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INTRODUCTION TO BUSINESS

Business is the activity of making one's living or making money by producing or buying and selling products (such as
goods and services Simply put, it is "any activity or enterprise entered into for profit. It does not mean it is a
company, a corporation, partnership, or have any such formal organization, but it can range from a street peddler to
General Motors."[5]

Having a business name does not separate the business entity from the owner, which means that the owner of the
business is responsible and liable for debts incurred by the business. If the business acquires debts, the creditors can
go after the owner's personal possessions. A business structure does not allow for corporate tax rates. The proprietor
is personally taxed on all income from the business.

Forms Of Business

 Sole proprietorship: A sole proprietorship, also known as a sole trader, is owned by one person and operates
for their benefit. The owner operates the business alone and may hire employees. A sole proprietor has
unlimited liability for all obligations incurred by the business, whether from operating costs or judgments
against the business. All assets of the business belong to a sole proprietor, including, for example, computer
infrastructure, any inventory, manufacturing equipment, or retailfixtures, as well as any real property owned
by the sole proprietor.
 Partnership: A partnership is a business owned by two or more people. In most forms of partnerships, each
partner has unlimited liability for the debts incurred by the business. The three most prevalent types of for-
profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.[6]
 Corporation: The owners of a corporation have limited liability and the business has a separate legal
personality from its owners. Corporations can be either government-owned or privately owned, and they can
organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by
its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A
privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly
held, with publicly traded shares listed on a stock exchange.
 Cooperative: Often referred to as a "co-op", a cooperative is a limited-liability business that can organize as
for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders,
and they share decision-making authority. Cooperatives are typically classified as either consumer
cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.
 Limited liability companies (LLC), limited liability partnerships, and other specific types of business
organization protect their owners or shareholders from business failure by doing business under a separate
legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their
own are usually not as protected.[7][8]
 Franchises: A franchise is a system in which entrepreneurs purchase the rights to open and run a business
from a larger corporation.[9] Franchising in the United States is widespread and is a major economic
powerhouse. One out of twelve retail businesses in the United States are franchised and 8 million people are
employed in a franchised business.[10]
 A company limited by guarantee: Commonly used where companies are formed for noncommercial
purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal)
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 amounts if the company goes into insolvent liquidation, but otherwise, they have no economic rights in
relation to the company. This type of company is common in England. A company limited by guarantee may
be with or without having share capital.
 A company limited by shares: The most common form of the company used for business ventures.
Specifically, a limited company is a "company in which the liability of each shareholder is limited to the
amount individually invested" with corporations being "the most common example of a limited company."[11]
This type of company is common in England and many English-speaking countries. A company limited by
shares may be a
o publicly traded company or a
o privately held company
 A company limited by guarantee with a share capital: A hybrid entity, usually used where the company is
formed for noncommercial purposes, but the activities of the company are partly funded by investors who
expect a return. This type of company may no longer be formed in the UK, although provisions still exist in
law for them to exist.[12]
 A limited liability company: "A company—statutorily authorized in certain states—that is characterized by
limited liability, management by members or managers, and limitations on ownership transfer", i.e., L.L.C.[11]
LLC structure has been called "hybrid" in that it "combines the characteristics of a corporation and of a
partnership or sole proprietorship". Like a corporation, it has limited liability for members of the company,
and like a partnership it has "flow-through taxation to the members" and must be "dissolved upon the death or
bankruptcy of a member".[13]
 An unlimited company with or without a share capital: A hybrid entity, a company where the liability of
members or shareholders for the debts (if any) of the company are not limited. In this case doctrine of a veil of
incorporation does not apply.

Main Characteristics of Business

1. Entrepreneur: An entrepreneur is a person who combines the factors of production...
2. Business Enterprise:
3. Continuous Deals: Business consist of producing, purchasing or selling goods on...
4. Risk: There is an element of risk and uncertainty in every business.
5. Profit: The primary objective of every business

Business Objectives
o Economic Objectives.
o Social Objectives.
o National Objectives.

Functions of business

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 1. Organizing function:

It helps to organize all the activities. It organizes men, Machine, materials, money and methods. It performs different
activities and all activities are organized properly

2. Financing function:

It is related to money. It helps in maximum utilization of resources. Bank is a financial company. All the activities
related to money are defined in this function.

3. Production function:

The main function of business is to produce goods and commodities and transfer them to right place at right time. It
helps to complete needs of human beings.

4. Distributing function:

It helps in the transfer of goods/services from producers to customers. It transfers right product at right time in right
place.

5. Personnel function:

It deals with human activities. It is related o the utilization of people to perform different activities. It is also called
staffing function. It helps in management of resources.

6. Managing function:

It helps in management of business. It includes planning, organizing, controlling, coordinating, decision making and
so on. It helps making activities of people effective.

7. Research and development function:

It helps in improvement of product. It works under the taste, desire and preference of the customers. In it various
marketing, strategies, skills, knowledge and experts are used. Research and development is the main way to achieve
profit with customer satisfaction

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Objectives of business

Economic objectives

The economic objectives are related to earning profit through customer satisfaction. It is to provide quality goods with
reasonable price. Economic objectives can be defined in terms of money too. Some of the major economic objectives
are:

1. Earning profit:

The main economic function of business is earning profit. It includes supply of quality goods and services to gain
profit. T is done for the survival of business and it is also reward for the investors. It is required for expansion if
business

2. Production of commodities:

Production of goods and services are to be done according to the customer demand and desired. Supply of
commodities is also to be done according to needs of customer.

3. Creation of market:

Business can provide service only if demand of customers are fulfilled. When production is made according to the
requirements of the customers then there is creation of new customer which creates new market. Creation of market
helps in enlargement of production and promotes business expansion too

4. Technical improvement:

Use of modern technology is the base for successful operation o business. When modern tools, techniques and
technologies are used then there is production of quality goods. Changes are the basic factor for flexibility and
changes in terms of working methods is the main objective of business

5. Innovation:

New ideas, methods, men, tactics and technology create the ways of better production and services. It helps in
survival of business too.

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2. Social objectives

Business is operated in society and use resource available in society. This is known social objectives. It fulfills social
expectation. All business operations are established in society, grow in society and fulfill all its expectation in society.
Some of the major social objectives of business are:

1. Supply quality food:

It provides better quality of goods and services by charging reasonable price. It provides right product at right time in
right place. It involve in fulfillment of social objective.

2. Utilizing resources:

A business house can’t continue its operation without utilizing the resources available in the society. But there must
be proper utilization of resources and no any destruction in name of utilization. Maintenance of environment is must.

3. Providing employment:

There are many people in the society. Human needs are the basic need for operation of business. Many personnel are
require dot fulfill the job of a business. Therefore a business house without nepotism and favoritism must employ the
human from the society and provide employment opportunities to the optimum level.

4. Avoiding social stigma:

Big industries are the cause of environmental pollution. Constant noise, smoke from the industries produces noise and
air pollution. This is the social objective of the business to control pollution and wastages. There must be
establishment of industries far from residential areas.

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3.Human objectives

Human objectives are performed by different human activities. It is related with satisfaction of employees, investors
and other personnel. Some of the major human objectives are

1. Satisfaction of employees:

The success of business depends on employees’ performance. It provides better working environment to satisfy the
employees. It provides salary, bonus, provident funds and job security. It also provides financial and non financial
supports.

2. Payment to creditors:

Creditors means supplier who supply goods and services. It is the objective to make duly payment. Satisfaction of
creditors helps in further expansion of business.

3. Satisfaction of customers:

Production of goods and services are to be done according to the customer demand and desired. Supply of
commodities is also to be done according to needs of customer. It provides better quality of goods and services by
charging reasonable price

4. Satisfaction of shareholder:

It returns to investors the amount they have invested in business in the name of profit earn. They should be given
reasonable returns of their investments. The objectives are to provide reasonable rate of return to shareholder. It also
provides the information about plan of business.

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ELEMENTS OF A GOOD BUSINESS

Elements of a Business Plan

Your well-thought-out business plan lets others know you’re serious, and that you can handle all that running a
business entails. It can also give you a solid roadmap to help you navigate the tricky waters. The seven components
you must have in your business plan include:

1. Executive Summary
2. Business Description
3. Market Analysis
4. Organization Management
5. Sales Strategies
6. Funding Requirements
7. Financial Projections

All of these elements can help you as you build your business, in addition to showing lenders and potential backers
that you have a clear idea of what you are doing.

1. Executive Summary

The executive summary is basically the elevator pitch for your business. It distills all the important information about
your business plan into a relatively short space. It’s a high-level look at everything and should include information
that summarizes the other sections of your plan.

One of the best ways to approach writing the executive summary is to finish it last so you can include the important
ideas from other sections.

Coffee House, Inc.’s executive summary focuses on the value proposition of the business. Here’s what they’ve
written into their plan:

“Market research indicates that an increasing number of consumers in our city are interested in the experience of
coffee. However, there isn’t a viable place for them to meet and learn locally. Instead, they only have access to fast
coffee. Coffee House, Inc., provides a place for people to enjoy fresh-ground beans and truly enjoy their cup.

“Coffee House, Inc., provides a hub for a subculture of coffee, offering customers a place to purchase their own
coffee-grinding supplies in addition to enjoying the modern atmosphere of a coffee house.

“The founders of Coffee House, Inc., are coffee aficionados with experience in the coffee industry and connections to
sustainable growing operations. With the experience and expertise of the Coffee House team, a missing niche in town
can be fulfilled.”

2. Business Description

This is your chance to describe your company and what it does. Include a look at when the business was formed, and
your mission statement. These are the things that tell your story and allow others to connect to you. It can also serve

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as your own reminder of why you got started in the first place. Turn to this section for motivation if you find yourself
losing steam.

Some of the other questions you can answer in the business description section of your plan include:

 What is the business model? (What are your customer base, revenue sources and products?)
 Do you have special business relationships that offer you an advantage?
 Where are you located?
 Who are the principals?
 What is the legal structure?
 What are some of the market opportunities?
 What is your projected growth?

Answering these questions narrows your focus and shows potential lenders and backers how you’re viewing your
venture.

3. Market Analysis

This is your chance to look at your competition and the state of the market as a whole. Your market analysis is an
exercise in seeing where you fit in the market — and how you are superior to the competition.

As you create your market analysis, you need to make sure to include information on your core target market, profiles
of your ideal customers and other market research. You can also include testimonials if you have them.

Part of your market analysis should come from looking at the trends in your area and industry. Coffee House, Inc.,
recognizes that there is a wide trend toward “slow” food and the idea of experiencing life. On top of that, Coffee
House surveyed its city and found no local coffee houses that offered fresh-ground beans or high-end accessories for
do-it-yourselfers.

Coffee House can create an ideal customer identity. The ideal customer is a millennial or younger member of Gen X.
He or she is a professional and interested in experiencing life and enjoying pleasures. The ideal customer probably
isn’t wealthy, but is middle class, and has enough disposable income to have a hobby like coffee. Coffee House
appeals to professionals who work (and maybe live) in a downtown area. They meet their friends for a good cup of
coffee, but also want the ability to make good coffee at home.

4. Organization and Management

Use this section of your business plan to show off your team superstars. In fact, there are plenty of indications that
your management team matters more than your product idea or pitch.

Venture capitalists want to know you have a competent team that has the grit to stick it out. You are more likely to be
successful and pivot if needed when you have the right management and organization for your company.

Make sure you highlight the expertise and qualifications of each member of the team in your business plan. You want
to impress.
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In the case of Coffee House, Inc., the founders emphasize their connections in the world of coffee, particularly
growers that use sustainable practices. They can get good prices for bulk beans that they can brand with their own
label. The founders also have experience in making and understanding coffee and the business. One of them has an
MBA, and can leverage the executive ability. Both have worked in marketing departments in the past, and have social
media experience, so they can highlight their expertise.

5. Sales Strategies

How will you raise money with your business and make profits a reality? You answer this question with your sales
strategy. This section is all about explaining your price strategy and describing the relationship between your price
point and everything else at the company.

You should also detail the promotional strategies you’re using now, along with strategies you hope to implement
later. This includes your social media efforts and how you use press releases and other appearances to help raise your
brand awareness and encourage people to buy or sign up for your products or services.

Your sales strategy section should include information on your web development efforts and your search engine
optimization plan. You want to show that you’ve thought about this, and you’re ready to implement a plan to ramp up
sales.

Coffee House needs to make sure they utilize word of mouth and geolocation strategies for their marketing. Social
media is a good start, including making Facebook Live videos of them demonstrating products and how to grind
beans. They can encourage customers to check in when visiting, as well as offer special coupons and promotions that
activate when they come to the house to encourage sales.

6. Funding Requirements

Here’s where you ask for the amount of money you need. Make sure you are being as realistic as possible. You can
create a range of numbers if you don’t want to try to pinpoint an exact number. Include information for a best-case
scenario and a worst-case scenario. You should also put together a timeline so your potential funders have an idea of
what to expect.

It can cost between $200,000 and $500,000 to open a coffee house, and profit margins can be between 7 and 25
percent, depending on costs. A well-run coffee house can see revenues of as much as $1 million a year by the third
year, according to the Chronicle. Some of the things Coffee House, Inc., would include in its timeline are getting
premises, food handlers’ permits and the proper licenses, arrange for regular supply and get the right insurance. How
long these items take depend on state and local regulations. No matter your business, get an idea of what steps you
need to take to make it happen and how long they typically take. Add it all into your timeline.

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7. Financial Projections

Finally, the last section of your business plan should include financial projections. Make sure you summarize any
successes up to this point. This is especially important if you hope to secure funds for expansion of your existing
business.

Your forward-looking projections should be based on information about your revenue growth and market trends. You
want to be able to use information about what’s happening, combined with your sales strategies, to create realistic
projections that let others know when they can expect to see returns.

Even though it can be time-consuming to create a business plan, your efforts will be rewarded. The process is
valuable for helping you identify potential problems, as well as help you plan ahead. You’ll be more organized and
better prepared for success.

Starting a Business

Step 1: Do Your Research

Most likely you have already identified a business idea, so now it's time to balance it with a little reality. Does your
idea have the potential to succeed? You will need to run your business idea through a validation process before you
go any further.

In order for a small business to be successful, it must solve a problem, fulfill a need or offer something the market
wants.

There are a number of ways you can identify this need, including research, focus groups, and even trial and error. As
you explore the market, some of the questions you should answer include:

 Is there a need for your anticipated products/services?

 Who needs it?
 Are there other companies offering similar products/services now?
 What is the competition like?
 How will your business fit into the market?

Don't forget to ask yourself some questions, too, about starting a business before you take the plunge.

Step 2: Make a Plan

You need a plan in order to make your business idea a reality. A business plan is a blueprint that will guide your
business from the start-up phase through establishment and eventually business growth, and it is a must-have for all
new businesses.

The good news is that there are different types of business plans for different types of businesses.

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If you intend to seek financial support from an investor or financial institution, a traditional business plan is a must.
This type of business plan is generally long and thorough and has a common set of sections that investors and banks
look for when they are validating your idea.

If you don't anticipate seeking financial support, a simple one-page business plan can give you clarity about what you
hope to achieve and how you plan to do it. In fact, you can even create a working business plan on the back of a
napkin, and improve it over time. Some kind of plan in writing is always better than nothing.

Step 3: Plan Your Finances

Starting a small business doesn't have to require a lot of money, but it will involve some initial investment as well as
the ability to cover ongoing expenses before you are turning a profit. Put together a spreadsheet that estimates the
one-time startup costs for your business (licenses and permits, equipment, legal fees, insurance, branding, market
research, inventory, trademarking, grand opening events, property leases, etc.), as well as what you anticipate you
will need to keep your business running for at least 12 months (rent, utilities, marketing and advertising, production,
supplies, travel expenses, employee salaries, your own salary, etc.).

Those numbers combined is the initial investment you will need.

Now that you have a rough number in mind, there are a number of ways you can fund your small business, including:

 Financing
 Small business loans
 Small business grants
 Angel investors
 Crowdfunding

You can also attempt to get your business off the ground by bootstrapping, using as little capital as necessary to start
your business. You may find that a combination of the paths listed above work best. The goal here, though, is to work
through the options and create a plan for setting up the capital you need to get your business off the ground.

Step 4: Choose a Business Structure

Your small business can be a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation.
The business entity you choose will impact many factors from your business name, to your liability, to how you file
your taxes.

You may choose an initial business structure, and then reevaluate and change your structure as your business grows
and needs change.

Depending on the complexity of your business, it may be worth investing in a consultation from an attorney or CPA
to ensure you are making the right structure choice for your business.

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Step 5: Pick and Register Your Business Name

Your business name plays a role in almost every aspect of your business, so you want it to be a good one. Make sure
you think through all of the potential implications as you explore your options and choose your business name.

Once you have chosen a name for your business, you will need to check if it's trademarked or currently in use. Then,
you will need to register it. A sole proprietor must register their business name with either their state or county clerk.
Corporations, LLCs, or limited partnerships typically register their business name when the formation paperwork is
filed.

Don't forget to register your domain name once you have selected your business name. Try these options if your ideal
domain name is taken.

Step 6: Get Licenses and Permits

Paperwork is a part of the process when you start your own business.

There are a variety of small business licenses and permits that may apply to your situation, depending on the type of
business you are starting and where you are located. You will need to research what licenses and permits apply to
your business during the start-up process.

Step 7: Choose Your Accounting System

Small businesses run most effectively when there are systems in place. One of the most important systems for a small
business is an accounting system.

Your accounting system is necessary in order to create and manage your budget, set your rates and prices, conduct
business with others, and file your taxes. You can set up your accounting system yourself, or hire an accountant to
take away some of the guesswork. If you decide to get started on your own, make sure you consider these questions
that are vital when choosing accounting software.

Step 8: Set Up Your Business Location

Setting up your place of business is important for the operation of your business, whether you will have a home
office, a shared or private office space, or a retail location.

You will need to think about your location, equipment, and overall setup, and make sure your business location works
for the type of business you will be doing. You will also need to consider if it makes more sense to buy or lease your
commercial space.

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Step 9: Get Your Team Ready

If you will be hiring employees, now is the time to start the process. Make sure you take the time to outline the
positions you need to fill, and the job responsibilities that are part of each position. The Small Business
Administration has an excellent guide to hiring your first employee that is useful for new small business owners.

If you are not hiring employees, but instead outsourcing work to independent contractors, now is the time to work
with an attorney to get your independent contractor agreement in place and start your search.

Lastly, if you are a true solopreneur hitting the small business road alone, you may not need employees or contractors,
but you will still need your own support team. This team can be comprised of a mentor, small business coach, or even
your family, and serves as your go-to resource for advice, motivation and reassurance when the road gets bumpy.

Step 10: Promote Your Small Business

Once your business is up and running, you need to start attracting clients and customers. You'll want to start with the
basics by writing a unique selling proposition (USP) and creating a marketing plan. Then, explore as many small
business marketing ideas as possible so you can decide how to promote your business most effectively.

Once you have completed these business start-up activities, you will have all of the most important bases covered.
Keep in mind that success doesn't happen overnight. But use the plan you've created to consistently work on your
business, and you will increase your chances of success.

Nature and Purpose of Business:

Business refers to the process of buying and selling either goods or services. It is an economic activity that focuses on
the purchase of raw materials and the sale of finished goods. The businessman owns and manages the organization
that he/she established. In this article, find out about the nature and purpose of business.

