Business:

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or

professional activities. Businesses can be for-profit entities or non-profit organizations. Business types
range from limited liability companies, sole proprietorships, corporations, and partnerships.
One definition of business is the production, distribution, and sale of goods and services for a profit.
Nature of Business:
The nature of business is a phrase referring to the overall purpose and existence of a company within a
market sector or industry.

When we say nature of a business, we are alluding to:

● What type of products and services are sold by a company

● The industry in which the company operations

● Its overall mission and purpose

● Other distinctive characteristics of the business

For example, to understand the nature of business, we can classify the “nature” into different categories:

● By product or service

● By organizational setup

● By organizational structure

● By business type

The definition of “nature of business” can vary from one person to another.

The nature of business is a statement about a company’s offering to its clients, its industry, legal structure,
or any other distinctive qualities of the business. For example, if you say a company in the “private
sector”, you evaluate the nature of the company based on its nature to earn profits. If you say that a
company is the “manufacturing sector”, you refer to a company primarily concerned with manufacturing
operations. If you refer to a company as a “corporation”, you are qualifying the nature of the company by
assessing its legal structure.

Characteristics of Business

● Economic Activity: Business is an economic activity, as it 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 or procured by
business entities, so as 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,
for profit.
● Selling of goods and services: Business must involve the transfer of goods to the customer for
value, through selling, meaning that 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. So, to constitute
business, the dealings must be carried out on a regular basis.
● Profit earning: The basic purpose of business is to make the profit from its activities. It is the
spine of business, which keeps the business going, in the long term.
● 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. However,
the factors that affect business are uncertain and so does the business opportunities, which can be
a shift in demand, floods, fall in prices, strikes, lockout, money market fluctuation, etc.

Types of Business

The previous instance has made it clear that business involves goods or services or both. A person
has to first select the kind of business line he wants to operate.
Thus, a business can be broadly classified into the following types:
 ● Service: An activity performed to earn money through customer satisfaction is known as a
service. It involves professional skills and expertise.
E.g. A professional teacher earns money by taking tuition class
● Merchandising: Merchandising means procurement of goods from manufacturers or
wholesalers, at a low price and selling them at a higher price to make a profit. It is also
known as a retail business.
E.g. A florist selling flowers
● Manufacturing: Making profit through the production or creation of goods from raw
material in such a way that it derives some utility to the consumer is known as a
manufacturing business.
E.g. Processing of sugarcane in a sugar mill to get fine sugar
● Hybrid: A business that involves all three activities, i.e. manufacturing of goods,
merchandising of products, and delivering service falls under the hybrid category.
E.g. A furniture seller, who manufactures furniture, buys old furniture and sells it at a
higher price after repairing and also provides services for polishing old furniture.

Importance of Business

Business is a self-employment opportunity for a person to become self-independent and master of his
ideas. It is not only beneficial to the owner but also makes an impact on society.

To get a detailed understanding of the importance of trading activities to the owner and the society, let us
go through the following points:

● Revenue Generation: It is the key to revenue generation for the business owner since it
brings in profit and proves to be a source of income for the owner.
● Economic Growth: It is essential for the economic growth of a country since high revenue
means higher tax collection.
● Improves Standard of Living: A country with more industrial units and companies
experience a higher rate of employment and better living standards.
 ● Bulk Production: Manufacturing units involve large-scale production, which ultimately
reduces the cost of production, and people get a continuous supply of goods at a
reasonable price.
● Innovation: It involves brainstorming and generation of new ideas which opens up the
way for innovation and creativity.
● Generates Employment: It is a long-term process which requires the human resource to
function correctly. Therefore, it creates job opportunities.
● Market Expansion: A good strategy and high customer satisfaction lead to a strong
customer base aiming at market expansion.

Quality of successful business:

1. Have a clear vision
Of course, the first important characteristic is to have a clear vision. If you don’t have a clear vision of the
business that you are trying to create, then how can you be successful in creating it? First of all, you need
to figure out exactly the type of company you are looking to build. For example, where do you see it (l
being) in five years’ time? Do you have a goal for the number of customers you’ll have? The number of
employees? Having a clear vision of where you want your business to go will help to contribute to its
success.
2. Have a business plan

As well as having a clear vision of what you want your business to achieve, you should also have a plan
detailing exactly how you will make your business successful. According to Entrepreneur, writing out
your business plan forces you to review everything at once; (your marketing assumptions, operations
plan, financial plan, and staffing plan, helping you to spot connections you otherwise would have missed.)

