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Business
If a man remains busy with an activity which is production oriented is called
Business.
Production means creation of utility. In a word business is a creation of utility.
Man can’t produce anything. Man can only procure resources from nature and
can change its shape, place and time.
Business organization: All organizations all over the world are engaged in
either producing a product or rendering a service or generating an idea. These
organizations are popularly known as Business organization.
NEED: Need refers to those goods and services which are essential for our
living. We can’t survive without them. Our existence will be at stake (threatened)
without them.
Example:
1. Food
2. Shelter
3. Clothing
4. Medical care
5. Education and Training.
WANT: Want refers to those goods and services which are not essential for our
living but we require them for a better living. They make our life easy and
enjoyable.
Example:
1. Mobile
2. Computer
3. Electricity
4. Television etc.
Need is limited but want is unlimited. Need can’t be created; it already exists but
want may be created.
Definitions of Business
OWNER: Owner is a person who owns the business, he usually provides the
capital. He sets the objectives, makes decisions. His decision is final in regard to
his business. He takes the risk and enjoys the rewards that the business
provides.
Some dissimilarities between the owner and the professional manager are
given below:
1. An owner manager is a self-employed person on the other hand a
professional manager is employed by the owner.
2. Owner sets the objectives of his business. Professional managers walk to
achieve those objectives.
3. A professional manager is constantly evaluated by the owner. If he can
achieve the objectives set by the owner, then the owner welcomes him.
Unfortunately if a professional manager fails to do so. The owner manager
simply says good bye to him. In other words, he is hired by the owner and
he may also be fired by the owner if he so desires. In fact a professional
manager is always dictated by the owner. His boundary operation is
decided by the owner.
There are also some similarities between a professional manager and an owner
manager which are given below:
1. Both types of managers want to achieve profit, growth. They work for their
survival and in the presented context, they are also aware about their
social responsibilities.
2. Economic profit
Opportunity Cost: Opportunity cost is the cost of choosing to use resources for
a purpose which results in sacrificing the next best alternative for the use of
those resources.
Here Jute mill A produces 20 yards carpet per year but Jute mill B produces 15
yards carpet every year.
For A: Production Cost per year = 300/20 = Tk. 15
For B: Production Cost per year = 300/15 = Tk. 20
Now if the Maximum Retail Price (MRP) of a carpet in the market is Tk, .17(say)
then the jute mill A makes profit tk. 2 but the jute mill B incurs loss of tk. 3 per
carpet. So the survival of the Jute mill B will be threatened on the other hand Jute
mill A will go on flourishing business in the market.
Low productivity leads to high cost of production which ultimately leads to going
out of business.
Survival: Survival means state of continuing to exist. It is the primary issue of a
business.
RESOURCES: Every nation has got some resources. The resources of a nation
may be divided into three main classes as stated below:
1. Natural Resources
2. Capital Resources
3. Human Resources
Example: Trees are to be processed into lumber (wood) before using them to
build homes, shopping malls, schools and colleges. Regarding natural resources
man don’t have any control. Man can simply extend its market.
Capital Resource: Capital resources are goods produced for the purpose of
making other types of goods. In other words ‘capital’ is that part of produced
wealth which can be used for further production. Some capital resources are
called current assets. They have got a short life and are used up in the
production process.
For example: Raw material, fuel and money etc.
On the other hand some capital resources are called fixed assets. They have got
a long life. They are not used up in the production process rather they are used
repeatedly in the production process. For example- Land, Building, Machines etc.
How a county will use its resources it depends on the economic system of that
country but the govt. is less prioritized for the proper utilization of resources.
Business in every country is dictated and influenced or guided by its economic
system.
Economic System
Socialism Communism
1. State ownership
2. Centralized decision making and planning.
3. Less significant competition in business unit.
4. No alternative choice on the part of customer.
We can’t think of a circle without its centre. In the same way we can’t think of
capitalism without customer. So if we treat capitalism as a circle then customer is
its centre.
As a result, the fact is that no country in the world has a purely planned economy
or a capitalistic economy. In practice, virtually countries are following mixed
pattern of economy in which one of the basic economic system dominates but
the characteristics of other systems are present there as well.
Business means creation of utility. Business has two main branches such as-
1. Industry and
2. Commerce
to accept this statement. Because a man may remain busy with so many
things which will not come within the scope of business.
For example:
1. Busy in gossiping
2. Busy in thinking usual things.
To be business in our terms, and activity must be production related. And
production means creation of utility. So the essence of business is to create
utility.
1. Industry 2. Commerce
Primary Secondary
2. Commerce
Hindrance of Place: Place of production and place of consumption are not the
same. They are different. Goods produced in one part of the world and are
consumed in another part of the world. For example: garments manufactured in
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Bangladesh but are consumed by Americans and the Europeans. So goods are
to be transported from its place of production to its place of consumption.
Transport, banking, insurance, packaging have come forward to remove these
hindrances.
