Business Section 1

• Enterprise


  The taking of risks in establishing a business
• Entrepreneurship


  The act of combining all the other factors of production (land, labour and capital) with the aim of establishing a profitable venture for the production of goods and services
• Barter


  The exchange of one good/service for another
• Profit


  The surplus funds which remain after all expenses have been covered
• Loss


  The situation which exist when total sales are not enough to cover all expenses
• Trade


  The buying and selling of goods and services
• Organisation


  A social arrangement which pursues collective goals such as the production of goods and services
• Economy


  The system within a country which determines the production, exchange and consumption of goods and services
• Producer


  Any individual or organisation which makes goods and services
• Consumer


  Any individual or organisation which uses goods and services
• Exchange


  The voluntary trade of goods and services
• Types of Goods


  • Free goods
  • Public goods
  • Merit goods
• Goods


  Tangible products which have been produced
• Service


  Intangible products which have been produced
• Market


  Any place where buyers and sellers meet to engage in trade. It is also referred to as the demand for a product
• Commodity


  Any final good used for some purpose
• Capital


  Money which is used in the organisation to acquire assets. It also refers to items (factories, equipment, machinery etc.) used to create final products
• Labour


  The physical and mental contribution of individuals to the creation of goods and services
• Specialisation


  The division of labour into specific tasks. A whole process is divided into several tasks. This helps to speed up the process and may result in an increase in productivity and a decrease in unit cost
• Development of instruments of exchange

  1. Direct production/subsistence economy

  2. Barter

  3. Money (shells, beads, arrowheads, fishhooks, gold, animal teeth)

  4. Money (notes, coins, credit cards, debit cards, cheques, electronic transfer, tele-banking, e-commerce)
• Problems with barter


  • Double coincidence of wants
  • Exchange rate
  • Divisibility of goods
  • Storage of wealth
• Reasons to start a business

  • Financial independence
  • Wanting to be your own boss
  • Self-fulfilment
  • There is a need for a product/service, which is not being met
  • Redundancy
  • Poor job prospects
• Functions of a business

  • The provision of goods and services
  • The provision of jobs
  • Assistance with social activities through sponsorship
  • To make a profit
  • Contribute to economic growth
• Sole trader


  A person who owns his or her business
• Characteristics of a sole trader

  • Easy to set up
  • Financed by the owner
  • Bears all risks and keeps all profits
  • Provides a personal service
  • Has no one to account to
• Advantages of a sole trader

  • Easily and quickly formed and dissolved
  • Close relationship with customers
  • Decisions can be made quicker
  • Takes all profits
  • Pays lower personal tax not company tax
• Disadvantages of a sole trader

  • Limited capital and it is not easy to get loans
  • Long working hours
  • Business usually dissolves if owner dies
  • Lack of specialized staff
• Partnership


  An association between 2- 20 people operating a business with the common goal of making a profit
• Types of partnership


  • Ordinary Partnership
  • Limited Partnership
• Characteristics of a partnership

  • Minimum of 2 and maximum of 20 for formation
  • Capital is provided by the partners
  • A limited partner cannot take part in the management of the partnership
  • Profits share equally unless stated in agreement
• Advantages of a partnership

  • Relatively easy to set up
  • More capital can be obtained than sole trader
  • Business will not end if one partner dies (continuity)
  • Specialization can occur thus leading to greater efficiency
  • Shared work load
  • Pays lower personal tax not company tax
• Disadvantages of a partnership

  • Unlimited liability
  • Personalities of partners may cause difficulties in decision making
  • Some difficulty in raising capital
  • In the absence of an agreement all profits must be shared equally regardless of individual effort
• Co-operative


  Businesses that are formed, owned and operated by its members
• Types of co-operatives


  • Financial co-ops
  • Consumer co-ops
  • Agricultural co-ops
• Advantages of co-operatives


  • There is a market for members
  • Employment is provided
  • Owned and operated by members, therefore there is a greater commitment to making it a success
  • A medium through which government can channel aid to the society
  • All profits shared among members
  • Shared decision making
• Disadvantages of co-operatives


  • Poor, inexperienced and unqualified management. This can hinder growth
  • Conflict among members can lead to slow decision making
  • Unable to attract skilled professionals
• Private Limited Company


  A company where 2-50 shareholders form a company
• Characteristics of a Private Limited Company

  • Limited liability
  • A separate legal entity
  • Governed by a) memorandum of Association b) Articles of Association
  • Directors elected at AGM
  • Proper accounts must be kept for tax purposes
  • 2-50 shareholders
  • They tend to be owned by families and close friends
• Advantages of a Private Limited Company

  • The company is separate from owners
  • Shareholders have limited liability up to the amount they have invested
  • Easy access to loans
  • Larger capital base than sole traders or partnerships
  • Privacy
  • Death of an owner will not affect the continuity of the business
• Disadvantages of a Private Limited Company

  • Shares are not traded publicly and therefore the capital base will be limited
  • Skills may be limited
  • Shares are not transferable without the director's consent