CA Foundation Business & Commercial Knowledge Study Material Chapter 1 Introduction to Business – Nature of Business, Profession and Employment

NATURE OF BUSINESS, PROFESSION AND EMPLOYMENT

Meaning and Nature of Business

Business is an activity, in which different persons exchange something of value, whether goods or services, for mutual gain or profit. It is an organised or systematic activity involving the satisfaction of human wants. Business involves regular or recurring purchase and sale of goods and services with the purpose of earning profits through the satisfaction of human needs. Repeated dealings rather than a single isolated transaction constitute business. Business may be distinguished from other activities by the fact that goods and services created or purchased are meant for sale and not for personal consumption.
Various experts have defined business in different ways. Some of the popular definitions of business are given below:

  • L.H. Haney : “Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling of goods”.
  • B.O. Wheeler – “Business is an institution organised and operated to provide goods and services to society under the incentive of private gain.”
  • L.R. Dicksee – “Business is a form of activity pursued primarily with the objective of earning profits for the benefit of those on whose behalf the activity is conducted.”
  • James Stephenson – “Economic activities performed for earning profits are termed as Business”.
  • Keith and Carlo – “Business is a sum of all activities involved in the production and distribution of goods and services for private profits”.
  • Urwick and Hunt – “Business is any enterprise which makes, distributes or provides any article or service which the other members of the community need and are able and willing to pay for.”
  • R.N. Owens – “Business is any enterprise engaged in the production and distribution of goods for sale in market or rendering services for a price.”

The salient features of business are given below:

  1. Creation of utilities – Business makes goods more useful to satisfy human wants. It adds time, place, form and possession utilities to various types of goods. In the words of Roger, “a business exists to create and deliver value satisfaction to customers at a profit”. Business enables people to satisfy their wants more effectively and economically. It carries goods from place of surplus to the place of scarcity (place utility). It makes goods available for use in future through storage (time utility).
  2. Dealings in goods and services – Every business enterprise produces and/or buys goods and services for selling them to others. Goods may be consumer goods or producer goods. Consumer goods are meant for direct use by the ultimate consumers, e.g., bread, tea, shoes, etc. Producer goods are used for the production of consumer or capital goods like raw materials, machinery, etc. Services like transport, warehousing, banking, insurance, etc. may be considered as intangible and invisible goods. Services facilitate buying and selling of goods by overcoming various hindrances in trade.
  3. Continuity in dealings – Dealings in goods and services become business only if undertaken on a regular basis. According to Peterson and Plowman, “a single isolated transaction of purchase and sale will not constitute business. Recurring or repeated transaction of purchase and sale alone mean business.” For instance, if a person sells his old scooter or car it is not business though the seller gets money in exchange. But if he opens a shop and sells scooters or cars regularly, it will become business. Therefore, regularity of dealings is an essential feature of business.
  4. Sale, transfer or exchange – All business activities involve transfer or exchange of goods and services for some consideration. The consideration called price is usually expressed in terms of money. Business delivers goods and services to those who need them and are able and willing to pay for them. For example, if a person cooks and serves food to his family, it is not business. But when he cooks food and sells it to others for a price, it becomes business. According to Peter Drucker “any organisation that fulfills itself through marketing a product or service is a business”.
  5. Profit motive – The primary aim of business is to earn profits. Profits are essential for the survival as well as growth of business. Profits must, however, be earned through legal and fair means. Business should never exploit society to make money.
  6. Element of risk – Profit is the reward for assuming risk. Risk implies the uncertainty of profit or the possibility of loss. Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable environment. Changes in customers’ tastes and fashions, demand, competition, Government policies, etc. create risk. Food, fire, earthquake, strike by employees, theft, etc. also cause loss. A businessman can reduce risks through correct forecasting and insurance. But all risks cannot be eliminated.
  7. Economic activity – Business is primarily an economic activity as it involves production and distribution of goods and services for earning money. However, business is also a social institution because it helps to improve the living standards of people through effective utilisation of scarce resources of the society. Only economic activities are included in business. Non-economic activities do not form a part of business.
  8. Art as well as science – Business is an art because it requires personal skills and experience. It is also a science because it is based on certain principles and laws.

Meaning and Nature of Profession

The term profession means an occupation which involves application of specialised knowledge and skills to earn a living. The persons who are engaged in profession are called professionals. They render personal services of a specialised nature to their clients. The service is based on professional education, training and experience. Professionals receive fee for their services. Chartered Accountancy, medicine, law, tax consultancy are examples of professions. .

