor. The past event is the sale on credit and the
resource is a debtor. This debtor is expected to pay so that
economic benefits will flow towards the firm i.e. in form of cash
once the customers pays.
Assets are classified into two main types:
iii) Non current assets (formerly called fixedassets).
iv) Current assets.
Non current assets are acquired by the business to assist in
earning revenues and not for resale. They are normally
expected to be in business for a period of more than one year.
Major examples include
  Land and buildings
 Plant andmachinery
 Fixtures, furniture, fittings andequipment
 Motor vehicles
Current assets are not expected to last for more than one year.
They are in most cases directly related to the trading activities
of the firm. Examples include:
 Stock of goods – for purpose of selling.
 Trade debtors/accounts receivables – owe the business
amounts as a resort of trading.
 Other debtors – owe the firm amounts other than fortrading.
 Cash at bank.
 Cash inhand.
Liabilities: These are obligations of a business as a result of past
events settlement of which is expected to result to an economic
outflow of amounts from the firm. An example is when a
business buys goods on credit, then the firm has a liability called
creditor. The past event is the credit purchase and the liability
being the creditor the firm will pay cash to the creditor and
therefore there is an out flow of cash from thebusiness.

Liabilities are also classified into two main classes.

i) Non-current liabilities (or long termliabilities)

ii) Currentliabilities.

Non-current liabilities are expected to last or be paid after one

year. This includes long-term loans from banks or other
financial institutions. Current liabilities last for a period of less
than one year and therefore will be paid within one year.

Major examples:
  Trade creditors or accounts payable – owed amounts as a
resultof
business buying goods oncredit.
 Other creditors - owed amounts for services supplied to
thefirm
other than goods.
 Bank overdraft - amounts advanced by the bank for ashort-
term
period.
Capital: This is the residual amount on the owner’s interest in
the firm after deducting liabilities from the assets.

Statement of financial position as at 31.12. 20xx

Shs. Shs. Shs.

Non Current Assets xx
Land & Buildings xx
Plant & Machinery xx
Fixtures, furniture & fittings xx
Motors vehicles xx xx
Current Assets
Stocks/inventories xx
Debtors/ trade receivables xx
Cash at bank xx
Cash in hand xx
xx
Current Liabilities
Bank Overdraft xx
Creditors/trade payables xx
xx xx
Net Current Assets xx
Net assets xxx
Capital xxx
Non current liabilities
Loan (from bank or other sources) xx
Total Capital & liabilities xxx
Example 1.2

C.Murungi sets up a new business. Before he actually sells

anything he has bought motor vehicles of Sh.3, 000, premises of
Sh.7, 000, stock of goodsSh.2,000. He still owesSh.800 in
respect of them. He had borrowed Sh.4,000 from D Evans. After
the events just described and before trading starts, he hadSh.300
cash in hand andSh.600 cash at bank.
You are required to calculate the amount of his capital.

Solution

Asset Sh Sh
Motor Vehicle 3,000
Premises 7,000
Stock 2,000
Cash at bank 600
Cash in hand 300
12,900
Liabilities
creditors 800
Loan- D 4,000 (4,800)
Evans
8,100

Capital 8,100

Cash at bank 29,120

Cash in hand 160

During the first week of May 2002 Moody:

a. Bought extra equipment on credit forSh.5,520.
b. Bought extra stock by cheque Sh.2,280.
c. Paid creditors by cheque Sh.3,160.
d. Debtors paid Sh.3,360 by cheque and Sh.240 bycash.
e. Moody put in extra Sh.1,000 cash ascapital.
Required:
a. Determine the capital as at 1st May2002.
b. Draw up a statement of financial position after the
above transactions have beencompleted.
Solution:

(i) Using the accounting equation of Assets = Liabilities +

Capital, then assets and liabilities can be listed asfollows.
Assets Sh Liabilities Sh.
.
Equipment 46,000 Creditors 15,80
0
Motor Vehicle 25,160
Stock 24,600
Debtors 23,080
Cash at bank 29,120
Cash in hand 160
148,120

Capital = Assets – Liabilities

= Sh.148,120 - Sh.15,800 = Sh.132,320

D Moody
Statement of financial position as at 7 May 2002

Non Current Assets Sh Sh

Equipment 51,520
Motor Vehicle 25,160
76,680

Current Assets
Stock 26,880
Debtors 19,480
Cash at Bank 1,400
74,800

Current Liabilities
Creditors (18,160)
NetCurrent Assets 56,640
 Net Assets 133,320
Capital 133,320

2.2Cause of Changes inCapital

The capital in a business does not remain intact but changes over
time due to the following factors: additional investments, profits
drawings or losses.
1) Additional investments (I)-occurs when the owner of the
business brings in his personal cash or assets into the business for
business use. Addition investment increase the capital of
thebusiness.
2) Profits (P) -defined as the excess revenue obtained after
paying costs of a business increase the level of capital and assets
of thebusiness.
3) Drawings (D)-refer to the money or other assets taken from
the business by the owner for personal use. Drawings reduce the
ofbusinesscapital.
4) Losses(l)–
occurswhenthecostofgoodsorservicesaregreaterthantheirsaleprice
.losses reduce the level of business capital.

Initial Capital and Final Capital of aBusiness

Initial capital refers to any funds and other assets invested into
the business by the owner at the beginning of the trading period.
Final capital refers to the business capital at the end of the
trading period. Thus, final capital is initial capital when it has
been influenced by factors such as additional investment, profits,
drawings and losses.
The formula for determining initial capital is
represented as follows: Initial capital =final capital
– addition investment – net profits +drawings
i.e : I.C = F.C - I- P +D
 FORMS OF BUSINESS OWNERSHIP
Sole Proprietorship

Sole Proprietorship in simple words is a one-man business organisation. It is the type of

entity that is fully owned and managed by one natural person (not a legal person/entity)
known as the sole proprietor. The business and the man are the same, it does not have a
separate legal entity.

Features of Sole Proprietorship

1] Lack of Legal Formalities

A sole proprietorship does not have a separate law to govern it. So there are not many
special rules and regulations to follow. It does not require incorporation or registration of
any kind. In most cases, only a license is required to carry out the desired business.

2] Liability

Since there is no separation between the owner and the business, the liability of the owner is
also unlimited. So if the business is unable to meet its own liabilities, it will fall upon the
proprietor to pay them. All of his personal assets (like his car, house, other properties etc)
may have to be sold to meet the liabilities of the business.

3] Risk and Profit

The owner is the only risk bearer in a sole proprietorship. Since he is the only one
financially invested in the company, he must also bear all the risk. If the business fails or
suffers losses he will be the one affected.

4] No Separate Identity

In legal terms, the business and the owner are one and the same. No separate legal identity
will be bestowed upon the sole proprietorship. So the owner will be responsible for all the
activities and transactions of the business.

5] Continuity
Just as we saw above the business and the owner have one identity. So a sole proprietorship
is entirely dependent on its owner. The death, retirement, bankruptcy. insanity,
imprisonment etc will have an effect on the sole proprietorship. In most of such cases, the
proprietorship will cease to exist and the business will come to an end.

Advantages of Sole Proprietorship

 A proprietor will have complete control of the entire business, this will facilitate quick
decisions and freedom to do business according to their wishes
 Law does not require a proprietorship to publish its financial accounts or any other
such documents to any members of the public. This allows the business a great deal
of confidentiality which is sometimes important in the business world
 The owner derives maximum incentive from the business. He does not have to share
any of his profits. So the work he puts into the business is completely reciprocated in
incentives
 Being your own boss is a great sense of satisfaction and achievement. You are
answerable only to yourself and it is a great boost to your self-worth as well

Disadvantages of Sole Proprietorship

 One of the biggest limitations of a sole proprietorship is the unlimited liability of the

owner. If the business fails it can wipe out the personal wealth of the owner as well
and affect his future business prospects too
 Another problem is the limited capital a sole proprietor has access to. His own
personal savings and money he can borrow may not be enough to expand the
business. Banks and financial institutions are also wary lending to proprietorships
 The life cycle of a sole proprietorship is undecided and attached to its owner. If the
owner is incapacitated in any way it has a negative effect on the business, and it may
even lead to the closure of the business. A sole proprietorship cannot carry on without
its proprietor.
 A sole proprietor also has limited managerial ability. He cannot be an expert in all the
fields of the business. And limited resources may mean that he cannot even hire
competent people to help him out. This may lead to the business suffering from
mismanagement and poor decisions
Partnership

Different Kinds of Partners that are found in Partnership Firms

1. Active or managing partner:

A person who takes active interest in the conduct and management of the business of the
firm is known as active or managing partner.

He carries on business on behalf of the other partners. If he wants to retire, he has to give
a public notice of his retirement; otherwise he will continue to be liable for the acts of the
firm.

2. Sleeping or dormant partner:

A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the
management of the business. Such a partner only contributes to the share capital of the
firm, is bound by the activities of other partners, and shares the profits and losses of the
business. A sleeping partner, unlike an active partner, is not required to give a public
notice of his retirement. As such, he will not be liable to third parties for the acts done
after his retirement.

3. Nominal or ostensible partner:

A nominal partner is one who does not have any real interest in the business but lends his
name to the firm, without any capital contributions, and doesn’t share the profits of the
business. He also does not usually have a voice in the management of the business of the
firm, but he is liable to outsiders as an actual partner.

Sleeping vs. Nominal Partners:

It may be clarified that a nominal partner is not the same as a sleeping partner. A sleeping
partner contributes capital shares profits and losses, but is not known to the outsiders.
A nominal partner, on the contrary, is admitted with the purpose of taking advantage of
his name or reputation. As such, he is known to the outsiders, although he does not share
the profits of the firm nor does he take part in its management. Nonetheless, both are
liable to third parties for the acts of the firm.

4. Partner by estoppel or holding out:

If a person, by his words or conduct, holds out to another that he is a partner, he will be
stopped from denying that he is not a partner. The person who thus becomes liable to
third parties to pay the debts of the firm is known as a holding out partner.

