Professional Documents
Culture Documents
Functions of a business:
1. To produce goods and services
2. Creating jobs and training employees
3. Purchase goods and services for resale
4. Raise money by borrowing
Objectives of a business:
Starting a business is a lot of hard work. Therefore persons who decide to start a business
must be ready to dedicate a lot of time and energy to its start-up. It is also very costly and
therefore capital will have to be identified to inject into a new business.
1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a
business would give them the opportunity to be a successful business person and achieve
financial independence.
You are able to make decisions about the direction and operation of the business.
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfilment
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Business can assist in providing jobs for persons in communities with high levels of
unemployment.
1. Sole Trader
2. Partnership
3. Private Limited Liability companies
4. Public limited Liability Companies
5. Multinationals
6. Franchise
7. Conglomerates
8. Cooperatives
9. Nationalized Industries
10. Local and Municipal Authorities
11. Government Departments
All forms of business organizations can either be characterized as a part of the private sector
or the public sector.
Public Sector
Advantages
• Government provides public goods that the private sector will not provide.
• Government provides welfare services to poorer members of society.
• Government sets the control mechanisms on place for the conduct of business.
Disadvantages
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Private Sector
Advantages
Disadvantages
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Terms and concepts:
Liquidate – This occurs when a business sells off its assets to repay debts
Limited liability- it means that he or she is not personally responsible for business debts and
obligations of the corporation.
Unlimited liability - refers to the legal obligations general partners and sole proprietors
because they are liable for all business debts if the business can't pay its liabilities.
The sole trader is a single business owner. This person may employ several other persons to
work in the organization, but he has to make all decisions, acquire all the capital required and
other resources needed for the business on his own.
Characteristics
• He or she manages the business and may have the help of family and friends.
• He or she enjoys all the profit and bears all the risks
• Capital is limited since the savings of the owner fund the business
• Personal contact with clients
• Performs a large variety of tasks related to the operations of the business
• This type of business is not incorporated (not given a separate identity) and therefore
easy to set up.
Formation
There are no legal formalities in the setting up of a business as a sole trader except for the
registration of a trade name or the acquisition of a license. For example a license is required
for the sale of alcohol or for the sale of food items.
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8. Personal Commitment to succeed
Disadvantages
Partnership
A partnership business is formed legally by a minimum of two (2) and a maximum of (20)
twenty persons in a business. There are two types of partnership forms:
Limited Liability Partnership – at least one partner must have unlimited liability
Formation
A deed of partnership must be drafted which set out the terms and conditions of the
partnership. This written agreement helps to settle disputes and in the absence of the deed the
partnership will be governed by the Partnership Act.
• Number of partners
• Amount of capital contributed by each partner
• Type of trade engaged in
• Share profits and losses accruing to each partner
• Name of partnership
• Salary of each partner mechanism for dissolution.
Types of Partners
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Sleeping Partners: invest in the business but do not take an active part in the business.
Limited Liability Partners: assets will not be lost if the business goes bankrupt.
Advantages
1. More capital
2. Specialisation – partners use their different skills and knowledge
3. Simple Organisation – easy to form
4. Continuity – more continuity than sole trader
5. Limited Liability
6. Workload Shared
7. Decision making – shares knowledge and expertise
Disadvantages
1. Unlimited liability
2. Binding – all partners lose if mistake is made
3. Limited Capital
4. Disagreement
5. Concentrated risk – risk not spread enough
6. Decision-making
7. Continuity – broken partnership upon death
8. Profits are shared, irrespective of effort in the absence of a partnership agreement.
A company is a business entity that has been incorporated, that is, the company has a separate
legal identity from that of the owner.
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The Private Limited Company only allows friends, relatives and co-workers to purchase
shares and to be a part of the company. Its privacy is also protected by the fact that unlike the
public limited liability company, it does not have to publish its balance sheet in the
newspaper. Legally the private limited company can only have a minimum of two and a
maximum of fifty persons to join.
The Public limited company allows members of the public to purchase shares. The
shares/stocks of public limited companies are traded on the stock market. The public limited
liability company has a minimum of (7) seven members and there is no limit to the number
of shareholders that can join.
The legal procedures for both these types of companies are lengthy as they must submit the
several documents.
The Companies Act contains the laws relating to companies. To comply with certain
requirements which were laid down by the Companies Act, the promoters of the company
must present the following documents:
This is the amount stated in the MOA, which is the maximum amount which the company is
authorized to raise.
