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Concept of Business | Types | Scope | Trade, Industry, and Commerce

https://taxmagz.blogspot.com/Literally, the word “business” means the state of being busy. Generally, the term business includes all human activities concerned with earning money. In other words, business is an activity in which various persons regularly produce or exchange goods and services for mutual gain or profit. The goods and services produced or purchased for personal use are not included in “business”.

DEFINITION

According to L. H. Haney

“Business may be defined as human activities directed toward providing or acquiring wealth through buying and selling of goods.”

James Stephenson says that:

“Every human activity which is engaged in for the sake of earning profit may be called business.”

In the words of B. W. Wheeler

“An institution organized and operated to provide goods and services to the society, under the incentive of private gain” is business.

CHARACTERISTICS

Following are the essential characteristics of a good business:

1. Capital

Capital is the lifeblood of every business. It is the most essential and important element of business. In case of deficiency, loans can be taken from various financial institutions.

2. Creation of Utility

Utility is an economic term referring to that characteristic of a certain commodity, which can satisfy any human need. Business creates utility, which gives benefit to the entire society as well as the businessmen.

3. Dealing in Goods and Services

Every business deals with the sale, purchase, production, and exchange of goods and services for some consideration.

4. Employment

Business is a good source of employment for its owners as well as for other people, for example, employees, agents, transporters, etc.

5. Islamic Process

Business is an Islamic way of earning living. Income from the business is known as profit, which is Rizq-e-Halal. The Holy Prophet Muhammad himself did prosperous business.

6. Motive

The motive of business is to earn profit. Otherwise, it will not be termed as a business.

7. Organization

Every business needs an organization for its successful work. A proper organization is helpful in the smooth running of the business and achieving the objectives.

8. Productions or Purchase of Goods

A businessman deals in the production or purchase of goods. These goods are supplied to the people. So, more goods must be produced so that the demand of people may be fulfilled.

9. Regular Transaction

The business has a nature of regular dealings and a series of transactions. So, in business, only those transactions included have regularity and continuity.

10. Risks and Uncertainty

Business involves a large volume of risk and uncertainty. The risk element in business keeps a person vigilant and he tries to ward off his risk by executing his policies properly.

11. Sale or Transfer for value

Another characteristic of business is the sale or transfer of goods for value.

12. Social Welfare

Business does not only satisfy the producer, but also the consumer when products are offered for sale at low prices in markets.

NATURE OF BUSINESS

The following points state the nature of business in brief:

1. Economic Activity

Business is an economic activity as it is concerned with the creation of wealth through the satisfaction of human wants.

2. Human Activity

Business is an economic activity and every economic activity is done by human beings. Thus, business is one of the most important human activities.

3. Social Process

Business is run by owners and employees with the help of professionals and customers.

Thus, business is a social process.

4. System

Business is a systematic arrangement of various elements, which leads to the attainment of a particular objective, according to a well-established plan.

BUSINESS

The word “Business” includes all human activities concerned with earning money. In other words, business is an activity in which various persons regularly produce or exchange goods and services for mutual gain or profit.

COMPONENTS OF BUSINESS

Business bears the following components:

  • Industry
  • Commerce
  • Business
  • Industry Commerce


INDUSTRY

The industry is connected with the production and preparation of goods and services. It is a place where raw material is converted into finished or semi-finished goods, which can satisfy human needs or can be used in another industry as a base material. In other words, industry means that part of business activity, which is concerned with the extraction, production, and fabrication of products.

KINDS OF INDUSTRY

Primary Industry

Secondary Industry

1. PRIMARY INDUSTRY

Primary industry is engaged in the production or extraction of raw materials, which are used in the secondary industry. Primary industry can be divided into two parts:

  • Extractive Industry

Extractive industries are those industries, which extract, raise or produce raw material from below or above or above the surface of the earth. For example, fishery, extraction of oil, gas, coal, etc.

  • Genetic Industry

Genetic industries are those, which are engaged in reproducing and multiplying certain species of animals and plants. For example, poultry farms, fishing farms, dairy farms, plant nurseries, etc.

