OPEN COURSE

BBA5D03 BUSINESS ORGANISATION AND COMMUNICATION

Module 1: Business
Meaning of Business

A business is a legally recognised organisation designed to provide goods,

or service, or both to consumers, businesses and governmental entities.

Definition of business

Business is an economic activity that involves the exchange, purchase,

sale or production of goods and services with a motive to earn profits and
satisfy the needs of customers.

Importance of Business

1. Mass production of goods

The use of automatic machines, new materials, and new processing

methods has not Only lowered the cost of production of goods but also
helped the producers in producing goods in desired quality and quantity.

2. Expansion of market
In the modern world, goods are produced according to the needs of
the customers. The Business tries to satisfy the customers both
within and outside the country by
Developing products according to the tastes and purchasing power
of the customers.
3. Communication and transport
The fast-developed means of Communication and transport help
traders these days in Providing goods to customers at the right
times, right place, and at the right price.
4. Innovations
Today all the time busy in business making improvements by
introducing new products as well as new methods are very helpful
for the quality of products and reducing cost.
5. Employment
The business has generated employment on large scale both in rural
and urban areas.
6. Source of revenue

Businesses is providing revenue to the state due to which the

government maintains law and order situations, undertakes
defense, and carries on welfare and development activities. A
business pays a large share of taxes to the government.
7. Raising the standard of living
 The business also helped the people to earn living either as owners
of the business or employees. Higher incomes have led to an
increase in the standard of living for people.
8. Business supplies services
Services occupy an important role in modern business life. The
major services which are growing in importance are banking and
finance, insurance, medical and health, education, legal, domestic
servants, engineering, and other professionals, etc.

BUSINESS ORGANISATION

Meaning

A business organization is an entity structured to carry out commercial

activities, typically involving the production of goods or services, with the
aim of generating profit or achieving specific goals.

Features of business organisation

1. Legal Identity: A business organization, regardless of its specific

form (sole proprietorship, partnership, corporation, etc.), is generally
recognized as a separate legal entity, distinct from its owners. This
legal status affects liability, taxation, and other aspects of its
operations.
2. Goal Orientation: Most business organizations are established with
specific objectives in mind, typically involving the production and
sale of goods or services to generate profit. They also have broader
goals like customer satisfaction and contributing to the well-being of
society.
3. Ownership and Control: Ownership and control of a business
organization can vary significantly, depending on its legal structure.
It can be held by individuals, partners, shareholders, or even the
government in certain cases.
4. Structured Organization: A business organization is characterized by
its structure, which defines how its operations are organized,
managed, and coordinated. This includes departments, teams, and
reporting lines.
5. Economic Activity: At its core, a business organization engages in
economic activities, including production, distribution, and exchange
of goods and services.
6. Profit Motive: While not always the sole motivation, profit is a
significant driver for most business organizations.
7. Risk and Uncertainty: Business organizations operate in an
environment of risk and uncertainty, where factors like competition,
 changing market conditions, and unforeseen events can impact
their success.
8. Customer Focus: Satisfying customer needs and building customer
loyalty are crucial for the long-term success of any business
organization.
9. Continuous Operations: Maintaining a consistent flow of operations,
whether it’s production, sales, or service delivery, is vital for
business organizations.
10. Compliance: Business organizations must comply with various
legal and regulatory requirements, including labor laws,
environmental regulations, and industry standards.
11. Resources: Business organizations require various resources,
including human capital, financial resources, physical assets, and
information, to function effectively.
12. Dynamic and Adaptable: Successful business organizations
are adaptable and able to adjust to changing market conditions,
technological advancements, and other external factors.

