Q.1 Explain Business. Discuss various types of business organisations.
Differentiate between Business and Profession.
(A) Meaning of Business
Business is a human economic activity concerned with the production or purchase of goods and services and their sale, exchange or transfer to satisfy human wants with the main objective of earning profit.
In simple words, business is an activity in which goods or services are continuously produced or purchased and sold in the market, bearing risk, with the aim of earning profit.
Main characteristics of Business
- Economic activity – It is done for money or livelihood, not for pleasure or charity.
- Production or procurement of goods and services – Businessmen either manufacture goods or purchase them from others and resell them.
- Sale or exchange – Goods/services must be transferred to customers; mere production or own consumption is not business.
- Profit motive – The basic aim is to earn profit which is the reward for bearing risk.
- Risk and uncertainty – Future conditions are uncertain; demand, prices, competition etc. may change, so business always involves risk of loss.
- Continuity and regularity – Business is not a one-time transaction; it is carried on regularly and continuously.
- Legal and social obligations – Business must operate within the legal framework and is expected to follow ethical and social responsibilities.
(B) Types of Business Organisations (Forms of Organisation)
Business activities can be carried on under different forms of organisation. The common forms are:
1. Sole Proprietorship
A form of business owned, managed and controlled by a single individual.
- Ownership – One person only.
- Features – Easy to form and close, full control with the owner, unlimited liability, limited financial resources, suitable for small businesses such as retail shops, small workshops etc. types of business organisations
2. Partnership Firm
A business owned and carried on by two or more persons (minimum 2, generally maximum 50 in ordinary business) who agree to share profits and losses.
- Based on partnership agreement – written or oral.
- Features – Joint ownership and management, sharing of profits, unlimited and joint liability of partners, more capital and skills than sole proprietorship, possibility of conflicts, limited life of firm. types of business organisations
3. Joint Hindu Family Business
A form of business which exists only under Hindu law. It is carried on by the Karta (head of the family) with the help of other male members called co-parceners.
- Membership – By birth in the family.
- Features – Karta has full control, liability of Karta is unlimited but that of co-parceners is limited to their share, continuity is not affected by death of members, suitable for ancestral businesses. types of business organisations
4. Co-operative Society
A voluntary association of persons, usually of limited means, who come together to achieve a common economic objective on the principle of self-help and mutual help.
- Registration – Compulsory under Co-operative Societies Act.
- Features – Democratic control (“one member one vote”), service motive instead of profit maximisation, limited liability, capital raised by shares, surplus distributed as dividend and bonus, examples – consumer co-operative stores, credit societies, housing societies, producer co-operatives etc.
5. Joint Stock Company
A company is an artificial person created by law, having a separate legal entity, perpetual succession and limited liability of its members. Capital is divided into shares.
There are mainly two types:
(a) Private Company
- Minimum 2 and maximum 200 members.
- Restricts transfer of its shares.
- Cannot invite the public to subscribe for its shares or debentures.
- Less legal formalities. types of business organisations
(b) Public Company
- Minimum 7 members, no maximum limit.
- Can invite the public to subscribe for its shares and debentures.
- Shares are freely transferable.
- Subject to more regulations but can mobilise huge capital. types of business organisations
Joint stock companies are suitable for large-scale businesses such as banks, insurance companies, large manufacturing concerns etc.
6. Public Enterprises / Public Sector Undertakings
These are business organisations owned and managed by the government (Central, State or local). Examples: railways, state transport, government corporations, etc.
Common forms are:
- Departmental undertakings
- Statutory corporations
- Government companies
They are generally set up to provide essential services, promote balanced regional development and achieve social welfare along with reasonable surplus. types of business organisations
(C) Difference between Business and Profession
Below are the main points of distinction:
- Meaning
- Business – Economic activity involving production, purchase and sale of goods and services with the aim of earning profit.
- Profession – Economic activity requiring specialised knowledge and skills, where services are provided to clients in return for a fee.
- Basic objective
- Business – Profit maximisation and growth of the enterprise.
- Profession – Rendering expert and specialised services; earning a living but with service motive and adherence to ethics.
- Qualification
- Business – No minimum educational qualification legally required (though desirable).
- Profession – Formal professional education, training and qualification are compulsory, e.g., CA, doctor, advocate. types of business organisations
- Entry and commencement
- Business – Easy entry; one can start after fulfilling simple legal formalities like registration, licence etc.
- Profession – Entry restricted by professional bodies. One must be enrolled as a member of the respective professional institute or council (e.g., Bar Council, Medical Council).
- Capital requirement
- Business – Usually requires a large amount of capital, depending on the scale of operations.
- Profession – Capital requirement is generally limited, mainly for office, equipment and tools. types of business organisations
- Nature of reward
- Business – Reward is profit, which is uncertain and can sometimes be negative (loss).
- Profession – Reward is professional fee, which is more regular and is normally linked with each service rendered.
- Risk element
- Business – High degree of risk and uncertainty due to competition, market conditions, changes in demand, etc.
- Profession – Comparatively lower risk; main risk relates to reputation and competence.
- Code of conduct and regulation
- Business – No compulsory code of conduct prescribed by law, though businessmen are expected to follow business ethics and laws.
- Profession – Strict code of conduct and professional ethics laid down by the professional body, violation of which may lead to disciplinary action or cancellation of membership.
- Transfer of interest
- Business – Ownership interest can usually be transferred (e.g., selling business, transferring shares of a company).
- Profession – Professional practice cannot be transferred; it is attached to the personal ability and reputation of the individual. types of business organisations
- Examples
- Business – Trading, manufacturing, banking, transport services, hotels, etc.
- Profession – Doctors, lawyers, chartered accountants, architects, teachers, engineers, etc.
Conclusion:
Business is primarily concerned with production and distribution of goods and services for profit and can be organised in several forms such as sole proprietorship, partnership, company, co-operative etc. Profession, on the other hand, is a specialised occupation based on expert knowledge and regulated by professional bodies, where the main reward is professional fee rather than profit. types of business organisations
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👉 Note:- Important questions of Business Organisations