3. Create short-term goals

As well to(as) having a business plan for long-term goals, the most successful businesses are those which
have measurable short-term goals. Specifically, they identify what the company needs to achieve in the
next quarter, month and week to ensure that they meet their annual goals.
4. Skill development
As well as setting goals for the business, you should ensure that your skill development is continuous.
Success is the result of expanding your knowledge and developing those skills to the best of your ability,
providing investment in your brand and quality assurance. To be successful, businesses should commit
resources and time to train their employees to ensure that everyone can work as effectively and efficiently
for the business.
5. Be a great marketer
Businesses usually receive the most success through their marketing efforts, so ensure that your business
has a clear marketing plan in place. Of course, if you’re providing a good service to your customers you
will benefit from word-of-mouth recommendations, but usually, you want or need your business to grow
faster.
6. Get to know your customers
One of the best characteristics a successful business can have is knowing its customers and providing
what they are looking for. Being able to understand your customers’ needs should be at the center of
every successful business, whether you sell directly to your customers, or to other businesses.
7. Be willing to change
If you are committed to developing a successful business, it’s important for you to think on your feet and
to be willing to change if something isn’t working.
8. Be financially prepared

Running a business can be a rather expensive venture and you’ll need to have the right financial profile to
make the leap. Many small businesses struggle in their first year, with unexpected expenses needing
payment.

9. Never give up
Of course, the life of a business owner isn’t ever going to be easy, particularly in the early days. There’s
likely to always be more work that can be done and there can be significant ups and downs along the way.
However, they should never give up, even when a business looks bad.
10. Be passionate
It’s impossible to have a successful business if you don’t yourself believe it will be successful and are
truly passionate about your work. If you’re passionate then you are likely to be more productive with your
business and help it to grow.
Requirements/ components for Business Success
Passion Having the entrepreneurial spirit, desire, and dedication to consistently be a student of
entrepreneurship. Bringing passion to your life and your business will determine how fast and in what
direction you grow.
Capital Have a clear plan to access capital and credit for future needs of the business. Always expect
more than you plan for. Having a reserve of capital is critical to building a business.
Structure Have the proper entity, compliance, and research completed so as to not cause future problems
due to lack of planning.
Support Team Builds a team of advisors, mentors, suppliers, and staff that share your values and vision.
Surround yourself with those that share your desire and the level of success you aspire to.
Marketing / Business Development Develop multiple sources for lead generation and sales while
developing a trusted brand for your business. Using only one method of marketing to generate sales is the
reason for failure for many businesses. Marketing is an area of your business that needs constant attention
and new ideas.
Value Create value in your products and services that you are able to deliver and your clients are happy to
pay for.
Freedom The reason most start a business is to have freedom. Freedom comes with leverage. Several
businesses have failed the day the business owner is no longer able to keep up with the day-to-day
activities only because they didn't take the time to leverage their resources.
Financial Reporting Have the ability to manage the business by looking at financial statements and
making decisions that will positively impact the future success of the company.