There are two essential conditions for the principle of holding out : (a) the person to be
held out must have made the representation, by words written or spoken or by conduct,
that he was a partner ; and (6) the other party must prove that he had knowledge of the
representation and acted on it, for instance, gave the credit.

5. Partner in profits only:

When a partner agrees with the others that he would only share the profits of the firm and
would not be liable for its losses, he is in own as partner in profits only.

6. Minor as a partner:
A partnership is created by an agreement. And if a partner is incapable of entering into a
contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i.e.,
a person who has not attained the age of 18 years) cannot be one of the parties to the
contract. But under section 30 of the Indian Partnership Act, 1932, a minor ‘can be
admitted to the benefits of partnership’, with the consent of all partners. A minor partner
is entitled to his share of profits and to have access to the accounts of the firm for
purposes of inspection and copy.
7. Other partners:
In partnership firms, several other types of partners are also found, namely, secret partner
who does not want to disclose his relationship with the firm to the general public.
Outgoing partner, who retires voluntarily without causing dissolution of the firm, limited
partner who is liable only up to the value of his capital contributions in the firm, and the
like

Selecting a Business Partnership Type

A partnership is a business with several individuals, each of whom owns part of the
business. The relationship between the partners and the duties of partners are clarified in
the partnership agreement.

In any partnership, each partner must "buy in" or invest in the partnership. Usually, each
partner's share of the partnership profits and losses is based on his or her percentage share
of ownership.

Partnerships are formed by state laws, so some partnership types may not be available in
some states.

General Partnership

A general partnership is a partnership with only general partners. Each general partner

takes part in the management of the business and also takes responsibility for the
liabilities of the business. If one partner is sued, all partners are held liable. General
partnerships are the least desirable for this reason.

Limited Partnerships

A limited partnership includes both general partners and limited partners. A limited
partner does not participate in the day-to-day management of the partnership and his/her
liability is limited. In many cases, the limited partners are merely investors who do not
wish to participate in the partnership other than to provide an investment and to receive a
share of the profits.

Considering Liability in Partnerships

The general partnership is similar to a sole proprietorship in the liability of owners. In

both cases, the owner or owners have full liability for the debts of the business and for
their actions. That's why new partnership types were set up to limit the liability of one
partner for the actions of other partners. Limited liability in general means that the
liability of any one partner is limited to that person's investment in the partnership.

In a limited partnership, limited partners have limited liability because they don't
participate in management decision-making. General partners don't have limited liability
because they are active in making decisions - and being liable for them.

Limited Liability Partnerships

A limited liability partnership (LLP) is different from a limited partnership or a general

partnership but is closer to a limited liability company (LLC). In the LLP, all partners
have limited liability.

An LLP combines characteristics of partnerships and corporations. As in a corporation,

all partners in an LLP have limited liability, from errors, omissions, negligence,
incompetence, or malpractice committed by other partners or by employees. Of course,
any partners involved in wrongful or negligent acts are still personally liable, but other
partners are protected from liability for those acts.

LLC or Partnership?

In recent years, the limited liability company has become more common than the general
partnership and the limited partnership, because it has more limited liability for the
owners (as the name suggests).

But there are still cases in professional practices in which some partners want to be
limited in the scope of duties and they just want to invest, having the liability protection.
You might have also considered setting up your multiple-person business as an LLC.
While a multiple-member (owner) LLC is taxed like a partnership, there are differences
in liability and in other ownership provisions. Read more about the differences between
an LLC and partnership.

Joint Ventures as Partnerships

The Small Business Administration lists a joint venture as a type of partnership. A joint

venture is typically a partnership between different businesses formed for a specific
purpose (like making a movie or building a structure) or for a specified time period. 

Qualified Joint Ventures as Partnerships

Types of Partners

Just to confuse the issue, a partnership can have different types of partners - general
partners and limited partners. There can be both types of partners in any type of
partnership except for the general partnership, which has only general partners. Briefly,
the two types of partners:

 General partners, who invest in the partnership, participate in the

day-to-day operations and are liable for debts and lawsuits of the
partnership
 Limited partners, who invest in the partnership but who have no
participation in day-to-day operations and who are not usually
considered to have liability.

Finally, the awkwardly-named limited liability limited partnership is a new and relatively
uncommon variety. This is a limited partnership that provides a greater shield from
liability for its general partners.

Principles of cooperation
1.Promoting structural conditions and global policies conducive to development
Switzerland does everything it can to ensure that the conditions for effective global
development and international cooperation are met.  It promotes increased responsibility
for authorities and civil society in partner countries and it endeavours to obtain fair and
favourable legal conditions for the private sector and non-governmental organisations. It
promotes sustainable and global management of issues relating to water, food security,
climate, health and migration, and it lobbies for green economic growth.

2.Ensuring maximum efficiency

Project planning, implementation and supervision focus on results and real improvements
in the living conditions of the beneficiaries of international cooperation.  All aspects of
sustainability are taken into account: social, economic, environmental as well as
governance and equality between women and men.

3.Adding value, developing and sharing know-how and experience

Helping others to help themselves remains the leitmotif of Switzerland’s engagement. 
From this standpoint, Switzerland provides its assistance in those areas where it possesses
substantial know-how.  Switzerland deploys the expertise of the SDC, SECO, the Human
Security Division of the FDFA and other areas of the Federal Administration, as well as
of private businesses, research institutes and civil society.  Switzerland endeavours to
harness local knowledge to the benefit of developing countries and to share its own
experience with them.

4.Working as partners in mutual respect

In its actions, Swiss international cooperation recognises and respects the world’s
different cultures and religions.  It works with the people, institutions and political forces
in its partner countries, whilst emphasising respect for the rule of law and human rights. 
These partnerships rely on shared values and objectives, relationships of trust and a desire
for transparency.

5.Working with public authorities

In most cases, international cooperation with state authorities is important and necessary
because the partner states cannot ensure a form of prospering socio-economic
development that is accessible to all.  Where, in any such country, human rights are swept
aside or the necessary conditions for the rule of law and democracy are not in place,
Switzerland reviews its engagement at government level.
6.Good governance
Switzerland promotes respect for human rights and good governance in every one of its
projects and programmes as well as in its political dialogue.  The latter targets the quality
of government and public administration, and compliance with the obligation to
accountability.  This requires the legal system to be independent of the state. It implies
the existence of the rule of law, a democratic system and fair regulatory framework for
both private and public enterprises.  Transparency and liability for corruption are of vital
importance.

7.Equality between women and men

Switzerland’s efforts towards poverty reduction go hand in hand with its commitment to
equality between the sexes.  It condemns discrimination against women, whether relating
to work, education, their rights, or attacks on their physical integrity.  When promoting
equality between the sexes, Switzerland’s international cooperation adopts an approach
with careful regard for cultural and contextual specificities.

Types of Cooperation and Role of Cooperation

Cooperation is of different types. MacIver and Page have divided cooperation into two
main types namely, (i) Direct Cooperation (ii) Indirect Cooperation.
(i) Direct Cooperation

Under direct cooperation may be included all those activities in which people do like
things together. For example, plying together, working together, carrying a load together
or pulling the car out of mud together. The essential character of this kind of cooperation
is that people do such identical function which they can also do separately. This type of
cooperation is voluntary e.g., cooperation between husband and wife, teacher and student,
master and servant etc.
(ii) Indirect Cooperation

Under indirect cooperation are in included those activities in which people do unlike
tasks together towards a common end. For example, when carpenters, plumbers and
masons cooperate to build a house. This cooperation is based on the principle of the
division of labour. In it people perform different functions but for the attainment of the
common objective. In the modern technological age, specialization of skills and function
are more required for which indirect cooperation is rapidly replacing direct cooperation.

A.W. Green has classified cooperation into three main categories such as (i) Primary
cooperation (ii) Secondary cooperation (iii) Tertiary cooperation.

(i) Primary Cooperation

This type of cooperation is found in primary groups such as the family. In this form, there
is an identity of interests between the individuals and the group. The achievement of the
interests of the group includes the realization of the individual’s interests.
(ii) Secondary Cooperation

Secondary cooperation is found in secondary groups such as Government, industry, trade

union and church etc. For example, in an industry, each may work in cooperation with
others for his own wages, salaries, promotion, profits and in some cases prestige and
power. In this form of cooperation there is disparity of interests between the individuals.
(iii) Tertiary Cooperation

This type of cooperation is ground in the interaction between the various big and small
groups to meet a particular situation. In it, the attitudes of the cooperating parties are
purely opportunistic; the organization of their cooperation is both loose and fragile. For
example, two political parties with different ideologies may get united to defeat their rival
party in an election.

PRIVATE LIMITED COMPANY

A private limited company is a business entity that is held by private owners. This type of
entity limits the owner’s liability to their ownership stake, and restricts shareholders from
publicly trading shares.
Advantages of a Private Limited Company
Members: You can start a private limited company with a minimum of only 2 members
(and maximum of 200), as per the provisions of the Companies Act 2013.
Limited liability: The liability of each shareholder or member is limited. This means that
if the company runs into a loss, the company shareholders are liable to sell their company
shares to clear the debt or liability. The individual or personal assets of shareholders or
members are not at risk.

Perpetual succession: As per company law, perpetual succession means that the
company continues its existence even any owner or member dies, goes bankruptcy, exits
from the business and transfers his shares to another person.
Prospectus: Prospectus is a detailed statement that must be issued by a company that
goes public. However, private limited companies do not need to issue a prospectus
because the public is not invited to subscribe for the shares of the company.
Number of directors: A private limited company needs a minimum of only 2 directors.
At least one director on the board of directors must have stayed in India for a total period
of not less than 182 days in the previous calendar year. The directors and the shareholders
can be the same people.
Capital: Minimum share capital required is only Rs. 1 lakh.

