SCHOOL: CTS COLLEGE PRIVATE SECONDARY SCHOOL …

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.


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.


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.


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

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.


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.


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

SUMMARY EXERCISE

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

END OF CLASS