Objectives / Importance of Business

It is generally believed that a business has a single objective. That is, to make profit. But it cannot be the
only objective of business. While pursuing the objective of earning a profit, business units do keep the
interest of their owners in view.
However, any business unit cannot ignore the interests of its employees, customers, the community, as
well as the interests of society as a whole. Thus, the objectives of business may be classified as:
A. Economic Objectives
B. Social Objectives
C. Human Objectives
D. National Objectives
E. Global Objectives
A. Economic Objectives
Economic objectives of business refer to the objective of earning profit and also other objectives that are
necessary to be pursued to achieve the profit objective, which includes the creation of customers, regular
innovations, and the best possible use of available resources. The following are the economic objectives
of business:
⮚ Profit Earning
⮚ Creation of customers
⮚ Regular innovations
⮚ Best possible use of resources
B. Social Objectives
Social objectives are those objectives of business, which are desired to be achieved for the benefit of
society. Since business operates in society by utilizing its scarce resources, society expects something in
return for its welfare. No activity of the business should be aimed at giving any kind of trouble to the
society. The following are the social objectives of business:
⮚ Production and Supply of Quality Goods and Services
⮚ Adoption of FairTrade Practices
⮚ Contribution to the General Welfare of the Society
⮚ Raise General Standard of Living
С. Human Objectives
Human objectives refer to the objectives aimed at the well-being as well as fulfillment of expectations of
employees as also of people who are disabled, handicapped, and deprived of proper education and
training. The human objectives of business may thus include the economic well-being of the employees,
social and psychological satisfaction of employees, and development of human resources. The following
are the human objectives of business:
⮚ Economic Well-being of the Employees
⮚ Social and Psychological Satisfaction of Employees
⮚ Development of Human Resources
⮚ The well-being of Socially and Economically Backward People
D. National Objectives
Being an important part of the country, every business must have the objective of fulfilling national goals
and aspirations. The goal of the country may be to provide employment opportunities to its citizen, earn
revenue for its exchequer, become self-sufficient in the production of goods and services, promote social
justice, etc. Business activities should be conducted keeping these goals of the country in mind, which
may be called national objectives of business. The following are the national objectives of business:
⮚ Creation of Employment
⮚ Production According to National Priority
⮚ Contribute to the Revenue of the Country
⮚ Self-sufficiency and Export Promotion
E. Global Objectives
Previously India had very restricted business relationships with other nations. There was a very rigid
policy for the import and export of goods and services. But, nowadays due to liberal economic and
export-import policy, restrictions on foreign investments have been largely abolished and duties on
imported goods have been substantially reduced. This change has brought about an increase in
competition in the market. Today because of globalization the entire world has become a big market.
Goods produced in one country are readily available in other countries. The following are the global
objectives of business:
⮚ Reduce Disparities among Nations
⮚ Make Available Globally Competitive Goods and Services

Different Environments of Business

Dimensions of business environment mean all the factors, forces, and institutions that have direct or
indirect influence over business transactions. General Environment is the most important dimension of
the business environment as a businessman cannot influence or change the components of the general
environment rather, he has to change his plans and policies according to the changes taking place in the
general environment.
(i) Economical Environment
Economic Environment consists of Gross Domestic Product, Income level at national level and per capita
level, Profit earning rate, Productivity and Employment rate, Industrial, the monetary and fiscal policy of
the government, etc. The economic environment factors have an immediate and direct impact on the
businessman so businessmen must scan the economic environment and take timely actions to deal with
these environments. Economic environment may put constraints and may offer opportunities to the
businessman. After the new economic policy of 1991, lots of opportunities are offered to businessmen.
Some aspects of the economic environment are:
1. Role of Private and Public sector
2. Rate of growth of GDP, GNP, and Per Capita Income
3. Rate of Saving and Investment
4. Balance of Trade
5. Balance of Payment
6. Transport and Communication System
7. Money Supply in the Economy
(ii) Social Environment
Social Environment consists of the customs and traditions of the society in which business is existing. It
includes the standard of living, taste, preferences, and education level of the people living in the society
where the business exists. The businessman cannot overlook the components of the social environment as
these components may not have an immediate impact on the business but in the long run, the social
environment has a great impact on the business. Some Aspects of Social Environment:
1. Quality of life
2. Attitude of customers towards innovation, lifestyle, etc.
3. Education and literacy rates
4. Consumption habits
5. Population
6. Tradition, customs, and habits of people
(iii) Political Environment
The political environment constitutes all the factors related to government affairs such as the type of
government in power, attitude of the government towards different groups of societies, policy changes
implemented by different governments, etc. The political environment has an immediate and great impact
on business transactions so businessmen must scan this environment very carefully.
Some Aspects of Political Environment:
1. Present political system
2. Constitution of the country
3. Government intervention in business
4. Foreign policy of government
(iv) Legal Environment
The legal environment constitutes the laws and various legislations passed in the parliament. The
businessman cannot overlook the legislation because he has to perform his business transactions within
the framework of legal environment. The common legislation passed which has affected the business
transactions are Trade Mark Act, Essential Commodity Act, Weights and Measures Act, etc. Most of the
time legal environments put constraints on the businessman but sometimes they provide opportunities
also. Some Aspects of Legal Environment:
1. Various laws and legislative acts.
2. Legal policies related to licensing.
3. Legal policies related to foreign trade.
(v) Technological Environment
Technological environment refers to changes taking place in the method of production, use of new
equipment and machineries to improve, the quality of product. The businessman must closely monitor the
technological changes taking place in his industry because he will have to implement these changes to
remain in the competitive market. Technological changes always bring quality improvement and more
benefits for customers. Some Aspects of Technological Environment:
1. Various Innovations and Inventions.
2. Scientific Improvements.
3. Developments in the IT sector
Entrepreneurship & Entrepreneur:
Entrepreneurship is the ability and readiness to develop, organize and run a business enterprise, along
with any of its uncertainties in order to make a profit.
An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most
of the rewards.
Characteristics of successful entrepreneurs:
1. Absolute clarity of purpose

