Bus 205 Introduction To Business

NATIONAL OPEN UNIVERSITY OF
NIGERIA
FACULTY OF MANAGEMENT
SCIENCES
COURSE CODE: BUS205
COURSE TITLE: INTRODUCTION TO BUSINESS

BUS205 INTRODUCTION TO BUSINESS
COURSE
GUIDE
BUS205
INTRODUCTION TO BUSINESS
Course Team
Course Developer/Writers Koce Henry Diko
HOD of Administration Dr. Yemisi I. Ogunlela
National Open University of Nigeria
Course Coordinator Mrs. Ihuoma Ikemba-Efughi
NATIONAL OPEN UNIVERSITY OF NIGERIA
ii

Headquarters
14/16 Ahmadu Bello Way
Victoria Island
Lagos
Abuja Office
No. 5 Dar es Salaam Street
Off Aminu Kano Crescent
Wuse II, Abuja
Nigeria
e-mail: [email protected]
URL: www.nou.edu.ng
Published by
First Printed 2009
ISBN: 978-058-187-1
All Rights Reserved
iii
BUSS205 INTRODUCTION TO BUSINESS
CONTENTS PAGE
Introduction ……………………………….…………………..… 1
What You Will Learn in the Course ………………………..…… 1

Course Aims ………………………………………………..…… 1
Course Objectives …………………………………………..…… 2
Working through this Course ……………………………………. 2
Course Materials …………………………………………….…… 2
Study Units …………………………………………………….… 3

Textbooks and References ………………………….…………… 3
Assignment File …………………………………………………. 3
Assessment ……………………………………………….……… 4
Final Examination and Grading ……………..…………….…….. 4

Tutor-Marked Assignment ………………………………….…… 4
Course Marking Scheme ………………………………………… 4
How to Get the Most from this Course …………………………. 5
Facilitators/Tutors and Tutorials ………………………………… 5
Summary ………………………………………………………… 6
Introduction
BUS205 – Introduction to Business is a first semester, two credit course. It

is available for hundred (200) level students of B.Sc. Business
Administration. The course consist of 16 units, covering such general
areas as what business is, Business Environment, legal aspect of business,
branches of business i.e. Marketing, Accounting, Human Resources, who
a consumer is etc.
This course guide tells you briefly what the course is about, relevant
textbooks to consult, and how you can work, your way through these
materials. It also contains some guidelines on your tutor-marked
assignments.
What You Will Learn in the Course
iv
BUS 205 – Introduction to business is an introduction in various courses

that constitute business. Before graduation you are likely to specialize on
areas like Marketing, Business Administration, Accounting, Public
Administration, Entrepreneurship and small scale business, etc.
It gives a general background of what all these courses are and how they
relate to each other.
Business is the life wire of any economy, you will learn about how to
organize people, use some business tactics to achieve a goal for an
organization.
Course Aims
The course aim is to give you a broad framework of what business is all
about. At the end of the course, you should be able to decide to set up your
own business or join with others to set up a business and know the factors
to look at how to deal with them to succeed in your own business. This
will be achieved by aiming to:
Introduce you to principles and concepts of business.
Discuss the various types and kinds of business
Discuss factors you will consider as a businessman.
Demonstrate practically what constitute business
Explain how to use accounting to keep record.
Explain how to use marketing to create customers for your company.
Explain how to manage your human resources.
Discuss other necessary factors of business that would aid you be on
your own.
Course Objectives
In order to achieve the aims set out above; the course set overall
objectives. You will also realize that each course unit objectives are
always included at the beginning of each unit. It is advisable to read
through their specific objectives before studying through the unit.
The following are the broad objectives of the course. By striving to meet
these objectives, you should have achieved the aims of the course as a
whole.
On successful completion of the course, you should be able to:
Describe the nature and scope of business

Concept of business and administration
v
Explain kind of businesses

Discuss types of businesses
Know who a consumer is
Explain different business environment
Discuss various legal issues in business
Discuss the role of government in business
Explain the ethics and responsibilities of a business
Discuss accounting in business
Explain what marketing is in the business
Describe how communication helps in the business
Analyze the roles on business concern.
Discuss entrepreneurship
Who are the people involved in business
What has insurance got to do with business
Working through this Course
It will be very essential that you thoroughly read the study units, consult
the suggested texts and other relevant materials at your disposal. Most of
the units contain Self- Assessment Exercise and Tutor-Marked
Assignment the later will be assessed by your tutor.
Course Materials
Major components of the course are:
(i) Course guide

(ii) Study units
(iii) Assignment file
(iv) Presentation schedule
Study Units
There are 16 study units in this course; these are:
Module 1
Unit 1 What is Business?

Unit 2 Concept of Business and Administration
Unit 3 Kind of Business – Sole Trader
Unit 4 Kind of Business – Partnership
Unit 5 Kind of Business – Joint Stock Company
vi
Module 2
Unit 1 Types of Business

Unit 2 Business Environment – General
Unit 3 Business Environment – Specific
Unit 4 Legal Issues in Business – Sales of Goods
Unit 5 Legal Issues in Business – Law of Contract
Module 3
Unit 1 Social Responsibility of a Business and Business Ethics

Unit 2 Accounting in Business
Unit 3 Marketing in today‟s Business
Unit 4 Communication in Business
Unit 5 Entrepreneurship
Unit 6 Insurance
Textbooks and References
There are no compulsory books for the course. However, you are
encouraged to consult some of those listed for further reading at the end of
each unit.
Assignment File
The assignment file will be made available to you. You will find all the
details of the work you must submit to your tutor for marks. The marks
you obtain for this assignment will count towards the final mark you will
obtain for this course.
Any further information on assignment will be found in the assignment

file.
Assessment
Your performance in this course will be based on two major approaches.

First, are the tutor-marked assignments (TMAs)
The second method is through a written examination.
Tutor-Marked Assignment
vii
With respect to TMAs, you are expected to apply the information,

knowledge and techniques gathered during the course or studying this
material. The assignment must be submitted to your tutor for formal
assessment in accordance with the laid down rules.
The total score obtain in the TMAs will account for 40% of your overall
course mark
There are many TMAs on the course you should subtract any eight to your
tutor for assessment. The highest four of the eight Assessments will be
counted and this credited to your overall course mark.
Final Examination and Grading
At the end of the course, you will need to sit for a final written
examination of two hours duration. This examination will be count for
60% of your overall course mark. The examination will consist of
questions which reflect the types of self-testing, practice exercises and
TMAQs you have previously encountered. You are advised to prepare
adequately for the examination. Since the general broad area of the course
will be assessed.
Course Marking Scheme
The following table lay out how the actual course marking is broken
down.
ASSESSMENT MARKS
Eight assignment submitted Best five assignment with 10
marks each
= 50% of overall course marks
Final examination 50% of overall course marks
Total 100% of overall course marks
How to Get the Most from this Course
The distance learning system of education is quite different from the

