Contemporary Business Studies

What is Business?

 Business means any lawful economic

activity which is conducted to earn
profit through satisfaction of human
wants.

 The term business includes all human

activities concerned with earning
money.
 Business deals with material
resources (production,
consumption, distribution of
wealth) that satisfy human wants;
therefore, business is regarded as
an economic activity to earn profit.
According to L. H. Haney
“Business may be defined as human
activities directed toward providing or
acquiring wealth through buying and selling
of goods.”

B. W. Wheeler
“An institution organized and operated to
provide goods and services to the society,
under the incentive of private gain” is
business.
 CHARACTERISTICS OF BUSINESS

Capital  Regular Transaction

Economic Activity  Risks and Uncertainty
Planning  Motive
Creation of Utility  Organization
Dealing in Goods and  Management
Services  Marketing
Creative and Dynamic  Competition
Employment  Productions or Purchase
Islamic Process of Goods
Social Welfare  Sale or Transfer for value
 QUALITIES OF A GOOD BUSINESSMAN

• Ability to Plan • Initiation

• Activator • Knowledge
• Bold or Courage • Leadership
• Cooperation • Negotiator
• Confident • Personality
• Courtesy • Quick Decisions
• Decision Making • Responsibility
• Discipline • Reviewer
• Technical Skills • Sound Financial Management
• Good Reputation • Self-Confidence
• Evaluator • Tact
• Foresight • Technical Skills
• Honesty
• Hardworking
 IMPORTANCE OF BUSINESS

 Employment  Exchange of Culture

 Production of Goods
 Trade
 Living Standard
 Return on Investment
 National Integration
 Utilization of Resources
 New Technology
 Economic Development
 Innovation
 Controlling Social Evils
ELEMENTS OF SUCCESSFULBUSINESS

• Capital
• Planning
• Expert Management
• Innovative Idea
• Modern Technology
• Quality Product
• Marketing
• Location
• Experienced Staff
• Consumer Satisfaction
• Latest Machinery
Components of business

 Industry
 Commerce
Industry

 Conversion of raw material into finished goods.

Types of Industry

 Primary Industry
Extractive Industry _ Extraction of underground resources.
Genetics _ People doing business by changing genes.
Types of industries

 Secondary Industry
 Construction _ Construction of buildings, roads,
bridges etc.
 Manufacturing _ Conversion of raw material into final
goods.
 Services_ Banking, consultancy, accountant, Lawyer,
Interior decorator, designer, music composer etc.
Commerce

 All those activities which start from the

warehouse of the manufacturer to the
buyer.

Evelyn Thomas says:

“Commercial occupations deal with the buying and
selling of goods, the exchange of commodities
and distribution of the finished goods.”
Scope of commerce

 Trade
 Trade means buying and selling

 Aid to trade
 Institutionsthat are meant and build to
assist and support the trading process.
 TYPES OF TRADE

(a) Home trade

(b) International Trade
Barriers to International
Trade
 Social and Cultural Changes.
 Different countries have different life styles.
 Religion.
 Every religion has its own set of rules for its followers.
 Religion asks for spending on certain things and stops from
spending on certain things.
Barriers to International
Trade
 Climate
 Laws
 There are different laws in different parts of the world.
 These include laws related to:
 Health
 Safety
 Customer Relationship
 Pricing
 Packing
Barriers to International
Trade
 Environment
 Economic Differences
 Per Capita Income is different in different countries.
 Different people have different economic systems.
 People preference for a particular product
 Political System
Barriers to International
Trade
 Tariff
 Tax levied on goods entering into a country.
 It is also used as a measure to reduce imports in a country.
 Quota
 Limit imposed by one country on importing commodities
from another country.
Barriers to International
Trade
 Subsidies
 Concessions provided by a country to its producers in order
to protect economy.
Sole Proprietorship
Sole Proprietorship

 Sole Proprietorship is that type of

business which is owned by one person.
Advantages
 Freedom in formation
 The easiest to establish
 Individualsare allowed to decide
without interference of any other
person.
 Easierto transfer the ownership of the
business
 Peoplewholly solely enjoy the
ownership of the business and profits
Advantages
 Individualhas unlimited opportunity
to expand the size of the business
 Individualcan keep the secrets of
the business intact
 Individualhas personal interest in
the business
 Owners can make speedy decisions
 Easy to dissolve
Disadvantages
 Limited amount of capital
 Continuity problem
 Sole Proprietorship has limited life and
is dependent on the owner
 Owner of the business has unlimited
liability towards people whom he has
to pay
Disadvantages

 Banks are less willing to lend money

to one person for a business venture.