Objectives of business organisation

1. Profit maximization
The primary objective of most business organisation is to
generate profit. Profit maximization ensures the survival and
growth of the business providing returns to owners and
shareholders. it also enables reinvestment in the business for
expansion and innovation.
2. Customer satisfaction
Achieving higher levels of customer satisfaction is crucial for the
long term success of a business. By understanding customer
needs and preferences businesses can build loyal customers
bases, enhance their reputation and gain competitive
advantages.
3. Market share growth
Expanding market share is a common objective for businesses
aiming to establish a strong presence in their industry. This
involves attracting new customers, retaining existing once and
out performing competitors. Increase the market share often
leads to higher sales volume and economies of scale.
4. Innovation and development
Continuous innovation and development are essential for staying
competitive in a rapidly changing market. Businesses strive to
develop new products improving existing once and adopted new
technologies. Innovation drives growth improve efficiency and
enhance the value proposition to customers.
 5. Employee welfare and development
A motivated and skilled workforce is vital for business success.
Organisation in to ensure employee welfare by providing fair
compensation, safe working conditions and opportunities for
professional growth and development. Satisfied employee are
more productive, loyal and contribute positively to the
organisation.
6. Social responsibility
Businesses are increasingly recognises their role in contributing
to the society and the environment. Social responsibility involves
ethical practices sustainable operations and community
engagement. By addressing social and environmental issues
business can build Goodwill enhance their Brand image and
create long term value.

7. Operational efficiency
It refers to how effectively a company utilizes its resources to
produce goods or services, aiming to maximize output while
minimizing input. It’s about doing more with less, optimizing
processes to reduce waste, lower costs, and improve productivity.
This efficiency is vital for profitability, customer satisfaction, and
overall business resilience.
8. Financial stability
Ensuring financial stability is a fundamental objectives for
business organisation. This involves maintaining cash flows,
managing debts and ensuring funding for growth.
9. Risk management
Identifying, assessing and managing risk is a critical objective for
ensuring the stability and sustainability of a business. This
involves developing strategies strategies to mitigate financial,
operational, strategic and compliance risk.

Importance of business organisation

1. Organizational Structure:
It helps students understand how different parts of a business
are organized and how they interact. This includes things like
departments, teams, and reporting lines.
2. Coordination and Control:
Knowing how a business is organized allows students to
understand how activities are coordinated and controlled to
achieve specific goals.
3. Efficiency and Specialization:
 Business organization emphasizes specialization of tasks and
efficient use of resources, which are key to a business’s
success.
4. Management Principles:
Business organization introduces fundamental management
concepts like planning, organizing, directing, and controlling.
5. Business Functions:
It provides a framework for understanding how different
business functions (like marketing, finance, and operations)
are integrated.
6. Essential for all Business Fields:
Regardless of the specific area of business a student chooses
to specialize in later, the principles of business organization
remain fundamental.
7. Career Opportunities:
Understanding business organization is beneficial for various
career paths, including management, human resources, and
consulting.
8. Making Informed Decisions:
A strong understanding of business organization helps
individuals make more informed decisions in their personal
and professional lives.

Functions of business organisation

1. Organizing Function:

One of the main functions of a business is organizing function. Man,

machine, materials, and money are essential factors for any
business. Organizing function collects and coordinates all the
necessary factors of the business. Proper organizing function is
helpful in the smooth running of the business and helps to achieve
its objectives.

2 .Financing Function:

Finance is the life-blood and back bone of any business. The

availability of factors of production depends upon the availability of
finance. So every business needs finance for its success. Therefore, under
this function of business required capital is estimated, accumulated and
properly utilized. A proper capital structure according to the size and
nature of the business is essential for the success of the business.
3 .Production Function:

The production function is another important function of the

business. Converting raw materials into finished products to satisfy human
wants by creating utility is known as production. Under this function, raw
materials and semi-finished products are processed and assembled to
create utility. Hence the next important function of business is to create
utility for the satisfaction of the consumers by the production of goods.

[Link] Function :

The function of business is not complete with the production of

goods and services only. The main goal of production is to satisfy human
wants through the consumption of goods and services. Therefore,
marketing function helps to transfer goods and services from the producer
to the ultimate consumer. Marketing functions can be divided into
concentrating and dispersing which include buying, selling, transportation,
storage, risk taking, market information, etc.