traditional University system. Here the study units replace the University
lecturer, thus conferring a unique advantage to you.
viii
For instance, you can read and work through specially designed study
materials at your own pace; and at a time and place that suit you best.
Hence, instead of listening to a lecturer, all you need to do is reading.
You should understand right from the onset that the contents of the course
are to be worked at and understand step by step, and not to be read like a
novel. The best way is to read a unit quickly in order to see the general
aim of the content and then re -read it carefully, making sure that the
content is understood step by step.
You should be prepared at this stage to spend a very long time on some
units that may look difficult. A paper and pencil is a necessary piece of
equipment in your reading.
Facilitators/Tutors and Tutorials
Detailed information about the number of tutorial contact hours provided

in support of this course will be communicated to you. You will also be
notified of the dates, times and location of these tutorials, together with the
name and phone number of your tutor, as soon as you are allocated to a
tutorial group.
Your tutor will make and comment on your assignments, keep a close
watch on your progress and on any difficulties you might encounter, and
provide assistance to you during the course.
Please do not hesitate to contact your tutor by telephone or e-mail if you

need help. The following might be circumstances in which you would find
help necessary.
You do not understand any part of the study units

You have difficulty with the self-tests or exercises
You have a question or problem with an assignment or with the
grading of an assignment.
You should endeavour to attend tutorial classes, since this is the only
opportunity at your disposal to experience a physical and personal contact
with your tutor, and to ask questions, which are promptly answered.
Before attending tutorial classes you are advised to thoroughly go through

the study units and then prepare a question list. This will afford you the
opportunity of participating very actively in the discussions.
ix
Summary
Osuala 1986 summarizes everything about business; he says it plays an

important role in our lives. Business helps in job creations and produces
goods and services.
Business includes those activities in which others endeavour to produce

and to distribute the goods and services that are important to the well-
being, comfort and happiness of individuals, and for the benefit of a
society as a whole.
The owners of business are usually motivated in their activities not only
by the need for the material contributions to the welfare of communities of
which they are a part, but also by the desire to make a profit.
x
Course Code/ Title BUS205: Introduction to Business
Course Team
Course Developer/Writer Koce Henry Diko
HOD of Administration Dr. Yemisi I. Ogunlela
Course Coordinator Mrs Ihuoma Ikemba - Efughi
NATIONAL OPEN UNIVERSITY OF NIGERIA
xi

Headquarters
14/16 Ahmadu Bello Way
Victoria Island
Lagos
Abuja Office
No. 5 Dar es Salaam Street
Off Aminu Kano Crescent
Wuse II, Abuja
Nigeria
e-mail: [email protected]
URL: www.nou.edu.ng
Published by
First Printed 2009
ISBN: 978-058-187-1
All Rights Reserved
xii
CONTENTS PAGE
Module 1 …………………………….……………………….… 1
Unit 1 Introduction to Business …………………………… 1

Unit 2 Concept of Business Management and Administration 10
Unit 3 Kinds of Business (1) - Sole Trader …………………. 19
Unit 4 Kinds of Business - Partnership …………………..… 27
Unit 5 Kind of Business - Joint Stock Company …………… 34
Module 2 …………………………….……………………….… 41
Unit 1 Types of Business …………………………………… 41

Unit 2 Business Environment – General …………………… 48
Unit 3 Business Environment – Specific …………………… 57
Unit 4 Legal Issues on Business - Sales of Goods ………….. 67
Unit 5 Legal Issues in Business Law of Contract …………… 75
Module 3 …………………………….……………………….… 83
Unit 1 Social Responsibility of Business ………………….. 83

Unit 2 Accounting in Business ……………………………. 89
Unit 3 Marketing in Today‟s Business ……………………. 98
Unit 4 Communication in Business……………………..… 109
Unit 5 Entrepreneurship …………………………………… 120
Unit 6 Insurance …………………………………………… 128
xiii
MODULE 1
Unit 1 Introduction to Business

Unit 2 Concept of Business Management and Administration
Unit 3 Kinds of Business (1) - Sole Trader
Unit 4 Kinds of Business - Partnership
Unit 5 Kind of Business - Joint Stock Company
UNIT 1 INTRODUCTION TO BUSINESS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Need and Want?
3.2 Making Choices
3.3 What is Business?
3.3.1 Providing Goods and Services
3.3.2 What Business does?
3.3.3 Resources Business Use
3.4 Characteristics of Business
3.5 Objectives of Business
3.6 You and the Business World
3.6.1 Your Role as a Consumer
3.6.2 Your Role as a Wage Earner
3.6.3 Your role as a citizen
3.7 Who Benefit from Business?
3.7.1 Business Owners
3.7.2 Employees
3.7.3 Government
3.7.4 General society
3.8 Business Terms
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
This unit of introduction to business introduces you to the business world.

It starts by telling you what need and wants are, how to make choices and
what business does, its objectives and characteristics.
1
The study equally introduces you to your role as consumer, wage earner
and citizen. However, the unit gives you various definitions of business
and how you can benefit from it.
2.0 OBJECTIVES
After studying this unit, you should be able to:
know what business is

explain your relationship with business
explain the benefit you derive from business
terms of business.
3.0 MAIN CONTENT
3.1 What is Need and Want?
You can‟t know what business is except you know some basic concepts.
Wants - these are things you wish you could have for instance you wish
to have a jeep car, a job in NNPC, to be a governor.
Needs – these are necessities of life. You cannot do without them; they
include food, shelter and clothing
Your needs and wants are translated into goods and services. Goods –
they can be physically weight or measured e.g. bicycle. Services – are
tasks that people or machine performs. For example, A

doctor attending to your health problem.
You know that your resources are not enough to attend to all your
problem. Resources mean anything you can use to value or obtain, what
you need and want i.e. salary, influence etc.
3.2 Making Choices
In making your choice between the list of goods and services, it means
that there is cost attach to it. For instance of you have N200 to buy either a
recharge card or going to town to see a friend. If you decide to see a friend
and not buying a card, then you have given up the later which is an
opportunity cost. Opportunity cost could be in term of money or another
item.
2
In making your choices you attach value and goals to the goods and
services.
The value differs from product to product. While your goal equally
determine your choices of products.
3.3 What is Business?
Brown et al (1997) says Business is all of the activities of an individual or

group of individuals in producing and distributing goods and services to
customers.
Business wants to know your needs, wants, goals, values etc before they
can sell their goods to you.
Business therefore is involved in the following activities.
3.3.1 Producing Goods and Services
Business provides goods and services to you. In today‟s business goods

and services are many.
Examples
Goods
- Handset
- Cloth
- Computer
- Radio
- House etc
Services
- Education
- Doctor attending to you
- Traveling by air
- Lodging in a hotel
3.3.2 What a Business Does
A lot of activities happen before goods and services get to your door step.
A product is not just made in a day and finds its way to the store. These
are some of the activities that are performed by business.
3
Organising - within a company some one will be in charge to organize

people and machines as to provide products.
Manage - if there is no one to manage finance, human resources and

production, the company can‟t go on smoothly.
Production - it is the responsibility of a business to produce those

physical item you are using i.e. radio, wrist watches etc.
Marketing - business is involved in advertising, distributing and selling

those products produced.
3.3.3 Resources Business Use
Companies use resources to be able to perform those functions in 3.3.2

and 3.3.1 above. We have told you what resources are. Resources that
business will use include:-
- Human Resources - salesmen, accountants, manager.

