INTRODUCTION TO BUSINESS

What is Business
• An organised economic activity, wherein the exchange of
goods and services takes place, for adequate consideration.

• It is nothing but a method of making money, from commercial

transactions.

• It includes all those activities whose sole aim is to make

available the desired goods and services to the society, in an
effective manner.
 Meaning of Business Environment

• Traditional management theorists were of the view that the

primary goal of an organization was to achieve economic
efficiency only because the socio economic environment
prevailing at that time did not assume interaction of business
firms.

• But today there is a complete mingling up of the economies.

• It has led to an increased importance of the environment in

which business is being carried out.

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 Business (Definition)
Professors William Pride, Robert Hughes, and Jack:
“Business is the organised effort of individuals to produce and
sell, for a profit, the goods and services that satisfy society's
needs.”

Prof. R. N. Owens
“Business is an enterprise engaged in the production and
distribution of goods for sale in a market or rendering of
services for a price.”
 Business is interpreted as:
• As one’s regular occupation/profession/economic activity.

• It deals with particular entity, company, organisation, enterprise,

firms or corporation.

• As a particular market segment sector like Automobiles, FMCG,

IT.

• As consisting of purchase, sale, manufacture, processing,

marketing of products, services like, trading, transportation,
warehousing, banking and finance, insurance and advertising et

• Main purpose is to earn profit.

 Business is interpreted as:
• In satisfying demand, business uses the resources of land, labour
and capital. These resources when taken separately have little value;
but business combines structures and refines the resources to
produce to the value of the society.
• Business employees’ people who exchange their talents for wages
and salaries. Therefore, these people exchange their compensation
for the desired goods and service.
• Society looks to business for leadership and direction in helping to
achieve society’s objectives.
• It expects business to assist in the establishment of a better service
to the society.
 Objectives of Business

• Survival
• Stability
• Growth
• Profitability
CHARACTERISTICS OF BUSINESS
 CHARACTERISTICS OF BUSINESS
• Economic Activity: Any business is conducted with the primary
objective of earning money, i.e. for an economic motive.

• Production/purchase of goods and services: Goods and services

are produced to add value and sell them to the consumer.
– Goods are either manufactured by the company or procured from
the supplier, with the aim of selling it further to the consumer.
 CHARACTERISTICS OF BUSINESS
• Selling of goods and services: Business must involve the transfer of
goods to the customer for value, through selling. If the goods are
acquired for personal consumption, then the transaction will not
amount to business activity.

• Continuity in dealings: Every business requires regularity in

transactions, i.e. an isolated transaction of exchange of goods or
services will not be considered as business.
– To constitute business, the dealings must be carried out on a regular
basis.
 CHARACTERISTICS OF BUSINESS
• Uncertain return: In business, the return is never predictable and
guaranteed, i.e. the amount of money which the business is going
to gain is not certain. It may be possible that the business earns a
huge profit in a particular period or suffer heavy losses.

• Legal and Lawful: No matter, in which type of business the

company is engaged, it should be legal in the eyes of the law, or
else it will not be considered as business.
 CHARACTERISTICS OF BUSINESS
• Profit earning: The basic purpose of business is to make the profit
from its activities. Profit or the expected profit keeps the business
going..

• Element of risk: Risk is the key element of every business,

concerned with exposure to loss.
– Efforts are made to forecast future events and plan the business
strategies accordingly.

– Uncertain factors affect business and so does the business

opportunities, which can be a shift in Pandemic, demand
fluctuations, floods, fall in prices, strikes, money market fluctuation,
etc..
 CHARACTERISTICS OF BUSINESS
• Consumer satisfaction: The aim of business is to supply goods and
services to consumers, so as to satisfy their needs, as when the
consumer (final user) is satisfied, he/she will purchase the goods
or services. But, if they are not, there are chances that they will
look for substitutes.

The consumer is regarded as the king, and so all the activities of the
business are aligned towards the customer satisfaction. This can
be done by making quality goods easily available at right time and
at reasonable cost. The goal is Customer’s delight
Classification of Business :Industry & Commerce

Industry
• Comprises business activity which are concerned with raising
production, fabrication or processing of goods.