5 .Employment Function:

The next important function of business is to provide employment

opportunities in the country. Every business requires a large number of
manpower to perform their activities. So they are helpful in solving
employment problem of the country by providing maximum employment
opportunities.
CLASSIFICATION OF BUSINESS ACTIVITIES

The business activities are broadly classified into two categories namely:
Industry & Commerce.

Industry

The industry sector is defined as a sector where raw material gets

transformed into beneficial products. An industry may create capital goods
or consumer goods such as cloth, radio, bread, butter, etc.

The industry can be classified into three categories namely: Primary

Industry, Secondary Industry & Tertiary Industry.

1. Primary Industry

Primary industry is known as extractive industries. It involves activity

connected with the production of wealth directly from natural resources
such as water, air, land, etc. The primary sector involves activities like
processing and extraction of natural resources etc. These primary
industries are further divided as:

 Extractive Industry: Industries that draw out or extract products

from natural sources are known as Extractive Industry. Some of the
examples of extractive industries involve lumbering, farming,
mining, hunting, and fishing operations.
 Genetic Industry: The industries that involve the ventures of
breeding and rearing of living organisms, such as plants, birds,
animals, etc. are known as genetic industry. For example, rearing of
cattle dairy farms or rearing of plants in the nursery is covered in
the genetic industry.
2. Secondary Industry

The industry that uses raw materials as input and produces finished
products as output is known as the secondary industry. Secondary
industries are divided into two parts:

 Manufacturing Industries: These industries are involved in the

process of transformation of semi-finished goods or raw materials
into finished goods.
 Construction Industries: These industries are involved with the
construction of dams, roads, buildings, etc. These industries use
the commodities of manufacturing industries such as iron and
steel, cement or lime.
3. Tertiary industry

Tertiary industries are regarded as providing services that promote

the flow of services and goods. This industry helps in the actions of
the primary and secondary sectors.

Commerce
Commerce refers to the sum total of all the activities related to the
placing of products before the ultimate consumers. It provides a
significant link between the producer and consumers of goods. The
term “ commerce” is defined as an activity that aims to remove the
hindrance in the process of exchange. Commerce includes all those
business activities which are related to the sale and purchase of
goods and services and facilitate their availability for consumption
and use through trade, banking, insurance, and warehousing.
Commerce is classified into two different categories namely:

 Trade
 Auxiliary to trade

Trade
 Trade is an essential part of commerce. It involves selling and buying
goods and services. There are two types of trades namely – Internal and
External Trade.

Internal Trade: It refers to the selling and buying of goods or services

within the geographical contours of a country. Internal trade is also known
as domestic trade or home trade. Internal trade is divided into two types:
Retail trade and Wholesale trade.

External Trade: External trade is referred to the selling and buying of

goods or services beyond the geographical contours of the country. In
external trade, the market is vast. External trade is of 3 types: export
trade, import trade, and entrepot trade.

Auxiliary To Trade

In terms of business, the term “Auxiliary to Trade ‘’ refers to all those

activities which provide support to performing activities related to trade
and industry. In fact, the auxiliary to trade provides a facilitating base to
industry and trade. Such activities include insurance, banking,
warehousing, advertising, and communication.
FORMS OF BUSINESS ORGANISATION

SOLE PROPRIETORSHIP

Definition

A sole proprietorship is an unincorporated business owned by a single

individual who is entitled to all profits and responsible for all debts and
obligations, making it the simplest form of business structure.

Features
1. Formation and Closure of business
This type of business organization is simple to form as no legal
formalities are required to start the business. But, in some cases, a
license or certification is required to carry out the sole proprietor
business. For example, if a person wants to open a pharmacy
business, then he/she requires a 'drug license'. Also, registration of
business is not required, as there is no separate law that governs
sole proprietorship. The owner can easily close the business
anytime at his own discretion. Thus, it is easy and simple to form
and close this kind of business.
2. Unlimited Liability
In a sole proprietorship, the owner has unlimited liability, i.e., the
proprietor is personally responsible to pay all the debts. In other
words, if in the business, funds are not sufficient to pay the debt,
then the personal assets of the owner may be used to pay off all
the liabilities.