 Both the business and personal

assets of the sole proprietor are
subject to the claims of creditors.
Partnership
Partnership

A relationship of the people to share

investments and profits
Advantages of Partnership

 More capital
 Relatively easier to form
 Sharing of responsibility
 Light credit standing
 Business can have more loan from
various sources
 Secrecy
Advantages of Partnership

 Public Confidence
 Better Decision
 Easy to dissolve
Disadvantages of Partnership

 Unlimited Liability
 Partners will have to pay all the
debts of the business even from
their personal property.
 Shorter Life
 Partnership ends when one of the
partners dies or becomes insane
Disadvantages of Partnership

 Limited Capital
 Partners run the business from their
own capital. Sometimes, that
capital becomes limited to meet
the requirements of the business.
 Lack of interest
 Profitis divided among the
partners. So, partners do not take
keen interest in the business.
Disadvantages of Partnership

 Slow Decision Making

 Partners might have different point
of view regarding a particular
matter. So, decision making is
relatively slow.
 Itis difficult to transfer the rights of
partnership.
 There is always a chance of conflict.
Types of Partners

 Active Partner is one who participate

in all the affairs of the business.
 Secret Partner is one who has invested
in the business but he/she is not known
to general public.
 Sleeping Partner is one who is not very
active in the affairs of the business.
Types of Partners

 Senior Partner is one who has

invested the maximum amount in
the business.
 Junior Partner is one who has
invested the minimum amount in
the business.
 Types of Partnership

 Partnership at will
 Life of the partnership depends upon the
will of the partners.
 Limited Partnership
 That business in which at least one
partner has the limited liability.
 Investor is liable to the amount, he/she
has invested in the business only. This is
called Limited Liability
Types of Partnership

 Particular Partnership
 Partnership formed for a particular
purpose.
 Itis dissolved automatically at the
achievement of the purpose.
Termination of Partnership

 By Notice
A partner can terminate partnership by
giving notice to other partners due to any
reason.
 Upon Death
 Partnership will automatically be
terminated at the death of any partner.
Partnership Deed

A document that contains the

terms and conditions of the
business.
Contents of Partnership Deed

 Date on which the agreement was made.

 Name of the business.
 Nature of the business.
 This clause will cover the scope of the
business.
 Names, addresses, telephone Numbers
and emails of the partners.
 Capital of the business.
Contents of Partnership Deed

 Ifduration is attached with any

business, that should clearly be
mentioned in the partnership deed.
 Duties of the partners.
 Whether any partner is entitled to
salary. If yes, how much amount should
be given to him as salary.
 Profit distribution ratio.
Contents of Partnership Deed

 Whether partners are entitled to

withdraw money from the business. If
yes, procedure of withdrawals should
also be written in the partnership deed.
 Arbitration
 Incase of a conflict, how that conflict would
be resolved before going to the court.
Rights of the partners

 Every partner has the right to:

 Participate in all the affairs of the business.
 Get his/her share of profit from the business.
 Leave the partnership according to the terms
and conditions of the partnership deed.
 Claim the salary against his/her services.
 Participate in the management of the business.
Joint Stock Companies
Joint Stock Companies

 JointStock Companies are formed

under the Companies Ordinance
1984.
 JointStock Company is an
association of persons for making
profit.
• A Joint-Stock Company, in contrast to
a partnership or a proprietorship firm,
is legally distinct from its owners. It is
a separate legal entity from the rest of
the organisation.

• A Company's activities are not liable

for the actions of any one of its
members.
key features of a joint stock
company

•Artificial person
•Limited liability
•Perpetual existence
•Transferability
•Number of members
•Transferable share
•Separate management and ownership
Types of Joint Stock Company
•Chartered Company – A firm incorporated by
the king or the head of the state is known as a
chartered company.
•Statutory Company – A company which is
formed by a particular act of parliament is
known as a statutory company. Here, all the
power, object, right, and responsibility are all
defined by the act.
•Registered Company – An organisation that is
formed by registering under the law of the
company comes under a registered company.
Legal documents required for a joint
stock company?

1.Article of Association
2.Memorandum of Association
3.Prospectus
Advantages of Joint Stock
Companies
 We can expand the business
 Credit facility
 More capital
 Withmore capital and more expertise,
companies have more chances to earn
more profit.
 Expansion in the scale of business
Advantages of Joint Stock
Companies
 Responsibility of investor is limited to the
face value of shares. This is called
Limited Liability.
 If one person dies or leaves the country, it
does not have any impact on the business.
 Life of the joint stock company is longer
than sole proprietorship and partnership.
 It is easy to transfer rights.
 Company can hire better experts
which results in better
management.
 Publicplace more confidence in
companies rather than in any other
form of business.
 Anyonecan exit from joint stock
company by selling his/her shares.
Disadvantages of Joint
Stock Companies
 Formation of joint stock company is very lengthy, very
complicated and very technical job.
 Lack of interest.
 There is not much secrecy found in companies.
 Companies pay double taxation to the Government.
Disadvantages of Joint
Stock Companies
 Delayed decision making
 Power is centralized because there are few people who
hold major portion of company’s shares.
 FEATURES OF A COMPANY

