Content in Commerce

 

Unit-1: Course content in Commerce

MEANING OF BUSINESS:

Ø  The term business is derived from the word ‘busy’. This business means being busy.

Ø  Business refers to economic activities concerned with the production and sale of goods or services for the purpose of earning profit.

Ø  Business refers to any economic activities undertaken with the object of earning profit.

Ø  It includes production, trading, transportations, banking, insurance, advertising, warehousing etc.

DEFINITION:

1. According to P.K. Gosh & Bhushan- “Business may be defined as the regular production or purchase and sale of goods undertaken with the object of earning profits and acquiring wealth through satisfaction of human events”.
2. 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 price.

NATURE OF BUSINESS:

     The nature of business is indicated by its characteristics. So, to understand the nature of business, one should know the characteristics of business.

Characteristics of business

1. Economic activity: Business is an economic activity concerned with production and distribution of goods and services.
2. Dealing in Goods or Services: Business involves dealing in goods/services. The goods may be consumer goods or capital goods. The services refer to intangible and invisible items.
3. Sale/Transfer/Exchange: Business involves sale, transfer or exchange of goods/services for money or money value.
4. Regular Dealings: Business involves dealings in goods/services regularly. An isolated dealing in goods/services cannot be called as business.
5. Profit motive: Business deals with goods/services with the intention of earning profit. Profit motive is an important feature of business.
6. Element of Risks: Business involves an element of risk (i.e., possibility of loss) arising from uncertainty. In fact, there is no business without risk, but the degree of risk differs from business to business.
7. Capital Investment: Every business requires capital investment. In fact, there is no business without capital investment. Investments of capital differs from business to business.
8. Entrepreneurship: Every business needs an entrepreneur. There must be some one to take the initiative to establish the business. Such a person is called entrepreneur.

SCOPE OF BUSINESS:

The Scope of business is very wide, because it includes many activities. The branches of business are

1. Industrial activity and
2. Commercial activity

Let us discuss the activities of business in detail with a help of chart.

 

 INDUSTRY:

         Industry refers to manufacturing activity concerned with the conversion of raw materials or semi-finished goods into finished goods or Industry refers to that branch of business activity which is concerned with the labour raising, production, processing or fabrication of goods and services.

      Industries may be divided into three broad categories namely, primary, secondary and tertiary.

1.Primary Industries: Primary industries refers to industries which are concerned with the production of goods mainly with the help of nature. The application of human efforts is much less in these industries.

E. g: Mining, agriculture, forestry, fishing etc.

     These industries may be further sub-divided as follows.

a)       Genetic Industries: The industries which are undertaken for reproducing or multiplying plants and animals with object of making profit from their sales are called Genetic industries.

E. g: Plant nurseries, cattle breeding poultry forming etc.

b)      Extractive Industries: The industries which are concerned with the extraction or production of wealth from soil, air and water are called extractive industries.

Eg. Agriculture, mining, fishing, forestry etc.

2. Secondary Industries: Secondary Industries refer to industries which are concerned with production of goods mainly with the efforts of human labour than nature. In this industry human labour plays a very important role than nature.

              E.g: Manufacturing industries and construction industries.

         These industries may be further sub-divided as follows,

a)       Manufacturing Industries: The industries which are concerned with the conversion of raw materials or semi-finished goods into finished goods are called as manufacturing industries.

E.g : Textile industries, sugar industries, iron and steel industries etc.

      These industries may be further divided into four categories they are,

i)                    Analytical Industries: The manufacturing industries which produce many types of products by analyzing (Separating) the same basic raw material into different products. E. g: Oil refining industry.

ii)                   Synthetic Industries: The manufacturing industries which produce a product by combining and using various raw materials in the manufacturing process are called synthetic industries. E.g.: Cement industry.

iii)                 Processing Industries: The manufacturing industries which produce the products by processing the raw materials in different process (stages) of production are called processing industries. E.g.: Textile industries, paper industries etc.

iv)                 Assembly line industries: The manufacturing industries where the different component parts already manufactured are assembled into final products. E.g.: Automobile industries, television industries, mobile phone industries, computer industries etc.

b)      Construction Industries: Construction industries are secondary industries which are concerned with the creation of infrastructure facilities which are necessary for economic development

                                                                 or

        The industries which concerned with the construction of buildings, roads, bridges, dams, canals, railway lines etc. are called as construction industries.

