chapter -1 economic system basics of business and management for b.com/bba-calicut university

8/9/2019 Chapter -1 Economic System Basics of business and management for B.Com/BBA-calicut university

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Economic system


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Meaning and nature It is a system of production,

distribution and consumption ofgoods and services of an economy


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Business and economicsystem

Types of economic system1-free market economies / Capitalisteconomy

-Centrally planned economies /!ocialist economy

"-Mi#ed Economy$-%rimitive communism&-Communism


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CAPITALISM

%+I20TE %+ %E+T3 %+ 'IT M TI2E %+ICE MEC)04I!M C 4!5ME+

! 2E+E64T3 '+EE M '

E4TE+%+I!E 7C M%ETITI 4

I4E8509ITIE! I4I4C M 04 :E09T)

FEATURES


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MERITS

'0!T EC 4 MIC6+ :T) 04

E42I+ 4ME4T '+EE M ' C) ICE

' + C 4!5ME+!

C0%IT09I!M C -E;I!T! :IT)

EM C+0C3

TEC)4 9 6IC09%+ 6+E!!


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DEMERITS

I4I8509ITIE! %+ 4E T C3C9IC09

'95CT50TI 4! M 4 % 93 :0!T06E '

+E! 5+CE!


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SOCIALISM

! CI09 :4E+!)I%' T)E ME04! '

%+ 5CTI 4 EC 4 MIC %9044I46 9E!! I4I8509IT3 C90!!9E!! ! CIET3

'E0T5+E!


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MERITS

! CI09


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MIXED ECONOMY

C -E;I!TE4CE '%5B9IC 04 %+I2ET

!ECT +! %+ICE MEC)04I!M

04 %9044I46

MI;T5+E 'C0%IT09I!M 04! CI09I!M

+E 5CTI 4 I4I4E8509ITIE!

FEATURES


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DEMERITS

%+ B9EM ' 099 C0TI 4' EC 4 MIC 0CTI2ITIE!

T T)E %+I2ET !ECT +04 %5B9IC !ECT +

B5+E0C+0C3 04 +E T0%I!M

MI;E EC 4 MIE! I 4 T!5CCEE I4 T)E C 4T+ 9

' M 4 % 9IE! I4 M !T MI;E

EC 4 MIE!, ! CI09


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FUNCTIONING OFECONOMIC SYSTEM

'9 : ' 6 ! 04!E+2ICE!

E2I!I 4 ' 90B 5+04 :E09T)

0CC5M090TI 4

I44M 20TI 4


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FUNCTIONING OF ECONOMIC SYSTEM

* at to produce in* at =uantities

)o* s all goods beproduced >

'or * om s all t egoods be produced

'9 : ' 6 !04 !E+2ICE!


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FUNCTIONING OF ECONOMICSYSTEM

In capitalism In socialism In mi#ed economy

communism

I2I!I 4 '90B 5+ 04:E09T)0CC5M590TI

4


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In capitalism In socialism In mi#ed economy In communism:E09T)

0CC5M590TI4


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Capitalist innovation

Innovation undersocialism

Mi#ed economy

In centrally plannedeconomy

I44 20TI4


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eferent forms of businessorgani.ation

0n establis ment * ic undertakes abusiness is called a businessorgani.ation?

@ an institutional arrangement toCarrey out a businessA


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FORM OFOWNERSHIP OF ABUSINESS

SLOEPROPRITERSHIP

PARTNERSHIP

CO-OPERATIVESOCIETY

COMPANY


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FAMILY ANDCORPORATEENTITIES

It enables a a!"l#-

Maintain businesssecrecy,

6et advantage ofpartners ip,

0dded bene t of limitedliability?

THE OWNERSHIPAND CONTROL OFTHEORGANISATION INTHE HANDS OFFAMILY MEMBERSAND THE MAINOB$ECT IS TOMAXIMI%E PROFIT


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PROBLEM FACEDBY INDIAN FAMILYENTITIES

4E: I4 5!T+I09 % 9IC3 2E+ +E%+ECE4T0TI 4 '

'0MI93 MEMBE+! 4 C9IE+ E'I4ITI 4 0B 5T

B 0+ 04 M0406EME4T 0BCE4CE ' 8509I'IE

I4 I%E4 E4T I+ECT +! 90C( ' %+ 'E!!I 409I!M I4 E''ECTI2E, I99-

!T+5CT5+E B 0+ I4 0BI9IT3 T ME0!5+E T)E

%E+' +M04CE


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CORPORATEENTITIES

A CORPORATION ISA LEAGAL ENTITYSEPARATE FROM

THE PERSONS WHOOWN IT & THEPERSON WHOMANAGE & OPERATEIT

IN INDIA 'COMPANIES ACT()*+


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46 - F, . /a#s0.e123 Truest !ociety !ection - & company !pecial licensing

B5!I4E!! ' +

%+ 'IT

4 4-%+ 'ITB5!I4E!!

