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PDF Document 2
PDF Document 2
PDF Document 2
PRINCIPLES OF BUSINESS
NAME__________________________________________________________
GRADE_________________________________________________________
OBJECTIVES
x. Discuss the role and functions of the stakeholders involved in business activities
xi. Explain the ethical and legal issues in the establishment and operations of a business
xii. Explain the principles that must be adopted in the establishment and operation of a
business
Early people had a simple way of life, they would provide all their needs themselves without
the help of others, this is called direct production.
People would hunt animals and gather plants and berries. Some farmers would grow crops
and keep animals for the purpose of feeding themselves. They were living in a subsistence
economy [that is providing just enough to survive but there was no surplus for trade.].
In time people began to improve their way of living by building permanent homes
and making tools to satisfy their way of living. They began to produce more goods
than required, thus resulting in a surplus.
As a result of the surplus, people began exchanging goods for surplus of others. The
exchange of one thing for another without the use of money is called Barter.
ADVANTAGES BARTER
i. It allows people to get rid of any surplus goods and at the same time allows them
to obtain a wide variety of things they needed.
iii. It allowed people to specialise in producing the thing they could do best
iv. It increased productivity and resulted in more surplus and further wealth
DISADVANTAGES OF BARTER
i. Coincidence of Wants
An individual must have what another person needed and be prepared to exchange it.
E.g. Jim wants to acquire shoes in exchange for wheat then he must find another
person who wants the wheat for the shoes
2) In early societies the barter system was used as a method of exchange in which one
good or service is exchange for another before a system of money was used.
3) The barter system allowed farmers and hunters to swap surplus goods, beads or
shells in exchange for goods they could not produce themselves. However, the barter
system had several limitations such as: double coincidence of wants, exchange
rates, divisibility of good and storage of wealth
5) Today money is in the form of notes, coins and other modern means of instruments
of exchange [bill of exchange, credit card, debit card, cheques etc.]
Durable-does not rot or wear out easily A medium of exchange - for quick and easy
purchase
Barter System - a method of exchange in which one good or service is exchanged for
another, no money is used.
Bill of exchange – a document that instructs one person to pay a fixed amount of money
to another at a future date.
Electronic transfers- involves the movement of funds from one account to another
electronically.
E-commerce –the buying and selling of goods and services or transmitting of funds or
data via the internet. It involves business to consumer transaction or business to business
transactions.
A Cheque- is a written instruction to the bank to transfer certain sum of money to the
account of the payee [person receiving the money].
Money order -is used as a method of payment which is sold by the bank to persons who
wish to make overseas payment for good and services. It clearly states the amount to be
paid and the name of the person it is to be paid to.
Debit Cards - are ATM cards issued by the banks that can be used to buy goods and
services. They are swiped by the shop assistant to obtain authorisation from the issuing
bank computer centre. If there is sufficient funds, the card is approved for purchase
Credit Cards - are used to pay for goods and services on credit from a business, card
holders have a limit and cannot exceed that amount. The amount paid must be repaid by a
due date, if not interest rates are charged.
Bank – Draft - is a cheque from one bank to another bank for payments in the name of a
particular person or organization. It is used to make payments for goods and service in a
foreign currency.
Internet Banking- allows customers to have direct access to their own accounts on-line
where they can check the balance on their accounts and make payments to suppliers.
Mobile Money and Mobile Wallets - this is an app on the phone that is connected to the
individual’s bank account that allows paying for an item using your phone E.g. Grace
Kennedy’s PayPak
The private sector is that part of the economy which consist of businesses owned and
operated by private individuals. [private enterprise]
The public sector is that part of the economy which consist of businesses owned and
operated by the government. [public enterprise]
DIFFERENCES
Sole Trader
Definition- a business in which one person provides the capital and gets all the profit.
Characteristics
Formation – no legal formation but the firm must be registered with the registrar of
companies
Management – managed by one person
Examples – retailing, hairdressing, catering services
Advantages
Easy to set up, that is a small amount of capital needed and no legal formalities
Owner has complete control and can take decisions quickly, he is not answerable to
anyone
Owner keeps all the profits, this can be used to develop the business
The business is based on the personal interest or skills of the owner rather than
working for someone
Disadvantages
Unlimited liability –owner’s personal assets can be used to pay off debts if the
business fails
Usually experience difficulty in raising capital therefore the business remains small
Owner usually work long hours and suffers all losses if the business fails
Lack of continuity- when the owner dies the business comes to an end
Partnership
Characteristics
Formation- the business must be registered with the registrar of companies, they must
submit a legal document called a partnership deed, that sets out the guidelines for
the operation of the partnership
Management – managed by the partners
Examples of partnership businesses – law and accounting firms
Types of partnerships: joint ventures, syndicates, and limited partnership
Advantages
Better management - partners may specialise and have different skills
Better decisions- partners discuss issues before arriving at a decision
Larger capital - more capital can be raised since more people contribute to the
running of the business
Sharing of losses and problems –the burden is for all and not just one person
Disadvantages
Unlimited liability – partners personal assets can be used to pay off debts if the
business fails
Lack of continuity - new partnership will be formed upon death or resignation of a
partner
Delay in taking decisions - partners have to discuss issues before arriving at a
decision
Lack of capital to expand – the capital is more than a sole trader, but it is still
difficult for the business to expand
Co-operative
Definition- a business owned, controlled and operated by a group of users for their
own benefit.