- Materials - building offices, stores, raw materials for production.
Business decides on choices of how to combine their resources and many

more everyday at what cost to achieve their aim.
3.4 Characteristics of Business
Business has some of all of these characteristics:
1. Exchange sale or transfer of goods and services. For every business

there must be exchange of goods and services for money.
2. Profit motive. For every business activities it is for profit making.

But profitable organizations and some corporation they are
established to provide services.
3. Dealing in goods and services. For every organization that is
business oriented, it must produce goods and services (refer to
3.3.1)
4. Uncertainty and risk bearing. Every business undertaking must take
risk and there is always uncertainty. Uncertainty may arise as a
result of competition, wrong decisions unethical.
5. Continuity and regularity. A business undertaking must always be
in business and not on and off.
4
3.5 Objectives of Business
1. Profit. The aim of an organization is to make profit

2. Survival. Every business must have as a goal to continue to
survive or exist.
3. Growth. A business must not only survive, but it must have as
goal to be the biggest.
4. Market share. Every business concern must be able to carry out its
market share to control, aid sale its product to.
5. Productivity. It must continue to produce.
6. Innovation. Business must try to see that it‟s the first and best to
bring up new ideas.
7. Employee‟s welfare. Business must maximally want to take care
of its workers.
8. Service to consumer. Consumers are well satisfy as another
objective of any business concern.
9. Social responsibility. Apart from doing 1-8 it must do to other
things that people around the business must benefit.
SELF ASSESSMENT EXERCISE
1. List five characteristics of a business

i.
ii.
iii.
iv.
v.
2. List five objectives or goals of a business.
i.
ii.
iii.
iv.
v.
3.6 You and the Business World

Directly or indirectly, you affect a business. Have you ever heard someone
saying, who becomes Nigerian president or my state governor I don‟t care.
I want to believe, it is out of ignorance he is saying so. If a company
produces soft drink in your locality, your decision to buy or not to buy has
an effect on the business.
If you decide not buy any product, you have made business decision. You
as a consumer, citizen or a wage earner, business and you have a
relationship.
5
3.6.1 Your Role as a Consumer
Consumers are always referred to as a king. If you make purchases of a

company‟s product you are telling the company that you like their
company. If you continue to buy, you increase the company‟ profit.
If you don‟t buy a company‟s product, the company can stop production
and fold up to relocate.
Your role as a consumer is to continue to patronize the company so that

the company can grow.
3.6.2 Your Role as a Wage Earner
As a wage earner you earn some income, there is need for you to develop
your career. Your thinking is what you will get and what will be your
contribution.
As a wage earner, you may want to gain
- Recognition
- Respect
- A great deal of money
Your contribution to the business will be dependent on the following

factors
- Skills
- Job market
- Personality
- Your interest
As a wage earner, you have a great deal to contribute to a business.
3.6.3 Your Role as a Citizen
As a citizen the first in mind is that I will be law abiding, pay my tax. A
lot of you have forgotten that you are suppose to participate in running of
government and make important policy decision affecting the public.
The people you elect into leadership position affects business activities of
a country.
Obasanjo‟s government brought in privatization, commercialization,

liberalization etc.
6
Brown et al (1997) concluded that business plays an important role in your

life today and will play an increasingly important role in the future.
Likewise, you affect what business does now and will do in the future. Its
important to know business tricks and how you can relate to the business
world.
3.7 Who Benefits from a Business?
Business as we now include production of goods and service those

consumers want. Business try‟s to find out what is good for the consumer,
so that businesses will reach out to each other. Because of these, business
produce goods and services not only quality goods, they do the following
to benefit others.
3.7.1 Business Owners
Businesses owners are proud to be there own owners of business i.e.

there is satisfaction of being their own boss.
Income comes into the business owner‟s hands. There is equally an

opportunity to grow.
3.7.2 Employees
Workers are paid salaries. It therefore means you earn an income that
enable you attend to your own personal problems like building a house,
buying a car. It enables you as a worker to make choice of what to buy.
Employee‟s benefit from business training opportunity. Business enables

you to gain on the job experience about the job. After that you can
establish a business on your own.
Business could send you for training outside the organization and gain
experience, which could lead you to getting another job outside the
organization.
Employees gain from business other benefits like health insurance,

retirement plan, sick and vacation leave etc.
3.7.3 Government
The basic thing that government gains from business is tax. Business pays
various taxes to government, which enables government to provide other
services to the general public.
7
3.7.4 General Society
Whether you patronize a business or not these days, you are likely to
benefit from business. Business provides to the general public what we
call social responsibility. For instance MTN provide computer centers to
some secondary schools in Nigeria.
Businesses build schools in some countries to operate on. These are some
of the social responsibilities that the general society benefits from
businesses.
General public has started benefiting from business producing friendly

products. In the US it is referred to as Green product i.e. environmentally
friendly product i.e. non-toxic and non-polluting clean products. Ozone
layer friendly product i.e.
3.8 Business Terms
Some of these terms are mostly used in business:
1. Business enterprises. There is the sum total of business activities

that have creation, maintenance, expansion of a corner which am to
exist for a profit.
2. Business form. A business firm is an economic unit, entity or
organization.
3. Industry. Consists of a number of firms.
4. Commerce. It is made up of trade and all activities that make trade
possible.
5. Trade. It refers to the sale, transfer or exchange of goods and
services and constitute the central activity armed with the auxiliary
function i.e. banks, transportation etc. It is the exchange of goods
and services for money or other goods.
1. Define wants, needs, goods, services and resources with examples.
2. What costs do you encounter when you give up one choice in

favour of another? Give practical example.
4.0 CONCLUSION
You have learnt in this unit what business is, its function and its benefit to
all and the society. Business therefore is how to better the life of all within
a given society by providing them with qualitative goods and services.
8
5.0 SUMMARY
Business activities include how to identify your needs and wants and make
choices among the numerous options. As a consumer you have an effect
on any services whether you patronize them or not.
Both government, consumer, general public benefit from a business

concern once the location is within their territory.
6.0 TUTOR-MARKED ASSIGNMENT
What is Business? What are the benefits that can be derived from a
business?
7.0 REFERENCES/FURTHER READINGS
Betty I. Brown and John E. Clon (1997). Introduction to Business, Our

Business and Economic World. New York: McGraw Hill Inc.
9
UNIT 2 CONCEPT OF BUSINESS MANAGEMENT AND

