Introduction to business studies

Introduction

 Business - This refers to any activity carried out by an individual or by an organization with the
aim of making a profit.
 A business is any organisation that uses resources to meet the needs of customers by providing
a product or service that they demand.
 The term business also refers to firms or organizations that provide goods and services to make
a profit.

Reasons for the existence of business

Business is important in any society because it is not possible for people to provide themselves with all
what they need without direct or indirect aid from others. Some of the main reasons why businesses
exist are:

 To provide goods and services – Businesses exist to satisfy the needs and wants of buyers
by providing them with goods and services. Buyers include individual consumers, other
businesses and the government.
 To create employment – Businesses provide job opportunities through which members of
society can earn money, which can be used to buy goods and services for the satisfaction of
their needs.
 To earn profit – Profit is the primary goal of carrying out business operations. It is earned by
the people who put their resources and effort in business
 As an outlet of new innovation – Some businesses provide unique goods and services which
may not be existing in society e.g. plastic fencing poles that are now replacing wooden
poles.
 To be as own boss – Some people run businesses so as to be in full control of the operations
and make all the decisions regarding the business without need of reference to people.
 To utilize extra resources – Some people go into business to make use of money or property
which is not being put to profitably use at a given time.

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  To offer special services – Some businesses provide services that raise the living standard of
people e.g. government enterprises that provide public utilities such as health care and
water.
 To utilize spare time – Some people run businesses in order to make use of extra time at
their disposal and in the process make some extra money. A large number of formally
employed people have small business which they run during their free time in order to earn
more money.

Reasons why businesses fail

There is no more puzzling or better studied issue in the field of small business than what causes
them to fail. Given the critical role of small businesses in the US economy, the economic
consequences of failure can be significant. Reasons for business failure include the following:

1. Failure in planning (initial start-up plan and subsequent plans) -

 The failure to conduct formal planning may be the most frequently mentioned item with
respect to small business failure. Given the relative lack of resources, it is not surprising
that small firms tend to opt for intuitive approaches to planning. Others may fail to
conduct operational planning, such as marketing strategies

2. Inadequate financial resources

 When a firm begins operation (start-up), it will require capital. Unfortunately, many
owners, especially small business owners initially underestimate the amount of capital
that should be available for operations.
 This may explain why most small firms that fail do so within the first few years of their
creation. The failure to start with sufficient capital can be attributed to the inability of
the owner to acquire the needed capital. It can also be due to the owner’s failure to
sufficiently plan for his or her capital needs.
 A business maybe lacking financial resourcesto successfully position itself on the market
in the long term.

3. Poor cash flow management

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  Cash-flow management has been identified as a prime cause for failure.
 Good cash-flow management is essential for the survival of any firm, but small firms in
particular must pay close attention to this process. Small businesses must develop and
maintain effective financial controls, such as credit controls.
 Cash flow problems maybe due to the fact that the business owners may not have
fundamental familiarity with accounting and finance.
 Unfortunately, many owners fail to fully use their accountants’ advice to manage their
businesses.

4. Lack of market demand

 A major reason for the shutdown of companies is planning a product or service out of
the market.
 In this case, a company tries to solve a problem that is not relevant from the point of
view of the target group, to generate a profitable business model. In other words, the
business idea is not offering a solution for a customer problem or a relevant additional
benefit.

5. Ignoring customers’ needs

 The failure to understand what customers value and being able to adapt to changing
customer needs often leads to business failure.
 This may lead to devastating effects such as negative customers' perception about the
company's brand, as well as bad reputation.
 As a result, consumers will be lead to opt for other better brands meeting their needs.
As firm cannot survive in the market without a large customer base.

6. Inconsistencies within the team.

 If the cooperation between the team members does not work, the startup doesn't stand
a chance either.
 However, an unbalanced composition of the teams with regard to the competencies of
the individual members often hampers the success of the company.

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  A company may fail due to lack of important skills for the technical implementation of
the business idea, professional skills

7. Intense competition in the industry and lack of market research

8. Ineffective marketing strategies

9. Harsh economic conditions in the country

10. Poor initial location decision

11. Not enough passion and commitment

Factors of production

These are resources available to produce goods and services needed and wanted by the
community. They include the following:

1. Land

 It involves choosing the location of a business. This is critically important for businesses
such as retailers
 Other businesses such as farming should consider the quality of the land in terms of the
ability to grow different crops
 The significance of the land as an input will be particularly high in the primary sector.
 The amount of space available to a business can affect how much can be produced, or
how many customers can physically fit in the business premises
 The nature of premises can also affect the working environment and people's
motivation e.g. working in a modern office with a good canteen, parking spaces, and a
central location might be appealing to employees.

2. Labour

 This refers to effort of workers required to make a product or service.

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  The quality of employees in terms of their skills, attitudes (e.g. to customers), their
willingness to work and their natural abilities will have an influence on the success of
every business.

3. Capital

 This refers to finance, machinery and equipment required to make a product or service
 For examples coffee machines in a coffee shop, the ovens in a fast-food restaurant are
examples of capital equipment
 The amount and quality of equipment in a business can affect the quality of service it
provides e.g. the online retailer Amazon is admitted for the efficiency with which it
processes an order.
 Telecel Zimbabwe is known for its poor network service due to inadequate information
technology capital

4. Entrepreneurship

 This includes the intelligence of the workforce

 It includes the ability to develop new ideas, find solutions to problems and spot business
opportunities.
 It involves the combination of the other factors of production into a unit capable of
producing goods and services. It provides a managing, decision-making and coordinating
role.

The nature of business activity

 Business activity involves the transformation of inputs into outputs or or the use of
resources to supply goods and services to meet the needs and wants of consumers and
society the needs and wants of consumers and society.

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  It can be defined as the production of an output in the shape of goods (tangible
products) and services (intangible) with the ultimate objective of making profit is
termed as a business activity.

Levels of business activity

1. Primary sector

 This sector involves businesses that deal with the extraction of natural resources from
nature
 They include farming, mining, fishing etc.
 In this sector, the raw materials are usually sold unprocessed to the secondary sector
through the industrial market
 These industry form the first stage in the chain of production
 Examples of companies in the primary sector include Bindura Nickel Corporation,
Hwange Colliery Company

2. Secondary sector

 This sector encompasses businesses that manufacture products or process raw

materials
 Businesses in this sector turn raw materials and components from the primary sector
into semi-finished and finished goods
 Examples include car manufacturing, food processing, construction

3. Tertiary sector

 This sector encompasses companies that deals with the provision of services to the final
consumer
 No physical product is produced at this stage in the chain of production
 It involves the distribution of goods to consumers
 Examples include banking, transport, insurance

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Industrialization

 Industrialization is the process by which an economy is transformed from a primary

sector (a resource-based economy) to the secondary sector (an economy based on mass
manufacturing).
 Industrialization is the development of industries in a region or a country on a wide
scale.
 It is a situation in which a country is moving from the primary sector to the secondary
sector
 Individual manual labor is often replaced by mechanized mass production
 Industrialization is usually associated with increases in total income and living standards
in a society.

The characteristics of Industrialization include the following:

1. Mechanization - the primary defining characteristic of industrialization is that it involves

introducing machines into the production process.

2. Division of labour -

 This refers to the organisation of work into different roles, knowledge areas and tasks.
 An example is an assembly line where a worker puts a single part onto thousands of
units in a shift.
 It also occurs in highly skilled professions and knowledge areas e.g. an information
security professional with special knowledge of database security

3. Productivity

 The automation of work frees human labour for more demanding tasks.
 This increases the average amount of goods produced in an hour of work.
 For example, a farmer using a large combine harvester potentially produces far more
value in an hour than a farmer harvesting a crop with a hand tool.

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4. Mass production

 This refers to the organisation of production processes to achieve economies of scale.

 Such processes typically uses automation, mechanization and division of labour.

5. Pollution

 Industrial societies generally consumes a great deal of energy and goods.

 The production of such goods and energy produces pollution.
 The use and disposal of goods and packaging also cause pollution.
 Therefore, a significant scale of an industrial economy can result in pollution at a great
scale.

6. Urbanisation

 Industrialization concentrate production in large facilities such as factories, offices and

data centers.
 This drives a process of urbanization whereby people move to the city from the
countryside to pursue an opportunity.

7. Globalisation

 Globalization is the process whereby the systems of nations are increasingly intertwined
and interrelated.
 The economies of scale of an industrial economy can further be extended accessing
international markets.
 Globalization allows for a system where each nation produces goods for which it has a
comparative advantage.

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Discuss the impacts of industrialization to a developing country.

Introduction

Industrialization is the development of industries in a region or a country on a wide scale. It is a

situation in which a country is moving from the primary sector to the secondary sector. Proving
beneficial to massive population, the industrialization has led to an improvement in working
and living standard of the world, creation of employment, improvement in healthcare services,
increase in Gross domestic product, for example. However, industrialization also have negative
impacts such as pollution, rampant consumption of fossil fuels, overcrowded cities, for
instance. Therefore, this essay will focus on discussing these impacts of industrialization to a
developing nation.

Body

The positive impacts of industrialization include the following

1. Affordability of goods and services

Manufacturing goods locally helps in reducing costs of purchase and shipping. Producing goods
on a large scale for families that’s easily accessible to the people is one of the remarkable
advantages of Industrialization. From food to essential supplies, the population driven by
industrialization can get the basic amenities faster. Also, as supplies go up, the prices ultimately
get reduced. This results in enhanced quality of life as the products required are affordable to
everyone.

2. Industrial inventions saves time and costs

As society progresses towards modernization, new industrial inventions replace the traditional
systems. For example, cars running on gasoline will be replaced by electric cars or hybrid
vehicles. Likewise, communication is made easier as Internet services are ramped up by fiber
replacing the old telephones. The industrial sector comes up with new inventions that are both
time-saving and less costly. The automated system also leads to fewer errors at manufacturing
plants and factories hence boosting the production process. Companies can get the work done

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by machines rather than depending on human labor. The management can save hugely in terms
of resources and utilities spent on labor and workplace hazards.

3. Enhanced healthcare services

With advanced technological systems such as CT Scans and MRI, doctors can detect and
diagnose the commonly unidentified issues. In addition, industry-made devices such as hearing
aid, and prosthetics have provided hope to millions of people worldwide. Many of the advances
that led to the development of modern medical practices happened because of the efforts of
the Industrial Revolution. It’s possible to make more instruments, such as test tubes, scalpels,
and lab equipment, at a lower cost. The healthcare sector has become more advanced at
treating once incurable diseases.

4. Employment creation

Every industry requires skilled workers to manage the workplace. One of the greatest
advantages of industrialization is an employment opportunity for the deserving. It means a
person can make wealth with a decent job as an employee and maintain their living standard.
Every machine needs workers and professionals to handle the operations without fail. Regular
work means regular income for all and hence a balanced life. Not only can people afford basic
amenities, but they can also get their life insured through what they earn.

5. Increase in Gross Domestic Product

The manufacturing and industrial sectors contribute fairly to every country's GDP. Whether it's
a developing nation or already developed, the industrial sector has its proportion of
contribution to the economy. According to studies, in 2015, the industrial sectors contributed
to 40% of China's GDP, while 18.2% was contributed to the USA's GDP by Industrialization. IN
come other nations like India and the UK, The industrial sector dominates, contributing around
54% and 80% around the GDP.

6. It leads to import-export market

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Countries could expand their import and export markets for the goods getting made. Through
industrialization, businesses can have abundant supply available for particular goods and
services. Industrialization also leads to an increase in the wealth of businesses, and adding tax
revenues to society.

7. Improvement in living standards

The introduction of mass production changed how everyone could access goods or services. It
was a change that led to mass production of numerous items, lower costs and improved
availability to the average family.

However there are also negative impacts of industrialization, and they include the following:

Negative impacts of industrialization

Everything comes at a cost, and so is the case with industrialization. From environmental
concerns to the societal viewpoint, these disadvantages of Industrialization scale differently for
every country.

1. Overcrowded cities

People looking for jobs switch to industrial towns and cities to earn better wages and improve
their livelihood. This results in overpopulation. Shortage of housing space, traffic issues, and
expensive property are some common drawbacks of Industrialization. A heavily crowded city
such as Delhi (India) has common disadvantages of Industrialization such as sewage &
sanitation, contamination of the local drinking water, shortage of land space, etc. Moreover,
with masses of people living in the same area, challenging working conditions, and unsafe
lifestyles, there can be numerous disease outbreaks.

2. Pollution

Industrialization also brings its darker side as industrial waste is either drained to local water
bodies or emitted into the environment directly. Bhopal Gas tragedy, Windscale fire, or even
Chernobyl Disaster are the gravest reminders of industrial hazards. Besides noise, air, water,

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industrial waste also leads to soil pollution as it makes the land unusable and less fertile for
agricultural activities. These disadvantages of Industrialization have led to global challenges
such as biodiversity reduction, water crisis, habitat destruction, and even global warming.

3. Poor working conditions

Every industry is profit-driven; many companies look to maximize their profit by increasing the
levels of production. As a result, many company owners either sideline the workplace safety
protocols or find cheap labor to ramp up the production. Companies looking for cheap labor
don’t want to invest in workers’ safety measures. For example, in many chemical industries, the
equipment is usually unmaintained and dirty, expelling soot, smoke, etc. that leads to several
issues and accidental injuries.

4. Poor living conditions e.g. near factories

Since industrial areas are infamously known for emitting all types of pollution, finding space to
live in such areas is extremely difficult. The industrial environment not only deteriorates the
land but also degrades its value. In addition, when the cities become crowded with people, the
living conditions are impacted directly. For example, when masses of people live close together
in unsanitary conditions, it is not unusual for diseases to start spreading rapidly.

5. Rampant consumption of fossil fuels

Nearly 26% of fossil fuels are used for industrial purposes. Every small to big industry requires
energy to carry out its 24/7 operations. Nowadays, many factories use fossil fuels to produce
goods and services. However, consumption of fossil fuels at a large scale also causes
environmental concerns, including global warming.

6. A change in agricultural production methods

The agricultural industry relies on automation, longer shelf life, and other interventions that
allow for large-scale farming instead of homesteading. The quality and safety of the foods we
eat from these processes are questionable at times, especially when GMOs, herbicides, and
pesticides enter into the discussion.

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Conclusion

This essay was a discussion on the impacts of industrialization to a developing nation. It can be
deduced from that industrialization can lead to employment creation, improvement in living
standards, increase in gross domestic product, and an improvement in healthcare services.
However, on the other hand, it can lead to pollution, an increase in the use of fossil fuels,
overcrowded cities and global warming. However, measures can be put in place to lessen these
negative impacts for instance, establishment of authorities that monitor the environment,
measures to protect land from degradation.

Classification of business organisations

Business units/organisations are generally classified into private or public sector business units’.

Public sector businesses

 Have no individual owners.

 Are owned, managed and control by local/national government on behalf of the
community as a whole.
 Are established by the government
 Their main objective is to provide essential services or goods.
 The have no profit making motive
 Have public accountability. They are accountable to the parliament for their
performance. The auditor general reports to the parliament about the performance of
public enterprises. They are also accountable to general public through government.

Private sector

 Are owned by private individuals or groups of private individuals.

 Their main objective is to make profit.
 Private ownership and control
 No state participation

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  Private finance (from owners or shareholders)
 A competitive work culture, characterized by performance-based career growth and
better compensation

Forms of business organisations in the private sector

1. Sole trader (sole proprietorship)

 A sole trader (also known as sole proprietor is a business owned and controlled by one
person, usually trading under his or her own name.
 The sole trader is unincorporated, that is the owner is legally the same as the business.
 Sole traders are usually small businesses and are common in industries such as farming,'
hairdressing, window cleaning and retailing.
 They are most often found in industries where production is labour-intensive, that is
labour is a high percentage of costs and little capital is needed to set up in business.
 Have few legal formalities
 Have unlimited liability. This means that if the assets available in the business are not
enough to pay all the business debts the personal property

Unlimited liability

 Unlimited liability means that the responsibility of the owner for business debt is not
limited to the amount invested, so business debts might have to be paid from not just
the assets of the business but all the assets of the owner.

Advantages of sole trader business

 Easy to establish - there are few legal formalities and it requires little start up capital.
 Is easy to run and control. This is so because the business is small, and the owner is in
charge of the day-to-day management. Decisions can be made quickly
 The owner has complete control - not answerable to anybody else
 Close personal relationship with employees. Supervision of employees becomes easy
due to closeness with employees

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  The business can quickly adapt to changes.
 The owner enjoys all profits alone, therefore he or she has an incentive to work hard
 Overhead expenses are usually lower.
 The business affairs can be kept private.
 Being small, the business can provide personal attention for its customers
 Provides employment for the owner.

Disadvantages sole trader

 Has unlimited liability - all owners assets are at potential risk of being taken away if the
business fails to pay its debts
 Prices may be higher. Sole traders are unlikely to be big enough to get the benefits of
large-scale production. However, if expenses are kept down, for example by using the
owner's home as premises, a sole trader may be able to keep prices low.
 Often faces intense competition from bigger firms, for example in food retailing
 lack of continuity – as the business does not have separate legal status; when the
owner dies the business ends too. If the owner is ill, the business may have difficulty in
continuing.
 The owner bears the losses and debts alone.
 The business depends very heavily upon the owner's abilities. He or she may be good at
some tasks of running the business, but poor at others. For example, a person may have
a technical skill as a car mechanic, but find it difficult to cope with accounts or staff
when running a garage.
 There is no room for specialisation - the owner is unable to specialise in areas of the
business that are most interesting since he is responsible for all aspects of management
 There is no continuity after the owner dies.
 long hours often, are necessary to make business pay - The trader may be overworked.
 difficult to raise additional capital e.g. cannot borrow money from financial institutions
due to lack of collateral security. Capital is usually obtained from personal savings,

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 borrowing and putting profit back into the business. This limits the expansion of the
business.

2. Partnership

 It is a form of business in which 2-20 individuals decide to run a business under unified
control in order to make a profit.
 The owners are called Partners.
 It is owned by a minimum of 2 and a maximum of 20 except for partnership who provide
professional services e.g. medicine and law which have a maximum of 50 persons.
 Deloitte and Touche is an example of a partnership business.
 They can be set up without legal documents, although this is inadvisable.
 The partnership is an unincorporated business and partners have unlimited liability.
 The liability of the partners is usually unlimited.
 General partners have unlimited liability.
 Limited partners have limited liability. Liability or responsibility is restricted to the
capital contributed. This means that in case the partnership cannot pay its debts; the
partners only lose the amount of capital each has contributed to the business and not
their personal property.
 Profits and losses are shared either equally or according to the provisions of the
Partnership Deed.

Formation
People who want to form a partnership must come together and agree on how the proposed
business will be run to avoid future misunderstanding.
The agreement can either be oral (by use of mouth) or within down. A written agreement is
called a partnership deed.
The contents of the partnership deed vary from one partnership to another depending on the
nature of the business, but generally it contains:

Partnership Deed (Agreement)

It is drafted by partners.

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Contains:

 The objectives of forming the partnership.

 The amount of capital each partner is going to contribute towards the partnership.
 Duties, responsibilities and rights of each partner.
 Terms and conditions under which the partnership operates.
 Circumstances under which the partnership can be terminated.
 Methods employed to settle disagreements.
 The ration in which profits and losses are to be shared.
 Salaries and bonuses to be paid to each partner if any.
 Interest rates charged on capital and drawings.
 The name of the partnership.

Advantages of partnership business

 Management in duties are shared amongst the partners.

 More capital can be raised.
 More skills are available resulting in better quality decision making.
 Specialisation is possible.
 Partners can consult one another.
 There are fewer legal formalities.
 Losses are shared amongst partners.

Disadvantages of partnership

 Disputes may lead to the dissolution of the partnership.

 Some partners have unlimited liability.
 Consultations may lead to delays in decision making.
 There is no continuity as the partnership is dissolved if one of the partner dies or leaves
the partnership.
 Agreements made by one partner are binding to the whole partnership.
 Amount of capital raised is still limited due to a cap on the number of partners for most
partnerships.
 Profits have to be shared among partners.

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Limited liability companies (Joint Stock Companies)

 A company is an association of persons registered under the Companies Act who

contribute capital in order to carry out business with a view of making a profit.
 The act of registering a company is referred to as incorporation.
 Incorporation creates an organization that is separate and distinct from the person
forming it.
 A limited company is an incorporated business.
 A company is a legal entity that has the status of an “artificial person”. It therefore has
most of the rights and obligations of a human being. A company can therefore do the
following;
1. Own property
2. Enter into contracts in its own name.
3. Borrow money.
4. Hire and fire employees.
5. Sue and be sued on its own right.
6. Form subordinate agencies, i.e., agencies under its authority.
7. Disseminate or spread information.

The concept of limited liability

 Limited liability means that the responsibility of the owner of a business for business
debts is limited only to the specific amount he or she invested in the business, and does
not include all their assets.
 This means that an owner cannot lose more than the money invested in the business,
and is therefore encouraged to invest.
 It enables shares to be issued and large amounts of capital to be raised
 It occurs because the business is registered as a separate legal entity, capable of suing
and being sued in a court.

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  It means that possible lenders to the business are more likely to lend, knowing their loan
is not dependent on individual person's.

The owners (members) of a company are referred to as shareholders.

There are two types of limited companies namely private limited companies and public limited
companies.

Private limited company

 A private limited company is a joint-stock firm owned by two or more shareholders.

 A private limited company cannot advertise its shares for sale to the general public or
through the Stock Exchange. Shares can only be traded privately, not advertised for sale.
 Shareholders have limited liability
 The company must use the word 'limited' or abbreviation 'Ltd' in its title.
 The company is a separate legal entity from the owners and can sue and be sued.
 Management is by a board of directors elected by the shareholders.
 Private limited companies are usually smaller than public limited companies
 Are relatively cheaper to set up
 Are not required to publish their accounts and reports

Advantages of private limited companies

 Shareholders have limited liability

 Separate legal personality
 Continuity in the event of the death of a shareholder
 Many private limited companies are large enough to obtain the benefits of large-scale
production.
 Are able to borrow money from lending institutions - They have access to a large pool of
capital than sole proprietorship or a partnership. They can borrow money more easily
from financial institutions because it owns assets which can be pledge as security

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  Are able to employ professional or skilled workers - A private company has a larger pool
of professional managers than a sole proprietorship or a partnership. These managers
bring in professional skills in their own areas which are of great advantage to a private
company

Disadvantages of a private limited company

 The number of shareholders is limited to fifty.

 Not allowed to trade their shares on the stock exchange
 Potential conflicts of interest are common among shareholders and directors
 There are legal formalities to set up the business
 Shareholders cannot withdraw their capital at will. It may be difficult for shareholders to
sell their shares and get their investment back, especially when companies have
restrictions on transferring shares.

Public limited companies

 A public limited company is a joint-stock firm owned by two or more shareholders

 A public limited company must use the term 'public limited company' or abbreviation
'PLC' in its title.
 The company is a separate legal entity from the owners and can sue and be sued.
 Ownership is through share issue
 Management is by a board of directors elected by the shareholders.
 Setting up requires formal registration, regular filing of accounts and reports open to the
public.
 Are usually large companies, and expensive to setup
 Can trade their shares through the stock market
 Are complex to run. The directors are separate from shareholders so directors might
seek different objectives from shareholders

Advantages of public limited companies

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  Wide range of sources of capital - It has access to wide range of sources of capital
especially through the sale of shares and debentures. They can also borrow money from
financial institutions in large sums and have good security to offer to the lenders.
 Shareholders have limited liability - Like private companies, public limited company’s
shareholders have limited liability i.e. the shareholders are not liable for the company’s
debts beyond the shareholders capital contribution.
 Shares are freely transferable from one person to another - If the company has a Stock
Exchange listing shares, the shares can be bought and sold easily, so shareholders can
get their money back (unless the value of the shares has fallen).
 There is continuity of existence
 They enjoy economies of scale - Their large size enables them to enjoy economies of
scale operations. This leads to reduced costs of production which raises the levels of
profit
 They're able to employ specialist employees

Disadvantages of public limited companies

 High costs of formation: The process of registering a public company is expensive and
lengthy. There are detailed laws about the presentation of accounts, disclosure of
information and the duties of directors.
 Lack of secrecy - The public limited companies are required by law to submit annual
returns and accounts to the registrar of companies denying the company the benefit of
keeping its affairs secret. They are also required to publish their end of year accounts
and balance sheets.
 Conflicts of interests - Directors may have personal interests that may conflict with
those of the company. This may lead to mismanagement.
 Diseconomies of scale - The large size and nature of business operations of public
limited companies may result in high running/operation costs and inefficiency. Decisions
can take long time to make.

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The legal formalities/requirements in forming a company

When a joint-stock company is established, certain documents must be submitted to the

Registrar of Companies, a government department. The two most important documents are the
Memorandum of Association and the Articles ofAssociation. However, the documents required
during company formation include the following:
1. Memorandum of Association

 This governs the firm's external relationships with other people and organisations, and
provides the world at large with certain basic information about the company. It
contains several items:
a) Name of the company.
b) Address of the Registered Office.
c) Objects Clause. This states the type of business in which the company will be involved,
such as 'retailing' or 'building services'.
d) Limitation Clause. This is a statement that shareholders have limited liability, by share
or guarantee.
e) Capital Clause. This gives details of the amount of authorised share capital and the
amounts and categories of shares to be issued.
f) Association Clause. This includes the names of the founder members and the number of
shares for which each has subscribed.
g) The memorandum of a public limited company must also state that it is a public
company.

2. Articles of Association

 These are the rules governing the internal affairs of a company, covering matters such
as:
a) Voting rights of shareholders.
b) Election of directors.

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 c) Conduct of meetings of shareholders and directors.
d) The buying and selling of shares.
e) Payment of dividends.

3. Statutory Declaration

 This is a statement that the company has been set up within the regulations of the
Companies Acts.
 It is sent to the Registrar of Companies along with the Memorandum and Articles of
Association.

4. Certificate of Incorporation

 This is issued by the Registrar of Companies, and is necessary before the company can
start trading. In effect it is the company's 'birth certificate'.
 A private limited company can start trading immediately upon receipt of its Certificate
of Incorporation, but a public limited company must obtain a Certificate of Trading
before it commences its operations

5. Certificate of Trading

This is also issued by the Registrar, and must be obtained by a public limited company before it
can commence business.

To obtain the Certificate of Trading the PLC must have raised a minimum amount of money.
This is to ensure that the company will have sufficient capital to start trading.

Other forms of businesses

Co-operatives

 A co-operative society is a form of business organization that is owned by and run for
the economic welfare of its members

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  It is a body of persons who have joined together to do collectively what they were
previously doing individually for mutual benefit.

Characteristics of co-operatives

 Membership is open to all persons so long as they have a common interest.

Members are also free to discontinue their membership when they desire so
 Co-operative societies have a perpetual existence; death, bankruptcy or retirement
of a member does not affect its operations
 They are managed in a democratic manner. Every member has one vote when
electing the managerial committee irrespective of the number of shares held.
 The main aim is to serve the interest of the members where profit is not the
overriding factor.
 Co-operative societies have limited liabilities
 Co-operatives have a separate legal entity from the members who formed it i.e. they
can own property sue and be sued
 Any profit made by the society is distributed to the members on the basis of the
services rendered by each member but not according to the capital contributed.

Advantages of co-operatives

 Easy to form - A cooperative is a voluntary association and may be formed with a

minimum of ten adult members. Its registration is very simple and can be done without
much legal formalities. Formation of a cooperative society also does not involve long
and complicated legal formalities.
 Limited liability - The liability of the members of a co-operative society is limited to the
extent of capital contributed by them. They do not have to bear personal liability for the
debts of the society.
 Democratic Management - A cooperative society is managed in a democratic manner. It
is based on the principle of ‘one man one vote’. All members have equal rights and can
have a voice in its management.

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  Perpetual existence - A co-operative society has a separate legal existence. It is not
affected by the death, insolvency, lunacy or permanent incapacity of any of its
members. It has a fairly stable life and continues to exist for a long period.
 Low management costs - Some of the expenses of the management are saved by the
voluntary services rendered by the members. They take active interest in the working of
the society. So, the society is not required to spend large amount on managerial
personnel.
 May benefit from government assistance - Government has adopted cooperatives as an
effective instrument of socio-economic change. Hence, the Government offers a number
of grants, loans and financial assistance to the cooperative societies – to make their
working more effective.
 Open Membership - Membership in a cooperative organisation is open to all people
having a common interest. A person can become a member at any time he likes and can
leave the society at any time by returning his shares, without affecting its continuity.

Disadvantages of co-operatives

 Lack of business acumen - The member of cooperative societies generally lack business
acumen. When such members become the members of the Board of Directors, the
affairs of the society are expectedly not conducted efficiently. These also cannot employ
the professional managers because it is neither compatible with their avowed ends nor
the limited resources allow for the same.
 Absence of motivation - A cooperative society is formed for mutual benefit and the
interest of individual members is not fully satisfied. There is no direct link between
effort and reward. Hence, members are not inclined to put their best efforts in a co-
operative society.
 Corruption - In a way, lack of profit motive breeds fraud and corruption in management.
This is reflected in misappropriations of funds by the officials for their personal gains. It
is the worst demerit from which co-operative societies suffer, it is the biggest hindrance
in the development and growth of business.

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  Differences and factionalism among members - Once the initial enthusiasm about the
co-operative ideal is exhausted, differences and group conflicts arise among members.
Then, it becomes difficult to get full co-operation from the members. The selfish motives
of members begin to dominate and service motive is sometimes forgotten.

Franchising

 Franchising is a continuing relationship in which a franchisor provides a licensed

privilege to the franchisee to do business and offers assistance in organizing, training,
merchandising, marketing, and managing in return for a monetary consideration.
 It is a form of marketing and distribution in which the franchisor grants to an individual
or company (the franchisee) the right to run a business selling a product or providing a
service under the franchisor’s business format and identified by the franchisor’s
trademark or brand.
 Essentially, a franchisee pays an initial fee and on-going royalties to a franchisor
 In return, the franchisee gains the use of a trademark, on-going support from the
franchisor, and the right to use the franchisor’s system of doing business and sell its
products or services.
 The franchisee has the rights to market the product or service using the operating
methods of the franchisor.
 Examples of franchises include Chicken Inn, Spar, Pizza Inn, MacDonald

Advantages of franchising to the franchisee

1. Business assistance

 One of the benefits of franchising for the franchisee is the business assistance they
receive from the franchisor.
 Depending on the terms of the franchise agreement and the structure of the business,
the franchisee might receive essentially a turnkey business operation.
 They may be provided with the brand, the equipment, supplies, and the advertising plan
—essentially everything they need to operate the business

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2. Brand recognition

 A big benefit that franchisees receive when opening a franchise is brand recognition
 Franchises are already well-known businesses with established customer bases built in.
 Therefore, opening a franchise with this recognizable branding, people will
automatically know what the business is, what it provides, and what they can expect.

3. Lower failure rate

In general, franchises have a lower failure rate than solo businesses. When a franchisee buys
into a franchise, they’re joining a successful brand, as well as a network that will offer them
support and advice, making it less likely they’ll go out of business.

4. Lower risk

 Starting a business is risky. However, the risk is lower when opening a franchise.
 Most franchises are owned by established corporations that have tested and proven the
business model of the franchise in multiple markets.
 The lower risk may also make it easier to access loans

5. Built-in customer base

 One of the biggest struggles of any new business is finding customers. Franchises, on the
other hand, come with instant brand recognition and a loyal customer base.

Disadvantages of franchising for the franchisee

1. Restricting regulations

 While a franchise allows the franchisee to be their own boss, they’re not entirely in
control of their business, nor can they make decisions without taking into account the
opinion of the franchisor.
 The franchisor can exert a degree of control over the majority of the franchise business
and decisions made by the franchisee.

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2. High initial and ongoing investment

 While this often translates to larger profits, coming up with this initial money can put a
strain on any small business owner.
 Within the franchise agreement, the ongoing costs of the franchise should be
enumerated. These costs might include royalty fees, advertising costs, and a charge for
training services.

3. Lack of financial privacy

 The franchise agreement will likely stipulate that the franchisor can oversee the entire
financial ecosystem of the franchise. This lack of financial privacy can be seen by
franchisee as a disadvantage of owning a franchise

Advantages to the franchisor

1. The business can expand as capital becomes more available

 One of the biggest barriers to expansion for small business is the money it costs to
expand
 Expanding the business as a franchise allows the franchisor to expand with little debt.
The business expands as capital becomes available from franchisees instead of taking on
debt through loans.

2. Efficient growth

 Opening the first unit of a business is costly and time consuming. Opening a second unit
can be almost as difficult. When that burden is shared with another business owner, it
makes the process more efficient and takes the onus off the initial business owner.

3. Increased brand awareness

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  One of the many benefits of franchising is increased brand awareness. The more
locations the brand has, the more people who are aware of the brand. And the more
these customers come to know and love the brand, the more profitable and successful
the brand can be. This increased brand awareness of a multi-location franchise can be
highly beneficial to the franchisor

4. Reduced risk

 One of the biggest benefits to the franchisor in a franchise agreement is the ability to
expand without an increase in risk. Because the franchisee takes on the debt and
liability of opening a unit under the name of the franchise, the franchisor gets all the
benefit of an additional location without taking on the risk themselves.

Disadvantages of franchising for the franchisor

1. Loss of complete brand control

When a franchisor allows a franchisee to open a business under their brand, they’re giving
away (actually, selling) some of the control over their small business branding. While the
franchise agreement should contain strong stipulations and rules to guide the decisions made
by the franchisee, the franchisee's business won’t be similar to that of the franchisor. The
franchisee will think and act differently, and the franchisor's brand could be affected

2. Increased potential for legal disputes

 While a well-crafted and lawyer-approved franchise agreement should limit a lot of the
possibilities for legal disputes between the franchisor and franchisees, these disputes
are still possible.
 Any legal disputes that must be resolved in mediation or through the court system can
be costly in both time and money, which takes away from the success of the franchise.

3. High initial investment required

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When a franchisor starts a franchise, there’s a startup cost to get the business in operation. A
franchisor must ensure that the franchise agreement is written clearly and reviewed by a
lawyer experienced in franchise law. A franchisor may also hire a franchise consultant for
expertise during this process. Starting a franchise requires an initial investment of both time
and money on the part of the franchisor.

Public corporations/pastatals

 Public enterprise is a business organization wholly or partly owned by the state and
controlled through a public authority
 Are established by the government
 Their main objective is to provide essential services or goods.
 The have no profit making motive
 Examples of services provided by public corporations include utilities (gas, electricity,
etc.), broadcasting, telecommunications, and certain forms of transport are examples of
this kind of public enterprise.

Advantages of public corporations

1. They are autonomous

They can take any type of decision if they want. They do not have to make an answer to
shareholders. They have a lot of control and flexibility regarding company decisions and how
the company operates. As a result, these companies can take opportunities instantly if anyone
is there.

2. Promotion of public Interest:

Public corporations are subject to more governmental review and regulation than privately held
corporations. This oversight helps ensure that public corporations are operating in the best
interests of the public as a whole.

3. Public corporations can have direct influence in the economy

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They can boost the economy of a country by providing the best product or service. They can do
it by producing best quality products. These companies work to protect the interest of the
public. Therefore, their main target is not profit-making, but to ensure the availability and best
quality.

4. Erase of raising funds

Since public corporations are government owned statutory bodies, they can raise the required
funds by issuing bonds. They need not entirely depend on the government for their financial
requirements.

5. State-owned companies can offer products or services at the lowest price possible

As they do not care about making profit but they care about the public, they can keep the price
lower than the competitors if they want. By this, they can also ensure the elimination of price
game in the market.

6. Economies of scale can be achieved

As these companies are heavily financially backed, they can invest in producing bulk quantity of
product that may help to achieve economies of scale. Public corporations tend to be large scale
operations that benefit from economies of scale. For example, they discount pricing on
products because they can buy in bulk. These economies of scale are often passed on to the
public in the form of lower prices and improved service quality.

Disadvantages of public corporations

1. Political interference

Public corporations are a State enterprise. Though autonomy in functioning is said to be one of
the strong points of public corporations, the reality is otherwise. They suffer from continued
political interference and have to act according to the wishes of the political masters.

2. Complex legal requirements

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Setting up and maintaining a public corporation is much more difficult than setting up and
maintaining a private corporation. Public corporations are subject to many legal requirements
that do not apply to private corporations. For example, there are rules that govern how shares
are allotted.

3. Financial burden

When a public corporation incurs losses, the government provides subsidies to make good the
loss. Such provision of subsidies on a regular basis places a great strain on government finances,
more-so in the case of a developing economy such as Zimbabwe.

4. Consumer interests ignored

Many public corporations operate as monopolies. Absence of competition leads to lethargic

functioning, reduced focus on efficiency improvements and innovation, and poor customer
service with the result that consumer interests are ignored.

5. Increased governmental oversight

Public corporations are subject to a high level of government oversight that does not apply to
privately held corporations. The level of oversight has increased over the last 10 years in the
wake of the many public corporation scandals that caused harm to millions of people. The
government regulations, though often necessary, slow down and decrease the flexibility of the
operations of public corporations.

6. Many Company Records are Public

To protect the public and consumers, many of the records of public corporations are required
to be open to the public. This means that the public, as well as competitors, may have access to
information that company would prefer to keep secret.

Public sector reforms

 Public sector reforms consists of deliberate changes to the structures and processes of
public sector organizations with the objective of getting them to run better.

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  Structural change may include merging or splitting public sector organizations
 It involves a change in the ownership of a business. A change in business ownership can
be done through privatisation and nationalisation.

Nationalisation

 Nationalization means the establishment of public ownership over the principal means
of production.
 Nationalization implies that, on behalf of the nation, the government of the country
owns and operates the productive system

Advantages of nationalisation

1. Prevention of consumer exploitation:

Nationalisation helps to stop exploitation by foreign and private businesses in the nation. When
the government take control of the business, citizens will enjoy because the government might
provide that same service for free or fore a lesser amount.

2. It ensures steady supply of essential services:

When essential services like water supply is owned by private individuals in a country, it won’t
be as efficient as when it is owned by the government. Thus, nationalization is a way of through
which can ensure efficiency in the supply of some goods or services.

3. Protection of strategic industries:

The government can also nationalize a business due to the fact they the business is so
important that it should not be allowed to be in the hands of a private individual or foreign
investor.

4. Ensures equitable distribution of resources

Since the sole aim of the government is to provide for the needs of the whole nation,
nationalization of businesses tends to benefit every part of the country more than when those

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businesses were owned by private individuals. It ensures equitable distribution of resources as
well as correct any imbalance in the means of production.

5. Elimination of monopoly in the private sector

This is also one of the major advantages of nationalization. By taking over privately owned and
foreign companies, there is a large decrease in private monopoly.

Disadvantages of nationalisation

1. Low productivity and inefficiency

Due to the fact that government businesses are usually poorly managed, most nationalized
businesses by the government end up being mismanagement. This has an effect of reducing
efficiency of the business.

2. Prevention of private initiatives or investments

When government takes over private business, there is a likelihood that private initiatives will
also decrease.

3. Consumers can be exploited

Even though nationalization is supposed to be with the aim of not making profit, that does not
mean that the government cannot exploit the citizens. In many cases, even after
nationalization, citizens can still be exploited by the government.

4. Corruption and mismanagement

Generally, there is always a high rate of corruption in businesses owned and managed by the
government. Thus, nationalization may not be a good idea for a nation where majority of
politicians are corrupt by nature.

5. Political interference

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When a business becomes owned and managed by the government, there is usually political
interference. Political interference, basically, may lead to misallocation of resources.

Privatisation

 Privatisation involves selling state-owned assets to the private sector. It is argued the
private sector tends to run a business more efficiently because of the profit motive.

Advantages of privatisation

1. Increase in performance level of a company

The process of privatization enables companies to perform more efficiently which results in
better performance level. Private companies are profit-incentivised unlike government
companies that are politically motivated. Privatization eliminates the unnecessary elements
such as red-tape and overwhelming bureaucracy from the enterprise. In addition to this,
employees are assessed by private companies on the basis of their performance which spur the
overall organizational performance.

2. Better customer service

Private companies offers better customer service in market as they are profit driven. They
operate in a competitive environment where their primary focus is on grabbing more
customers by providing quality services. However, this feature is lacked by state-owned
companies which are neither financially motivated nor faces any competition. Overall customer
experience gets enhanced by availing services of private sector due to removal of unnecessary
bureaucratic hassle.

3. Rid of political intervention (free from political interference)

The primary benefit provided by privatization process is removal of governmental influence in

business operations. Public companies are mostly driven by political agenda which prevent

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company from taking any decisions bring economical benefits to them. However, private
companies are not influenced by any political factors and driven by profitable decisions only.

4. Attraction of investments

Privately-run companies are more easily able to gain investor confidence due to their financially
and economically sound infrastructure. This companies bolsters the economy via high inflow of
investments both from national as well as foreign level.

5. Increased competition

Companies which are owned and run by government enjoys monopoly in market and remain
uninterrupted by competition. However, the private firms coming in market due to privatization
engages more in more active manner and encourages competition. It will in turn accelerate the
rate of economic as well as industrial growth, and avoid monopolistic sluggishness in the
market.

6. Promotes market dynamism

An economy is liberated from government control by the process of privatization. The market
operates in an organically manner in absence of government regulations and dictating market
progression. Lack of interference from government enables market to follow integral economic
values of demand and supply, and make them more dynamic. Higher revenue and good
customer response is attained by market which are dynamic in nature and running organically.

Disadvantages of privatisation

1. Natural monopolies may occur

A natural monopoly occurs when the most efficient number of firms in an industry is one. For
example, tap water has very significant fixed costs. Therefore there is no scope for having

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competition amongst several firms. Therefore, in this case, privatisation would just create a
private monopoly which might seek to set higher prices which exploit consumers. Therefore it is
better to have a public monopoly rather than a private monopoly which can exploit the
consumer.

2. Decline in public interest

There are many industries which perform an important public service, e.g., health care,
education and public transport. Private companies dealing mainly in public welfare sectors such
as health, education and others are more profit oriented than welfare oriented. This dearly
costs the common person in form of excessive taxes, higher prices and poor state of quality and
services.

3. Low Future Investment

Private firms, out of the government’s regulation and control may look out for short term gains,
compromising the long term future projects. This forces the companies to invest in short term
beneficial projects rather than long term ones.

4. Fragmentation of companies

Privatization might lead to breaking up of one giant company into several other rather small
enterprises. This fragmentation ultimately decreases the efficiency and also reduces the
accountability in the management. Companies throw the responsibility of any losses on to each
other and try to escape from responsibility.

5. Limited or lack of regulation

Privatization slips the power of financial and other managerial decisions out of the government
into private hands. This means that the government has limited or no say at all in the decisions
of the company, neither the government can impose much regulation over the functioning of
the company or its policies.

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