BUSINESS

ENVIRONMENT

Module 1: Business – definition, characteristics, objectives,

classification

Sidharth V Menon

MBA 2015-2017

Batch B

DEFINITION

• Business is a set of organized economic activities related to production and

exchange of goods or services with the aim of achieving certain objectives.

• The main objective of business is to earn profit.

• It includes all those activities which are connected with production or

purchase of goods and services with the object of selling them at a profit.

• It is not related with the non-economic activities of person.

NEW CONCEPT

• According to Peter.F.Drucker, the objective of business is to create customers.

• The customer is the master and to serve him well is the only purpose of business. Business cannot survive without customers.

• Modern business aim at profit through service.

• According to Robert. N. Owens, “Business is an enterprise engaged in the production and distribution of goods for sale in market or rendering service for a price.”

CHARACTERISTICS OF BUSINESS

• Economic activity

• Sale, transfer and exchange

• Deals in goods and services

• Regularity in dealings

• Profit motive.

• Elements of risk

• Utility creation

OBJECTIVES

1. Economic objectives

• Earning Profits

• Creating customers

• Innovations

2. Social objectives

• Supplying desired goods at reasonable prices

• Fair remuneration to employees

• Employment generation

• Fair return to investors

• Social welfare

• Payment of government duties

OBJECTIVES (CONT…)

3. Human Objectives

• Labor welfare

• Developing human resources

• Participative management

• Labor management cooperation

4. National objectives

• Optimum utilization of resources

• National self-reliance

• Development of small scale

industries

• Development of backward areas

CLASSIFICATION OF BUSINESS

BUSINESS

PRIVATE SECTOR PUBLIC SECTOR JOINT SECTOR

TYPES OF COMPANIES IN PRIVATE

SECTOR

Private sector

Sole proprietorship

PartnershipPrivate limited

companyCo-operatives

Joint Hindu Family

Joint stock company

Sole proprietor

Key Features

• 1 owner

• 0 to any number of employees

• A Sole Trader is in the Private Sector

Pros and Cons

Pro’s

• Own boss

• Total control

• Greater opportunity for flexible working

• Keep all profits

• Easy to set up – few legal requirements

Con’s

• Unlimited liability

• No one to share decision making

• Lack of specialisation

• No continuity of existence

• Time off/holidays

• Limited finance

Partnership

Features

• 2 - 20 owners

• 0 to any number of employees

• A Sleeping Partner - someone who invests money but takes no part in the day

to day running.

• A Deed of Partnership - lays out rules for running and dissolution of the

Partnership .eg :sharing of profits.

Pro’s and Con’s

Pro’s

• Shared decision making

• Increased capital invested

• Increased specialisation

• Easy to set up – few legal

requirements

Con’s

• Unlimited liability

• Profits have to be shared between

partners

• No continuity of existence

• Partners may have disagreements

• Limited finance

Private limited company

Features

• Ltd after its name

• Owners called shareholders

• A separate legal existence from owners

• Shareholders who are family and friends

• Governed by two legal documents: Memorandum of Association, Articles of

Association

Private limited company (cont.…)

• Controlled by a Board of Directors

• Run by a Managing Director.

Pro’s and Con’s

Pro’s

• Limited liability

• Greater availability of finance

• Specialization can occur

Con’s

• More complicated to set up - legal

formalities

• Loss of individual control

Co-operatives

Features

• All members can contribute to the running of the business, sharing the work

load, responsibilities and decision making.

• All members have one vote at important meetings.

• Profits are shared equally among members.

Pro’s and Con’s

Pro’s

• Buying in bulk.

• Working together to solve

problems and make decisions.

• Good motivation of all members

to work hard as they will benefit

from shared profits.

Con’s

• Poor management skills unless

professionals are employed.

• Capital shortages because no sale

of shares to the non-member

general public is allowed.

• Slow decision making if all

members are to be consulted.

Joint stock company

Features

• A JSC is a type of corporation or partnership involving two or more individuals

that own shares of stock in the company.

• Certificates of ownership are issued by the company in return for each financial

contribution.

• The shareholders are free to transfer their ownership interest at any time by

selling their shareholding to others.

Pro’s and Con’s

Pro’s

• Huge financial resources.

• Limited liability

• Perpetual existence

• Transferability of shares

• Diffusion of risks

• Efficient management

Con’s

• Difficulty in formation

• Delay in decision making

• Seperation of ownership and management

• Speculation on shares

• Too many regulations

THANK YOU!