3.Tertiary Industries: Tertiary industries refers to industries which provide supportive services to primary industries, secondary industries and also to trading activities.

E.g.: Transportation, communication, banking, finance, insurance, warehousing, advertising etc.

COMMERCE

        Commerce is a collection of many activities which are engaged in the removal of the hindrances in buying and selling of goods and services.

           Commerce includes many activities, such as trade, transport, insurance, banking, warehousing and advertising or it includes trade and aids to trade or auxiliaries to trade.

Definition of Commerce:

James Stephenson “Commerce is the sum total of all those processes which are engaged in the removal of the hindrances of persons, place and time in the exchange of commodities.”

       Commerce may be divided into two broad categories namely, trade and auxiliaries to trade.

1. TRADE:

      Trade means sale, transfer or exchange of goods or buying and selling of goods. It is the means by which goods are exchanged between the producers and the consumer.

      Trade may be classified into two broad categories is as follows,

a)       Internal/Home/Domestic/National Trade: It refers to buying and selling of goods within the nation. The trading activities carried on between the people of Same country. Home trade can be further classified as follows;

i)                    Wholesale trade: Sale of goods in large quantities to the traders who are in direct contact with the consumers. They act as link between producers and traders.

ii)                   Retail trade: Sale of a variety of goods in small quantities to the final consumers. They act as link between the wholesalers and the consumers.

b)      External/Foreign/International Trade: It refers to trade between two countries. The trading activities carried on between the people of different countries foreign trade can be further classified as follows;

i)                    Import Trade: Import trade means buying goods from foreign countries. The goods are brought from abroad and sold in the country.

ii)                  Export Trade: Export trade means selling the goods to other countries. The goods are produced in the country and sold to some foreign countries.

iii)                 Entrepot/Re-export Trade: Entrepot trade means import of goods from foreign country for the purpose of exporting them to some other country.

2.     AUXILIARIES TO TRADE:  Activities which are meant for assisting trade are know as auxiliaries to trade. These activities are generally referred to as services because these are in the nature of facilitating the activities relating to industry or trade. Transport, banking, insurance, warehousing and advertising are regarded as auxiliaries to trade i.e., activities playing supportive role. In fact, these activities support not only trade but also industry and hence, the entire business activity. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. Auxiliaries to trade are briefly discussed below;

a)      Transportation:  The materials required for production are required to be transported from the sources of supply to the place of production. Similarly, the finished goods produced or purchased for sale are required to be transported from the place of production or purchase to the place of sale. So, the goods which are to be sold are required to be transported to the place of sale or to place of consumers. So, transportation is one of the auxiliaries to trade.

b)     Communication: Along with transport facilities, there is also the need for communication facilities for the smooth and successful working of trade. So, communication is also an important auxiliary to trade.

      Communication facilities, such as postal services and telecom services are needed so, that producers, traders and consumers can exchange information with one another and successfully carry on their respective activities.

c)      Banking and Financing: All production activities require finance or money. But a business man may not always be able to provide the funds or finance required for his business. So, he has to raise the required finance from banks and other financial institutions. That means banking and financing, which assure finance to the business, is an important auxiliary to trade.

d)     Insurance: Business involves risks for instance, the goods stored in the go down may be destroyed by fire or may be stolen. A wise business man tries to cover these risks through insurance. So, insurance is an important auxiliary to trade.

e)      Ware housing and storage: Generally, there is a time gap between production and sale, or between purchase and sale. So, there arises the need for storing the goods produced or purchased till the time of sale. That means, warehousing and storage is one of the important auxiliaries to trade.

f)       Advertising: In order to promote sales, the goods have to be advertised. Advertising gives information about the products or services offered for sale, and thereby, attracts customers. So, advertising is one of the important auxiliaries to trade.

 

BANKING

 

          Bank the word derived from the Italian word “banco”, the Latin word “bancas” and the French word “Banque” which means a bench.

Types of private Enterprise              

1. Sole proprietorship.
2. Partnership.                        Non-Corporate form
3. Joint Hindu family.
4. Co-operative society.      Corporate form
5. Joint stock company...     

Types of public Enterprise                

1.       Departmental undertaking.  

2.       Statutory corporation.

3.       Govt.Company.

Sole proprietorship

Features:

1. Single ownership.
2. No separate legal entities.
3. No legal formalities.
4. Control and management.
5. Unlimited risk.
6. Suitable for some special form of business.
7. Unlimited liabilities.