Disadvantages of a Private Limited Company

 The shares in a private limited company cannot be sold or transferred to anyone

unless other shareholders agree on the same.
 There is no option to invite public to subscribe to the shares.
 It is mandatory that you should mention Pvt. Ltd. at the end of a company name.

PUBLIC COMPANY
A public company is a company that has permission to issue registered securities to the
general public through an initial public offering (IPO) and it is traded on at least one
stock exchange market. A public company is not authorised to begin its business
operations just upon the grant of the certificate of incorporation. In order to be eligible to
run as a public company, it should obtain another document called a trading certificate.
Advantages of a Public Limited Company
Members: In order for a company to be public , it should have a minimum of 7 members
(maximum  unlimited).
Limited liability: The liability of a public company is limited. No shareholder is
individually liable for the payment. The public limited company is a separate legal
entity, and each shareholder is a part of it.
Board of Directors: A public company is headed by a board of directors. It should have
a minimum of 3 and can have a maximum of 15 board of directors. They are elected from
among the shareholders by the shareholders of the company in annual general meetings.
The elected directors act as  representatives of the shareholders in managing the company
and taking decisions. Having a bigger board of directors therefore benefits all
shareholders in terms of transparency as well as fostering a democratic management
process.
Transparency: Private limited companies are strictly regulated and are required by law
to publish their complete financial statements annually to ensure the true financial
position of the company is made clear to their owners (shareholders) and potential
investors. This also helps to determine the market value of its shares.
Capital: A public company can raise capital from the public by issuing shares through
stock markets. Public companies can also raise capital by issuing bonds and debentures
that are unsecured debts issued to  a company on the basis of financial performance  and
integrity of the company.
Transferable shares: A public limited company’s shares are purchased and sold on the
market. They are freely transferred among the members and the people trading on stock
markets.
Disadvantages of going public:
Prospectus: For a public company, issuing prospectus is mandatory  because the public
is invited to subscribe for the shares of the company.
Expensive: Going public is an expensive and time consuming process. A public
company must put its affairs in order and prepare reports and disclosures that match with
SEBI regulations concerning initial public offerings (IPO). The owner has to hire
specialists like accountants and underwriters to take the company through the process.
Equity Dilution: Any company going public is selling a part of the company’s
ownership to strangers. Each bit of ownership that the owner sells comes out of their
current equity position. It is not always possible to raise the amount of money that you
may need to operate a public corporation from shares, so company owners should hold at
least 51 percent of the ownership in their control.
Loss of Management Control: Once a private company goes public, managing the
business becomes more complicated. The owner of the company can no longer make
decisions independently. Even as a majority shareholder, they are accountable to minority
shareholders about how the company is managed. Also, company owners  will no longer
have total control over the composition of the board of directors since SEBI regulations
place restrictions on board composition to ensure the independence of the board from
insider impact.
Increased Regulatory Oversight: Going public brings a private company under the
supervision of the SEBI and other regulatory authorities that regulate public companies,
as well as the stock exchange that has agreed to list the company’s stock. This increase in
regulatory oversight significantly influences management of the business.
Enhanced Reporting Requirements: A private company can keep its internal business
information private. A public company, however, must make extensive quarterly and
annual reports about business operations, financial position, compensation of directors
and officers and other internal matters. It loses most privacy rights as a consequence of
allowing the public to invest in its stock.
Increased Liability: Taking a private company public increases the potential liability of
the company and its officers and directors for mismanagement. By law, a public company
has a responsibility to its shareholders to maximize shareholder profits and disclose
information about business operations. The company and its management can be sued for
self-dealing, making material misrepresentations to shareholders or hiding information
that federal securities laws require to be disclosed.

What are the key differences between private and public companies?
Some of the main differences between private limited companies and public limited
companies include:

 public companies can offer their shares for sale to the general public
 two directors are required for public companies whereas only one is needed for a
private company
 public companies cannot accept an undertaking to do work or perform services as
consideration for allotment of shares
  public companies cannot purchase their own shares out of capital
 public companies must appoint a Company Secretary who is suitably qualified
 public companies have six months in which to file their annual accounts as
opposed to private companies which have nine months
 public companies are required to hold an annual general meeting whereas this is
generally not a requirement for private companies

Important Differences between Public Corporation and a Government Company

Public Corporation:
1. Public Corporation is an instrument of the State

2. It is created by the statute.

3. Once a public corporation is established for certain purpose, it is a very hard to change
its sphere and nature of business, unless and until the Parliament or State Legislature
amend the original statute.
4. The object of the establishment has some more objectives, such as services.
5. Examples: ONGC, RTC, LIC, FCI, Damodar Valley Corpn., etc.
6. Prerogative writs can be issued against them.
7. Public Corporations are under the control of:
(i) Judicial control;

(ii) Governmental control; and

(iii) Public control.

A Government Company:
1. Section 617 of the Companies Act, 1956 defines a Government company: “A
Government company, in which not less than 51% of the share capital is held by the
Central Government, or by any State Government and includes a company which is a
subsidiary of a Government Company.”
2. It is created by Articles of Association and Memorandum of Association. It is not a
department or an extension of the State. It is not an agent of the State.
3. It has the characteristics of a Private Company. The Articles of Association and
Memorandum of Association can easily be amended by the resolutions, meetings of the
members of the Government Company.
4. Where the object of the establishment is purely commercial, then Government
Company is preferable.
5. Examples: S.C.Co. Ltd, National Construction Co. Ltd.; etc
6. Prerogative writs cannot be issued against them.
7. Government Companies are under the control of:
(i) Judicial control;

(ii) Governmental control;

(iii) Parliamentary control; and

(iv) Public control.

 INSURANCE
Meaning of Insurance:
Insurance is an arrangement in which you pay money to a company, and they provide
financial protection for your property, life, or health, paying you in case of death, loss, or
damage.

The Role and Importance of Insurance

1. . Provide safety and security:
Insurance provide financial support and reduce uncertainties in business and human life.
It provides safety and security against particular event. There is always a fear of sudden
loss. Insurance provides a cover against any sudden loss

2. Generates financial resources:

Insurance generate funds by collecting premium. These funds are invested in government
securities and stock. These funds are gainfully employed in industrial development of a
country for generating more funds and utilised for the economic development of the
country

3. Life insurance encourages savings:

Insurance does not only protect against risks and uncertainties, but also provides an
investment channel too. Life insurance enables systematic savings due to payment of
regular premium. Life insurance provides a mode of investment. It develops a habit of
saving money by paying premium.

4. Promotes economic growth:

Insurance generates significant impact on the economy by mobilizing domestic savings.
Insurance turn accumulated capital into productive investments. Insurance enables to
mitigate loss, financial stability and promotes trade and commerce activities those results
into economic growth and development. Thus, insurance plays a crucial role in
sustainable growth of an economy.

5. Medical support:
A medical insurance considered essential in managing risk in health. Anyone can be a
victim of critical illness unexpectedly. And rising medical expense is of great concern.
Medical Insurance is one of the insurance policies that cater for different type of health
risks. The insured gets a medical support in case of medical insurance policy.
6. Spreading of risk:
Insurance facilitates spreading of risk from the insured to the insurer. The basic principle
of insurance is to spread risk among a large number of people. A large number of persons
get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is
compensated out of funds of the insurer.

7. Source of collecting funds:

Large funds are collected by the way of premium. These funds are utilised in the
industrial development of a country, which accelerates the economic growth.
Employment opportunities are increased by such big investments. Thus, insurance has
become an important source of capital formation.

The 7 Principles of Insurance Contracts:

Defining an insurance contract can be very beneficial when you

are negotiating or deciding if you need a lawyer in your personal injury case. There are
seven basic principles that create an insurance contract between the insured and the
insurer:

1. Utmost Good Faith

2. Insurable Interest
3. Proximate Cause
4. Indemnity
5. Subrogation
6. Contribution
7. Loss Minimization

1.The Principle of Utmost Good Faith

 Both parties involved in an insurance contract—the insured (policy holder) and the
insurer (the company)—should act in good faith towards each other.
 The insurer and the insured must provide clear and concise information regarding
the terms and conditions of the contract

2.The Principle of Insurable Interest

Insurable interest just means that the subject matter of the contract must provide some
financial gain by existing for the insured (or policyholder) and would lead to a financial
loss if damaged, destroyed, stolen, or lost.

 The insured must have an insurable interest in the subject matter of the insurance
contract.
 The owner of the subject is said to have an insurable interest until s/he is no longer
the owner.

3.The Principle of Indemnity

 Indemnity is a guarantee to restore the insured to the position he or she was in

before the uncertain incident that caused a loss for the insured. The insurer
(provider) compensates the insured (policyholder).
 The insurance company promises to compensate the policyholder for the amount of
the loss up to the amount agreed upon in the contract.

4.The Principle of Contribution

 Contribution establishes a corollary among all the insurance contracts involved in

an incident or with the same subject.
 Contribution allows for the insured to claim indemnity to the extent of actual loss
from all the insurance contracts involved in his or her claim.

5.The Principle of Subrogation

This principle can be a little confusing, but the example should help make it clear.
Subrogation is substituting one creditor (the insurance company) for another (another
insurance company representing the person responsible for the loss).

 After the insured (policyholder) has been compensated for the incurred loss on a
piece of property that was insured, the rights of ownership of this property go to
the insurer.

6.The Principle of Proximate Cause

 The loss of insured property can be caused by more than one incident even in
succession to each other.
 Property may be insured against some but not all causes of loss.
 When a property is not insured against all causes, the nearest cause is to be found
out.
  If the proximate cause is one in which the property is insured against, then the
insurer must pay compensation. If it is not a cause the property is insured against,
then the insurer doesn’t have to pay.

7.The Principle of Loss Minimization

This is our final principle that creates an insurance contract and the most simple one
probably.

 In an uncertain event, it is the insured’s responsibility to take all precautions to

minimize the loss on the insured property.