ADMINISTRATION
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Differentiate between Business Administration and
Management
3.2 Comparism between Management and Administration
3.3 Administrative Organisation
3.3.1 Types of Administrative Organization
3.4 Types and Functions of Management
3.4.1 Scope of management
3.5 Evolution and Development of Management Theories
3.5.1 Classical Theories of Management
3.5.2 Behavioural Theories of Management
3.5.3 Management Science
3.5.4 System Approach
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The unit of Business Management concept and administration, introduce

you to the basic origin of business administration and management. Some
early contributors to the theory of management as discuss. Discussion on
types of management.
2.0 OBJECTIVES
differentiate between administration and management

know the evolution and function of management
know some theories of management.
10
3.0 MAIN CONTENT
3.1 Differentiate Between Business Administration and

Management
Dictionary of management, by Hartzell (2006) say this about Business
Administration and Management.
The terms management and administration have been used by different

management authorities in a manner that sometimes they seem to be one
and the same while at some other time; they diverge. According to most of
the modern writers like Fayol, Koountz, Alleri and Perry, there is no real
distinction between the two terms. Fayol for instance stated “All
understandings require planning, organization, command, coordination
and control and in order to function properly, all must observe to some
general principles, we are no longer confronted with several administrative
sciences but with one which can be applied equally well to public and
private affairs”.
3.2 Comparison between Administration and Management
Hartzell (2006) has differentiated administration and management as

follows:
1. Administration is main functions include the formulation of broad

objectives, plans and policies where as the main function of the
management are getting the work done through others in order to
achieve the set goals.
2. Administration is basically a policy and decision-making function
while the management is an executive function.
3. Administration decides what is to be done and when it is to be done
whereas the management decides who has to do it and how.
4. Administration is important at the top levels of management
whereas the management is more important at middle levels.
5. The term administration is commonly used for non-business
institutions whereas the term management is used to business
enterprises.
3.3 Administrative Organisation
It can be define as an organization in which the jobs or functions to be

carried out are clearly defined in order to achieve the target. The
responsibilities and authorities at various levels of managerial positions
are clearly defined. Hartzell (2000).
11
3.3.1 Types of Administrative Organization
You can classify administrative organization into three:
1. LINE ORGANIZATION
This is the type of organization that you have direct authority over your
respective subordinates through chain of command. All the managers have
full authority to decide and act with respect to their area of functioning.
President
V.P
V.P
V.P Finance Production
Marketing
Manager Manager Manager Manager Manager Manager

Service
Account Stores Plant Customer Production Maintenance
Foreman Foreman
2. LINE AND STAFF ORGANIZATION
In this type of organizations, there are two type of authority relationships

i.e. true authority and advising authority co-exist most of the managers
have line authority to decide and act as in a line organization. However,
there are some positions where job is of advisory and supportive nature.
Some of the examples are personnel managers, company secretary.
3. FUNCTIONAL ORGANIZATIONS
It is define as an organization in which line authority, staff authority and

functional authority exist together. A functional authority is a limited form
of line authority given to functional experts over certain specialized
activities under the normal supervision of managers belonging to other
department e.g. if personnel policies are observed in all the departments
through out the organization. Harztell (2006).
12
3.4 Types and Function of Management
Management type can be classified according to
- level of responsibility and

- range of activities they are responsible to.
They are classified as:
- Junior or First-Line Management - These are set of managers at

a lower level, they are in charge of other workers. Example of
junior manager is a foreman who is in charge of builders, senior
driver in charge of other drivers.
- Senior Management - You take titles like Chairman, Managing

Director, Chief Executive, Rector, Vice Chancellor, etc. They are
charge with a lot of responsibilities which include strategy
formulations.
3.4.1 Scope of Management
Wilkson et al (1994) sees a functional manager as responsible only for a

single area of activity, such as production, finance or personnel. A general
manager, by contrast, is responsible for many activities.
3.5 Evolution and Development of Management Theory
Before now human beings were leaving on their own, the history of barter
is still fresh in your memory. People were operating in groups; this came
as a result of the extension of family and tribes.
As the society develops, and things become more complex, there is need
for managers.
Technological development leads to rapid industrial revolution, this lead

to:
- Specialization
- Division of labour
- Systematic approved to managers
Business and organization become the order of the day, factories were
growing, the question was how to manage human and natural resources.
How to manage responsibilities. This in fact led to theories of
management.
13
3.5.1 Classical Theories of Management
These theories include Specialization and the division of labour. A

professor of mathematics known as Charles Babbage (1792-1971), who
invented the first mechanical calculator which lead to today computer,
believe that application of scientific method of production could head to
increase in output and reduction in cost. He therefore advocated for
division of labour.
He believes that workers could specialize on a specific job, by so doing,

he may require less training. This thinking has led to today modern
assembly line method of production.
Scientific Management
Fredrick Taylor, whose study on how to improve productivity of workers

was carried out in Midvale Steel Company in Philadelphia and Simonds
Rolling Machines and Bethelen Steel. He rose to a management position
in a rolling mill at age 31.
His study brought about the following:
- Improving productivity of workers

- Importance of selection and training procedures.
- Need for proper cooperation and communication between workers
and management.
Henry Ganth (1961-1919) worked with Taylor he developed idea on
incentive scheme:
- Instituted a reward for workers

- Reward from supervisors of training employee
- Garth chart for producing scheduling
Frank Gilbreth (1869-1924) and Lillian Gilbreth (1879-1972) – There

study is popularly known as time and motion studies, it involve fatigue
involve in a variety of jobs, resulted in a number of new techniques.
Their study recalls that:
- It will raise the moral of workers

- Their position plan- teaching, doing and learning.
- Scientific selection of workers.
- Stress the importance of training some of the problem with this
finding.
- They see managers as born and not made.
- It stresses materials gains and income psychological and social
needs.
14
ORGANIZATION THEORY
This theory is attributed to Henry Taylor (1841-1925), who sees his

success as a mining engineer with a French coal and Iron company
because of his application of management principle, rather than personal
qualities. The five functions include:
- Planning
- Organizing
- Commanding
- Coordinating
- Controlling
Taylor expanded his principles into fourteen (14):
i. Division of work
ii. Authority and responsibility: the right to command others
iii. Discipline: firm but fair
iv. Unity of command: an employee received order from one superior
only
v. Unit of declaration: everyone pulls the same way
vi. Subordination of individual interest to general interest
vii. Remuneration: the pay must be fair
viii. Centralization: the extent to which authority is delegated through
departments
ix. Chain of authority: ranging from ultimate authority to lower
levels.
x. Order: there must be a place for every employee.
xi. Equity: treating employees well, foster loyalty
xii. Stability of tenure of staff: job security
xiii. Initiative: thinking out a plan and executing actions
xiv. Espirit de corps: team work and harmony build up the strength of
the organization.
3.5.2 Behavioural Theories of Management
Hugo Mitsberg and Eltin Mayo undertook a study: having in mind that
psychology and sociology has developed rapidly and that it has effect in a
worker than the environment as such they could be used in selecting,
training and motivating worker.
The use of lightening to measure the effect of worker productivity was

inclusive, because the productivity improves when and there was no
lightening.
15
It means therefore that there are other factors that affect workers rather
than the artificial condition.
Some of the things that workers care for include:
- Sympathetic supervision and care about their welfare