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A businessman is also known as an entrepreneur. Moreover, there are different types of entrepreneurs based on the
type of businesses.

a. Trading entrepreneurs
b. Agricultural entrepreneurs
c. Technical and non-technical entrepreneurs
d. Men entrepreneurs
e. Women entrepreneurs
f. Manufacturing entrepreneurs
g. Private entrepreneurs and state entrepreneurs.
h. Small-scale, medium-scale and large-scale entrepreneurs.
i. Innovative entrepreneurs
j. Imitating entrepreneurs
k. Drone entrepreneurs

However, an entrepreneurial organization doesn’t necessarily have to be a company or a partnership. It does not have
to be a formal organization. The activities undertaken by retail vendors, street peddlers and local flower vendors are
also called businesses.

THE NATURE OF BUSINESS

Discussed below are a set of unique essential natures/ features/ characteristics of a business.

A business:

i. Is an economic activity that deals with the purchase and sales of commodities and services. Every activity
undertaken by it is supported by the exchange of money. Not only do businesses sell their goods or services
for profit but they also purchase raw materials. As a result of this purchase, businesses have to shed out funds
in order to acquire resources that can bring them profits.
ii. Focuses on profits because profits are the entrepreneur’s (and employee’s) earnings. Profits are different that
incomes or revenues. They refer to that margin of income which is not a part of the cost price. Thus, profit =
selling price – cost price.
iii. Is a continuous process of buying and selling. Raw materials and inventories are crucial for the functioning
of a business. As a result of the business activities, the raw materials and inventories undergo conversion into
finished goods or services. These finished items are then marked at a price higher than the cost price and the
cost of materials (or inventory). Finally, they are ready to sell at a specific profit margin. This continuous
process of buying and selling is crucial to keep the business running.
iv. Undergoes risks and uncertainties related to loss of goods via theft. Risks of accidents within the business
premises is a crucial matter that all firms must address and prepare for. Insurance of the entire firm with the
assets and inventories is also very important. Similarly, there is also the risk of incurring a loss and one should
prepare for these contingencies.

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PURPOSE OF A BUSINESS

Discussed below are a set of purposes/ objectives of a business undertaking.

i. Profit motive – The primary motto or purpose of undertaking a business is to make profits. Thus, the creation
of profit is of paramount importance. Similarly, along with profit creation, profit maximization is equally as
important.
ii. Quality goods – Manufacturing firms and other technology firms should focus on providing qualitative goods
to their consumers or customers. A strong inspection process should be in place. Consequently, any goods or
products with defects must be scrapped and not sold.
iii. Quality services – Consultancy firm, hospitals, law firms and other accounting and bank sector firms should
focus on providing qualitative services to their customers.
iv. Avoiding loss – Incurring losses is never an option for businesses. It is best if the business goes to extreme
extents to work ethically and avoid incurring minute or huge losses. A loss not only reduces the income but
also decreases the organization’s reputation and goodwill.
v. Abiding by regulations – Abiding by regulations laid down by the state and the central government is of
paramount importance. For instance, the Competition Act, the Indian Companies Act, the Environment Act
and many other Acts. A morally strong ethical business ensures to undertake business activities within the
limits of these rules.
vi. Social responsibilities – It is the corporate social responsibility (CSR) of a business to allocate a portion of
their earnings to develop the surroundings. They could either focus their CSR activity towards the
environment, children welfare, women welfare, animal welfare, etc. An ethical business would make their
CSR activities an important priority in order to enhance the welfare of the society around them.

Production: Meaning, Definition, Types and Factors

Definition of Production:

According to Bates and Parkinson:

“Production is the organised activity of transforming resources into finished products in the form of goods and
services; the objective of production is to satisfy the demand for such transformed resources”.

According to J. R. Hicks:

ADVERTISEMENTS:

“Production is any activity directed to the satisfaction of other peoples’ wants through exchange”. This definition
makes it clear that, in economics, we do not treat the mere making of things as production. What is made must be
designed to satisfy wants.

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Three Types of Production:

For general purposes, it is necessary to classify production into three main groups:

1. Primary Production:

Primary production is carried out by ‘extractive’ industries like agriculture, forestry, fishing, mining and oil
extraction. These industries are engaged in such activities as extracting the gifts of Nature from the earth’s surface,
from beneath the earth’s surface and from the oceans.

2. Secondary Production:

This includes production in manufacturing industry, viz., turning out semi-finished and finished goods from raw
materials and intermediate goods— conversion of flour into bread or iron ore into finished steel. They are generally
described as manufacturing and construction industries, such as the manufacture of cars, furnishing, clothing and
chemicals, as also engineering and building.

3. Tertiary Production:

Industries in the tertiary sector produce all those services which enable the finished goods to be put in the hands of
consumers. In fact, these services are supplied to the firms in all types of industry and directly to consumers.
Examples cover distributive traders, banking, insurance, transport and communications. Government services, such as
law, administration, education, health and defence, are also included.

Factors of Production:

Production of a commodity or service requires the use of certain resources or factors of production. Since most of the
resources necessary to carry on production are scarce relative to demand for them they are called economic resources.

Resources, which we shall call factors of production, are combined in various ways, by firms or enterprises, to
produce an annual flow of goods and services.

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 Table 5.1: A Classification of Factors of Production:

(1) Land and Natural Resources:

In economics the term land is used in a broad sense to refer to all natural resources or gifts of nature. As the Penguin
Dictionary of Economics has put it: “Land in economics is taken to mean not simply that part of the earth’s
surface not covered by water, but also all the free gifts of nature’s such as minerals, soil fertility, as also the
resources of sea. Land provides both space and specific resources”.

From the above definition, it is quite clear that land includes farming and building land, forests, and mineral deposits.
Fisheries, rivers, lakes, etc. all those natural resources (or gifts of nature) which help us (the members of the society)
to produce useful goods and services. In other words, land includes not only the land surface, but also the fish in the

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sea, the heat of the sun that helps to dry grapes and change them into resins, the rain that helps farmers to grow crops,
the mineral wealth below the surface of the earth and so on.

Characteristics:

Land has certain important characteristics:

1. Fixed supply:

The total land area of earth (in the sense of the surface area available to men) is fixed. Therefore, the supply of lands
is strictly limited. It is, no doubt, possible to increase the supply of land in a particular region to some extent through
reclamation of land from sea areas or deforestation. But this is often offset by various kinds of soil erosion. The end
result is that changes in the total area are really insignificant. Of course, the effective supply of agricultural (farm)
land can be increased by drainage, irrigation and use of fertilisers.

In consequence, the prices of land and natural resources tend to be extremely sensitive to changes in consumer
demand, rising sharply if they become more desirable. In this context, we may refer to the sharp increase in the price
of building land in Bombay in the last five decades. However, new discoveries are often stimulated by high prices (as
in the case of Calcutta’s Salt Lake area), and like that of oil in the U.K.’s North Sea, which tend to moderate price
increases.

2. Alternative uses:

Although the total supply of land is fixed, land has alternative uses. The same plot of land can be used to set up
factories or to grow wheat or sugarcane or even to build a stadium. This means that the supply of land to a particular
use is fairly (if not completely) elastic. For example, the amount of land used for growing tomato can be increased by
growing less of some other crop (e.g., cauliflower). The supply of building land can be increased by reducing the area
under agricultural operation.

3. No cost of production:

Since land is a gift of nature, it has no cost of production. Since land is already in existence, no costs are to be
incurred in creating it. In this sense, land differs from both labour (which has to be reared, educated and trained) and
capital (which has to be created by using labour and other scarce resources or by spending money).

So, it logically follows that the entire return from land—called rent—is a surplus income (at least from society’s point
of view). As Stanlake has rightly put it, “any increase in the value of natural resources due to rising populations and
rising incomes accrues to the owners of these resources as a windfall gain—it does not arise from any efforts on their
part”.

However, the above argument is not valid today. In fact, much of the services of land required expenditure of
resources to obtain or maintain them and hence they are often called capital (i.e. produced means of production). So is
land, as a factor of production, ‘really distinct’ from capital.
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4. Differences in fertility:

Another important feature of land is that it is not homogeneous. All grades (plots) of land are not equally productive
or fertile. Some grades of land are more productive than others. And Ricardo argued that rent arises not only due to
scarcity of land as a factor but also due to differences in the fertility of the soil.

5. Operation of the law of diminishing return:

Finally, we may refer to a special feature of land, not shared by other factors. In fact, production on land is subject to
the operation of the law of diminishing return. As Alfred Marshall has put it “while the part which nature plays in
production shows a tendency to diminishing return, the part which man plays shows a tendency to increasing return”.

This simply means that as more and more workers are employed on the same plot of land, output per worker will
gradually fall (because each additional worker will make less and less contribution to total product). The law of
diminishing return refers to diminishing marginal product of the variable factor.

Mobility:

Land is not geographically mobile. But, it is occupationally mobile. In most parts of India, for example, land has
many alternative uses. It might be used for farmland, roads, railways, airlines, public parks, playgrounds, residential
housing, office buildings, shopping complex, and so on. Some of the land, for example, in hill area, of say, Shillong,
or Darjeeling, has an extremely limited degree of occupational mobility, being useful perhaps for sheep grazing, golf
course or as a centre of tourism.

Return:

The income received by the owner of land is known as rent. It may be noted that rent is usually paid for something
more than the use of land or another natural resource, but includes also an element of payment for another factor
which is involved in making the resource available in a usable form.

An example of this is the labour which assists in the process of bringing minerals to the surface. Iron ore is of no use
while it is still under the ground. Productivity and value of land can be increased if it is improved with fertilisers,
irrigation and the erection of fences and buildings. So rent paid for this kind of fertile land is rather a mixed type of
factor income.

(2) Labour:

Like land, labour is also a primary factor of production. The distinctive feature of the factor of production, called
labour, is that it provides a human service. It refers to human effect of any kind—physical and mental— which is
directed to the production of goods and services. ‘Labour’ is the collective name given to the productive services
embodied in human physical effort, skill, intellectual powers, etc.

As such, there are different types of labour input, varying in effort and skill content, and in particular types of skill
content. Thus, like ‘land’, labour is not homogeneous. The term covers clerical, managerial and administrative
functions as well as skilled and unskilled manual work.
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Land and Labour:

Labour differs from land in an important way. While land is a stock, labour is a flow. The term ‘labour’ is used to
refer to the flow of labour service per unit of time. So labour is perishable. If we do not make use of today’s labour
power, a correspondingly large amount is not made available tomorrow (and in future).

A related, but important point should be noted in this context. The worker sells his services in the market, but retains
his capital (working ability). In other words, what is bought and sold is the service of labour, not labouritself. A firm
cannot buy and sell labour in the same way that it can buy land and capital.

Dual Role:

Another important point to note is that labour is not only a factor of production. The supplier of labour—the worker—
is also a consumer. Thus, labour plays a dual role in a modern economy. Labour is both the subject and the object of
production.

This means two things:

(1) That the production of anything requires the use of labour as a factor, and

(2) That almost everything is produced to satisfy the needs of the workers, who are the main consumers. In fact, any
economic activity takes place to satisfy the consumers. And, consumption demand provides the business people with
the incentive to undertake production.

Peculiarities of Labour as a Factor:

In examining labour markets, it is important to recognise that labour has a number of special characteristics which
distinguish it from ordinary commodities.

1. First, labour market transactions are particularly significant for:

First, labour market transactions are particularly significant for the individual worker. Much of a person’s life style
and relations with other people depend on the job he or she does. Furthermore, the employment of labour involves a
continuing personal relationship between employers and employees, whereas transactions in market for goods are
often brief and impersonal.

2. Labour is an end and means in itself:

A commodity is only a means of production and the object of production is its consumption by labour. Labour,
therefore, becomes a means to its own end.

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3. Thirdly, the individual sells his services but not himself:

The employer, however, must be able to exert some control or authority over the actions of employees. This is not a
very simple matter, which can be covered unambiguously by a contract of employment. A great deal of energy has
been devoted to planning systems for the direction of employees, and even a brief examination of the state of
industrial relations in most countries shows that still much remains to be done.

4. Labour is inseparable from the labourer:

In other words, labour and the labourer go together. When the seller sells a commodity he does not necessarily go
with the commodity. But the labour can supply his labour only when he goes with it. Moreover, when a seller sells a
commodity he parts with it. But when a labourer sells his labour, he retains the quality with him. He may gain the
satisfaction of his services, but he cannot be separated from the labour.

5. Fifthly, the individual must be present when the labour services are used and thus a fifth feature is that
labour services are not transferable:

For example, a person who has agreed to carry out certain tasks cannot transfer his services to someone else to do the
work, while he does something else. This contrasts with commodities which can be transferred among individuals.

One consequence of having to ‘deliver’ the services personally is that employees have strong views on how their
services should be used. Working conditions are of central importance to workers. It also means that workers must
live near their place of work. The location may significantly affect labour market decisions.

6. Sixthly, labour services cannot be stored:

Labour cannot be ‘saved’ or stored for future use (although rest may enhance performance to some extent).

7. Labour is perishable:

A commodity, if it is not disposed off today, can be disposed off the next day and it may not lose its value. Labour,
however, is perishable in this that if the labourer is not able to sell his services for a day he cannot get the value for
that day. It is lost forever; it is because of this that labour has a weak bargaining power.

8. Labour is affected by surroundings:

A commodity is usually very much affected by its surrounding; a labourer is very much affected by the surroundings
because he is a living being. Therefore, any change in atmosphere has an effect on his health feelings etc.

9. The supply of labour is independent of its demand:

In case of most commodities we see that supply usually varies with demand but in case of labour its supply is in no
way related to demand. Both are determined by different factors.
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10. Finally, labour services are enhanced by training:

Skill acquisition is often a lengthy and costly process. However, adjustments in the labour market, such as increasing
the supply of a particular skill, often requires a long time. This also means that individuals do not usually train for
more than one occupation as they only have a

limited working life over which to justify the investment.

Mobility of Labour:

The mobility of labour has two aspects:

(a) The spatial or geographical mobility of labour, which relates to the rate at which workers move between
geographical areas and regions in response to differences in wages and job availability (e.g., a worker from West
Bengal moving to Mumbai) and

(b) The occupational mobility of labour which relates to the extent to which workers change occupations or skills in
response to differences in wages or job availability (e.g., a jute mill worker joining a tea garden).

It may apparently seem that labour is the most mobile of all factors—both occupationally and geographically.
Workers can move both freely from one industry to another and from one region to another.

Reward:

The reward or price that is paid to labour in return for the services it performs is known as a wage or salary. A man’s
wages are associated with his productivity or efficiency and this, in its turn, depends on a variety of factors including
the education and job training he has received, his innate skill and the extent to which he is motivated to put his best
effort in the work he is doing.

In general, the supply of labour varies directly with wages and compensation. Normally, when wages are relatively
low, increases in wages will tend to lead to an increase in the supply of labour. However, as wages continue to rise a
stage ultimately comes when higher wages (incomes) make leisure more attractive.

When incomes are relatively high, therefore, higher wage rates may actually lead to a fall in the number of hours
worked (and, thus, in the amount of labour offered by an individual worker.) This is why the supply curve of labour
bends back to the left and this is often cited as an important exception to the (empirical) law of supply.

(3) Capital:

Capital, the third agent or factor is the result of past labour and it is used to produce more goods. Capital has,
therefore, been defined as ‘produced means of production.’ It is a man-made resource. In a board sense, any product
of labour-and-land which is reserved for use in future production is capital.

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To put it more clearly, capital is that part of wealth which is not used for the purpose of consumption but is utilised in
the process of production. Tools and machinery, bullocks and ploughs, seeds and fertilizers, etc. are examples of
capital. We have already identified certain things described as capital in our discussion on producers’ goods.

Even in ancient times, capital was created for producing food, hunting animals and for the transportation of goods. At
that stage capital goods consisted of simple tools and implements. Even in the least developed countries some capital
is used. In such countries people make use of simple ploughs, axes, bows and arrows, and leather bags to carry water.

It may be pointed out in this context that the same article may, at one time, be a consumption good and, at another
time, capital, depending on the use to which it is put. Thus, if a doctor goes out in his motor car to examine a patient
he is using his car as capital. But if he goes out for a joy ride in his motor car, he is using it as a consumption good.
Similarly, when coal is used in a factory, it is capital, but when coal is used as domestic fuel, it is a consumption
good.

Economists use the term capital to mean goods used for further production. In the business world, however, capital is
always expressed in terms of money. If a businessman is asked, “What is your capital?” he will always mention a sum
of money. But money is not capital because money, by itself, cannot produce anything.

The business-person thinks of money as capital because he can easily convert money into real resources like tools,
machines and raw materials, and use these resources for the production of goods. Also capital is measured in terms of
money. So the amount of resources used or possessed by a business-person is conveniently expressed as a sum of
money.

Classification of Capital:

Capital can be classified in two broad categories that which is used up in the course of production and that which is
not.

Fixed and Circulating Capital:

Fixed capital means durable capital like tools, machinery and factory buildings, which can be used for a long time.
Things like raw materials, seeds and fuel, which can be used only once in production are called circulating capital.
Circulating capital refers to funds embodied in stocks and work-in- progress or other current assets as opposed to
fixed assets. It is also called working capital.

Two Features of Capital:

Two important features of capital are:

Firstly, it entails a sacrifice, since resources are devoted to making non-consumable capital goods instead of goods for
immediate consumption. Secondly, it enhances the productivity of the other factors, viz., land and labour.

In fact, it is this enhanced productivity which represents the reward for the sacrifice involved in creating capital.
Hence we can predict that new capital is only created so long as its productivity is at least sufficient to compensate
those who make the sacrifices involved in its creation. These two features may now be discussed in detail.

Capital Formation:
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People use capital goods like machines, equipment, etc. because capital goods are the creators of other goods. But this
is not the whole truth. People use capital for another important reason to produce goods with less effort and lower
costs than would be the case if labour were not assisted by capital. But in order to use capital goods people must first
produce them. This calls for a sacrifice of current consumption.

When people use their labour to produce capital goods like textile producing machines, they can use the same labour
for producing consumer goods like textiles. As Stanlake has put it “The opportunity cost of the capital goods is the
potential output of consumer goods which has to be foregone in order to produce that capital, the production of capital
demands abstinence from current consumption.”

Factors Affecting Capital Formation:

The creation of capital depends on two things:

(a) Savings and (b) a diversion of resources (from the production of consumption goods to meet current needs to the
production of capital goods to meet future needs). Saving is the difference between current income and current
consumption. In other words, it is the act of foregoing current consumption.

It means that resources otherwise used to produce consumer goods are set aside for producing capital goods. If people
choose not to buy some consumer goods, with some part of their current income, they refrain from buying (utilising)
the services of the factors required to make those goods.

These factors might, therefore, remain idle. But these savings may be borrowed and utilised by business firms
(entrepreneurs) to finance the construction of capital goods. This is the second step—the diversion of resources for
the production of consumer goods to the production of capital (producers) goods. It may be noted that savings make
possible capital accumulation. It does not cause it.

In short, capital formation depends on savings, which, in its turn, depends on two things:

(1) The capacity to save and

(2) The desire to save.

The capacity to save depends on income and the existence of savings institutions like banks, insurance companies,
post offices, stock exchanges, etc. If income is low, savings will also be low. Even if income is high savings will be
low in the absence of the above-mentioned savings institutions.

The desire to save depends on

(1) the rate of interest and (2) stability in the value of money (i.e., the rate of inflation).

If the rate of interest is high people will be eager to save more by curtailing their current consumption. People will
also be eager to save more if they expect that there will exist reasonable price stability in the economy in future.

Mobility of Capital:
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Capital is both geographically and occupationally mobile. However, a certain portion of a nation’s capital stock which
consists of such things as railway networks, blast furnaces and shipyards are highly specialised equipment and are
virtually immobile in the geographical sense. It is physically possible to dismantle them and move them to different
sites or locations, but the cost of doing so will be so great that it will not be economically feasible to do so.

