DEFINITIONS
Business Economics Aldus is concerned with economic
issue and strategy. Issues and problems such as the following: an explanation
of why firms emerge and exist: why they expand: horizontally, vertically and
specially; the role of entrepreneurs and entrepreneurship; the significance of
organizational structure; the relationship of firms with employees, the
employees, the providers of capital, the customers, the government; the
interactions between firms and the business environment.
Business Economics is used in a
variety of ways. Sometimes it is used as synonymously with industrial Economics,
Industrial Organization-Managerial Economics- economics for business.
Industrial economics is the most closely over-lapping of these terms whilst
there may be more substantial differences with economics for business and
managerial economics. One view of the distinctions between these would be that
business economics is wider in its scope than industrial economics in that it
would be concerned not only with “industry” but also businesses in the service
sector and that it also takes seriously the insights of the “business strategy”
literature.
Economics for business looks at the major principles
of economics but focuses on applying these economic principles to the real
would of business.
Types
Of Business Economics/Enterprises
Business enterprises of the modern time differ in
terms of capital requirement, nature and volume of operation. So also the
capabilities of the various entrepreneurs using their initiatives and influence
tend to influence or modify the business enterprises. The various forms of
businesses can generally be classified into two major known which can easily be
recognized by the type of ownership. The two forms of business enterprises are
privately owned and publicly owned business enterprises.
Privately owned and publicly owned
business enterprises are considered mainly into two economic systems i.e.
capitalist or free economy. Within these two categories of economic systems
private individuals or bodies are allowed to own and control large business
enterprises and also control the factors of production just like the government
with the exception of certain areas. Our country Nigeria falls within this
group of capitalist economy but due to the fact that we practice it in a very
raw way, it is called mixed economy
hence the government usually monopolies some forms of business. The other type
of economic system is the socialist form in which case the government owns and
controls all forms of activities are centrally organized and planned. In
summary, business enterprises are to two major forms.
(1) THE
SOLE PROPRIETORSHIP:-Majority of
business enterprises in Nigeria are one man enterprises. As the name implies,
sole proprietorship which means it is being organized, sponsored, financed and
controlled by one man sole proprietorship requires only small capital to start
operating.
Advantages of one man business
enterprises include:-
·
Unnecessary
bureaucracy or red-tapism is entirely not present or is reduced. Because of the
independence the sole proprietor enjoys, he controls, manages his business and
owns full responsibilities for his business.
·
Decision of a
sole proprietor are very quick because he does not need to procrastinate or
consult anybody or party before acting. Delay causes a lot of set backs in some
businesses especially in joint business when action will not be taken by one
man even if the other party is away to a distant place.
·
Profits of the
one man’s business are controlled by just the owner of the business. He does
not declare dividends to shareholders since he has no shareholders involved in
the business.
·
Simplicity of one
man business i.e. no legal conditions attached, the sole proprietor winds up
whenever he wants. He adheres to the general laws and regulations as stipulated
by the government.
·
Capital
requirement. It unlike large scale businesses where large is needed to finance
it unlike large to extensive borrowing, but that of one man business which is
not entirely necessarily.
·
Privacy on
business. A sole proprietor does not have to submit his balance sheet to
registrars of companies yearly for inspection and as such he enjoys privacy and
no one knows the profit he makes annually, unlike other large scale businesses.
Disadvantages:
However, a one man business enterprise is not devoid
of disadvantages entirely. Some of these includes:-
I.
Limited amount of
capital makes it very difficult for a small scale business of a sole proprietor
to expand. Banks and other financial institutions find it very difficult to
lend one man business owners’ money because in most cases they don’t have
collateral securities which are very vital to making loans available.
II.
The management
problems. At times, if the sole proprietor lacks managerial acumen, his
business will collapse. Also, the business may grow rapidly that the owner may
not effectively manage it and at this condition he will be forced to look for
partners to team-up with and manage the business and failure to do this, the
business will die-off.
III.
Limited liability
benefits are not enjoyed by a one man small scale business enterprise because
he may spend all he has to settle debts if the business collapses.