Characteristics
Advantages
Betters decisions are made as members work together to solve problems and make
decisions
Profits are shared in the form of dividends based on the number of shares held by
each member
Members can trade with the cooperative society i.e. they can buy from them and sell
to them
Disadvantages
Unable to expand due to limited finance – members do not have resources and
profits may be low
Inefficient management - members may not have the experience of running a
business
Delay in decision making – all the members have to be consulted on major issues
Franchise
A business that uses the name, logo and trading system of an existing business. E.g.
Burger King, Pizza Hut, Dominoes, KFC, Federal Express, Wendy’s.
Characteristics
Formation – the parent company (franchisor) is the owner of the franchise and the
franchisee has to pay a fee.
Management – the franchise is managed by the franchisee, however, he/she has to
abide by the rules and regulations of the parent company.
Advantages
Disadvantages
Limited Companies
(i) There are two types of companies: private limited and public limited.
(ii) A limited company raises capital by selling shares and debentures.
(iii)The business must be incorporated i.e. it has a separate legal identity from its owners.
(iv)A company has limited liability, i.e. in case the business fails the shareholders will
lose capital contributed and not personal assets.
Definition - a business with 2-50 shareholders who are often family members.
Formation- the business must give the registrar of companies the following
documents: (i) the memorandum of association, (ii) the articles of association, and
(iii) statement of authorised capital and then it receives a Certificate of
Incorporation to start operations.
Advantages
Limited liability – in case the business closes down the shareholders will only lose
their capital and not personal assets
Can raise capital by selling shares privately to individuals
It has a separate legal entity, that is, a company can sue and may be sued (but not its
owners)
Greater continuity means that shares can be sold to someone and the company
continues
Disadvantages
Too many legal formalities, this may be costly and time consuming
Too many legal requirements that is, end of year accounts must be published
Selling of shares is restricted to private individuals only and not to the general public
Definition – a business with at least seven members that offers shares to the public. It
must have the words ‘Plc’ or ‘Inc’ after the company’s name.
Formation – the business must give the registrar of companies the following
documents in order to be registered; (i) the memorandum of association; (ii) the
articles of association; (iii) the statement of authorised capital and ; (iv) the
prospectus and then it receives a Certificate of Trading to start operations.
Advantages
Limited liability – in case the business closes down the shareholders will only lose
their capital and not personal assets
It can raise capital by selling shares publicly
It has a separate legal entity, that is, a company can sue and may be sued (but not its
owners)
Greater continuity – it does not close down on the death of a shareholder
Disadvantages
Too many legal formalities – this may be costly and time consuming
Too many legal requirement – that is, end of year accounts must be published
Risk of takeover- control may be lost if another company obtain enough shares in the
company
(ii) Shares
A share is a unit of a limited company’s capital. The two types of shares are
Preference and Ordinary shares
When a person buys a share, he/she is given a share certificate and receives
dividend when the company makes profit
(iii) Debentures
This is a loan given to a company from members of the public
The person who lends the company money receives a fixed rate of interest
whether or not the business makes profit.
1. Traditional [Subsistence]
2. Free Market [Capitalist Economy]
3. Planned/Command or Socialist Economy
4. The Mixed Economy
. Traditional
This is based on traditions and customs where nearly the entire population is engaged
in agriculture and produce enough food for their needs.
E.g. in early societies, the Taino tribe produced enough food to satisfy their needs
using the barter system.
