Post on 20-Dec-2021
PRINCIPLES OF BUSINESS ONLINE CLASSES
• SCHOOL: CTS COLLEGE PRIVATE SECONDARY
SCHOOL
• SUBJECT: PRINCIPLES OF BUSINESS
• TOPIC: THE NATURE OF BUSINESS
• LECTURER: NARACE RAMDASS
• WEEK:2 - 13/9/21
TOPIC TRACKER
• TOPIC: Nature ofBusiness
• Section 1 of the Principles of Business
Syllabus
SUB-TOPICS
• Money
• Subsistence Economy
• Instruments of Exchange
• Private & Public Sectors
• Reasons for starting a business
• Forms of a Business
LEARNING OBJECTIVES
• BYTHE END OF THIS SESSION STUDENTS SHOULD BEABLETO:
• 1. Identify Characteristics and Functions of Money.
• 2. Explain how a Subsistence Economyworks.
• 3. Identify and Explain the Instruments of Exchange
• 4. Differentiate between the Private and Public Sectors
• 5. Identify and Explain the various Forms of aBusiness
MONEY
• Money is anything that is acceptable for the purchase of goods
and services.
• Money economy: - a system or stage of economic life in which
money replaces barter in the exchange of goods. Instead of
having to find some one to exchange goods for goods with, now
with money we simply pay for the item and the person receiving
the money uses it to purchase what they want in return.
• The problems of the barter system created the need for a medium
that could be used to facilitate trade. Money solved the problems
of the barter system Presently it is in the form of notes and coins.
Early forms of money included shells, beads, precious metals and
stones.
THE CHARACTERISTICS OF MONEY
• 1. Acceptable - money is universally accepted
• 2. Durable- long lasting
• 3. Divisible - Can be easily broken down into smaller units. E.g. $100 can be broken down into
$10 bills and so facilitating the purchase of smaller quantities.
• 4. Homogeneous - similar e.g. all $100 bills are the same in appearance
• 5. Convertible- easily exchanged for goods and services
• 6. Scarce- this ensures its value
• 7. Portable- easy to carry
FUNCTIONS OF MONEY
•1. It is a medium of exchange i.e. since money is acceptable by all,
persons will not have difficulties to trade.
• 2. A measure of value - the price of an item indicates its value
• 3. It is a store of wealth i.e. money can be easily stored/saved.
• 4. It is a standard for deferred payments. i.e. it can be used to repay debts
over time.
TYPES OF MONEY
•1. Notes and Coins
•2. Quasi Money/ substitute money - examples are postal orders, soda machine
tokens, cheques and credit cards.
•3. Near Money- assets that can easily be turned into cash, e.g. certificate of deposits,
bills of exchange.
Past Paper Question
June 2013 Paper 1 #3
Which of the following features is not a function of money?
A. Indivisibility
B. Store of Value
C. Measure of Value
D. Medium of Exchange
June 2013 Paper 1 #3 ANSWER
Which of the following features is not a function of money?
A. Indivisibility
B. Store of Value
C. Measure of Value
D. Medium of Exchange
SUBSISTENCE ECONOMY
• A subsistence economy is a non-monetary economy
which relies on natural resources to provide for basic
needs, through hunting, gathering, and subsistence
agriculture.
• Subsistence economy: - An economic system wholly
reliant on the self- provisioning of the community.
Wealth in a subsistence economy is measured in terms
of natural resources. A subsistence economy relies on
hunting and cultivation for food and surrounding trees
for building shelter depending on the natural
environment's renewal and reproduction for survival.
INSTRUMENTS OF EXCHANGE
1. Cheques
• A cheque is an order to the bank to make payments to the payee
stated on it.
2. Credit Cards/DebitCards
• This allows the card holder to make payments by simply
presenting the card to the seller. A credit card facility is actually
a loan given to a customer and thus it is repaid at an interest. A
debit card is issued against a customer's account balance and is
therefore not a loan.
INSTRUMENTS OF EXCHANGE CONT’D
3. Money Order
•They can be used to make payments locally or overseas, as they are made out in the currency in
which they are to be paid. The payee will cash the money order at his bank. Bank Draft
4. Bank Draft
•A bank draft is a cheque which guarantees payment to the receiver from the issuing bank. Bank
drafts can be made out to a payee in foreign currency and thus used for making overseas payments.
Bank drafts are obtained for a fee from a commercial bank.
INSTRUMENTS OF EXCHANGE CONT’D
5. Bill of Exchange
• This is used to pay for goods bought overseas on credit. It is an order in writing from an
exporter to an importer requiring payments of a certain sum of money at a fixed future date.
The time period allowed is normally three months.
6. Electronic Transfer
•This is a system used to transfer funds electronically rather than paper-based payment
methods. Examples include credit and debit card transactions, remittances (through
companies such as Western Union) and money transfers.