1. Registration:
A company comes into existence only after
registration under the Companies Act. But
a Statutory Corporation is formed and
commence business as notified or stated in
the Act and as passed in Legislature. In
case of partnership, registration is not
compulsory.
2. Voluntary Association:
A company is an association of many
persons on a voluntary basis. Therefore
a company is formed by the choice and
consent of the members.
3. Legal Personality:
A company is regarded by law as a
single person. It has a legal personality.
This rule applies even in the case of
“One-man Company.”
4. Contractual Capacity:
A shareholder of a company, in its
individual capacity, cannot bind the
company in any way. The shareholder of a
company can enter into contract with the
company and can be an employee of the
company.

5. Management
A company is managed by the Board of
Directors, whole time Directors, Managing
Directors or Manager. These persons are
selected in the manner provided by the Act
and the Articles of Association of the
company.
6. Permanent Existence
The company has perpetual succession.
The death or insolvency of a shareholder
does not affect its existence. A company
comes into end only when it is liquidated
according to provision of the Companies
Act.
 KINDS OF
COMPANIES
From the point of view of formation, the
companies are of three kinds:
(1) Chartered Companies
Those companies which are incorporated
under a special charter by the king or
sovereign such as East Indian Company.
Such companies are rarely formed now-
a-days as trading companies.
(2) Statutory Companies
These companies are formed by special
acts of Legislatures or Parliament. e.g.;
the Reserve Bank of India, the Industrial
Finance Corporation, Damodar Valley
Corporation.
(3) Registered Companies
Such Companies which are
incorporate under the Companies
Act, 1956 or were registered under
the previous Companies Act.
Form the point of view of liability there
are three kinds of Companies
(1) Limited Companies
In case of such companies, the
liability of each member is limited to
the extent of a face value of shares
held by him. Suppose A takes a share
of Rs 10., he remains liable to the
extent of that amount. As soon as that
amount in paid, he is no more liable.
(2) Guarantee Companies
The liability of the member of such
companies is limited to the amount he has
undertaken to contribute to the assets of the
company in the event of its wound up. This
guaranteed amount is limited to fixed sum
which is specified in the memorandum.
(3) Unlimited Companies
They are nothing but large partnership
registered under the Companies Act and the
members just like partners have unlimited
liability and both share contribution as well as
their property are at stake when the company
is to be wound up. Such companies are rare
these days.
From the point of view of Public investment
companies may be of two kinds:

(1) Private Companies :

A company which by its articles
(a)restricts the right to transfer its shares,

(b) limits the number of its members to fifty

excluding past or present employees of the
company who are also members of the
company.

(c) Prohibits any invitation to the public to

subscribe for any shares in our debentures of
(2) Public Companies :
Public companies are those
companies which are not private
companies. All the three ABOVE
restrictions are not imposed on such
companies.
 Public Limited Company Vs.
Private Limited Company
 Number of members
For a public limited company,
minimum number of members are
seven.
For a private limited company,
minimum number of members are
two.
 Public Limited Company Vs.
Private Limited Company

 Issue of shares
 Public limited company is bound
to promote issue of shares to
general public through media.
 There is no such provision for
private limited company.
Public Limited Company Vs.
Private Limited Company
 Name of the company
Public limited companies add the
word “Ltd.” with their name.
Private limited companies add the
word “(Pvt) Ltd.” with their
name.
 Public Limited Company Vs.
Private Limited Company

 Annual report
 Public limited companies have to
present their data to general public.
 There is no such provision for
private limited company.
Public Limited Company Vs.
Private Limited Company
 Transfer of shares
Itis easy to transfer shares in
public limited companies.
Inprivate limited company,
shareholder cannot transfer the
shares without the consent of
other members.
 Public Limited Company Vs.
Private Limited Company
 Statutory meeting
It is obligatory for the public limited
company to hold statutory meeting.
There is no such obligation for privet
limited company
Public Limited Company Vs.
Private Limited Company
• Submission of annual report
• It is obligatory for the public
limited companies to submit
their annual report to registrar
Corporate Law Authority.
• It is not necessary for private
limited company.
Public Limited Company Vs.
Private Limited Company
 Taxation
Publiclimited company pays
double taxation at different
income tax rates.
Private limited company pays tax
only once at different income tax
rates.