Such equipment are not even occupationally mobile. Each such equipment can only be used for a specific purpose.
Many buildings however, can be put to better uses. Many of the old buildings used as cinema house or god-owns in
northern area of Calcutta have been dismantled and converted into multi-storeyed buildings.

Some capital equipment is mobile in both the geographical and occupational sense. Examples of such capital
equipment are electric motors, machine tools, hand tools, typewriters, and lorries. Such equipment can be used
effectively in a wide variety of industries and are capable of moving from one location to another at very little cost.

Return:

The earning of capital, i.e., the price that has to be paid for it, is known as interest. If it stated as percentage of the
principal, representing the sum paid by a borrower who needs finance to purchase a piece of capital equipment.

(4) Enterprise (Organisation):

Meaning:

Organisation, as a factor of production, refers to the task of bringing land, labour and capital together. It involves the
establishment of co-ordination and co-operation among these factors. The person in charge of organisation is known
as an organiser or an entrepreneur. So, the entrepreneur is the person who takes the charge of supervising the
organisation of production and of framing the necessary policy regarding business.

Functions or Role of the Entrepreneur:

The entrepreneur in modern business performs the following useful functions:

1. Decision-making:

The primary task of an entrepreneur is to decide the policy of production. An entrepreneur is to determine what to
produce, how to produce, where to produce, how much to produce, how to sell and so forth. Moreover, he is to decide
the scale of production and the proportion in which he combines the different factors he employs. In brief, he is to
make vital business decisions relating to the purchase of productive factors and to the sales of the finished goods or
services.

2. Management Control:

Earlier writers used to consider management control one of the chief functions of the entrepreneur. Management and
control of the business are conducted by the entrepreneur himself. So the latter must possess a high degree of
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management ability to select the right type of persons to work with him. But the importance of this function has
declined, as the business nowadays is managed more and more by paid managers.

3. Division of income:

The next major function of the entrepreneur is to make necessary arrangement for the division of total income among
the different factors of production employed by him. Even if there is a loss in the business, he is to pay rent, interest;
wages and other contractual income out of the realised sale proceed.

4. Risk-taking and uncertainty-bearing:

Risk-taking is perhaps the most important function of an entrepreneur. Modern production is very risky as an
entrepreneur is required to produce goods or services in anticipation of their future demand. Broadly, there are two
kinds of risk which he has to face.

Firstly, there are some risks, such as risks of fire, loss of goods in transit, theft, etc., which can be insured against.
These are known as measurable and insurable risks. Secondly, some risks, however, cannot be insured against
because their probability cannot be calculated accurately. These constitute what is called uncertainty (e.g.,
competitive risk, technical risk, etc.). The entrepreneur undertakes both these risks in production.

5. Innovation:

Another distinguishing function of the entrepreneur as emphasised by Schumpeter, is to make frequent inventions-
invention of new products, of new techniques and discovering new markets—to improve his competitive position,
and to increase earnings.

Reasons for Government’s Intervention in Private Business

1. Provision of Non-market Products and Indivisible Services

Certain products and services are necessary for the very existence of the society. They include nation’s defense and
related services, price protection, flood control, protection of public monuments, buildings etc. These services are
called non-excludable public services or goods. The market mechanism cannot and shall not provide such services.
Hence, they cannot be left to the market mechanism.
Some of the services or activities can be carried on by voluntary agencies and service organizations like Red Cross
etc. But it is difficult to promote and administer such organizations. Again the difficulties involved in collecting the
fees from the beneficiaries are not also very easy. Only a competent Government can organize such activities and
provide finance to carry on them.

2. Provision of Basic Infrastructure

The provision of basic infrastructure like power, communication, port facilities, banking and other institutional
facilities is sin qua non for the growth of the national economy. It involves a huge capital outlay.

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At the same time, the return is very poor when compared to the capital investment involved in them. Moreover, it is
not also advisable to leave them in the hands of private individuals or market participants to bear the burden.
Moreover, they may also exploit the society if they have a free hand in them.

3. Improvement in Market Functioning

Perfect market in its original sense, does not exist anywhere in the world. Even developed economies are no
exception to this. The Government cannot correct the imperfections in the market absolutely. However, as pointed out
by Gerald Sirkin, these imperfections are capable of at least partial correction by the Government action. He further
declared that the state might help to correct some of the imbalances in the market mechanism in the following ways.

4.Provision of Correct Information

Market system will work better only when the individual participants i.e. consumers, resource owners and
entrepreneurs have perfect and correct information on various aspects. They need information regarding the quality
and prices of raw materials, end products, factor costs, labour exchanges and so on.

In developed markets, more market information is available without the help of the Government. Various private
service organizations are furnishing such information by directly conducting market surveys etc. But in a less
developed market, the Government alone can provide such information and the private agencies are not competent
enough to collect and disseminate data regarding market trends etc.

Even in case of developed markets, the private information services are not available to small consumers,
unorganized labour and the small investors. (However, now-a-days the need for state’s help is not felt much in all the
countries and in all the markets).
5. Promotion of Competition
Competition, in its real sense has never existed in all free market economies. The past history shows that how
business people and industrialists avoided Competition and exploited the society by using certain devices
like mergers and amalgamations, syndicates, pools and cartels.
The leading business magnets built up their own empire and practiced all undesirable trade practices. Hence there is a
need for state intervention to protect the interests of the society and to promote real competition.
The Government in this regard can help in many ways. In particular it can

1. Control the size of private enterprises i.e. monopoly houses.

2. Regulate and prohibit monopolistic, restrictive and unfair trade practices.
3. Prevent mergers and amalgamation of competing units.
In extreme cases, it can even open domestic market to foreign competition, streamline its own licensing etc.

6.Allocation of Resources among Better alternative Uses

The investors will prefer to invest their surplus only in profitable avenues. On the other hand, they will hesitate or
even avoid investment in areas, which are socially desirable but less profitable. Such a situation will really restrict the
movement of resources among alternatives uses, which is undesirable from the competition point of view. Only state
intervention can remedy this.

The Government may, through rewards and incentives encourage movement of productive resources among
alternatives uses. Examples of this type are provision of subsidies to industrial units started in backward areas, tax
holiday benefits, special incentives to certain type of industries etc. It can also enact suitable legislation to curb
monopolistic and restrictive trade practices, control capital issues etc.

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7.Provision of Institutional Support
Government can provide cheap credit facilities to certain sectors and stimulate their growth. Examples of such sectors
are small business and agriculture. These sectors provide employment opportunities to millions of people but the
private credit agencies are not extending a helping hand to this sector.
In a free market economy, small businessmen, village artisans, agriculturists etc. shall find their very existence in
trouble.

8.Standardization of Business Practices

Standardized commercial practices are necessary to bring stability in commercial inter change. Customs, trade usage
etc. are of course, there. But they are only voluntary. It is now recognized all over the world (including U.S.A.) that
the Government is the only competent agency to set standard business practices.
The Government through legislation associated with competent administrative machinery can check most of the
unethical and unfair trade practices.

9.Stabilization of Aggregate Demand

One of the most important functions of the Government is to provide a sound monetary system, which is necessary
for conducting business transactions. The rules and regulations relating to the money system constitute the official
monetary policy. Whether the amount of money in circulation is to be increased or decreased also depends on the
Government policy. Hence the Government through its appropriate monetary and fiscal policies can facilitate smooth
functioning of the market at the full employment level.
10.Correction of Inherent Defects in the Market Mechanism
Free market in its literal sense does not exist anywhere in the world. The market mechanism has certain inherent
defects, which cannot be corrected without the intervention of the state. Situations, which call for state intervention,
include the following.

Five Areas of Government Regulation of Business

1.Advertising

Laws pertaining to marketing and advertising set in motion by the Federal Trade Commission exist to protect
consumers and keep companies honest about their products, according to Business.gov. Every business in the
country is required to comply with the truth-in-advertising laws and could face lawsuits for violation.
Truth-in-advertising laws are made up of dozens of tidbits under three main requirements: advertising in the
United States must be truthful and non-misleading; businesses need to be able to back up claims made in
advertisements at any time; and advertisements must be fair to competitors and consumers. Additionally, in
compliance with the Fair Packaging and Labeling Act of 1966, all product labels must include information
about the product, such as nutrition, size, and distribution and manufacturing information.
2.Employment and Labor

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Among the ever-changing regulations in business are employment laws. These laws pertain to minimum wages,
benefits, safety and health compliance, work for non-U.S. citizens, working conditions, equal opportunity
employment, and privacy regulations--and cover the largest area of subjects of all the business regulations.
Several employment regulations stand out as the heavy hitters among the others.
The 1938 Fair Labor Standards Act, applied by the Wage and Hour Division, is still in effect today and was
last updated in 2017. It covers setting the national minimum wage, overtime, record keeping and child labor
laws that cover employees in the private sector as well as federal, state and local governments.
The Employee Retirement Income Security Act ensures that employees receive the retirement plan options and
health care benefits to which they are entitled as full-time employees. There are also several required benefits,
including unemployment insurance, Workers' Compensation Insurance and employee Social Security
assistance.
The Immigration and Nationality Act ensures that only U.S. citizens and individuals with work visas can be
hired, and every business must keep on file I-9 eligibility forms for applicable employees.
3.Environmental Impact

The carbon footprint and the effect of businesses on the environment is regulated by the Environmental
Protection Agency alongside state agencies. The EPA enforces environmental laws passed by the federal
government through educational resources, frequent inspections and local agency accountability.
The Environmental Compliance Assistance Guide exists to help businesses--small and large alike--achieve
environmental compliance, and serves as an educational resource more than an enforcer.
4.Privacy Protection

Sensitive information is usually collected from employees and customers during hiring and business
transactions, and privacy laws prevent businesses from disclosing this information freely. Information
collected can include social security number, address, name, health conditions, credit card and bank numbers
and personal history. Not only do various laws exist to keep businesses from spreading this information, but
people can sue companies for disclosing sensitive information.
The Federal Trade Commission monitors business practices and charges or fines companies that violate the
privacy promises they made to consumers. For example, when a company promises not to use their
information in ways other than what is stated, or shares their private information without consent, or monitors
customers' online, mobile and/or television habits without informing them in advance, the FTC charges them
publicly with such offenses, levies hefty fines and forces the business to change their unethical practices.
5.Safety and Health

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The Safety and Health Act of 1970 ensures that employers provide safe and sanitary work environments
through frequent inspections and a grading scale. A company must meet specific standards in order to stay in
business. This regulation has changed frequently throughout the years alongside the changing sanitary and
workplace standards.

8 Emerging Trends and Best Practices in Global E-commerce

1. Micro-payments
Among the most revolutionary changes in the coming months—not years—is the use of micro-payment systems from
a variety of financial firms, e.g., Paypal, Visa, WesternUnion, among others, including banks. This trend is facilitated
by the W3C working group that approved these protocols and technical standards for the interworking. These systems
will change not only how we carry money but how we value money and think about purchases. (Consider how a
purchase of $4.99 feels in a mobile app store vs. at Dunkin’ Donuts.) Payment systems that make it easier to buy
online, coupled with mobile technologies will accelerate the usage of global e-commerce applications.

2. Mobile technologies
More people access the Internet on their mobile devices than on any other device. We are rapidly approaching the
time (if we are not already there) where designs must be created for the mobile web first, and for the desktop second.
Mobile technologies facilitate comparison shopping; with the advent of barcode reader apps and price-comparison
databases, a consumer could snap a bar code in Walmart and quickly reference product reviews and prices on
walmart.com (or compare prices with Walmart competitors). Mobile technologies also facilitate impulse buys –
especially with the advent of micro-payments tied to the mobile device. Just recently, Starbucks customers can not
only place an order with their Smartphone, but also make a purchase.

3. Social media
As Facebook has become the most visited site on the Web, the role of social media, including Facebook and its local
clones such as Twitter, is increasingly important. Social media sites increasingly act as points of entry to e-commerce
sites, and vice versa, as e-commerce sites build rating, loyalty and referral systems tied to social media. Group buying
(e.g., Groupon) is also gaining mainstream ground, with many “deal of the day” sites competing for an increasingly
savvy consumer base, but improvements lie ahead as the social aspects and user experience are refined.

4. Fulfillment options
I believe that users will want to have multiple fulfillments and return options when interacting with a vendor: ship to
address, courier, pick-up in store, return to store, etc. Having many fulfillment options is how customers view their
overall customer experience. Some companies have made a business proposition online by being exceptional in
service to the online channel (e.g., Zappos).

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5. Global availability
Increasingly, consumers want the availability to buy products from foreign sites and have them delivered locally.
Thus, currency and customs will be of growing concern to many online retailers. Along with this, there will be
concerns with local privacy laws and restrictions on related data collection and storage.

6. Localization
While the trend is to globalize, what’s often more important is to localize. User Centric’s (now GfK’s User
Experience team) research clearly shows that sites that ‘feel’ local – with proper imagery, language, time/date,
weights/measures, currency, etc. – resonate far more than sites that seem culturally distant or sterile.

7. Customizability
Consumers want control, and want to be able to design the details of the items they purchase.

8. Time-based availability
Some of the hottest and most successful sites are those that have a time-critical response component. Sites like
Groupon, Gilt and others capitalize on the perception of limited-time availability. Creating a sense of urgency drives
traffic and purchase behavior.
As user experience experts, we constantly evaluate the latest trends and technology with the end user in mind. As
companies race to add components to or modify existing Web pages to stay ‘on trend,’ they must also continually
evaluate how their end users will be affected and how a negative user experience will affect customer retention and,
ultimately, the bottom line.

TOPIC TWO: RECORDING BUSINESSTRANSACTIONS

Learning Objectives
Upon Completion of this topic you should be able to:

 Define the meaning of double entry book-keepingsystem

 Define assets, capital andliabilities
 Prepare simple balancesheet

2.1 Introduction

A business can be set up in two ways-

i) Owner supplying all theresources

ii) Owner supplying some of the resources and the rest being supplied
by outside parties.
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 The two cases bring out the accounting equation also called book- keeping equation

Case one: owner supplying all the resources

In this case we say that-

Resources in the business = Resources supplied bytheowner…………… (i)

Resources in business are called assets and resources supplied by the owner are called
capital
Therefore equation (i) can be re -written as-

ASSETS = CAPITAL

Case two: resources supplied by owner and outside parties

In this case we say that-

Resources in business = Resources supplied by the owner + Resources supplied by

out- side parties….....................................................................(ii)

The new term in the equation is resources supplied by out side parties, in accounting,
we call them liabilities.

Therefore equation (ii) can be re-written as-

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ASSETS = CAPITAL+ LIABILITIES….....................................................................................(ii)

2.2 Components of accountingequations

Assets: An asset is a resource controlled by a business entity/firm as a result of past

events for which economic benefits are expected to flow to thefirm.
An example is if a business sells goods on credit then it has an asset called a debtor. The
past event is the sale on credit and the resource is a debtor. This debtor is expected to pay
so that economic benefits will flow towards the firm i.e. in form of cash once the
customers pays.
Assets are classified into two main types:
i) Non current assets (formerly called fixedassets).
ii) Current assets.
Non current assets are acquired by the business to assist in earning revenues and not for
resale. They are normally expected to be in business for a period of more than one year.
Major examples include
 Land and buildings
 Plant andmachinery
 Fixtures, furniture, fittings andequipment
 Motor vehicles
Current assets are not expected to last for more than one year. They are in most cases
directly related to the trading activities of the firm. Examples include:
 Stock of goods – for purpose of selling.
 Trade debtors/accounts receivables – owe the business amounts as a resort of
trading.
 Other debtors – owe the firm amounts other than fortrading.
 Cash at bank.
 Cash inhand.
Liabilities: These are obligations of a business as a result of past events settlement of
which is expected to result to an economic outflow of amounts from the firm. An
example is when a business buys goods on credit, then the firm has a liability called
creditor. The past event is the credit purchase and the liability being the creditor the firm
will pay cash to the creditor and therefore there is an out flow of cash from thebusiness.

Liabilities are also classified into two main classes.

i) Non-current liabilities (or long termliabilities)

ii) Currentliabilities.

Non-current liabilities are expected to last or be paid after one year. This includes
long-term loans from banks or other financial institutions. Current liabilities last for a
period of less than one year and therefore will be paid within one year.

Major examples:

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  Trade creditors or accounts payable – owed amounts as a resultof
business buying goods oncredit.
 Other creditors - owed amounts for services supplied to thefirm
other than goods.
 Bank overdraft - amounts advanced by the bank for ashort-term
period.
Capital: This is the residual amount on the owner’s interest in the firm after deducting
liabilities from the assets.

The Accounting equation can be expressed in a simple report called the Statement of
financial position (formerly, balance sheet). The basic format is as follows:

Name

Statement of financial position as at 31.12.

Sh Sh Sh
ShCapital xx
Non CurrentAssets

Land & Buildings xx

NonCurrentLiabilities Plant& Machinery xx

Loan Fixtures, furniture &fittings

xx
Motor vehicles xx

Currentliabilities xx

Overdraft xx Current Assets

Creditors xx xx Stocks xx
Debtor’s xx
CapitalandLiabilities Cashatbank xx
Cashin hand xx xx
xx Total assets xx

The above format of the statement of financial position is the horizontal format
however currently the practice is to present the Statement of financial position using
the vertical format which is shown below.

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 Name

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 Statement of financial position as at 31.12. 20xx

Shs. Shs. Shs.

Non Current Assets xx
Land & Buildings xx
Plant & Machinery xx
Fixtures, furniture & fittings xx
Motors vehicles xx xx
Current Assets
Stocks/inventories xx
Debtors/ trade receivables xx
Cash at bank xx
Cash in hand xx
xx
Current Liabilities
Bank Overdraft xx
Creditors/trade payables xx
xx xx
Net Current Assets xx
Net assets xxx
Capital xxx
Non current liabilities
Loan (from bank or other sources) xx
Total Capital & liabilities xxx

Pay attention to the format. The non current assets are listed in order of permanence as
shown i.e. from Land and Buildings to motor vehicles. The current assets are listed in
order of liquidity i.e. which asset is far from being converted into cash. Example, stock is
not yet sold, (i.e. not yet realised yet) then when it is sold we either get cash or a debtor
(if sold on credit). When the debtor pays then the debtor may pay by cheque (cash has to
be banked) orcash.

The current liabilities are listed in order of payment i.e. which is due for payment first.
Bank overdraft is payable on demand by the bank, then followed by creditors.
Note that in the vertical format, current liabilities are deducted from current assets to
give net current assets. This is added to Non Current assets, which give us net assets.
Net assets should be the same as the total of Capital and Non Current Liabilities.

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Example 1.2

C.Murungi sets up a new business. Before he actually sells anything he has bought
motor vehicles of Sh.3, 000, premises of Sh.7, 000, stock of goodsSh.2,000. He still
owesSh.800 in respect of them. He had borrowed Sh.4,000 from D Evans. After the
events just described and before trading starts, he hadSh.300 cash in hand andSh.600 cash
at bank.
You are required to calculate the amount of his capital.

Solution

Asset Sh Sh
Motor Vehicle 3,000
Premises 7,000
Stock 2,000
Cash at bank 600
Cash in hand 300
12,900
Liabilities
creditors 800
Loan- D Evans 4,000 (4,800)
8,100

Capital 8,100

Remember the Accounting equation:

Assets = Liabilities + Capital.

To get capital we rearrange the equation as follows:

Capital = Assets - Liabilities
Total Assets =Sh.12,900
Total Liabilities =Sh.4,800
Capital =Sh. 12,900 - 4,800
=Sh. 8,100

Example 2.2

D Moody has the following assets and liabilities as on 31 April 2002:

Sh.
Creditors 15,800
Equipment 46,000
Motor Vehicle 25,160
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 Stock 24,600
Debtors 23,080

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 Cash at bank 29,120
Cash in hand 160

During the first week of May 2002 Moody:

a. Bought extra equipment on credit forSh.5,520.
b. Bought extra stock by cheque Sh.2,280.
c. Paid creditors by cheque Sh.3,160.
d. Debtors paid Sh.3,360 by cheque and Sh.240 bycash.
e. Moody put in extra Sh.1,000 cash ascapital.