Basic Types of Insurance:

1. Credit Insurance:
Credit insurance means of insuring the payment of commercial debts against the risk of
non-payment by the borrower because of his insolvency or for some other reason.

2. Group Insurance:
Group Insurance is insurance or life insurance obtained by a person as a member of a
group, such as a professional organization, rather than as an individual, because in this
way better terms can often be obtained. This is because there is an administrative saving
for the company, and sometimes also because a particular group has a better life
expectancy than people in general.

3. Life Insurance:
Life Insurance/Assurance is a contract by which the insurer/assuror undertakes to pay the
person for whose benefit the cover is effected, or to his personal representative, a certain
sum of money on the happening of a given event, or on the death of the person whose life
is assured.

4. Marine Insurance:
It is contract by which underwriters engage to indemnify the owner of a ship, cargo or
fright against losses from certain perils or sea risks to which their ship or cargo may be
exposed. In case of marine insurance another type of insurance is prevalent known as
Mutual Insurance.
This type of insurance is provided by ship-owners throughout the world who have
clubbed together in various mutual protection and indemnity associations to cover
hazards which are not covered by marine policies, which have standard clauses leaving a
number of contingencies un-provided for, or only partially provided for. The liabilities of
mutual insurance company are periodically divided amongst the subscribers in proportion
to the tonnage they have entered with the company.

5. Fire Insurance:
Is a contract of indemnity by which an insurance company undertakes to make good any
damage or loss by fire to buildings or property during a specific time.
 MONEY
Introduction

Money is the essential monetary transaction that people use every day. Without Money,
there will be no marketing and economy in human kind. Money acts as a fundamental
medium of exchange which clears up both humanity’s past and present obligations.
Economists define money as widely accepted by society and acts as payments for goods
and services.

Functions of Money

As a general rule, economists have finalized and defined all the four types of functions of
money which are medium of exchange, measurement of value, standard of deferred
payments and lastly store of value.

1. As for Medium of Exchange, ever since it being introduced into the economic
society, money has been fulfilling its duty to act as an essential function which is
medium of exchange in the society. Money facilitates well as our monetary
transactions to purchase and own both tangible and intangible goods and services as a
medium of exchange.

2. Furthermore, as a Measurement of Value, it measures provides the fixed value of

all kinds of goods and services which are manufactured and produced in the economy.
Money performs as unit of value and acts as the standard of value of all goods and
services. In barter trading, it is very burdensome and challenging to measure and
decide the quantity or volume of goods to be exchanged for another given quantity of
goods. Having the knowledge of the average value of a good assists both the seller
and purchaser to make decisions about the quantity and volume of goods to be
exchanged.

3. Moreover, as for Standard of Deferred Payments, money is able to act as a

monetary transaction to be used to pay both before or over time for other goods.
This means that goods and services can be paid for installments over a period of
time such as hire purchase. Unlike barter trade, transactions do not need to be
settled at a lump sum at a time. (Upadhyaya, 2012) Money, besides acting as a
monetary support of current transactions, it also acts as the monetary support of
 deferred payments which is future payments, loan repayments acts as an example
for deferred payments.

4. Money must hold its value over time; it must act a Store of Value. As before,
goods were beyond possible to store its surplus value under barter economy. After
the creation of money, the following issue has been solved efficiently. Retailers
and sellers can now store their surplus retailing earnings. Saving money is now
secure in value without having to worry its loss of value (Education, 2012) Rather
than spending today, you can store it for use in the future.

Characteristics

Which serves as Functions of Money

The characteristics of what serves as money depend somewhat on the degree of

complexity in the society. A relatively simple economy, with relatively few goods and
services, few producers and consumers, and few transactions, may be able to function
with a form of money that would not work in a more complex society. There are some
general characteristics that are usually important for whatever serves as money in a
modern economy.

1. First, to serve as an effective medium of exchange and store of value, money must
be durable. Durability is when an item is able to withstand all the hardships and is
still able to maintain to be undamaged and usable after a long term of usage.
(SubraMoney, 2011) Durability is crucial for money to be able to perform the
following functions of medium of exchange and store of value. Coins and paper
bills are made to perform and to act as the currency. Nowadays, Money is
manufactured with the materials such as paper, metal and plastics, which results to
a long lasting medium. (SubraMoney, 2011)

2. Portability, which also serves as a medium of exchange, (Money Characteristics,

2011) means that money can be movable from place to place to be used as
monetary transaction to be exchanged for goods and services. Portability also
means that consumers are now able to carry money along with them to be used as
transactions for goods and services. In modern days, money is carried from one
location to another without needing much effort as all types of money such as cash
notes, coins and cards are carried easily in a wallet. (SubraMoney, 2011)

3. Furthermore, divisibility is a characteristic which means the money can be divided

into small units and that it can be used in exchange for goods and services. As to
function as the medium of exchange, as it is divisible, it can be used to purchase all
 kinds of goods with different values. As money functions as the medium of
exchange it must have denominations to be traded for all goods and services, and
everything in between. (Money Characteristics, 2011)

4. Moreover, uniformity means that all types of the same denomination of money
must consist of purchasing power. It is a characteristic to perform the function of
standard of deferred payments. (SubraMoney, 2011)

5. Limited supply is a characteristic which helps in storing the value of money,

meaning that constraints on the amount of money in the monetary circulation
ensure that values remain constant for the currency. Currently most of the
respective country’s government has the responsibility to control an adequate
money supply based on market with their monetary policies, such as expansionary
monetary policy and contractionary monetary policy. (SubraMoney, 2011)

7. Acceptability supports the function of medium of exchange. The essential quality

of money is that it must act as an item being acceptable to all, without having any
hesitation in the exchange for goods and services. Acceptability means that
everyone must be able to accept the money for transactions. Money is universally
accepted around the world as a universal mean for transaction. (SubraMoney,
2011)
8. Lastly, the characteristic of non-counterfeitability which functions as the store of
value means that money cannot be easily duplicated. As money cannot be easily
duplicated, it prevents the unrestricted and illegal creating of duplication of money.
Besides, preventing the duplication of money to happen is one of the main reasons
of government existence. (
 BANKS

Meaning of Banks:

A bank (German word) means a joint stock fund. A bank denotes a financial institution
dealing in money. A bank is an institution that is prepared to accept deposits of money
and repay the same on demand.

A banker (i.e., person or a corporation) deals in credit and money i.e. it accepts deposits
from those who want to commit their wealth to safety and earn interest thereon, and lends
money to the needy through cheques and advances and loans of various sorts.

Functions of a Bank:

A bank performs the following functions:

(a) It accepts deposits from the customers, who can take back their money at will. A
saving bank also pays interest to customers on their deposits and is popular with
small savers.

(b) A bank lends money to needy people at a certain interest rate. Banks give loan
to agriculturists, industrialists and businessman who invest it in their ventures to
their own profit and to the economic advancement of the country.

(c) A bank issues notes and creates other inexpensive media of exchange-a note or a
cheque. The issue of notes is entrusted to the Reserve Bank of the country.

(d) The deposits may be created by the bank itself by giving loans to its customers,
in which case the borrower is credited with a deposit account with draw able when
needed. The money borrowed from the bank is usually deposited in the same bank
by the borrowers either because the bank insists on it or because of the advantages
of current account deposit. Such deposits are known as Credit Deposits.

(e) Other functions of a bank are:

(i) The collection of cheques drawn on other banks.

(ii) The acceptance and collection of bills of exchange.

(iii) Dealing in foreign exchange to assist the settlement of overseas debts.

(iv) Stock Exchange trustee and executor business.

(v) Safe deposit facilities.

(vi) Making standing order payments.

(vii) Supplying change and assisting the central bank/Reserve bank in keeping the note
issue in good condition.

Types of Banks:

Banking System consists of:

(a) The indigenous Banking System.

(b) The Modern Banking System:

(i) Commercial Banks.

(ii) Exchange Banks.

(iii) Central Bank.

(iv) The Reserve Bank of India.

(a) The Indigenous Banking System:

The indigenous bankers are usually a family concern.

Their main functions are:

a. To advance loans against ornaments, land etc.

b. To deal in Hundies.

c. To receive deposits.

(b) The Modern Banking System:

(i) Commercial Banks:

Most of the banks in India are Commercial banks, e.g., Punjab National Bank, Allahabad
Bank, United Commercial Bank etc. Such banks deal in short-term credit. They collect
the surplus balances of the individuals and finance the temporary needs of commercial
transactions. A commercial bank borrows money from individuals by accepting deposits
on current account saving account, fixed deposits and miscellaneous deposits and then it
lends money to Industrialists and Traders.

As a principle, the commercial bank:

(a) Supplies circulation capital rather than fixed capital,

(b) Gives loans for short period only,

(c) Does not involve itself too much with one industry only, because if that industry fails,
the bank’s assets may become frozen.

(iii) Exchange Banks:

Whereas commercial banks finance the internal trade of the country, the Exchange banks
finance its foreign trade. Exchange banks of our country will have their head office
located outside India.

The functions of Exchange banks are:

(ii) To supply finance for imports and exports.

(ii) To purchase and discount bills of exchange drawn by Indian exporters and also
collect on maturity the proceeds of bills drawn on Indian Importers for goods purchased
by them.

(iii) To act as referees, collecting and supplying information about the foreign customers,
etc.
(iv) Central Banks:

Central Bank of a country is an apex monetary and banking institution that controls the
supply of currency in that country. Central bank is entrusted with the duty of regulating
the volume of currency and credit in the country. Central bank controls the banking
structure of country. Central bank controls and regulates the monetary, banking and credit
policies of the country.

For performing its function, the Reserve Bank consists of the following
departments:

(a) Issue department. It has the sole right of note issue which must be backed by gold and
sterling securities to the extent of 40%.

(b) Banking department. It is authorized to accept money on deposit without interest, to

purchase, sell and rediscount trade bills and bills against Government securities maturing
within 90 days and bills against agricultural crops maturing within 9 months; to purchase
and sell to member banks, sterling and to regulate credit in the interest of trade and
industry.

