Class Business

11 Studies
Introduction All human beings, wherever they may be,
require different types of goods and
services to satisfy their needs. If we look
around, we observe people require
different types of products and services to
satisfy their needs.
How do they buy them? They go to
market, either physical or electronic over
internet, where they find a variety of
shops and sellers offering the required
commodities and choose the best which
they require.
Business starts with production and
ends with consumption. Making the
finished products reach the consumer
 Role of  Business which includes trade and commerce has played a
Business in vital
role since times memorial.
the  The archaeological evidence has shown that trading
Development activities were the mainstay of the economy in ancient time.
 The goods were traded both internally and to the foreign
of Economy lands, which generated surplus income. As a result, the people
were engaged in various economic activities such as
agriculture and domestication of animals, weaving cotton,
dyeing fabrics, making clay pots, utensils and handicrafts,
sculpting, cottage industries, masonry, etc. Family based
workshops (karkhanas), for manufacturing, were important
components of economic life.
 An example of it is the use of age old Hundi and Chitties
(used in southern region). These were used as documents to
facilitate transfer of money from one hand to another for
trading activities. As an instrument of exchange it involved a
contract whichthe
i. Warrant : payment of money, the promise or
order which is unconditional.
ii. Capable of change through transfer by valid
negotiation.
Hundi as Practiced by Indian Merchant Communities
:
Dhani-jog Darshani
Payable to any person-no liability over
who received payment.
Payable to a specific person, someone
Sah-jog Darshani
‘respectable’. Liability over who received
payment.
Firman-jog Darshani Hundi made payable to order.
Dekhan-har Darshani Payable to the present or bearer.
Payable to any person-no liability over who
Dhani-jog Muddati
received payment, but payment over a fixed
term.
Hundi made payable to order following a
Firman-jog Muddati
fixed term.
Drawn against dispatched goods. If goods lost in
Jokhmi Muddati transit, the drawer or holder bears the coasts,
and the Drawee carries no liability.
 Major trade centres in ancient
times It is known as Patna today. It was not only a
Pataliputra commercial town, but also a major center for exports of
stones.
It was an important exporting center for wool and for the import of
Peshawar horses. It had a huge share in commercial transactions between
India, China and Rome in the first century A.D.

It served as a major center on the important land route between

India and Central Asia. It was also a city of financial and commercial
Taxila banks. The city occupied an important place as a Buddhist center of
learning. The famous Taxila University flourished here.

It was the commercial junction on the royal road where most

Indraprastha routes leading to the east, west, south and north converged.
 It was an emporium of trade and people here subsisted on
Mathura commerce. Many routes from south India touched Mathura and
Broach.

It was well placed as it lay both on the Gangetic route and on the
highway that linked North with the East. It grew as a major center
Varanasi of textile industry and became famous for beautiful gold silk cloth
and sandalwood workmanship. It had links with Taxila and
Bharuch.

The traders of Mithila crossed the seas by boats, through the Bay
of Bengal to the South China Sea, and Traded at ports on the
Mithila islands of Java, Sumatra and Borneo. Mithila established trading
colonies in South China, especially in Yunnan.

Agate, carnelian, muslin and mallow cloth were exported from

Ujjain Ujjain to different centres. It also had trade relations through the
land route with Taxila and Peshawar.
Hundi
A hundi is a financial
instrument that was
developed in
Medieval India in
order to facilitate
trade and credit
 Types of
Dhani Jog Hundis
The term ‘Dhani’ means ‘owner’ 9i.e., the owner of the
dhan (amount) of the hundi. It is hundi payable to the Dhani
Hundi or owner – a holder or bearer owner. It is transferable by mere
delivery.
It is a hundi drawn by one merchant on another, asking the latter to pay
the amount to a shah. Shah is a rich, respectable and responsible person, a
Shahjog man of worth and known in the bazaar. A shah-jog hundi passes from one
Hundi hand to another till it reaches a shah, who after reasonable enquiries,
presents it to the drawee for acceptance of the payment.

The ‘Firman’ means ‘Order’. This type of hundi can be paid either to the
Firman Jog person whose name is mentioned in the hundi or to any person so ordered
Hundi by him. This hundi is similar to a cheque payable on order and no
endorsement is required on such a hundi.