Required:
a. Determine the capital as at 1st May2002.
b. Draw up a statement of financial position after the above transactions have
beencompleted.
Solution:

(i) Using the accounting equation of Assets = Liabilities + Capital, then assets and
liabilities can be listed asfollows.
Assets Sh. Liabilities Sh.
Equipment 46,000 Creditors 15,800
Motor Vehicle 25,160
Stock 24,600
Debtors 23,080
Cash at bank 29,120
Cash in hand 160
148,120

Capital = Assets – Liabilities

= Sh.148,120 - Sh.15,800 = Sh.132,320

D Moody
Statement of financial position as at 7 May 2002

Non Current Assets Sh Sh

Equipment 51,520
Motor Vehicle 25,160
76,680

Current Assets
Stock 26,880
Debtors 19,480
Cash at Bank 1,400
74,800

Current Liabilities
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 Creditors (18,160)
NetCurrent Assets 56,640
Net Assets 133,320
Capital 133,320

2.3 Cause of Changes inCapital

The capital in a business does not remain intact but changes over time due to the
following factors: additional investments, profits drawings or losses.
1) Additional investments (I)-occurs when the owner of the business brings in his
personal cash or assets into the business for business use. Addition investment increase
the capital of thebusiness.

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 2) Profits (P) -defined as the excess revenue obtained after paying costs of a business
increase the level of capital and assets of thebusiness.
3) Drawings (D)-refer to the money or other assets taken from the business by the owner
for personal use. Drawings reduce the ofbusinesscapital.
4) Losses(l)–occurswhenthecostofgoodsorservicesaregreaterthantheirsaleprice
.losses reduce the level of business capital.

2.4 Initial Capital and Final Capital of aBusiness

Initial capital refers to any funds and other assets invested into the business by the owner
at the beginning of the trading period.
Final capital refers to the business capital at the end of the trading period. Thus, final
capital is initial capital when it has been influenced by factors such as additional
investment, profits, drawings and losses.
The formula for determining initial capital is represented as follows:
Initial capital =final capital – addition investment – net profits +drawings
i.e : I.C = F.C - I- P +D

Example 3.2

The following information was extracted from the books of Lima traders for the year
ended 31stdec 2009.
a) Closing capital as at 31st /12/2009 -: sh4000,000.
b) Made profit of -: sh.200,000.
c) The proprietor invested into the business from her
personal use -: sh.250,000.
d) The proprietor withdrew in cash for her personal use -:sh
60,000.
Required
Using initial capital formula, find the intial capital
Solution

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 I.C = F.C – I – P + D
I,C =sh 4000,000 – sh 250,000 –sh 200,000 +sh 60,000
I.C =sh 3,610,000.

FORMS OF BUSINESS OWNERSHIP

Sole Proprietorship

Sole Proprietorship in simple words is a one-man business organisation. It is the type of entity that
is fully owned and managed by one natural person (not a legal person/entity) known as the sole
proprietor. The business and the man are the same, it does not have a separate legal entity.

A sole proprietorship usually does not have to be incorporated or registered. It is the simplest form
of business organisations and the ideal choice to run a small or medium scale business. Let us look
at some important features of a proprietorship.

Features of Sole Proprietorship

1] Lack of Legal Formalities

A sole proprietorship does not have a separate law to govern it. So there are not many special rules
and regulations to follow. It does not require incorporation or registration of any kind. In most
cases, only a license is required to carry out the desired business.

And just like in its formation, there is hardly any legal process involved in its closure. Overall it
allows for ease of doing business with minimum hassles.

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2] Liability

Since there is no separation between the owner and the business, the liability of the owner is also
unlimited. So if the business is unable to meet its own liabilities, it will fall upon the proprietor to
pay them. All of his personal assets (like his car, house, other properties etc) may have to be sold to
meet the liabilities of the business.

3] Risk and Profit

The owner is the only risk bearer in a sole proprietorship. Since he is the only one financially
invested in the company, he must also bear all the risk. If the business fails or suffers losses he will
be the one affected.

However, he also enjoys all the profits from the business. He does not have to share his profits with
any other stakeholders since there are none. So he must bear the full risk in exchange for
enjoying full profits.

4] No Separate Identity

In legal terms, the business and the owner are one and the same. No separate legal identity will be
bestowed upon the sole proprietorship. So the owner will be responsible for all the activities and
transactions of the business.

5] Continuity

Just as we saw above the business and the owner have one identity. So a sole proprietorship is
entirely dependent on its owner. The death, retirement, bankruptcy.insanity, imprisonment etc will
have an effect on the sole proprietorship. In most of such cases, the proprietorship will cease to exist
and the business will come to an end.

Advantages of Sole Proprietorship

 A proprietor will have complete control of the entire business, this will facilitate quick
decisions and freedom to do business according to their wishes

 Law does not require a proprietorship to publish its financial accounts or any other such
documents to any members of the public. This allows the business a great deal
of confidentiality which is sometimes important in the business world

 The owner derives maximum incentive from the business. He does not have to share any of
his profits. So the work he puts into the business is completely reciprocated in incentives

 Being your own boss is a great sense of satisfaction and achievement. You are answerable
only to yourself and it is a great boost to your self-worth as well

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Disadvantages of Sole Proprietorship

 One of the biggest limitations of a sole proprietorship is the unlimited liability of the owner.
If the business fails it can wipe out the personal wealth of the owner as well and affect his
future business prospects too

 Another problem is the limited capital a sole proprietor has access to. His own personal
savings and money he can borrow may not be enough to expand the business. Banks and
financial institutions are also wary lending to proprietorships

 The life cycle of a sole proprietorship is undecided and attached to its owner. If the owner is
incapacitated in any way it has a negative effect on the business, and it may even lead to the
closure of the business. A sole proprietorship cannot carry on without its proprietor.

 A sole proprietor also has limited managerial ability. He cannot be an expert in all the fields
of the business. And limited resources may mean that he cannot even hire competent people
to help him out. This may lead to the business suffering from mismanagement and poor
decisions.

7 Different Kinds of Partners that are found in Partnership Firms

1. Active or managing partner:

A person who takes active interest in the conduct and management of the business of the firm is

known as active or managing partner.

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46 | P a g e
He carries on business on behalf of the other partners. If he wants to retire, he has to give a

public notice of his retirement; otherwise he will continue to be liable for the acts of the firm.

2. Sleeping or dormant partner:

A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the

management of the business. Such a partner only contributes to the share capital of the firm, is

bound by the activities of other partners, and shares the profits and losses of the business. A

sleeping partner, unlike an active partner, is not required to give a public notice of his retirement.

As such, he will not be liable to third parties for the acts done after his retirement.

3. Nominal or ostensible partner:

A nominal partner is one who does not have any real interest in the business but lends his name

to the firm, without any capital contributions, and doesn’t share the profits of the business. He

also does not usually have a voice in the management of the business of the firm, but he is liable

to outsiders as an actual partner.

Sleeping vs. Nominal Partners:

ADVERTISEMENTS:

It may be clarified that a nominal partner is not the same as a sleeping partner. A sleeping partner

contributes capital shares profits and losses, but is not known to the outsiders.

A nominal partner, on the contrary, is admitted with the purpose of taking advantage of his name

or reputation. As such, he is known to the outsiders, although he does not share the profits of the

firm nor does he take part in its management. Nonetheless, both are liable to third parties for the

acts of the firm.

47 | P a g e
4. Partner by estoppel or holding out:

If a person, by his words or conduct, holds out to another that he is a partner, he will be stopped

from denying that he is not a partner. The person who thus becomes liable to third parties to pay

the debts of the firm is known as a holding out partner.

There are two essential conditions for the principle of holding out : (a) the person to be held out

must have made the representation, by words written or spoken or by conduct, that he was a

partner ; and (6) the other party must prove that he had knowledge of the representation and

acted on it, for instance, gave the credit.

5. Partner in profits only:

When a partner agrees with the others that he would only share the profits of the firm and would

not be liable for its losses, he is in own as partner in profits only.

6. Minor as a partner:

A partnership is created by an agreement. And if a partner is incapable of entering into a

contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i.e., a

person who has not attained the age of 18 years) cannot be one of the parties to the contract. But

under section 30 of the Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of

partnership’, with the consent of all partners. A minor partner is entitled to his share of profits

and to have access to the accounts of the firm for purposes of inspection and copy.

He, however, cannot file a suit against the partners of the firm for his share of profit and property

as long as he remains with the firm. His liability in the firm will be limited to the extent of his

share in the firm, and his private property cannot be attached by creditors.

On his attaining majority, he has to decide within six months whether he will become regular

partner of withdraw from partnership. The choice in either case is to be intimated through a

public notice, failing which he will be treated to have decided to continue as partner, and he

48 | P a g e
becomes personally liable like other partners for all the debts and obligations of the firm from the

date of his admission to its benefits (and not from the date of his attaining the age of majority).

He also becomes entitled to file a suit against other partners for his share of profit and property.

7. Other partners:

In partnership firms, several other types of partners are also found, namely, secret partner who

does not want to disclose his relationship with the firm to the general public. Outgoing partner,

who retires voluntarily without causing dissolution of the firm, limited partner who is liable only

up to the value of his capital contributions in the firm, and the like

Selecting a Business Partnership Type

A partnership is a business with several individuals, each of whom owns part of the business.
The relationship between the partners and the duties of partners are clarified in the partnership
agreement.

In any partnership, each partner must "buy in" or invest in the partnership. Usually, each
partner's share of the partnership profits and losses is based on his or her percentage share of
ownership.

The term "partnership" has changed over the years, as business people have come to add new
features to the old business form. These new partnership types are intended to help reduce the
liability issues with partnerships. The most used partnership types are listed here, with their
features, to help you decide which type you might want to use.

Partnerships are formed by state laws, so some partnership types may not be available in some
states.

49 | P a g e
General Partnership

A general partnership is a partnership with only general partners. Each general partner takes part
in the management of the business and also takes responsibility for the liabilities of the business.
If one partner is sued, all partners are held liable. General partnerships are the least desirable for
this reason.

Limited Partnerships

A limited partnership includes both general partners and limited partners. A limited partner does
not participate in the day-to-day management of the partnership and his/her liability is limited. In
many cases, the limited partners are merely investors who do not wish to participate in the
partnership other than to provide an investment and to receive a share of the profits.

Considering Liability in Partnerships

The general partnership is similar to a sole proprietorship in the liability of owners. In both cases,
the owner or owners have full liability for the debts of the business and for their actions. That's
why new partnership types were set up to limit the liability of one partner for the actions of other
partners. Limited liability in general means that the liability of any one partner is limited to that
person's investment in the partnership.

In a limited partnership, limited partners have limited liability because they don't participate in
management decision-making. General partners don't have limited liability because they are
active in making decisions - and being liable for them.

Limited Liability Partnerships

A limited liability partnership (LLP) is different from a limited partnership or a general

partnership but is closer to a limited liability company (LLC). In the LLP, all partners have
limited liability.

An LLP combines characteristics of partnerships and corporations. As in a corporation, all

partners in an LLP have limited liability, from errors, omissions, negligence, incompetence, or
malpractice committed by other partners or by employees. Of course, any partners involved

50 | P a g e
in wrongful or negligent acts are still personally liable, but other partners are protected from
liability for those acts.

LLC or Partnership?

In recent years, the limited liability company has become more common than the general
partnership and the limited partnership, because it has more limited liability for the owners (as
the name suggests).

But there are still cases in professional practices in which some partners want to be limited in the
scope of duties and they just want to invest, having the liability protection.

You might have also considered setting up your multiple-person business as an LLC. While a
multiple-member (owner) LLC is taxed like a partnership, there are differences in liability and in
other ownership provisions. Read more about the differences between an LLC and partnership.

Joint Ventures as Partnerships

The Small Business Administration lists a joint venture as a type of partnership. A joint venture
is typically a partnership between different businesses formed for a specific purpose (like making
a movie or building a structure) or for a specified time period.

Qualified Joint Ventures as Partnerships

A qualified joint venture is a special kind of partnership in which two spouses who jointly own a
business can elect to file separately to avoid having a file a complicated partnership tax return.
You can read more about how a qualified joint venture works, and the restrictions.

Types of Partners

Just to confuse the issue, a partnership can have different types of partners - general partners and
limited partners. There can be both types of partners in any type of partnership except for the
general partnership, which has only general partners. Briefly, the two types of partners:

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  General partners, who invest in the partnership, participate in the day-
to-day operations and are liable for debts and lawsuits of the
partnership
 Limited partners, who invest in the partnership but who have no
participation in day-to-day operations and who are not usually
considered to have liability.

Partnerships and Tax Issues

As you are considering partnership type, you should also consider how a partnership (and a
multiple-member LLC) is taxed. The partnership, as a whole, files an information return on Form
1065 and the individual partners receive a Schedule K-1showing the share of the partnership
profits or losses for the year. Read more about how a partnership pays income taxes.

This is a general overview of these partnership types. This article describes the steps to starting a
partnership.

What Is a Partnership?
A partnership is a formal arrangement by two or more parties to manage and operate a business
and share its profits.

There are several types of partnership arrangements. In particular, in some partnerships, all
partners share liabilities and profits equally, while in others, partners have limited liability. There
also is the so-called "silent partner," in which one party is not involved in the day-to-day
operations of the business.

How a Partnership Works

In a broad sense, a partnership can be any endeavor undertaken jointly by multiple parties. The
parties may be governments, non-profits enterprises, businesses, or private individuals. The goals
of a partnership also vary widely.

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Within the narrow sense of a for-profit venture undertaken by two or more individuals, there are
three main categories of partnership. The general partnership, the limited partnership, and the
limited liability limited partnership.

Limited liability partnerships are most commonly found among professionals such as
accountants, lawyers, and architects.
In a general partnership, all parties share legal and financial liability equally. The individuals are
personally responsible for the debts the partnership takes on. Profits are also shared equally. The
specifics of profit sharing will almost certainly be laid out in writing in a partnership agreement.

Limited liability partnerships are a common structure for professionals such as accountants,
lawyers, and architects. This arrangement limits partners' personal liability so that, for example,
if one partner is sued for malpractice the assets of other partners are not at risk. Some law and
accounting firms make a further distinction between equity partners and salaried partners. The
latter is more senior than associates but do not have an ownership stake. They are generally paid
bonuses based on the firm's profits.

Limited partnerships are a hybrid of general partnerships and limited liability partnerships. At
least one partner must be a general partner, with full personal liability for the partnership's debts.
At least one other is a silent partner whose liability is limited to the amount invested. This silent
partner generally does not participate in the management or day-to-day operation of the
partnership.

Finally, the awkwardly-named limited liability limited partnership is a new and relatively
uncommon variety. This is a limited partnership that provides a greater shield from liability for
its general partners.

Principles of cooperation

1.Promoting structural conditions and global policies conducive to development

Switzerland does everything it can to ensure that the conditions for effective global development
and international cooperation are met. It promotes increased responsibility for authorities and
civil society in partner countries and it endeavours to obtain fair and favourable legal conditions
for the private sector and non-governmental organisations. It promotes sustainable and global
management of issues relating to water, food security, climate, health and migration, and it
lobbies for green economic growth.
Since official development assistance is just one of several sources of funding available to
developing countries, Switzerland now channels part of its resources into mobilising other much
larger investments. Switzerland’s financial assistance has to create a leveraging effect to ensure
that the needs of the poorest individuals and communities are taken into account over the long
term.

2.Ensuring maximum efficiency

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Project planning, implementation and supervision focus on results and real improvements in the
living conditions of the beneficiaries of international cooperation. All aspects of sustainability
are taken into account: social, economic, environmental as well as governance and equality
between women and men.
Switzerland works with governments, donor countries and multilateral organisations. It also
favours the involvement of civil society and the private sector.
The agencies active in Switzerland’s international cooperation aim to coordinate their activities
with other donors in compliance with the principles of the Busan Partnership for Effective
Development Cooperation. On the strength of its experience, Switzerland actively participates in
efforts to improve international cooperation practices with a view to ensuring that its
development cooperation is effective. In the area of humanitarian aid, Switzerland also
endeavours to improve coordination between the different actors.
Effectiveness

3.Adding value, developing and sharing know-how and experience

Helping others to help themselves remains the leitmotif of Switzerland’s engagement. From this
standpoint, Switzerland provides its assistance in those areas where it possesses substantial
know-how. Switzerland deploys the expertise of the SDC, SECO, the Human Security Division
of the FDFA and other areas of the Federal Administration, as well as of private businesses,
research institutes and civil society. Switzerland endeavours to harness local knowledge to the
benefit of developing countries and to share its own experience with them.
Institutional learning and networking
Capacity development in partner countries

4.Working as partners in mutual respect

In its actions, Swiss international cooperation recognises and respects the world’s different
cultures and religions. It works with the people, institutions and political forces in its partner
countries, whilst emphasising respect for the rule of law and human rights. These partnerships
rely on shared values and objectives, relationships of trust and a desire for transparency.

5.Working with public authorities

In most cases, international cooperation with state authorities is important and necessary because
the partner states cannot ensure a form of prospering socio-economic development that is
accessible to all. Where, in any such country, human rights are swept aside or the necessary
conditions for the rule of law and democracy are not in place, Switzerland reviews its
engagement at government level.
Depending on the particular situation, Switzerland enters into political dialogue with the
government concerned with a view to making reforms or improving socio-economic conditions.
This dialogue takes place in full respect for Switzerland’s neutrality. This is a specific

54 | P a g e
prerogative of the agencies representing the Swiss government in the area of international
cooperation and complements the work of NGOs on the ground.
Partnerships with state institutions

6.Good governance
Switzerland promotes respect for human rights and good governance in every one of its projects
and programmes as well as in its political dialogue. The latter targets the quality of government
and public administration, and compliance with the obligation to accountability. This requires
the legal system to be independent of the state. It implies the existence of the rule of law, a
democratic system and fair regulatory framework for both private and public enterprises.
Transparency and liability for corruption are of vital importance.

7.Equality between women and men

Switzerland’s efforts towards poverty reduction go hand in hand with its commitment to equality
between the sexes. It condemns discrimination against women, whether relating to work,
education, their rights, or attacks on their physical integrity. When promoting equality between
the sexes, Switzerland’s international cooperation adopts an approach with careful regard for
cultural and contextual specificities.

Types of Cooperation and Role of Cooperation

Cooperation is of different types. MacIver and Page have divided cooperation into two main
types namely, (i) Direct Cooperation (ii) Indirect Cooperation.
(i) Direct Cooperation

Under direct cooperation may be included all those activities in which people do like things
together. For example, plying together, working together, carrying a load together or pulling the
car out of mud together. The essential character of this kind of cooperation is that people do such
identical function which they can also do separately. This type of cooperation is voluntary e.g.,
cooperation between husband and wife, teacher and student, master and servant etc.
(ii) Indirect Cooperation

Under indirect cooperation are in included those activities in which people do unlike tasks
together towards a common end. For example, when carpenters, plumbers and masons cooperate
to build a house. This cooperation is based on the principle of the division of labour. In it people
perform different functions but for the attainment of the common objective. In the modern

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technological age, specialization of skills and function are more required for which indirect
cooperation is rapidly replacing direct cooperation.

A.W. Green has classified cooperation into three main categories such as (i) Primary
cooperation (ii) Secondary cooperation (iii) Tertiary cooperation.