Without exception, they are totally clear on why they are here and their big picture reason for existing. It
varies among them; some have the purpose of making money (a lot of money) and others are here to use
their influence to change the world. There is no judgment here on the actual purpose, but the importance
of knowing their purpose cannot be understated.

2. They believe in themselves

This is an interesting characteristic. Each and every one of the world-class entrepreneurs has an incredible
sense of self-belief.

3. They are very good at finding needs and niches

Successful entrepreneurs are able to identify opportunities in just about every situation. This opportunity
tends to be in the niches, and as the old saying goes, the riches are in the niches. Once they find a niche,
they are even better at solving problems for people in that niche.

4. Ability to focus on the most important things first

They have the ability to control their thoughts and actions and be totally present and focused on whatever
is in front of them (and important) at the time.

5. A contribution to culture

These leaders all have an incredibly generous nature. It is what we call a contribution culture and it is
their way of leaving a legacy, making a difference, sharing their success, and much more

6. An open mind

7. Incredible networks, which they foster and participate in

Successful entrepreneurs have incredible networks. It is interesting to note their attitude towards their
network. Without exception, they treat their networks with exceptional respect.

8. Invest in themselves on all levels

The elite entrepreneurs understand that they need to grow their skills, take care of themselves physically
and mentally, and take time out to recharge their batteries on a regular basis. This is not an optional
activity; this is an essential activity.

9. They constantly challenge themselves

Successful entrepreneurs challenge themselves all the time, in every way possible. They are big learners,
they do things that are way out of their comfort zones, they push themselves physically, they work hard,
and they play hard. This attitude that encourages self-challenge makes them strong.

10. They believe in technology

To be successful entrepreneurs must have to be techno-friendly.

Forms of Business Organization

These are the basic forms of business ownership:

1. Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set up and is the least costly
among all forms of ownership.
The owner faces unlimited liability; meaning, the creditors of the business may go after the personal
assets of the owner if the business cannot pay them.
The sole proprietorship form is usually adopted by small business entities.
2. Partnership
A partnership is a business owned by two or more persons who contribute resources into the entity. The
partners divide the profits of the business among themselves.
In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go
after the personal assets of the limited partners.
3. Corporation
A corporation is a business organization that has a separate legal personality from its owners. Ownership
in a stock corporation is represented by shares of stock.
The owners (stockholders) enjoy limited liability but have limited involvement in the company's
operations. The board of directors, an elected group from the stockholders, controls the activities of the
corporation.
In addition to those basic forms of business ownership, these are some other types of organizations that
are common today:

Limited Liability Company

Limited liability companies (LLCs) in the USA, are hybrid forms of business that have characteristics of
both a corporation and a partnership. An LLC is not incorporated; hence, it is not considered a
corporation.
Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be taxed as a
sole proprietorship, a partnership, or a corporation.
Cooperative
A cooperative is a business organization owned by a group of individuals and is operated for their mutual
benefit. The persons making up the group are called members. Cooperatives may be incorporated or
unincorporated.
Some examples of cooperatives are water and electricity (utility) cooperatives, cooperative banking,
credit unions, and housing cooperatives.