(c) Exchange control department. It controls foreign exchange transaction and maintains
a stable rate of exchange.

(d) Department of Banking Operations and Development extends banking facilities to

semi-urban areas and keeps solving the problems of rural finance.

(e) Industrial Finance Department has been entrusted with all matters pertaining to
industrial finance including the activities of state financial corporations.

(f) Research and Statistics Department acts as an agency for the collection and
dissemination of financial information and statistics in India and abroad.
(g) Legal Department gives legal advice on various matters referred to it by other
departments of the bank.

(h) Departments of Financial Companies regulates the acceptance of deposits by non-

banking companies.

(i) Department of Accounts and Expenditure maintains and supervises Reserve Bank’s
accounts in the Issue and Banking Department.

(j) Inspection Department carries out periodic internal inspection of different offices and
departments of the Reserve Bank.

(k) Department of Administration and Personnel deals with general administration,

training of staff and employer-employee relations.

(l) Secretary’s Department deals with policy matters relating to open market operations,
floatation of Government loans and treasury bills and the Reserve Bank’s dealings with
international financial organisations.
 STOCK EXCHANGE

Stock Exchange (also called Stock Market or Share Market) is one important constituent
of capital market. Stock Exchange is an organized market for the purchase and sale of
industrial and financial security. It is convenient place where trading in securities is
conducted in systematic manner i.e. as per certain rules and regulations.

It performs various functions and offers useful services to investors and borrowing
companies. It is an investment intermediary and facilitates economic and industrial
development of a country.

Features of Stock Exchange/functions

Characteristics or features of stock exchange are:-

1. Market for securities : Stock exchange is a market, where securities of corporate

bodies, government and semi-government bodies are bought and sold.
2. Deals in second hand securities : It deals with shares, debentures bonds and such
securities already issued by the companies. In short it deals with existing or second
hand securities and hence it is called secondary market.
3. Regulates trade in securities : Stock exchange does not buy or sell any securities
on its own account. It merely provides the necessary infrastructure and facilities for
trade in securities to its members and brokers who trade in securities. It regulates
the trade activities so as to ensure free and fair trade
4. Allows dealings only in listed securities : In fact, stock exchanges maintain an
official list of securities that could be purchased and sold on its floor. Securities
which do not figure in the official list of stock exchange are called unlisted
securities. Such unlisted securities cannot be traded in the stock exchange.
5. Transactions effected only through members : All the transactions in securities
at the stock exchange are effected only through its authorised brokers and
members. Outsiders or direct investors are not allowed to enter in the trading
 circles of the stock exchange. Investors have to buy or sell the securities at the
stock exchange through the authorised brokers only.
6. Association of persons : A stock exchange is an association of persons or body of
individuals which may be registered or unregistered.
7. Recognition from Central Government : Stock exchange is an organised market.
It requires recognition from the Central Government.
8. Working as per rules : Buying and selling transactions in securities at the stock
exchange are governed by the rules and regulations of stock exchange as well as
SEBI Guidelines. No deviation from the rules and guidelines is allowed in any
case.
9. Specific location : Stock exchange is a particular market place where authorised
brokers come together daily (i.e. on working days) on the floor of market called
trading circles and conduct trading activities. The prices of different securities
traded are shown on electronic boards. After the working hours market is closed.
All the working of stock exchanges is conducted and controlled through computers
and electronic system.
10.Financial Barometers : Stock exchanges are the financial barometers and
development indicators of national economy of the country. Industrial growth and
stability is reflected in the index of stock exchange.
 TRANSPORTATION
Transport or transportation is the movement of humans, animals and goods from one
location to another.

IMPACTS OF TRANSPORTATION

Social role of transportation

Transportation has always played an important role in influencing the formation of urban
societies. Although other facilities like availability of food and water, played a major
role, the contribution of transportation can be seen clearly from the formation, size and
pattern, and the development of societies, especially urban centers.

1.Formation of settlements

From the beginning of civilization, the man is living in settlements which existed near
banks of major river junctions, a port, or an intersection of trade routes.

2.Size and pattern of settlements

The initial settlements were relatively small developments but with due course of time,
they grew in population and developed into big cities and major trade centers. The size of
settlements is not only limited by the size of the area by which the settlement can obtain
food and other necessities, but also by considerations of personal travels especially the
journey to and from work.

3.Growth of urban centers

When the cities grow beyond normal walking distance, then transportation technology
plays a role in the formation of the city. For example, many cities in the plains developed
as a circular city with radial routes, where as the cities beside a river developed linearly.
The development of automobiles, and other factors like increase in personal income, and
construction of paved road network, the settlements were transformed into urban centers
of intense travel activity.

Political role of transportation

The world is divided into numerous political units which are formed for mutual
protection, economic advantages and development of common culture. Transportation
plays an important role in the functioning of such political units.

1.Administration of an area

The government of an area must be able to send/get information to/about its people. It
may include laws to be followed, security and other needful information needed to
generate awareness. An efficient administration of a country largely depends on how
effectively government could communicate these information to all the country.
However, with the advent of communications, its importance is slightly reduced.

2.Political choices in transport

These choices may be classified as communication, military movement, travel of persons

and movement of freight. The primary function of transportation is the transfer of
messages and information. It is also needed for rapid movement of troops in case of
emergency and finally movement of persons and goods. The political decision of
construction and maintenance of roads has resulted in the development of transportation
system.

Environmental role of transportation

The negative effects of transportation is more dominating than its useful aspects as far as
transportation is concerned. There are numerous categories into which the environmental
effects have been categorized. They are explained in the following sections.

1.Safety

Growth of transportation has a very unfortunate impact on the society in terms of

accidents. Worldwide death and injuries from road accidents have reached epidemic
proportions. -killed and about 15 million injured on the road accidents annually.
Increased variation in the speeds and vehicle density resulted in a high exposure to
accidents. Accidents result in loss of life and permanent disability, injury, and damage to
property. Accidents also causes numerous non-quantifiable impacts like loss of time,
grief to the near ones of the victim, and inconvenience to the public. The loss of life and
damage from natural disasters, industrial accidents, or epidemic often receive significant
attention from both government and public. This is because their occurrence is
concentrated but sparse. On the other hand, accidents from transport sector are
widespread and occurs with high frequency.

2.Air Pollution

All transport modes consume energy and the most common source of energy is from the
burning of fossil fuels like coal, petrol, diesel, etc. The relation between air pollution and
respiratory disease have been demonstrated by various studies and the detrimental effects
on the planet earth is widely recognized recently. The combustion of the fuels releases
several contaminants into the atmosphere, including carbon monoxide, hydrocarbons,
oxides of nitrogen, and other particulate matter. Hydrocarbons are the result of
incomplete combustion of fuels. Particulate matters are minute solid or liquid particles
that are suspended in the atmosphere. They include aerosols, smoke, and dust particles.
These air pollutants once emitted into the atmosphere , undergo mixing and disperse into
the surroundings.

3.Noise pollution

Sound is acoustical energy released into atmosphere by vibrating or moving bodies where
as noise is unwanted sound produced. Transportation is a major contributor of noise
pollution, especially in urban areas. Noise is generated during both construction and
operation. During construction, operation of large equipments causes considerable noise
to the neighborhood. During the operation, noise is generated by the engine and exhaust
systems of vehicle, aerodynamic friction, and the interaction between the vehicle and the
support system (road-tire, rail-wheel). Extended exposure to excessive sound has been
shown to produce physical and psychological damage. Further, because of its annoyance
and disturbance, noise adds to mental stress and fatigue.

Energy consumption

The spectacular growth in industrial and economic growth during the past century have
been closely related to an abundant supply of inexpensive energy from fossil fuels.
Transportation sector is unbelieved to consume more than half of the petroleum products.
The compact of the shortage of fuel was experienced during major wars when strict
rationing was imposed in many countries. The impact of this had cascading effects on
many factors of society, especially in the price escalation of essential commodities.
However, this has few positive impacts; a shift to public transport system, a search for
energy efficient engines, and alternate fuels. During the time of fuel shortage, people
shifted to cheaper public transport system. Policy makers and planners, thereafter gave
much emphasis to the public transit which consume less energy per person. The second
impact was in the development of fuel-efficient engines and devices and operational and
maintenance practices. A fast depleting fossil fuel has accelerated the search for energy
efficient and environment friendly alternate energy source. The research is active in the
development of bio-fuels, hydrogen fuels and solar energy.

Other impacts

Transportation directly or indirectly affects many other areas of society and few of then
are listed below:

Almost all cities uses 20-30 percent of its land in transport facilities. Increased travel
requirement also require additional land for transport facilities. A good transportation
system takes considerable amount of land from the society.

Aesthetics of a region is also affected by transportation. Road networks in quite country

side is visual intrusion. Similarly, the transportation facilities like fly-overs are again
visual intrusion in urban context.

The social life and social pattern of a community is severely affected after the
introduction of some transportation facilities. Construction of new transportation facilities
often require substantial relocation of residents and employment opportunities.

ROLES OF TRANSPORT

-Fosters national unity.

- Provision of employment.

- Encourage urbanization.

- Boost tourism.

- Source of revenue to the Government.

- Foster movement of raw material hence boost industrial development.

- Expansion of markets for goods.