2. SECONDARY INDUSTRY

These industries use raw materials and make useful goods. The raw material of these industries is obtained from primary industry. Secondary industry can be divided into three parts:

Constructive Industry

Manufacturing Industry
Services Industry

  • Constructive Industry

All kinds of constructions are included in this industry. For example, buildings, canals, roads, bridges, etc.

  • Manufacturing Industry

In this industry, the material is converted into some finished goods or semi-finished goods. For example, textile mills, sugar mills, etc.

  • Services Industry

These industries include those industries, which are engaged in providing services of professionals such as lawyers, doctors, teachers, etc.

COMMERCE

Commerce is the second component of the business. The term “commerce” includes all activities, functions, and institutions, which are involved in transferring goods, produced in various industries, from their place of production to ultimate consumers.

In the words of Evelyn Thomas:

“Commercial occupations deal with the buying and selling of goods, the exchange of commodities and distribution of the finished goods.”

Concludingly, “trade and aids to trade” is called commerce.

SCOPE OF COMMERCE

The scope of commerce can be explained as:
  • Trade
  • Aids to Trade

1. TRADE

Trade is the whole procedure of transferring or distributing the goods produced by different
persons or industries to their ultimate consumers. In other words, the system or channel,
which helps the exchange of goods, is called trade.

TYPES OF TRADE

There are two types of trade:
  • Home trade
  • Foreign Trade

(a) Home Trade

The purchase and sale of goods inside the country are called home trade. It is also known as
‘domestic’, ‘local’ or ‘internal trade’. Home trade has two types:
  • Wholesale Trade
  • Retail Trade

(i) Wholesale Trade

It involves selling goods in large quantities to shopkeepers, to resale them to the
consumers. A wholesaler is like a bridge between the producers and retailers.

(ii) Retail Trade

Retailing means selling the goods in small quantities to the ultimate consumers. Retailer is a
middleman, who purchase goods from manufacturers or wholesalers and provide these goods to the consumers near their houses.

(b) Foreign Trade

Trade or exchange of goods and services between two or more independent countries for their mutual advantages is called foreign trade. It is also called international trade. Foreign trade has two types:
  • Import Trade
  • Export Trade

(i) Import Trade

When goods or services are purchased from another country it is called import trade.

(ii) Export Trade

When goods or services are sold to any other country it is called export trade.

2. AIDS TO TRADE

Trade mans biting and selling of goods, whereas, aids to trade means all those things which
are helpful in trade.
  • Banking
  • Transportation
  • Insurance
  • Warehousing
  • Agents
  • Finance
  • Advertising
  • Communication
  • Banking

(a) Banking

In daily business routines, commercial banks and other financial institutions help the seller and the buyer in receiving and the buyer in receiving and making payments.

(b) Transportation

The goods which are manufactured in mills and factories, reach the consumers by different
means of transportation like air, roads, rails, seas, etc.

(c) Insurance

The transfer of goods from one place to another is not free from the risk of loss. There is a risk of loss due to accidents, fires, theft, etc. The insurance companies help out the traders with this problem through the insurance policies.

(d) Warehousing

Manufacturers today, produce goods in large quantities. Therefore, a need for warehouses
arises to store manufactured goods.

(e) Agents

They are the persons who act as the agents of either buyer or seller. They perform these
activities for commission.

(f) Finance

A large amount is needed to set up an industry. Financial institutions provide long-term
finance to the producers. The producers alone are unable to manufacture goods without
financial help.

(g) Advertising

The consumer may sometimes, not know about the availability of goods in the market. The
producer must sell his goods to remain in business. Advertisement is an easy way to
inform a large number of customers about the goods. This can be done through TV,
newspapers, radio, etc.

(h) Communication

The producers, wholesalers, retailers, transporters, banks, warehouse-keepers, advertisers, and consumers live in different places. This post office, telephone, and other similar media are very useful for the promotion of trade and industry.
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