INSTRUMENTS OF EXCHANGE CONT’D
7. Tele-Banking
•This system allows a bank's customer to simply use the telephone to get his banking
services done rather than visiting the bank. Services include; checking account balances
and transaction history, opening a new account, transferring funds etc.
8. Internet Banking
•This differs from tele-banking in that the internet is used to access the same services.
Customers can go on-line to view their balances and transaction history and transfer funds
etc.
INSTRUMENTS OF EXCHANGE CONT’D
9. E-commerce
•Electronic commerce more popularly called e-commerce is the buying and selling of
goods and service using the internet. It allows for a full range of trading activities over the
internet such as advertising, placing orders, delivery and making payments.
Past Paper
Question
Jan 2015 #1
(a)
Define each of thefollowing terms:
marks)
(2 marks)
1. Bill of Exchange (2
2. Electronic Transfer
3.E- Commerce (2 marks)
R EASONS FOR ESTABLISHING 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.
REASONS FOR ESTABLISHING A BUSINESS
CONT’D
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 businessperson and achieve
financial independence.
2. Being your own boss
•You can make decisions about the direction and operation of the business. You are in control of
the business.
REASONS FOR ESTABLISHING A BUSINESS
CONT’D
3. To use your skills and knowledge foryourself
• The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/ fulfillment
• Owning and operating a successful business will give a feeling of accomplishment.
5. To create employment for relatives, friends and community members
• Business can assist in providing jobs for persons in communities with high levels of
unemployment.
Past Paper
Question
Jan 2013 #1 (b)
State FOUR reasons why individuals
start their own business (4 marks)
Jan 2013 #1 (b) ANSWER
1. Financial Independence
• Some persons feel restrictedfinancially with the income received from their job.
Starting a business would give them the opportunity to be a successful
businessperson and achieve financial independence.
2. Being your own boss
•You can make decisions about the direction and operation of the business. You are in
control of the business.
Jan 2013 #1 (b) ANSWER
3. To use your skills and knowledge foryourself
• The skills, knowledge and experience that you have acquired can be put to work for
you.
4. Self-actualization/ fulfillment
• Owning and operating a successful business will give a feeling of accomplishment.
PRIVATE & PUBLIC SECTOR
• All forms of business organizations can either be
characterized as a part of the private sector or the public
sector.
• The private sector is the part of the economy that is
run by individuals and companies for profit and is not
state controlled. For example, the commercial banks
are a part of the Private Sector.
• The public sector includes Companies and corporations
that are government controlled e.g. WASA, T&TEC,
PTSC.
DIFFERENCE BETWEEN PRIVATE & PUBLIC SECTOR
N
O.
FACTOR PRIVATE SECTOR PUBLIC SECTOR
1. Objective Profit Affordable Good/ Service
2. Ownership Private Individuals Government
3. Funding From Owners Tax Payers
4. Level of Efficiency High Moderate
5. Basis of Promotion Seniority Merit
PAST PAPER
QUESTION
JAN 2010 #1
(b)/ Jan 2014
#1 (a)
Compare the private sector with the
public sector in terms of the following;
1. Ownership and Control
2. Objective or Motive
3. Source of Capital
Total 6 marks
Jan 2014 #1 (a)
1. Define the term “Private Sector”
2. Outline TWO ways in which the public
sector business is different from a
private sector business. ( 4 marks)
JAN 2010 #1
(b)/ Jan 2014
#1 (a) ANSWERS
The private sector is the part of the economy that is run by individuals and
companies for profit and is not state controlled. For example, the
commercial banks are a part of the Private Sector.
FORMS OF BUSINESS ORGANIZATIONS
• An organization is a system that groups people together
towards establishing a common goal. Business
organizations are centered on creating goods and
services for profit. There are several types of business
organizations that one can start.
THE SOLE TRADER/ SOLE PROPRIETOR
•
•The sole trader as the title suggest 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.
•There is no legal distinction between the owner and the business entity, for this reason the owner is
personally liable for any debts incurred by the business.
SOLE TRADER/ SOLE PROPRIETOR CONT/D
ADVANTAGES
• 1. All profits are taken by the owner.
• 2. Consultations are not necessary fordecision
making.
3. The legal requirements for start-up are very
simple as the proprietor only needs to submit the
registration documents for thebusiness.
DISADVANTAGES
• 1. The sole proprietor must work for long
hours resulting in little time for family.
• 2. There is also limited capital to inject into
the business
• 3. He alone bears all the risk of the business.
SOLE TRADER/ SOLE PROPRIETOR CONT/D
ADVANTAGES
• 4. Owner can work at his/her own pace
• 5. Owner could get help from family members
• 6. Flexible hours.