Prospectus
This is an invitation to the public to buy shares in a public company. It contains detailed
information to enable investors to estimate its prospects. It is important that the public should
not be misled.
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Statutory Declaration
Statutory declarations are commonly used to allow a person to declare something to be true
for the purposes of satisfying some legal requirement or regulation.
Certificate of Incorporation
Certificate of Trading
It is the certificate issued by the registrar of companies to the public limited company to
grant permission to commence its business.
The private limited company may begin trading after receiving the certificate of
incorporation, but the public limited company must issue a prospectus inviting the public to
subscribe for shares before a certificate of trading is issued.
Disadvantages
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Disadvantages
Multinationals
A multinational company is a company that has headquarters in a home country and operates
businesses in various host countries. Examples of Multinational companies in the Caribbean
are Shell, Kentucky Fried chicken and Digicel.
Advantages
Disadvantages
• Profits earned are repatriated to the main centre in their home country.
• They may exploit the workers by paying low wages and having them work long hours.
• They cause unemployment when they close down to take advantage of cheaper labour
and lower operational cost in another country.
Franchise
The franchisee bears the name of the parent company. They must abide by all the rules and
guidelines outlined by the parent company to sell its products. It pays royalties (a fee) to the
parent company to operate under its business name.
Advantages
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• Source of revenue for the franchisor
• The franchisee bears some of the risks
• Franchisee benefits form the support provided by the franchisor eg. Training
• The franchisee’s risk is reduced because it is selling a recognised brand.
Disadvantages
Conglomerates
This is a group of unrelated companies (e.g. a restaurant, shoe store a travel agency etc,)
under one umbrella. A parent company owns a controlling stake in each company which
conducts business separately.
Advantages
Disadvantages
Cooperatives
These are business entities owned by their members who purchase shares to join them. They
are usually established because of a need existing among a number of persons who wish to
acquire particular goods and services at a reasonable cost.
Principles of Cooperatives
1. Open membership- All persons over the age of 16 may join for a fee
2. Democratic Controls- Governed by its own members who attend a general meeting
where members elect a committee to run the cooperative
3. Limited interest on capital invested – low interest rates for members
4. Distribution of Surpluses- surpluses are distributed amongst members fairly-
ploughed back into business to expand and to sometimes for health care or education.
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Types of Cooperatives
1. Consumer
2. Producer
3. Financial
4. Services
5. Worker
For example, members of a credit union purchase shares in these entities in order to obtain
loans at low interest rates.
There are several types of cooperative, for example, Retail/Consumer cooperatives and
Producer cooperatives. Shares invested in a retail cooperative are used to buy goods in bulk at
a very low cost and then resold to members. Producer cooperatives may include a group of
farmers who will obtain raw material at a low cost.
Profits are distributed to members based on the amount of goods that they buy and not on the
amount of investment that they make in the business. At the annual general meeting,
shareholders elect their management committees from among their members and vote on
proposals put forward. Benefits of being a part of a cooperative are therefore obtaining goods
and services at low costs and a guaranteed market as members are also customers. A
disadvantage is that its management may be inexperienced as they are chosen from their
membership.
Advantages
Disadvantages
• Limited capital input depending on the size of the cooperative or the credit union
• May lack managerial expertise in membership
Nationalized Industries
Definition
Nationalized industries are firms which were once privately owned, but have been taken over
by the government. Government seek to nationalize the key industries that is the industries on
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which the government depends for the country’s economic survival for example Trinidad’s
oil industry or bauxite in Jamaica.
Formation
A company becomes nationalised when the government purchases all or the majority of
shares in the company
Management
Like State corporations, a Board of Governors is appointed. The board reports to the line
Minister. The Executive Director heads the company. The audited accounting reports of these
companies must be laid with the Audit General or Government accounting firm.
Characteristics
Advantages
• State has Ownership and control, hence profits remain in the country.
• The company is in a better position to service the needs of the community, for
example the funding of community projects in education, sporting and cultural
projects.
• Nationalization prevents private monopolies from being formed.
Disadvantages
• Relatively low salaries paid to Executive Directors may not attract the best expertise.
• The industries may be a drain on the Governments revenues.
State Corporations
These are independent organisations set up by the government to carry out a service. The
Government does not control their daily operations but can fix the overall strategy and
nominate their board of directors. These are usually non-profit making, but in the long term,
they have to be self-financing. State Corporations are usually in the broadcasting field,
transportation, power and telecommunications industries.