3. No separate legal entity

A sole proprietorship business has no separate legal entity from
that of its owners, like in partnership and company. In the eyes of
law, there is no distinction between the owner and his business. It
means that the owner of the business bears the responsibility for
all the business activities.
4. No sharing of profit or loss
There is no sharing of profit or loss, like partnership and company
because the business is solely run by a single individual, who
provides capital in the business, directs its operation and who alone
runs the risk of failure.
5. Risk bearer
All the risk of the firm is borne by a single owner only. The single
individual is the sole beneficiary of all the profits. Likewise, if losses
occur in the business, then he alone has to bear all the risks.
6. Control
The sole proprietor is the only owner of the firm and has full control
over its business. All the rights, responsibilities, and decisions are
in the hands of the owner himself. No one can interfere in the
business without the permission of the owner.
7. Lack of Business Continuity
Since business and owner are one and exist together, so in case of
death, imprisonment, insolvency, or bankruptcy of the sole owner,
the business can not be continued and has to shut down. However,
there is an exception to this feature, i.e., if there is a beneficiary,
then a successor or nominee or legal heir of the owner can run the
business.
8. Single Ownership
This form of business organization is owned wholly by a single
person. He/she provides capital in the business either from his own
wealth or from borrowed capital.

Advantages and disadvantages of Sole

Proprietorship
Advantages –

 Swift decisions – A sole proprietor has complete responsibility in terms of

making business decisions. It results in faster decision-making for the
business as there is no need to consult multiple parties for every minor issue.
  Confidentiality – A sole proprietor can keep all business-related information
to themselves as the business’s only decision-maker. The law does not bind
them to make the accounts of a sole proprietorship public.
 Profit-sharing – A sole proprietor has complete ownership of profits arising
from business operations. They are not obligated to share profits with anyone
else.
 Fulfilment – Since a sole proprietor is responsible for both risks and rewards
of their business, even a minor success can give a greater feeling of pride and
satisfaction than other business forms.

Disadvantages –

 Lack of Resources – It is challenging to raise vast amounts of capital in a

sole proprietorship compared to a partnership or company. This form of
business runs mainly on personal savings and borrowings made by its owner.
Lack of adequate finances can become an obstacle in growing the business.
 Dependence on owner – The owner and their business are a singular entity
in a sole proprietorship. While this has several advantages, the continuity of
this form of business depends solely on the owner’s well being. In case of
death, insolvency, imprisonment, etc., it can shut down if there is no
successor or heir to continue the business.
 Unlimited Liability – If the proprietor cannot pay debts arising out of
business from its assets, his/her personal property is also at stake. This results
in sole traders taking zero or very minimal risks to ensure the survival of the
business.
 Management – The proprietor has to perform most or all the activities
related to the business like purchase, client relationships, sales, marketing,
accounting, etc. They may employ others to help in business operations, but
limited finances may prevent the owner from getting full-time staff and give
them attractive remuneration. As such, the proprietor may have to carry out
all activities without much assistance from others.

PARTNERSHIP

A partnership is a formal business arrangement between two or more

individuals who agree to manage and operate a business together while
sharing its profits and liabilities.

Features of partnership

 Agreement Between Partners: A partnership is formed when two or

more people agree to work together. This agreement can be written
or verbal. While verbal agreements are valid, a written one is better
to avoid disagreements later.
 At Least Two People: A partnership needs at least two people
working towards a common goal. The number of partners can be
more, but there is a limit depending on the type of business.
  Sharing Profits and Losses: Partners agree to share the profits and
losses of the business. While the Partnership Act mentions sharing
profits, it is understood that losses are shared too. This is an
important part of being in a partnership.
 Business Purpose: A partnership must involve some kind of business
activity aimed at making a profit. Without a business purpose, it
cannot be called a partnership.
 Mutual Responsibility: In a partnership, every partner is both an
owner and a representative of the business. This means that
whatever one partner does can affect the whole business and the
other partners.
 Unlimited Liability: In a partnership, all partners are fully responsible
for the business’s debts. If the business cannot pay its debts, the
personal assets of the partners may be used to cover them.