• Industry is an activity concerned with conversion of raw

materials or semi finished goods into finished goods.
Classification on the basis of Goods
• Consumer Goods

• Capital Goods

Classification on the basis of type of Goods:

• Manufacturing Industry
• Construction industry
• Genetic Industry- Multiplying Plants (Nurseries), Animal
breeding, Fish Hatching

• Extracting industry - soil, climate, air, water or from beneath

the surface of the earth – Mining, Fishing, Hunting
On the basis of turnover: Manufacturing & Service
• Micro – Investment in Plant and Machinery < 1 Crore and
Turnover less than 5 crores
• Small – Investment in Plant and Machinery < 10 Crore and
Turnover less than 50 crores
• Medium- Investment in Plant and Machinery < 50 Crore and
Turnover less than 250 crores
• Large – Turnover more than 250 crores
– 40 million units of Micro, Small and Medium Enterprises
– Employment to around 130 million people in India.
– 47% share of India's total export.
– Growing at the average rate of 10% annually.
On the basis of Technology
• Heavy Industry :
–Engaged in the production of machinery, steel, power
generation

– Heavy investments and employ complex technology

• Light Industry:
– Engaged in producing consumer goods

– Production technology is simple and machinery used is less

expensive
Classification of Business :Industry & Commerce
Commerce:
The sum total of those processes which are engaged in the
transport, insurance, warehousing, banking.
– Ensure a proper flow of goods and services for the benefit
of both producers and consumers.
– People are able to buy goods produced anywhere in the
world with the help of commerce.
Commerce Includes:
Trade (means sale, transfer, or exchange of goods and services)
Aids to Trade (packing, warehousing, banking, transportation,
Insurance and advertising)
Classification of Business :Industry & Commerce
Commerce:
• Well organized set up of large-scale interchange of products,
service or something of value, for money or money’s worth,
among the economic agents.
• It covers all the activities which directly or indirectly assist in
the process of exchange.
• It relies on the fact that everything that is produced, must be
consumed. In this way, ‘commerce’ comes into the picture, to
facilitate effective and uninterrupted buying and selling of
goods and services.
 Characteristics of Commerce
• Commerce provides the necessary link amidst the producers
of goods and consumers of goods.

• It is known for the exchange of goods and services for

adequate consideration.

• Commerce covers the services delivered by various

organizations, to facilitate the free flow of goods and services.

• Profit acts as an incentive for carrying out commercial

activity.

• It tends to create utility.

 Characteristics of Commerce
• Commerce provides the necessary link amidst the producers
of goods and consumers of goods.

• It is known for the exchange of goods and services for

adequate consideration.

• Commerce covers the services delivered by various

organizations, to facilitate the free flow of goods and services.

• Profit acts as an incentive for carrying out commercial

activity.

• It tends to create utility.

Classification of Commerce
 Classification of Commerce
• Trade: As we all know that trade is the sale, transfer or exchange of goods
and services, for mutual benefit. The person engaged in the trade of
goods is termed as a trader, who acts as the middleman between the
producer and consumer of goods.
• Internal Trade: When buying and selling of goods and services is
undertaken within the geographical boundaries of the country, as well as
the consideration is paid in the country’s legal currency or by way of
banks and the transportation system of the country is used, for supplying
the goods and services.
• Wholesale: In wholesale trade, the goods are bought in large quantities
from the producers and the sold to a number of retailers.
• Retail: In retail trade, the retailer purchases goods from the wholesaler
for the purpose of reselling them to the consumers in small lots, for a
profit.
 Classification of Commerce
• External Trade: When the purchase and sale of goods and
services take place between two countries, it is called as
external trade. It can be classified into three categories:
• Import: When goods are purchased from a foreign country, it
is called as an import.
• Export: When goods are sold to a foreign country, it is called
export.
• Entrepot: Entrepot trade means re-export, i.e. goods
imported from a foreign country, not for domestic
consumption but for selling it further to another country.
 Classification of Commerce
• Auxiliaries to Trade: Auxiliaries to trade covers all those
activities which help in the efficient flow of commercial
activities. There are various hindrances in undertaking trade.
Auxiliaries to trade help in eliminating those hindrances:

• Transportation: Transportation activities facilitate in the

removal of the hindrance of place, as goods are produced in a
specific location only, while they are demanded in varied
locations. Hence, these goods need to be moved from their
place of origin to the place of consumption.
 Classification of Commerce
• Warehousing: Warehousing involves safe storage of the
goods, which facilitates the removal of the hindrance of time.

• There are a number of goods which are produced in specific

seasons, for instance, cotton, juice, sugar etc. However, they
are needed throughout the year, on a daily basis for different
purposes and then there are some goods which are needed
season-wise such as woollen clothes, umbrellas, etc.

• Hence, warehousing provides proper storage for such

produce.
 Classification of Commerce
• Banking: Banking helps in providing financial assistance
to the enterprise, i.e. it removes the hindrance of
finance.
• We all know that goods are not purchased at the same
time when they are produced, and so there is a time-gap
between the production and consumption of goods. And
during this period, the entrepreneurs require funds to
finance production. Therefore, banks help in raising
funds.
 Classification of Commerce
• Insurance: We all know that there is always a risk
involved in the transportation of goods and services from
one place to another. With the insurance, the risk of
theft or fire can be removed and the organization can be
free from the fear of loss during transit.
• Advertising: Until and unless firms advertise their goods
and services in the market, customers may not be aware
of the goods available. Hence, advertising facilitates the
removal of the hindrance of information/knowledge.
 Classification of Commerce
• Advertisement is the best tool for making people aware of
the goods and services, with just one message, that
communicates its features and usefulness, through various
channels, such as radio, television, internet, newspaper, etc.

• Communication: The goods and services provided by different

organizations are required to be communicated among the
buyers. In the same way, goods and services needed or
desired by the buyers have to be conveyed to the sellers, by
way of orders.
 Classification of Commerce
• In layman terms, commerce is not just about the
exchange of goods and services, rather it includes all
such activities which are essential to bringing goods and
services from the point of origin to the point of
consumption.
 E-Commerce
• E-commerce or otherwise known as electronic
commerce, alludes to all sort of commercial activities,
that are conducted online, by way of electronic
processing and data transmission, comprising of text,
graphics, audio, video, etc. In other words, e-commerce
is a business model; that equips the enterprises or
individuals to carry out business through the electronic
medium.
 E-Commerce
• E-commerce or otherwise known as electronic commerce,
alludes to all sort of commercial activities, that are conducted
online, by way of electronic processing and data transmission,
comprising of text, graphics, audio, video, etc. In other words,
e-commerce is a business model; that equips the enterprises
or individuals to carry out business through the electronic
medium.
• E-commerce is an exhaustive trading system that makes use
of a computer network for carrying out buying and selling of
goods, information and/or services.
 E-Commerce
• A website or web portal acts as a platform and facilitates
the exchange of merchandise, funds, data, etc.,. It also
assist in accomplishing company’s transaction with
different parties like customers, infomediaries, market
makers and suppliers, electronically.
• Fundamental Aspects of E-commerce
• mainly compete in the online marketplace, in three
fundamental aspects
• Customer interaction with the web portal.
• Delivery system
• Problem-solving ability.
 E-Commerce
• A website or web portal acts as a platform and facilitates
the exchange of merchandise, funds, data, etc.,. It also
assist in accomplishing company’s transaction with
different parties like customers, infomediaries, market
makers and suppliers, electronically.
• Fundamental Aspects of E-commerce
• mainly compete in the online marketplace, in three
fundamental aspects
• Customer interaction with the web portal.
• Delivery system
• Problem-solving ability.
 E-Commerce
• Types of E-commerce Companies
• E-commerce companies can be divided into two major
categories:

• Pure click companies: Pure click companies are those

companies which do not have any physical existence, i.e. their
presence is only online and that too through a website. There
are end number of pure-click companies which include:
search engines, content sites, commerce sites, transaction
sites and so forth. E.g. Hotels.com, Rakuten.com, etc.
 E-Commerce
• Brick and Click companies: The enterprises that are present
both physically and electronically, are brick and click
companies. It includes all those companies which are already
existing and added an online site to provide information to
the target audience.
• The website acts as an interface between the company and
consumer, and so the setting up and operation of the
website, should be done with great care, as customers are the
king in every business, no matter how it is conducted, online
or offline.
 E-Commerce
• Classification of E-commerce

• The traditional e-commerce business models, which are

based on the constituents involved in the transaction, are
classified as under:

• Business to Business (B2B): When the business transaction

takes place between two business houses online, it is known
as B2B e-commerce. Such transactions are accomplished with
the help of Electronic Data Interchange (EDI). E.g.
Alibaba.com
 E-Commerce
• Business to Consumer (B2C): B2C is the most important
business model, that has enterprises on one end and
consumers on the other. The best example of it would be
online shopping, facilitated by flipkart.com, amazon.com,
snapdeal.com and so on.
• Consumer to Business: The business model, in which the
value creation is performed by the consumer and the
business, being the other party to transaction consumes it. In
this e-commerce model, the reverse pricing model is used,
wherein the customer ascertains the price of the
merchandise.
 E-Commerce
• Customer to Customer: Last but not the least, in C2C model,
the commercial transactions, takes place between two
consumers electronically. Basically, it uses auction-style
model. One of the examples of such model is Olx.com.

• E-commerce firms should provide a convenient, pleasurable

experience, to their customers, by providing better and faster
services. Further, the most important thing remains the
security and privacy of online transactions, which should be
maintained.
 E-Commerce
• Benefits of E-commerce
• E-commerce is equipped with a number of advantages which includes:
• Reach to worldwide customers
• Lower cost of transaction and greater profit margin
• Fast delivery
• 24X7X365 working
• Wider choice
• Saving of time and effort.
• Direct contact between business and consumer
• Apart from these benefits, e-commerce also provides shopping convenience to their
customers, i.e. they can shop from home, office or any other place. They do not need to
stand in queues and wait for the salesman response.

• Further, whenever a new product is introduced, customers get the relevant information
through the internet.
 M-Commerce
• Also called as Mobile Commerce involves the online
transactions through the wireless handheld devices such as
mobile phone, laptop, palmtop, tablet, or any other personal
digital assistant.
• It does not require the user to sit at the computer that is
plugged in and perform the commercial transactions. Through
M-Commerce, people can perform several functions such as
pay bills, buy and sell goods and services, access emails, book
movie tickets, make railway reservations, order books, read
and watch the news, etc.
 M-Commerce
• Advantages of M-Commerce
• Through M-commerce, the companies can be in regular touch with
the users through the Push Notifications. Any discount, scheme,
pay back benefits can be communicated to the customers through
a message to their mobile phones.
• E.g. ShoppersStop always sends a message to its members about
the Season Sale.
• M-Commerce enables local business to grow by tracking the
location of the potential customer and sharing the information on
their mobile phones.
• E.g. The educational institutes track down the local students and
give information about the courses offered by them.
 M-Commerce
• With the help of M-commerce, the users can pay their mobile bills, electricity bills, without
standing in the long queues.
• E.g. Mobile applications such as Paytm, Google Pay, etc. are the online payment platforms.
• M-commerce enables the customers to book movie tickets, railway tickets, air tickets, event
tickets thereby saving a lot of time.
• E.g. Book My Show, IRCTC mobile applications offers the online reservation services.
• Through M-Commerce, customers can easily access the complete information about the
product or service provider before availing its services.
• E.g. Any new restaurant is opened in the city; one can access about it in detail through
mobile.
• M-Commerce helps the marketer to have a wider reach of potential customers than he can
have by visiting all personally.
• E.g. Text can be sent to the mobile phones of many potential customers residing in different
parts of the country Make My trip is the best example.
COMPARISON ECONOMIC AND SOCIAL OBJECTIVES

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Forms of Ownership of
Business
 Three basic forms of business ownership
•Depends on needs & goals

•Sole proprietorship

•Partnership

•Corporation

•Limited Liability Company

 Sole proprietorship
• An Indian Citizen

• Sole trader is a person who owns and operates their own

business.