DISADVANTAGES
• 4. He does not have limited liability
and therefore if the business goes
bankrupt he may lose his personal assets
e.g. house and car.
• 5. There is a lack of expertise inareas
of business where he is not
knowledgeable which may limit success.
PARTNERSHIP
•A partnership business is formed legally by a minimum of two and a
maximum of twenty persons in a business.
•There are two types of partnership forms:
• -Limited Liability Partnership at least one partner must have unlimited
liability
• -Unlimited liability Partnership- all partners have unlimited liability.
TYPES OF PARTNERS
•Ordinary/General Partners: take an active part in the running of the
business.
• 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.
•Unlimited liability means that the owner has to bear all risk and stand all losses in the
business; also if the business goes bankrupt the owner is personally liable for all the losses.
PARTNERSHIP DEED
•A deed of partnership must be drafted which set out the terms and conditions of the partnership. If
not deed of partnership is drawn up then profits and losses will be shared equally.
The British partnership Act of 1890 states that if no deed then:
• 1. Profit and losses will be shared equally
• 2. No partner will be entitled to a salary
• 3. No one partner will have to bear the losses of the business- since losses are shared.
PARTNERSHIP
ADVANTAGES
• 1. Since more than one person is involved
more capital can be raised to inject into the
business.
• 2. There is more expertise and work load is shared.
• 3. The risk of the business operation is also shared.
4. Each partner would bring his/her own
knowledge to the business then the management of
the business can be specialized.
DISADVANTAGES
• 1. All partners will be affected by the action of
each partner since each person represents the
business.
• 2. Decision making may be very slow if partnersare not in agreement.
• 3. There are high risks for partners who do not
have limited liability.
LIMITED LIABILITY COMPANIES
•Limited Liability Companies are companies in which shareholders/investors are protected as they
will not lose their personal assets if the business goes bankrupt. They are not liable for the debts of
the company beyond their level of investment.
Therefore if a shareholder buys shares in a company valuing $5000 then he will only lose that $5000
invested and not his personal assets. There are two types of limited liability companies.
• 1. Private Limited Liability Company
• 2. Public Limited Liability Company
PRIVATE LIMITED LIABILITY COMPANY
• Legally the private limited company can only have a minimum of two and a maximum of
fifty persons tojoin.
• The Private Limited Company only allows friends, relatives and coworkers 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.
PRIVATE LIMITED LIABILITY COMPANY
ADVANTAGES
• 1. All shareholders have limited liability
• 2. Employees can buy shares
3. Due to limited liability this will attract
financial capital from people who would have
not otherwise been prepared to invest.
• 4. There is no need to hold annual general
meetings
DISADVANTAGES
• 1. The company cannot have more than fifty
shareholders
• 2. Shareholders can only transfer shares to
someone with the company's approval
• 3. The company cannot sell shares to the
general public
PUBLIC LIMITED LIABILITY COMPANY
• The public limited liability company has a minimum of seven members and
there is no limit to the number of shareholders that can 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.
PUBLIC LIMITED LIABILITY COMPANY
ADVANTAGES
1. A main advantage of limited liability
companies is that their shareholders enjoy
limited liability.
• 2. This type of business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to an end if the owner dies or is very ill
DISADVANTAGES
• 1. The disadvantage however, are that they
are not easy to start due to the number of
legal procedures required and that the large
size of these businesses tend to be difficult to
manage.
PUBLIC LIMITED LIABILITY COMPANY
ADVANTAGES CONT’D
• 3. This firm can access capital for expansion by selling shares.
• 4. Note that these advantages are similar to the private limited company. However, added
advantages are that shares are easily transferrable as they may be sold to anyone on the
stock market and it provides a means of investment for shareholders who buy shares at
low prices and sell when stock pricesrise.
SUMMARY
IN TODAY’S SESSION WE LOOKED ATTHE FOLLOWING:
• Characteristics and Functions of Money.
• Subsistence Economy.
• Instruments of Exchange
• Private and Public Sectors
• Forms of a Business
Home
work
1. REVIEW ALL NOTES DISCUSSED IN CLASS
FILL IN THE BLANKS:
2. Private Enterprise is run mainly to………..
3. Give one example of a tradinginstrument………………..
4. A major function of the Public sector isto…………………………
5. Discuss TWO advantages a business would enjoy by converting from a partnership to a private limited company (6 marks).
HOME WORK
Jan 2011 #1 (a -b)
(a) State FOUR characteristics of a;
1. Partnership (4 marks)
2. Private Limited Company (4 marks)
(b) Discuss TWO advantages a business would enjoy by converting from a
partnership to a private limited company (6 marks).
NEXTWEEKS TOPICS
• Documents used in registering Limited Liability Companies
• Forms of Business Continued
• Types of Shares
• Economic Systems
• Functional areas of a Business
• Stakeholders in a Business