Limitations of partnership

Limited capital – In a partnership firm, there are at least two or more two
partners who together run the business, which increases the chances of
limited capital when compared with joint-stock companies who have
surplus capital.

Unlimited liability – The partnership firm’s liability is not limited to only

business property. There are chances that partners might sell their
personal property to recover the debt.

Difficulty in transferring shares – The shares of the partnership firm can

only be transferred once all existing partners have agreed to it. As a
result, it is comparatively difficult to transfer shares in a partnership firm;
hence it emerges as a big-time limitation.

Uncertain existence – In case of death, retirement, or insolvency, the

partnership firm can even reach the condition of dissolution. In case there
are any disputes between the partner, the partnership can also end due to
this reason.

Lack of public trust – As compared to other types of organisations, the

partnership firm has less value in the eyes of the law. Also, they are
limited in size, which means that people hesitate to believe in partnership
firms.

Chances of dispute – Although during the establishment of the firm, all the
partners agreed. At times, there could be circumstances where partners
start to disagree with each other’s decisions leading to other issues.

Risk of implied authority – In this type of business, most of the decisions

are taken by the active partners. However, the chances are low that he
will take all decisions in favour of business. Hence it gives rise to the risk
of authority.

Lack of prompt decision making – In a partnership firm, all partners are

required for building consequences before landing on any decision. As a
result, it is important that every partner take an equal interest and discuss
every matter in detail. Since it is a time-consuming process, it,
unfortunately, leads to delays in decision making.

Joint stock company

A Joint Stock Company is a business entity where ownership is divided into

transferable shares held by shareholders. It operates as a separate legal entity,
offering limited liability to its members, and is managed by a board of directors
elected by shareholders.
Features of Joint stock company

 Separate Legal Entity – A joint stock company is an individual legal

entity, apart from the persons involved. It can own assets and can
because it is an entity it can sue or can be sued. Whereas a
partnership or a sole proprietor, it has no such legal existence apart
from the person involved in it. So the members of the joint stock
company are not liable to the company and are not dependent on
each other for business activities.
 Perpetual succession – Once a firm is born, it can only be dissolved
by the functioning of law. So, company life is not affected even if its
member keeps changing.
 Number of Members – For a public limited company, there can be an
unlimited number of members but minimum being seven. For a
private limited company, only two members. In general, a
partnership firm cannot have more than 10 members in one
business.
 Limited Liability – In this type of company, the liability of the
company’s shareholders is limited. However, no member can
liquidate the personal assets to pay the debts of a firm.
 Transferable share – A company’s shareholder without consulting
can transfer his shares to others. Whereas, in a partnership firm
without any approval of other partners, a partner cannot move his
share.
 Incorporation – For a firm to be accepted as an individual legal
entity, it has to be incorporated. So, it is compulsory to register a
firm under a joint stock company.

Formation of a company
There are four stages in the formation of a company

1. Promotion
2. Incorporation
3. Raising of capital
4. Commencement of business
5.
1. Promotion
Promotion is the first stage in the formation of a company. Every
company is formed as a result of the idea conceived by a promoter
or group of promoters. The promoter after conceiving the idea
makes a detailed investigation of the proposal and if found feasible
and profitable, takes necessary steps to organise it as a company.
2. Incorporation
Incorporation:
This is the legal process of registering the company with the
Registrar of Companies (ROC). It involves submitting the required
documents, including the Memorandum of Association, Articles of
Association, and declarations, and paying the necessary fees. Once
the ROC is satisfied, it issues a Certificate of Incorporation, officially
creating the company as a legal entity.
3. Raising of capital
This stage focuses on raising the necessary capital for the company
to begin operations. Public companies may issue a prospectus to
invite the public to subscribe to their shares, while private
companies may raise capital through private placements.
4. Commencement of Business:
After securing sufficient capital, a public company must obtain a
Certificate of Commencement of Business to legally begin
operations. This certificate signifies that the company has fulfilled
all requirements and is authorized to conduct business.