- Group pressure at work
- Relationship at home.
3.5.3 Management Science

The statutory of management science can be traced back to after the
Second World War. Operational research teams were set up consisting of
mathematicians, physicists and other scientists, who pooled their
knowledge together to solve problems.
They try to solve problem that could not be solved by conventional means
with the development of scientific means i.e. computers problem could be
solved fast.
Management science is more useful in planning and control i.e.
- Capital budgeting
- Production scheduling
- Control of stocks
- Scheduling of bus, transportation etc.
This scientific method has little or no effect with people.
Management science differs from other schools, because management

science depends on overall planning and decision making process.
- it advocates the use of computers and mathematical models in

planning.
- evaluation of effectiveness of models.
3.5.4 The System Approach
In an organization a systematic approach is a combination of interrelated

parts, for a common purpose under the same environment.
There is at the end of the day a coordination which results into a synergy.
This system rely on
- information and
16
- feed back
All these are to achieve the same goal:
INPUT
Human
OUTPUTS
PEOPLE
PRODUCTS
MONEY
SERVICES
MATERIALS
PROFITS
INFORMATION
The system approach to management adopted from modern business

administration 6th ed Robert C. Appleby (Tidman Publishing N Y 1994).
Differentiate between administration and management. How can Henry

Taylors 14 principles of management be applied in managing a business.
4.0 CONCLUSION
You have learnt the difference between Business Administration and

Management. A business concern cannot be achieved expect you
administer it through planning, organizing, commanding and controlling.
All are coordinated into a system to achieve customer‟s satisfaction.
5.0 SUMMARY
Business activities has two basic dimensions, in the process of

implementing it, from the history we have classical and behavioural
aspects of attending to management problem of business.
All these human aspect of management must be looked at seriously so as

to achieve a targeted business goal.
17
Describe with examples, the responsibilities of top, middle and junior

management.
Roy Wilkson, (1994). Business Studies an Introduction to Management

and Business Studies. Oxford: Heinemann.
Daniel Hartzell (2006). Dictionary of Management. Nigeria: EPP Books

Services Nig Ltd.
18
UNIT 3 KINDS OF BUSINESS (1) - SOLE TRADER
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of a Sole Trader
3.2 Features of a Sole Trader
3.3 Sources of Funds of a Sole Trader
3.4 Advantages of a Sole Trader
3.5 Disadvantages of a Sole Trader
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit of a sole trader is a kind of business; It shows that it involves a

business run by a single person; sole trading business is common among
our environment. This unit will see us defining what a sole trader is,
features of a sole trader, sources of funds for a sole trader, its benefits and
problem.
2.0 OBJECTIVES
After studying this unit you should be able to:
define a sole trader

differentiate a sole trader from other kinds of business
explain how a sole trader source for founds for his business
identify the benefits of a sole trader identify the
disadvantages of a sole trader.
3.0 MAIN CONTENT
3.1 Definition of a Sole Trader
Definition of a sole trader is almost the same from different authors:
(v) A sole trader is a person who enters business working for

him/herself. He/she puts in the capitals to start the enterprise, works
either on his/her own or with employees and, as a reward receives
the profit. Carol (1993:6)
19
(vi) A sole trader is a form of business enterprise in which one man

owns and manages the business. Denedo (2004:2).
A sole trader goes with other names as “one-man business”, “sole

proprietor”.
Sole trading is mostly found in retailing business. This type of business is

the oldest type of business in Nigeria. Up to 19th century, most production
companies were owned by individuals. In Nigeria it is one of the
commonest types of business you see around. You see them around the
cities and villages.
The sole trader starts his business with his own capital and labour
(sometimes he may borrow money from friends or relatives assisted with
labour by same people). He organizes the business himself and takes all
the profit or loss that arises.
The sole trader therefore represents many things at the same time. He is a
capitalist because he alone owns the business and receives the profit. He is
a labourer because he performs most or all the work in the business; he is
an entrepreneur because he takes on his stride the risk of financial loss. He
is also a manager because he takes decisions and controls the operation of
the business.
SELF ASSESSMENT EXERCISE 1
Look around your environment and name about ten one-man businesses
you see.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
20
3.2 Features of a Sole Trader
(i) Ownership: A sole trader as the name implies is own by one

person.
(ii) Liability: The liability of the one man business in unlimited. I.e.,
if the owner is indebted, both, the business asset and his personal
asset can be sold to offset the debt.
(iii) Sources of Capital or Finance: The capital outlay is provided by
the owner. This source of fund could be through.
- Personal saving
- Intended capital
- Credit
- Borrowing from relatives
- Banks etc.
(iv) Legal Entity: It is not a legal entity. By law the business and the
owner are regarded as one person. They are not different, unlike
corporate business; a company is a legal entity, different from the
owners.
(v) Motive: It is believe, that a sole trader is into business to make
profit.
(vi) Method of Withdrawing Capital: The owner can withdraw his
capital anytime from the business without consulting with anybody.
(vii) No Board of Director: Because he is the owner, no board of

directors that is why he does what is in (vi).
(viii) Its Nature: It is a simplest and the commonest type of business
unit you can think of.
From the ten sole traders listed above. Name other five characteristics
that are not mentioned on the ones above.
(i)
(ii)
(iii)
(iv)
(v)
3.3 Sources of Funds of a Sole Trader
(i) PERSONAL SAVINGS
I have met a friend who was a civil servant for about thirty five years.
After his service, he opened a shop where he sells paint at his retail shop.
When I engage him in a discussion, he said at a time in his
21
working life he decided to save ten thousand Naira (N10,000) monthly

and that is the money he used in setting up his business.
We have a lot of sole traders who got money from this method to setup
their business.
(ii) BORROWING PARTICULARLY FROM FRIENDS AND

RELATIVES
It is common, among the Igbo business traders that once their brothers are
willing to do business, they give him a helping hand by borrowing him
some amount of money to start his business, when he starts making profit,
he will pay. This borrowing is not limited to brothers alone; friends and
relatives equally help out in this situation for people to start up a one man
business.
(vii) CREDIT PURCHASE FROM MANUFACTURES OR

