Nature of business

• Barter system


  The exchange of one thing for another without the use of money
• Early people's way of life


  • Provided all their needs themselves without the help of others (direct production)
  • Hunted animals and gathered plants and berries
  • Some farmers grew crops and kept animals for feeding themselves (subsistence economy)
• Improvement in people's way of living

  1. Building permanent homes

  2. Making tools to satisfy their way of living

  3. Producing more goods than required, resulting in a surplus
• Surplus


  More goods produced than required
• As a result of the surplus, people began exchanging goods for surplus of others
• Money


  Anything that is generally accepted as a medium of exchange and used to purchase goods and services. Money is a legal tender- that means, it is acceptable as a means of payment.
• In early societies the barter system was used as a method of exchange in which one good or service is exchanged for another before a system of money was used
• To overcome the disadvantages of the barter system a common medium of exchange had to be developed. The problem was solved with the use of money, gold and silver were minted and used as money.
• 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.]
• Characteristics of Money


  • Durable
  • Divisible
  • Portable
  • In limited supply
• Functions of Money


  • Medium of exchange
  • Measure of value
  • Store of value
  • Standard of deferred payment
• Instruments of Exchange


  • Barter System
  • Bill of exchange
  • Electronic transfers
  • Telebanking
  • E-commerce
  • Cheque
  • Money order
  • Debit Cards
  • Credit Cards
  • Bank Draft
  • Telegraphic Money Transfer
  • Internet Banking
  • Mobile Money and Mobile Wallets
• Private Sector


  That part of the economy which comprises of businesses owned and operated by private individuals
• Public Sector


  That part of the economy which comprises of businesses owned and operated by the government
• Differences between Private Sector and Public Sector

  • Ownership
  • Aims
  • Source of finance
  • Distribution of profits
  • Type of products
  • Type of business
• Privatization


  The transferring of government owned firms to the private sector
• Nationalization


  The taking over of private firms by the state
• Benefits of Privatization


  • Removes political interference in business operations
  • Improves access to better quality services at affordable prices
  • Helps to empower citizens
  • Improves efficiency because of competition and the drive to increase profits
• Disadvantages of Privatization


  • Can lead to massive job losses
  • Profits go to the individual and not the whole nation
  • Government may lose control of essential services
• Benefits of Nationalization


  • Profits go to the state to fund development projects and used to expand other nationalized industries
  • Secures employment for the population
  • Used to pay interest and repayment of loans
  • The state can control essential industries that are important for development
• Disadvantages of Nationalization


  • Too much political interference by parliament makes it difficult to make profits
  • The lack of profit motive leads to a waste of resources
  • Consumer may lose their freedom of choice as fewer market options are available
• Forms of Business Organizations

  • Sole Trader
  • Partnership
  • Co-operative
  • Franchise
  • Limited Companies
• Sole Trader


  A business in which one person provides the capital and gets all the profit
• Partnership


  A business formed by 2 to 20 persons providing capital and shared responsibilities
• Types of Partnerships


  • Joint venture
  • Syndicates
  • Limited liability
• Co-operative


  A business owned, controlled and operated by a group of users for their own benefit. The group may be users or producers of the product.
• Types of Cooperatives


  • Consumer cooperative
  • Agricultural cooperative
  • Financial cooperatives
• Franchise


  A business that uses the name, logo and trading system of an existing business
• Limited Companies


  Businesses with limited liability where shareholders will lose only the capital contributed and not their personal assets if the business fails
• Types of Limited Companies

  • Private Limited Company
  • Public Limited Company
• Private Limited Company


  A business with 2-50 shareholders who are often family members
• Franchising


  • Advice and training are offered by the franchisor
  • Supplies are obtained from established suppliers
• Disadvantages of franchising


  • Revenues have to be shared with the franchisor
  • Initial license fee is expensive
  • There is no choice of supplier
• Limited company


  A company has limited liability and in case the business fails the shareholders will lose capital contributed and not personal assets
• Types of limited companies

  • Private Limited
  • Public Limited
• Private Limited Company


  • 2-50 shareholders who are often family members
  • Business must be incorporated and give the registrar of companies certain documents
  • Managed by owners or persons appointed by owners
  • Receives a Certificate of Incorporation from the register of companies to start operations
• Advantages of Private Limited Company

  • Limited liability
  • Can raise capital by selling shares privately to individuals
  • Has a separate legal entity
  • Greater continuity
• Disadvantages of Private Limited Company

  • Too many legal formalities
  • Too many legal requirements
  • Selling of shares is restricted to private individuals only and not to the general public
• Public Limited Company/Joint Stock Company

  • At least seven members that offers shares to the public
  • Must be registered and give the registrar of companies certain documents
  • Managed by a board of directors who appoints an executive director
  • Receives a Certificate of Trading from the register of companies to start operations
• Advantages of Public Limited Company

  • Limited liability
  • Can raise capital by selling shares publicly
  • Has a separate legal entity
  • Greater continuity