Hindrance of Time: Time of production and time of consumption are not the
same. Goods are produced in one part of a season and are consumed
throughout the season. For example, tomatoes, Potatoes, carrots, jute are
produced in a particular part of the season but they are consumed round the
year. This hindrance of time has been removed by warehousing where goods are
stored for future consumption.
1. Economic Objective
2. Human Objective
3. Social Objective
Economic Objective:
1. Earning reasonable profit
2. Creation of customers
3. Keeping customers creating goodwill
4. Research & innovation
5. Stability of growth.
Human Objective:
1. Human relation with employees.
2. Provision for employee’s welfare.
Social Objective:
1. Production of quality goods.
2. Charging reasonable prices.
3. Payment of fare wages & other benefits.
4. Provision of employment.
5. Regular payment of taxes & other dues.
6. Fair dealings with suppliers of materials.
7. Contribution to community development.
8. Attaining social power, recognition and thereby business
leadership.
Answer: We can’t agree with the above statement that profit is the sole/absolute
motive of business. It is true; nobody enters into business to regain his lost health
or for the salvation of his soul. Everybody enters into business to make profit. In
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other words, profit is the main incentive for business. Yet, we can’t say that profit
is the absolute motive of business. The arguments in favor of our opinion are
shown below:
2. If we say profit is the only motive of business, it is just like saying eating is
the only motive of living, or blood circulation is the only cause of living. It is
true only blood circulation can’t keep us alive. Breathing, digestion, and
proper functioning of the nervous system are vitally required for our living.
From these facts of live, we can draw a calculation that only profit can’t keep a
business alive. So, profit should not be the only motive of business.
3. If eating is taken as the only motive of living then we shall obviously go for
over eating and overeating may even lead to death. Similarly impious
profit may bring an end to the life of a business. Certain minimum food is
required for our living and work; so certain minimum profit is also
necessary for the survival of a business.
So, in conclusion we can say that profit can’t be the only motive of business.
Profit may be the main motive of business but obviously not the only motive. The
only motive of business should be to create customer and to keep customer. So,
it should be the only objective of business.
Business today is very competitive. It has taken the shape of cut throat
competition. There has been a race among business units to improve efficiency
and to reduce cost of production. Because existence and prosperity of business
depend on the cost at which the goods are produced. Further as the customers
for whom goods are meant are scattered over a wide area. It is difficult to
estimate the demand for products. In addition, demands are ever changing due
to the influence of fashion and the introduction of substitutes. So, Business
today is not a bed of roses rather it is a bed of thorns. The problem has become
very acute because most the factors are not within the control of the
businessmen. A business man must be ready to accept these challenges.
However, the requisites for success in a modern bushiness the following issues
may be considered.
1. Objective
2. Planning
3. Sound Organization
4. Adequate finance
5. Proper location and lay out.
6. Research and innovation
7. Efficient and effective management.
Objective: Objective indicates where we are and where we want to go. Objective
bridges the gap between the points where we are and where we want to be.
Objective is a target what we want to hit. Objective is a mission or a destination
where we want to reach. Objective is a result what we want to achieve. Examples
of objectives:
1. A business man wants to make 25%profit on his capital
employed in the coming financial year.
2. A student wants to get Grade A+ in his coming term final exam.
Objective should be realistic. Realistic means which is not too easy and not
impossible to achieve. It should be understandable to those people who are
responsible for their implementation.
Planning: Planning is decided in advanced that are to be done. It is a projected
course of action. Planning is a design for tomorrow’s action. Planning answers
the following three basic questions:
1. Where we are now
2. Where do we want to go?
3. How can we go there from here?
Sound organization: The firm/organization must be staffed with sufficient
number of people with required talents and skills. It means right man should be
selected for the right job.
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- customer
- employee
- environment
- and investors.
Right to Safety: the most basic consumer right is the right of safety in regard to
the product or the service, they are going to procure. The product or services
must be produced meeting the government guidelines and regulations. The
product and services should be safe to possess and use.
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Right to be heard: Consumers have also their right to have their opinions
considered in the formation of government policies or decisions taken by the
business firms. The governmental body should communicate with consumers
association in order to get the customer`s concerns while preparing products
standard.
Equity in work place: Equality comes from kindness and justice. There should
not be any discriminatory treatment in an organization. It is expected that all the
members of the organization should be treated equally in work place.
Fair compensation: Fair wages is to be given to the workers and they should
not be deprived of their dues. Management should always try for maximum
satisfaction of employees.
These three elements of the environment are polluted by business activities. So,
businessmen must be aware regarding the pollution of the environment.