WHOLE SALE’S
Sole traders get financed through credit buying from the manufactures or a
wholesaler by selling goods to sole traders at credit the wholesalers are
financing a sole trader.
(v) DONATIONS FROM FRIENDS AND RELATIVES
Friends and relatives can dash you money purposely to help you continue
with your business.
If you are to start your own business as a sole trader where will you
source for funds?
1.
2.
3.
4.
5.
3.4 Advantages of a Sole Trader
(i) It requires small capital. Can be established quickly and easily

with small cash, there are no organization fees and the services of
lawyers to draw up terms are not generally required. It is the
commonest and the cheapest form of business organization.
22
(ii) Easy to establish: This is because it requires no formalities and

legal processes attached to establishing the business and is subject
to very few government regulations as no business of balance sheet
to the registrar of companies is required.
(iii) Ownership of all profit: The sole trader does not share profit of the
business with any one.
(iv) Quick decision-making: The sole trader can take quick decisions
since he has no parties to consult or a boss whose permission he
must get. He takes action as soon as circumstances arise or as soon
as he conceives an idea, such flexibility could be very vital to his
success.
(v) Easy to withdraw his assets: Proprietorship can be liquidated as

easily as it is begun. All what he needs to do is to stop doing
business. All his assets, liabilities and receivable are still his.
(vi) Single handedly formulates all policies: He determines the firms‟

policies and goals that guides the business internally and externally
and works towards them. He enjoys the advantage of independence
of actions and personal freedom in directing their own affairs.
(vii) Boss: He is free and literally his own boss but at the same time
continues to satisfy his own customers.
(viii) It is flexible: The owner can combine two or more types of

occupation as a result of the flexibility of his business e.g. a barber
can also be selling mineral and musical records.
(ix) Personal Satisfaction: There is a great joy in knowing that a

person is his own master. The sole trader has a great deal of that.
He also knew that the success and failure of the business
completely lies with him. This gives him the incentive to make his
business as efficient as possible.
(x) Cordial Relationship, with workers and customers: Because the

sole trader is usually small, the owner can have a very close
relationship with his workers to the extent that domestic/personal
issues can be discussed and addressed. He also knows first hand
from customers what their wants are. It also enables him to know
which of the customer‟s credits are worthy. This kind of
relationship is usually beneficial to all the parties.
23
(xi) Tax saving: Unlike in companies the profits of the sole trader are
not taxed, the owner only pays his income tax.
(xii) Privacy: The sole trader is not under any legal obligation to
publish his accounts for public consumption as in joint stock
companies.
List other five benefits of being a sole trader
(i)
(ii)
(iii)
(iv)
(v)
3.5 Disadvantages of a Sole Trader
(i) Bear All Losses and Risks Alone
Business is full of risks and uncertainties and unlike other forms of

business organizations where risks and losses are shared among partners,
the owner of one-man business does not share these risks and losses with
any body as it does not share the profits of the business with any body.
(ii) Limited Financial Resources
The greatest single cause for the abandonment of one -man business form
is the desire for expansion and the resultant need for additional capital
which is not forthcoming because the capital used in running the business
comes from only one-man and is limited to the extent of his own personal
fortune. His inability to raise more capital limits its plan of expansion.
(iii) Unlimited Liability
Unlimited liability means that in the event of failure of the business, the
personal assets of a person can be claimed to pay debts of the business.
For a sole trader, it means that everything he owns is subject to liquidation
for the purpose of setting the ability of the business if the business fails.
24
(iv) Lack of Continuity
When the sole proprietors retires or dies, the business may end like that.
Though his children or relatives may attempt to continue with the
business, most often than not they lack the zeal, and or, the ability to
operate efficiently. The imprisonment or bankruptcy of the sole proprietor
spells similar doom for the business.
(v) Absence of Specialization
As stated earlier the sole proprietor does so many things by himself. As a

result of this, he may not handle aspects of the work efficiently. This
negatively affects the prospects of the business.
(vi) Limitation on Expansion
Because of limited capital, the sole proprietor may not be able to increase
the size of his business no matter how ingénue he is. As enumerated
earlier, the sole proprietor has few source of capital. Except for banks, he
may not get any substantial capital for expansion frantically; his ability to
borrow from banks depends on his collateral which may not be enough for
bank finding.
The following story was referenced from Carol (1993:7). Read it and
answer the questions that follow:
When he left school, Tony Sinclair trained to be a hair dresser; he has

worked in three salons since, the latest being the most prestigious and
expensive hair dresses in the town.
He has built up his own list of clients who refuse to have their hair done
by anyone else and he is now chief stylist where he works. He earns a
good salary and excellent tips and gets on well both with his boss and the
other employees.
Last month Tony‟s Aunt died and left him with N50,000. At the same time
he found out that suitable premises for a hairdressing business are for sale
on a prime town center site. He is very tempted to leave his job and start
up on his own, especially as he knows many of his customers will follow
him.
Tony‟s Friend, Neil is in favour of this idea and they have talked nearly
every night of the advantages of Tony setting up on his own. However, his
sister, Panla, who is two years older, is more worry, she has told
25
Tony to think carefully about the scheme. She has pointed out to Tony
several disadvantages which could occur if he “goes it alone”.
(1) What advantages do you think Tony has put forward in favour of
the change?
(2) What disadvantages do you think Panla has put forward
4.0 CONCLUSION
Sole proprietorship, is a business owned by one person who raises his

finance from himself, relatives and friends. He has freedom in his
business, but failure could be fatal because he will have nothing to hold on
to.
5.0 SUMMARY
The one man business is easy to establish. It is one of the most popular
businesses in Nigeria. Benefits of this type of business include being the
sole owner of all profit, takes decision and so on. While the business is
limited by lack of finance, lack of expansion etc.
Despite all these a sole trading is worth while a business because you are
your own boss.
Discuss the benefit of being a sole trader

.
Denedo Charles (2004). Business Methods Simplified. Bida: Blessed

Concepts Prints.
26
UNIT 4 KINDS OF BUSINESS - PARTNERSHIP
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Partnership
3.2 Features of Partnership
3.3 Types of Partnership
3.3.1 Ordinary Partnership
3.3.2 Limited Partnership
3.3.3 Kind of Partners
3.4 Sources of Funds for Partnership
3.5 Article of Partnership on Deed of Partnership
3.6 Advantages of Partnership
3.7 Disadvantages of Partnership
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit of a partnership tries to let you know what partnership is, its
features, types of partnership, there sources of funds. The benefits of
partnership, its weakness i.e disadvantage of partnership.
2.0 OBJECTIVES
At the ends of this unit study, you should be able to:
defined partnership
explain how partnership is formed
identify the types of partners
identify benefit of partnership
explain problems of partnership.
3.0 MAIN CONTENT
3.1 Definition of Partnership
Denedo (2004) says partnership is an association of two to twenty persons

carrying on a business in common with the view of making profit. The
partners contribute both funds and efforts to set up and manage the
business sharing profit (or loss) on an agreed basis.
27
Partnership can also be define as the relationship that exist when two or
more persons who contribute small money or moneys worth in order to
establish, own and manage business organization with the sole aim of
making profit. Partnership is an association of 2-20 persons or 2-10
persons as in case of a bank to carry on as co-owners of business for
profit. They also share the losses that arise from such businesses.
3.2 Features of Partnership
1. Ownership: It is formed by between 2-10 people and between 2-