Modes of Transport

1. Road transport
2. Railway transport
3. Water transport
4. Air transport
5. Pipeline transport

Different modes of transport (types of transportation)

1. Road transport: road transport exist in all parts of the world, this involves the use
of motor vehicles (cars, lorries, buses, bicycles, and trucks). There are various
types of roads according to size and functions, some roads are tarred while others
are not. The best of these roads are the modern roads which links major towns.
Road transport when compared with other modes of transportation is more flexible.
It is relatively cheaper and faster. Road transport has a high capacity of carrying
goods over short distances. Maintenance is one of the major disadvantages of this
mode of transport.
2. Railway transport: railways were developed during the period of industrial
revolution in the 19th century, these was partly for political reasons and for
economic reasons. In many countries, they were built especially to penetrate
isolated regions and help promote political unity. The major advantage of railway
transport includes provision reliable services. It has ability of conveying heavy and
bulky goods; it is also very cheap, safe and comfortable for passengers over a long
distance.
3. Water transport: water transport is very important because it is the cheapest way
of transporting bulky goods over a long distance. In the world, there are two major
types of water transport namely:Inland water transport and ocean water transport.
Inland water transport:this is the system of transport through all navigable
rivers, lakes and man-made canals. Many large rivers in different parts of the world
are used by ships and barges for transportation; the main rivers where inland water
transport are important are the Rhine and Dambe in Europe, the Zaire in Africa, the
Nile in Africa, the Mississippi in USA etc. However, Ocean waterways carry a lot
of the world'strade, majority of the bulky goods, materials and passengers pass
through ocean waterways from one country to another at the cheapest cost.
 4. Air transport:air transport is the newest means of transport; it was introduced in
1903 but developed into full means of transporting people and goods in 1930s. The
greatest of the air transportation started after the Second World War (WW11). This
mode of transportation can be used for both domestic and international flights.
5. Pipeline transport:this system of transportation involves the use of hollow pipes
in the transportation of water, crude oil, (petroleum) and gas. This mode of
transportation is safer than using tankers or trailers in the transportation of these
liquids.

Other modes of transportation include

 Animal-powered transport:which is mostly referred to as beast of burden. It is

the oldest means of transportation; this usually involves the use of animals for the
transportation of people and goods. Humans may ride some of the higher animals
directly, or harness them. Example of such animals used for transporting humans
and goods include camel, horse, donkey, elephant, and giraffe.
 Human powered transport:this is another form of transport, which
includespeople, goods or both transported from one place to another
usinghumanmuscle-power, in the form of walking,runningandswimming.
Moderntechnologyhas allowedmachinesto take over human power. Human-
powered transport remains popular for reasons of cost-saving,physical exercise,
leisure, andenvironmentalism; it is sometimes the only type available, especially in
underdeveloped or inaccessible regions.
 Spaceflight:is a means of transport that moves out of Earth's atmosphere intoouter
spaceby means of aspacecraft. While large amounts of research have gone into
technology, it is not commonly used except to put satellites into orbit, and conduct
scientific experiments.
 Cable transport: cable transportis a broad class of transportmodes that have
cables as the foundation for transporting goods or people, often in vehicles
calledcable cars. The cable may be driven or passive; items may be moved by
pulling, sailing, sliding or by drives within the object being moved oncableways,
this is another means of transport use in mountain. The use ofpulleysand balancing
of loads going up and down are common elements of cable transport.

Factors to Consider while choosing the most Suitable Mode of Transport

1. Cost of Service:

The cost of transportation adds to the cost of the goods so it should always be kept in
mind. Rail transport is comparatively a cheaper mode of transport for carrying heavy and
bulky traffic over long distances. Motor transport is best suited and economical to carry
small traffic over short distances. Motor transport saves packing and handling costs.

Water transport is the cheapest mode of transport. It is suitable to carry only heavy and
bulky goods over long distances where time is not an important factor. Air transport is the
most costly means of transport but is particularly suited for carrying perishable, light and
valuable goods which require quick delivery.

2. Speed of Transport:

Air transport is the quickest mode of transport but it is costliest of all. Motor transport is
quicker than railways over short distances. However, the speed of railways over long
distances is more than that of other modes of transport except air transport and is most
suitable for long distances. Water transport is very slow and thus unsuitable where time is
an important factor.

3. Flexibility:

Railways, water and air transport are inflexible modes of transport. They operate
services on fixed routes and at preplanned time schedules. The goods have to be
carried to the stations, ports and airports and then taken from there. Motor
transport provides the most flexible service because it is not tied to fixed routes or
time schedules. It can operate at any time and can reach the business premises for
loading and unloading.

4. Regularity of Service:

Railway service is more certain, uniform and regular as compared to any other
mode of transport. It is not much affected by weather conditions. On the other
hand, motor transport, ocean transport and air transport are affected by bad
weather such as heavy rains, snow, fog, storms etc.
5. Safety:

Safety and security of goods in transit also influence the choice of a suitable means
of transport. Motor transport may be preferred to railway transport because losses
are generally less in motor transport. Water transport exposes the goods to the
perils of sea and, hence from safety point of view, sea transport is thought of as a
last resort.

6. Nature of Commodity:

Rail transport is most suitable for carrying cheap, bulk and heavy goods. Perishable
goods which require quick delivery may be carried through motor transport or air
transport keeping in mind the cost and distance.

7. Other Considerations:

A number of special services such as warehousing, packing, loading and unloading

are also taken into consideration while deciding about a mode of transport. From
the above discussion it is clear that each mode of transport is suited for a particular
type of traffic.

The rail transport is particularly suited for carrying heavy and bulky goods over
long distances. Motor transport is suitable for carrying small consignments over
short distances. Air transport is suited to light and precious articles which are to be
delivered quickly. Ocean transport is appropriate for carrying heavy bulky goods
over long distances at the cheapest possible cost.
 DELIVERING SERVICES
Delivery is the process of transporting goods from a source location to a predefined
destination. There are different delivery types. Cargo (physical goods) is primarily
delivered via roads and railroads on land, shipping lanes on the sea and airline networks
in the air.

IMPORTANCE OF DELIVERING SERVICES

1. Provides value – Great customer service programs should focus on treating

customers well, answering questions, and exceeding their expectations. This
approach helps businesses engage customers and build strong relationships.
2. Retains customers – Keeping loyal customers is way less expensive than getting
new ones. Research shows that it costs about six to seven times more to attract new
customers than to retain existing business. Satisfied customers become devoted
buyers when a business is trustworthy. Research shows there is a 60 to 70 percent
likelihood that existing customers will return to make new purchases.
3. Creates endorsements – Loyal customers provide positive endorsements and
online reviews that can help businesses strengthen their brand. A loyal customer on
average is 10 times more valuable than their first purchase. Research shows that
people often make purchasing decisions based on recommendations from family
and friends, rather than on advertising messages.
4. Prevents business failure – About 96 percent of American businesses close their
doors within 10 years. One of the contributing problems is poor customer service.
Buyers become frustrated over small problems that are not addressed, such as
unclear communication, slow follow up on questions, or ignored requests.
5. Reduces employee turnover – Employees want to work for businesses that
appreciate worker contributions, encourage new ideas and treat customers fairly.
When people work for an employer that provides excellent customer service, they
 are more engaged in their work and become an advocate for the business. They are
more willing to stick with the company through business challenges and economic
changes.

Document Delivery Service (DDS) delivers electronic copies of journal articles,

academic dissertations and conference papers that are not found in the library’s
collection. It aims to provide research support, teaching and studying for IFT staff
and student. DDS may be not used to request materials for work to satisfy personal
interest or recreational reading.

DDS provides information types:

 Dissertation
 Journals articles
 UNWTO articles
 Conference proceedings

Terms and Conditions

Standard Terms and Conditions of Service

These terms and conditions of service constitute a legally binding contract between the
“Company” and the “Customer”. In the event the Company renders services and issues a
document containing Terms and Conditions governing such services, the Terms and
Conditions set forth in such other document(s) shall govern those services.

1. Definitions.

(a) “Company” shall mean Your Special Delivery Service, Inc., its subsidiaries, related
companies, agents and/or representatives;

(b) “Customer” shall mean the person for which the Company is rendering service, as
well as its agents and/or representatives, including, but not limited to, shippers, importers,
exporters, carriers, secured parties, warehousemen, buyers and/or sellers, shipper’s
agents, insurers and underwriters, break-bulk agents, consignees, etc. It is the
responsibility of the Customer to provide notice and copy(s) of these terms and
conditions of service to all such agents or representatives;
(c) “Documentation” shall mean all information received directly or indirectly from
Customer, whether in paper or electronic form;

(d) “Third parties” shall include, but not be limited to, the following: “carriers, truckmen,
cartmen, lightermen, forwarders, OTIs, customs brokers, agents, warehousemen and
others to which the goods are entrusted for transportation, cartage, packaging, handling
and/or delivery and/or storage or otherwise”.

2. Company as Agent. Customer understands the company is not a “carrier” but that
company will select and engage carriers on behalf of Customer. The Company acts as the
“agent” of the Customer for the purpose of arranging transportation services, and of
performing duties in connection with this service such as the filing of export and security
documentation on behalf of the Customer and other dealings with Government Agencies
together with other, ancillary services, including packing and storage of goods received
incident to shipment. As to all other services, Company acts as an independent contractor.

3. Limitation of Actions.

(a) Unless subject to a specific statute or international convention, all claims against the
Company for a potential or actual loss, must be made in writing and received by the
Company, within five (5) days of the event giving rise to claim; the failure to give the
Company timely notice shall be a complete defense to any suit or action commenced by
Customer. Company reserves the right to inspect all items and wrapping materials that
are being made subject to a claim. It is the responsibility of the Customer to retain the
goods in the original container(s) and/or materials and to make such goods and materials
available to Company or the carrier’s insurance company for inspection.

(b) All suits against Company must be filed and properly served on Company as follows:

(i) For claims arising out of ocean transportation, within one (1) year from the date of the
loss;

(ii) For claims arising out of air transportation, within two (2) years from the date of the
loss;

(iii) For any and all other claims of any other type, within two (2) years from the date of
the loss or damage.

4. No Liability for the Selection or Services of Third Parties and/or Routes. Unless
services are performed by person or firms engaged pursuant to express written
instructions from the Customer, Company shall use reasonable care in its selection of
third parties, or in selecting the means, route and procedure to be followed in the
handling, transportation, clearance and delivery of the shipment; advice by the Company
that a particular person or firm has been selected to render services with respect to the
goods, shall not be construed to mean that the Company warrants or represents that such
person or firm will render such services nor does Company assume responsibility or
liability for any actions(s) and/or inaction(s) of such third parties and/or its agents, and
shall not be liable for any delay or loss of any kind, which occurs while a shipment is in
the custody or control of a third party or the agent of a third party; all claims in
connection with the Act of a third party shall be brought solely against such party and/or
its agents; in connection with any such claim, the Company shall reasonably cooperate
with the Customer, which shall be liable for any charges or costs incurred by the
Company.