• May or may not employ other people.

• Sole trader is usually a relatively small business with little

capital available for expansion

• Capital comes from one source and that is the owner.

• Sole traders are common businesses.

 Advantages of sole proprietorships
• Easy and inexpensive to create.

• Government intervention is minimal.

• Owner makes all business decisions & has control over all aspects
of the business.

• Flexibility in scheduling to meet owner’s needs.

• Easy to establish and run

•Total control

• Flexibility
 Advantages of sole proprietorships cont.

• Owner receives all profits.

• Privacy – owner is the only one who knows

details of the business

• Secret ideas, formulas, or recipes

• Ability to act quickly in making decisions – no

approval from others
 Advantages of sole proprietorships cont.
•Tax advantages
• Business itself pays no taxes
• Taxes are paid as personal income of owner
which is usually lower than corporate taxes
• Many business expenses are deductible

•Easy to close/dissolve
• Pay employees and creditors
• Sell your equipment
• Notify customers if possible
 Disadvantages of sole proprietorships
•Owner has unlimited liability for all debts
•Unlimited liability: The debts of the business may be paid from
the personal assets of the owner.

• If business debt is not paid with business income, bill

collectors can take personal assets (home, car)

•Difficult to raise capital.

• Banks/lenders consider sole proprietorships to be a high-risk
investment

• Needs include paying employees, purchasing equipment &

inventory, & running the business
 Disadvantages of sole proprietorships
•Sole proprietorship is limited by his/her skills and
abilities.
•Uncertain life
•You are “it” – illness or injury that prevents you from working
may cause you to close / lose business

•Bankruptcy will dissolve your business

•The death of the owner automatically dissolves the business.

• Long hours of working

• Difficult to avail economies of scale

 Partnership
• Partnership is a type of business where 2 or more people
agree to own, run and trade,
• Partnerships require a high degree of trust and are very
common.
• When setting up a business a person has to decide
whether to set up a business on their own or with others.
• How much control they want over the business
• Are they prepared to share the profit
• Raise necessary capital to start up the business by
themselves
 Type of Partnership
General Partnership
• Each Partner has a right to take decision
• In case of loss due to the act of one partner, the
assets of both the partners can be attached.
Partnership at will
• No time limit for dissolving
Particular Partnerships
• Created for a specific purpose
Limited Liability Partnership
• Corporate form of Organisation
• Liability is limited to each partner according to the
agreed contribution to the business
• Personnel Property can not be attached to pay debts
• Governed under Limited Liability Partnership act
2008
Based on Partnership Registration status
• Partnership act does not mandate to register
Unregistered Partnership Firm
• Operation as per the agreement
Registered Partnership Firm
• Registered withy Registrar of Firm
• Payment of Fee for registration
• Ability to file case against Third Party
• Power to file suit against co partners
• Higher Credibility
• Ease of conversion into Company
 Type of Partners
Active or Working Partner
• Actively participates in running the business
• As per the agreement, he can either draw a salary of
higher profits than his contribution
Dormant or Sleeping Partner
• Not involved in daily management
• Can be consulted while taking major decisions
• Generally high investment
• Generally no remuneration
Nominal Partner
• Lends his name to take advantage of reputation
• Does not have real interest
• Does not have right to profit
Incoming and Outgoing Partners
• Not liable for any acts of firm taken before or after
his joining / leaving
 Advantages of partnerships
Fairly easy & inexpensive to start
• May pay attorney if you develop a partnership agreement
Combined resources
• Team with partners with different skills, experience, contacts, &
capital

• Sharing responsibilities makes business run more efficiently &

smoothly

• Increase the amount of capital to run the business. Lenders may

be more willing to lend or extend credit

Decreased Competition
• Combining like businesses will decrease or eliminate competition
Reduced expenses
• When two or more businesses combine expenses are
no longer being duplicated Ex. promotion, office
space, supplies, utilities

Business losses are shared by all partners.