10 people in case of banks
2. The initial capital is contributed by partners
3. Liability: Their liability is unlimited except for limited partner.
4. Formation motives: They are formed for profit reasons.
5. Sources of capital: contribution from the partners ploughing back
profit, loans from banks
6. Method of withdrawing capital must be approved by other
partners as laid down in their partnership deed.
7. It has no separate legal entity
8. It has no board of directors.
3.3Types of Partnership
We have principally two types of partnership namely; ordinary and limited

partnership.
3.3.1 Ordinary Partnership
All members or partner take active part in the management of the business
and are generally liable to any loss or risk. All partners have equal
responsibility and bear all the risks of the business equally. All the
partners have equal powers, unlimited liabilities, take active part and
profits are shared equally.
3.3.2 Limited Partnership
Any members in this category, his debts are restricted to the amount of
money contributed in running the business. Not all partners take equal part
in the management of their business. But there must be a member who
bears the risk and also takes active part in the business activities. In other
words, in limited partnership, there is at least one ordinary partner who has
unlimited liability.
3.3.3 Kinds of Partners
28
We have five types of partners and they include:
Active Partner: This is the partner(s) who take active part in the
formation, financing and management of the business. They receive
salary for the role they play as a manager or managing director or
director of the business as spelt out in the partnership deed.
Dormant/Sleeping Partner: This partner contributes only the money

needed for formation of the business or for running of the business. He
is not involve in managing of the business and doesn‟t receive salary.
He is only entitled to profit sharing and losses as it is agreed upon
before formation.
Normal/Passive Partner: A normal partner is one who is not actually

a partner but who allows his name to be used in the partnership or who
gives the public the impression that he is a partner even though he may
not share in the profit of the business. This is a partner appointed
because of his experience, fame or wealthy position. These members
may be men and women of substance whose name are greater than
silver and gold like retired army generals, politicians, civil servants
,successful business men.
Silent Partners: A silent partner is an individual who is known to the

public as a partner but who does not take active part in the
management of the firm.
Secret Partner: A secret partner is that who is active in the affairs of

the business but not known to the public as a partner.
If you are to form a partnership today which type of membership would

you prefer.
Name five reasons for choosing the type.
(i)
(ii)
(iii)
(iv)
(v)
3.4 Sources of Funds for Partnership
The following method could be used by partner to fund their business.
29
(i) Contribution from members

(ii) Ploughing back profits
(iii) Borrowing from the bank
(iv) Enjoying credit facilities
3.5 Article of Partnership or Deed of Partnership
This is the document that regulates the activities of the partnership

business. It is the “constitution of the partnership business aimed at
guiding against, or resolving disagreements. It is normally drawn by a
solicitor for the partners. The partners agree and sign the document. The
deed of partnership is not legally required. It is very essential. The style
and contents of the deed of partnership vary from partnership to
partnership. They include all or some of the following:-
- Name of the firm

- Name of the partners
- The place of business
- The description of the nature of business
- The amount of capital that each part is to contribute,
- The role of each partner in the business
- The method of profits and losses sharing,
- The compensation, if any, the partners are to receive for services
rendered to the business
- The right of partners in the business
- How long the business shall last
- Partner‟s rights in the business
- How matters shall be determined either by majority vote or not
- Provision for the admission of new members
- The arrangements concerning withdrawals or additional
investment
- Arrangement for the dissolution of the firm in the event of death,
incompetence or other causes of withdrawal of one or more of its
members.
Once each partner agrees to sign this document, it becomes a legal

document that is enforceable in a court of law.
3.6 Advantages of Partnership
The following, are the advantages of partnership.
30
(i) Greater financial resources: Unlike a one-man, business between

two and twenty persons forms the partnership. It translates into
more capital for such business compare to the one-man business.
By so doing ability to borrow i.e. from bank and be approved is
higher and better compare to one-man. Benefits of expansion are
higher because more funds are available.
(ii) Combined Abilities and Skills: In partnership, there are various

partners, with various ideas, i.e. accountants, marketers, bankers,
historians, managers etc. may come to together to form a business.
They will put into use various talent which may advance the
company more compare to a one-man business, who is the only
talent.
(iii) Greater Continuity: Relative to the sole proprietorship, the

partnership has a very great tendency of continuity even in death.
The death of a partner may bring about a re-organization of the
partnership, but the remaining members are likely to have some
knowledge that will enable them to continue with the business.
(iv) Ease of Formation: Like-one-man business, the partnership is

fairly easy to organize as there are few governmental regulations,
governing the formation of partnerships. The investments duties,
privileges, liabilities and other relationships of the partners are
mutually agreed upon, and as soon as the new members and
materials have been brought together, the business is ready to
function.
(v) Joint and better decision: That two good heads are better than one
and this is applicable to partnership business where joint and better
decisions are taken.
(vi) Creation of employment opportunities: The large size partnership

is in a vantage position to employ more in their business because of
its huge financial resources.
(vii) Employment of valued employees: In order to secure the advice

and experience of esteemed employees. They are made partners in
the firm. This is a way of enhancing their personal work as well as
that of the firm.
(viii) Tax advantage: Partnership enjoys tax advantage. Taxes are
therefore, levied upon the individual owners rather than upon the
firm as it is not recognized as a legal entity.
31
(ix) Application of Division of Labour: This is applicable in its

managerial and administrative hierarchy.
(x) Privacy: Like the sole proprietorship, partnerships are not under
any legal obligation to publish their books of accounts for public
consumption.
List five other benefits of partnership that are not mentioned above.
(i)
(ii)
(iii)
(iv)
(v)
3.7 Disadvantages of Partnership
(i) Unlimited Liability: If the business fails in the process, assets will
be sold to offset their liabilities. In a situation where the assets can
not pay for the debt, the owners‟ personal belongings could be sold
to offset such debts.
(ii) The business is not a legal entity: Most of the partnership business
has no legal backing.
(iii) Disagreement and Resignation: Death of a partner can lead to the

death of a business especially the active partner. Most of the
partnership ends with disagreement. Disagreements because of
action or Opinion lead to resignation which could lead to total
death.
(iv) Decline in pride of ownership: Since the partnership is owned by

at least two people the pride and joy associated with ownership is
reduced. Unlike in sole proprietorship where the owner enjoys
great pride in his business.
(v) Bureaucracy leads to slow decision and policy making: Meeting

that require quorum, may not always be formed.
(vi) Risk of mandatory dissolution: Where a member withdraw his

membership or admission of a new partner becomes necessary, the
partnership will be dissolve and another agreement reached to
admit such member. The rigors involve in this is tedious, which
may be a problem for such act.
32
(vii) Limited capital: This partnership can not get more capital through
shares except through members.
(viii) Restriction on sale of interest: There is a difficulty in affecting

transfer of ownership. The interest of operation is not transferable
without the consent of other partners.
4.0 CONCLUSION
Partnership is an improvement on a one man business whose chances in

business are higher in terms of finance expansion, management and
continuity.
Partnership is formed between two to twenty members who agree to come

together. An article of association is written to serve as a legal document.
Partnership is not a legal entity and there liability is unlimited at a point of
indebtedness.
5.0 SUMMARY
You have seen in this unit that partnership is a business form between 2-
20 people who has an article of association as a guide.
There source of finance is through partners banks and other legal sources.
They are guided by their article of association as regard sharing of profit
/losses. As a member of a partnership business there is so much benefit to
derive i.e. more capital compare to one man business and looking at the
adage that two heads are better one.
The problem of a partnership is mostly in areas of dissolution, distrust and

liabilities are unlimited.
Discuss 5 advantages and disadvantages each of partnership
Denedo Charles (2004). Business Methods Simplified. Bida: Blessed