The term ‘Dekhanhar’ means the one who sees it. Thus, a Dekhanhar
Dekhanhar Jog Hundi is the one which is made payable to its sees or its holder,
Jog Hundi i.e., it is made payable to the bearer.
 The term ‘Jokham’ means ‘risk’ and the term “Jokhami’ means ‘risky’.
That is why a jokhami Hundi, has been termed by Justice Baley, in the
Jokhami case titled Raisey. A merchant vs Jusraj Vizpal (1871), as being in the
Hundi nature of an insurance policy. But with a difference in that, in the case of
a Jokhami Hundi, the amount mentioned therein is paid in advance,
which may, however be recovered in case the slip is not lost.

There are the The drawer or the shipper (consigner) of

following three the goods;
parties in a
Jokhami The hundiwala, i.e., the underwriter, who
Hundi : undertakes the risk; and
The malwala, i.e., the consignee of the
goods.
Jawabee Hundi refers to the hundi which is used as a means
Jawabee
of remittance of money from one place to another, through a
Hundi banker.
 Busines  The term business is
s derived from the word
‘busy’. Thus, business
Human means being busy.
Activities  Business refers to an
occupation in which people
Non- regularly engage in
Economic
Activities
economic activities related to the
Activities purchase, production and
sale of goods and services to
 Economic  Economic activities are those human
Activities activities which are performed to earn a
livelihood.
 For example : A worker working in a factory,
a doctor operating his clinic, a teacher
teaching in a school etc.
 Non-economic activities are those human Non-
activities which are performed out of economic
love, sympathy, sentiment, patriotism Activities
etc.
 For example : A housewife cooking food for
her family, a girl helping a blind man etc.
Business Firm : Those organizations which perform business
is called business firm.
The Differences Between Economic Activities and Non-economic Activities are
:
Basis Economic activities
Those human activities which
are performed to earn
Definition livelihood are called
economic activities.
The main aim of these
Aim activities is to earn
profits.
The result of economic
Result activities is the production
of goods and services.
Example Teacher, lawyer, doctor etc.
Non-economic activities
Those human activities which
are performed out of love,
sympathy, sentiment,
patriotism etc. are called
non- economic activities.
The main aim of these
activities is
psychological
satisfaction.
The result of these activities
is the mental satisfaction of
the person performing them.
A teacher teaching his son, a
doctor treating his son etc.
 Busines
s
Industry Commerc
e
Primary Secondar Tertiary Trade Auxiliaries to
y Trade
Extractive Constructio Internal External Transport
n

Manufactu- Wholesale Import Banking

Genetic ring
Retail Export
Processing Insurance
Entrepot
Assembling Warehousing

Analytical
Advertising
Synthetical
 Types of Economic
Activities
There are three types
of Economic
Activities

Busines Professio Employment

s n
The Differences Between Business, Profession And Employment are
:
Basis Business Profession Employment
Business is established by the The profession can be commenced by Employment commences an
Mode of
entrepreneur’s decision or other legal getting membership in a professional body acceptance of the appointment letter
Establishment
formalities, if required. and a certificate of practice. and service agreement.
Employment involves doing the work
Business involves the provision of The profession involves rendering
Nature of Work as per the service contract or rules of
goods and services to the public. personalized expert services.
service.
Professionals are required to be experts In employment qualification and
In business no minimum qualification
Qualification in their fields possessing a high degree of training are required as prescribed
is necessary.
expertise and training. by the employer.
Reward Profit is the reward for The fee is the reward for Salary and wages are the rewards in
or Return performing business activities. providing professional services. the course of employment.
Capital Capital investment is required as per Limited capital is required for Capital investment is not required
Investment the nature and size of the business. establishment in the Profession. in case of employment.

In business, the profits are uncertain The fee is generally regular and Employment doesn’t involve any risk
Risk
and irregular. Hence, the risk is certain. Hence, little risk is involved. as compared to business and
present. profession.
The rules and regulations are laid
No code of conduct is prescribed A professional code of conduct is to
Code of Conduct down by the employer and need to be
in business. be followed in the case of the
followed.
profession.
Transfer of In business, transfer of interest is In the case of a profession, transfer of In the case of employment, transfer
Interest possible with some legal formalities. interest is not possible. of interest is not possible.
Chartered Accountant (C.A), lawyers, Jobs in banks, insurance companies,
Example Shop, factory etc.
teachers etc. government departments etc.
Industr  Industry refers to economic
activities, which are connected with
y conversion of resources into useful
goods. Activities like producing,
processing of goods and breeding
and raising of animals are also
included in the industry.
 Groups or firms producing similar
or related goods come under
industry. For e.g.- The Electronic
industry would include all firms
producing electronic goods, and so
on.
 Types of
Industry
There are three types
of Industries