+604I!0TI 4


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SELECTION OF ANIDEAL BUSINESSORGANISATION

E0!3 ' ' +M0TI 4 E0!3 ' +0I!I46 C0%IT09 0M 54T ' C0%IT09

+E85+E 9I0BI9IT3 5+0TI 4 ' B5!I4E!! +ETE4TI 4 ' B5!I4E!! +ETE4TI 4 ' B5!I4E!!

!CE+ET '+EE M '+ M !T0TE

+E6590TI 4 T0; B5+ E4


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IINDIVIDUALBUSINESS- SOLEPROPRITERSHIP

ne person is t eo*ner, manager,

controller and riskbearer?

)e as complete

freedom inbusinessdecisions


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FEATURES OF SOLEPROPRITERSHIP

O/ne.s4"5Mana1e!ent an67,nt.,l

In6"8"6 al9nan7"n1Un6"8"6e6 ."s: N, se5a.atee;"sten7eUnl"!"te6 l"ab"l"t#M"n2 1,8t2.e1 lat",n


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ADVANTGES OFSOLEPROPRITERSHIP

Eas# ,.!at",nF ll 7,nt.,l< "7: 6e7"s",nsFle;"b"l"t#B s"ness se7.e7#In7ent"8e t, /,.:4a.6E=7"ent!ana1e!ent

C,nt"n , s e;"sten7eS "table ,. s!allb s"nessEas# 6"ss,l t",n


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DISADVANTAGESOF SOLEPROPRITERSHIP

L"!"te6 9nan7"al.es, .7e

L"!"te6 !ana1e."als:"llUnl"!"te6 l"ab"l"t#La7: , 7,nt"n "t#N,t s "table ,.la.1e s7ale,5e.at",nsG.ate. ."s:


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CO-OPERATIVEORGANISATION

Is a 8,l nta.#ass,7"at",n ,5e.s,ns /4, 7,!et,1et4e. t,5.,!,te t4e".7,!!,n e7,n,!"7"nte.est t4., 14t4e 5."n7"5le , sel4el5 an6 ! t al4el52


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FORMATION OF ACO-OPERATIVESOCIETY

In6"an 7,-,5e.at"8e

s,7"et"es A7t-()(>

State 7,-,5e.at"8es,7"et"es A7t()+)


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FEATURES OF CO-OPERATIVEORGANISATION

V,l nta.#ass,7"at",nE? al 8,t"n1 ."14tDe!,7.at"7!ana1e!ent

O5en !e!be.s4"5Se.8"7e !,tt,Se5a.ate le1al ent"t#D"st."b t",n ,s .5l s

N,n-t.ans e.ab"l"t#, s4a.e.sState 7,nt.,lCa5"tal


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ADVANTAGES OFCO-OPERATIVEORGANISATION

Eas# ,.!at",nO5en !e!be.s4"5Pe.5et ale;"sten7eL"!"te6 l"ab"l"t#M,b"l"@at",n ,sa8"n1sE7,n,!"7

,5e.at",nsState ass"stan7eSa8e t4e !e!be.s

.,! e;5l,"tat",n


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LIMITATIONS OFCO-OPERATIVEORGANISATION

L"!"te6 7a5"tal

Ine=7"ent!ana1e!entLa7: , !,t"8at",nLa7: , se7.e7#L,7al 5,l"t"7sR"1"6 state.e1 lat",ns


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TRUSTS

It "s an a1.ee!ent

/4e.eb# 5.,5e.t#"s !ana1e6 b# ,ne5e.s,n & 5e.s,ns &,.1an"@at",ns t4ebene9t , an,t4e.2

It "s 1,8e.ne6 b#t. st 6,7 !ent2


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T. st "n8,l8es 5a.t"es

(2 T. st !a:e.&settle. & 1.ant,.

>2 T. stee

2 bene97"a.#


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LIVING TRUST

TESTMENTARYTRUST


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REVOCABLE TRUST

IRREVICABLE

TRUST


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PARTNERSHIPORGANISATION

THE RELATIONBETWEEN PERSONSWHO HAVE AGREED

TO SHARE PROFIT SOF A BUSINESSCARRIED ON BY ALLOR ANY OF THEMACTING FOR ALL

PARTNER

FIRM


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CHARECTERISTICSOF PARTNERSHIP

A1.ee!entT/, & 5e.s,nsE;"sten7e , b s"nessS4a."n1 , 5.,9tP."n7"5le-a1ent.elat",ns4"5Unl"!"te6 l"ab"l"t#N, se5a.ate le1ale;"sten7e

$,"nt ,/ne.s4"5 an6

7,nt.,lN,n-t.ans e.ab"l"t# ,s4a.eD .at",n ,5a.tne.s4"5


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REGISTRATION OFFIRMS

It means getting t epartners ipregistered *itregistrar of rms


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CONSE


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TYPES OFPARTNERSHIP

6eneral partners ip

%articular partners ip

%artners ip at-*ill

9imited partners ip


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ADVANTAGE OFLPP

9imited liability

%artners are not liablefor unaut ori.edactions'le#ibility6ro*t of service

industry'ormation ofe#penses


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DISADVANTAGES

' I in 99%

isagreement ofpartners


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INDS OFPARTNERS

0ctive partners!leeping partners!leeping partners4ominal partners%artner in pro t only%artners by estoppel