IV.
Untimely death of
a sole proprietor of a business leads to the end or collapse of that business
enterprise, unlike a jointly owned business where the business still goes on
even after the death of a partner, there is always lack of continuity when the
owner dies and this is another important disadvantage in one man business.
V.
Risk bearing:
when the business fails to realize profit the owner alone bears the risk. For
instance, when the products of a one man business are being conveyed from an
area of production to proprietor suffers the loss especially if the business is
not covered by a comprehensive insurance policy.
VI.
Radically
decisions are usually taken by a one man business without which consideration
and this may militate against the progress of the business. In a joint
business, before a decision is taken it must be well considered (i.e. the pros
and cons) and it takes fairly good deliberations because joint decision is
better than a sole (single) decision. This goes by the saying that two good
head are better than one good head.
(2) PARTNERSHIPS:
Partnership is when two or more people assemble
together to carry on a business with the aim of making profits. The partners in
the business agree to share the assets and liabilities of the business jointly.
By the name partnership it means that the business is owned jointly by
partners, and the partners have equal rights and responsibilities. Any members
of the partnership have right to making binding contract on behalf of their
business.
Partnership Deed
Partnership
deed is nothing but the agreement that unites all the members of the partners,
the agreement inter alia includes;
1. Composition of membership and their various individual
contributions
2. Title or name of business and location.
3. Decision on a deceased member
4. Incentive or remuneration of active members
5. Modality of sharing profits
6. Admission of new members (i.e. conditions0
7. Dissolution or winding up of business
TWO TYPES OF PARTNERSHIP
Usually there are two types; ordinary partnership and
limited partnership.
Ordinary Partnership: In this type of partnership, all members takes equal
risk jointly, have equal right, equal privilege, enjoy equal powers and they
possess unlimited liability. This means that, if say 2 or 5 persons enter into
ordinary business partnership and there is a case of some debt to be settled form
the assets of the business which the asset cannot settle, the personal assets
of, the partnership will be sold by their creditors. And of course if any
member has no assets to be sold, the other remaining 4 members should bear the
full responsibility of the debt.
Limited Partnership:- Limited
partnership only differs from ordinary partnership in that not all members have
unlimited liabilities in which case their liabilities are limited to the amount
of capital each contributed. However, the law provides that at least one member
must be an unlimited or ordinary or a general partner who should now bear the
full risk of the business enterprise.
Kinds of Partners:- Usually partners consist of three types, Active,
sleeping and general partners. Let us examine each of them.
Advantages
1.
A partnership has
a greater prospect of raising capital and expanding its business than the sole
proprietorship.
2.
The partners have
equal rights and therefore the actions of one partner are borne by all members
and are jointly liable for all debts and risks rather than one man in the sole
proprietorship.
3.
A partnership
lasts much longer than a sole proprietorship because unlike the sole
proprietorship, the death of any member of the partnership does not make the
partnership to collapse.
4.
Management
functions may be assigned to members according to their skills and their areas
of specializations.
5.
There is
flexibility which makes it easier to admit new members with good and new idea
that will help the business to grow.
6.
Profits in partnership
are shared according to laid down rules i.e. personal efforts and capital
contributions are the common criteria in sharing profits.
7.
There is good
division of labour in partnership
8.
There is close
cordial relationship between partners and customers.
9.
Talents and
creative are pulled together because in the management and decision making
every member of the partnership brings out his own ideas and opinions which are
well considered.
10.
Profits are not
declared or published as such partnership enjoys degree of privacy.
Disadvantages: The disadvantages inherent in partnership are as
follows:
1.
The actions of
one partner are borne by all members, which means that multiplicity of risks
could be prevalent.
2.
A partnership
does not enjoy a quick decision taking may be difficult to get all partners to
make decisions
3.
Profits are
shared by many people quite unlike the sole proprietorship where one man owns
the total profits.
4.
One major problem
of a partnership as a business organization is assets can be sold by a creditor.
5.
There is a
serious danger when lazy and dishonest members are admitted.
6.
The membership is
not more than twenty as such this can limit more capital flow into the
business.
