TYPES OR KINDS OF PARTNERS

There are different types of partners in the different types of partners in the partnership firm and they may be classified as under:

(1) General, Active or Working Partner : The partner who provides capital and takes active part in the conduct of business is known as general or active partner. He is also known as working partner who gives special assistance to the firm. He may or may not be renewed by him. It depends upon the agreement between the partners.

(2) Inactive, Dormant or Sleeping Partner : The partner who provides capital to the business and shares in the profit or loss of the firm but does not participate in the management is known as inactive, dormant or sleeping partner.

(3) Nominal Partner : A nominal partner is one who lend his name to the firm as a partner. Such partner does not invest any capital nor he participates in management. However, his liability towards third parties is just like the other general partners.

(4) Partner in Profit Only : A person may become a partner for sharing profits only but he does not get a share in its loss. He provides capital and is also liable to third parties like other partners. Such a partner is generally inactive but associated for his money and goodwill.

(5) Limited Partner : A limited partner is a partner whose liability is limited to his invested capital only. Such partner cannot take part in the management of the business but he can inspect the accounts and receive profit from the business. Moreover, a partnership cannot be established only with limited partners.

(6) Secret Partner : Some people become partner but his membership is kept secret from outsiders. Such partner is known as secret partner. His liability is unlimited and liable for the losses of the business. He can take part in the working of business.

(7) Partner by Disposal or Holding Out : When a person is not a partner but poses himself as a partner either by words or in writing or by his acts, he is called a partner by disposal or holding out. He shall be liable to an outsider who deals with the firm on the presumption of that person being a partner in the business though is not a partner and does not contribute anything to the business.

(8) Minor Partner : A minor cannot enter into a contract according to the act. So a minor cannot be made partner in the real sense of the term. However, a minor may be taken as a partner with the consent of all partners. He is like a limited partner. His personal property is not liable to pay the debts of the firm. However, he can share in partnership property and profits of the firm. He cannot take active part in the management of the firm.

(9) Retired or Outgoing Partner : A partner is known as retired or outgoing partner when he leaves the firm but other partners continue to carry on the business. He is liable for all the debts of the firm, which were incurred before his retirement. He may continue to be liable if proper notice of his retirement is not given to the creditors.

(10) Incoming Partner : A person who joins an existing firm with the consent of all the existing partners is known as new or incoming partner. He is not held liable for the debts and obligations of the firm incurred before his joining the firm. However, he may be held liable for such debts only when he agrees to it and the creditors are informed accordingly. Incoming partner has not only to contribute to the capital of the firm but also to pay some goodwill to the existing partners.

(11) Quasi Partner : A quasi partner is one who is no longer a partner of business but has left his capital in the business as loan. He receives interest on such as loan is not paid off.

TYPES OF PARTNERSHIP

Partnerships may be divided into two kinds:
(1) General partnership, and
(2) Limited partnerships.

(1) General Partnership : The liability of partners is unlimited in general partnership. All the partners personally and collectively are liable for the obligations of the firm. All partners have equal rights and all of them can participate in management. General partnership are of the following kinds:
(a) Partnership at Will : This type of partnership continues up to the time partners have faith in each other. It is dissolved when all partners wants dissolution or any of the partners given notice for dissolution of the firm. The duration of the firm is not fixed beforehand.

(b) Particular Partnership : If a partnership is established for a definite work or a definite period, it is known as a particular partnership. It is of two kinds: (1) Fixed Work Partnership – This type of partnership is started to complete a fixed work. After the completion of work the partnership dissolves. (2) Fixed Term Partnership – This type of partnership is established for definite period. The partnership dissolves with the termination of period.


(2) Limited Partnership : If in a partnership, the liability of one or more partners is limited to the amount of capital invested by them, it is known as limited partnership. In such a firm at least one partner must have unlimited liability. So in limited partnership the liability of some partners is limited while liability of some partners is unlimited. The partners with limited liability are called special partners and they cannot participate in management. They can make suggestions only.

DIFFERENCE BETWEEN SOLE TRADING AND PARTNERSHIP

The difference between Sole trading and partnership are as follows:

Sole Trading Concern ;

1. Membership : It is owned and controlled by only one person.

2. Agreement : The question of agreement does not arise.

3. Capital : Only the capital of one person is used in the business. Thus, it may suffer from shortage of capital.

4. Decision : The owners has full control over his business. So he is able to take decision promptly.

5. Secrecy : There is a complete secrecy in the business.

6. Risk : The whole risk is beared by the proprietor.

7. Management : This business is controlled by one person only.

8. Desire for Work : The sole proprietor owns all and risks all. So, he works with interest and dedications.


Partnership Firm :

1. Membership : Two or more persons known as partners own partnership.


2. Agreement : An agreement is necessarily required to form partnership.

3. Capital : All the partners contribute towards capital of the firm. So, more capital than sole trading can be collected.

4. Decision : All important decisions are taken by consent of all partners. So, it is time consuming process.

5. Secrecy : The secrets of the business are in the knowledge of all the partners.

6. Risk : All the partners share risk.

7. Management : All partners have equal rights and all of them can participate in the management.

8. Desire for Work : There is less desire for work because a partner may think that other partners will share the benefit of his work too.

DISADVANTAGE OF PARTNERSHIP FIRM

The disadvantages of partnership firm are as given below:
(1) Uncertain Existence : The partnership firm suffers from the uncertain existence because it can be dissolved at the time of death of insolvency of partner. Thus, the life, of the firm is dependent on the life of the partners. In the same way a business may terminate due to dishonesty of a partner or conflict among partners.

(2) Unlimited Liability : The liability of partners is unlimited. The partners are jointly and separately liable for the debts of the firm. So they try to avoid risks and restrict the expansion and growth of the business.

(3) Difficulty in Prompt Decisions : All important decisions are taken by the consent of all partners. So decisions making process becomes time consuming and loss of business opportunities due to delay in decision making. Usually in business, the spontaneous decisions can only enable the firm to enjoy higher profits, which is not possible in partnership.

(4) Danger of Disputes : Many persons are owners of a partnership firm. Every partner wants to show his importance. Misunderstanding and jealous tendencies are the common weaknesses of the human beings. So there is always a danger dispute among them which may lead business to an end.

(5) Difficulty on Transfer of Shares : A partner cannot transfer his or leave the firm shares without the consent of all other partners. The consent of all other partners is compulsory. So people do not want to invest money in a partnership business.

(6) Risk of Implied Authority ; A dishonest or incompetent partner may lead the firm in difficulties. The other partners will have to meet the obligations incurred by the partner. The provision of implied authority may create problems for the business.

(7) Lack of Public Confidence : The public does not have much confidence in a partnership business. This is because affairs of a partnership business are not open to public scrutiny. Its accounts are not required to be published. There is no much governmental control over the operations of a partnership.

(8) Limited Resources : Modern business needs large amount of capital. But in partnership the resources are limited to the personal funds of the partners. Borrowing capacity of partners is also limited. Even though the capital is more in partnership than in case of sole trading, but still is not sufficient for the smooth conduct and operation of large-scale business.

ADVANTAGE OF PARTNERSHIP FIRM

Partnership firm is an association of persons who have agreed to carry on business with a view to make profit. The advantages of partnership firm are given below:

(1) Easy to form and Dissolve : A simple agreement among partners is sufficient to register a partnership. No other formal documents and legal formalities are required. It is equally easy and inexpensive to dissolve a partnership.

(2) More Resources : Partnership is a combination of several persons. So more capitals can be collected and advantages of large scale business may be obtained. More partners can be added if capital needs are large.


(3) Harmonization of Different Abilities : In partnership firm, there is a harmonization of different abilities of different partners. The talent, expertise and knowledge of partners in different fields can be used for the welfare of the business. So, there is more chance for the advancement of business.

(4) Credit Facility : The ability of partners being unlimited they will be able to borrow more capital. As compared to sole trading concern, partnership has more credit worthiness. More securities can be provided by a partnership firm to the finance institutions and other creditors.


(5) Appropriate Decisions : In partners decisions are taken by consensus of all partners. So they take appropriate decisions and there is less chance of incorrectness. Fear of unlimited liability encourages caution and care, thus, puts a brake on hasty and reckless decisions.

(6) More Inspiration : There is more inspiration to work because partners think that the result of their hard work will be rewarded in the form of more profits to them.

(7) Close Supervision : The partners themselves look after the business, so they avoid wastage. They have direct access to employees and can encourage them for more production.

(8) Secrecy : The business affairs and accounts of the partnership do not require publicity by law as in companies. So, partners can keep business secrets within themselves.

(9) Flexible : In partnership firm, there can be any change in managerial set-up, capital, and scale of production. These changes can be made by the mutual agreement between partners. Thus, it enjoys flexibility.

(10) Protection of Minority Interests : Every partner has a right to participate in the management of the business. All important decisions are taken by the consent of all partners. In event of disagreement minority may even Veto a resolution. Hence, it protects the interest of minor partners.

(11) Reduced Risk : The losses incurred by the firm will be shared by all partners. So loss of each partner will be less in comparison to sole trading concern.

B. CHARACTERISTICS OF PATNERSHIP FIRM

The discussion of various definitions of partnership leads to the following characteristics :

(1) Association of Two or More Persons : Partnership is the outcome of a contract, so there must be two or more persons to enter into a contract. An association of two or more persons to enter into a contract. An association of two of more persons will become a partnership only when it is meant to do some business. If the purpose is social service it will not be a partnership. In partnership act, the maximum number of partners is not mentioned.

(2) Agreement : The partnership is set up by an agreement between partners. In the absence of agreement partnership cannot be established. There must be a written agreement which helps to settle the disputes if they occur later.

(3) Principal-Agent Relationship : The business must be carried on by all or one or more acting on behalf of all partners. So every partner is an agent of the firm as well as of the other members. Whether participating in management or not, every partners will be liable for action of each of the other partners in the ordinary course of business. Thus, every partner has a double role—as and agent and principal, at the same time.

(4) Sharing Profit and Loss : The purpose of partnership should be to earn profits and there must be an agreement to share profit and loss. Profit and loss sharing ratio depends on the mutual contract among partners. But if a work is done for charity purposes, it cannot be called partnership.

(5) Unlimited Liability : In partnership, partners have joint and several unlimited liability. So in the first instance, they have to share the loss jointly in profit sharing ratio. But if any or more partners are unable to contribute to their shares of deficiency, the remaining partners have to pay for their shares also.

(6) No Free Transfer of Share : A partner is not permitted to sell or transfer his share to an outsider without the consent of all partners. Partnership share is not a freely transferable asset.

(7) No Legal Status : The partners and the firm are not legally separate. Partnership is purely personal organization it has no separate legal personality.

(8) Registration : The registration of partnership is compulsory unless the firm is registered, it cannot be partnership.

(9) Stability : A partnership is established on the basis of the mutual contract among partners. So, the stability of a partnership is dependent on its contract. If a partner retires or dies, the contract is terminated.

PARTNERSHIP FIRM

A. MEANING OF PARTNERSHIP FIRM

Sole trading concern has limited capital, limited managerial skill, and cannot carry on business on a large scale. So persons generally combine to have enough resources and skill for doing business on a bigger scale. When two of more persons agree to carry on business for their mutual advantage such a business is termed as ' Partnership'. A partnership firm consists of two or more persons who have joined capital and or service to carry on a lawful business with a view to gain profit.

According to Dr.J.A.Shubin :" Two or more individuals may form a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of a business". In other words of Prof. Haney : "Partnership is the relation between persons competent to make contract who agree to carry on a lawful business in common with a view of private gain".

In Nepal formation and management of partnership is governed by the provisions of “Partnership Act, 2020”. Clause 3 of Partnership Act defines partnership as : “Partnership means any business registered in the books of Nepal Government where some persons keeping one name sharing the profit with the agreement to participate all partners for each partner or a partner for all partners in the business”.

In conclusion, we can define partnership firm as an associate of persons who have come together with a view to carryon business in common with a view to make profit. This relation of partnership exists out of contract. Persons who have entered into this relationship or partnership are individually known as ‘partners’ and collectively as ‘firm’. The business is carried on in a particular name called the ‘firm’s name’.

The above definitions clearly bring out the following essential elements, which constitute a partnership firm as a form of business organization:
1. There must be at least two or more persons to form partnership.
2. They carry business with one specific name.
3. There must be agreement between persons desirous of forming partnership.
4. Profit or loss is shared according to the agreement.
5. The business must be managed by all or one or more of them acting for all.
6. The partnership firm should be registered in the books of Nepal Government.

E. REGISTRATION AND RENEWAL OF SOLE TRADING CONCERN IN NEPAL

In Nepal, any person desiring to conduct Sole Trading Concern should be registered under "Private firm Registration Act, 2014". According to the Act, "Private firm means any firm or company concluded by one person privately or any name doing business in industry; business of export imports trade". Hence, the act incorporates all one person's private firm, which conducts industry or business.

According to the “Private Firm Registration Act, 2014” , clause 3, “After the commencement of this Act, no one can operate private firm without registering under this act”. Hence in Nepal, registration of Sole Trading Concern is compulsory. It is illegal to conduct any business without registration. If sole trading is related to commerce, then it should be registered in Department of Commerce and if it is related to industry, then it should be registered in Department of Industry of the Government.

Procedure of Registration

In Nepal “Sole Trading Concern” is registered under the “Private Firm Registration Act, 2014”. At present following procedure is applied for registration:

(1) To Apply an Application : The person wishing to register private firm should apply in the prescribed form in the concerned department. The application form contains the following particulars:
a. Name of the private firm
b. Address of the private firm
c. Objectives of the firm and object of transactions and statement of work
d. Name and address of the owner including the names of his father and grandfather
e. Other particular as prescribed by Government.

The application form should be attested by one gazetted Government officer. An application fee of Rs.5, attested citizenship, and registration fees must accompany the application.

(2) To Deposit Registration Fees : Registration fee must be deposited in Nepal Rastra Bank and the voucher of it should be enclosed in the application. The amount of registration fees depends upon the amount of capital invested in the business. The registration fees will be in accordance with the notice published by the Government on Nepal Gazette. The registration fees according to capital invested are as follows:

a. Capital up to Rs.20,000 -Rs.60
b. Capital from Rs.20,001up to Rs.50,000 -Rs.120
c. Capital from Rs.50,001up to Rs.1,00,000 -Rs.300
d. Capital from Rs.1,00,001up to Rs.3,00,000 -Rs.1,170
e. Capital from Rs.3,00,001up to Rs.5,00,000 -Rs.1,950
f. Capital from Rs.5,00,001up to Rs.10,00,000 -Rs.3,950
g. Capital from Rs.10,00,001up to Rs.50,00,000 -Rs.850
h. Capital more than Rs.50,00,001 -Rs.7,850



(3) To Receive the Certificate of Registration : When the concerned department receives the application for registration authorized officer of the concerned department will examine and scrutinize the particulars of the application. If the concerned department is satisfied with the application, the firm will be registered. Then the Department will issue the “Certificate of Registration”. This certificate is the evidence if legal reorganization.

Procedure of Renewal

All the registered firms should be renewal each year. For renewal application for renewal with renewal fee should be submitted to the concerned department. A renewal fee of the private firm is charged according to capital. The current rates of renewal fees are as follows:
a. Capital up to Rs.50,000 - Rs.35
b. Capital from Rs.50,001 up to Rs.1,00,000 - Rs.50
c. Capital from Rs.1,00,001 up to Rs.3,00,000 - Rs.70
d. Capital from Rs.3,00,001 up to Rs.5,00,000 - Rs.100
e. Capital more than Rs.5,00,001 - Rs.160

The renewal of private firm must be done within 35 days of new fiscal year. If the firm is not renewed within the prescribed time a fine of Rs.35 will be charged up to the last date of Aswin and after that fine of Rs.150 will be charged. If the firm is not renewed Government can prohibit the export-import transactions and bank account of that firm through notice.

Effect of Non-Registration

In case private firm is operated without registration then concerned department will charge a fine of Rs.5 up to Rs.50. If the same crime is committed up to 3 times the additional fine of Rs.10 will be imposed each time in the original fine. If he does fourth time, he can never register private firm under his name. Similarly the concerned department can fine private firm from Rs.25 to Rs.50 if the firm fails to notify the changed that take place within the prescribed time which are required by act or if false statement is submitted. If the firm is not registered of renewed according to Act, Government can prohibit the export import transactions and bank account of that firm through notice.

Disadvantage of Sole Trading Concern

The disadvantage of sole trading concern are as follows :

(1) Limited Capital : The capital of one proprietor is usually small. It is limited to his personal savings and borrowing on personal security. Hence, he cannot undertake further expansion and development lack of excess capital and fails to enjoy the internal and external economics of scale.

(2) Limited Management Ability : In the present competitive world complexities of managerial jobs are increasing everyday. One man cannot be expert in each and every function of the business. For lack of resources he may not be able to use the services of experts. So limited managerial ability will hinder the growth of the firm.

(3) Unlimited Liability : The unlimited liability of sole proprietorship is a great disadvantage. A loss in business may deprive the proprietor of his assets too. So big business firms requiring more economic risk are not established under this organization.

(4) Uncertain Life : The success of this type of business depends on the personal capacity of proprietor. In case of his death business may be discontinued. The successors may not have the same degree of self-reliance and ability. Thus, there is no continuous existence of the firm.

(5) Dull and Monotonous Work : The proprietor has the sole right on profit of the business. So he tries to work more to earn more profit. Consequently the work becomes dull and monotonous. His health is badly affected and he is deprived of pleasant social relations and cordial family life.

(6) No Large Economics and Specialization : A small scale business cannot economies in purchases, production and marketing. Similarly the benefit of specialization of service of experts cannot be obtained.

(7) Loss in Absence : A sole trading has to suffer from the long illness of the proprietor. In his absence business comes to a standstill. This can lead to heavy losses. Employees may not be efficient or they may not take sincere interest.

(8) Possibility of Wrong Decision : In sole trading a businessman alone makes all the decisions. Hence, decisions may not be always right and wise. When a considerable number of people are involved in decision making process a wise and mature decision is possible.

Advantages of Sole Trading Concern

The advantages of Sole trading concern are as follows:

(1) Easy of Establish : Sole trading concern can be established very quickly and easily. Anybody who wants to start a business can do so, whenever, he likes. In Nepal, only nominal legal formality of registration is necessary.

(2) Easy to Dissolve : Dissolution of sole trading concern equally simple. There are no legal formalities in this regard. Proprietor can dissolve business whenever he likes to do so.

(3) Effective Control : In this form of business organization proprietor is responsible for all types of activities. He controls all functions and takes decisions at appropriate time. So, the business is controlled in an effective way. He controls all functions and takes decisions at appropriate time. So, the business is controlled in an effective way.

(4) Direct Motivation : The direct relationship between effort and reward serves as a powerful incentive to the proprietor to manage the concern efficiently. The proprietor being entitled to the entire profits of the concern tries to maximize profits by utilizing his talents and activities in the best possible way.

(5) Personal Supervision : The proprietor is able to supervise every work of the business himself. This helps to build up a close and cordial relationship with the employees. He can take personal interest in his customers and he can meet their individual and typical needs easily and adequately. It ensures effectively and economy in the operation.

(6) Benefit of Unlimited Liability : The proprietor can obtain loan on his personal credit. The liability being unlimited, the creditors feel secure in extending credit.

(7) Prompt Decision : The owner has full control over his business. So he is able to take decision promptly without consulting anybody. If more than one person is involved in decision making then delay is bound to occur.

(8) Secrecy : The proprietor can maintain business secrets. There is no legal regulation regarding the disclosure of business information. So he can maintain secrecy from his competitors. Secrecy is very vital for business success.

(9) Flexible : Sole trader enjoys the maximum flexibility in his business. If any change in business is required, he does no have to consult any one and can make the change without delay. No legal formalities are required for making changes in operations. This gives flexibility to this type of business.

(10) Social Importance : From social viewpoint sole trading concern is important because: (a) It is a means for earning livelihood independently. (b) It avoids concentrating wealth in few hands. (c) It brings competition among sole proprietors, so they provide goods in cheaper rates to the society. (d) Qualities like self-reliance, self-confidence, tact and initiative are developed in this organization.

C. CHARACTERISTICS OF SOLE TRADING CONCERN

Sole proprietorship has certain distinct characteristics. They may be explained below:

(1) Single Ownership : One person own the whole business. The business is exclusively in the hands of that person. He provides the entire capital either from his private resources or by borrowings.

(2) One-Man Management and Control : A sole trader himself organizes, manages and controls the business according to his desire and capability. He may appoint employees to help him in business activities. However, the sole responsibility of management lies on him.

(3) Unlimited Liability : This types of business organization has the drawback of unlimited liability. Hence, creditors are entitled to have claim even on his private property.

(4) No Sharing of Profit and Loss : The proprietor has the sole right on the profit of the business. Similarly if there is loss he has to suffer alone. Hence, he puts his efforts to increase profits. The profit and loss of a business is not divided among others. In the words of Gerstenberg, “ He owns all risk all”.

(5) No Separate Entity : Legally the proprietor and business are not separate entities. Loss in business is his loss and liabilities of the business are his liabilities. Hence, law makes no distinction between the proprietor and business. They exist together.

(6) Limited Operations : Sole Trading Concern has limited resources and managerial skills. Hence, it has generally a limited area of operations.

(7) Freedom : A sole trader can start any legal business according to his choice and means. He can start and close the business at any time without any formalities. According to the change his business without any difficulty. He can easily expand, change or reduce his business. There is no restriction on it. However, he cannot start any business on which some legal restrictions are imposed.

(8) Personal Relation : A sole trader has always direct relations with his customers. He is able to attend to every aspects of and attention are established under this form of organization e.g. doctor’s clinic, retailer, etc.

Suitability of Business for Sole Trading Concern

Sole proprietorship is suitable for following types of business:

(1) Less Capital : Those business which requires less capital and less use of machinery.

(2) Artistic Materials : Ivory work, painting, embroidery work, etc. where personal attention is necessary.

(3) Personal Services : Tailoring, hair-cutting, photography, etc. where personal service is more important.

(4) Small Industries : Small industries in which small equipment are required.

(5) Less Risk : Those business which have less risk in relation to capital employed and work required.

(6) Local Market : Vegetables, milk, eggs, etc. which are perishable and have local demand only.

B. MEANING OF SOLE TRADING CONCERN

Sole Trading Concern is the form of business that is owned, managed and controlled by an individual. It is the oldest and most commonly used form of business organization. It is as old as civilization. Historically, it appears that business first started with this form of organization. This organization is also known as Sole proprietor, Individual proprietorship and Single entrepreneurship. The majority of this type of business is on small scale.

In sole trading concern an individual makes all the investments, bears all risks, takes all profits, manages and controls the business himself. He is known as sole trader or proprietor. It is the competence of the sole trader that determines the future of the business. His powers are unlimited and his decisions are final. He is the owner of all the profits but in case of loss he has to bear all losses. So his liability is unlimited and creditors are entitled to have claim even on his private property. Thus, a sole trader does not try to expand his business.

Some Definitions

Peterson and Plowman : “ As sole proprietorship is a business unit whose ownership and management are vested in one person. This individual assumes all risk of loss and failure of the enterprise and receives all profits from its successful operation”.

James Stephenson : “ A sole trader is a person who carries on business exclusively by and of himself. The leading feature of this kind of concern is that the individual assumes full responsibility for all the risks connected with the conduct of the business. He is not only the owner of the capital of the undertaking but usually the organizer and manager and takes all the profits or responsibility of losses”.

In Conclusion, a suitable definition can be given as follows:
Sole proprietorship is a form of business organization in which proprietor employs capital, uses his own skill and intelligence in the management of his affairs, undertakes the risk and responsibility, and receives all profits from the successful operation

Factors Influencing the Choice of Suitable Form of Organization

(1) Capital Requirement : The capital requirement will depend upon the nature and scale of business. The form of organization should be such that it is able to provide required capital. A sole trading concern will be suitable if capital requirements are less. A Joint Stock Company will be suitable if capital requirement are large. So capital requirement directly influences the choice of the form of organization.

(2) Liability : The liability of owners is unlimited in Sole Trading and Partnership. But in companies the liability of shareholders is limited to the value of shares they have purchased. Hence, when a business involves more risk then company form of organization will be most suitable.

(3) Managerial Needs : If the business is small and fulfills the local needs only then one person will be enough to manage the business. So Sole trading form of business organization will be suitable for such a business. When a business is run on large scale, it will require the services of specialist to manage various departments. The company form of business will be most suitable for such concern. Sole Trading and Partnership can not afford to employ professionally qualified persons.

(4) Continuity : The company form of organization is the only form which ensures stability and continuity. It is not affected by the personal life of its shareholders. A Sole Trading may be dissolved for a number of reasons.

(5) Formation : A company requires services of qualified persons for getting it registered. It involves a lot of money and time for incorporation. On the other hand a Sole Trading and Partnership can be started at any time without going through various legal formalities. They are easy to form.


(6) Government Regulations : A number of formalities must be fulfilled while incorporating a company. A Company is expected to provide a large number of information to the government every year. A Sole Trading is not expected to meet any legal requirements. Similarly Partnership is also free from government regulations.

(7) Ownership and Management : There is a direct relationship between ownership and management in sole trading concern and partnership firms. But in company management and ownership are in two different hands. All the owners (shareholders) cannot participate in day-to-day activities of the concern. The management is in the hands of few elected shareholders known as Board of Directors.

(8) Tax Liability : Various forms of organization are assessed to income tax on different basis. A company has more tax liability as compared to sole trading or a partnership.

We have mentioned above the factors that influence the selection of a suitable form of business organization. It is very important decision because it is very difficult to change the form of organization later on.

SOLE TRADING CONCERN

A. MEANING AND FORMS OF BUSINESS ORGANIZATION

The term " Business Organization " is simple to understand. It consists of two terms business and organization. Business is and production, distribution and exchange of goods. Organization brings inputs ( man, machine, materials, money, etc.) into the production of goods and services (output) for planned distribution in the market. It is a mechanism enabling persons to work together effectively and achieve the set goals. Hence, business organization may be defined as an institution, which is engaged in business activities. It is the act bringing into effective cooperation the available resources for production, distribution and exchange of goods with a view to earn profit.

Business organization denotes ownership, management and operation of business undertaking. Of these three, ownership is the most important because management and operations depend on it. It may be owned and controlled by a single individual or a group of individuals. The owner accepts all the risks involved in the running of the business. The right and liabilities vary according to the form of ownership.

A number of forms of organizations exist to suit requirements of different business undertakings. On the basis of ownership, business organizations can be divided into:

1. Private Enterprise
2. Public ( State ) Enterprises
3. Joint Enterprises
4. Co-operative Sector

(1) Private Enterprises : When individuals invest their capital with a view to earning profit, it is known as private enterprise. Private enterprises have the following types of organization:
a. Sole Trading Concern
b. Partnership
c. Joint Stock Company

(2) Public Enterprises : Business owned or operated by public authorities are known as public or state enterprise. In these enterprises the government does either whole of most of the investment. The aim of these enterprises is to provide goods and services to the public at a reasonable rate though profit earning is not entirely excluded. These enterprises have the following forms of organizations:
a. Departmental Organization
b. Public Corporations
c. Government Companies

(3) Joint Enterprises : Joint enterprises is a form of partnership between private sector and the government where management will generally be in the hands of private sector and overall supervision will lie with the Board of Directors. It provides adequate representation from government too.

(4) Co-operative Societies : Co-operative societies are voluntary associations started with the aim of service to members. The aim of societies is not to increase profits as in other enterprises but service to members is their important goal.

E. REASONS OF BUSINESS FAILURE

Usually the manager is responsible for the failure of a business. However, failure is also due to several such causes beyond the control of him. Thus, the causes of failure may broadly be grouped under two categories :
1. External Causes, and
2. Internal Causes

(1) External Causes : External causes are such causes which are not in control and power of the trader/manager. The important external causes are as follows:

(a) Intense Competition : Intense competition in the market may make the existence of a trader impossible.
(b) Change in Demand : Change in demand may also lead to the failure of the trade. With the coming of the substitute, demand of the commodity may be adversely affected.
(c) Legal Decisions : Sometimes legal decisions may also bring an end to a trade. If such decisions impose restriction on the production and consumption of a particular commodity then the sales will be adversely affected.
(d) Natural Calamities : Natural calamities, like floor, earthquake, fire, etc. may also lead to the destruction of business.

(2) Internal Causes : Internal causes are within the organization and manager. Majority of business fails due to internal causes such as:

(a) Inefficient Management and Control : Inefficient management and control, on the one hand, result in unnecessary excessive expenditure and on the other hand, lead to reduction of profits and ultimately, to losses.
(b) Insufficient Resources : Insufficient resources hinders the trade. In the absence of sufficient capital, the trader has to give up several profitable opportunities, which may cause loss to the business later.
(c) Fraud and cheating : Fraud and cheating on the part of managers and employees may lead to failure of business.

D. REQUISTES OF BUSINESS SUCCESS

In the modern complicated world, it is not easy to operate business successfully. Prof. Diksee has put special emphasis on three qualities for the success of a business: (a) skill and energy, (b) sufficient capital, and (c) business relation and goodwill.

On the basis of study of successful business and businessmen a list of some factors for the success of a business. There are many uncontrolled factors affecting the prospects of any business. Hence to run business successfully, these factors must be considered. These factors are known as requisites of business success. They are discussed below.

(1) Personality of Businessman or Manager : An ideal businessman must develop himself physically, mentally as well as morally. Physical fitness or the maintenance of health is the primary necessity. Mental efficiency is the next essential requirement. The way in which one uses brains will naturally determine how far one can go in the business world. Moral efficiency is also essential for business career. Hence physically, mentally, and morally soundman is bound to succeed in business world.

(2) Well –defined Objectives : It is necessary for every business to have clear and definite objectives to be achieved during the forthcoming periods. When objectives are clearly set, then only objectives it will be difficult to conduct its operation effectively. The main and subsidiary objectives as well as the short-term and long-term objectives must be determined beforehand.

(3) Proper Planning and Policy : After the determination of the objectives proper planning should be made with a view to achieve those objectives. Planning is decided in advance what is to be done. It is the conscious process of selecting and developing the best course of action to accomplish an objective. Planning helps in removing the possible losses and minimizes risks and uncertainty. The guidelines for implementing plan are known as policy. Therefore, in business making programs for what, where and how is to be done and implementing is known as planning and policy.

(4) Adequate Finance : Finance is the life-blood of modern business. Without adequate finance, the business cannot achieve its objectives. Funds are needed for short-term and long-term purposes. Working as well as fixed capital requirements must be met. Adequate funds should be available for expansion purposes also. Hence, for success in business the businessman must correctly estimate the financial requirements for securing the necessary finance when required.

(5) Proper Location, Layout and size : Proper location, layout and size of business is highly essential and vital to the progress of business. If an error is committed in solving this is not located at a suitable place, it may fail to attract large number of customers. Hence location should be favorable, plant layout should be proper and size of the business should be appropriate.

(6) Sound Organization : Organization is defined as the division of work among people whose efforts must be coordinated to achieve desired specific objectives. It ensures teamwork and provides best communication channels for proper decisions making. Hence sound organization is an answer to various business problems.

(7) Efficient Management : Management plays a pivotal role in a business. An efficient management may turn a failing business into a successful one. Through the process to management we can accomplish (a) the right work, (b) at the right time, (c) at the right place, (d) at the right cost, and (e) with the right method. Hence, in business efficient management is necessary for coordination and controlling all the factors of production i.e. man, money, materials, machinery, etc.

(8) Employee Morale : High degree of morale among the employees keep a business away from any kind of inefficiency and uncertainty. They should be encouraged and provided with amenities so that they could work whole-heartedly. It is the responsibility of management to device ways and means to achieve employee cooperation.

(9) Modern technology : A business must be equipped with proper machines and other necessary implements for better results. Productivity depends upon the best technology. There should be proper man-machine adjustment.

(10) Research : In the competitive business world, it is essential to use latest devices for production and marketing of goods. Market research, product research, research in the methods and techniques of production, etc, must be carried on continuously so that it may adapt itself to the changes in the business world. Innovation in every possible field is needed to attain the maximum success by a business. Hence research and development should given due place in the business.

If business wants to survive as a profit earning concern in this competitive age, no business can afford to under-estimate the value of above mentioned requirements. The above points must be kept in mind for its successful operation.

CONSIDERATIONS BEFORE STARTING A NEW BUSINESS

To start a business means to encourage oneself in business activity and work. Every work performed before starting a new business is a part of its promotional activities. Promotional work begins with the origin of an idea till the business begins to function as a going concern. The aim of every business is to earn profit through service. As scope of competition has become wider, risk in business has increased considerably. The complexities of business have increased manifold. Thus, before starting new business promoters must consider the following factors in order to survive and earn profits.

(1) Selection of Business : The first thing to be considered before starting a new business is deciding what type of business to start. This is an important consideration before taking a decision on the establishment of a business. There are many types of business available. The businessman has to select carefully whether to start industry or trade. Once a decision is taken and a business is established it becomes very difficult to introduce basic changes in the nature of the business. While selecting business following factors should be considered:

a. Personal internet of the businessman

b. Possibility of earning more profit

c. Less risk and more profitable business

d. Knowledge and skill of the businessman

e. Estimated size and available resources

f. Prevailing level of competition

g. Chances of expansion in future

h. Rising trend of future demand

(2) Detailed Investigation : A business cannot be started only by imagination. So after selecting a business detailed investigation should be done to determine the difficulties and possibility of future progress. The profitability of the proposed business can be found out through market survey. Present and future competition about the decided business should be evaluated. Detailed investigation concerning the consumer’s interest, income and habit of expenditure must be conducted. Detailed investigation sufficient profit. Though it is difficult to find out what is going to happen in the future, yet with the help of the present study, an outline of the future may be prepared. If it found profitable and feasible to start a business further consideration should be taken in this direction.

(3) Form of Business Organization : The determination of the form of business organization is another important decision to be taken before starting a business. Sole proprietorship, partnership and Joint Stock Company are the various forms of business organization. Each forms of business organization has its own merits and demerits. Which type of business organization is suitable for the business depends upon various factors i.e. nature of the business, size, capital, risk, etc. If the business is risky and requires larger amount of capital then Joint Stock Company is most suitable. If business is to be conducted on small scale, sole proprietorship may be ideal. Broadly speaking sole proprietorship for medium business and the company for the big business is the most are more suitable to each other in varying circumstances.

(4) Provision of Capital : Capital is the life blood of business. No business can be established and conducted without capital. But the volume of capital varies according to the nature and size of the business. Hence before starting a new business requirement of capital and the source for collecting capital should be determined. Every business needs fixed capital in the form of land, building, machinery, furniture, etc. In addition, working capital is required to purchase raw materials and to meet day-to-day business transactions. Thus, capital requirement is estimated by ascertaining the amount essential for fixed capital and working capital relating to the establishment of business. The business is less than the requirement, it becomes difficult to conduct the business whereas excess capital cannot earn sufficient profit, which have adverse effect on the business goodwill.

(5) Location of Business : Location means selecting a site for business. For starting a business location is also an important factor. It is very difficult to change the location once the business has been set up. For selecting a location of the business, many factors have to be considered. For trading concern nearness to customers is the main consideration. But for industrial concern special precautions should be taken in selecting the site. Hence location is the best in which production and distribution cost per unit is the least, sales are maximum and maximum profit is possible.

(6) Selections of Staffs : Staffs are needed to perform the various works of the business. According to the size and nature or business staffs are selected. The success of business generally depends upon those staffs. Hence capable, experienced and honest staffs should be selected. For this, the businessman has to estimate manpower requirements. So another problem of a new business is to secure adequate staff—both skilled and unskilled.

(7) Office Equipment : An office is a central place where all sorts of clerical work is done to coordinate and control the affairs of the whole business. For the efficient functioning of an office there is a need for adequate and proper equipment improves the efficiency of the office staff. They play an important role in the efficient, accurate and speedy performance of the office work.

(8) Government Policy : Government makes the business policy for the welfare of the people and for healthy business environment. Hence before starting the business the businessman should study and know the formalities and government policy relating to establishment, running and regulation of business. The businessman should compulsorily follow such rules and regulations of the government.

(2) Evolution of Trade in Nepal

Trade plays an important role in the economic development of country. In the early stage of economic development, Nepal's trade was limited with India and Tibet alone. During that period the major exports from Nepal comprised rice, timber, herbs and medical plants, and handicrafts, and the major import items were cloth, salt, medicines and kerosene oil.

The year 1923 was a momentous year for the country. A Treaty of Peace and Friendship' was concluded between the government of Nepal and the Government of Great Britain. As per the treaty, Nepal could carry on import trade free of duty via India. Thus, this treaty was a landmark for Nepal to diversity its foreign trade.

India and Tibet, autonomous region of China are the traditional trading partners of Nepal before 1950. With the formation of democratic government, Nepal and India signed a trade treaty in 1950. Nepal’s trade with overseas countries started only from 1956 after the implementation of First Plan. As modernization was ushered in the country after democracy development of trade also grew tremendously. In order to promote exports an exporter’s exchange entitlement scheme was introduced in 1961. Under this scheme, raw jute was exported to a third country for the first time.

Nepal pursued trade diversification policy since early 1960s, which got momentum from Fourth Plan. Nepal has been successful to diversify the trade at least countrywise. In fiscal year 1974/75 India’s share in total trade of Nepal was 82.2 percent, while that of other countries was mere 17.8 percent. But in fiscal year 1997/98 India’s share in total trade was mere 31.0 percent while the share of other countries increased to 69.0 percent. However, in 2000/2001, share of other countries remained to 58.4 percent.

Since Eight plan, Nepal turned to open market economy and then adopted the policy of liberalization of foreign trade. In Nepal, new Trade Policy 1992 has been implemented. It aims to achieve the dynamic growth in the trade sector through the creation of more income and employment opportunities, attain favorable balance of payment situation by increasing exports and earning more foreign exchange.

At present Nepal has trade agreement with seventeen countries. However, it is trading with more than 80 countries of the world. The volume of trade has been constantly increasing due to development of transport and communication, participation in international trade fairs, membership of international organizations, liberal policy of third countries towards Nepal.

3. EVOLUTION OF BUSINESS IN NEPAL

As discussed earlier, the evolution of business in Nepal also can be divided into parts: (1) evolution of industry, and (2) evolution of commerce.

(1) Evolution of Industry in Nepal
Industrial development is the key to rapid economic progress of a country. Handicrafts and cottage industries have been in Nepal since ancient time, but industrial development is still in its infancy. Historically, the industrial development process began after with the establishment of Biratnagar Jute Mill. It was the first joint stock company of Nepal established under the Company Act, This act has been revised in 1957, 1964 and 1997 (2053 Chaitra). Nepal Bank Limited was established in 1937 for the development and growth of industry and trade.

In between 1936 and 1949 a number of industries, particularly in the fields of cotton textile, sugar match, hydropower, rice and oil mills, and cigarettes were set up in the south eastern and eastern Terai region. Between 1945 and 1949, the prevailing war-time inflatory conditions and scarcity of goods in the market provided a rare opportunity to these enterprises to make high profits. After the Second World War, the demand for the goods produced in Nepal went into decline along with the profits which resulted fall in confidence in industries and shutdowns.

The total number of public limited companies and proprietorship firms registered before 1950 reached the figures of 59 and 299 respectively.

In Nepal, development plans were implemented only from 1956 (2013 B.S.). The First Five-Year Plan was implemented in 1956-61. In order to encourage and assist the development of private industry, an Industrial Development Centre was established in 1957 which was converted to Nepal Industrial Development Corporation in 1959.In the same year, Nepal Factory and Factory Workers Act was also passed to allow industrial development. In the plan period Private Firm Registration Act, 1957 and Industrial Policy, 1960 was announced. Balaju Industrial District was also established in the plan period.

In the Second Three Year Plan (1962-65) eleven public enterprises were established i.e. Birgunj Sugar Factory, Janakpur Cigarette Factory, etc. In the private sector sugar, metal, handicraft, hotel, soap, biscuit and sweets industries, etc. were established. Patan and Hetauda Industrial Estates were established in the plan period.

The Third Five Year Plan (1965-70) recognized industrialization as an essential component of economic growth and gave it third priority. In this plan period, Bansbari Leather and Shoe Factory, Agriculture Tools Factory, Himal Cement Company, Nepal Tea Development Corporation, Dairy Development Corporation, were established.

The Fourth, Fifth, Sixth, Seventh and Eighth Five Year Plans also emphasized the need to attract private sector investment in industries.

During Eight plan HMG adopted privatization, economic liberalization and open market policies. Keeping in mind the condition of public enterprises, HMG initiated privatization efforts from the Eighth Plan. The new revised industrial policy (1992) has been greatly liberalized and made transparent. Foreign Investment and Technology Transfer Act (B.S. 2050) was reviewed to attract foreign investment and to emphasize the transfer of advanced technology and efficient management. The Ninth plan (1997-2001) continued to emphasize on privatization and economic liberalization. The core objectives of the Tenth plan (2002-2007) is participation or private sector and to create additional employment in both rural and urban areas to reduce poverty.

B. EVOLUTION OF COMMERCE

Commerce includes all those activities, which are concerned with the distribution of goods and services. It embraces purchase and sale of every kind as well as various services like transport, banking, insurance, warehousing, etc. which facilitate trade. Hence, it provides link between producer and consumer. They have been expanding along with the development of society. It has passed through a number of stages to reach the present level. The standard of living id directly influenced by the degree of development of commerce. Following are the stages in the evolution of commerce:

(a) Non-Existence of Commerce and Trade : In the early stages of man there were no surplus to be exchanged. Our primitive ancestors consumed what they produced. The production of goods was only to satisfy one’s need. Since people did not exchange goods or services, commerce (and trade) was non-existent.

(b) Barter Economy : Human wants increased with the advance of civilization. They could not produce everything they needed. People came to know that man is skillful in producing a few commodities. He can make them quite rapidly in large numbers and in beautiful forms. So, at this stage people started producing excess of their needs what they could produce. People started searching for persons who could get their surplus products in exchange for those goods, which they required. Commerce made its beginning and barter (exchange of goods for goods) began to be practiced. Means of communication were either absent or wholly primitive and trade was non-existent.


(c) The Rise of Trade : The barter system was not suitable for expansion of trade. The difficulties of barter system compelled people to find out some common medium for exchange. Several commodities like shells, cattles, oxen, precious stones, metals, etc. have been used for money from time to time. Ultimately coins paper notes were evolved. With the evolution of money as a medium of exchange removed the defects and limitations of barter economy. The money as a medium of exchange helped the expansion of trade. People started producing goods for sale. A class of traders started helping the producers and consumers for exchange of goods and services. Gradually the traders started selling at particular places, which later on became market places or trade centers. So the introduction of money led to the growth of commerce.

(d) National Economy : The introduction of money followed by several other improvements of commercial activities (transportation, banking, insurance, etc.) greatly helped to develop commerce and trade. The division of work and specialization helped producers to concentrate on few products only. They started producing goods not only for the local markets but also for national markets. The specialization in different fields helped the growth of industry and commerce. The development of transport increased the trade manifold. All these developments were responsible for developing commerce at national level.

(e) World Economy : The discovery of trade routes between 15th, 16th and 17th centuries brought various countries nearer to each other. The element of specialization extended to different countries. They started exporting those products, which they could produce easily and would import those things in which they were deficit or could not produce cheaply. In this way trade extended to world markets in which good were bought and sold between two countries. This is also known as international trade. The industrial revolution brought drastic change in industrial method and industrial organization, which increased the scale of production immensely and changed the scope of trade. Several middlemen began to operate between the producer and the consumer. Specialized institution like banks, transport companies, insurance companies and warehousing were set up to help the trader. All these factors facilitated the development of worldwide trade and commerce. This is the globalization of business.

EVOLUTIION OF BUSINESS

Business consists of industry and commerce. So the evolution of business can be studied by dividing it into two parts: (1) Evolution of industry, and (2) Evolution of commerce.

(1) Evolution of Industry
Industry is concerned with the production of goods and services. There was a time in the history of mankind when there were no industrial activities. Our primitive ancestors consumed what they produced. Hunting was the first stage in the evolution of man. The needs of man were limited only to food, clothing and shelter. This was an economy of self-reliance. Gradually man entered in pastoral stage under which he started domesticating animals for milk, meat and skin. He lived near the banks of lakes and rivers because of availability of grass and water. Soon after this, man entered the agriculture stage. He began cultivating land to grow food-grains. The economy of the household remained self-sufficient.

The evolution of industry can be traced from handicraft stage where goods were manufactured for local people.
(a) Handicraft Stage : Human wants increased with the advance of civilization. They could not produce everything they needed. People came to know that man is skillful in producing a few commodities. They can make quite rapidly in large numbers and in beautiful forms. Hence, under handicraft stage artisans living in village produced products for the local people got in exchange what they needed. At this stage artisans used simple hand-tools and manual skill for producing the goods. The organization of work was quite simple and there was no division of labor. Family was the unit of industrial organization. The money exchange medium helped the expansion or industry and trade.

(b) Guild System : A guild may be defined as an organized group of artisans or traders. In the middle age (up to 15th century) working people organized themselves into Guilds. These Guilds were – Merchant Guilds and Artisan Guilds. The merchant were associations of traders. Artisans engaged in the same line formed artisan or craft guilds. The membership of these guilds was compulsory. The guilds were able to help the growth of industries development. The interests of members were protected. The members were protected. The members were expected to produce quality goods. Reasonable profitability was ensured to the craftsman.

(c) The Domestic System : With the fall guild system, a new system developed which was known as Domestic System. With the increase in population the demand for goods increased considerably. The artisans were not able to procure huge quantities of raw materials. They were also unable to purchase latest tools because of their limited resources. A new class of entrepreneurs came into existence. The entrepreneurs gave work to the artisans who worked in their homes.

(d) The Industrial Revolution : The term ‘Industrial Revolution’ is used to describe a series of changes in the British industry during the later part of the 18th century and the earlier part of 19th century. A number of inventions took place in England, which changed the entire technique of production. The word ‘revolution’ means a fundamental change. In this sense industrial revolution was a change in (a) industrial method, from handwork to work done by machines driven by power, and (b) industrial organization, from work at home to work at factories. The consequences of industrial revolution were mass production, mechanization, standardization, growth of capitalism, specialization and improvement in standard of living.

(e) Present Stage : The present age has been termed as an era of large scale production. The twentieth century has witnessed a evolution in technology. The latest technology improvements are automation, computerization and use of atomic energy for peaceful purposes. With automation industrial work can be done faster and better. The machine needs only to be started and everything goes on automatically. All complicated jobs are done with the help of machines. The computer system helps to analyze various results. The feedback system in automation helps to make adjustment if necessary. With the developments indicated above the world of industry is passing through a crucial period of change.

Meaning and Classification of Commerce

Commerce is concerned with buying, selling and distribution of goods and services, which are produced by industry. James Stephenson has defined commerce as " an organized system for the exchange of commodities and distribution of finished productions:" It signifies a process of exchange, which is the foundation of modem economic life Commerce helps in transforming the goods from the place of production to those places where it is scarce. Hence it is concerned with the supply of goods and services to the consumers at the right place, at right time and condition.

Commerce deals with the processes which are engaged in the removal of hindrances of persons (trade), hindrances of exchange (banking and finance), hindrances of place (transport, insurance), hindrances of time (warehousing), and hindrances of information (adverting and salesmanship ). In modern era commerce include all the functions which are required to buy and sell the product. Commerce provides a link between producer and consumer.

According to Evelyn Thomas, “Commercial occupation deals with the buying and selling of goods, the exchange of commodities and distribution of the finished goods”.

Commerce is primarily concerned with two main types of activities: (1) Trade, and (2) Aids to Trade.

(1) Trade

Trade refers to the sale, transfer or exchange of goods. It is an activity by which buyers and sellers exchange useful goods and services for mutual advantage. Trade is the process of by which goods are taken from the source of production to the consumers. The persons engaged in trade are called ‘traders’ or ‘middlemen’. A trader acts as an intermediary between producers and consumers. Trade may be broadly classified into two parts: (a) Home Trade, and (b) Foreign Trade.

(a) Home Trade : home trade consists of buying and selling goods within the boundaries of a country. Payments for such sale are made in national currency directly or through banks and the internal transportation system is utilized for the movement of goods. It may be further sub-divided into wholesale and retail trade. Wholesale Trade consists in buying in lots from producers and then selling them to the large number of retailer. It serves as a link between the producers and the retailers. Retail Trade on the other hand, involves purchase if goods from the wholesaler or the producer directly and sale those goods to the large number of consumers in small lots. Hence, it is the final stage of distribution.

(b) Foreign Trade : Foreign trade involves purchase and sale of goods between different countries. For example, trade carried on between Kathmandu and Tokyo is foreign trade. Two countries are involved in foreign trade. It may be further sun-divided into import, export and entreport trade. Import Trade implies purchase of goods from a foreign country. Export Trade on the otherhand, implies sale of goods to other countries. Entreport Trade is only re-export. A country imports something not for own use but to export it to other countries is known as entreport trade.

(2) Aids to Trade (Auxiliaries to Trade)
There are various obstacles in the way of smooth running of trade. All the obstacles are overcome with the help of various agencies known as Aids to Trade. Aids to trade are those activities that facilitate buying and selling of goods. In other words, it is the hindrance of place (transport and insurance) and time (warehousing) in the exchange (banking) of commodities. So it links the consumers and traders. These aids are essential for the growth of trade and industry. Thus they are also known as aid to business and auxiliary services. Aids to trade include the following services.

(a) Transport : Goods are produced at a few places but are required for use at several different places. It is the function of transport to carry goods from centers of production to centre of consumption. It creates place utility by transferring goods from one place to another. It has linked all parts of the world.

(b) Communication : The transmission of information from one place to another for various purposes is known as communication. Most important communication media are telephone, fax telegrams, radio, T.V. etc. They are very much important and helpful in communicating their message with persons at distant places. Communication also gives information of new products to individuals and firms. Development of industry and trade is very much dependent on means of communication.

(c) Banking and Finance : Banks and financial institutions provide finance to business units. They are traders of money and credit. They provide capital for the business in shape of loan and they also help them in remitting money from one place to another. They play an important role in international trade where each other do not know trading parties.

(d) Insurance : During the movement of goods from place to place or during storage, there are chances of goods being damaged or lost. It protects the traders form the fear of loss of goods. The fear of loss of goods due to any cause acts as an obstacles in the development of industry and trade.

(e) Warehousing : Warehouse is a kind of storage. Warehouse creates time utility. Some goods are produced seasonally but they are required throughout the year. So there is need to store them, so that they may be supplied according to demand. Hence, warehouse are used to keep the stock of goods when not required for immediate use.

(f) Advertising and Publicity : The consumers may not be aware of the availability of various goods in the market. The producer will also like to increase his customers. The producer will also like to increase his customers. The advertisement promotes their sales. Publicity is a method of promoting sales. It is essential for increasing sales and profit. There are several media of publicity like newspaper, radio, T.V., etc.

SCOPE OR COMPONENTS OF BUSINESS

Business includes many activities. Traditionally business activities are classified broadly into two parts: (1). Industry, and (2). Commerce. This is clearly shown in F.C. Hopper's definition: "It (business) means the whole complex field of commerce and industry ........". Thus, the scope of business consists two main components: (1) Industry, and (2) Commerce.

Meaning and Type of Industry

" Industry " refers to production of goods by manufacturing or processing. It converts raw materials into finished goods and thus creates form utility. Goods produced by an industry may be "consumers' goods" or "producers' goods". Consumer goods are in the form in which consumer wants them e.g. cloth, radio, television, foodstuffs, etc. Industry directly satisfy human needs and human wants. Producers' goods are used by other producers for further production e.g. machinery, factory, building, plants, tools, etc. Industry may be further divided into four different types.
1. Genetic Industry
2. Extractive Industry
3. Construction Industry
4. Manufacturing Industry

1. Genetic Industry : Genetic Industry is related to the reproducing, breeding and multiplying certain species of plants and plants and animals with the object of earning profit from their sale. The activities involved are rearing, breeding of animals, birds, and growing plants. Nurseries, where plants are grown for sale. cattle breeding farms, poultry, etc. come under genetic industry.

2. Extractive Industry : The Extractive Industry concerned with the extraction or drawing out products from natural sources. It supplies basic raw materials to other industries. Examples of such industries are farming, mining, hunting, lumbering, fishing, etc. Materials once extracted from earth cannot be replaced. Hence, these industries are also called exhaustive industries because with extraction there is depletion of resource and exhausts.

3. Construction Industry : This industry is concerned with the construction, erection, fabrication or building products. Examples of such industries are road, bridge, dams, canals, buildings, construction, etc. In this type of industry basic materials are manufactured by other industry like cements, iron, etc. The distinctive characteristic is that their products are not carried to the market for sale, they are erected or built at a fixed site. The products of construction industries are immovable.

4. Manufacturing Industry : Generally the term 'industry' refers to the manufacturing industry. This industry is mainly concerned with the production of different types of goods by using raw materials or semi-finished goods. It creates form utility in them. Manufacturing industries produces most of the goods that are used by the consumers. Textile, cement, soap, television, petrol, etc. are examples of manufacturing industries. It may be classified as follows:

(a). Analytical Industry : In this industry many types of products are manufactured by analyzing and separating different elements from the same material. For example crude oil is processed and separated into petrol, diesel, kerosene, lubricating oil, etc.

(b). Processing Industry : In this industry raw material is processed through different stages of production resulting in the final product. Textile, paper and sugar are examples of this type.

©. Synthetic Industry : In this industry various raw materials are put together in manufacturing process to make a final product. For example combining and mixing concrete, gypsum, coal., etc produces cement.
(d). Assembling Industry : In this industry various instruments or component parts already manufactured are assembled to make new useful product. For example, car, bicycle, radio, television, etc.

IMPORTANCE OF BUSINESS

IMPORTANCE OF BUSINESS

Business is the most important activity of mankind. The progress of any country depends upon the development of business of that country. Therefore counties like Japan, Korea, England, Germany, USA, etc. are developed through business. The following reasons clearly show the importance of business:
1 Fulfillment of Human Wants: In the modern time human wants are unlimited. Business fulfills such human wants through the production of goods and services.
2 Creation of Utility: Business creates various types of utilities in goods so that consumers may use them according to their preferences and needs. The utility may be form utility, place utility, time utility, etc.
3 Utilization of Natural Resources: Every country has certain natural resources. The business makes it possible to utilize natural resources to their maximum extent. As for example mineral resources are extracted by extractive industries. Afterwards they are used by other industries to make different types of useful articles.
4 Employment Opportunity: The field of business is also important from the viewpoint of employment. Today a lot of people are employed by the development of business. So business contributes a lot in solving the unemployment problem of the country.
5 Economic Development: The economic development of country depends upon the development of business. Hence utilizing the raw materials available in the country if we can develop industrialization, country could be developed. The economic prosperity of a country is judged by the number of large scale business existing in it.
6 Supply of quality goods: The supply of quality goods and services to the consumers at responsibility of the business. The business should aim at consumer satisfaction. A business cannot flourish in the long run if it ignores consumers.
7 Earning Foreign Currency: Business is the major sources of earning foreign currency. By the development of business (industry, trade) finished goods can be exported to foreign countries and earn maximum foreign currency. Such foreign currency again can be used in importing necessary goods and services for the development of the country.
8 Self-Sufficiency: Business can play an important role in making the country self-sufficient. It should produce all those goods, which are imported from outside. A self-reliant country has more prestige in international community.
9 Increase in Government Revenue: The development of business also increases the government revenue. Industrial and business firms pay excise duty, income tax, sales tax, etc. to the government. As the number of business enterprises increase government revenue also increases.
10 International Relationship: By the development of industry and trade we can export goods with other countries. The people of different countries come in contact with each other. It creates cooperation, understanding and relations among various nations