Primary Secondary Tertiary

 Primary It refers to those industries which are
Industries concerned with the extraction and
production of natural resources and
the reproduction and development of
living organisms, plants, etc.
Primary Industries are further divided as follows :
Extractive Industries : Genetic
 Industries
This industry involves :the extraction of products  Genetic industries are concerned with the
from natural sources. breeding of plants and animals for their
 These industries provide such products which
use in further reproduction.
are used as raw materials by many
manufacturing industries.
 For example : Seeds and nursery
 For example : Mining, agriculture, fishing, companies, cattle breeding farms, dairy
farming etc. farms, fish hatcheries, poultry farms
etc.
 Secondary  These are concerned with using materials, which have
Industries already been extracted at the primary state and processing
such goods for final consumption.
 For example : Mining of iron ore is a primary industry, but
the manufacturing of steel is part of a secondary industry.

Secondary Industries are further divided as follows :

Construction Industries :
The industries which are involved in engineering and architectural skills to construct dams, bridges, buildings
etc.

Manufacturing Industries :
 Manufacturing industries are those which involve the conversion and processing of that material into finished goods.
They create utilities. For example : The conversion of iron into steel, sugarcane into sugar etc.
 Manufacturing industries are further divided as :
 Processing Industries : These industries involve the processing of raw materials through various stages of production
for getting finished goods. For example : The paper industry, textile industry, sugar industry etc.
 Assembling Industries : These industries are concerned with assembling different parts to make a new product. For example
: Television, car, computers etc.
 Analytical Industries : These industries are concerned with analyzing and separating different elements from the same
materials. For example : Oil refinery.
 Synthetical Industries : These industries combine various products to make a new product. For example : Cement, paint etc.
 Tertiary
Industrie  It provides various services
s to the primary and
secondary industries.
 They also provide help
to trading activities.
 For example : Transport,
banking, insurance,
warehousing, communication
and advertising etc.
  The activities which are necessary for
Commerce facilitating the exchange of goods and
services are included under commerce.
The main function of commerce is to
Commerce facilitate the free flow of goods and
includes two services by removing various
hindrances in the process of exchange.
types of
 The hindrances may be in respect of
activities person, place, time, risk, finance etc.
These hindrances are removed by
various activities in commerce like
Auxiliaries
Trade to Trade
advertising, warehousing, and
banking.
 Commerce provides the necessary
 Trade Activities relating to the
sale, transfer or
Trade can be
classified into exchange of goods are
two categories known as components of
the trade.
External Trade is that part of
Internal
Trade or
Trade or
Foreign
business activities which
Home Trade
Trade is involved in buying
1) Internal Trade : Internal trade refers to buying
and selling of goods within the geographical
boundaries of the country.
It may be divided into wholesale and retail trade
:
Wholesal When goods are bought and sold
e in large quantities it is known as
wholesale trade.
When goods are bought and sold in Retail
smaller quantities it is known as Trade
retail trade.
2) External Trade : External trade refers to buying
and selling of goods and services between persons
and organizations belonging to different
It is countries.
further divided into three categories
:
Import It means purchasing goods from
another country.
It means selling goods to Expor
another country. t
Entrepot It means importing goods to export them
to other countries.
Auxiliaries  The activities which help in the
process of trading are known as
to Trade auxiliaries to trade. These
activities play a supportive role in
the free flow of goods and
services.
 These help in removing various
hindrances may be in respect of
place, finance, time, risk,
persons/knowledge etc. The
various auxiliaries are transport,
banking, insurance, warehousing
1) Transport :
 Goods are produced at a particular location but are needed at different places in the country. For example
: Sugar is mainly produced in Uttar Pradesh but it is consumed all over the country.
 This hindrance of place is removed by various means of transportation like railways, waterways, roadways
etc.
These services not only facilitate the movement of finished goods but also the movement of raw materials.
2) Banking :
 Every business requires funds for long-term or short-term purposes. The money required for a short-term period is known
as working capital requirements. Whereas the money required for a long-term period is known as fixed capital
requirements.
 All these financial needs are fulfilled with the help of finance. Therefore, banking helps in removing the hindrance of
finance.
 Main source of finance is a bank. Commercial banks accept deposits and provide funds as per the requirements of the persons.
They also perform some basic functions like collection and payments of various items etc.