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MERITS OFPARTNERSHIP

Easy formation9arger resourcesMore managerial skill'le#ibility+ig t decisions! aring of risks

InHuence of unlimitedliability


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DISADVANTAGESOF PARTNERSHIP

9imited capital5nlimited liability9ack of armonyInstability+isk of impliedaut ority4on-transferability of

capitalIne=uitabledistribution of pro t


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UNDIVIDEDFAMILIES FIRM

Mitaks ara system of

)indu 9a*

(art a

Coparceners

liability


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FEATURES

1? 'amily business? Male members of

t e family aremembers

"? )indu succession0ct 1 &J

$? (arta managebusiness

&? 9iability of (arta isunlimited

J? !table businessK? Interest is

Huctuating


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ADVANTAGES

9imited liability!table6ood managementCooperation


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LIMITATIONS

9imited resources4o motivationManagerial ability islimited'amily =uarrels


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$OINT STOCCOMPANY

T e companies 1 &Jde nes a companymeans, a companyformed andregistered under t is0ct / under any ot er

previous 0ctA


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CHARECTERISTICSOF A COMPANY

Incorporated0ssociation!eparate legal entity%erpetual successionCommon seal

9imited liability Transferability ofs ares


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ADVANTAGES OF ACOMPANY

9arge nancialresources9imited liability'ree transferability ofs ares!tability!cope for e#pansionand gro*tELcient management

emocraticmanagement%ublic con denceEmploymentopportunity!ocial responsibility


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LIMITATION OF A COMPANY

C,!5l"7ate6,.!at",n

5.,7e6 .esDela#e6 6e7"s",n

La7: , 5e.s,nal"nte.estC,n "7t , "nte.estP,ss"b"l"t# ,!"s!ana1e!ent

M,.e 1,8t2.e1 lat",nsLa7: , e;"b"l"t#G.,/t4 , !,n,5,l#


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TYPES OFCOMPANY

C artered company!tatutory company+egistered company

Company limited by s ares

Company limited by guarantee5nlimited companies

6ovt? company4on-govt? companies%rivet companies%ublic companies'oreign companies

DIFFERENCE


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BETWEEN PRIVETCOMPANY ANDPUBLIC COMPANY

Min? no? membersMa#? no? membersInvitation to publicIssue of prospectusCommencement ofbusiness9egal formalities! are transferability

4umber of directors+estrictions related to managerialcommission


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PRIVET SECTORENTERPRISES

0 pvt? !ectorenterprise is one* ic is o*ned andcontrolled by privet

entrepreneurs?


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CHARECTRISTICSOF PRIVET SECTORENTERPRISES

%rivate o*ners ip

and controlManagement'inancing%ro t motive0ccountability


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PUBLIC SECTORENTERPRISES

A 5 bl"7 se7t,.ente.5."se "s ,ne/4"74 "s ,/ne6!ana1e6 an67,nt.,lle6 b#7ent.al &state 1,8t2an6 an# l,7ala t4,."t#2

CHARECTERISTICSPUBLIC SECTOR


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PUBLIC SECTORENTERPRISES

!tate o*ners ipManagement!tate nancing!ocio-economicmotive

%ublic accountability


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$OINT VENTURES

0 oint venture is anentity formed bet*eent*o / more parties toundertake economicactivity toget er?

A $V , e. -4e* market4e* distributionnet*ork

Increased capacity! aring risk0ccess to greaterresources


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FORMATION OF A $V

!election of a goodlocal partner!igning of Mo5 / aletter of intent /


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PROBLEMS OF $V

b ective of


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DIFFERENTSECTORS OF THEECONOMY

T4.ee se7t,.s "nt4e e7,n,!# -

%rimary sector!econdary sector

Territory sector T e total of all t esesectors constitute t e

G.,ss D,!est"7P.,6 7t of t enation


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PRIMARY SECTOR

It involves c angingnatural resources intoprimary products

T#5es -0griculture0gribusiness'arming

Mining'is ing'orestry


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SECONDARYSECTORS

It is an economicsector t at create anis ed, usable

productmanufacturing andconstruction?DIVISIONS -0erospacemanufacturing0utomobile industry

C emical industry Te#tile industryConsumer electronics!teel industry


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TERRITORY SECTOR& SERVICE SECTOR

It is producing serviceinstead of ust anend product? Itinvolves t e provisionof services to businessas *ell as consumersBankingInsurance4e*s mediaEducation

)ospitality industry)ospital+eal estate+ecreation etcN


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TRADING INDUSTRY

It means buying and

selling of goodsH,!e t.a6e* ole sale traderetail trade

F,.e"1n t.a6e

import tradee#port trade


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RETAIL INDUSTRY


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HEALTHCAREINDUSTRY


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H O S P I TA L I T Y

I N D U S T R Y


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RECREATION INDUSTRY


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TOURISMINDUSTRY


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A D V E N T U R E

T O U R I S M


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AVIATIONINDUSTRY


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chapter -1 economic system basics of business and management for b.com/bba-calicut university

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