Free Market
Economic resources are owned by the private individuals with very little government
intervention. E.g. USA and Japan
The consumer influences the producers’ decisions on what to produce
Goods and services are bought and sold in the market
Advantages
Incentive to work is high, as a result, the labourer is free to work where he is paid the
best
Competition among firms results in greater efficiency and reduced prices
Consumers are free to spend their money in any way therefore the firm produces
more goods that are in demand
A large variety of goods and services are made available
Disadvantages
Great inequality with income and wealth, this contributes to poverty being a major
issue
Large sums of money are spent on advertising, this creates an artificial demand for
goods
Wealthy people have more economic power than the poor
People’s basic needs may not be met e.g. health and education
Planned/Command Economy
Advantages
Disadvantages
Private firms do not exist to compete with each other and force prices down
There is less incentive to work hard to earn more or make profits
There is limited consumer choice
One in which economic resources are owned and controlled by both private and
public sector. E.g. Jamaica, Trinidad and Tobago
E.g. the government provides services such as; defence, hospitals, schools, and
public health
Advantages
The government is free to make laws to protect consumers from unfair trading
practices
A wide variety of goods are provided by both government and private individuals
Disadvantages
Too much government intervention may result in conflict between private and public
sector
State owned firms are allowed to operate inefficiently wasting resources
Functional areas of a business refer to how the organization is structured for efficient
operation. This means that the activities of the business are grouped accordingly to
the nature of what is required.
A small business will be managed by one person, however, a large business will be
managed by more than one persons with specific skills.
Production
This department is responsible for converting raw materials into goods and services
needed by customers to satisfy their needs and wants.
The functions include: buying raw materials, ensuring high quality production,
storing material and finish products.
Marketing
This department is responsible for finding out what customers want and how this
can be promoted and sold.
The functions include: pricing the product, promotion and advertising, distribution
and selling and market research.
Personnel/Human Resource
This department responsible for recruiting the right person with the expertise to carry
out the job, it is responsible for the employee’s welfare
The functions include: recruitment of staff, staff training, disciplining of workers,
staff wages, sick leave and pension schemes.
Finance
This department is responsible for managing the finances and cash flow of the
business.
The functions include: keeping up-to-date accounts, keeping cash flow records,
keeping within the budget and obtaining new finances.
This department is responsible for seeking to improve its product or service in order
to maintain its competitive edge.
The functions include: redesigning or rebranding, financial research, and conducting a
feasibility study
Role of Employer/owner
Role of Employees
Role of Customers
Role of Government
Legal issues refer to activities that are guided by the laws of a country. These laws
must be followed, or persons will suffer the penalties such as paying a fine or going
to prison.
Ethical and legal issues relating to the establishment and operation of a business
include:
ensuring that the business is a bona fide firm establishment and not using it as
a front for money laundering and other illicit activities.
ensuring that capital is legally obtained and not tainted with illegal operations
as the source of funding.
Ethical and legal principles that must be adopted in establishing the operation of a
business include:
Advertising
The law states that a business should create honest and realistic advertisements.
Consequences of misleading advertising – the firm will lose customers as they
may boycott the product.
Payment of Taxes
The law states that all taxes must be paid over to the state, this money will be used
for the development of the country.
Consequences of not paying taxes - this may lead to legal actions being taken
against the business leading to heavy fines or imprisonment.
Environmental Issues
The law provides guidelines about disposal of waste and packaging to be used
however, some businesses may go undetected for years.
Consequences of unethical disposal of waste- this may lead to pollution in the
environment and fines being imposed by the courts.
A business should use safe and good quality raw material to make its products.
Consequences of making cheap and unsafe product – this may create health
problems or a loss of customer support.
Money Laundering
A business should avoid the practice of money laundering, this is where an
entrepreneur receives money illegally through serious crimes such as drug trafficking
but makes it appear legal.
Consequences of money laundering – this may result in the entrepreneur being fined
or imprisoned.
Job candidates applying for jobs in advertising and public relations must be proficient
in reading, writing and good communication skills.
Compliance Officer
A compliance officer ensures that the business functions in a legal way while meeting the
objectives of the firm. They have to comply with product safety legislation and health
and safety legislations.
A compliance officer needs to have good people skill because they need to talk to key
persons who create company laws to find out what is expected.
Strategic Planners
They are responsible for identifying long and short-term goals of the firm and developing
ways to accomplish them.
To be a successful strategic planner you must have excellent analytical skills, be able to
look at the company’s current methods and make improvement where needed.
Online learning, or virtual classes are offered over the internet and has become popular
because the student can learn the content at any-time convenient to them.
Information Officer
An information officer is responsible for storing data, managing data, safe keeping of the
data and ensuring it is easily accessible.
They should have good computer skills as most of their work involve using computers.
Entrepreneur
An entrepreneur is someone who shows vision and creativity, taking the financial risk
of starting and managing a new business.
Resource Personnel
The human resource personnel is responsible for recruiting, screening, interviewing
and placing workers.
They are also responsible for training, creating job descriptions, creating job
advertisements and creating questions that will be asked in the job interview.
ACTIVITY #1
a) Web designers
b) Web Planners
c) Software Developers
The description should include: definition, roles and skills needed . (15 marks)