The partnership does not pay income tax on profits.

• Each partner pays income tax on her/his individual
share of the profit
• Privacy: Only tax authorities need to be told how
much partners are earning and profit of the business
 Disadvantages of partnerships
Unlimited liability
• Each owner in a general partnership has unlimited liability.

• Each partner can lose personal assets to pay business debt

Limited Capital
• Although partners may bring more capital to the business than
sole proprietors, it is still limited to what each can contribute

• Some lenders may still be reluctant to lend large amounts

Difficulty in ending
• Withdrawing can be complicated if there is no written partnership
agreement

• By law profits must be divided equally if no agreement

Partnerships may lead to disagreements.

• May disagree on business goals, finances, responsibilities, &
division of profits

• Can affect the efficiency of the business, morale of

employees, & success or failure of the venture

• Developing a detailed partnership agreement often helps

resolve the conflict
Uncertain life/Transferability
• Unless specified in a detailed partnership agreement,
bankruptcy, death & the withdrawal or admittance of a new
partner dissolves the partnership

• Remaining partners may start a new partnership if they have

the money to buy the former partner’s share
Partnership:
• Deed of Partnership - is the legal contract, which sets out
following: who the partners are capital brought into business by
each partner
• What is the type of business
• How profits should be shared
• How many votes each partner has in any partnership meeting
• What happens if there is a withdrawal of a partner from the
business
 Company
• One person conceives business
• Secures the approval of more members to form a
company
• Drafts a Memorandum of Association –Name, Head Office,
Aims, Amount of share capital, Value of shares and Limited
Liability
• Drafts – Article of Association – Rules and Regulations
• Registers with Registrar of Companies
• Raise Capital – shares, debentures, bonds
 Private Limited Company
• Two members can form the Company.
•Maximum – 50 Members
•Transfer of shares is restricted
•Shares can be transferred only after the approval of other
shareholders
•Minimum Paid up capital – 1 Lakh
•Prohibits entry of public
• Only two directors are required to form the company
•No Independent directors are required
•Must use ‘Private’ in the name
 Public Limited Company
• Governed under Companies Act 2013
• Minimum - Seven members can form the Company.
• Maximum – Unlimited
• Large financial resources
• Minimum Paid up capital – 5 Lakhs
• Company is owned by shareholders
• Shares are listed and traded at stock exchange
• Transfer of shares is not restricted
• Capital can be raised from the public
• Liability of Directors is limited
 Public Limited Company
• Company has permanent existence
• Legally controlled
• A great amount of information has to be made public
• Interest of shareholders is limited.
• Working Directors rule
•Easy to transfer ownership by selling shares
• It can be converted into Private limited company
• Public share holding can be bought back.
• The company is delisted
 Most beneficial Least beneficial

Cost of formation Sole Proprietorship Company

Ease of formation Sole proprietorship Company

Transfer of Ownership Public Ltd Company Partnership

Continuity Company Sole proprietorship

Regulations Sole Proprietorship Company

Flexibility Sole proprietorship Company

Availability of capital Company Sole proprietorship

Liability Company and LLP Sole proprietorship

 Limited Liable Partnership
• Governed by Limited Liability Partnership Act, 2008
• Combination of Partnership and Company
• Must be registered
• At least one partner should be Indian
• No requirement of minimum capital
• Partners have limited Liability
• Personnel assets can not be attached
• Easy to form – not complicated as company formation is.
• Is not dissolved due to death of partner – perpetual
succession
 Limited Liable Partnership
• Decisions are taken by the directors
• Transfer of ownership is easy
•Less Credibility – Difficulty in raising capital
• Less Compliances
• No double taxation