(i) Primary Cooperation

This type of cooperation is found in primary groups such as the family. In this form, there is an
identity of interests between the individuals and the group. The achievement of the interests of
the group includes the realization of the individual’s interests.
(ii) Secondary Cooperation

Secondary cooperation is found in secondary groups such as Government, industry, trade union
and church etc. For example, in an industry, each may work in cooperation with others for his
own wages, salaries, promotion, profits and in some cases prestige and power. In this form of
cooperation there is disparity of interests between the individuals.
(iii) Tertiary Cooperation

This type of cooperation is ground in the interaction between the various big and small groups to
meet a particular situation. In it, the attitudes of the cooperating parties are purely opportunistic;
the organization of their cooperation is both loose and fragile. For example, two political parties
with different ideologies may get united to defeat their rival party in an election.
Ogburn and Nimikoff divided cooperation into three main types:
 General Cooperation

When some people cooperate for the common goals then there is cooperation, which is known as
general cooperation e.g. cooperation found in cultural functions is the general cooperation.

 Friendly Cooperation

When we want to attain the happiness and contentment of our group we give cooperation to each
other, then this type of cooperation is known as friendly cooperation e.g. dancing, singing, dating
etc.

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  Helping Cooperation

When some people work for the victims of famine or flood then this type of cooperation is
known as helping cooperation.
Role of Cooperation

Cooperation is the most elementary form of social process without which society cannot exist.
According to Kropotkin, it is so important in the life of an individual is that it is difficult to
survive without it. Even among the lowest animals such as ants and termites, cooperation is
evident for survival.

Cooperation is the foundation of our social life. The continuation of the human race requires the
cooperation of male and female for reproduction and upbringing of children. Cooperation for
human beings is both a psychological and social necessity. It is needed at every step in our life. If
one does not cooperate with others, he is left to live a solitary life. The

physical mental and even the spiritual needs of the individual remain unsatisfied if he does not
agree to cooperate with his fellow-members. It is very difficult for a man to lead a happily
conjugal life without the active cooperation of his wife and via-versa. Cooperation helps society
to progress. Progress can better be achieved through united action. The outstanding progress in
science and technology, agriculture and industry, transport and communication would not have
been possible without Cooperation.

All the progress that mankind has made in the various fields is to be attributed to the cooperating
spirit of the people. Cooperation is an urgent need of the present- day world. It is not only needed
among the individuals and groups but also among the nations. It provides solutions for many
international problems and disputes.

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WHAT IS A PRIVATE LIMITED COMPANY?

A private limited company is a business entity that is held by private owners. This type of entity
limits the owner’s liability to their ownership stake, and restricts shareholders from publicly
trading shares.

Advantages of a Private Limited Company

Members: You can start a private limited company with a minimum of only 2 members (and
maximum of 200), as per the provisions of the Companies Act 2013.

Limited liability: The liability of each shareholder or member is limited. This means that if the
company runs into a loss, the company shareholders are liable to sell their company shares to
clear the debt or liability. The individual or personal assets of shareholders or members are not at
risk.

Perpetual succession: As per company law, perpetual succession means that the company
continues its existence even any owner or member dies, goes bankruptcy, exits from the business
and transfers his shares to another person.

Prospectus: Prospectus is a detailed statement that must be issued by a company that goes
public. However, private limited companies do not need to issue a prospectus because the public
is not invited to subscribe for the shares of the company.

Number of directors: A private limited company needs a minimum of only 2 directors. At least
one director on the board of directors must have stayed in India for a total period of not less than
182 days in the previous calendar year. The directors and the shareholders can be the same
people.

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Capital: Minimum share capital required is only Rs. 1 lakh.

Disadvantages of a Private Limited Company

 The shares in a private limited company cannot be sold or transferred to anyone unless
other shareholders agree on the same.
 There is no option to invite public to subscribe to the shares.
 It is mandatory that you should mention Pvt. Ltd. at the end of a company name.

WHAT IS A PUBLIC COMPANY?

A public company is a company that has permission to issue registered securities to the general
public through an initial public offering (IPO) and it is traded on at least one stock exchange
market. A public company is not authorised to begin its business operations just upon the grant
of the certificate of incorporation. In order to be eligible to run as a public company, it should
obtain another document called a trading certificate.
Advantages of a Public Limited Company

Members: In order for a company to be public , it should have a minimum of 7 members

(maximum unlimited).

Limited liability: The liability of a public company is limited. No shareholder is individually

liable for the payment. The public limited company is a separate legal entity, and each
shareholder is a part of it.

Board of Directors: A public company is headed by a board of directors. It should have a

minimum of 3 and can have a maximum of 15 board of directors. They are elected from among
the shareholders by the shareholders of the company in annual general meetings. The elected
directors act as representatives of the shareholders in managing the company and taking
decisions. Having a bigger board of directors therefore benefits all shareholders in terms of
transparency as well as fostering a democratic management process.

Transparency: Private limited companies are strictly regulated and are required by law to
publish their complete financial statements annually to ensure the true financial position of the
company is made clear to their owners (shareholders) and potential investors. This also helps to
determine the market value of its shares.

Capital: A public company can raise capital from the public by issuing shares through stock
markets. Public companies can also raise capital by issuing bonds and debentures that are
unsecured debts issued to a company on the basis of financial performance and integrity of the
company.

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Transferable shares: A public limited company’s shares are purchased and sold on the market.
They are freely transferred among the members and the people trading on stock markets.

Disadvantages of going public:

Prospectus: For a public company, issuing prospectus is mandatory because the public is
invited to subscribe for the shares of the company.

Expensive: Going public is an expensive and time consuming process. A public company must
put its affairs in order and prepare reports and disclosures that match with SEBI regulations
concerning initial public offerings (IPO). The owner has to hire specialists like accountants and
underwriters to take the company through the process.

Equity Dilution: Any company going public is selling a part of the company’s ownership to
strangers. Each bit of ownership that the owner sells comes out of their current equity position. It
is not always possible to raise the amount of money that you may need to operate a public
corporation from shares, so company owners should hold at least 51 percent of the ownership in
their control.

Loss of Management Control: Once a private company goes public, managing the business
becomes more complicated. The owner of the company can no longer make decisions
independently. Even as a majority shareholder, they are accountable to minority shareholders
about how the company is managed. Also, company owners will no longer have total control
over the composition of the board of directors since SEBI regulations place restrictions on board
composition to ensure the independence of the board from insider impact.
Increased Regulatory Oversight: Going public brings a private company under the supervision
of the SEBI and other regulatory authorities that regulate public companies, as well as the stock
exchange that has agreed to list the company’s stock. This increase in regulatory oversight
significantly influences management of the business.

Enhanced Reporting Requirements: A private company can keep its internal business
information private. A public company, however, must make extensive quarterly and annual
reports about business operations, financial position, compensation of directors and officers and
other internal matters. It loses most privacy rights as a consequence of allowing the public to
invest in its stock.

Increased Liability: Taking a private company public increases the potential liability of the
company and its officers and directors for mismanagement. By law, a public company has a

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responsibility to its shareholders to maximize shareholder profits and disclose information about
business operations. The company and its management can be sued for self-dealing, making
material misrepresentations to shareholders or hiding information that federal securities laws
require to be disclosed.

What are the key differences between private and public companies?
Some of the main differences between private limited companies and public limited companies
include:

 public companies can offer their shares for sale to the general public
 two directors are required for public companies whereas only one is needed for a private
company
 public companies cannot accept an undertaking to do work or perform services as
consideration for allotment of shares
 public companies cannot purchase their own shares out of capital
 public companies must appoint a Company Secretary who is suitably qualified
 public companies have six months in which to file their annual accounts as opposed to
private companies which have nine months
 public companies are required to hold an annual general meeting whereas this is
generally not a requirement for private companies

7 Important Differences between Public Corporation and a Government Company

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7 Important Differences between Public Corporation and a Government Company are mentioned
below:

Public Corporation:
1. Public Corporation is an instrument of the State

2. It is created by the statute.

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3. Once a public corporation is established for certain purpose, it is a very hard to change its
sphere and nature of business, unless and until the Parliament or State Legislature amend the
original statute.
ADVERTISEMENTS:

4. The object of the establishment has some more objectives, such as services.
5. Examples: ONGC, RTC, LIC, FCI, Damodar Valley Corpn., etc.
6. Prerogative writs can be issued against them.
7. Public Corporations are under the control of:
ADVERTISEMENTS:

(i) Judicial control;

(ii) Governmental control; and

(iii) Public control.

A Government Company:
ADVERTISEMENTS:

1. Section 617 of the Companies Act, 1956 defines a Government company: “A Government
company, in which not less than 51% of the share capital is held by the Central Government, or
by any State Government and includes a company which is a subsidiary of a Government
Company.”
2. It is created by Articles of Association and Memorandum of Association. It is not a
department or an extension of the State. It is not an agent of the State.
3. It has the characteristics of a Private Company. The Articles of Association and Memorandum
of Association can easily be amended by the resolutions, meetings of the members of the
Government Company.
4. Where the object of the establishment is purely commercial, then Government Company is
preferable.
5. Examples: S.C.Co. Ltd, National Construction Co. Ltd.; etc
6. Prerogative writs cannot be issued against them.
7. Government Companies are under the control of:
(i) Judicial control;

(ii) Governmental control;

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(iii) Parliamentary control; and

(iv) Public control.

Meaning of Insurance:
Insurance is an arrangement in which you pay money to a company, and they provide financial
protection for your property, life, or health, paying you in case of death, loss, or damage.

The Role and Importance of Insurance – Explained!

1. . Provide safety and security:

Insurance provide financial support and reduce uncertainties in business and human life. It
provides safety and security against particular event. There is always a fear of sudden loss.
Insurance provides a cover against any sudden loss. For example, in case of life insurance
financial assistance is provided to the family of the insured on his death. In case of other
insurance security is provided against the loss due to fire, marine, accidents etc.

2. Generates financial resources:

Insurance generate funds by collecting premium. These funds are invested in government
securities and stock. These funds are gainfully employed in industrial development of a country
for generating more funds and utilised for the economic development of the country.
Employment opportunities are increased by big investments leading to capital formation.

3. Life insurance encourages savings:

Insurance does not only protect against risks and uncertainties, but also provides an investment
channel too. Life insurance enables systematic savings due to payment of regular premium. Life
insurance provides a mode of investment. It develops a habit of saving money by paying
premium. The insured get the lump sum amount at the maturity of the contract. Thus life
insurance encourages savings.

4. Promotes economic growth:

ADVERTISEMENTS:

Insurance generates significant impact on the economy by mobilizing domestic savings.

Insurance turn accumulated capital into productive investments. Insurance enables to mitigate
loss, financial stability and promotes trade and commerce activities those results into economic
growth and development. Thus, insurance plays a crucial role in sustainable growth of an
economy.

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5. Medical support:
A medical insurance considered essential in managing risk in health. Anyone can be a victim of
critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance
is one of the insurance policies that cater for different type of health risks. The insured gets a
medical support in case of medical insurance policy.

6. Spreading of risk:
Insurance facilitates spreading of risk from the insured to the insurer. The basic principle of
insurance is to spread risk among a large number of people. A large number of persons get
insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out
of funds of the insurer.

7. Source of collecting funds:

Large funds are collected by the way of premium. These funds are utilised in the industrial
development of a country, which accelerates the economic growth. Employment opportunities
are increased by such big investments. Thus, insurance has become an important source of
capital formation.

The 7 Principles of Insurance Contracts:

Defining an insurance contract can be very beneficial when you are negotiating or deciding if
you need a lawyer in your personal injury case. There are seven basic principles that create
an insurance contract between the insured and the insurer:

1. Utmost Good Faith

2. Insurable Interest
3. Proximate Cause
4. Indemnity
5. Subrogation
6. Contribution
7. Loss Minimization
These 7 principles combine to form an insurance contract. In this blog we are going to briefly
explain each item and try to show you how understanding each item can shed light into your
personal injury case and insurance questions. These are principles open to interpretation. So if
you think your case has breached one of these principles or your insurance claim has wrongfully
been denied. Jason McMinn and Justin McMinn for help understanding your rights.

Being able to understand these 7 principles will give you the tools you need to advocate for your
rights,

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1.The Principle of Utmost Good Faith

 Both parties involved in an insurance contract—the insured (policy holder) and the
insurer (the company)—should act in good faith towards each other.
 The insurer and the insured must provide clear and concise information regarding the
terms and conditions of the contract

This is a very basic and primary principle of insurance contracts because the nature of the service
is for the insurance company to provide a certain level of security and solidarity to the insured
person’s life. However, the insurance company must also watch out for anyone looking for a way
to scam them into free money. So each party is expected to act in good faith towards each other.

If the insurance company provides you with falsified or misrepresented information, then they
are liable in situations where this misrepresentation or falsification has caused you loss. If you
have misrepresented information regarding subject matter or your own personal history, then the
insurance company’s liability becomes void (revoked).

See how a social media post could ruin a personal injury case.

2.The Principle of Insurable Interest

Insurable interest just means that the subject matter of the contract must provide some financial
gain by existing for the insured (or policyholder) and would lead to a financial loss if damaged,
destroyed, stolen, or lost.

 The insured must have an insurable interest in the subject matter of the insurance
contract.
 The owner of the subject is said to have an insurable interest until s/he is no longer the
owner.

In auto insurance, this will most times be a no brainer, but it does lead to issues when the person
driving a vehicle doesn’t own it. For instance, if you are hit by a person who isn’t on the
insurance policy of the vehicle, do you file a claim with the owner’s insurance company or the
driver’s insurance company? This is a simple but crucial element for an insurance contract to
exist.

Q&A: What happens after an accident with an uninsured driver?

In Texas, if you are hurt in a car accident in which the at-fault driver is uninsured, the uninsured,
at-fault driver will be ticketed or taken to jail. If your insurance covers accidents involving an
uninsured driver, you can make a claim for loss and damage. How much you are able to recover
depends on many factors. It’s a good idea to take advantage of a free case evaluation offered by
personal injury attorneys, Jason and Justin McMinn. An experienced lawyer could help you

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navigate the many procedural aspects of recovering an appropriate settlement from your
insurance company after a devastating accident with an uninsured driver.

3.The Principle of Indemnity

 Indemnity is a guarantee to restore the insured to the position he or she was in before
the uncertain incident that caused a loss for the insured. The insurer (provider)
compensates the insured (policyholder).
 The insurance company promises to compensate the policyholder for the amount of the
loss up to the amount agreed upon in the contract.

Essentially, this is the part of the contract that matters the most for the insurance policyholder
because this is the part of the contract that says she or he has the right to be compensated or, in
other words, indemnified for his or her loss.

The amount of compensation is in direct proportion with the incurred loss. The insurance
company will pay up to the amount of the incurred loss or the insured amount agreed on in the
contract, whichever is less. For instance, if your car is inured for $10,000 but damages are only
$3,000. You get $3,000 not the full amount.

Compensation is not paid when the incident that caused the loss doesn’t happen during the time
allotted in the contract or from the specific agreed upon causes of loss (as you will see in The
Principle of Proximate Cause). Insurance contracts are created solely as a means to provide
protection from unexpected events, not as a means to make a profit from a loss. Therefore,
the insured is protected from losses by the principle of indemnity, but through stipulations that
keep him or her from being able to scam and make a profit.

4.The Principle of Contribution

 Contribution establishes a corollary among all the insurance contracts involved in an

incident or with the same subject.
 Contribution allows for the insured to claim indemnity to the extent of actual loss from
all the insurance contracts involved in his or her claim.

For instance, imagine that you have taken out two insurance contracts on your used Lamborghini
so that you are covered fully in any situation. Let’s say you have a policy with Allstate that
covers $30,000 in property damage and a policy with State Farm that cover $50,000 in property
damage. If you end up in a wreck that causes $50,000 worth of damage to your vehicle. Then
about $19,000 will be covered by Allstate and $31,000 by State Farm.

This is the principle of contribution. Each policy you have on the same subject matter pays their
proportion of the loss incurred by the policyholder. It’s an extension of the principle of
indemnity that allows proportional responsibility for all insurance coverage on the same subject
matter.

5.The Principle of Subrogation

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This principle can be a little confusing, but the example should help make it clear. Subrogation is
substituting one creditor (the insurance company) for another (another insurance company
representing the person responsible for the loss).

 After the insured (policyholder) has been compensated for the incurred loss on a piece of
property that was insured, the rights of ownership of this property go to the insurer.

So lets say you are in a car wreck caused by a third party and your file a claim with your
insurance company to pay for the damages on your car and your medical expenses. Your
insurance company will assume ownership of your car and medical expenses in order to step in
and file a claim or lawsuit with the person who is actually responsible for the accident (i.e. the
person who should have paid for your losses).

The insurance company can only benefit from subrogation by winning back the money it paid to
it’s policyholder and the costs of acquiring this money. Anything paid extra from the third party,
is given to the policyholder. So lets say your insurance company filed a lawsuit with the
negligent third party after the insurance company had already compensated you for the full
amount of your damages. If their lawsuit ends up winning more money from the negligent third
party than they paid you, they’ll use that to cover court costs and the remaining balance will go
to you.

6.The Principle of Proximate Cause

 The loss of insured property can be caused by more than one incident even in succession
to each other.
 Property may be insured against some but not all causes of loss.
 When a property is not insured against all causes, the nearest cause is to be found out.
 If the proximate cause is one in which the property is insured against, then the insurer
must pay compensation. If it is not a cause the property is insured against, then the
insurer doesn’t have to pay.

When buying your insurance policies, you will most likely go through a process where you select
which instances you and your property will be covered for and which ones they will not. This is
where you are selecting which proximate causes are covered. If you end up in an incident, then
the proximate cause will have to be investigated so that the insurance company validates that you
are covered for the incident.

This can lead to disputes when you have suffered an incident you thought was covered but your
insurance provider says it’s not. Insurance companies want to make sure they are protecting
themselves but sometimes they can use this to get out of being liable for a situation. This might
be a dispute where you’ll need a lawyer to help argue for you.

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7.The Principle of Loss Minimization

This is our final principle that creates an insurance contract and the most simple one probably.

 In an uncertain event, it is the insured’s responsibility to take all precautions to minimize

the loss on the insured property.

Insurance contracts shouldn’t be about getting free stuff every time something bad happens.
Therefore, a little responsibility is bestowed upon the insured to take all measures possible to
minimize the loss on the property. This principle can be debatable, so call a lawyer if you think
you are being unfairly judged under this principle.

Basic Types of Insurance:

1. Credit Insurance:
Credit insurance means of insuring the payment of commercial debts against the risk of non-
payment by the borrower because of his insolvency or for some other reason.

2. Group Insurance:
Group Insurance is insurance or life insurance obtained by a person as a member of a group, such
as a professional organization, rather than as an individual, because in this way better terms can
often be obtained. This is because there is an administrative saving for the company, and
sometimes also because a particular group has a better life expectancy than people in general.

3. Life Insurance:
Life Insurance/Assurance is a contract by which the insurer/assuror undertakes to pay the person
for whose benefit the cover is effected, or to his personal representative, a certain sum of money
on the happening of a given event, or on the death of the person whose life is assured.

4. Marine Insurance:
It is contract by which underwriters engage to indemnify the owner of a ship, cargo or fright
against losses from certain perils or sea risks to which their ship or cargo may be exposed. In
case of marine insurance another type of insurance is prevalent known as Mutual Insurance.

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This type of insurance is provided by ship-owners throughout the world who have clubbed
together in various mutual protection and indemnity associations to cover hazards which are not
covered by marine policies, which have standard clauses leaving a number of contingencies un-
provided for, or only partially provided for. The liabilities of mutual insurance company are
periodically divided amongst the subscribers in proportion to the tonnage they have entered with
the company.

5. Fire Insurance:
Is a contract of indemnity by which an insurance company undertakes to make good any damage
or loss by fire to buildings or property during a specific time.

MONEY

Introduction

Money is the essential monetary transaction that people use every day. Without Money, there
will be no marketing and economy in human kind. Money acts as a fundamental medium of
exchange which clears up both humanity’s past and present obligations. Economists define
money as widely accepted by society and acts as payments for goods and services.

Functions of Money

As a general rule, economists have finalized and defined all the four types of functions of money
which are medium of exchange, measurement of value, standard of deferred payments and lastly
store of value.

1. As for Medium of Exchange, ever since it being introduced into the economic society,
money has been fulfilling its duty to act as an essential function which is medium of
exchange in the society. Money facilitates well as our monetary transactions to purchase
and own both tangible and intangible goods and services as a medium of exchange. As
manufacturers sell their productions to the wholesalers or retailers in exchange of money
as an earning. While wholesalers and retailers sell the same finalized goods to the final
consumers in exchange of money as their own earning. Similarly, all service providers of
the society sell their services in exchange of money as their earning. Then, all these
sections of the economic society which are manufacturers, wholesalers, retailers and
service sellers such as doctors, lawyers and more will then use the earnings which they
have made to consume on other goods and services which they need or want. (Harcourt,
2013) Without the existence of money, every transaction of money for goods and services
may have to be conducted by barter trading, which engages direct and absolute exchange
of one good or service to own or use another. The only obstacle which barter system
always faces is when in order to obtain a specific good or service from a seller, one has to

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 be able to provide another good or service which consist of equal value with the good and
service they want to possess, which the seller desires to obtain. (Harcourt, 2013)

2. Furthermore, as a Measurement of Value, it measures provides the fixed value of all

kinds of goods and services which are manufactured and produced in the economy.
Money performs as unit of value and acts as the standard of value of all goods and
services. In barter trading, it is very burdensome and challenging to measure and decide
the quantity or volume of goods to be exchanged for another given quantity of goods.
Having the knowledge of the average value of a good assists both the seller and purchaser
to make decisions about the quantity and volume of goods to be exchanged. (Bullard,
2013)

3. Moreover, as for Standard of Deferred Payments, (Tilak, 2011) money is able to act as
a monetary transaction to be used to pay both before or over time for other goods. This
means that goods and services can be paid for installments over a period of time such as
hire purchase. Unlike barter trade, transactions do not need to be settled at a lump sum at
a time. (Upadhyaya, 2012) Money, besides acting as a monetary support of current
transactions, it also acts as the monetary support of deferred payments which is future
payments, loan repayments acts as an example for deferred payments.

4. Money must hold its value over time; it must act a Store of Value. As before, goods were
beyond possible to store its surplus value under barter economy. After the creation of
money, the following issue has been solved efficiently. Retailers and sellers can now
store their surplus retailing earnings. Saving money is now secure in value without
having to worry its loss of value (Education, 2012) Rather than spending today, you can
store it for use in the future.

Characteristics

Which serves as Functions of Money

The characteristics of what serves as money depend somewhat on the degree of complexity in
the society. A relatively simple economy, with relatively few goods and services, few producers
and consumers, and few transactions, may be able to function with a form of money that would
not work in a more complex society. There are some general characteristics that are usually
important for whatever serves as money in a modern economy.

1. First, to serve as an effective medium of exchange and store of value, money must be
durable. Durability is when an item is able to withstand all the hardships and is still able
to maintain to be undamaged and usable after a long term of usage. (SubraMoney, 2011)
Durability is crucial for money to be able to perform the following functions of medium
of exchange and store of value. Coins and paper bills are made to perform and to act as
the currency. Nowadays, Money is manufactured with the materials such as paper, metal
and plastics, which results to a long lasting medium. (SubraMoney, 2011)

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 2. Portability, which also serves as a medium of exchange, (Money Characteristics, 2011)
means that money can be movable from place to place to be used as monetary transaction
to be exchanged for goods and services. Portability also means that consumers are now
able to carry money along with them to be used as transactions for goods and services. In
modern days, money is carried from one location to another without needing much effort
as all types of money such as cash notes, coins and cards are carried easily in a wallet.
(SubraMoney, 2011)

3. Furthermore, divisibility is a characteristic which means the money can be divided into
small units and that it can be used in exchange for goods and services. As to function as
the medium of exchange, as it is divisible, it can be used to purchase all kinds of goods
with different values. As money functions as the medium of exchange it must have
denominations to be traded for all goods and services, and everything in between.
(Money Characteristics, 2011)

4. Moreover, uniformity means that all types of the same denomination of money must
consist of purchasing power. It is a characteristic to perform the function of standard of
deferred payments. (SubraMoney, 2011)

5. Limited supply is a characteristic which helps in storing the value of money, meaning
that constraints on the amount of money in the monetary circulation ensure that values
remain constant for the currency. Currently most of the respective country’s government
has the responsibility to control an adequate money supply based on market with their
monetary policies, such as expansionary monetary policy and contractionary monetary
policy. (SubraMoney, 2011)

7. Acceptability supports the function of medium of exchange. The essential quality of

money is that it must act as an item being acceptable to all, without having any hesitation
in the exchange for goods and services. Acceptability means that everyone must be able
to accept the money for transactions. Money is universally accepted around the world as
a universal mean for transaction. (SubraMoney, 2011)
8. Lastly, the characteristic of non-counterfeitability which functions as the store of value
means that money cannot be easily duplicated. As money cannot be easily duplicated, it
prevents the unrestricted and illegal creating of duplication of money. Besides,
preventing the duplication of money to happen is one of the main reasons of government
existence. (

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BANKS

Banks: Meaning, Functions and Types

Meaning of Banks:

A bank (German word) means a joint stock fund. A bank denotes a financial institution dealing
in money. A bank is an institution that is prepared to accept deposits of money and repay the
same on demand. The system of banking is very old and the same was prevalent in Greece, India
and Rome.

A banker (i.e., person or a corporation) deals in credit and money i.e. it accepts deposits from
those who want to commit their wealth to safety and earn interest thereon, and lends money to
the needy through cheques and advances and loans of various sorts.

Functions of a Bank:

A bank performs the following functions:

(a) It accepts deposits from the customers, who can take back their money at will. A saving
bank also pays interest to customers on their deposits and is popular with small savers.

Customers can leave their cash with the bank as Saving Account, Current Account or a Fixed
Deposit Account.

Customers deposit their money in Saving Bank Account to save a part of their current incomes to
meet their future needs and also intend to earn an income from their savings (bank interest). For
the depositor, the number of withdrawals over a period of time and the total amount of one or
more withdrawals on any date, are however limited.

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A Current Account on the other hand is running account which may be operated upon any
number of times during a working day. There is no restriction on the number and amount of
with-drawls. The bank does not pay any interest; rather it takes incidental charges from the
depositor on such accounts in some cases.

In a Fixed Deposit Account, the deposits are made for a fixed period (say 36 months) and a
higher rate of interest is paid to the depositor.

(b) A bank lends money to needy people at a certain interest rate. Banks give loan to
agriculturists, industrialists and businessman who invest it in their ventures to their own
profit and to the economic advancement of the country.

(c) A bank issues notes and creates other inexpensive media of exchange-a note or a cheque.
The issue of notes is entrusted to the Reserve Bank of the country.

Credit instruments such a bank note, bank drafts, cheques and letters of credit are created by
Banks. These things economise the use of metallic money and make the transmission of money
over long distances cheap and convenient.

ADVERTISEMENTS:

(d) The deposits may be created by the bank itself by giving loans to its customers, in which
case the borrower is credited with a deposit account with draw able when needed. The
money borrowed from the bank is usually deposited in the same bank by the borrowers
either because the bank insists on it or because of the advantages of current account
deposit. Such deposits are known as Credit Deposits.

(e) Other functions of a bank are:

(i) The collection of cheques drawn on other banks.

(ii) The acceptance and collection of bills of exchange.

ADVERTISEMENTS:

(iii) Dealing in foreign exchange to assist the settlement of overseas debts.

(iv) Stock Exchange trustee and executor business.

(v) Safe deposit facilities.

(vi) Making standing order payments.

(vii) Supplying change and assisting the central bank/Reserve bank in keeping the note issue in
good condition.

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Types of Banks:

The Indian Banking System consists of:

(a) The indigenous Banking System.

(b) The Modern Banking System:

(i) Commercial Banks.

(ii) State Bank of India.

(iii) Exchange Banks.

(iv) Central Bank.

(v) The Reserve Bank of India.

(a) The Indigenous Banking System:

The indigenous bankers are usually a family concern.

Their main functions are:

a. To advance loans against ornaments, land etc.

b. To deal in Hundies.

c. To receive deposits.

(b) The Modern Banking System:

(i) Commercial Banks:

Most of the banks in India are Commercial banks, e.g., Punjab National Bank, Allahabad Bank,
United Commercial Bank etc. Such banks deal in short-term credit. They collect the surplus
balances of the individuals and finance the temporary needs of commercial transactions. A
commercial bank borrows money from individuals by accepting deposits on current account
saving account, fixed deposits and miscellaneous deposits and then it lends money to
Industrialists and Traders.

As a principle, the commercial bank:

(a) Supplies circulation capital rather than fixed capital,

(b) Gives loans for short period only,

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(c) Does not involve itself too much with one industry only, because if that industry fails, the
bank’s assets may become frozen.

(ii) The State Bank of India:

The Imperial Bank of India established on January 27,1921 was renamed as the State Bank of
India on July 1,1955 after passing of the State Bank of India Act, 1955. The State Bank of India
has its central office in Bombay and seven local head offices in Calcutta, Madras, Bombay,
Delhi, Hyderabad, Kanpur and Ahmedabad.

The main functions of the State Bank of India are:

(i) The bank borrows money from public by accepting deposits.

(ii) It lends money to industrialists, farmers and Traders for short periods.

(iii) It provides financial assistance to importers and exporters.

(iv) It undertakes foreign exchange business.

(v) It collects cheques, drafts, bill of exchange, dividends, interest, salaries and pension on behalf
of customers.

(vi) It maintains safe deposit vaults.

(iii) Exchange Banks:

Whereas commercial banks finance the internal trade of the country, the Exchange banks finance
its foreign trade. Exchange banks of our country will have their head office located outside India.

The functions of Exchange banks are:

(ii) To supply finance for imports and exports.

(ii) To purchase and discount bills of exchange drawn by Indian exporters and also collect on
maturity the proceeds of bills drawn on Indian Importers for goods purchased by them.

(iii) To act as referees, collecting and supplying information about the foreign customers, etc.

A few foreign exchange banks in India are:

(i) The National and Grindlay Bank.

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(ii) Lloyds Bank.

(iii) The Mercantile Bank.

If an exporter in Bangalore requires finance to move goods from Bangalore to Bombay port and
from there to New York, he may enter into agreement with an exchange bank for financing the
movement of his goods.

(iv) Central Banks:

Central Bank of a country is an apex monetary and banking institution that controls the supply of
currency in that country. Central bank is entrusted with the duty of regulating the volume of
currency and credit in the country. Central bank controls the banking structure of country.
Central bank controls and regulates the monetary, banking and credit policies of the country.

Central bank determines the quantum of money which should be circulated in the country.
Central bank performs general banking and agency services for the Government. All the banks
keep reserves with the Central Bank and banking policies in the country are framed by it.
Whereas the object of a commercial bank is to earn profit, a central bank stimulates growth of
the country.

Whereas a commercial bank deals with public directly, a central bank deals with commercial
banks and other institutions and the government of the country. The central bank is the custodian
of the foreign exchange reserves of the country. The central bank controls and regulates credit
and currency with a view to stabilize prices in the country. The central bank pumps in more
money when the market is short of cash and pumps out money when there is an excess of credit.

(v) The Reserve Bank of India:

Reserve Bank of India was established as the central bank of the country on April 1,1935, though
the idea existed since 1836. As the Central bank of the country, the Reserve Bank is the banker
to the banks also. The Reserve Bank regulates the entire banking system of the country.

It regulates the issue of bank notes and the keeping of reserves with a view to secure monetary
stability in India and generally to operate the currency and credit system of the country to its
advantage. It has also been given the power to pursue on appropriate credit policy. It has control
over the cash reserves of the commercial banks. The Reserve Bank has also been given the
power to issue license to the banking companies in the country.

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The Reserve Bank is required to remove structural instability of the banking system and to
provide leadership to the money market. The Reserve Bank was nationalised with the passing of
an act in 1948. The entire share capital of the bank was acquired by the Central Government
w.e.f. Jan 1,1949 and the Reserve Bank started functioning as a state-owned and state-controlled
institution.

The affairs of Reserve Bank are controlled by the Central Board of Directors consisting of
twenty members. There are one Governor, four deputy governors, fourteen Directors and one
Government official nominated by the Central Government.

For performing its function, the Reserve Bank consists of the following departments:

(a) Issue department. It has the sole right of note issue which must be backed by gold and
sterling securities to the extent of 40%.

(b) Banking department. It is authorized to accept money on deposit without interest, to

purchase, sell and rediscount trade bills and bills against Government securities maturing within
90 days and bills against agricultural crops maturing within 9 months; to purchase and sell to
member banks, sterling and to regulate credit in the interest of trade and industry.

(c) Exchange control department. It controls foreign exchange transaction and maintains a stable
rate of exchange.

(d) Department of Banking Operations and Development extends banking facilities to semi-
urban areas and keeps solving the problems of rural finance.

(e) Industrial Finance Department has been entrusted with all matters pertaining to industrial
finance including the activities of state financial corporations.

(f) Research and Statistics Department acts as an agency for the collection and dissemination of
financial information and statistics in India and abroad.

(g) Legal Department gives legal advice on various matters referred to it by other departments of
the bank.

(h) Departments of Financial Companies regulates the acceptance of deposits by non-banking

companies.

(i) Department of Accounts and Expenditure maintains and supervises Reserve Bank’s accounts
in the Issue and Banking Department.

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(j) Inspection Department carries out periodic internal inspection of different offices and
departments of the Reserve Bank.

(k) Department of Administration and Personnel deals with general administration, training of
staff and employer-employee relations.

(l) Secretary’s Department deals with policy matters relating to open market operations,
floatation of Government loans and treasury bills and the Reserve Bank’s dealings with
international financial organisations.

What is Stock Exchange? Meaning

Stock Exchange (also called Stock Market or Share Market) is one important constituent of
capital market. Stock Exchange is an organized market for the purchase and sale of industrial and
financial security. It is convenient place where trading in securities is conducted in systematic
manner i.e. as per certain rules and regulations.

It performs various functions and offers useful services to investors and borrowing companies. It
is an investment intermediary and facilitates economic and industrial development of a country.

Stock exchange is an organized market for buying and selling corporate and other securities.
Here, securities are purchased and sold out as per certain well-defined rules and regulations. It
provides a convenient and secured mechanism or platform for transactions in different securities.
Such securities include shares and debentures issued by public companies which are duly listed
at the stock exchange, and bonds and debentures issued by government, public corporations and
municipal and port trust bodies.

Features of Stock Exchange/functions

Characteristics or features of stock exchange are:-

1. Market for securities : Stock exchange is a market, where securities of corporate bodies,
government and semi-government bodies are bought and sold.
2. Deals in second hand securities : It deals with shares, debentures bonds and such
securities already issued by the companies. In short it deals with existing or second hand
securities and hence it is called secondary market.
3. Regulates trade in securities : Stock exchange does not buy or sell any securities on its
own account. It merely provides the necessary infrastructure and facilities for trade in

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 securities to its members and brokers who trade in securities. It regulates the trade
activities so as to ensure free and fair trade
4. Allows dealings only in listed securities : In fact, stock exchanges maintain an official
list of securities that could be purchased and sold on its floor. Securities which do not
figure in the official list of stock exchange are called unlisted securities. Such unlisted
securities cannot be traded in the stock exchange.
5. Transactions effected only through members : All the transactions in securities at the
stock exchange are effected only through its authorised brokers and members. Outsiders
or direct investors are not allowed to enter in the trading circles of the stock exchange.
Investors have to buy or sell the securities at the stock exchange through the authorised
brokers only.
6. Association of persons : A stock exchange is an association of persons or body of
individuals which may be registered or unregistered.
7. Recognition from Central Government : Stock exchange is an organised market. It
requires recognition from the Central Government.
8. Working as per rules : Buying and selling transactions in securities at the stock
exchange are governed by the rules and regulations of stock exchange as well as SEBI
Guidelines. No deviation from the rules and guidelines is allowed in any case.
9. Specific location : Stock exchange is a particular market place where authorised brokers
come together daily (i.e. on working days) on the floor of market called trading circles
and conduct trading activities. The prices of different securities traded are shown on
electronic boards. After the working hours market is closed. All the working of stock
exchanges is conducted and controlled through computers and electronic system.
10. Financial Barometers : Stock exchanges are the financial barometers and development
indicators of national economy of the country. Industrial growth and stability is reflected
in the index of stock exchange.

Transport or transportation (US) is the movement of humans, animals and goods from one
location to another.

IMPACTS OF TRANSPORTATION

Social role of transportation

Transportation has always played an important role in influencing the formation of urban
societies. Although other facilities like availability of food and water, played a major role, the
contribution of transportation can be seen clearly from the formation, size and pattern, and the
development of societies, especially urban centers.

1.Formation of settlements

From the beginning of civilization, the man is living in settlements which existed near banks of
major river junctions, a port, or an intersection of trade routes. Cities like New York, Mumbai
and Moscow are good examples.

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2.Size and pattern of settlements

The initial settlements were relatively small developments but with due course of time, they
grew in population and developed into big cities and major trade centers. The size of settlements
is not only limited by the size of the area by which the settlement can obtain food and other
necessities, but also by considerations of personal travels especially the journey to and from
work. The increased speed of transport and reduction in the cost of transport have resulted in
variety of spatial patterns.

3.Growth of urban centers

When the cities grow beyond normal walking distance, then transportation technology plays a
role in the formation of the city. For example, many cities in the plains developed as a circular
city with radial routes, where as the cities beside a river developed linearly. The development of
automobiles, and other factors like increase in personal income, and construction of paved road
network, the settlements were transformed into urban centers of intense travel activity.

Political role of transportation

The world is divided into numerous political units which are formed for mutual protection,
economic advantages and development of common culture. Transportation plays an important
role in the functioning of such political units.

1.Administration of an area

The government of an area must be able to send/get information to/about its people. It may
include laws to be followed, security and other needful information needed to generate
awareness. An efficient administration of a country largely depends on how effectively
government could communicate these information to all the country. However, with the advent
of communications, its importance is slightly reduced.

2.Political choices in transport

These choices may be classified as communication, military movement, travel of persons and
movement of freight. The primary function of transportation is the transfer of messages and
information. It is also needed for rapid movement of troops in case of emergency and finally
movement of persons and goods. The political decision of construction and maintenance of roads
has resulted in the development of transportation system.

Environmental role of transportation

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The negative effects of transportation is more dominating than its useful aspects as far as
transportation is concerned. There are numerous categories into which the environmental effects
have been categorized. They are explained in the following sections.

1.Safety

Growth of transportation has a very unfortunate impact on the society in terms of accidents.
Worldwide death and injuries from road accidents have reached epidemic proportions. -killed
and about 15 million injured on the road accidents annually. Increased variation in the speeds
and vehicle density resulted in a high exposure to accidents. Accidents result in loss of life and
permanent disability, injury, and damage to property. Accidents also causes numerous non-
quantifiable impacts like loss of time, grief to the near ones of the victim, and inconvenience to
the public. The loss of life and damage from natural disasters, industrial accidents, or epidemic
often receive significant attention from both government and public. This is because their
occurrence is concentrated but sparse. On the other hand, accidents from transport sector are
widespread and occurs with high frequency.

For instance, a study has predicted that death and disabilities resulting from road accidents in
comparison with other diseases will rise from ninth to third rank between 1990 and 2020. Road
accidents as cause to death and disability could rank below heart disease and clinical depression,
and ahead of stroke and all infectious diseases. Significant reduction to accident rate is achieved
in the developing countries by improved road designed maintenance, improved vehicle design,
driver education, and law enforcements. However in the developing nations, the rapid growth of
personalized vehicles and poor infrastructure, road design, and law enforcement has resulted in
growing accident rate.

2.Air Pollution

All transport modes consume energy and the most common source of energy is from the burning
of fossil fuels like coal, petrol, diesel, etc. The relation between air pollution and respiratory
disease have been demonstrated by various studies and the detrimental effects on the planet earth
is widely recognized recently. The combustion of the fuels releases several contaminants into the
atmosphere, including carbon monoxide, hydrocarbons, oxides of nitrogen, and other particulate
matter. Hydrocarbons are the result of incomplete combustion of fuels. Particulate matters are
minute solid or liquid particles that are suspended in the atmosphere. They include aerosols,
smoke, and dust particles. These air pollutants once emitted into the atmosphere , undergo
mixing and disperse into the surroundings.

3.Noise pollution

Sound is acoustical energy released into atmosphere by vibrating or moving bodies where as
noise is unwanted sound produced. Transportation is a major contributor of noise pollution,
especially in urban areas. Noise is generated during both construction and operation. During
construction, operation of large equipments causes considerable noise to the neighborhood.

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During the operation, noise is generated by the engine and exhaust systems of vehicle,
aerodynamic friction, and the interaction between the vehicle and the support system (road-tire,
rail-wheel). Extended exposure to excessive sound has been shown to produce physical and
psychological damage. Further, because of its annoyance and disturbance, noise adds to mental
stress and fatigue.

Energy consumption

The spectacular growth in industrial and economic growth during the past century have been
closely related to an abundant supply of inexpensive energy from fossil fuels. Transportation
sector is unbelieved to consume more than half of the petroleum products. The compact of the
shortage of fuel was experienced during major wars when strict rationing was imposed in many
countries. The impact of this had cascading effects on many factors of society, especially in the
price escalation of essential commodities. However, this has few positive impacts; a shift to
public transport system, a search for energy efficient engines, and alternate fuels. During the
time of fuel shortage, people shifted to cheaper public transport system. Policy makers and
planners, thereafter gave much emphasis to the public transit which consume less energy per
person. The second impact was in the development of fuel-efficient engines and devices and
operational and maintenance practices. A fast depleting fossil fuel has accelerated the search for
energy efficient and environment friendly alternate energy source. The research is active in the
development of bio-fuels, hydrogen fuels and solar energy.

Other impacts

Transportation directly or indirectly affects many other areas of society and few of thenare listed
below:

Almost all cities uses 20-30 percent of its land in transport facilities. Increased travel
requirement also require additional land for transport facilities. A good transportation system
takes considerable amount of land from the society.

Aesthetics of a region is also affected by transportation. Road networks in quite country side is
visual intrusion. Similarly, the transportation facilities like fly-overs are again visual intrusion in
urban context.

The social life and social pattern of a community is severely affected after the introduction of
some transportation facilities. Construction of new transportation facilities often require
substantial relocation of residents and employment opportunities.

ROLES OF TRANSPORT

-Fosters national unity.

- Provision of employment.

- Encourage urbanization.

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- Boost tourism.

- Source of revenue to the Government.

- Foster movement of raw material hence boost industrial development.

- Expansion of markets for goods.

Modes of Transport

1. Road transport
2. Railway transport
3. Water transport
4. Air transport
5. Pipeline transport

Different modes of transport (types of transportation)

1. Road transport: road transport exist in all parts of the world, this involves the use of
motor vehicles (cars, lorries, buses, bicycles, and trucks). There are various types of roads
according to size and functions, some roads are tarred while others are not. The best of
these roads are the modern roads which links major towns. Road transport when
compared with other modes of transportation is more flexible. It is relatively cheaper and
faster. Road transport has a high capacity of carrying goods over short distances.
Maintenance is one of the major disadvantages of this mode of transport.
2. Railway transport: railways were developed during the period of industrial revolution in
the 19th century, these was partly for political reasons and for economic reasons. In many
countries, they were built especially to penetrate isolated regions and help promote
political unity. The major advantage of railway transport includes provision reliable
services. It has ability of conveying heavy and bulky goods; it is also very cheap, safe and
comfortable for passengers over a long distance.
3. Water transport: water transport is very important because it is the cheapest way of
transporting bulky goods over a long distance. In the world, there are two major types of
water transport namely:Inland water transport and ocean water transport. Inland water
transport:this is the system of transport through all navigable rivers, lakes and man-
made canals. Many large rivers in different parts of the world are used by ships and
barges for transportation; the main rivers where inland water transport are important are
the Rhine and Dambe in Europe, the Zaire in Africa, the Nile in Africa, the Mississippi in
USA etc. However, Ocean waterways carry a lot of the world'strade, majority of the
bulky goods, materials and passengers pass through ocean waterways from one country
to another at the cheapest cost.

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 4. Air transport:air transport is the newest means of transport; it was introduced in 1903
but developed into full means of transporting people and goods in 1930s. The greatest of
the air transportation started after the Second World War (WW11). This mode of
transportation can be used for both domestic and international flights.
5. Pipeline transport:this system of transportation involves the use of hollow pipes in the
transportation of water, crude oil, (petroleum) and gas. This mode of transportation is
safer than using tankers or trailers in the transportation of these liquids.

Other modes of transportation include

 Animal-powered transport:which is mostly referred to as beast of burden. It is the

oldest means of transportation; this usually involves the use of animals for the
transportation of people and goods. Humans may ride some of the higher animals
directly, or harness them. Example of such animals used for transporting humans and
goods include camel, horse, donkey, elephant, and giraffe.
 Human powered transport:this is another form of transport, which includespeople,
goods or both transported from one place to another usinghumanmuscle-power, in the
form of walking,runningandswimming. Moderntechnologyhasallowedmachinesto take
over human power. Human-powered transport remains popular for reasons of cost-
saving,physical exercise, leisure, andenvironmentalism; it is sometimes the only type
available, especially in underdeveloped or inaccessible regions.
 Spaceflight:is a means of transport that moves out of Earth's atmosphere
intoouterspaceby means of aspacecraft. While large amounts of research have gone into
technology, it is not commonly used except to put satellites into orbit, and conduct
scientific experiments.
 Cable transport: cable transportis a broad class of transportmodes that have cables as
the foundation for transporting goods or people, often in vehicles calledcable cars. The
cable may be driven or passive; items may be moved by pulling, sailing, sliding or by
drives within the object being moved oncableways, this is another means of transport use
in mountain. The use ofpulleysand balancing of loads going up and down are common
elements of cable transport.

Factors to Consider while choosing the most Suitable Mode of Transport

1. Cost of Service:

The cost of transportation adds to the cost of the goods so it should always be kept in mind. Rail
transport is comparatively a cheaper mode of transport for carrying heavy and bulky traffic over
long distances. Motor transport is best suited and economical to carry small traffic over short
distances. Motor transport saves packing and handling costs.

Water transport is the cheapest mode of transport. It is suitable to carry only heavy and bulky
goods over long distances where time is not an important factor. Air transport is the most costly
means of transport but is particularly suited for carrying perishable, light and valuable goods
which require quick delivery.

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2. Speed of Transport:

Air transport is the quickest mode of transport but it is costliest of all. Motor transport is quicker
than railways over short distances. However, the speed of railways over long distances is more
than that of other modes of transport except air transport and is most suitable for long distances.
Water transport is very slow and thus unsuitable where time is an important factor.

3. Flexibility:

ADVERTISEMENTS:

Railways, water and air transport are inflexible modes of transport. They operate services
on fixed routes and at preplanned time schedules. The goods have to be carried to the
stations, ports and airports and then taken from there. Motor transport provides the most
flexible service because it is not tied to fixed routes or time schedules. It can operate at any
time and can reach the business premises for loading and unloading.

4. Regularity of Service:

Railway service is more certain, uniform and regular as compared to any other mode of
transport. It is not much affected by weather conditions. On the other hand, motor
transport, ocean transport and air transport are affected by bad weather such as heavy
rains, snow, fog, storms etc.

5. Safety:

ADVERTISEMENTS:

Safety and security of goods in transit also influence the choice of a suitable means of
transport. Motor transport may be preferred to railway transport because losses are
generally less in motor transport. Water transport exposes the goods to the perils of sea
and, hence from safety point of view, sea transport is thought of as a last resort.

6. Nature of Commodity:

Rail transport is most suitable for carrying cheap, bulk and heavy goods. Perishable goods
which require quick delivery may be carried through motor transport or air transport
keeping in mind the cost and distance.

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7. Other Considerations:

A number of special services such as warehousing, packing, loading and unloading are also
taken into consideration while deciding about a mode of transport. From the above
discussion it is clear that each mode of transport is suited for a particular type of traffic.

The rail transport is particularly suited for carrying heavy and bulky goods over long
distances. Motor transport is suitable for carrying small consignments over short distances.
Air transport is suited to light and precious articles which are to be delivered quickly.
Ocean transport is appropriate for carrying heavy bulky goods over long distances at the
cheapest possible cost.

MEANING OF DELIVERING SERVICES

Delivery is the process of transporting goods from a source location to a predefined destination.
There are different delivery types. Cargo (physical goods) is primarily delivered via roads and
railroads on land, shipping lanes on the sea and airline networks in the air.

IMPORTANCE OF DELIVERING SERVICES

1. Provides value – Great customer service programs should focus on treating customers
well, answering questions, and exceeding their expectations. This approach helps
businesses engage customers and build strong relationships.
2. Retains customers – Keeping loyal customers is way less expensive than getting new
ones. Research shows that it costs about six to seven times more to attract new customers
than to retain existing business. Satisfied customers become devoted buyers when a
business is trustworthy. Research shows there is a 60 to 70 percent likelihood that
existing customers will return to make new purchases.
3. Creates endorsements – Loyal customers provide positive endorsements and online
reviews that can help businesses strengthen their brand. A loyal customer on average is
10 times more valuable than their first purchase. Research shows that people often make
purchasing decisions based on recommendations from family and friends, rather than on
advertising messages.

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 97 percent of customers will tell others about very good or excellent customer
o
service experiences.
o 70 percent would spend more money with a company that has excellent customer
service.
o 24 percent will return to businesses two or more years after a good customer
service experience.
o 59 percent would try a new company to receive better customer service.
4. Prevents business failure – About 96 percent of American businesses close their doors
within 10 years. One of the contributing problems is poor customer service. Buyers
become frustrated over small problems that are not addressed, such as unclear
communication, slow follow up on questions, or ignored requests.
5. Reduces employee turnover – Employees want to work for businesses that appreciate
worker contributions, encourage new ideas and treat customers fairly. When people work
for an employer that provides excellent customer service, they are more engaged in their
work and become an advocate for the business. They are more willing to stick with the
company through business challenges and economic changes.

Document Delivery Service (DDS) delivers electronic copies of journal articles, academic
dissertations and conference papers that are not found in the library’s collection. It aims to
provide research support, teaching and studying for IFT staff and student. DDS may be
not used to request materials for work to satisfy personal interest or recreational reading.

DDS provides information types:

 Dissertation
 Journals articles
 UNWTO articles
 Conference proceedings

Terms and Conditions

YOUR SPECIAL DELIVERY SERVICE INC

Standard Terms and Conditions of Service

These terms and conditions of service constitute a legally binding contract between the
“Company” and the “Customer”. In the event the Company renders services and issues a

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document containing Terms and Conditions governing such services, the Terms and Conditions
set forth in such other document(s) shall govern those services.

1. Definitions.

(a) “Company” shall mean Your Special Delivery Service, Inc., its subsidiaries, related
companies, agents and/or representatives;

(b) “Customer” shall mean the person for which the Company is rendering service, as well as its
agents and/or representatives, including, but not limited to, shippers, importers, exporters,
carriers, secured parties, warehousemen, buyers and/or sellers, shipper’s agents, insurers and
underwriters, break-bulk agents, consignees, etc. It is the responsibility of the Customer to
provide notice and copy(s) of these terms and conditions of service to all such agents or
representatives;

(c) “Documentation” shall mean all information received directly or indirectly from Customer,
whether in paper or electronic form;

(d) “Third parties” shall include, but not be limited to, the following: “carriers, truckmen,
cartmen, lightermen, forwarders, OTIs, customs brokers, agents, warehousemen and others to
which the goods are entrusted for transportation, cartage, packaging, handling and/or delivery
and/or storage or otherwise”.

2. Company as Agent. Customer understands the company is not a “carrier” but that company
will select and engage carriers on behalf of Customer. The Company acts as the “agent” of the
Customer for the purpose of arranging transportation services, and of performing duties in
connection with this service such as the filing of export and security documentation on behalf of
the Customer and other dealings with Government Agencies together with other, ancillary
services, including packing and storage of goods received incident to shipment. As to all other
services, Company acts as an independent contractor.

3. Limitation of Actions.

(a) Unless subject to a specific statute or international convention, all claims against the
Company for a potential or actual loss, must be made in writing and received by the Company,
within five (5) days of the event giving rise to claim; the failure to give the Company timely
notice shall be a complete defense to any suit or action commenced by Customer. Company
reserves the right to inspect all items and wrapping materials that are being made subject to a
claim. It is the responsibility of the Customer to retain the goods in the original container(s)
and/or materials and to make such goods and materials available to Company or the carrier’s
insurance company for inspection.

(b) All suits against Company must be filed and properly served on Company as follows:

(i) For claims arising out of ocean transportation, within one (1) year from the date of the loss;

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(ii) For claims arising out of air transportation, within two (2) years from the date of the loss;

(iii) For any and all other claims of any other type, within two (2) years from the date of the loss
or damage.

4. No Liability for the Selection or Services of Third Parties and/or Routes. Unless services are
performed by person or firms engaged pursuant to express written instructions from the
Customer, Company shall use reasonable care in its selection of third parties, or in selecting the
means, route and procedure to be followed in the handling, transportation, clearance and delivery
of the shipment; advice by the Company that a particular person or firm has been selected to
render services with respect to the goods, shall not be construed to mean that the Company
warrants or represents that such person or firm will render such services nor does Company
assume responsibility or liability for any actions(s) and/or inaction(s) of such third parties and/or
its agents, and shall not be liable for any delay or loss of any kind, which occurs while a
shipment is in the custody or control of a third party or the agent of a third party; all claims in
connection with the Act of a third party shall be brought solely against such party and/or its
agents; in connection with any such claim, the Company shall reasonably cooperate with the
Customer, which shall be liable for any charges or costs incurred by the Company.

5. Quotations Not Binding. Quotations as to fees, freight charges, insurance premiums or other
charges given by the Company to the Customer are for informational purposes only and are
subject to change without notice; no quotation shall be binding upon the Company unless the
Company in writing agrees to undertake the handling or transportation of the shipment at a
specific rate or amount set forth in the quotation and payment arrangements are agreed to
between the Company and the Customer.

6. Reliance on Information Furnished.

(a) Customer acknowledges that it is required to review all documents and declarations prepared
and/or filed with U.S. Customs & Border Protection, other Government Agency and/or third
parties, and will immediately advise the Company of any errors, discrepancies, incorrect
statements, or omissions on any declaration or other submission filed on Customer’s behalf;

(b) In preparing and submitting export declarations, applications, security filings, documentation
and/or other required data, the Company relies on the correctness of all documentation, whether
in written or electronic format, and all information furnished by Customer; Customer shall use
reasonable care to ensure the correctness of all such information and shall indemnify and hold
the Company harmless from any and all claims asserted and/or liability or losses suffered by
reason of the Customer’s failure to disclose information or any incorrect, incomplete or false
statement by the Customer or its agent, representative or contractor upon which the Company
reasonably relied. The Customer agrees that the Customer has an affirmative non-delegable duty
to disclose any and all information required to import, export or enter the goods.

7. Declaring Higher Value to Third Parties. The Company and third parties to whom the goods
are entrusted limit liability for loss or damage; the Company will request excess valuation
coverage only upon specific written instructions from the Customer, which must agree to pay

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any charges. In the absence of written instructions or the refusal of the third party to agree to a
higher declared value, at Company’s discretion, the goods may be tendered to the third party,
subject to the terms of the third party’s limitations of liability and/or terms and conditions of
service.

8. Insurance.

(a) Unless requested to do so in writing and confirmed to Customer in writing, Company is under
no obligation to procure insurance on Customer’s behalf; in all cases, Customer shall pay all
premiums and costs in connection with procuring requested insurance. The Company does not
itself insure any transportation but uses reasonable care to contract with an insurance company to
provide said insurance at an additional cost. Customer agrees to insurance company’s standard
provisions, such as deductibles and limitations.

(b) Said insurance value must appear on the face of the BOL and may only be entered by
employees of the Company. Declared values or Insurance amounts may not be altered once
freight has been received for transport unless the carrier issues written consent for such
alteration.

(c) Company reserves the right to inspect all freight under consideration for insured transit.
Company’s employees shall be at liberty to effect additional wrapping and packing on such
items, even in the event that such services were not originally requested. Additional charges
incurred for packing will be the responsibility of the customer. Company shall only be
responsible to inspect for surface conditions and apparent damage; all foregoing exclusions of
this contract shall remain in force.

(d) In the event that insurance coverage is purchased and freight is accepted for transport that is
packed by the shipper in advance of Company’s pick-up, then a “Total Loss” type insurance
shall be in force. Total Loss type insurance covers losses incurred due exclusively to the
following: theft, hijacking, or other felonious activity; fire, explosion, or other violent action;
complete disappearance or accidental loss of entirety of items; puncture or rupture to packaging
attributable to occurrences while in transport.

(e) Insurance covers freight only and do not cover value of packing containers or shipping
charges. Company shall not be responsible to substantiate values of goods in transit; nor is the
Company responsible to provide proof of origin or authenticate in any way such goods in transit
regardless of description listed on the face of the BOL. Customers may not over-value goods or
otherwise insure goods in transit in excess of their fair market values. The responsibility for
providing documented proof of value in a claim shall rest entirely with the customer.

(f) Groups or multiple items of freight consigned for insured transport to which the customer
assigns only one total insurance value for all items shall be insured by Company for total loss of
the entire lot only. Loss to any individual items will not be covered under this type of insurance
and will be at the risk of the customer. This limitation shall apply whether or not Company
effects any packing to the freight.

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(g) Company reserves the right to decline to provide insurance coverage based on Company’s
inspection of freight. Any item that is deemed unfit to be covered by Company’s insurance
policy will not be extended coverage. In such cases the insurance premium shall be removed
from the customer’s bill.

9. Packed by Shipper. If Company is to receive freight that is packed by the shipper or his
representative, it is the shipper’s responsibility to adequately pack and protect the goods to
ensure safe transportation. The shipper is also obliged to properly label each item in order to
prevent delay or errant dispatch.

10. Disclaimers; Limitation of Liability.

(a) Except as specifically set forth herein, Company makes no express or implied warranties in
connection with its services;

(b) In connection with all services performed by the Company, Customer may obtain additional
liability coverage up to the full value of the shipment by requesting insurance and agreeing to
make payment therefore, which request must be confirmed in writing by the Company prior to
rendering services for the covered transaction(s);

(c) The Company’s liability shall under all circumstances be limited to $50.00 per shipment or
transaction for loss or damage by any cause, including negligence;

(d) In no event shall Company be liable or responsible for consequential, indirect, incidental,
statutory or punitive damages, even if it has been put on notice of the possibility of such
damages, or for the acts of third parties;

(e) Should any claim in an amount in excess of the foregoing limits of liability be asserted
against Company by a third party for loss or damage to Goods handled by Company, the
Shipper, Consignee, and Customer shall indemnify and hold Company harmless as against any
such claim. This provision shall be in force regardless of the cause of such loss or damage,
including negligence. Company shall not be liable for loss or damage due to lack of detailed and
specific customer instruction in handling and/or placement of goods. The provisions of this
contract also extend to items damaged inside a shipper, consignee’s or customers premises or
place of business.