7.
The success and
continues existence of the partnership is threatened because the business
depends on upon the ability of partners to work harmoniously with each other,
but the harmony is not guaranteed
(3) PRIVATE COMPANY OR LIMITED LIABILITY
COMPANY
A private company is a type of business organization
with a range of membership from two to fifty and each member is liable to the
tune of the nominal value of the shares he holds in the company. As a result of
this, the private company is a limited liability company and this is the major
advantage over partnership business enterprise.
Features Of
Private Limited Liability Company
1.
The formation is
quite easy, i.e. but needs just two or more people not exceeding fifty in
number.
2.
It enjoys limited
liability rights and has a decisive advantages over partnership business
organization
3.
It is compulsory
on a private company to submit audited accounts for the interest of the public
4.
Shares of a
private company are not transferable except with the general consent of other
share holders
Advantage Of Private Limited Liability Company
1.
Since a private
company is a limited liability company it enjoys the full rights of limited
liability company (i.e. in case of debt settlement by the company, the private
personal assets of members are not tampered with).
2.
Private company
can with full privileges afford a couple being or making up the board of
director of the business.
3.
Legal
restrictions are limited because it does not require the company issuing
company prospectus.
4.
There is
continuity of the company even with the death of a shareholder.
Disadvantages
of Private Limited Liability Company
1. A private company cannot offer its shares for sale to
the public by a rule and therefore cannot appeal to the public to increase its
share capital.
(4) JOINT STOCK COMPANY OR LIMITED LIABILITY
COMPANY
Advantages
Of Joint Stock Company
1. In joint stock companies, huge amount of capital is
raised as a result of a large number of shareholders and debenture holders
shares, and debenture are advertised in joint stock companies and this attracts
the public.
2. Liabilities of shareholders are limited to the amount
they invested in the company.
3. Shares are sold to the public so as to acquire more
capital unlike other business units like sole proprietorship, partnership and
cooperative societies that do not sell shares.
4. Joint stock company can easily borrow money from many
sources because they posses a lot collateral securities.
5. Continuity of business at the death of a shareholder,
the business will continue to exist.
(5) PUBLIC LIMITED LIABILITY COMPANY
ADVANTAGES
OF PUBLIC COMPANIES
1.
Public companies
have no much problem with capital because of her privilege, she can appeal to
the public for funds and through this means, it raises large sums of money.
2.
Credit facilities
are easily available to public companies in addition to being in a position to
raise funds from its numerous subscribers (shareholders) and it can easily
attract loan from banks.
3.
Expansion and
economics of scale is easily observed in public companies. As a result of this,
public companies always expand easily and they enjoy economics of scale.
4.
Due to huge
influence and capital funds that the public company possesses, they can easily
employ the services of specialists in various fields and departments of the
enterprise.
5.
In public
company, any person with small capital and people without any form of business
experience can invest in public company.
DISADVANTAGES OF PUBLIC COMPANY
1.
The formation
initially is difficult because it involves a lot of legal processes and costs.
2.
The usual
separation of ownership from management of the company may diminish sense of
commitments and efficiency in the company.
3.
There is much
bureaucracy with the consequent loss of personal touch in the affairs of the
public company.
4.
As the ownership
is district from the management, there may arise confect between management who
will only be interested in their salaries and wages and the shareholders who
are only interested in enormous profits, and or, increasing their dividends.
SOURCES OF THEIR EXISTENCE
1. Sole Proprietorship:
Proprietorships source of existence are his personal income and borrowing. Bank
loans are not always given to them.
2.
Public limited Liability Company:
there major source of existence is from the unlimited number of member and
also, they can raise capital from the public through issues of shares 3. Partnership:
capital can be raised with the help of the unlimited partners (up to twenty
persons) and the sleeping partner that invests only his capitals.
4. Private
Limited Liability Company: Capital
be raised with the help of the members which has a minimum of two and maximum
of fifty members.
5. Joint
stock company: capital can raised through initial savings, sales of shares,
debentures, banks loans, ploughing back profits and credit purchase.