5. Quotations Not Binding. Quotations as to fees, freight charges, insurance premiums

or other charges given by the Company to the Customer are for informational purposes
only and are subject to change without notice; no quotation shall be binding upon the
Company unless the Company in writing agrees to undertake the handling or
transportation of the shipment at a specific rate or amount set forth in the quotation and
payment arrangements are agreed to between the Company and the Customer.

6. Reliance on Information Furnished.

(a) Customer acknowledges that it is required to review all documents and declarations
prepared and/or filed with U.S. Customs & Border Protection, other Government Agency
and/or third parties, and will immediately advise the Company of any errors,
discrepancies, incorrect statements, or omissions on any declaration or other submission
filed on Customer’s behalf;

(b) In preparing and submitting export declarations, applications, security filings,

documentation and/or other required data, the Company relies on the correctness of all
documentation, whether in written or electronic format, and all information furnished by
Customer; Customer shall use reasonable care to ensure the correctness of all such
information and shall indemnify and hold the Company harmless from any and all claims
asserted and/or liability or losses suffered by reason of the Customer’s failure to disclose
information or any incorrect, incomplete or false statement by the Customer or its agent,
representative or contractor upon which the Company reasonably relied. The Customer
agrees that the Customer has an affirmative non-delegable duty to disclose any and all
information required to import, export or enter the goods.
7. Declaring Higher Value to Third Parties. The Company and third parties to whom the
goods are entrusted limit liability for loss or damage; the Company will request excess
valuation coverage only upon specific written instructions from the Customer, which
must agree to pay any charges. In the absence of written instructions or the refusal of the
third party to agree to a higher declared value, at Company’s discretion, the goods may
be tendered to the third party, subject to the terms of the third party’s limitations of
liability and/or terms and conditions of service.

8. Insurance.

(a) Unless requested to do so in writing and confirmed to Customer in writing, Company

is under no obligation to procure insurance on Customer’s behalf; in all cases, Customer
shall pay all premiums and costs in connection with procuring requested insurance. The
Company does not itself insure any transportation but uses reasonable care to contract
with an insurance company to provide said insurance at an additional cost. Customer
agrees to insurance company’s standard provisions, such as deductibles and limitations.

(b) Said insurance value must appear on the face of the BOL and may only be entered by
employees of the Company. Declared values or Insurance amounts may not be altered
once freight has been received for transport unless the carrier issues written consent for
such alteration.

(c) Company reserves the right to inspect all freight under consideration for insured
transit. Company’s employees shall be at liberty to effect additional wrapping and
packing on such items, even in the event that such services were not originally requested.
Additional charges incurred for packing will be the responsibility of the customer.
Company shall only be responsible to inspect for surface conditions and apparent
damage; all foregoing exclusions of this contract shall remain in force.

(d) In the event that insurance coverage is purchased and freight is accepted for transport
that is packed by the shipper in advance of Company’s pick-up, then a “Total Loss” type
insurance shall be in force. Total Loss type insurance covers losses incurred due
exclusively to the following: theft, hijacking, or other felonious activity; fire, explosion,
or other violent action; complete disappearance or accidental loss of entirety of items;
puncture or rupture to packaging attributable to occurrences while in transport.

(e) Insurance covers freight only and do not cover value of packing containers or
shipping charges. Company shall not be responsible to substantiate values of goods in
transit; nor is the Company responsible to provide proof of origin or authenticate in any
way such goods in transit regardless of description listed on the face of the BOL.
Customers may not over-value goods or otherwise insure goods in transit in excess of
their fair market values. The responsibility for providing documented proof of value in a
claim shall rest entirely with the customer.

(f) Groups or multiple items of freight consigned for insured transport to which the
customer assigns only one total insurance value for all items shall be insured by
Company for total loss of the entire lot only. Loss to any individual items will not be
covered under this type of insurance and will be at the risk of the customer. This
limitation shall apply whether or not Company effects any packing to the freight.

(g) Company reserves the right to decline to provide insurance coverage based on
Company’s inspection of freight. Any item that is deemed unfit to be covered by
Company’s insurance policy will not be extended coverage. In such cases the insurance
premium shall be removed from the customer’s bill.

9. Packed by Shipper. If Company is to receive freight that is packed by the shipper or his
representative, it is the shipper’s responsibility to adequately pack and protect the goods
to ensure safe transportation. The shipper is also obliged to properly label each item in
order to prevent delay or errant dispatch.

10. Disclaimers; Limitation of Liability.

(a) Except as specifically set forth herein, Company makes no express or implied
warranties in connection with its services;

(b) In connection with all services performed by the Company, Customer may obtain
additional liability coverage up to the full value of the shipment by requesting insurance
and agreeing to make payment therefore, which request must be confirmed in writing by
the Company prior to rendering services for the covered transaction(s);

(c) The Company’s liability shall under all circumstances be limited to $50.00 per
shipment or transaction for loss or damage by any cause, including negligence;

(d) In no event shall Company be liable or responsible for consequential, indirect,

incidental, statutory or punitive damages, even if it has been put on notice of the
possibility of such damages, or for the acts of third parties;

(e) Should any claim in an amount in excess of the foregoing limits of liability be
asserted against Company by a third party for loss or damage to Goods handled by
Company, the Shipper, Consignee, and Customer shall indemnify and hold Company
harmless as against any such claim. This provision shall be in force regardless of the
cause of such loss or damage, including negligence. Company shall not be liable for loss
or damage due to lack of detailed and specific customer instruction in handling and/or
placement of goods. The provisions of this contract also extend to items damaged inside a
shipper, consignee’s or customers premises or place of business.

(f) Company cannot be held responsible and shall remain exempt from all liability for
physical damage to a shipment, or loss caused by delay of delivery, when conditions
beyond the carrier’s control are encountered during transit. Such conditions include but
are not limited to: extreme weather and/or changes in temperature, acts of nature and
God; breakdown or mechanical defect of vehicles or equipment; faulty or impassable
highway; lack of capacity of roadway structures; highway obstruction or closure due to
official action; civil disobedience, riots, strikes or lockouts; illegal or unlawful actions.
“Loss caused by delay” as stated above is hereby understood to also define and apply to
loss of revenue, interest, market, and/or utility. Company is not bound to transport goods
by any particular means, schedule, vehicle, or otherwise than with reasonable dispatch.

(g) Company will be released from liability for a shipment when directed to accept and
load or deliver and unload at locations where the shipper, consignee, customer or their
agents are not present.

(h) Company is only liable to effect delivery and will not be liable for unwrapping or
unpacking a shipment unless such requests are ordered in advance and in writing. “Inside
delivery” is hereby defined as delivery taking place inside consignee’s location or
structure at or near a common point of entry and within a reasonably accessible area.

11. Exclusions

(a) Customer automatically release Company from liability and responsibility for
physical damage, loss or loss due to delay for items of freight as listed below:

• Items improperly or inadequately packed or mislabeled by the shipper.

• not professionally packed and secured by Company or via third party hired or directed
by Company,

• Items containing internal damage or concealed breakage; glass and ceramic with
existing cracks.

• Items of inherent vice or weakness due to poor craftsmanship in fabrication.

• Items containing internal mechanics or instrumentation.

• Items with waxen, resinous, or viscous surface area, be they in wet, semi-dry, or
hardened state.

• Damaged or excessively worn antique items in disrepair, items exhibiting prior repairs
or breakage.

• Uncured and/or not thoroughly dry paintings; uncured and/or unset varnish applied to
furniture.

• Items with directional orientation to which the shipper does not affix descriptive arrows
in advance.

• Items shipped unwrapped or in a state or a packaging type explicitly not recommended

by Company at the stated request of the shipper, regardless of whether such loss or
damage may be caused or contributed to by the negligence of the Company, its agents or
employees.

In relation to subjective terms as used above (“inadequately packed”, “inherent vice”,

“excessively worn”, etc.) it is understood that the customer allows and releases Company
to define and interpret these terms as reasonably and commonly acceptable in Company’s
industry and as applied against common and previous occurrences in the normal course
of packing and shipping.

(b) The Company will not transport currency, specie, precious stones, jewelry, or
negotiable documents at any time. In the event that the Company is made to transport
such items without the Company’s knowledge or consent, the Company shall remain at
no liability whatsoever for or in connection with the goods.

(c) The Company will not handle contraband or illegal substances under any
circumstances.

The act of consigning items of these types to Company which are willfully disguised by
the shipper, acting with or without knowledge of the customer, shall entitle Company to
recover any and all costs for fines, penalties, legal fees, damage to Company’s equipment
and/or personal injury and compensation to Company’s employees. The Customer also
shall be liable for and indemnify the Company against all loss or damage to other
property or persons caused by said goods. The Company is at liberty to dispose of any
items consigned with or associated with said goods at any time and place deemed
appropriate by the Company with disposal charges billable to the customer.
12. Subcontracting: Company may subcontract the performance of any services to Third
Parties (“Subcontractors”). Company shall not be liable or responsible for any
negligence, malpractice, fault, errors or omissions in the performance of Services by any
Subcontractor.

13. Advancing Money. All charges must be paid by Customer in advance unless the
Company agrees in writing to extend credit to customer; the granting of credit to a
Customer, subject to execution of the Company’s new account application and
agreement, in connection with a particular transaction shall not be considered a waiver of
this provision by the Company.