3) Insurance :
 Risk is always associated with the business. Various assets like plant and machinery, buildings, furniture
etc. kept in warehouses are subject to the risk of loss or damage.
 Also, employees of every organization require protection against accidents due to the use of complex
4) Warehousing
machines.:
 Generally, goods
This hindrance ofare
risknot consumed
is removed byimmediately
insurance asafter production.
in case There
of loss any loss is alwayscan
suffered a time gap between
be recovered fromthe production
and consumption
the insurance of goods.
company.
 Thus, it becomes essential to store goods in such a way that these are available whenever they are required. Thus, the hindrance
of storage is removed by warehousing. It ensures a continuous supply of goods which helps in maintaining a reasonable level of
prices.
5) Advertising :
 Advertising is always the most important tool of sales promotion. It is not possible for a producer to
personally contact every consumer and provide information about products.
 Advertisement provides the necessary information to the consumers about the product like price, quality, uses,
availability etc. It also motivates consumers to buy them. Thus, advertising helps in removing the hindrance of information.
 Role of Commerce in the Removal of Hindrances in the Process of
 Exchange
Commerce includes two types of activities, viz.,
a) Trade and
b) Auxiliaries to trade.
 Buying and selling of goods is termed trade. But there are a lot of activities that are required
to facilitate the purchase and sale of goods. These are called services or auxiliaries to trade
and
include transport, banking, insurance, communication, advertisement, packaging and
warehousing.
 Commerce provides the necessary link between producers and consumers. It embraces all those activities, which are
necessary for maintaining a free flow of goods and services. Thus, all activities involving the removal of hindrances in
the process of exchange are included in commerce. The hindrances may be in respect of persons, place, time, risk,
finance, etc.

1) Trade removes the ‘hindrance of persons’ by making the goods available to the consumers from the producers.
2) Transportation removes ‘hindrance of place’ by moving goods from the places of production to the markets for sale.
3) Storage and warehousing activities remove the hindrance of time by facilitating the holding of stock of goods to be sold
as and when required.
4) Insurance removes 'hindrance of risk’. Goods held in stock, as well as, goods in course of transport are subject to a risk of
loss or damage due to theft, fire, accidents, etc. Protection against these risks is provided by insurance of goods.
5) Banking removes ‘hindrance of finance’. The capital required to undertake the above activities is provided by
banking and financing institutions.
Conclusion : Commerce
6) Advertising removesis‘hindrance
said to consist of activities Advertising
of information’. of removingmakes
the hindrances
it possibleoffor
persons, place,
producers andtime, risk,tofinance
traders
andinform
information in theabout
consumers process
theofgoods
exchange of goodsavailable
and services and services.
in the market.
 Characteristics of Business
Activities
 Business is concerned with an economic activity
An because it is undertaken to earn money.
Economic  It doesn’t include such activities which are
Activity done out of love, sympathy, affection etc.
 The business enterprise either produces gods or procures
Production or them from the producers before they are offered for sale.
Procurement of
 The goods can be consumable goods (like sugar, pen,
Goods and
Services clothes etc.) or capital goods (like machinery, tools etc.)
and services like transport, banking etc.
 Business involves the sale or exchange of goods or services
Sale or for money. It cannot be called a business activity if goods
Exchange of are produced for self-consumption and not for sale.
Goods and  Thus, the sale or exchange of goods or services between
Services the seller and the buyer is an essential feature of
  One single transaction of sale and purchase can’t be termed
a business. Business must involve the exchange of goods and
Dealing in services on a regular basis.
Goods and  For example : If a person sells his personal computer, it can’t
Services on a be termed as a business. However, if he continuously
Regular Basis deals in the sale and purchase of computers, it
will be regarded as a business.

 The main aim of every business is to earn profits. Profit

Profit Earning earning is essential for the survival of the business. Hence a
businessman always tries to minimize costs and maximize
profits.
 Another important feature of every business is the
uncertainty of return. A businessman invests money into the
Uncertainty
business but he is not certain about the amount of profit that
of Return
he may earn.
 Moreover, there is a chance of losses despite the
best efforts put into the business.
 Business The term business risk refers to
Risk the possibility of inadequate
profits or even losses due to
There are two uncertainties or unexpected
types of business events. For example : Change in
risks fashion or taste and
preferences of customers the
Speculative
demand for a particular
Pure
Risk
Risk
product may decrease which
results in a reduction in sales as
 Speculative  It involves both the possibility of gain as well as
Risk the possibility of loss. In case of favorable market
conditions, there would be gains but in case of
unfavourable conditions, there are possibilities of
losses.
 It is the risk which arises due to changes in the
condition of the market. E.g.- changes in
fashion, technology, price, etc.