Responsibility to investors:
Sole trader ship: Sole trader ship is the oldest, simplest and most common form
of business organization. Probably it came into existence, when people first
realized the need or exchange. From the very dawn of our civilization, sole trader
ship form of business has been in operation. And even today, it has remained as
much important as it was earlier. The individual proprietorship is a business unit
which is completely owned and controlled by one person. He is one and alone in
formation, management, taking responsibility, providing capital and also in
sharing profits. It is represented by an individual who is in business by and for
himself. In plain, words, he is the monarch of all he owns. He is the supreme
judge of all matters in regard to his business. That means his decision is final in
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regard to his business matters. In fact, he owns all and risks all. The other names
of sole trader ship are-
1. Sole proprietorship
2. Individual entrepreneurship
3. Single proprietorship
Professional like solicitors, accountants, auditors, physicians, hair dressers,
photographers are some of the examples which fall within this category.
becomes a driving force for the sole trader. So, he always works carefully to
avoid the burden of unlimited liability.
Partnership is formed with the following four things such as partner, partnership,
Firm, Firm Name.
Partner: Persons forming a partnership are individually known as partners.
To avoid future chaos and confusion it is wise to have a written and registered
contract. It is to be noted that written and registered contract is enforceable to the
eye of law.
Firm name: The name under which business of the partnership is carried on is
known as firm name.
Essence of partnership:
1. Plurality of persons
2. The persons forming a partnership must carry on some business.
3. The persons carrying on a business must enter into a contract.
4. The contract must be to share profits of a business.
5. An agreement to share losses does not constitute a partnership.
6. The business must be carried on by all or any one of them active for all.
7. Partnership is a contract of utmost good faith.
8. One partner can bind the other partner by his deeds.
Partnership Deed:
A document which contains the terms and conditions of a partnership is known
as partnership deed. Some important contents of a partnership deed:
1. Name and address of partners
2. Firm name of place of business
3. Objective of business
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Advantages of partnership:
1. Easy to form
2. Greater capital
3. Combine ability and judgment.
4. Matching of efforts & rewards
5. Matching of ownership and control
6. Protection of minority interest
7. Flexibility in operation
8. Better public relations
9. Promptness in decision making
10. Sharing of loss
11. Benefits of divisional of labor
12. Indirect advantage of unlimited liabilities.
the consent of all other partners. A minor may inspects the books of accounting.
His liability is not unlimited. His liability is limited to extent of interest; he has got
in partnership business. In case of need, creditors can simply claim his interests
in the partnership. On attaining maturity, within six months, he is to serve a public
notice specifying his opinion whether he ant to continue as a partner or not. If he
fails to do so within the specified time, it will be assumed that he wants to
continue as a partner. Under such a circumstance, he will be held liable for debts
and obligations of the partnership firm from the date of his admission to the
benefits of partnership. In other words, his liability will be given a retrospective
effect.
There are three basic and mostly common limitations in sole trader ship and
partnership. To remove these limitations, the idea of company/Joint stock
company has been introduced. The following steps are required to form a
company-
1. Discovery of an idea
2. Investigation and planning particularly financial planning.
3. Assembling resources
4. Preparation of documents like-
i. Memorandum of association
ii. Articles of association
iii. Prospectus
iv. Statement in lieu of prospectus
5. List of directors
6. Written consent of director to act as directors
7. Certificate from an advocate or from a Chartered
Accountant
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After all the above process is done properly then the company will get a birth cry.
Types of a company
1. Chartered company
2. Statutory company
3. Registered company
Name Clause: It contains the name of the company. The name should not be
similar to those companies which are already in existence that is registered in the
register of the registrar. Usually private Ltd. Company should use the word
private ltd and public ltd company should use the word ltd as the last part of their
names.
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Liability Clause: A company must mention its position in regard to its liability.
The liability of a company is limited usually to the extent of shares owned by a
share holder.
1. Voluntary Association
2. Creation of law
3. Separate legal entity
4. Perpetual Succession
5. Limited Liability
6. Transferability of shares
7. Rigidity of objectives
8. Diffusion of ownership
9. Separation of ownership from control
Creation of law: It is not easy to form a company like that of sole trader ship or
partnership. Formation of a company requires many legal formalities and
obtaining of certificates according to the company Act. In short, a company is
created by law within the framework of company Act.
Separate legal entity: Company has got a legal existence apart from the
persons forming it. Company is like a person in the eye of law. It can hold
property, incur debts and can sue and can be sued as an individual. In short,
company is a person in the eye of law but it is mute and dumb. It is not an
ordinary person with flesh and blood. It can’t walk, it can’t talk, it can’t marry, it
can’t divorce, and it is imbecile but it is honest and innocent.
Limited Liability: The most important feature of the company and its highest
advantage lies in the fact that the liability of the company is limited. In other
words, a share holder is liable usually to the extent of shares owned by him.
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Cooperative society
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Cooperation means to get together to bring about a result. The other members of
the human body could not like the luxurious life of the belly and they entered into
a conspiracy to cut of its supplies. The hand refused to carry food, mouth to
swallow it, teeth to chew it. As a result, all of them began fake and fail. And entire
body started to pine away. The other members of the body then realized their
foolishness and they could understand the truth that we must cooperate with
each other for our survival.
Getting together may be of two types-
1. conscious cooperation
2. unconscious cooperation
Cooperative Society may be divided into different classes from the point of view
of their formation. Some examples are shown below: