BARTER

Early humans lived simply, relying on animals, trees, seeds, and the earth for
food and resources. Their subsistence system avoided modern complexities
like international trade disputes, price fluctuations, and exploitation, using
natural resources efficiently to meet societal needs.

Advantages of the Barter System

No issues with foreign exchange or international trade disputes.

Encouraged sustainable and local resource use so there be no wastage

Disadvantages of the Barter System

Required a double coincidence of wants—both parties needed to desire what

the other offered.

Lacked a standardized exchange rate, making fair trades difficult.

Indivisible goods, like livestock, were hard to trade in smaller units.

Impractical for exchanging large items for smaller ones.

Money

Early humans used items like peas, stones and shell to using precious
metals for trade. Egyotians adopted metal rings as money, while Lydians
introduced coins to the Western world. Coins, known as commodity money,
were valued for being durable, portable, and containing precious metals like
gold and silver. Later, the Chinese introduced paper currency, which was
authenticated when the emperors seals and signatures were placed . Paper
money represents wealth and serves as a promise for future exchanges.
Today, money is accepted as an authorized medium for goods and services.

Features of Money

Accessible: Easy to use.

Relatively Scarce: Limited to maintain value.

Disposable: Usable for transactions or savings.

Homogeneous: Uniform in quality.

Divisible: Can be broken into smaller denominations.

Portable: Easy to carry.

Functions of Money

Medium of Exchange: Facilitates trade.

Measure of Value: Determines the worth of goods and services.

Store of Value: Retains value for future use.

Deferred Payment: Enables credit purchases.

Price Mechanism: Reflects the value consumers are willing to pay.

Financial Payment Methods and Instruments

Bill of Exchange: A written order from one person to another to pay a specific
sum of money to a designated person.

. Supplementary Credit: Used in international trade to provide an economic

guarantee through a credit-related bank.

Electronic Fund Transfer (EFT): A digital transfer of money between bank

accounts.

. Credit Card: Allows users to purchase goods and services on credit.

Debit Card: Enables users to spend money directly from their account.

Standing Order: An instruction to a bank to transfer a fixed amount to a

specific account at regular intervals.

Direct Debit: Allows companies to withdraw varying amounts from a

customer’s account with prior notice.

Direct Deposit: Electronically transfers funds directly into an account.

E-Commerce: The buying and selling of goods and services over the internet.

. Online Banking: Traditional banking activities available through a bank’s

counters or website.

Internet Banking: An electronic method for transfers and transactions via a

bank’s website.

Check: A written instruction to a bank to pay a specific amount to a person

or entity.

Money Order: A payment instrument to transfer a specific amount to a

specific account.
 Bank Transfer: A payment guaranteed by the bank directly from its funds,
not the account holder’s.

Telegraphic Transfer: An electronic transfer of funds between banks using

telecommunications.

M-money : Stores and processes payment information for transactions,

enabling purchases and transfers.

In a mixed economy, businesses are categorized into the private and public
sectors:

Private Sector: Owned, managed, and operated by private individuals or

companies, focusing on profit-making.

Public Sector: Owned, managed, and operated by the government, with the
government holding majority control to serve public interests.

A sole trader is a business owned and managed by one person, with full
responsibility for its operations, profits, and risks.

Key Characteristics

Managed by the owner, with occasional help from friends or family.

Profits are enjoyed solely by the owner, who also bears all risks.

Limited capital sourced from personal savings or profits.

Maintains close personal contact with clients.

Easy to set up, with no legal incorporation required.

Advantages

Easy Formation: Minimal legal requirements; just register a business name or

license if necessary.

Independence: Full control over decisions and business operations.

Simple Structure: Few employees, often family or friends.

Personal Relationships: Builds close ties with customers and staff.

Privacy: Business details remain private except for tax purposes.

Commitment: High motivation to succeed since profits and risks are

personal.
Disadvantages

Limited Financial Resources: Reliant on personal savings or loans secured by

personal property.

Unlimited Liability: Personal assets can be used to repay debts.

Lack of Specialized Staff: Limited resources may restrict hiring skilled

employees.

Over-Reliance on the Owner: Illness or financial struggles can significantly

impact the business.

Long Hours: Sole traders often work extended hours with limited leisure time.

Limited Technology: May not afford or access advanced technology.

Legal Aspects

The sole trader and the business are not legally separate.

The owner is responsible for debts, taxes, and insurance contributions.

Partnership

A partnership is a business organization where 2 to 20 people work together

to achieve a common goal of earning profits. Partners share responsibilities,
profits, and losses.

Types of Partnerships

Ordinary Partnership Partners share profits and losses equally or as agreed in

the partnership agreement.

All partners can actively manage the business.

Each partner acts as an agent for the partnership, meaning one partner’s
actions can bind the others.

Capital is contributed by the partners.

The retirement or death of a partner may require reorganization of the

business.

Limited Partnership

Limited partners invest capital but have limited liability.

If the business fails, limited partners only lose their investment.

Unlimited partners have full liability, meaning their personal assets may be
used to cover business debts.

Formation of a Partnership

When forming a partnership, the partners’ rights and responsibilities should

be outlined in a written agreement called a partnership deed. This document
helps resolve disputes and ensures clarity.

Partnership Deed Contents

Names of Partners: Identifies all individuals involved.

Name of Business: Specifies the official business name.

Date of Commencement: States when the partnership begins.

Capital Contributions: Details the amount each partner invests.

Profit and Loss Sharing: Specifies how profits and losses are distributed.

Roles of Partners: Outlines responsibilities of each partner.

Salaries: Indicates if partners will receive a salary.

Voting Rights: Defines decision-making powers among partners.

Duration: Specifies how long the partnership is expected to last.

Dispute Resolution Methods: Explains how conflicts will be handled.

In Absence of a Partnership Deed

The Partnership Act will apply, with these default rules:

Profits and losses are shared equally.

No partner is entitled to a salary.

No interest is paid on capital contributions.

Advantages
More Capital :Partnerships can raise more capital compared to sole traders
due to contributions from multiple partners.

Specialization: Partners bring varied skills, experience, and training, allowing

for efficient management of different business sections.

Simple Organization :Workload is shared among partners, enabling them to

take vacations and enjoy more leisure time.

Improved Decision-Making :Decisions benefit from the combined knowledge

and experience of all partners.

Disadvantages

Unlimited Liability: Ordinary partners are fully responsible for the debts of the
business, risking personal assets.

Binding Decisions: A bad decision by one partner can negatively affect all
partners and the business.

Limited Capital :Despite pooling resources, capital may still be insufficient for
large-scale expansion.

Disagreements: Disputes over management decisions can lead to delays and

conflicts.

Capital Restriction: Partnerships are limited to a maximum of 20 partners,

restricting potential capital contributions.

Items Typically Found in a Partnership Deed

Name of the Firm: The official name of the partnership business.

Name of Business: The business name under which it operates.

Names of Partners: All individuals involved in the partnership.

Capital Contributions: The amount of capital each partner will contribute to

the business.

Profit and Loss Sharing: The agreement on how profits and losses will be
divided among partners.

Roles and Relationships Between Partners: Defines each partner’s

responsibilities and the working relationship between them.
Rate of Interest: The interest rate to be paid on any capital contributions or
loans provided by the partners.

Dissolution Terms: Outlines the procedure for settling accounts if the

partnership is dissolved. This includes handling debts and dividing remaining
assets.

Co-operatives

A co-operative is a business owned and operated by its members to meet

their shared needs. Co-operatives must be registered and are typically
community-based, where shares are sold to or held by the members.

Principles of Co-operatives

Democratic Control: Every member has one vote, regardless of their

shareholding.

Open Membership: Membership is open to all who meet the co-operative’s

criteria.

Limited Interest on Capital: The return on capital investment is capped.

Surplus Distribution: Any surplus generated is distributed based on the

shares held by the members.

Practices of Co-operatives

Voluntary and Non-Profit: Co-operatives operate for the benefit of their

members, not for profit.

Member Control: Co-operatives are managed and controlled by their

members.

Members as Clients: Members are also the customers, benefiting from

services.

Common Bond: Members share a common interest, such as location,

profession, or industry.

Pooling of Capital: Members contribute capital to fund the co-operative’s

activities.

Types of Co-operatives

Financial Co-operatives:Credit Unions

Agricultural Co-operatives: Farming

Consumer Co-operatives: Retail ,wholesale

Service Co-operatives :Tax ,PTSC

Advantages of Co-operatives

Members as Owners

Members own the business and have shared decision-making power.

Profits are distributed among members.

Strengthens community bonds, as the co-operative operates within the

community.

Lower prices for products due to reduced administrative costs.

Shared Resources

Members pool resources to benefit from economies of scale and lower

operating costs.

Disadvantages of Co-operatives

Limited Membership Growth: Membership may be too small to drive

significant organizational growth.

Slow Decision-Making :The democratic process of decision-making can be

slow, potentially causing delays in capitalizing o

Companies

A company is an incorporated business entity with a separate legal identity

from its owners.

Types of Limited Companies:

Private Limited Company

Public Limited Company

Private Limited Company (Ltd)

Formation
To register a private limited company, the following must be submitted to the
registry of companies:

Memorandum of Association

Articles of Association

Statements of Authorized Registration/Nominal Capital

Management

Managed by owners or appointed specialized personnel.

Disposal of shares must be approved by members.

Share sales are restricted to members.

Characteristics of Private Limited Companies

Capital: Obtained from private individuals, financial institutions, or reinvested

profits.

Limited Liability: Shareholders are only liable for the value of their shares.

Membership: Limited to 2-50 members.

Registration: Must include “Limited” in the name and be registered with the
registrar of companies.

Financial Statements: Must prepare and audit accounts annually, submitting

copies to the registrar.

Private Limited Companies

Advantages

Larger capital base than sole traders or partnerships.

Easier to obtain loans due to continuity.

Separate legal entity; shareholders have limited liability.

Disadvantages

Capital is limited to 50 members.

Financial reports must be filed with the registry.

Shares can only be sold to a private group.

Public Limited Companies

Characteristics

Minimum of 2 shareholders; no maximum limit.

Shares traded on the stock market.

Continuity even if shareholders change.

Advantages

Easier access to large capital.

Shareholders have limited liability.

Shares can be sold to the public.

Disadvantages

Legal requirements are costly and time-consuming.

Accounts must be made public.

Control risks if others acquire large shares.

Formation

Memorandum of Association

Articles of Association

Nominal Capital

prospectus

Memorandum of Association

Governs the company’s relationship with the outside world.

Company name (must include “Limited”).

Company address.

Statement of shareholders’ limited liability.

Address of the company’s registered office.

Articles of Association

Governs the internal operations of the company.

Procedures for calling annual general meetings.

Rights and obligations of directors.

Election procedures for directors.

Statements on authorized nominal capital (maximum amount the company

can raise).

Prospectus

Invitation to the public to buy shares in a public company.

Provides detailed information for investors to assess the company’s

prospects.

Multinational Corporations (MNCs)

Multinational corporations (MNCs) are large companies that operate in many

countries but are controlled by one group of owners. They often have their
main offices in developed countries and branches in developing ones.

Characteristics

Formed through Foreign Direct Investment (FDI).

Headquarters in developed countries; subsidiaries in developing ones.

Use advanced technology and invest in R&D.

Capital-intensive and benefit from economies of scale.

Advantages for Host Countries

Injection of foreign capital.

Job creation for locals.

Skill transfer from foreigners to locals.

Increased tax revenue for governments.

Disadvantages for Host Countries

Worker exploitation and poor conditions.

Environmental damage.

Suppression of trade unions.

Consumer rights abuses.

Economic disruption if MNCs relocate.

Profits sent back to the home country.

Conglomerate

A conglomerate is a group of companies owned by the same entity,

operating in different industries and sectors like transport, tourism, and
construction.

advantages:

Shared resources reduce risks.

Protection against takeovers via holding companies.

Job opportunities and staff promotions across companies.

Strong companies support weaker ones.

Disadvantages:

Difficult to analyze due to diverse interests.

Managers may resist external control.

Potential conflicts over authority.

Nationalized Industries

Businesses taken over by the government, especially those vital to the

economy.

Advantages:

State ownership and control.

Profits stay in the country.

Serves community needs.

Prevents private monopolies.

Disadvantages:

Lower salaries for executive directors may limit expertise.

May not attract top talent.

Can drain government revenue.

A company becomes nationalized when the government buys all or most of

its shares.

The government appoints a board of directors to manage the company, with

an executive director overseeing operations.

Franchises

Agreement between franchisor and franchisee. Franchisee operates under

the franchisor’s guidelines. Franchisee pays royalties to the franchisor.

Franchisee gains from the franchisor’s reputation and expertise.

Nature of a Business and Types of Economic Systems

An economic system is a framework that outlines how resources are

produced, distributed, and traded within a society. It is designed to control
key aspects of production, such as labor, information, resources, and capital.
The way scarce resources are managed and allocated plays a crucial role in
determining the type of economic system a society adopts.

The traditional economic system is based on customs and traditions for

producing and providing goods and services.

Dependency: It relies heavily on population and features specialized divisions

of labor.

Agriculture-based: This system is predominantly found in agriculture-focused,

developing countries.

Resource Scarcity: Resources are limited and often controlled by those in

power.

Local Focus: Traditional economies are localized and do not participate in

international markets.
Simplicity: Transactions are simple, relying on basic buyer-seller interactions
without complex calculations.

Current Use: Many developing countries still operate within this system due
to limited resources and infrastructure.

Advantages of the Traditional Economic System

Defined Roles: Each member has a specific role, reducing rivalry in the job
market.

Community Support: Clear roles encourage members to support one another,

eliminating greed and fostering cooperation.

Clarity and Simplicity: Everyone understands their responsibilities and

receives what they earn, simplifying life.

Sustainability: The system is effective in meeting population needs by

producing only what is required for survival.

Environmental Impact: It has minimal environmental impact as products are

not manufactured but obtained directly from natural resources.

Focus on Basic Needs: The system prioritizes food, shelter, and clothing,
making it sustainable and efficient for basic survival.

Disadvantages of the Traditional Economic System

Resistance to Change: The reliance on beliefs and customs makes it difficult

to adapt to change, hindering economic growth.

Resource Exploitation: Nations practicing this system often lose resources to

exploitation by larger economies, as seen in many African countries.

Limited Access to Facilities: Lack of access to essential services like

healthcare leads to high mortality rates and lower life expectancy.

Climate Dependency: Food production is heavily influenced by climate

conditions; excessive rain or droughts can severely impact the population.

Economic Limitations: The system’s focus on subsistence rather than

development restricts long-term economic growth and progress.

Ex: Ethiopia,Haiti,Bhutan,Papua New Guinea, Nepal

Planned Economic System

The planned economic system is one where a central unit, typically the
government, regulates production and services. The government makes
decisions on operations, and the system aims to provide equal access to
resources at affordable prices for everyone. Resources are managed by the
government to promote employment and support economic growth.

Advantages

Equal Resource Access: The government ensures resources are available to

everyone at lower prices.

Job Creation: The system creates employment opportunities for the

population, supporting economic growth.

Centralized Control: The government can oversee and manage resources,

undertaking large-scale projects without interference from external bodies.

Disadvantages

Neglect of Social Services: Areas like education and healthcare may be

ignored by higher authorities.

Private Sector Overload: The private sector often bears the responsibility for
ventures but lacks sufficient resources, leading to overwhelming challenges.

Ex: North Korea,Cuba,china

Free Market Economic System

Based on supply and demand.

Production is driven by resources, labor, and capital availability.

Focuses on maximizing profit.

Minimal government involvement, mainly protecting the market.

Features
Private Ownership: Goods are owned by individuals, who earn rewards from
their production.

Independent Decision-Making: Business owners make choices based on

competition.

Limited Government Role: The government protects the market but doesn’t
control production.

Advantages

High-Quality Products: Businesses produce high-quality goods to satisfy

demand, creating benefits for both producers and consumers.

Customized Production: Encourages production tailored to meet customer

needs.

Profit Incentive: Productive companies earn more profits, motivating

efficiency and innovation.

Disadvantages

Exclusion of Vulnerable Groups: Competition excludes those who cannot

compete (e.g., elderly, disabled, children).

Limited Support for Caregivers: Caregivers cannot profit from the market as
their focus is on providing care, not income generation.

Emphasis on Competition: The system prioritizes competition, neglecting the

needs of non-competitive individuals.

Focus on Champions: The system rewards only the most successful

individuals, ignoring the importance of collective well-being.

Mixed Economic System

The mixed economic system combines elements from more than one
economic system. It has a market economy with less government ownership,
but areas like the distribution of goods, services, transportation, and defense
are controlled by the government.

Advantages

Price Mechanism: Prices are used to measure supply and demand for
resources.

Effective Distribution: Ensures goods and services reach areas where they
are most needed.

Capital Allocation: Effectively allocates capital, which can be invested to

generate growth and expand other businesses.

Encourages Producers: Encourages producers to meet customer needs

efficiently and reliably.

Disadvantages

Government Intervention: There is debate over too much or too little

government intervention.

Balancing Wealth Equality and Market Freedom: Finding the balance between
wealth equality and market freedom can be challenging, potentially leading
to social unrest and higher poverty levels.

High Taxes: Increased government intervention requires higher taxes, which

can reduce employees’ motivation as a larger portion of their income goes
toward taxes.

GO TO CHAT DEPARTMENT

Role of Stakeholders

A stakeholder is any person or group with an interest in a business and its

activities. Here are the key stakeholders and their roles:

Owners and Shareholders: Invest money in the business.

Look for a return on their investment through dividends and increased share
value.

Suppliers: Provide raw materials, goods, or services to the business.

Ensure the supply is of good quality, on time, and at the right price.

Employees: Carry out tasks effectively to help the business meet its goals
and obligations.

Contribute to the overall success of the business.

Local Community: Views the business as a local employer, helping to

increase wealth locally and nationally. Expects the business to support and
protect the local environment.

Government: Benefits from businesses by reducing unemployment and

generating income taxes. Oversees overseas trade activities and enforces
legislation regulating ethical business behavior.

Pressure Groups: Represent sections of society with an interest in influencing

the business. Seek to influence business practices, especially regarding
social, ethical, or environmental concerns.

Legal Issues

Businesses must comply with all laws, including registration, licensing, and
taxation.

Funds for the business must be obtained through legal means, avoiding
money laundering or criminal activities.

Protect personal information by adhering to data protection laws.

Follow workplace regulations, including labor laws on wages, hours, and

employee rights.

The business must not operate as a front for illegal activities.

Ethical Issues

Operate a genuine business providing honest products or services.

Adopt environmentally sustainable practices to reduce harm.

Develop and adhere to a code of ethics promoting fairness, transparency,

and honesty.

Avoid discriminatory practices in hiring and operations.

Ensure proper handling of sensitive customer and employee information.

Difference Between Legal and Ethical Issues

Legal Issues: Governed by enforceable laws; breaking them leads to

penalties or legal action.

Ethical Issues: Based on moral principles; violations harm reputation but may
not lead to legal consequences.

Ethical Issues

Licensed Permits and Registration:Businesses that require licenses or

registration must ensure compliance.

Operating without proper approval can lead to government shutdowns

Avoid Money Laundering: Illegal funds or underground economy activities

should not be used in legal businesses.

Money laundering distorts the national economy and is unlawful.

Prohibit Cartels: Cartels, such as those in drugs, wine, or oil (e.g., OPEC), are
unethical and illegal.

They restrict supply and artificially increase prices, harming consumers and
competition.

No Extortion: Extortion is an illegal practice and must be avoided in business

operations.

Avoid Exploitation through Price Gouging:Suppliers should not increase prices

excessively during low supply and high demand situations, such as natural
disasters.

Standard Accounting Practices: Use standardized accounting methods and

ensure payment of taxes and national insurance contributions.

Tax evasion is illegal and deprives the government of revenue.

Ethical Waste Disposal:Avoid unethical disposal of waste (e.g., dumping in

rivers and seas) as it causes pollution and health issues.

Use Quality Raw Materials: Avoid using inferior materials to prevent poor-
quality or dangerous goods that could lead to accidents or reduced product
lifespan.
Adherence to Standards: Follow business standards set by relevant
authorities, such as the Bureau of Standards and the government.

Truthful Advertising: Ensure advertisements are fair, truthful, and non-

prejudicial to any group or person.

Truthful Product Declarations: Avoid false declarations (e.g., claiming

products are 100% natural or preservative-free when they are not).

Avoiding Unethical Practices

Double Ticketing: Avoid placing new, higher price tags on already-priced

products.

Avoid Writing “Bounced” Cheques: Do not issue cheques without sufficient

funds in the bank, as they will be dishonored and harm the business’s
credibility.

Consequences of Unethical and Illegal Practices

A. Misleading Advertisements:

Causes unfair and fraudulent practices that negatively impact the

population.

B. Withholding Taxes:

Cheating the government of revenue through tax evasion.

C. Unethical Waste Disposal:

Leads to pollution, ill health, and potentially death.

D. Money Laundering:

Causes distortions in the national economy.