(f) Company cannot be held responsible and shall remain exempt from all liability for physical
damage to a shipment, or loss caused by delay of delivery, when conditions beyond the carrier’s
control are encountered during transit. Such conditions include but are not limited to: extreme
weather and/or changes in temperature, acts of nature and God; breakdown or mechanical defect
of vehicles or equipment; faulty or impassable highway; lack of capacity of roadway structures;
highway obstruction or closure due to official action; civil disobedience, riots, strikes or
lockouts; illegal or unlawful actions. “Loss caused by delay” as stated above is hereby
understood to also define and apply to loss of revenue, interest, market, and/or utility. Company
is not bound to transport goods by any particular means, schedule, vehicle, or otherwise than
with reasonable dispatch.

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(g) Company will be released from liability for a shipment when directed to accept and load or
deliver and unload at locations where the shipper, consignee, customer or their agents are not
present.

(h) Company is only liable to effect delivery and will not be liable for unwrapping or unpacking
a shipment unless such requests are ordered in advance and in writing. “Inside delivery” is
hereby defined as delivery taking place inside consignee’s location or structure at or near a
common point of entry and within a reasonably accessible area.

11. Exclusions

(a) Customer automatically release Company from liability and responsibility for physical
damage, loss or loss due to delay for items of freight as listed below:

• Items improperly or inadequately packed or mislabeled by the shipper.

• not professionally packed and secured by Company or via third party hired or directed by
Company,

• Items containing internal damage or concealed breakage; glass and ceramic with existing
cracks.

• Items of inherent vice or weakness due to poor craftsmanship in fabrication.

• Items containing internal mechanics or instrumentation.

• Items with waxen, resinous, or viscous surface area, be they in wet, semi-dry, or hardened state.

• Damaged or excessively worn antique items in disrepair, items exhibiting prior repairs or
breakage.

• Uncured and/or not thoroughly dry paintings; uncured and/or unset varnish applied to furniture.

• Items with directional orientation to which the shipper does not affix descriptive arrows in
advance.

• Items shipped unwrapped or in a state or a packaging type explicitly not recommended by

Company at the stated request of the shipper, regardless of whether such loss or damage may be
caused or contributed to by the negligence of the Company, its agents or employees.

In relation to subjective terms as used above (“inadequately packed”, “inherent vice”,

“excessively worn”, etc.) it is understood that the customer allows and releases Company to
define and interpret these terms as reasonably and commonly acceptable in Company’s industry
and as applied against common and previous occurrences in the normal course of packing and
shipping.

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(b) The Company will not transport currency, specie, precious stones, jewelry, or negotiable
documents at any time. In the event that the Company is made to transport such items without
the Company’s knowledge or consent, the Company shall remain at no liability whatsoever for
or in connection with the goods.

(c) The Company will not handle contraband or illegal substances under any circumstances.

The act of consigning items of these types to Company which are willfully disguised by the
shipper, acting with or without knowledge of the customer, shall entitle Company to recover any
and all costs for fines, penalties, legal fees, damage to Company’s equipment and/or personal
injury and compensation to Company’s employees. The Customer also shall be liable for and
indemnify the Company against all loss or damage to other property or persons caused by said
goods. The Company is at liberty to dispose of any items consigned with or associated with said
goods at any time and place deemed appropriate by the Company with disposal charges billable
to the customer.

12. Subcontracting: Company may subcontract the performance of any services to Third Parties
(“Subcontractors”). Company shall not be liable or responsible for any negligence, malpractice,
fault, errors or omissions in the performance of Services by any Subcontractor.

13. Advancing Money. All charges must be paid by Customer in advance unless the Company
agrees in writing to extend credit to customer; the granting of credit to a Customer, subject to
execution of the Company’s new account application and agreement, in connection with a
particular transaction shall not be considered a waiver of this provision by the Company.

14. Indemnification/Hold Harmless. The Customer agrees to indemnify, defend, and hold the
Company harmless from any claims and/or liability, damages, fines, penalties and/or attorney’s
fees by reason of injury to or death of any person or by reason of injury to or destruction of
Property or arising from the exportation of customer’s merchandise and/or any conduct of the
Customer, including but not limited to the inaccuracy of export or security data supplied by
Customer or its agent or representative, which violates any Federal, State and/or other laws, or
from any cause including but not limited to the fault, breach of warranty or negligence of
Company, its officers, agents, subcontractors or employees and/or from the fault, breach of
warranty or negligence of the Customer, its officers, agents, subcontractors or employees.
Customer further agrees to indemnify and hold the Company harmless against any and all
liability, loss, damages, costs, claims, penalties, fines and/or expenses, including but not limited
to reasonable attorney’s fees, which the Company may hereafter incur, suffer or be required to
pay by reason of such claims; in the event that any claim, suit or proceeding is brought against
the Company, it shall give notice in writing to the Customer by mail at its address on file with
the Company.

15. C.O.D. or Cash Collect Shipments. Company shall use reasonable care regarding written
instructions relating to “Cash/Collect on Deliver (C.O.D.)” shipments, bank drafts, cashier’s
and/or certified checks, letters(s) of credit and other similar payment documents and/or
instructions regarding collection of monies but shall not have liability if the bank or consignee
refuses to pay for the shipment.

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16. Costs of Collection. In any dispute involving monies owed to Company, the Company shall
be entitled to all costs of collection, including reasonable attorney’s fees and interest at 15% per
annum or the highest rate allowed by law, whichever is less unless a lower amount is agreed to
by Company.

17. General Lien and Right to Sell Customer’s Property.

(a) Company shall have a general and continuing lien on any and all property of Customer
coming into Company’s actual or constructive possession or control for monies owed to
Company over ninety (90) days with regard to the shipment on which the lien is claimed, a prior
shipment(s) and/or both;

(b) Company shall provide written notice to Customer of its intent to exercise such lien, the exact
amount of monies due and owing, as well as any ongoing storage or other charges; Customer
shall notify all parties having an interest in its shipment(s) of Company’s rights and/or the
exercise of such lien;

(c) Unless, within thirty (30) days of receiving notice of lien, Customer posts cash or letter of
credit at sight, or, if the amount due is in dispute, an acceptable bond equal to 110% of the value
of the total amount due, in favor of Company, guaranteeing payment of the monies owed, plus
all storage charges accrued or to be accrued, Company shall have the right to sell such
shipment(s) at public or private sale or auction and any net proceeds remaining thereafter shall
be refunded to Customer.

18. No Duty to Maintain Records for Customer. Customer acknowledges that it has the duty and
is solely liable for maintaining all records required under the Customs and/or other Laws and
Regulations of the United States; unless otherwise agreed to in writing, the Company shall only
keep such records that it is required to maintain by Statute(s) and/or Regulation(s), but not act as
a “record keeper” or “recordkeeping agent” for Customer.

19. Preparation and Issuance of Bills of Lading. Where Company prepares and/or issues a bill of
lading, Company shall be under no obligation to specify thereon the number of pieces, packages
and/or cartons, etc.; unless specifically requested to do so in writing by Customer or its agent and
Customer agrees to pay for same, Company shall rely upon and use the cargo weight and
description supplied by Customer.

20. No Modification or Amendment Unless Written. These terms and conditions of service may
only be modified, altered or amended in writing signed by both Customer and Company; any
attempt to unilaterally modify, alter or amend same shall be null and void.

21. Compensation of Company. The compensation of the Company for its services shall be
included with and is in addition to the rates and charges of all carriers and other agencies
selected by the Company to transport and deal with the goods and such compensation shall be
exclusive of any brokerage, commissions, dividends, or other revenue received by the Company
from carriers, insurers and others in connection with the shipment. On ocean exports, upon
request, the Company shall provide a detailed breakout of the components of all charges assessed

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and a true copy of each pertinent document relating to these charges. In any referral for
collection or action against the Customer for monies due the Company, upon recovery by the
Company, the Customer shall pay the expenses of collection and/or litigation, including a
reasonable attorney fee.

22. Waiver of Liability and Subrogation for Goods Made Via Express Carriers: Customer
understands that express carriers and their business practices are not designed to ship valuable or
fragile items like art and antiques. When Customer contracts with Company to arrange
transportation of valuable or fragile items like art or antiques via Federal Express, UPS, DHL or
TNT, the customer shall assume all risks of damages to its shipment as a result of shipping via
said entities. The Company, its employees and agents shall not be held liable for any damages or
delay occurring as a result of a shipment via Federal Express, UPS, DHL or TNT. Customer
shall relinquish his / her / its rights and that of his / her / its insurers to subrogate against
Company for any damages resulting from services provided by Federal Express, UPS, DHL and
TNT. Furthermore, the Customer shall indemnify and hold harmless Company from any claim or
lawsuit arising from the shipment via Federal Express, UPS, DHL and TNT, including but not
limited to, any action commenced by any insurers or Third Parties.

If any court or governing body should rule that Company cannot disclaim liability for this
Service, any liability of Company shall be limited to the lesser of the cost to repair any alleged
damage or the amount of the fee paid by the Customer for the Services performed by Company.

23. Severability. In the event any Paragraph(s) and/or portion(s) hereof is found to be invalid
and/or unenforceable, then in such event the remainder hereof shall remain in full force and
effect. Company’s decision to waive any provision herein, either by conduct or otherwise, shall
not be deemed to be a further or continuing waiver of such provision or to otherwise waive or
invalidate any other provision herein.

24. Governing Law; Consent to Jurisdiction and Venue. These terms and conditions of service
and the relationship of the parties shall be construed according to the laws of the State of New
York without giving consideration to principals of conflict of law.

Customer and Company

(a) irrevocably consent to the jurisdiction of the United States District Court, Southern District of
New York, and the Supreme Court of the City of New York;

(b) agree that any action relating to the services performed by Company, shall only be brought in
said courts;

(c) consent to the exercise of in personam jurisdiction by said courts over it; and

(d) further agree that any action to enforce a judgment may be instituted in any jurisdiction.

Price increase from January 1

http://www.ysds.com/wp-content/uploads/2013/01/PrishöjningEngelska.pdf

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What Is Consumer Protection?

America is known for its consumerism. Good or bad, many argue that our culture places a high
value on material possessions and encourages people to consume more than they need. But,
consumerism has more than one definition. In business and economy, it means to promote the
rights and safety of consumers.

Our current consumer protection efforts grew out of this business definition of consumerism.
Simply put, consumers are people. They are people who buy things. Consumer protection,
therefore, refers to laws and other forms of government regulation designed to protect the rights
of consumers. The Federal Trade Commission, or FTC, serves as our nation's consumer
protection agency and administers many different consumer protection laws, like the
Telemarketing Sales Rule and the Equal Credit Opportunity Act.

Consumer protection is based on consumer rights, or the idea that consumers have an inherent
right to basic health and safety. The FTC protects these rights by:

 Enforcing product safety

 Distributing consumer-related information
 Preventing deceptive marketing

What Is Product Liability?

Consumer protection is often achieved through the legal doctrine of product liability. Generally
speaking, this is the legal responsibility imposed on a business for the manufacturing or selling
of defective goods. Product liability laws are state laws, and therefore vary by state. However,
the laws share a common goal. The laws are built on the principle that manufacturers and
vendors have more knowledge about the products than the consumers do. Therefore, these
businesses bear the responsibility when things go wrong, even when consumers are somewhat at
fault.

Product liability cases can result in large civil lawsuits and lucrative monetary judgments for the
plaintiffs. This can be harmful to small businesses and manufacturers and has been an argument
for tort reform. But keep in mind that, on the other hand, many of the product safeguards
consumers now enjoy are the result of previous lawsuits.

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There are three main types of product liability. Businesses will be found liable to consumers
when a court finds:

 Design flaws
 Manufacturing defects
 A failure to warn consumers of a possible danger

Sources of business finance

DEFINITION OF BUSINESS FINANCE

This is the amount of money you need to start your business. It enables you to buy machinery
and equipment, build your business premises, hire labor and meet daily obligations of your
business. Finance needed to start your business is commonly known as capital.

As an entrepreneur, the primary types of capital that you are likely to arrange for include start up
capital, working capital and expansion capital. Start up capital is the capital you will require to
begin a business while working capital is the amount you would need to meet the day to day
activities of the business. Expansion capital is the capital you will require to help your business
grow.

SOURCES OF BUSINESS FINANCE

1. Equity financing:
The main source of equity financing is your personal savings. Some experts say that one half of
the money needed to start a small business should come from the owner. This may mean ‘you’,
as the future owner must work and save for several years before having enough money to start
the business.

Another popular source of equity financing is money from your family and friends. Equity
financing can also be obtained by selling part of your business to others. This can be done in
several ways e.g. you could get one or more partners. With the partners putting in a portion of
their own money, you will find it easier to raise the total amount needed. Equity financing can
also be obtained by selling part of your own property.

2. Borrowing from lending institutions:

When your sources are not enough, you have the option of borrowing from other sources.
Lenders will usually lend you money for starting a business if they know and trust you. Lenders
want to be sure they will not lose their money on businesses that

fail. Most lenders, therefore, will want to review your business plan carefully. The plan should
describe how the business will operate, how much money will be needed, how it will be used and
when the business will be profitable. Most people think of banks when borrowing money. Banks
lend money when the risks of losing it are extremely low. Usually, they will only lend to
customers whom they have known for a long time.

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3. Borrowing from cooperative societies:
If you are a member of a co-operative society, you may be able to borrow money for business
use. Some loans can be obtained with just your signature. Cooperative society interest rates are
usually lower than bank rates. Commercial finance companies may lend you money to start your
business. Because they take greater risks, commercial finance companies usually charge high
interest rates.

Some people borrow money against their life insurance policies. This is an easy way to obtain
some of the money needed to start the business. Life insurance policy loans are based on cash
that is already paid in. Life insurance companies offer these loans at low interest rates. If you
need to buy land or building for a new business, you will be able to borrow money from a
savings and loan institution. They specialize in real estate finance. The loans they give out are
called mortgages. Their interest rates are similar to those of banks.

4. Borrowing in the form of trade credit:

This is another source of business finance. It is where a business receives, on credit, raw
materials and also other goods used to start up business. Suppliers grant credit to their clients for
a period of 3 to 6 months. The seller finances the buyer who wants to start a business.

5. Borrowing through factoring:

This is a financial service designed to help a firm in managing their debt books and receivables
in a better manner. The debt books and receivables are assigned to a bank or an institution called
the “factor”. The bank then advances cash to the firm.

6. Bank Overdrafts financing:

Overdrafts are allowed by banks to current account holders, who are allowed to withdraw from
up to a certain limit of a given amount.

7. Youth Enterprise Fund:

This is managed by the Ministry of Youth and Sports. It mainly funds youth projects. A youth in
this case is regarded as a person between the ages of 18 and 32 years.

8. Kenya Women Finance Trust (KWFT):

This is a women’s enterprise fund managed by the Ministry of Gender, Children and Social
Development. Currently, it also serves men.

9. Micro finance institutions:

Examples of these are:
• K-Rep micro finance institution.
• Faulu micro finance institution.
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• Kadet micro finance institution.
• Rupia micro finance institution.
• Pioneer micro finance institution, among others.

10. Other sources:

• Welfare Associations (Chamas)
• Leasing property etc.

Credit Control

What is Credit Control

Credit control, also called credit policy, includes the strategies employed by businesses to
accelerate sales of products or services through the extension of credit to potential customers or
clients. At its most basic level, businesses prefer to extend credit to those with “good” credit and
limit credit to those with “weak” credit, or possibly even a history of delinquency.

Credit control might also be called credit management, depending on the scenario under review.

BREAKING DOWN Credit Control

Business success or failure primarily depends on the demand for products or services – as a rule
of thumb, higher sales lead to bigger profits which in turn lead to higher stock prices. Sales, a
clear factor in generating business success, in turn, depend on a number of factors: Some, like
the health of the economy, are exogenous, or out of the company’s control, other factors are
under a company’s control. These major controllable factors include sales prices, product
quality, advertising, and the firm’s control of credit through its credit policy.

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Credit policy or credit control center on four primary factors:

 Credit period: Which is the length of time a customer has to pay

 Cash discounts: Some businesses offer a percentage reduction of discount from the sales
price if the purchaser pays in cash before the end of the discount period. Cash discounts
present purchasers an incentive to pay in cash more quickly.
 Credit standards: Includes the required financial strength a customer must possess to
qualify for credit. Lower credit standards boost sales but also increases bad debts. Many
consumer credit applications use a FICO score as a barometer of credit worthiness.
 Collection policy: Measures the aggressiveness or relaxed policy in attempting to collect
slow or late paying accounts. A tougher policy may speed up collections, but could also
anger a customer and drive them to take their business to a competitor.

A credit manager or credit committee for certain businesses usually is responsible for
administering credit policies. Often accounting, finance, operations and sales managers come
together to balance the above credit controls, in hopes of stimulating business with sales on
credit, but without hurting future results with the need for bad debt write-offs.

Related Terms
Allowance For Credit Losses

Allowance for credit losses is an estimation of the debt that a company is unlikely to recover.

more

Credit Analyst

A credit analyst is a financial professional who possesses expertise in assessing the

creditworthiness of individuals, companies or securities.

more

Control

Control refers to having sufficient amount of voting shares of a company to make all corporate
decisions.

more

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Controller

A controller is an individual who has responsibility for all accounting-related activities within a
company.

more

How Controlled Disbursement Works

Controlled disbursement is a technique often used in corporate cash management to regulate the
flow of checks through the banking system on a daily basis.

more

Accounting Control

An accounting control is a set of procedures that are implemented by a firm to help ensure the
validity and accuracy of its own financial statements.

SECTION A

ALL QUESTIONS ARE COMPULSARY

1. State the facts offered by manufacturers to retailers (30 marks)

2. What is the importance of motorcycles in transportation? (4 marks)
3. Explain the four chacteristics of money (4 marks)
4. State four functions of the securities exchange? (4 marks)
5. State the advantages of standard gauge railway? (5 marks)

SECTION B

ALL ANY FIVE QUESTIONS

A) Explain six roles of commercial banks (12 Marks)

B) Explain four factors that hinder the growth of foreign exchange (8 Marks)

2. Explain five differences between public and private companies (20 marks)

3. A)What are the differences between jobbers and brokers in Stock Exchange (10 Marks)

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 B) State five features of a public warehouse (10 Marks)

4. A) Explain the five principles of Insurance (10 marks)

B) Explain the types of Insurance (10 marks)

5. A) Explain in detail the types of warehouses (15 Marks)

B) Explain instances in which credit payment is appropriate (5 Marks)

6. A) Differentiate Between domestic and International (10 Marks)

B) Explain five document used in home trade (10 Marks)

7. A) Explain Five Principles of Taxation (10 Marks)

B) Explain the various types of taxes (10 Marks)

8. A)Explain the four factors of Production (12 Marks)

B) Explain the term Commerce and state its advantages (8 Marks)

9. A) Explain Five Principles of Public Expenditure (10 Marks)

B) Explain the functions of a government (10 Marks)

10. A) Calculate the gross profit (10 Marks)

Sales 1,000,000

Purchase 200,000

Inventory (1/1/2018) 4000,000

Inventory 31/12/2018) 500,000

Return Inwards 100,000

Return Outwards 50,000

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 B)Explain the communication Process (10 Marks)

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