It involves only the possibility of loss or Pure

no loss, it is the risk which arises due to Risk
fire, theft or strike. The occurrence may
result in loss whereas non-occurrence
will result in the absence of loss instead
 Causes of Business Risks
 Human beings have little control over natural calamities.
Natural  Natural calamities like flood, earthquakes, heavy rains, famines
Causes etc. results in heavy loss of life, property and income of the
business.
 Unexpected events like dishonesty, carelessness or negligence of
Human employees, stoppage of work due to power failure etc. are
Causes some examples of human causes that result in business risk.

 These include uncertainties relating to demand for goods,

Economic competition,
price, collection of dues from customers, method of production etc.
Causes  These also include some financial problems like an increase in
interest rate, tax rate etc. which results in higher costs of
operations.
 These include uncertainties like political disturbances,
Other mechanical failures, fluctuations in exchange rates etc. which
Cause leads to the possibility of business risk.
 Nature of Business
1)
Risks
Business Risks arise due to Uncertainties :
 Uncertainty refers to the lack of knowledge about what is going to happen in future.
 Therefore, uncertainty like natural calamities, change in government policies, change
in demand etc. create risk for business.
2) Risk is an Essential Part of Every Business :
 Every business has some risk. No business can avoid risk, although
the amount of risk may vary from business to business.
 Risk can be minimized, but cannot be eliminated.
3) Degree of Risk Depends Mainly upon the Nature and Size of Business :
 Nature of business (i.e., type of goods and services produced and sold) and size of business
(volume of production and sale) are the main factors which determine the amount of risk in
a business.
 For example : A business dealing in fashionable items has a high degree of risk. Similarly, a
large-scale business generally has a higher risk than a small-scale business.
4) Profit is the Reward for Risk-taking :
 Profit and risk are directly related to each other.
 Profit is the reward for risk-taking. Greater the risk higher is
the chance of profit whereas if the risk is low profit may also
be low.
 Multiple Objectives of the Business
1) Market Standing :
 It refers to the position of an enterprise in relation to its competitors.
 A business enterprise must aim at standing on stronger footing in terms of
offering
competitive products to its customers and providing them maximum
satisfaction.
2) Innovation :
 Innovation is the introduction of new ideas or methods in the way something is
done.
 There are two kinds of innovation in every business:
 Innovation in goods and services.
 Innovation in various skills and activities needed to supply products and services.
3) Productivity :
 Productivity is ascertained by comparing the value of output
with the value of inputs.
 It is used as a measure of efficiency. Greater productivity
ensures continuous growth through the best utilization of
resources.
4) Earning Profits :
 One of the objectives of the business is to earn profits on the capital employed.
Profitability refers to the profit in relation to capital investment.
 Every business must earn a reasonable profit which is so important for
its survival and growth.

5) Manager Performance and Development :

 Business enterprises need managers to conduct and coordinate business activity.
 Hence, manager performance is an important objective and enterprises must actively
work for this purpose.

6) Worker Performance and Attitude :

 Workers’ performance and attitudes determine their
contribution towards the productivity and profitability of any
enterprise.
 Therefore, every enterprise must aim at improving its worker’s
performance.

7) Social Responsibility :
 It refers to the obligation of business firms to contribute resources for solving social
 Basic Factors Which are Considered Before Starting a
Business
Selection of Line of Business
 The first thing to be decided by an entrepreneur is the nature and type of
business to be undertaken.
 For example : Fashionable goods, grocery shops, refreshments etc.

Size of the Firm

 Size of the firm or scale of its operations is another important decision taken while starting
a business.
 If market conditions are uncertain and risks are high, a small-scale business would be
better choice and if the conditions are certain and there is moderate risk and the owner is
confident then he may go for a large-scale business.
Choice of Form of Ownership
 Concerning ownership, the business organization may take the form of
a sole proprietorship, partnership, or joint stock company.
 The choice will depend on such factors as the line of
business, capital requirements, legal formalities and so on.
Location of Business
Enterprise
 An important factor to be considered at the start of the business is the place where the
enterprise
will be located.
 Availability of raw materials and labour; power supply and services like banking,
transportation, communication, warehousing etc. are important factors while choosing a
location.

Finance
 Before starting the business, proper finance planning must be done with the
main objective of determining i.e., requirement of capital, the source from where
capital will be raised, and the best ways of utilizing the capital.

Tax Planning
 Tax planning becomes necessary because of the multiple taxes in the country.
 Therefore, the founder of the business has to consider the tax liability under various tax laws
and their impact on the business decisions.

Launching the Enterprise

 After the above decisions related to various factors the entrepreneur can go ahead