DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Caribbean Examinations Council®
for CSEC
®
for self-study and distance learning
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
1/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Caribbean Examinations Council®
for CSEC
®
for self-study and distance learning
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
2/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Contents
Introduction
2
3
T7
Marketing
185
T8
Business finance
243
T9
The role of government in
an economy
251
T
1
T2
T3
T4
The nature of business
Internal organisational
environment
Establishing a business
The school-based
assessment
5
47
85
T
10
Social accounting and
international trade
263
99
T
T5
Legal aspects of business
123
T6
Production
141
11 Regional
and global business 278
environment
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
3/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Introduction
35
 Purpose
 What resources will you need?
®
The
Caribbeanwith
Examinations
Council (CXC
), in
collaboration
the Commonwealth
of Learning
(COL), has developed self-study guides for a number
of Caribbean Secondary Education Certificate (CSEC®)
and Caribbean Advanced Proficiency Examination
(CAPE®) subjects. The main purpose of the guides
is to provide both in-school and out-of-school
candidates with resource materials to help them
prepare for CXC examinations. Each study guide is
student-centred and its language is student-friendly.
Course aims

This course aims to:
1 promote understanding of theories, concepts
and practices that are applicable to the
culturally diversified economic environment of
the Caribbean;
2 provide knowledge of business and of its role
in a rapidly changing Caribbean and global
economic environment;
3 provide the opportunity for informed decisionmaking
through the
development of
skills inand
critical thinking,
problem-solving,
research
communication;
4 nurture students’ creative and entrepreneurial
abilities to enable them to participate fully in the
local, regional and global economy;
Remember
this study
guide will
not
be all that
you need tothat
complete
the syllabus
and
prepare
for
your examination. You are expected to make use of
the resources listed at the end of the course book as
well as engage in other wide, general reading, which
will improve your general knowledge, vocabulary
and structural competence.
You will also need basic study equipment, for
example, paper, pens, pencils and highlighters for
marking important parts of the text. A good dictionary
and a thesaurus are also essential to this programme.
 Managing your time
Remember to put aside a special time each day for
general reading in addition to your study time.
 Study guide structure
You will be exploring 11 sections in order to
complete the Principles of Business syllabus. Each
section starts with the following items:

Section introduction This gives you a brief
overview of the entire section, and places it in
the context of the Principles of Business syllabus.

Objectives These show you the main things that
the writers want you to learn, and the specific
skills that you should have acquired by the end
of the section. You should read these carefully to
acquaint yourself with what you are meant to be
learning.

Topics This lists the topics that are to be covered
in the section.
5 sensitise students to the need for responsible
social and ethical behaviour in their pursuit of
business goals;
6 enable students to access and apply appropriate
technology in pursuing opportunities and solving
problems in business.
 Course structure
The course consists of 11 sections based on the
Principles of Business syllabus. Each section
addresses the skills and content of a specific
module of the syllabus. However, the sequence
of the section does not mirror that of the syllabus
modules since the syllabus modules are not bound
by a rigid sequence. The sequence of topics in this
course is designed to facilitate study by leading you
through topics in a way that enables you to build on
previously learned skills.
The topics in each section are structured as follows:

Introduction This places what you are about to
study in the context of your everyday life and
relates it to what you have done in previous
sections.

Contents This is the information that forms
each lesson and is meant to guide you to an
understanding of each concept being taught.
Read carefully before you attempt any activities
that follow.

Activities Instructions are provided at the start
of each activity. Read all instructions carefully
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
4/48
DF Compressor Pro
8/9/2019
4


Csec Principles of Business Study Guide
Introduction
before you attempt the activity. Some activities
require you to think about something before you
read any further. You should take the necessary
 Assignments
time to do so. The thinking activity is designed
to help you focus your thoughts in the right
direction and facilitate your ability to complete
the activities that follow.
you to check your progress through the course. The
assignments enable you to determine your areas of
weakness and to check your understanding of the
concepts.
Feedback Each activity has feedback that allows
you to determine how you have done in the
activity. If you have not completed the activity
successfully, you should reread the preceding
examples or information carefully.

 Examinations
Examples These are meant to guide you to an
understanding of the concept being taught. All
Please refer to the latest syllabus for guidance on
the structure of the exam, the number of papers, the
length of each paper, what marks are allocated to
each question and the structure of the school-based
assessment.
examples should be read carefully before you
attempt any activities that follow.
 School-based assessment
At the end of each section, you must pay special
attention to the following:

Course assignments are included in order to allow
End test This comes at the end of each section
of the study guide and is designed to ensure
that you have acquired those skills identified
in the objectives. There is a feedback section
following the test which allows you to measure
the accuracy of your answers, so that you will
know whether or not you have acquired the
competencies. If there are questions in the
test that you have not answered satisfactorily,
ensure that you return to the relevant section
of the study guide and review those areas until
you are satisfied that you have understood the
concept.
Key points These summarise important concepts
that you need to remember and pay special
attention to in the future.
The school-based assessment component of the
Principles of Business syllabus is a single guided
research project for school candidates. Candidates
are required to write a business plan for a specific
functional area of a business. The project should
be based on the theme of establishing a business.
Students should apply the knowledge and skills
incorporated in Profile Dimension 2: Production,
marketing and finance. The business plan should
be on one of production, marketing or finance.
The report should be between 1,000 and 1,200
words (not including appendices).
Private candidates, or those candidates who are
not under the direct supervision of a recognised
educational institution, are required to write Paper
03/2 in lieu of the project. Please refer to a copy of
the latest syllabus for guidance on the structure and
length of this paper.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
5/48
DF Compressor Pro
8/9/2019
1
Csec Principles of Business Study Guide
The nature of business
General objectives
Welcome to the wonderful and exciting world of business! An
excellent way to start is by understanding the jargon, or main
On completion of this section,
you should:
words and concepts of the business world. The topics that you
learn in this section will give you a framework or foundation
that you will use for all the other sections. You will be using
these new words as your own business vocabulary, so study
carefully. It is very important that you understand the topics,
because this information is used to make business decisions.
appreciate the stages in the
development of business
activities
develop an understanding
of the underlying business
principles that form the basis
for business decisions.
Specific objectives
You should be able to:
explain terms and concepts
related to business
describe the transition of
business activity from barter
to the use of exchange
instruments
differentiate
of private andamong
publictypes
sector
business organisations
distinguish among the
economic systems
discuss the role of stakeholders
involved in business activities
outline the role and functions
of a business.
Chapter 1 introduces you to the principles used by business
organisations to guide their operations. You will learn how
humans conducted business activity long before the ‘invention’
of money. We will examine the different types of businesses, as
well as the main types of arrangements that countries use for all
their business activities. You will also learn about stakeholders
in a business, and the main functions and responsibilities of
businesses in a country. On completion of this chapter, you
should have a good understanding of the general features of
businesses.
 Contents

Important business terms and concepts

From barter to the use of money and e-commerce


Types of businesses in the private and public sectors
Forms of business organisation and arrangement

Economic systems

Stakeholders

Responsibilities of a business
Important business terms and concepts
Have you ever tried to learn a new language or dialect? Maybe as a
child you played the game of creating your own language. This topic
is your introduction to the study of business. It helps you to form your
new business language or vocabulary. Before you can think and act like
a businessperson, you must first learn how to use the words that they
use every day. Let’s get familiar with the words below.
Enterprise
The word enterprise could simply mean ‘a business’. Generally, it
is used to describe an undertaking or activity with some degree of
difficulty or risk. This undertaking has a specific purpose. A business
enterprise has a monetary purpose or goal. Enterprise could also
mean ‘initiative’, which is daring to do something new or different,
challenging or risky.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
56/48
DF Compressor Pro
8/9/2019
6
Csec Principles of Business Study Guide
Chapter 1
Example
‘Tommy has started a small restaurant. This enterprise should be very
successful because he is such a great chef!’
Entrepreneurship
Entrepreneurship is the practice of identifying a new innovation
or opportunity, organising the financing and other resources, and
taking the risk in the hope of creating wealth. The entrepreneur is
the individual who identifies the opportunity and risks the time and
money to start to organise this new adventure. You could use the
internet and talk to your parents or guardians to learn about many
interesting entrepreneurs in your country.
Barter
This means the exchange of goods for other goods. This was the first
type of trade. Did you know that some businesses today still carry out
barter? We will examine barter in the next topic.
Profit
This is the money remaining or left over after the costs of production,
distribution and taxes have been paid. It is the financial gain for the
business or entrepreneur. It can be represented in the following way:
Profit is the outcome or result when:
e
l TR is $600 and TC is $400,
p
therefore:
m
a
TR − TC = profit
x
E
$600 − $400 = $200 profit
Total revenue (TR) is greater than total cost (TC)
which is the same as writing:
TR > TC
Revenue is the money earned from the enterprise or business.
Loss
A loss is the opposite of profit. When the costs of production and other
expenses are greater than the revenue, this is called ‘making a loss’. It
means that the business is not making enough money.
e
l TR is $300 and TC is $500,
p
therefore:
m
a
TR − TC = loss
x
E
A loss is the outcome or result when:
Total revenue (TR) is less than total cost (TC)
$300 − $500 = ($200) loss
which is the same as writing:
TR < TC
Activity 1.1
Let’s see whether you understand the concepts of
profit and loss. Imagine that Peter makes fruit juices in
your neighbourhood; below are his costs and revenues
for September and October in 2010:
September
Total sales revenue is $50,000
Total cost for all expenses is $55,000
October
Total sales revenue is $60,000
Total cost for all expenses is $52,000
a In which month did Peter make a profit?
b What was the amount of the profit?
c How much was the amount of the loss?
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
7/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
7
Feedback
If you understood how we calculated the profit and loss
in the examples given, this activity should have been
easy. Your answer should be:
a Peter made a profit in October.
In part (c), the loss is written as a negative value by
using brackets ( ).
You could also have used a minus sign to show that it is
a negative value.
b TR $60,000 − TC $52,000 = $8,000 profit
c TR $50,000 − TC $55,000 = ($5,000) loss
Trade
This means buying and selling. A business will engage in trade in order
to make a profit.
Organisation
This means a group of persons using resources or things that are
arranged
a certain
way toAcarry
out specific
activities inThe
order
to
achieve a in
goal
or objective.
business
is an organisation.
word
‘organisation’ is used for many other institutions, such as churches.
Economy
This is a system that allocates or shares scarce resources by deciding
what should be produced, how and for whom. Different countries may
make different decisions about these things, so we would say that they
have different types of economies.
Producer
This is a person or business that makes or creates goods or services.
Usually, the goal of the producer is to make a profit.
Consumer
This is the person (or group) that buys goods and services to satisfy
wants. The goal of a consumer is to maximise satisfaction. Think of the
things that you buy. You are a consumer, and you buy things that give
you satisfaction. What are some of the things that you buy?
Exchange
This is the giving of one thing and the receiving of another. The things
exchanged are usually of similar value.
Goods
These are things that are made to be sold, otherwise called products.
Goods are used in exchange or trade, along with services. Goods are
tangible (can be seen and touched), unlike services.
Services
This means work that is done for another; assistance or benefit given.
Services are intangible, unlike goods.
Market
e
l Whenever you purchase a book,
p
m you are purchasing a ‘good’ or a
a product.
x
E
e
l When you pay the dentist for
p
checking your teeth, you are
m
a paying for a service.
x
E
A market is any situation in which buyers and sellers meet or
communicate in order to exchange goods and services. The buyers and
sellers do not have to meet face-to-face. Have you been to a produce
market in your country? Well, this is only one example of a market,
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
8/48
DF Compressor Pro
8/9/2019
8
Csec Principles of Business Study Guide
Chapter 1
where the buyers and sellers meet face-to-face. Buyers and sellers can
communicate and do business online or over the phone.
Commodity
This is an item that is traded, usually raw materials such as copper or
coffee.
Capital
This word has different meanings. It can mean the money and other
resources or things that are used to start a business. It can also mean
the money, machines and man-made materials that are used every day
in business.
Labour
This is the physical or mental work of a person. It also means ‘the
worker’. Labour is another name for human resource.
Before we examine the final word, let’s carry out a revision activity.
How much do you think you remember?
Activity 1.2
Carefully read each of the following statements or
questions. This is a multiple-choice exercise. You must
select the best option among (a), (b), (c) and (d) below
each statement or question.
Another word for a business is
a building
b capital
1
4
An intangible benefit is called a
a service
b good
c commodity
d market
5
When coffee is traded between countries it is
called a
a loss
b profit
c good
d commodity
6
Which of the following words could mean
man-made resources?
a labour
b capital
c organisation
c enterprise
d economy
Persons who own and operate their own business
are called
a executives
b operators
c economisers
d entrepreneurs
2
A person who creates goods and services is called a
3
a consumer
b producer
d market
c businessperson
d trader
Feedback
Your answers should be:
1
c
2
d
3
b
4
a
5
d
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
6
b
9/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
9
Specialisation
Specialisation of labour refers to the division of a task into a number
of related parts. Adam Smith (1776) noted that the pin-maker,
before division of labour, could make perhaps one pin in a day.
With division of labour, this same job was divided into 18 distinct
operations, which included one person who drew out the wire,
another who straightened it, a third who cut it, and a fourth who
pointed it and so on. Since all of these processes were performed by
distinct hands, there was an increase in output to 48,000 pins in a
single day.
Specialisation is a form of division of labour in which each individual
or firm concentrates its productive efforts on a single or limited
number of activities. Specialisation can:

occur at the product or occupational level, for example, the
production of cows’ milk;

be a process, for example, the making of butter;

be by firm, for example, Jamaica Cement Limited specialises in the
production of cement;

be industry-related, for example, it could be confined to the bauxite
industry;

be regional or international in scope, for example, the Caribbean
area is known for tourism.
Let us now explore the advantages and disadvantages of division of
labour and specialisation.
Advantages

It increases the skills of workers since the same task is repeated and
workers learn from repetition.

It increases productivity. Less time is used to change from one
activity to another.

The cost of production is reduced since a greater number of items
are made.

The quality of the product can also improve since workers are more
skilled and the use of machines means that quality control can be
observed.

Less time is spent on training of workers because only a small part
of the skill is necessary.
Activity 1.3
Here is your opportunity to test
whether you understand division
of labour. List five areas of
specialisation for conducting the:
a building of a house
b manufacture of a motor car
c production of a movie.
Feedback
Your answer could include the
following activities:
a The building of a house –
architect or draughtsman; mason;
plumber; electrician; carpenter.
b The manufacture of a motor
car – designer; engineer;
upholsterer; painter; auto
electrician.
c The production of a movie –
scriptwriter; set designer; actor;
musician; director.
Disadvantages

The work is monotonous. The work becomes boring and
tiresome.

The work environment is impersonal since specialisation leads to
large-scale industries in which workers are no longer close family
members.

Workers may lose pride in their job since they are not completing
the entire job and, therefore, cannot fully appreciate the making of
the product.

Some processes require a large amount of capital to purchase the
machinery.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
10/48
DF Compressor Pro
8/9/2019
10
Csec Principles of Business Study Guide
Chapter 1
Activity 1.4
This activity will help to reinforce your knowledge. The advantages and
disadvantages of the division of labour and specialisation. State whether
the following statements are true (T) or false (F).
1
Specialisation increases efficiency.
2
Division of labour develops an individual’s creativity.
3
Specialisation can be applied to all productive activities.
4
Cost per unit is reduced with specialisation.
5
Specialisation produces sameness of products.
6
Workers feel alienated from their produce because of division of
labour.
Feedback
1
T
3
F
5
T
2
F
4
T
6
T
From
barter to the use of money and
e-commerce
Business activities change over time. You must now examine the
history of business activity in order to understand why changes were
necessary. This topic explains these stages, which started with direct
satisfaction or self-sufficiency through to the use of money. You will
also examine why people found it necessary to establish businesses.
You should be able to use the words and terms from the previous topic.
Are you ready for our history lesson?
How our ancestors satisfied their needs and wants
Our early ancestors satisfied their primary needs for food, clothing,
shelter and protection directly from nature. Food came from animals,
trees, the seas and the earth. For example, they hunted animals for
their meat and skins, which provided food and clothing, respectively.
They gathered berries, and scoured the shrubs and grasses for wild
peas and beans. Fishing in rivers and watercourses provided fish and
seaweeds.
Activity 1.5
Imagine you were living in a primitive society; list five items you would use
as food, and the source for each item.
Feedback
If you listed any item that is used directly from nature without any
processing, you are correct. Below is a list of some of these items.
Food such as fruits, peas, beans and berries were obtained from trees. Ground
provisions such as cassava and dasheen were dug out of the earth. Small
animals, including birds, and produce of animals such as milk and honey, were
obtained from animal life. Fish and seaweeds were sourced from the sea.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
11/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Now let us examine how our early ancestors equipped themselves with
clothing, shelter, tools and utensils. Clothing was provided from animal
skins, for example, wool from sheep. Branches and leaves from trees,
and mud and stones from the earth, were used to build huts. Tools and
weapons were made of animal teeth and bones, branches and small
stones. Spears, for example, were made from tree branches. Utensils such
as
bowls
storing water
were
madesuch
fromas
clay
stonesGrass
or provided
from
the for
cleaned-out
insides
of seeds
theand
coconut.
was used
to make baskets. Animal bones, horns and items such as elephant tusks
were used to make eating and drinking utensils. Wood and stones were
used to make firesides for the cooking of food and provision of warmth.
 The development of the barter system
The nature of business
11
Activity 1.6
From the information you have
just read, identify the items
of nature used by our early
ancestors.
Feedback
You should list items from the earth,
seas, animals and trees. You could
include stones, grass, bones and
similar answers.
You have seen that our early ancestors satisfied their needs directly
from nature, hardly altering the original state of the goods by cooking
or applying any form of processing. Economists refer to this type of
existence as the direct satisfaction of wants. An economic system where
needs and wants are satisfied directly from nature is referred to by
economists as a subsistence economy.
A subsistence economy continued for thousands of years, until groups
of hunters and gatherers found it convenient to abandon their nomadic
way of life and settle down on the embankments of rivers, streams
and waterways. Here, they could obtain a steady supply of water;
locations such as these provided fertile soils and both plant and animal
life could be found in abundance. This act of settling down created
the conditions for a more orderly and peaceful existence, in which
family units could thrive by gathering food, caring for plants that they
found in the immediate environment and even, through trial and error,
learning to cultivate and tend crops for themselves.
The problem, however, was that no one area provided all the goods to
satisfy the needs of families, who were forced to specialise in whatever
crops were native to the area they inhabited. For instance, a Taino
family producing corn on the banks of a river in Guyana still relished
the meat and skins that Kalinago hunters from the interior possessed
in large quantities. It will be obvious to you by now that, in time, there
would develop a system whereby tribes would begin to exchange their
goods for those they were unable to acquire themselves. This system
whereby goods are exchanged for other goods is called bartering.
 Limitations of the barter system
While bartering solved some problems, there were many drawbacks.
For bartering to be successful, one person must have what the other
person wants and be prepared to exchange. This condition is referred
to as a double coincidence of wants. For example, Jim must need the
bananas that Tom has, and Tom must need the peas that Jim has. Only
then is the exchange possible. The process became very complicated
when more than two persons were involved in the exchange, since
persons would have to keep exchanging items until individual wants
and needs were met.
Another problem was deciding the rate of exchange or the right quantity
acceptable in exchange for the other item. For example, how many
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
e
l Bartering
p
The exchange of fish for green
m
a peas, or bananas for yams, or
x
E pearls for a stone axe.
These exchanges all involve the
giving of one item for another,
and money is not used.
Activity 1.7
From your reading of the above,
define the term ‘barter’, giving an
example in your answer.
Feedback
If your answer indicates that
bartering is the exchange of goods
and services without the use of
money, for example, the exchange
of gold bits for sheepskins, you are
indeed correct.
12/48
DF Compressor Pro
8/9/2019
12
Csec Principles of Business Study Guide
Chapter 1
pounds of peas would be acceptable in exchange for a certain quantity of
bananas? For instance, are 10 lbs of peas equal to 2 lbs of bananas?
Another problem was the indivisibility of certain commodities. One
could not exchange part of a cow for peas, since refrigeration was not
yet invented. It therefore meant that the entire cow had to be traded
as a single item of trade. If the recipient did not require the whole cow,
then a problem of divisibility would arise.
Yet another problem was the store of wealth and store of value. Some
items lost value with the passing of time, while others gained value
with time. For example, perishable goods lost value with the passing
of time, whereas precious stones such as gold gained value with time.
It became very difficult, therefore, to settle on trading principles and
practices that guaranteed a fair price for goods that were exchanged.
Activity 1.8
Read the following case and identify the problems of
unsuccessful. After five days, Ancient Tim met Zion,
the
Zion.barter system experienced by Ancient Tim and
who
had some
large
fish. They
both
hadcould
difficulty
in deciding
howvery
many
of Ancient
Tim’s
peas
be exchanged for one of Zion’s large fish. Also, Zion
needed animal bones to make spears for fishing the
next day. He approached Mary, Harry and Jack, but by
late evening he was unable to find a suitable person
with whom to exchange his remaining fish for the
bones of animals.
Case study
Ancient Tim, who cultivated peas and corn for himself
and his wife, wished to have fish to complement his
peas and corn for dinner. He approached Harry, but
Harry had only mutton and did not require peas or
corn. He approached Jane, Frank and Mary, but still was
Feedback
The problems of Ancient Tim and Zion were derived from
two problems associated with bartering:


the need for a double coincidence of wants, that is,
Ancient Tim had to find someone who had fish and
required peas and corn; later, Zion faced the same
problem when he could not find someone who had
bones and required fish
indivisibility of the commodity, that is, Tim did not
want all the fish Zion had, and, therefore, there was a
problem deciding on the exchange rate of the items
and their value, especially in light of the fact that
they were both perishable items.
 The history of money
Money is considered a financial wonder since it solved many of the
problems associated with the barter system. In this section, we will
examine the functions and characteristics of money and show that
its introduction facilitated trade and led to the development of the
modern financial system that is in operation today.
Our early ancestors progressed from using peas, stones and shells
to using precious metals for trading. The Egyptians were among the
first to use metal rings as money. The Lydians introduced coins to the
Western world. Coins were more acceptable since they were
hard-wearing, easy to carry and contained valuable metals. These coins
were referred to as commodity money. The value of the coin depended
on the quantity of gold or silver it contained.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
13/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
13
The Chinese introduced paper currency. The Emperor’s seal and
signature were placed on the paper in order to authenticate the
currency. Paper currency is not intrinsically valuable since the paper
only represents wealth and promises that it would be exchanged at a
later date for other commodities. ‘Representative money’, therefore,
is accepted in the exchange for goods and services since it has been
authorised by the government.
Activity 1.9
This exercise will help you to understand the contribution money has
made to economic progress.
Indicate which of the following statements are true (T) or false (F).
1
In early civilisation traders used ‘commodity money’.
2
Coins were introduced because they were durable.
3
‘Commodity money’ was regarded as token money.
4
‘Representative money’ was accepted because the emperor’s seal and
signature were placed on it.
Feedback
5
‘Representative money’ can be exchanged for a commodity.
1
T
3
F
5
T
6
In today’s trading, representative money is used.
2
T
4
T
6
T
 Features of money
Money is any commodity that is accepted as a measure of value and a
medium of exchange. To be accepted as money, the commodity must
have the following features:
 the commodity must be acceptable – everyone must be willing to
accept it;

it must be relatively scarce. In other words, the item must only
be available in small quantities. In this way, the value will be
maintained;

the commodity must be capable of being divided easily into smaller
fractions;

it must be homogeneous. It must be identical in look, size and weight;

since the item must pass from hand to hand, it must be durable;

it must be portable. One must be able to carry it around easily.
Today, paper money (‘fiat money’) and coins are the most common
forms of money.
 Functions of money
Now let us consider the functions of money. In order for money to
effectively solve the problems of the barter system it must serve as a:

medium of exchange – everyone must be willing to accept it in the
exchange for goods and services;

standard of value – the worth of the goods or service is measured
in money, which sets the price of the item. For instance, a ring with
a price of $60.00 is worth twice as much as a ring for $30.00;
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
14/48
DF Compressor Pro
8/9/2019
14
Csec Principles of Business Study Guide
Chapter 1

store of value – money can be saved and used in the future. It
makes saving possible and hence brings about investment;

means of deferred payment – money is used to pay for goods
bought on credit;

facilitator of the price mechanism – it is the price one is willing to
pay to satisfy effective demand.
Activity 1.10
This activity will help you to recall the functions of money. Match the
statements on the left with the functions listed on the right.
1
Trade is facilitated because money is acceptable.
means of deferred payment
2
A pair of shoes for $10 is worth four times as much as a cap.
This function deals with the price of items.
medium of exchange
3
It can be accumulated and used to purchase a car in three
years’ time.
price mechanism
4
My stereo system can be purchased on hire purchase.
store of value
5
It makes easy the exchange of currency for purchasing goods standard of value
and services.
Feedback
1
2
medium of exchange
standard of value
3
4
store of value
means of deferred payment
5
price mechanism
 Bills of exchange
The previous section described how and why people developed a
‘money economy’. In the business world today, people use money as
well as different forms of ‘near money’, that is, other acceptable forms of
payment. One example is a cheque, which is a signed order for payment
from a person’s bank account. Another example is a bill of exchange.
It is possible that bills of exchange were being used before paper money
was created. A bill of exchange is a written order from one person to
another. The person who sends it is instructing the person receiving it
to pay a specific sum of money at a specific time in the future. The
person who is sending it is called the ‘drawer’, the person receiving it is
called the ‘drawee’ (who owes money to the drawer). The drawer may
give instructions for the money to be paid to another person.
Bills of exchange are usually used by persons who are selling goods to
others in another country.
e
l Mr Chung Foo in China is selling
p two cars to Mr Davis in Grenada.
m
a The cars will be shipped off to
x
E
Grenada
as soon
Mr Davis
accepts the
bill ofasexchange
that Mr Chung Foo has sent. The
cars will take 27 days to reach
Grenada, and the bill of exchange
is due to be paid in 28 days.
 Credit cards
At this stage all business students should understand the concept of credit,
that is, making payment after a person has received the item or benefit
being purchased. A credit card is a card given by a financial institution to
its customer which authorises that customer to purchase ‘on credit’. This
card enables the electronic transfer of information and money.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
15/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
15
In order to receive a credit card, persons must first qualify, that is,
satisfy the financial institution that they will make the necessary
payments when they are due. If the payments are not paid on time,
then the cardholder must pay interest charges.
le Customer Bob presents his credit card to the grocery store instead of
making a cash payment. The grocery store’s cashier accepts the credit card
p
m
a and inserts it in a machine which is electronically linked to the financial
x
E institution. It will reveal whether the card is valid and the amount of money
is authorised. If the transaction receives an approval message, the machine
prints copies of a receipt. The cashier gives Bob one copy of the receipt. The
cashier will send another copy of the receipt to Bob’s financial institution,
which will make the necessary payment. Bob will then have a specified
period of time to pay the financial institution.

Electronic transfer
Previously we used the word ‘electronic’. One meaning of the word
electronic is ‘via the use of a computer network’. This should help you
to understand how money is transferred electronically.
Electronic funds transfer is a very fast and safe way of making payments
during trade. The payment can be transferred electronically from one bank
account to another. A cardholder can insert his or her automatic banking
card (also called a debit card) into a machine which is electronically linked
to his or her bank accounts. By keying in a special code, the cardholder
authorises the transfer of money from his or her bank account.
 Telebanking and e-commerce
E-commerce refers to any business transaction that is done through
the internet. This may include the transfer of money as well as
information. Many Caribbean businesses are able to compete with
other businesses all over the world by engaging in e-commerce. They
advertise, purchase materials and sell their products over the internet.
Telebanking is a system for conducting banking transactions over
telephone lines.
Activity 1.11
This activity will help you to understand when the
different instruments of exchange are used. Answer the
following questions by indicating which of the instruments
would be most appropriate: a bill of exchange, credit card
or electronic transfer, or telebanking.
1
Marie lives in Jamaica. She is buying an expensive
machine from Japan. She has to show that she is
willing to pay before the machine leaves Japan.
However, she does not want to release the actual
money from her bank account until she is sure
2
Paul wants to sell his guava jam in England. It
is produced in Guyana, but English buyers want
to buy many cases in England. Paul can send the
jams on a plane, but he wants payment first.
What is the fastest payment method for Paul’s
customers?
3
Oliver wants to travel to another part of the
country to purchase some supplies. It will cost
a lot of money, but Oliver does not want to travel
with a large amount of cash. What would be
that the machine has arrived in Jamaica. Which
instrument should she use?
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
a more convenient payment method for
Oliver?
16/48
DF Compressor Pro
8/9/2019
16
Csec Principles of Business Study Guide
Chapter 1
Feedback
1
Bill of exchange
2
Telebanking or electronic transfer
3
Credit card
Reasons for establishing a business

A business organisation is formed when a person or group of persons
uses resources to provide goods or services with the view of making a
profit. There may be other goals, such as maximising sales, the growth of
the firm’s assets or simply satisfying the owners’ desire to be in business. 1
The profit-making motive distinguishes businesses from nonprofit-making organisations. The purpose of business is to make a
profit, whereas the purpose of non-profit-making organisations is
humanitarian, that is, providing services or goods for the benefit of
mankind. Non-profit-making organisations may, at the end of their
financial year, generate a surplus.
Examples of non-profit-making organisations are social clubs and
organisations that provide support for disadvantaged persons in
society, for example, a home for abused women.
Activity 1.12
Classify each of the following businesses as either
profit-making or non-profit-making. The first one has
been done for you.
Profit-making
business
Tom repairs shoes for people in the community.
Non-profit-making
organisation
✔
Rodney sells food items to the neighbourhood.
Mary prepares meals for the homeless.
John provides a taxi service.
A rehabilitation center for alcoholics and drug addicts.
UN home for abused women.
Mrs Jones charges $150 for Principles of Business tutorials.
The farmer sells his produce in the wholesale market.
The neighbourhood community group sells sweets and cakes in order to
offset the expenses of the group.
The farmers’ cooperative sells seedlings to the farmers in the
neighbourhood.
1
Layyne, W. Armanand , Samuel, Wendell and Anthony Kenny, CXC Principles of Business,
Cambridge University Press, 1994.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
17/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
17
Feedback
Profit-making
business
Tom repairs shoes for people in the community.
✔
Rodney sells food items to the neighbourhood.
✔
✔
Mary prepares meals for the homeless.
John provides a taxi service.
Non-profit-making
organisation
✔
A rehabilitation center for alcoholics and drug addicts.
✔
UN home for abused women.
✔
Mrs Jones charges $150.00 for Principles of Business tutorials.
✔
The farmer sells his produce in the wholesale market.
✔
The neighbourhood community group sells sweets and cakes in order to
offset the expenses of the group.
The farmers’ cooperative sells seedlings to the farmers in the
neighbourhood.
✔
✔
 The main functions of a business
The functions are listed below.





The
of goods
orand
services.
areservices
tangibleare
items
usedproduction
to satisfy human
wants
needs,Goods
whereas
intangibles that are used to satisfy human wants and needs.
The creation of jobs. In order to produce goods or services, labour
must be used. The amount of labour used will depend on whether
the firm is labour-intensive or capital-intensive. Labour-intensive
firms employ a large number of people, whereas capital-intensive
firms use a lot of machinery.
In the case of private investments, the aim is to make a profit. All
businesses aim to make the highest possible returns on investment
so that the shareholders (owners) of the business receive an
adequate dividend.
The aim of non-profit-making organisations is to fulfill a need in
the provision of goods or services that will be of benefit to the
community. In society, there are those who are unable to satisfy
their basic needs through their own efforts, and others who may
need financial or social support.
To contribute to economic growth. Economic growth is the
increase in the total real output of goods and services in an
economy over time. Business adds to economic growth. Each new
business adds to output, and creates growth and employment.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
18/48
DF Compressor Pro
8/9/2019
18
Csec Principles of Business Study Guide
Chapter 1
Types of businesses in the private and
public sectors
In mixed economies like ours in the English-speaking Caribbean,
businesses are classified into two types, depending on ownership.
These are the private sector and the public sector. These two groups
have
some differences,
and
differences will help you to
understand
the decisions
of knowing
different these
businesspersons.
 Private sector
The private sector is that part of the economy that is funded by private
individuals and is therefore owned and controlled by private firms.
The objective of the private sector is to make a profit. The private
sector includes the self-employed, the manufacturing industries, firms
in the construction industry, joint ventures, multinational firms and
cooperatives. In most countries, it also includes ‘hawkers’, that is, those
who are engaged in purchasing items from abroad to be sold locally on
e
l Firms in the private sector
p One-owner businesses, such as
m
a the small shop on the street,
x
E family-owned businesses, a large
business with several investors,
or multinational companies.
the streets or in homes.
Firms in the private sector have the following common features:

the aim is to make a profit;

profits are shared among shareholders or those who invest in the
company;

the business is funded by the owners;

there is little or no government intervention or control;

the business is funded by private individuals;

owners are free to make their own decisions as long as these
decisions are not contrary to the laws of the land.
 Public sector
The public sector is that part of the economy that is financed by the
government through taxpayers, and is controlled and operated by the
government or its agents. The surplus or profit is used for the benefit
of the entire population. The public sector includes governmentcontrolled companies, companies incorporated by the government
through legislation, companies that are essential for the development
of the economy, and companies in which the private sector has little
or no interest until they are sufficiently developed or if profits are to
be
made in of
thewater
future,
forenergy.
example, communication companies or
production
and
Firms in the public sector share the following features. This sector:

aims to provide a service at the lowest possible price;

uses profits to improve the efficiency of the firm or to benefit all
citizens;

usually participates in ventures that provide basic necessities;

is funded by the government through taxation;

is driven by the need to provide goods and services to the
population so as to improve their quality of life.
e
l Public sector organisation
p
Organisations in the public sector
m
a are government-controlled
x
E agencies, such as those that supply
water and sewerage services, or
those in communication, such as
The Telecommunication Services
of Trinidad and Tobago (TSTT),
the Jamaica Telecommunication
Services and government
agencies such as the Ministries
of Health, Education and Social
Services.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
19/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
19
Activity 1.13
This activity will help you to identify businesses in the
private sector and the public sector. The knowledge
will assist you in understanding why businesses
operate in a particular manner. Read the instructions
of the various businesses and indicate whether these
businesses are in the private or public sector.
1
Jim maintains his family by using his private vehicle
for hire.
2
Mary goes to Florida every three months to shop. On
her return she sells her goods in the vendors’ mall.
3
State Co. is a company of which the government
has 60 per cent ownership; it supplies water to an
Asian country.
4
Agri. Co., an agricultural company that grants loans
5
to farmers, is controlled by the state.
Power Supply Inc. is a joint venture firm which
supplies energy to the country.
6
The postal agency is a statutory body that is
controlled by an government-appointed board
of directors.
7
A public transport company that is funded by
8
taxpayers.
A group of designers and seamstresses formed
themselves into a company, Jamaica Garments,
which supplies uniforms and a variety of cloths for
the government.
9
A multinational firm that has been serving
food and related beverages to the Caribbean
area.
10
Samson’s Housing Development builds homes
throughout the Caribbean and Latin American
countries.
Feedback
1
2
private
private
public
4 public
3
private
6 public
5
public
8 private
7
private
10 private
9
Forms of business organisation and arrangement
 The sole trader/sole proprietorship
Definition
A sole trader is a person who has total ownership of and responsibility
for managing his or her business. The owner is the boss. As owner,
there is no obligation to share the profits with others and all the debts
incurred by the business are the responsibility of the owner alone.
This responsibility for the debts may even extend to personal assets. In
other words, one may lose one’s home or personal car in the settlement
of the debt of the business.
Characteristics of a sole trader

He or she manages the business, but may have the services of family
and friends.

He or she enjoys all the profit and bears all the risks.

Capital is limited since the savings of the owner fund the
business.

He or she has personal contact with the client.

He or she performs a large variety of tasks related to the operations
of the business.

This type of business is not incorporated (not given a separate
identity) and is therefore easy to set up.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
20/48
DF Compressor Pro
8/9/2019
20
Csec Principles of Business Study Guide
Chapter 1
This type of business can easily be found in the service industry.
Sole traders are employed as decorators, electricians, plumbers,
hairdressers, small building contractors and small farmers, or for
professional services, such as doctors, lawyers and surveyors.
Formation
There are no legal formalities involved in setting up business as a sole
trader, except that a trade name must be registered and some traders
must acquire special licenses. For example, the sale of alcohol requires
a license from the local magistrate, and the sale of food items requires
prior approval from the local health authority.
Legally, the business and its sole proprietor are inseparable, and
therefore the owner is responsible for all debts, including taxes
(income tax) and National Insurance contributions as a self-employed
person.
Management and advantages of the sole trader
The sole trader manages the business personally, and this has many
advantages, as listed below.

Ease of formation: As mentioned before, there are no legal
requirements, except in a minority of trades.

Independence: Many persons find personal satisfaction in working
for themselves.

Simple organisational structure: The organisational structure is
simple, usually the owner and one or two employees, who may be
relatives or friends.

Personal control: The proprietor has personal control, with no
obligation to consult, thus decision-making is quick.

Personal service: The proprietor knows his staff and customers
individually and can vary the hours of work to suit the customers.

Secrecy: There is no need to disclose business affairs, except to
the tax authorities and to creditors when seeking loans. Minimum
accounting is necessary only to satisfy the income tax office.

Personal commitment to succeed: When working for oneself,
there is a greater commitment to succeed.
Disadvantages of the sole trader

Limited source of finance: The sole proprietor’s capital depends
on personal savings or profits, and on loans made on the security
of personal property. As a result, the amount of capital available is
often not enough for much expansion.

Lack of specialised staff: The owner may not be in a position to
employ specialised staff, and therefore the business may not expand
as quickly.

Over-reliance upon one’s personal health and vigour: Illness or
old age can cause difficulties. There is therefore a lack of security
for family, employees and clients.

Unlimited liability: If the business fails, even the personal
possessions of the owner will be sold in order to pay off the debts of
the business (if necessary).

Lack of leisure time: The sole trader has to work long hours and
may not be able to take a vacation.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
21/48
DF Compressor Pro
8/9/2019

Csec Principles of Business Study Guide
The nature of business
21
Lack of technology: The sole proprietor can seldom afford the
heavy capital outlay required, and therefore may not be able to
benefit from economies of scale.
 Partnerships
Definition
A partnership is an association of 2 to 20 partners operating
a business for the common goal of making a profit. The owners share
the responsibility for the running of the business and any subsequent
profit or losses that may be generated. Partnerships are not legal
entities in their own right. Consequently, a partnership cannot sue
or be sued in its own name; instead, each of the partners has to be
named.
There are two kinds: ordinary partnerships and limited partnerships.
In ordinary partnerships, losses are shared equally, or as agreed by
partners. In the limited partnership, limited partners will lose only
what they have invested. If the business goes bankrupt, however,
unlimited partners may lose even their personal assets.
Characteristics of partnerships

The minimum number of members is 2 and the maximum is
20 members, except in the case of banking, in which the minimum
number is 10. Among professions such as stockbrokers, stockjobbers,
lawyers and accountants, membership is unlimited since the
Partnership Act prevents professionals from forming companies.

There are two main types of partners: limited and general/ordinary
partners. In the ordinary partnership, each partner may take an
active role in the management of the business. Each partner acts as
an agent of the partnership, and therefore the action of one partner
is binding on all partners.

There must be at least one ordinary partner in the limited
partnership. The ordinary partner’s liability for debts and
obligations is unlimited.

The limited partner cannot take part in management. He or she
has no power to bind the firm.

Profits are shared equally or as stated in the Partnership Deed.

Capital is provided by the partners as agreed.

The retirement or death of one partner may require the
reorganisation or dissolution of the partnership.
e
l Partnership
p
Partnerships are popular among
m
a professions like stockbrokers
x
E and stockjobbers, accountants,
solicitors, and among specialists
like decorators.
Formation
When a number of persons want to form a partnership, a written
agreement should be drawn up. This is called the Partnership Deed.
The written agreement, although not necessary, helps to settle
disputes. In the absence of such agreements, the partnership will be
governed by the Partnership Act.
The Partnership Deed or Articles of the Partnership sets out in writing
the terms of the partnership. The agreement should deal with:

the name of the partners;

the nature of the business and the date of its commencement;

the amount of capital put into the business by each partner;
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
22/48
DF Compressor Pro
8/9/2019
22
Csec Principles of Business Study Guide
Chapter 1

arrangements for division of profits or apportionment of losses;

the amount of interest (if any) to be allowed on the capital;

the amount each partner is allowed to withdraw each year in
anticipation of profit, and the amount of interest, if any, to be
charged on these drawings;

the role of each partner;

salaries, if any, to be paid to certain partners for the performance of
special duties;

voting rights;

methods of determining goodwill;

arbitration procedures if partners cannot reach an agreement;

the duration of the partnership and method of dissolving the
partnership.
In the absence of a Deed, the Partnership Act is enforced. It states that:

profits and losses are shared equally;

no salaries are paid to partners;
no interest is paid on capital.

Management
The ordinary partners manage partnerships. Payment for specialised
skills must be included in the Partnership Deed.
Advantages of partnerships

More capital: More capital can be obtained than as a sole trader.

Specialisation: Partners can specialise and manage different sections
of the business according to their ability, experience and training.

This allows for greater efficiency and therefore lower costs.
Simple organisation: Like the sole trader, a partnership is easy to
form, with little or no legal formalities.

Continuity: There is more continuity than in the case of the
sole trader. The business may not be dissolved at the death or
bankruptcy of a partner.

Limited liability: It is possible to have limited liability by being a
limited partner.

Workload shared: The workload is shared among partners, thus
partners may be able to take vacations and enjoy more leisure time.

Decision-making: There is better decision-making due to shared
knowledge and expertise.
Disadvantages of partnerships

Unlimited liability: All ordinary partners are fully liable.

Binding: All partners stand to lose if one partner makes a bad
mistake.

Limited capital: Capital is still limited and may be insufficient for
full expansion.

Disagreement: There can be difficulty of management when
partners disagree.

Concentrated risk: The risk is still concentrated on a few.

Decision-making: Decision-making may take longer and arguments
may arise.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
23/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide

Capital: Capital is limited to 20 partners.

Continuity: Continuity of the partnership may be broken on the
death of a partner or if someone leaves.

In the absence of a partnership agreement, profits are shared,
irrespective of effort.
The nature of business
23
 Cooperatives
Definition
Cooperatives are businesses that are formed and operated by their
members. The cooperative society must be registered. Shares are sold
to its constituents, that is, the community that the society is serving.
The principles that govern cooperatives are listed below.

There is democratic control, that is, one person one vote.

Membership is open to constituents.

There is limited interest on capital investments.

The surpluses of cooperative societies are distributed according to
the shares/purchases of the members.
Characteristics
Cooperatives share the characteristics listed below.

They are voluntary, non-profit-making organisations engaged in
retail or other financial activities.

They are managed and controlled by their members.

The members are also the clients.

Members have a common bond, for example, all are teachers or
public servants or belong to a particular community.

There is the pooling of capital among the membership.
Types of cooperatives
There are at least four types of cooperatives as listed below.

Financial cooperatives, for example, credit unions.

Agricultural cooperatives, for example, the farmers’ cooperatives
which supply agricultural products and equipment to farmers.

Consumer cooperatives involved in the retail trade, for example, the
El Dorado Cooperative, which retails foodstuff.

Service cooperatives such as the St Christopher’s Taxi
Cooperatives.
Advantages of cooperatives
There are many advantages to be gained from being a member of a
cooperative. Listed below are some of these advantages.

Members pool their resources.

Members are the owners.

There is shared decision-making.

All profits are shared among the membership.

The community bond is strengthened.

Products are much lower in price since administrative expenses are
lower.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
24/48
DF Compressor Pro
8/9/2019
24
Csec Principles of Business Study Guide
Chapter 1
Disadvantages of cooperatives
The following can be considered disadvantages of cooperatives.

The membership may not have the expertise necessary to build the
organisation.