14. Indemnification/Hold Harmless. The Customer agrees to indemnify, defend, and hold
the Company harmless from any claims and/or liability, damages, fines, penalties and/or
attorney’s fees by reason of injury to or death of any person or by reason of injury to or
destruction of Property or arising from the exportation of customer’s merchandise and/or
any conduct of the Customer, including but not limited to the inaccuracy of export or
security data supplied by Customer or its agent or representative, which violates any
Federal, State and/or other laws, or from any cause including but not limited to the fault,
breach of warranty or negligence of Company, its officers, agents, subcontractors or
employees and/or from the fault, breach of warranty or negligence of the Customer, its
officers, agents, subcontractors or employees. Customer further agrees to indemnify and
hold the Company harmless against any and all liability, loss, damages, costs, claims,
penalties, fines and/or expenses, including but not limited to reasonable attorney’s fees,
which the Company may hereafter incur, suffer or be required to pay by reason of such
claims; in the event that any claim, suit or proceeding is brought against the Company, it
shall give notice in writing to the Customer by mail at its address on file with the
Company.

15. C.O.D. or Cash Collect Shipments. Company shall use reasonable care regarding
written instructions relating to “Cash/Collect on Deliver (C.O.D.)” shipments, bank
drafts, cashier’s and/or certified checks, letters(s) of credit and other similar payment
documents and/or instructions regarding collection of monies but shall not have liability
if the bank or consignee refuses to pay for the shipment.

16. Costs of Collection. In any dispute involving monies owed to Company, the
Company shall be entitled to all costs of collection, including reasonable attorney’s fees
and interest at 15% per annum or the highest rate allowed by law, whichever is less
unless a lower amount is agreed to by Company.

17. General Lien and Right to Sell Customer’s Property.

(a) Company shall have a general and continuing lien on any and all property of
Customer coming into Company’s actual or constructive possession or control for monies
owed to Company over ninety (90) days with regard to the shipment on which the lien is
claimed, a prior shipment(s) and/or both;

(b) Company shall provide written notice to Customer of its intent to exercise such lien,
the exact amount of monies due and owing, as well as any ongoing storage or other
charges; Customer shall notify all parties having an interest in its shipment(s) of
Company’s rights and/or the exercise of such lien;

(c) Unless, within thirty (30) days of receiving notice of lien, Customer posts cash or
letter of credit at sight, or, if the amount due is in dispute, an acceptable bond equal to
110% of the value of the total amount due, in favor of Company, guaranteeing payment
of the monies owed, plus all storage charges accrued or to be accrued, Company shall
have the right to sell such shipment(s) at public or private sale or auction and any net
proceeds remaining thereafter shall be refunded to Customer.

18. No Duty to Maintain Records for Customer. Customer acknowledges that it has the
duty and is solely liable for maintaining all records required under the Customs and/or
other Laws and Regulations of the United States; unless otherwise agreed to in writing,
the Company shall only keep such records that it is required to maintain by Statute(s)
and/or Regulation(s), but not act as a “record keeper” or “recordkeeping agent” for
Customer.

19. Preparation and Issuance of Bills of Lading. Where Company prepares and/or issues a
bill of lading, Company shall be under no obligation to specify thereon the number of
pieces, packages and/or cartons, etc.; unless specifically requested to do so in writing by
Customer or its agent and Customer agrees to pay for same, Company shall rely upon and
use the cargo weight and description supplied by Customer.

CONSUMER PROTECTION
Consumer protection is based on consumer rights, or the idea that consumers have an
inherent right to basic health and safety. The FTC protects these rights by:

 Enforcing product safety

 Distributing consumer-related information
 Preventing deceptive marketing
What Is Product Liability?

Consumer protection is often achieved through the legal doctrine of product liability.
Generally speaking, this is the legal responsibility imposed on a business for the
manufacturing or selling of defective goods. Product liability laws are state laws, and
therefore vary by state. However, the laws share a common goal. The laws are built on
the principle that manufacturers and vendors have more knowledge about the products
than the consumers do. Therefore, these businesses bear the responsibility when things go
wrong, even when consumers are somewhat at fault.

Product liability cases can result in large civil lawsuits and lucrative monetary judgments
for the plaintiffs. This can be harmful to small businesses and manufacturers and has
been an argument for tort reform. But keep in mind that, on the other hand, many of the
product safeguards consumers now enjoy are the result of previous lawsuits.

There are three main types of product liability. Businesses will be found liable to
consumers when a court finds:

 Design flaws
 Manufacturing defects
 A failure to warn consumers of a possible danger
 FINANCE

This is the amount of money you need to start your business. It enables you to buy
machinery and equipment, build your business premises, hire labor and meet daily
obligations of your business. Finance needed to start your business is commonly known
as capital.

As an entrepreneur, the primary types of capital that you are likely to arrange for include
start up capital, working capital and expansion capital. Start up capital is the capital you
will require to begin a business while working capital is the amount you would need to
meet the day to day activities of the business. Expansion capital is the capital you will
require to help your business grow.

SOURCES OF BUSINESS FINANCE

1. Equity financing:
The main source of equity financing is your personal savings. Some experts say that one
half of the money needed to start a small business should come from the owner. This may
mean ‘you’, as the future owner must work and save for several years before having
enough money to start the business.

2. Borrowing from lending institutions:

When your sources are not enough, you have the option of borrowing from other sources.
Lenders will usually lend you money for starting a business if they know and trust you.
Lenders want to be sure they will not lose their money on businesses that fail. Most
lenders, therefore, will want to review your business plan carefully. The plan should
describe how the business will operate, how much money will be needed, how it will be
used and when the business will be profitable. Most people think of banks when
borrowing money. Banks lend money when the risks of losing it are extremely low.
Usually, they will only lend to customers whom they have known for a long time.

3. Borrowing from cooperative societies:

If you are a member of a co-operative society, you may be able to borrow money for
business use. Some loans can be obtained with just your signature. Cooperative society
interest rates are usually lower than bank rates. Commercial finance companies may lend
you money to start your business. Because they take greater risks, commercial finance
companies usually charge high interest rates.

Some people borrow money against their life insurance policies. This is an easy way to
obtain some of the money needed to start the business. Life insurance policy loans are
based on cash that is already paid in. Life insurance companies offer these loans at low
interest rates. If you need to buy land or building for a new business, you will be able to
borrow money from a savings and loan institution. They specialize in real estate finance.
The loans they give out are called mortgages. Their interest rates are similar to those of
banks.

4. Borrowing in the form of trade credit:

This is another source of business finance. It is where a business receives, on credit, raw
materials and also other goods used to start up business. Suppliers grant credit to their
clients for a period of 3 to 6 months. The seller finances the buyer who wants to start a
business.

5. Borrowing through factoring:

This is a financial service designed to help a firm in managing their debt books and
receivables in a better manner. The debt books and receivables are assigned to a bank or
an institution called the “factor”. The bank then advances cash to the firm.

6. Bank Overdrafts financing:

Overdrafts are allowed by banks to current account holders, who are allowed to withdraw
from up to a certain limit of a given amount.

7. Youth Enterprise Fund:

This is managed by the Ministry of Youth and Sports. It mainly funds youth projects. A
youth in this case is regarded as a person between the ages of 18 and 32 years.

8. Kenya Women Finance Trust (KWFT):

This is a women’s enterprise fund managed by the Ministry of Gender, Children and
Social Development. Currently, it also serves men.
Credit Control

What is Credit Control

Credit control, also called credit policy, includes the strategies employed by businesses to
accelerate sales of products or services through the extension of credit to potential
customers or clients. At its most basic level, businesses prefer to extend credit to those
with “good” credit and limit credit to those with “weak” credit, or possibly even a history
of delinquency.

Credit policy or credit control center on four primary factors:

 Credit period: Which is the length of time a customer has to pay

 Cash discounts: Some businesses offer a percentage reduction of discount from
the sales price if the purchaser pays in cash before the end of the discount period.
Cash discounts present purchasers an incentive to pay in cash more quickly.
 Credit standards: Includes the required financial strength a customer must
possess to qualify for credit. Lower credit standards boost sales but also increases
bad debts. Many consumer credit applications use a FICO score as a barometer of
credit worthiness.
 Collection policy: Measures the aggressiveness or relaxed policy in attempting to
collect slow or late paying accounts. A tougher policy may speed up collections,
but could also anger a customer and drive them to take their business to a
competitor.
 REVISION QUESTIONS
SECTION A

ALL QUESTIONS ARE COMPULSARY

1. State the facts offered by manufacturers to retailers (30 marks)

2. What is the importance of motorcycles in transportation? (4 marks)
3. Explain the four chacteristics of money (4 marks)
4. State four functions of the securities exchange? (4 marks)
5. State the advantages of standard gauge railway? (5 marks)

SECTION B

ALL ANY FIVE QUESTIONS

A) Explain six roles of commercial banks (12

Marks)
B) Explain four factors that hinder the growth of foreign exchange (8 Marks)

2. Explain five differences between public and private companies (20

marks)

3. A)What are the differences between jobbers and brokers in Stock Exchange (10
Marks)

B) State five features of a public warehouse (10 Marks)

4. A) Explain the five principles of Insurance (10 marks)

B) Explain the types of Insurance (10 marks)

5. A) Explain in detail the types of warehouses (15 Marks)

B) Explain instances in which credit payment is appropriate (5 Marks)

6. A) Differentiate Between domestic and International (10 Marks)

B) Explain five document used in home trade (10 Marks)

7. A) Explain Five Principles of Taxation (10 Marks)

B) Explain the various types of taxes (10 Marks)

8. A)Explain the four factors of Production (12 Marks)

B) Explain the term Commerce and state its advantages (8 Marks)

9. A) Explain Five Principles of Public Expenditure (10 Marks)

B) Explain the functions of a government (10 Marks)

10. A) Calculate the gross profit (10 Marks)

Sales 1,000,000

Purchase 200,000

Inventory (1/1/2018) 4000,000

Inventory 31/12/2018) 500,000

Return Inwards 100,000

Return Outwards 50,000

B)Explain the communication Process (10 Marks)