Formation
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Management
The government appoints a Board of Governors or Directors for a stipulated time frame. An
Executive Director is also appointed to head each organisation. The Executive Director
reports to the board of Directors or Directors.
Characteristics
• Funding is mainly done by the state providing grants, although some legislation allows
the organisations to raise their own funds.
• The state or state appointed auditors monitor all accounting procedures
• Annual accounting reports must be sent to the Auditor General.
• The aim of the state is not to make a profit but it is expected that these corporations may
break even
Government Departments
These include the government ministries e.g. the Ministries of Finance and Education. A
minister is appointed in charge of each ministry. These departments are very important to the
running of government.
Local and Municipal Authorities are government bodies which are run by elected local
officials, e.g., the Kingston and St. Andrew Corporation (K.S.A.C.) in Jamaica. These bodies
fulfil local needs and allow for more balanced local development. They carry out duties such
as cleaning gullies and drains and fixing community roads.
Stakeholders – are the various groups within and outside an organisation that stand to
potentially gain or lose as a result of the organisation’s actions.
List of Stakeholders:
• Owners/Employers/Investors
• Employees
• Customers/Consumers
• Suppliers Government
• Members of society (media, special interest groups, communities)
• Lenders/Investors and other creditors.
Business owners must be aware of the various groups that they interact with for the
successful running of the business.
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Owners
Role of Owners
They must provide the resources that are required for the business to operate efficiently.
These include the employment of workers, identifying suitable premises and procuring
machinery, equipment and raw materials. They must make timely decisions to ensure that the
business remains profitable. They must motivate employees to perform well.
Employees
They are employed to carry out assigned tasks to achieve the company’s objectives.
Role of Employees
Employees must work efficiently to accomplish tasks assigned. Accomplishing tasks may
require teamwork and therefore employees must have good interpersonal skills. Employees
must adhere to the rules and regulations of the company.
Customers
They are the supporters of businesses in the economy. They purchase goods and services to
satisfy their needs and wants.
Role of Customers
They assist businesses in identifying the goods and services to be produced based on their
demands. They also help business to identify changing trends in the market and so prepare
business operators for future demands.
Society
Businesses must be aware of the society as a whole, how its activities affect it and not only
those who are customers.
Role of Society
The production process may cause air pollution and discharge of harmful waste into rivers
and seas. The society keeps businesses in check by making them aware of their impact on
society. They write letters to the company and the media and speak on talk shows.
Government
They are the managers of the economy within which the business operates.
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Role of Government
RESPONSIBILITIES OF A BUSINESS
1. To produce high quality goods and services that will satisfy needs and wants.
Entrepreneurs enter business to make profits. They must be very keen in identifying those
goods and services that will create high demand make profits.
2. To create employment
Business will need all categories of workers to carry out the various tasks required to achieve
its goals. If the business is profitable and expands then more workers will be needed for its
operations.
3. To make a profit
The reason for the establishment of a business is to make profits. If businesses are not
profitable, its owners will not be encouraged to continue operating. Profits are used to
reinvest in the business for its expansion.
Corporate citizen is the term used to describe the responsibilities that businesses have within
their environment. As a good corporate citizen business must strive to have a good
relationship with their community.
• Support for the community through community projects, sports and youth clubs.
• Being environmentally aware by reducing pollution
• Providing job opportunities for community members e.g. a holiday work programme
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There are five major responsibilities:
1. Economic
- Produce a good or service to satisfy the needs and wants of society
- Stimulate economic growth
2. Financial
- Pay a fair wage to employees
- Provide reasonable returns on investments
3. Political
- Act as pressure groups to lobby governments for changes that will benefit
business activity
- Operate along the democratic principles of equality and fair play
- Act in accordance with the laws; for example, paying taxes when they are due.
- Assist in setting policies by giving feedback, making suggestions.
4. Ethical
- Design ethical guidelines for their behaviour/decisions and follow these guidelines
- Encourage good business ethics of their stakeholders by refusing to do business
with unethical firms or persons.
5. Social
- Protecting the environment and avoiding social costs (borne society as a result of
business operations, for example, pollution.
- Developing the culture of a country
- Educate consumers and community members on safety tips and proper use and
disposal of the product.
- Use some of the profits to help develop and benefit the community, as well as the
culture of the country.
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