Merits:

1. Easy formation.
2. Quick decision.
3. Secrecy.
4. Direct motivation.
5. Personal touch.

Limitations:

1. Limited financial resources.
2. Limited managerial abilities.
3. Unlimited liability.
4. Uncertainty.
5. Limited scope for expansion.

Suitability:

Ø  Where the personal attention to customer is required as in tailoring, beauty parlors.

Ø  Where the goods are unstandardized like artistic jewelry.

Ø  Where modest capital and limited managerial skills are required as in case of retail store.

Ø  Business where risk is not extensive i.e., lesser fluctuation in price and demand. i.e., stationery shop.

Joint Hindu family Business

Eldest male member of the family--à Karta.

Governed -à Hindu law.

Membership -à birth in the family.

Features --à 1. Formation. --------            2 members in the family.

           2. Membership                    ancestral proprietary

           3. Control.

            4. Liability.

             5. Minor member.

             6. Registration.

             7. Permanent existence.

Merits:

1.       Effective control.

2.       Continue business existence.

3.       Limited liability.

4.       Secrecy.

5.       Loyalty and co-operation.

Demerits:

1. Limited capital.
2. Limited managerial skill.
3. Unlimited liability
4. Unbalance decisions.

PARTNERSHIP

Old companies Act-

Banking businessà Minimum 2 partners. Maximum 10 partners.

Non-banking businessà Min. 2 partners. Max. 20 partners.

New Companies Act.2013

Banking businessà Not more than 100 partners.

Non-banking – Private-à Min. 2 partners. Max. 200 partners.

                           Public -à Min. 7 partners.  Max. unlimited.

Characteristics:

1. More than one person.
2. Agreement.
3. Profit motive and sharing of profit.
4. Decision making and control.
5. Unlimited liability.
6. Lack of continuity.
7. Principle Agent relationship.

 

Merits:

1. Ease of formation and closure.
2. Large financial resources.
3. Balanced decision.
4. Sharing of risk.
5. Secrecy.

Limitations:

1. Limited resources.
2. Unlimited liabilities.
3. Lack of continuity.
4. Lack of public confidence.
5. Lack of harmony.

Types of Partner

1. Classification on the basis of duration:

Ø  Partnership at will.

Ø  Particular partnership.

2. Classification on the basis of liability:

Ø  General partnership.

Ø  Limited partnership.

Types of partner

1. Active partner.
2. Sleeping partner.
3. Secret partner.
4. Nominal partner.
5. Partner in profit only.
6. Partner by holding out.
7. Miner partner.

Co-operative Society

Features:

1. Voluntary membership.
2. Legal status.
3. Limited liability.
4. Contract.
5. Service motive.
6. Cash trading.
7. Government control.
8. Arrangement of finance.

Merits:

1. Ease of formation.
2. Stable existence.
3. Limited liability.
4. Supply of goods by cheaper rate.
5. Government support.

Limitations:

1. Shortage of capital.
2. Inefficient management.
3. Lack of secrecy.
4. Excessive government control.
5. Conflict among members.
6. Lack of motivation.

Types of Co-operative society

1. Consumer co-operative society.
2. Producers co-operative society.
3. Marketing co-operative society.
4. Formers co-operative society.
5. Credit co-operative society.
6. C-operative Housing society.

JOINT STOCK COMPANY

Features:

1. Incorporated association.
2. Separate legal entity.
3. Perpetual existence.
4. Limited liability.
5. Transferability of share.
6. Common seal.
7. Separation of ownership and control.

Merits:

Ø  Limited liability.

Ø  Transfer of interest.

Ø  Perpetual existence.

Ø  Scope of expansion.

Ø  Professional management.

Limitations:

1. Legal formalities.
2. Lack of secrecy.
3. Lack of motivation.
4. Delay in decision making.
5. Oligarchic management.

GOVERNMENT UNDERTAKING

Need:

1. Regulation of economy.
2. Acceleration of economic development.
3. Raising the standard of living.
4. Prevention of concentration of pressure.
5. Improving job opportunity.

Features of Public entrepreneur

Ø  State ownership.

Ø  State control.

Ø  Government financing.

Ø  Service motive.

Ø  Public accountability.

Ø  Autonomous bodies.

 

 

Departmental Undertaking

Features:

1. Formation.
2. No separate entrepreneurship.
3. Government financing.
4. Accounting and audit.