Decision-making is slow and therefore clients may lose out on
opportunities.
Activity 1.14
This activity will help reinforce your knowledge in defining and stating the
formation and management of sole traders, partnerships and cooperatives.
Fill in the blanks in the table.
Form of business
Definition
Formation
Management
Sole trader
Partnership
Cooperative
Feedback
Form of business
Definition
Formation
Management
Sole trader
– A person who owns,
controls, manages and
– No legal requirements,
however, trade names
– Managed by the owner.
has total responsibility
for his or her business.
must be registered.
Partnership
– An association of 2 to
20 partners operating a
business for the common
goal of making a profit.
– No formal requirement,
but it is best if a
Partnership Deed is
drawn up.
– Management by ordinary
partners.
Cooperative
– A business that is formed
by individuals with a
common bond.
– Each member purchases
shares to form the
capital base of the
business.
– Governed by
membership through a
management board.
– Board of management
elected annually by the
membership.
Activity 1.15
List the advantages and disadvantages of sole proprietorships,
partnerships, and cooperatives.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
25/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
25
Feedback
Form of business
Advantages
Sole trader
1
2
Partnerships
Easy to form.
The owner has great flexibility.
Disadvantages
1 Source of finance is limited.
2 Lack of specialised staff.
3
There
a simple
structure –
usuallyisthe
ownerorganisation
and one or two
workers.
4 Personal service is provided to clients.
5 The owner has personal incentive to
succeed since all profits belong to him or
her.
6 There is no need to disclose profits.
3
1 More capital is obtained.
2 Specialisation is possible since partners
1 Ordinary partners have unlimited liability.
2 The actions of ordinary partners are binding
3
may bring their expertise to the business.
There is continuity of the business.
4 Some partners enjoy limited liability.
5 The workload can be shared.
6 Partners share in the decision-making.
Over-reliance
on one’s personal health and
vigour.
4 The owner has unlimited liability.
5 The owner has limited leisure time.
6 Simple technology is used because of the
lack of finance.
3
on the partnership.
Capital is still limited.
4 Conflict may occur among the partners.
5 Decision-making takes longer.
6 In the absence of a partnership agreement
profits are shared equally, irrespective of
efforts.
Cooperatives
1 Members pool their resources.
2 Members are the owners.
3 Decision-making is shared.
4 All surpluses are shared among the
5
6
7
The membership may not have the expertise
necessary to build the organisation.
2 Decision-making is slow.
1
membership.
The community is strengthened socially.
Members have a say in all decisionmaking. are lower in price since
Products
administrative expenses are lower.
 Companies
Definition
A company is a business entity that has been incorporated, that is, the
company has a separate legal identity from that of the owner(s). This
separate identity means that the company can enter into contracts, make
any legal claims and face any legal claims that are made against it.21
There are two types of limited liability companies:

private limited companies;

public limited companies.
These are explained below.
Formation
Certain legal requirements must be met before a company can
commence trading. Certain documents must be submitted to the
Registrar of Companies. These documents are outlined below.
2
Barratt, Michael and Mottershead, Andy, Business Studies, Pearson Education Ltd,
England, 2000, p.29.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
26/48
DF Compressor Pro
8/9/2019
26
Csec Principles of Business Study Guide
Chapter 1
A private company must submit to the Registrar of Companies:

the Memorandum of Association;

the Articles of Association;

Statement of Authorised, Registered or Nominal Capital.
A public company must submit to the Registrar of Companies:

the Memorandum of Association;

the Articles of Association;

Statement of Authorised, Registered or Nominal Capital;

the Prospectus.
Memorandum of Association
This governs the company’s relationship with the outside world.
It contains:

the company’s name, which must contain the word ‘Limited’;

the address of the company’s registered office;

the objectives of the company;

the statement that the liability of the shareholders is limited;

the authorised share capital and the types of shares to be issued.
Articles of Association
These control the internal running of the company. They cover such
areas as:

procedures for calling an annual general meeting;

rights and obligations of the directors;

procedures governing the election of directors;

statement concerning the borrowing power of the company;
procedures dealing with the payment of dividends.

Statements of Authorised, Registered or Nominal Capital
This is the amount stated in the Memorandum of Association,
which is the maximum amount which the company is authorised
to raise.
Prospectus
This is an invitation to the public to buy shares in a public limited
company. It contains detailed information to enable investors to
estimate
misled. its prospects. It is important that the public should not be
Private limited companies
Definition
A private limited company is an incorporated business organisation,
consisting of 2 to 50 members, whose aim it is to make profits.
The membership is restricted to family and friends.
Management
The owners manage this type of business or may appoint specialised
personnel. The membership must approve any disposal of shares, and
usually sales of shares are restricted to the membership.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
27/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
27
Characteristics of private limited companies

Capital is obtained from private individuals, financial institutions,
government agencies or retained profits.

Limited liability shareholders have limited liabilities.

The company must be registered with the Registrar of Companies.



The word ‘limited’ must be included in the name.
Membership is between 2 and 50 persons.
Accounting statements must be prepared and an audit undertaken,
with a copy issued to the Registrar of Companies.
Advantages of private limited companies

A larger capital base than a sole trader or partnership because the
membership is larger.

The company has continuity and thus can easily obtain loans from
financial institutions.

The company has a separate legal identity from the ownership.

Shareholders have limited liability. The financial commitment of the
shareholder does not extend to his or her personal possessions.
Disadvantages of private limited companies

Capital is limited since the membership is limited to 50.

The company must file its financial reports with the Registrar of
Companies.

Selling of shares is restricted to the private grouping.
Public limited companies
Definition
A public limited company or joint stock company is an incorporated
company that offers shares to the public.
Management
The board of directors, which is elected by the shareholders at the
annual general meeting, manages the public limited company. The
board of directors appoints an executive director or chief executive
officer, who heads the company and reports to the board on the
operations of the company.
Characteristics of public limited companies

There
mustnumber
be at least
seven shareholders, with no limit on the
maximum
of shareholders.

The shares are traded openly in the stock market.

The public limited company must be incorporated.

The company can obtain capital from shareholder equity and
financial institutions.

The company is continuous; it does not close down on the death of
a shareholder.

Greater specialisation is possible.
Advantages of public limited companies

It is easier to obtain finance. A public company is able to obtain
investment from many small investors as well as from large
organisations.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
28/48
DF Compressor Pro
8/9/2019
28
Csec Principles of Business Study Guide
Chapter 1

Shareholders have limited liability. Ownership and control are
separated.

Shares can be quoted on the stock exchange and sold to the public.

The company is able to grow and obtain economies of scale.

It has a separate legal existence. Changes in shareholders and
directors do not affect the continuity of the company.
Disadvantages of public limited companies

The legal requirements may be costly and time-consuming.

The accounts have to be made public.

Because of the large size, decision-making usually takes longer.

Differences of opinion may develop because the ownership and
day-to-day administration of the company are divided – the
shareholders are the owners and the directors run the company.

Control of the company may be lost if another company or other
people obtain sufficient shares in the company.

These
lack the organisations.
personal element that is a feature of the
simplercompanies
forms of business
 Multinational corporations
Definition
Multinational corporations (MNCs), also called transnational
corporations, are a network of firms which operate in multiple
countries but are owned and controlled by a single group of
shareholders.
Characteristics of multinational corporations
The following are characteristics of multinational corporations.

Multinational corporations are created through direct foreign
investment (DFI).

Headquarters of multinational corporations are usually located in
a developed country, while subsidiary companies are located in
developing countries.

These firms usually use the latest technology and invest heavily in
research and development.

These firms are usually capital-intensive and therefore benefit from
economies of scale.
Management
Expatriates with limited local inputs manage the subsidiaries of
transnational or multinational firms.
Advantages of investment by multinational corporations to
the host country
The following are some of the benefits to the host country of
multinational corporations.

A large injection of foreign capital stimulates the economy.

Employment is provided for locals.

Transfer of skills from the foreign counterparts to the locals.
Revenue increases since more taxes are paid to the government.

http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
29/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
29
Disadvantages of investment by multinational corporations to
the host country
The following are some of the disadvantages to the host country of
multinational corporations.

Risk of abuse of workers’ rights and poor working conditions in
the factories.

Possible destruction of the environment.

Possible intimidation of trade unions, which try to improve working
conditions and to expose the poor conditions of work.

Possible abuse of consumers, for example, babies fed breastmilk
substitute or children exposed to intensive tobacco marketing.

Risk of destruction of communities, especially when the company
moves to another location.

Repatriation of profits.
Activity 1.16
Define limited liability companies (private and public), and
multinationals; then state how they are formed and managed.
Feedback
Form of business
Definition
Formation
Private limited company
A business
organisation with
Must be incorporated and,
Managed by the owners or
therefore, must give to the Registrar persons appointed by the
2–50
members.
Membership
is
restricted to close
friends and family.
of
Companies the following
documents:
– Memorandum of Association
– Articles of Association
– Statements of Authorised,
Registered or Nominal Capital
An incorporated
business organisation
with at least seven
members that offers
shares to the public
Must be incorporated and must give a Managed by a board of
to the Registrar of Companies the
directors
following documents:
b Daily operations
managed by an
– Memorandum of Association
executive director with
– Articles of Association
help of specialist staff
– Registered
StatementsorofNominal
Authorized,
Capital
– Prospectus
Public limited company
Multinational corporations Network of firms
which operate in
multiple countries
Incorporated in a developed
country
Management
owners
Managed by team of
expatriates
Activity 1.17
List the advantages and disadvantages of limited liability companies
(private and public) and multinational corporations.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
30/48
DF Compressor Pro
8/9/2019
30
Csec Principles of Business Study Guide
Chapter 1
Feedback
Form of business
Advantages
Disadvantages
Private limited company 1 The capital base is larger than that of the
sole trader or partnership.
2 Companies have continuity.
3 The company can easily obtain loans.
4 Shareholders have limited liability.
1
Public limited company
1
Multinational
corporations
Finance is easy to obtain.
There is continuity of the business.
Shareholders have limited liability.
The value of shares is quoted on the stock
exchange and, therefore, members can
assess the value of their shares.
5 The company has a separate legal
identity.
6 These companies enjoy economies of
scale.
1
2
3
4
Although capital base is larger than
that of the shareholder, it is still limited
since the membership is restricted
to 50.
2 The company is not as easy to form as the
sole trader.
3 Membership is restricted.
2
3
4
5
Setting-up of the company is timeconsuming and costly.
The accounts have to be made public.
Decision-making takes longer.
There may be conflict between owners
and paid managers.
The company is in a vulnerable position
since it may be taken over by mergers.
Large foreign capital injected into the
1 Possible poor working conditions and
country.
abuse of worker’s rights.
2 Creates employment.
2 Possible destruction of the environment.
3 Transfers skills.
3 Possible intimidation of workers and
4 Increases revenue (through taxes) for the
trade unions.
country.
1
 State corporations
Definition
State corporations are independent organisations set up by the
government to carry out a service. The government does not control
their daily operations, but can fix the overall strategy for them and
nominate their board of directors. These are usually non-profit-making,
but in the long term they have to be self-financing. State corporations
are usually in the broadcasting field, and in the transport, power and
telecommunication industries.
Formation
State corporations are formed by legislation, that is, by the passing of
laws by Parliament.
Management
The government appoints a board of governors or directors for a
stipulated time frame. An executive director is also appointed to head
each organisation. The executive director reports to the board of
governors or directors.
Characteristics of state corporations
State corporations normally display the characteristics listed below.

Funding is mainly done by the state providing grants, although
some legislation allows the organisations to raise their own funds.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
31/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide

The state or state-appointed auditors monitor all accounting
procedures.

Annual accounting reports must be sent to the Auditor General.

The aim of the state is not to make a profit, but it is expected that
these corporations may break even.
The nature of business
31
 Nationalised industries
Definition
Nationalised industries are firms which were once privately owned,
but have been taken over by the government. Governments seek
to nationalise key industries, that is, the industries on which the
government depends for the country’s economic survival, for example,
the oil industry in Trinidad and Tobago or the bauxite industry in
Jamaica.
Formation
A company becomes nationalised when the government purchases all
or the majority of shares in the company.
Management
As for state corporations, a board of governors is appointed. The board
reports to the line minister of government. Each nationalised industry
has an executive director who heads the company. The audited
accounting reports of these companies must be laid with the auditor
general or a government accounting firm.
Characteristics of nationalised industries
Nationalised industries display common features, including the
following:

They are legal entities.

The state is the only shareholder.

They are managed by boards of directors that are appointed by the
state.
Advantages of nationalised industries
The following are advantages of nationalised industries.

Ownership and control are in the hands of the state, thus all profits
remain in the country.

The company is in a better position to service the needs of the
community, for example, the funding of community projects in
education, sport and culture.

Nationalisation prevents private monopolies from being formed.
Disadvantages of nationalised industries
The following are disadvantages of nationalised industries.

Relatively low salaries paid to executive directors may not attract
the best expertise.

The industries may be a drain on the government’s revenue.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
32/48
DF Compressor Pro
8/9/2019
32
Csec Principles of Business Study Guide
Chapter 1
 Government departments
The system of government in the Caribbean is divided into two broad
categories – central and local government1.3 The central government
consists of the ministries and departments such as Education, Health,
Public Housing, Water Supplies, Police and Fire Services, Finance,
Culture, Foreign Affairs, Labour, Welfare and Transportation. Each
ministry is headed by an elected official, the minister, and a team of
technocrats headed by a permanent secretary.
The local government system consists of the municipal authorities,
for example, the city corporations. This arm of government serves the
community. They are mainly responsible for local road maintenance,
garbage collection, maintenance of parks and roadways, cleaning of
gullies and culverts, public cemeteries, and the consumer markets.
Funding is provided by central government and the collection of rates
and taxes from the local residents. At a local government election,
councillors are elected. From among these councillors, the mayor of a
city or chairperson for the borough council is appointed as head.
 Other forms of business

Joint venture: cooperation between a domestic company and
foreign company to accomplish a specific project.

Franchise: an agreement between an established company
(a franchiser) and a franchisee, in which permission is granted to
conduct business in a prescribed manner set out by the franchiser.
The franchisee has an obligation to pay royalty fees to the franchiser
periodically, but the franchisee in return gains from the reputation
and business expertise or management of the franchiser. This business
arrangement is gaining increasing popularity in the Caribbean, for
example, in McDonalds, KFC, Pizza Hut and The Body Shop.
Activity 1.18
Match the statements below with the following types of organisation structure. A structure may be used more
than once. The first one has been done for you.
Organisation structures: state corporation, nationalised industry, local government, central government,
franchise, joint venture.
Statement
Organisation
An independent organisation set up by the state to carry out a service.
state corporation
A firm once in the hands of private individuals but now owned and controlled by the
government.
These organisations are formed by Acts of Parliament.
Ministries such as Education, Housing and Health fall under its purview.
An agreement to trade under the name of an established company.
City corporations and borough councils fall under its purview.
3
Robinson, Karlene and Hamil, Sybile, CXC Principles of Business, Carlong Publishers
(Caribbean) Ltd, Kingston, 2001.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
33/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Statement
The nature of business
33
Organisation
A foreign company joins with a local company.
The board is appointed by the government.
The aim is to provide a service, not generate profits.
Too much political interference.
Profits are returned to the people.
Feedback
Statement
Organisation
An independent organisation set up by the state to carry out a service.
state corporation
A firm once in the hands of private individuals but now owned and
nationalised industry
controlled by the government.
These organisations are formed by Acts of Parliament.
state corporation
Ministries such as Education, Housing and Health fall under its purview.
central government
An agreement to trade under the name of an established company.
franchise
City corporations and borough councils fall under its purview.
local government
A foreign company joins with a local company.
joint venture
The board is appointed by the government.
state corporation and nationalised industry
The aim is to provide a service, not profits.
state corporations
Too much political interference.
Profits are returned to the people.
state corporation and nationalised industry
nationalised industry and state corporation
Economic systems
Which country do you live in? Did you know that your country uses
an economic system? The term ‘economic system’ refers to the way
society organises its scarce resources to produce goods and services to
satisfy the needs and wants of the population. Societies are organised
to answer three basic economic questions:
1 What goods and services are to be produced?
2 How will the goods and services be produced?
3 For whom are the goods and services to be produced?
Economists have classified economic systems into the following types:
1
2
3
4
the traditional (subsistence) economy;
the free market or the market-driven capitalist economy;
the planned, command or controlled economy;
the mixed economy.
 Traditional (subsistence) economy
The traditional economic system existed in early societies and is rarely
used today. In those early societies, people formed communities and
produced food and basic goods for a simple lifestyle. An example is
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
34/48
DF Compressor Pro
8/9/2019
34
Csec Principles of Business Study Guide
Chapter 1
Taino society, where enough was produced to satisfy the needs of all
persons, and simple exchange took place if there was any surplus.
There was usually a community leader, such as a cacique, who made
the decisions of what, how and for whom the goods and services
would be produced. Bartering was used to obtain the goods that the
community did not produce for itself. Isolated islands and remote areas
in some countries may still use this type of economic system.
 Free market or capitalist economy
The free market is an economic system in which the customer drives the
economy. The consumer influences the producers’ decisions on what to
produce since the producers will not make a profit by producing goods
that are not in demand. Consumers exercise the right to buy whatever
they want to satisfy the needs and wants of their family.
Private individuals own the resources in a free market economy
and there is little or no governmental interference. The factors of
production are controlled by market forces, not by the government.
These market forces refer mainly to factors of supply, demand,
competition, customer satisfaction, price, quality of the product and
efficiency of production and supply. The market forces, therefore,
determine allocation of resources.
In a free market economy, goods and services are bought and sold
on the market. The market may be a physical place, such as an
agricultural market, which many persons in the Caribbean visit on
Saturdays or Sundays to obtain fruit, vegetables and meat. A market
may also be a neighborhood shop, a bank, an insurance company or
the stock market, where shares of companies are bought and sold.
Although there are no pure free market economies, the US and Hong
Kong are examples of two economies that are closest to the theoretical
concept of a free market economy.
Let us now explore the benefits and limitations of the market economy.
Benefits of the market economy
The benefits of market economies are listed below.

Government’s involvement is very limited. The activity of the
government is usually restricted to the collection of taxes.

Competition among firms forces prices down.

Producers
use the to
factors
consider toare
be free
mosttosuitable
them.of production in any way they

Consumers are free to spend their money in any way to give them
maximum utility.

A large variety of goods or services are made available to consumers.

Labourers are free to sell their labour to the highest bidder.

There is greater efficiency in the use of factors of production, since
market forces determine the allocation of resources.
Limitations of the market economy
The limitations of market economies are listed below.

The profit motive drives this economy and thus encourages unequal
distribution of wealth.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
35/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business

Large sums of money are spent on advertising, which creates
artificial demand and increases prices.

Monopolies develop and these can exploit consumers since they can
unilaterally decide on higher prices.

Social and merit goods, for example, health, defence, education and
security, may not be adequately provided for.

Trade unions may be suppressed since the capitalist may seek to
suppress wages in order to minimise the cost of production.
35
Activity 1.19
This activity will help reinforce your knowledge of the
advantages and disadvantages of the market economy.
Complete the following sentences.
The market economy is a more _________________
type of market.
1
5
Consumers have a wider variety of ______________
and __________.
6
Because of the profit motive there is ____________
__________.
7
Advertising creates ____________ _______________.
2
There
limited
______________ ________________
in this is
type
of market.
8
Market economies are not driven to produce _____
and _______ goods.
3
Consumers set the ____________ of goods and
services.
9
_________________ are generally present.
4
Prices are kept down because of ________________.
10
____________________ are low since trade union
activities are not encouraged.
Feedback
1
efficient
3
prices
5
goods, services
7
artificial demand
2
governmental
involvement
4
competition
6
unequal
distribution
of wealth
8
social, merit
9
10
monopolies
wages
 Planned or command economy
A planned economy is one in which the government assumes
responsibility for economic planning in order to achieve the best possible
use and distribution of a country’s scare resources. Governments,
therefore, influence and control key economic variables, such as income,
consumption, employment, savings, investment, imports and exports.
Characteristics of the planned economy

The government plans, coordinates and controls all economic
activities.

The government decides on what to produce, how much to produce
and controls the distribution of output.

Prices are set by the state.
Benefits of the planned economy

The state can direct its development since it controls all the
resources.

There is likely to be less waste of resources.

Incomes are more likely to be evenly distributed.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
36/48
DF Compressor Pro
8/9/2019
36
Csec Principles of Business Study Guide
Chapter 1
Limitations of the planned economy

Government planning may be more rigid and inflexible compared
with the decision-making of the capitalist economy, and this may
lead to scarcity of goods or services.

The government may have the responsibility of administering and
implementing the plans. This task may be too enormous for the
technocrats working with the government and hence there may be
inefficiency in the delivery of goods and services.

Private sector initiatives may be blocked.

Planning may be manipulated by the more powerful groups that
may not act in the best interests of all.
e
l Planned economies
p North Korea, Cuba and the
m
a Soviet Union (before 1990).
x
E
Activity 1.20
This activity will help you to understand the features of
planned economies.
4
Competition ensures efficiency.
5
Income is more evenly distributed.
The following sentences describe features of a planned
economy. State whether each statement is true (T) or
false (F).
6
Poverty is eradicated.
7
The government usually operates through large
bureaucracies and hence this is a more efficient
system.
8
The private sector usually takes a leading role.
9
Prices are controlled by the state.
1
Private enterprises assume full responsibility for
economic planning.
2
Key economic variables such as income and
investment are under the direct control of the
government.
10
What to produce and how much to produce are
influenced by the consumer.
3
Powerful politicians can influence government
decisions, which may not be in the best interests
of the population.
Feedback
1
F
2
T
3
F
4
F
5
T
6
F
7
F
8
F
9
T
10
T
 Mixed economies
Mixed economies are economic arrangements in which both
government and private individuals make economic decisions as to
what tobe
produce,
how to produce and for whom goods and services
should
produced.
The mixed economy is by far the most popular form of economic
organisation existing in the world today. Most countries, including the
English-speaking Caribbean states, have mixed economies.
Characteristics of the mixed economy

Involvement of both state and private individuals.

Efficient use of resources.

More equitable distribution of income than free market economies.
Benefits of mixed economies

Both sectors of the economy, the government and private
individuals, engage in activities that can best produce, and therefore
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
37/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
37
there is more efficient use of resources. A wide variety of goods
are available since the government complements those goods and
services that are provided by the private sector.

Governments are free to make laws to protect natural resources and
the people.
Limitations of mixed economies

There is always a need to keep a balance between government and
private sector involvement.

Conflict may arise between government and private investment, and
thus result in long delays in the production of goods and services.
Stakeholders
Now that you understand how business activities evolved and the
different types of businesses, you should examine the persons or
groups who make decisions. These are the stakeholders, and they are
all affected by business decisions. Did you know that you are also a
stakeholder in the various business activities that take place in your
community? Let us examine what we mean by this term.
Definition: Stakeholders are the various groups within and outside
an organisation that stand to potentially gain or lose as a result of the
organisation’s actions.
Examine the following list of stakeholders.

owners/employers/investors

employees

customers/consumers


suppliers
government

the members of society (including the media, special interest
groups, communities)

lenders/investors and other creditors.
It is important to identify the stakeholders in a business so that the
organisation:

knows who it depends on for its survival;

also knows who has a vested interest in the business;

can take these groups into consideration when making decisions;
this helps the business to meet the expectations and priorities of its
stakeholders.
The roles of stakeholders involved in business activity
Role of employers/investors/managers
These parties want to achieve:

the best return on their investments (profits);

efficient management of the resources (employees, raw materials,
equipment) through planning, control and other functions and
strategies in the business;

to provide goods/services of a high quality, at a reasonable price,
with necessary after-sales service;
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
38/48
DF Compressor Pro
8/9/2019
38
Csec Principles of Business Study Guide
Chapter 1

the best possible employees, fair payment for work, fair and
respectful treatment, good working conditions and the necessary
tools and equipment;

to act ethically and be socially responsible.
Role of employees
These are:
 to carry out the activities stated on their job description;

to efficiently utilise the resources placed in their care;

to act ethically and be socially responsible.
Role of consumers
Consumers can:

provide feedback on product quality and design through complaints
and suggestions;

contribute to research by participating in surveys and product

testing;
use the product/service provided in the way that it was intended to
be used.
Role of government
Government provides:

regulations that force the business to consider the best interests of
the other stakeholders;

assistance to businesses in the form of loans, training, research and
financial aid/subsidies;

information to all the stakeholders (in many cases);

protection for consumers through laws and agencies; also protection
to all the other stakeholders.
Activity 1.21
Use this exercise to assess your understanding of
‘stakeholders’. Read the following situation and
complete the table that follows.
owners, wanted to know if Sandra knew how to grow
healthy chickens. Sandra is also concerned about her
profits.
Sandra has graduated from school and plans to keep
layer chickens in her backyard. She plans to sell the
eggs to the two corner shops in her neighbourhood.
Her younger cousin, Althea, will assist her with caring
for the chickens.
Use the table below to identify the type of
stakeholders in this situation. In the space provided,
write the name of the stakeholder.
As soon as Sandra started building a structure for the
chickens, several persons began to voice their concerns.
Phillip, who lived beside her, wanted to know how
often she would be cleaning the hen-house. Althea
wanted to know if she would be paid a reasonable
amount of money. Tommy, one of the corner-shop
Type of stakeholder
Name of the stakeholder
Owner
Employee
Customer
Community member
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
39/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Responsibilities of a business
You have already learned that businesses can be formed in different
ways, and that their decisions and activities are influenced by
the different stakeholders. Now you must look at the business
itself as an important participant in its community or society.
Business organisations have economic, financial, political and
social responsibilities to the society in which they operate. These
organisations have a responsibility to invest capital in order to
increase the wants and needs necessary for survival. In the pursuit
of their economic role, business organisations should not destroy the
environment nor add to any conflict among the various religious, ethnic
or regional groups in the community. Also, business organisations
should ensure that equality and democratic principles are adhered to at
all times. The main responsibilities can be grouped as shown below.

Economic responsibilities: The business and its owners or
managers operate within an economic system and should play
their part in helping this system to be effective. The business does
this by providing employment to citizens in the economy and by
contributing to the overall growth of the economy; if the business
exports goods and services, it will help to increase the overall
exports of the country. Pricing policies that are too aggressive can
have a very negative effect on other businesses in the economy, and
can exploit consumers.

Financial responsibilities: Similar to the above, businesses must
create a reasonable financial return to the owner or investor. This
may not always be high because of the various objectives of a
business.

Social responsibility: Businesses should make decisions that are
in the best interests of the society in which they operate. They also
rely on this society to provide vital resources.

Political responsibility: Businesses have many obligations to the
government.

Ethical responsibility: The term ‘ethics’ refers to beliefs about what
is right and wrong conduct; most societies agree on the basic ethics
of honesty and fair play. Businesses should make ethical decisions.
The nature of business
39
Feedback
Type of
stakeholder
Name of the
stakeholder
Owner
Sandra
Employee
Customer
Althea
Tommy
Community
member
Phillip
e
l Economic responsibilities
p
Produce a good or service to satisfy the needs and wants of society
m
a Stimulate economic growth
x
E
Financial responsibilities
Pay a fair wage to employees
Provide a reasonable return on investments
Political responsibilities
Act as pressure groups to lobby governments for changes that will benefit
business activity
Operate along democratic principles of equality and fair play
Act in accordance with the laws, for example, paying all taxes when they
are due
Assist in setting policies by giving feedback, making suggestions
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
40/48
DF Compressor Pro
8/9/2019
40
Csec Principles of Business Study Guide
Chapter 1
Ethical responsibilities
Design ethical guidelines for their behaviour/decisions and follow these
guidelines
Encourage good business ethics of their stakeholders by refusing to do
business with unethical firms or persons
Social responsibilities
Protect the environment and avoid social costs (borne by society as a
result of business operations, for example, pollution)
Develop the culture of a country
Educate consumers and community members on safety tips and proper
use and disposal of products
Use some of the profits to help develop and benefit the community,
as well as the culture of the country
Activity 1.22
Classify the activities listed below according to the relevant
area of responsibility. The first one has been done for you.
Economic Financial Political Social
1
paying corporation
taxes
2
making pastries for
today’s sales
3
improving the wellbeing of employees
4
sponsoring the sports
day of the primary
school in the area
5
disposing of garbage
in a timely and fitting
manner
6
lobbying the
government to provide
measures that would
encourage savings
7
8
✔
improving
the
environment
promoting an
awareness of human
rights violations
9
reinvesting profits into
the business
10
providing a 30 per cent
return on investment to
shareholders
11
providing employment
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
Feedback
1
Financial
7
Social
2
Economic
8
Political
3
9
4
Social
Social
10
Financial
Financial
5
Social
11
Economic
Political
You perhaps had difficulty
categorising some items. Why not
tick those that are both? This is
not a problem since the categories
may be a combination of two areas,
for example, socio-economic or
socio-political.
6
41/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
The nature of business
41
Key points

Students need to familiarise themselves with key terms and
concepts used during the course of study. These include concepts
related to the business environment in which goods and services are
produced and traded.

Instruments
of trade
developed
times
through
the system
of bartering have
evolved
today in
to early
the use
of bills
of exchange
and
electronic banking systems using credit cards and electronic transfer
instruments.

The private sector is funded by individuals who enter business
to make a profit, whereas the public sector is controlled by the
government for providing goods and services to the population.

Types of business include the sole trader, partnership, corporation,
limited liability company and multinational corporation.

Economic systems include the traditional, free market, planned and
mixed systems.

Businesses have economic, financial, political, ethical and social
responsibilities.
End test
Answer all questions.
1 Define the term ‘barter’.
c the quality and quantity of goods;
d job creation and job specialisation.
2
Give three examples of bartering.
3
List three features of bartering.
Describe the institutional characteristics of:
a free market economies;
4
State two advantages and two limitations of
bartering.
b planned economies;
c mixed economies.
5
Define the term ‘money’, giving examples of
items used in the past instead of money.
16
Explain the main differences between the
private and public sectors.
6
List three features of money.
17
List the stakeholders of a business.
7
State the functions of money.
18
8
State four benefits derived from the
introduction of money.
Briefly describe the five main responsibilities of
a business.
19
List the characteristics of:
a the sole trader;
9
15
Explain the term ‘indirect satisfaction of wants’.
10
Define the term ‘division of labour’.
11
Explain the advantages and disadvantages of
specialisation.
12
Explain the functions of a business.
13
Describe the economic, financial, political and
social responsibilities of a business organisation.
14
Explain the effects of the change from a
subsistence to a money economy on:
a availability of goods;
b partnerships;
c cooperatives.
20
Outline the advantages and disadvantages of
each type of business listed in question 19.
21
Identify the regulatory practices instituted
by governments for setting up a sole trader,
partnerships and cooperatives.
22
Outline the characteristics of limited liability
companies and multinational corporations.
b access to goods;
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
42/48
DF Compressor Pro
8/9/2019
42
Csec Principles of Business Study Guide
Chapter 1
23
State the advantages and disadvantages of
limited liability companies and multinational
corporations.
24
Identify the regulatory practices instituted
by governments for establishing limited
liability companies and multinational
corporations.
25
Describe the characteristics of state
corporations and nationalised industries.
26
State the advantages and disadvantages of
state corporations and nationalised industries.
27
Describe
howindustries
state corporations
and
nationalised
are established.
Feedback
1
Barter is the exchange of goods and services without
the use of money.
2
Three examples of bartering are the exchange of:
bananas for breadfruit



7
fish for shrimps
wooden spears for eating utensils.
3
Features of bartering are:
direct exchange of items

immediate exchange of items

direct satisfaction of needs and wants.

4
Two advantages of bartering are:
individuals are able to enjoy more goods and

services
it encourages division of labour.
Limitations of bartering are the possible absence of
(any two):
double coincidence of wants

rate of exchange

store of wealth indivisibility

store of value.

8



9
Money is any commodity that is accepted as a
measure of value and a medium of exchange, such as:
precious metals
shells
beads

were some of the items used in the past as money.


6
Features of money are (any three):
acceptability

divisibility

homogeneity

durability

service is measured in money, which sets the
price of the item;
store of value – money can be saved and used in

the future;
means of deferred payment – money is used for

goods bought on credit;
facilitator of the price mechanism – the price one

is willing to pay for a good or service.
The introduction of money (any four):
facilitated the exchange of goods and services;



5
The functions of money are that money serves as a:
medium of exchange – everyone must be willing

to accept it in exchange for goods and services;
standard or value – the worth of the goods or

10
11
encouraged the division of labour;
enabled individuals to enjoy more goods and
services;
promoted investment;
facilitated credit.
Indirect satisfaction of wants is the system by
which needs and wants are fulfilled with the help
of others. One satisfies one’s needs and wants
through the exchange of goods and services with
another individual. It involves bartering and,
currently, the use of money.
Division of labour refers to the organisation of a job
into a number of related tasks. For example, in the
making of a shirt in a factory, the job is divided into
cutting, stitching, placing of the buttonholes and
sewing of the buttons.
Advantages of specialisation are listed below.
It increases the skills of workers since the

same task is repeated and workers learn from
continuous repetition.



portability
relative scarcity.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
It
increases
productivity
lesstotime
is needed
when
changing
from onesince
activity
another.
43/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
As output increases, the cost of production is
reduced.
Less time is spent on training since workers are

only required to master one task.
The quality of the product can also be improved

since workers are more skilled.
Disadvantages of specialisation are listed below.
The work is monotonous. One is required

to perform the same task repetitively.
The work, therefore, becomes boring and
tiresome.
Specialisation usually occurs in large-scale

industries and therefore the work environment
is impersonal.
Workers lose pride in their work because they

are not completing the entire job.