Sole proprietorship

With this type of business organization, you are the sole owner, and fully responsible for all debts and
obligations related to your business. All profits are yours to keep. Because you are personally liable, a
creditor can make a claim against your personal assets as well as your business assets in order to satisfy
any debts.

Advantages:

● Easy and inexpensive to register

● Regulatory burden is generally light
● You have direct control of decision making
● Minimal working capital required for start-up
● Some tax advantages if your business is not doing well (for example, deducting your losses from
your personal income, and a lower tax bracket when profits are low)
● All profits go to you directly

Disadvantages:

● Unlimited liability (if you have business debts, claims can be made against your personal assets
to pay them off)
● Income is taxable at your personal rate and, if your business is profitable, this could put you in a
higher tax bracket
● Lack of continuity for your business if you are unavailable
● Can be difficult to raise capital on your own

Partnership

A partnership is a non-incorporated business that is created between two or more people. In a partnership,
your financial resources are combined with those of your business partner(s), and put into the business.
You and your partner(s) would then share in the profits of the business according to any legal agreement
you have drawn up.

In a general partnership, each partner is jointly liable for the debts of the partnership. In a limited
partnership, a person can contribute to the business without being involved in its operations. A limited
liability partnership is usually only available to a group of professionals, such as lawyers, accountants or
doctors.

When establishing a partnership, you should have a partnership agreement in place. This is important
because it establishes the terms of the partnership and can help you avoid disputes later on. Hiring a
lawyer or other legal professional to help you draw up a partnership agreement will save you time and
protect your interests.
Advantages:

● Fairly easy and inexpensive to form a partnership

● Start-up costs are shared equally with you and your partner(s)
● Equal share in the management, profits and assets
● Tax advantage — if income from the partnership is low or loses money (you and your partner(s)
include your shares of the partnership in your individual tax returns)

Disadvantages:

● There is no legal difference between you and your business

● Unlimited liability (if you have business debts, personal assets can be used to pay off the debt)
● Can be difficult to find a suitable partner
● Possible development of conflict between you and your partner(s)
● You are held financially responsible for business decisions made by your partner(s); for example,
contracts that are broken

Corporation

Another type of business structure is a corporation. Incorporation can be done at the federal or
provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that is
separate from its shareholders. As a shareholder of a corporation, you will not be personally liable for the
debts, obligations or acts of the corporation. It is always wise to seek legal advice before incorporating.

Advantages:

● Limited liability
● Ownership is transferable
● Continuous existence
● Separate legal entity
● Easier to raise capital than it might be with other business structures
● Possible tax advantage as taxes may be lower for an incorporated business

Disadvantages:

● A corporation is closely regulated

● More expensive to set up a corporation than other business forms
● Extensive corporate records required, including documentation filed annually with the
government
● Possible conflict between shareholders and directors
● You may be required to prove residency or citizenship of directors

Co-operative

A co-operative is owned and controlled by an association of members. It can be set up as a for-profit or as

a not-for-profit organization. This is the least common form of business, but can be appropriate in
situations where a group of individuals or businesses decide to pool their resources and provide access to
common needs, such as the delivery of products or services, the sale of products or services, employment,
and more.
Advantages:

● Owned and controlled by its members

● Democratic control (one member, one vote)
● Limited liability
● Profit distribution

Disadvantages:

● Longer decision-making process

● Participation of all members is required in order to succeed
● Possible conflict between members
● Extensive record keeping
● Less incentive to invest additional capital

Q. Differences Between Partnership and a Company

 Partnership Company

Simple Organizational Structure Complex Organizational Structure

Low Startup Costs High Startup Cost

Liabilities Upon Members Liabilities of the Company

Taxation did on Individual Members Taxes did on the company and members

One cannot transfer shares One can easily transfer shares

End upon death, insanity, and insolvency of a Can exist for a long time
member

Q. Difference Between Cooperatives and Corporations

1. A corporation exists as a legal entity where it can sue or get sued while a cooperative does not.
2. A corporation has limited liability while a cooperative does not.
3. A corporation must deliver returns on investments while this is not a must for a cooperative.
4. A corporation is run by a centralized management under a board while a cooperative is run by the
members.
5. Shares of a corporation are transferable while those of a cooperative are not.