The main features of a profession are as follows :

  1. Specialised body of knowledge – Every profession has a specialised and systematised body of knowledge. Members of the profession are required to learn this knowledge.
    Restricted entry – Entry to a profession is allowed only to those who have completed the prescribed education and have passed the specified examination.
  2. Formal training – A profession provides facilities for formal education and training to those who want to acquire professional qualification.
  3. Professional association – Every profession has its own association. A professional associa¬tion is a statutory body and its membership is essential. The association regulates entry in the profession, grants certificate of practice, formulates and enforces code of conduct. For example, The Institute of Chartered Accountants of India (ICAI) regulates the accountancy profession in India.
  4. Service motive – Professionals are expected to emphasise services to their clients rather than economic gain.
  5. Code of conduct – The activities of a professional are regulated by a formal code of conduct. The code is prescribed by the professional association of which he is a member.

Names of various Professions and their Respective Associations are given below:

S.No. Professions Professional Professional associations
1. Medical Profession Doctors Medical Council of India
2. Law Profession Lawyers Bar Council of India
3. Accounting Profession Chartered Accountants The Institute of Chartered Accountants of India (ICAI)
4. Company Secretary Profession Company Secretaries The Institute of Company Secretaries of India (ICSI)
5. Cost Accounting Profession Cost Accountants The Institute of Cost and Works Accountants of India (ICWAI)
6. Engineering Profession Engineers The Institution of Engineers (India)

Meaning and Nature of Employment

Employment means an economic activity, where people work for others in exchange for some remuneration. The persons who work for others are called ’employees’. The persons or organisations which engage others to work for them are called ‘employers’. The remuneration by an employer to his employee is known as wages or salary. The employee performs the work assigned to him by his employer as per the terms and conditions of employment. There is an oral or written agreement between the employer and the employee. The employee acts under the guidance and control of his employer. The employer may be a Government (department) undertaking or a private firm. Employment thus includes all types of jobs in Government offices and private enterprises. When a professionally qualified person works as an employee he is also said to be in employment. For example, a doctor may be employed in a hospital, a chartered accountant may be working as an accountant in a company and a lawyer may serve as a law officer in a bank.

The main features of employment are as follows:

  • In employment, a person works for others called employer.
  • An employee provides personal service.
  • There is a service agreement or contract between the employee and the employer. It contains the terms and conditions of employment.
  • The employee has to obey the order of the employer.
  • No capital investment is made by the employee.
  • The employee gets wage or salary for his/her service.

Various examples of employment are as follows:

  • A teacher teaching in a school or college.
  • An engineer employed in Municipal Corporation of Delhi.
  • An accountant working in the accounts department of a company.
  • A person working as the plant manager of a factory.
  • A nurse or doctor working in a hospital.

Distinction between Business, Profession and Employment

  1. Mode of establishment – A business enterprise is established when an entrepreneur takes a decision to carry on some business activity. In a profession, on the other hand, the membership or enrollment of a recognised professional association or institution is essential. In order to take up employment, a person has to enter into a contract of service.
  2. Nature of work – A business exists to provide goods and services to satisfy human wants. On the other hand, a professional renders personalised service of a specialised nature to his clients. An employee performs the work assigned by the employer under the contract of service.
  3. Qualifications – No formal education is compulsory in order to carry on a business. But for a profession, specialised knowledge and training are essential. Minimum educational qualifications are prescribed for every profession. In case of employment, the qualifications required depend upon the nature of the job. .
  4. Main objective – In business, the basic motive is to earn profits. A professional, on the other hand, is expected to emphasise the service motive and sense of mission. That is why, a rigorous code of ethical behaviour is laid down in every profession. In case of service, the motive of an employee is to earn salary and receive other benefits.
  5. Investment – Every business requires capital depending upon the nature and scale of operations. A professional also has to invest some capital to establish an office for rendering services. There is no need for capital in case of employment.
  6. Risk – There is an inherent element of risk in business and profession but practically no risk is involved in case of employment. There can be loss in business but in profession and employment return is never negative.
  7. Reward – Profit is the reward of a businessman while professional fee is the reward of a professional. The reward in case of employment is wage or salary. Wage/salary and fee are more regular and fixed than profits.
  8. Transfer of interest – It is possible to transfer ownership interest in business. But no such transfer is possible in case of profession and employment.
  9. Public advertisement – The success of a business depends upon public advertisements. But professionals are prohibited from giving public advertisements. There is no need for public advertisements in case of service.
    In spite of the above differences, there is a closed inter-relationship between business, profession and service. A large business enterprise employs a large number of persons in order to achieve its objectives. It also requires the services of professional experts such as chartered accountants, lawyers, architects, cost accountants, etc. Modern business has become very complex. Trained and experienced managers and other experts are required for efficient business operations. Professionals and other employees provide the necessary manpower for efficient running of business concerns. Thus, business, profession and employment are complementary to one another.