12
The nature of business
14
a The change from subsistence to a money
economy meant that the community enjoyed a
better standard of living since more goods were
available. People now had more leisure time.
b Goods were easily available to all since the use
of money made the exchange process easy.
c The change from subsistence to a money
economy meant that the quality and quantity
of goods improved and increased since
specialisation or division of labour was possible.
d More jobs were created because of job
specialisation.
15
a The institutional characteristics of free market
economies are that:
they are customer-driven – the consumer

influences the producers’ decisions on what
Some specialisation processes require large capital
investment.
to produce
private individuals own the resources
there is little or no government interference

the factors of production are controlled by

market forces – goods and services are sold
on the market.
b The institutional characteristics of planned
economies are that:
the government plans, coordinates and

controls all economic activities

The functions of a business are listed below.
The production of a good or service. Goods

and services are required for the satisfaction of
needs and wants.
The creation of jobs. Business needs labour to

produce goods and services. The amount of
labour will depend on whether the firm is
labour-intensive or capital-intensive.


43

In
case
of private
investments,
aim is
to the
make
a profit.
All businesses
aimthe
to make
the highest possible returns on investment so
that the shareholders of the business receive an
adequate dividend.
Non-profit organisations aim to fulfil a need
in the provision of a good or service that will
be to the benefit of the community. In all
communities there are those who cannot
provide for themselves and therefore rely on the
services of non-profit organisations.

the
decides
what
to produce,
howgovernment
much to produce
and
controls
all the
resources
prices are set by the state.
c The institutional characteristics of mixed
economies are:
involvement of both state and private

individuals
efficient use of resources

more equitable distribution of income than


To
contribute
to economic
growth
is stimulated
by thegrowth.
increaseEconomic
in business
activity, which adds to the total real output of
goods and services.
13
Business organisations have a responsibility
to invest capital in order to increase the wants
and needs necessary for the survival of man.
In the pursuit of their economic role, business
organisations should not destroy the environment
nor add to any conflict among the various religious,
ethnic or political groups in the community.
16
17
Also,
equality
andtimes.
democratic principles must be
adhered
to at all
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
in free market economies.
The private sector is that part of the economy that
is funded, owned and controlled by individuals and
private firms. The main objective of the private sector
is to make a profit. On the other hand, the public
sector is financed by the government through the
money of taxpayers and is controlled and operated
by the Government or its agent. The public sector
aims to provide a service at the lowest possible price.
The stakeholders of a business are:
owners

employees

44/48
DF Compressor Pro
8/9/2019
44
Csec Principles of Business Study Guide
Chapter 1




customers
suppliers
government
society.



18
The five main responsibilities of a business are
listed below.
Economic responsibilities: The business and its

owners/managers operate within an economic
system and should play their part in helping
this system to be effective. The business does
this by providing employment to citizens in the
economy and by contributing to the overall
growth of the economy; if the business exports
goods and services, it will help to increase
the overall exports of the country. Pricing
policies that are too aggressive can have a
the owner manages the business himself or
herself
the owner maintains personal contact with
clients
these businesses are conveniently located in
the rural area.
b The characteristics of partnerships are that:





partners can consult each other when
making decisions
they are governed by a Partnership Deed or
the Partnership Act
there are 2 to 20 members
profits and losses are shared according to a
Partnership Deed or the Partnership Act
partners share knowledge and skills





19
very
negative
on other
businesses in the
economy,
and effect
can exploit
consumers.
Financial responsibilities: Similar to the above,
businesses must create a reasonable financial return
to the owner/investor. This may not always be high
because of the various objectives of a business.
Social responsibility: Businesses must:
avoid social costs (borne by society as a result
of business operations), for example, air
pollution; protect the environment;
educate consumers and community members
on safety tips and the proper use and disposal
of the products;
use some of the profits to help develop and
benefit the community, as well as the culture
of the country.
Political responsibility: Businesses have an
obligation to the government to:
act in accordance with the laws;
assist in setting policies by giving feedback,
making suggestions, lobbying for changes.

c
The characteristics of cooperatives are that they:
are owned and operated by members to

promote their common economic interest
provide opportunities for members to pool

capital
provide limited liability

use democratic decision-making


20
Ethical responsibility: The term ‘ethics’ refers to
beliefs about what is right and wrong conduct;
most societies agree on the basic ethics of
honesty and fair play. Businesses must:
design ethical guidelines for their behaviour and
decisions and follow these guidelines;
encourage good business ethics of their
stakeholders by refusing to do business with
unethical firms or persons.
a The characteristics of the sole trader are that:
few
formalities are required to set up the
business
there is no obligation to publish accounts.
have members who share a common bond.
Advantages of the sole trader:
The owner gets the personal satisfaction of

being his or her own boss.
The owner enjoys all the profits but bears all

the risk.
It is easy to form.

The owner enjoys personal contact with clients.

The owner is under no obligation to keep or

disclose financial statements.
The owner has a commitment to succeed.

Disadvantages of the sole trader:
There is limited funding.

They lack specialised staff.

The owner has unlimited liability.

There is limited time for leisure.

Simple and out-of date technology may be used.

The owner relies heavily on his or her good

health and energy.


it is easy to set up
the owner enjoys all the profits and bears all
the risks
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
Advantages of partnerships:
The sharing of partners’ knowledge and skills.

45/48
DF Compressor Pro
8/9/2019




Csec Principles of Business Study Guide
The nature of business
Partners can consult each other when making
decisions.
Sharing of the management of the business.
Few formalities necessary to set up.
No obligation to publish accounts.
capital is obtained from private individuals,
financial institutions, government agencies or
retained profits
with the exception of ordinary shareholders, all

shareholders have limited liabilities
the company must be registered with the

Registrar of Companies
the word ‘limited’ must be included in the name

accounting statements are prepared and a copy

sent to the Registrar of Companies.
The characteristics of a public limited company
include the features that:
there must be at least seven shareholders,

with no limit on the maximum number of
shareholders
the shares are traded openly on the stock market



The business has continuity.
Limited partners have limited liability.
Disadvantages of partnerships:
Partners may not always work harmoniously.

Death or bankruptcy of one partner will

automatically dissolve the partnership, unless
otherwise provided for in the Partnership Deed.
The actions of partners are binding on the

partnership.
Ordinary partners have unlimited liability.


Capital is still limited.
The risk is borne by a few ordinary partners.
Advantages of cooperatives:
Members are the owners.

Decision-making is shared.

All surpluses are shared among the

membership.
Community bond is strengthened.

Products are much lower in price since

administrative expenses are lower.

Rewards are shared among all the membership.
Disadvantages of cooperatives:
The membership may lack the specialist

knowledge and skills to build the organisation.
Decision-making is slow and therefore the

business may lose out on opportunities.



21
22
No requirement is necessary to set up a sole trader
unless the owner is using a trade name, then the
trader must register the trade name.
Although there is no formal requirement to set up
partnerships, it is advisable that a Partnership Deed
be made. Again, if the partnership is operating
under a name other than that of the owners, it is
advisable to register the trade name.
Cooperatives are required to be registered with
the relevant government agencies. The books of
accounts must be prepared annually.
45




23
Limited liability companies are of two types –
private limited or public limited liability companies.
The characteristics of a private limited company
include the rules that:
membership is between 2 and 50 persons

http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
the public limited company is incorporated
capital is obtained from shareholders’ equity
and financial institutions
the company is continuous
specialisation is possible since specialist staff
can be employed
there is a large capital base.
The characteristics of multinational corporations
(MNCs) are listed below.
MNCs are created through direct foreign

investment (DFI).
Headquarters of MNCs are usually located in a

developed country, while subsidiary companies
are located in developing countries.
Firms usually use the latest technology.

Firms invest heavily in research and development.

Firms are usually capital-intensive and thus

benefit from economies of scale.
Limited liability companies have advantages that
include the fact that:

they are able to raise large capital, particularly
in the case of public liability companies
shareholders’ risk is limited to the value of the

shares they have invested
the companies have a separate legal entity

there is continuity since the death of a share
holder does not affect the survival of the firm
shares are transferable, particularly in the public

limited company
they can benefit from economies of scale since

they can employ specialists and engage in
research and development
46/48
DF Compressor Pro
8/9/2019
46
Csec Principles of Business Study Guide
Chapter 1
financial statements are available for inspection
by members of the public.
The disadvantages of limited liability companies
are listed below.
Considerable legal procedures are involved in

setting up this type of business.

Owners often lose touch with what is
happening in the organisation.
Management’s actions may not always be in the

best interests of the shareholders.
In private limited companies shares are not

always transferable, except with the approval of
the membership.
In the private limited company, because of

the family structure, entrepreneurial talent is
drawn from a restricted pool. The public liability

company
in the
vulnerable position of being
taken overisby
mergers.
The advantages of multinational corporations to
the host country are:
the injection of foreign capital in the economy

the creation of employment opportunities

the transfer of skills

increased revenue through taxation.

Perceived disadvantages of multinational
corporations to the host country are:



24




Characteristics of nationalised industries:
Previously privately owned, they were taken

over by the state.
The state is the only shareholder.

They are a separate legal entity.

A board of directors appointed by the

government manages them.

26
possible poor working conditions and abuse of
worker’s rights
risk of destruction of the environment
possible intimidation of workers and trade
unions.
Limited liability companies must be incorporated
and therefore must submit to the Registrar of
Companies the following:
Memorandum of Association

Articles of Association


27
Statement of the Authorised or Nominal Capital.
Characteristics of state corporations:
They are established by the government

through legislation.
Accounting
reports must be sent to the auditor
general.
An advantage of a state corporation is that the
state has the autonomy to act on its own.
Disadvantages of a state corporation are that the
company may depend heavily on state funding and
there may be too much political interference.
Advantages of nationalised industries:
Profits remain in the country.

The company serves the various needs of the


community.
Nationalisation prevents monopolies from
forming.
Ownership of the most profitable industries is
in the hands of the state.
Disadvantages of nationalised industries:
Low salaries are paid to top executives.

The non-profitable industries may be a drain on

the government’s revenue.
State corporations are incorporated through an
Act
of firms
Parliament,
that by
is, through
legislation.
These
are funded
the taxpayers.
The
government purchases the shares of nationalised
industries. In fact, the government is the only
shareholder.

25
Their objective is to provide a service to the
population.
A board of directors appointed by the
government manages them.
Funding is mainly from the government
and grants.
Accounting procedures are monitored by the
state.
Tutor-marked assignment
You are the newly promoted director of a
manufacturing company producing cement in
Harbour View, Jamaica. Draw up a plan that would
satisfy the company’s social responsibilities to
the community and show how this plan would be
implemented.
(40 marks)
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
47/48
DF Compressor Pro
8/9/2019
Csec Principles of Business Study Guide
Caribbean Examinations Council®
for CSEC
®
The Caribbean Examinations Council (CXC®) has developed this self-study guide to provide
candidates both in and out of school with an additional resource to help them prepare for the
Principles of Business for CSEC® examination. The guides have been prepared by experienced
educators with expertise in the syllabus, teaching and/or examination. The content covers the
key concepts of the subject that candidates must know.
Features of the study guides include:




Introduction and Objectives setting out the key concepts to be covered in each chapter
Examples to illustrate learning points
Activities and Feedback to provide plenty of practice and help you build your understanding
and application of the concepts
End Tests with Feedback to help you evaluate your progress.
This study guide will provide you with the tools and support you need to reach your full
potential.
http://slidepdf.com/reader/full/csec-principles-of-business-study-guide
48/48