Concepts Prints.
UNIT 5 KIND OF BUISNESS - JOINT STOCK
COMPANY
CONTENTS
33
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Joint Stock Company
3.2 Method of Formation
3.3 Features of a Private Company
3.4 Features of a Public Limited Company
3.5 Advantages of a Private Company
3.6 Disadvantages of Public Private Company
3.7 Advantages of Public Limited Company
3.8 Disadvantages of Public Limited Company
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit is discussing about the joint stock company as a type of business,
it is an improvement on that of partnership, this business is not own by
one person neither is it own by two people. These types of corporation are
both classified into private and public company. The owners of the
business buy shares in the company. Their benefit and demerits are stated,
and then sources of funds are as well stated.
2.0 OBJECTIVES
At the end of the unit, you should be able to:
define a joint stock company

differentiate between a private and a public company
explain the benefits of both private and public company
explain the problems of both private and public company
discuss their sources of funds.
3.0 MAIN CONTENT
3.1 Definition of Joint Stock Company
34
A company is an association of individuals who agreed to and jointly pool

their capital together in order to establish and own a business venture
distinct from others.
You can define it again as an association of investors who buy or own

shares in a company for the purpose of carrying on a business. Those who
buy or own shares are known as shareholders. They are regarded as the
owners of the company. A joint stock company could be a private limited
company or a public limited company.
We have two kinds of companies.
(i) Unlimited Liability Companies: There liabilities do not end on

the money contributed to the business, there personal belongings
could be sold to recover money from them in case of a company‟s
indebted ness.
(ii) Limited Liability Company by Guarantee: This business is for

promotion of science, religion, arts, education and not for profit
making. They source their fund from members. Their liabilities are
limited by promise or guarantee.
(iii) Limited Liability Companies by Shares: Liability is limited to

the amount they contributed for the formation and management of
the company. If a company is liquidated, they loose only the shares
they have in the company.
We have two types of limited liability companies, they are:
Private Limited Liability Company: This Company when formed

has a minimum number of two people and a maximum of fifty. The
number includes employees of the company.
Public Limited Liability Company: Minimum numbers of people

that can form this company are seven while the maximum is not stated.
The owners are shares holders, people are free to come in and free to
sell-off their shared.
3.2 Method of Formation
35
Formation of Joint Stock Company starts with preparation of documents

that will be presented to the registrar of companies for his action and
subsequent registration.
The document use for registration includes:
(A) Memorandum of Association
It states how the company will relate with the outside world. It will state
the name, location and objectives of the company.
Memorandum of association include:
- The name of the company with “limited” as the last word.

- Location of the company
- Objectives of the company
- Amount of the registered capital proposed
- Liability of the company‟s shareholders (statement).
B. Article of Association
It tells you to about the regulation that is laid down for the internal rules
and regulations of the government organization, and management of the
company. The may include:
- The duties rights and position of each member of the company

- The method of the appointment of the directors
- How dividends are to be shared
- How general meeting are to be held and the procedure
- Method of electing directors and the voting rights at such election
- Method of auditing the company‟s account.
C. The Prospectus
This is a document of notice, circular, advertisement or other invitation

offering the public subscription or purchase of shares or debentures of a
company.
D. Certificate of Incorporation
This certificate is issued by registrar of companies and cooperate affairs

commission Abuja to show that a business is legally incorporated and
recognize by government.
E. Certificate of Trading
36
It is issued to public limited liability company. He can start a business

and exercises borrowing powers.
3.3 Features of a Private Company
- Membership: a minimum of 2 and a maximum of 50

- Issuance of Shares: cannot sell shares to the public
- Transferability of Shares: can only be transferred with the
consent of other shareholders
- Quotation: private companies are not quoted on the floor of the
stock exchange
- Publication of Accounts: not required to publish annual account.
However they must send a copy of their audited account to the
registrar of companies each year.
- Limited Liability: each shareholder possesses limited liability.
3.4 Features of a Public Company
(i) Membership: Minimum of seven and no maximum, but article of

association could specify maximum.
(ii) Issuance of Shares: can sell share to the public
(iii) Transferability of Shares: shares can be transferred without the
consent of other share holders.
(iv) Quotation as Public Companies: are quoted on the floor of the
stock exchange
(v) Publication of Accounts: required by law to publish account and
to also send a copy of audited account to the registrar of
companies each year.
(vi) Limited Liability: each shareholder possess limited liability
List five different headings that exist between private and public
company.
(i)
(ii)
(iii)
(iv)
(v)
3.5 Advantages of a Private Company
37
i. Limited Liability: Liability is limited to the amount of money you

put into the business. In case of liquidation, your personal
properties are not touched.
ii. Privacy: Just like the public company, it is not compulsory to
publish its account yearly as such the company has the advantage
of keeping its secret.
iii. Continuity: The minimum number of holder of a company is two
and maximum is fifty. If for instance you have forty members and
two dies the company will still continue, compare to a one man
business
iv. More Capital: Compare to partnership business, the chances of
sourcing for funds to be granted i.e. from banks is higher.
v. Legal Entity: The Company is a legal entity as such it can sue and
be sued.
3.6 Disadvantages of a Private Company
i. Taxes: Most of these companies pay corporate tax compare to a sole

trader or partnership that pays personal income tax, the tax may be
so heavy that it may be a burden on the company.
ii. Share: It is unfortunate that the companies share are not publicly
subscribed, even in the exchange of shares, all member must be
notify. A new member may be rejected.
iii. The shares of private limited companies are not quoted on the floor
of the stock exchange; hence they cannot be transferred without the
consent of other share holders.
Give five reasons why you will not put your money in a private company
i.
ii.
iii.
iv.
v.
3.7 Advantages of Public Limited Company
38
(i) Legal Entity: It is a corporate body; it can sue and be sued.

(ii) Limited Liability: The liabilities of the owners is limited to the
shares brought into the organization
(iii) Ease of Raising Additional Capital: Because of the large
numbers of the owners it makes it easy to raise fund from their
contributiors or selling of shares or bonds.
(iv) Expansion is Unlimited: There is no limit to where the company
can expand to provide the company has a large capital.
(v) Continuity: This company life is long, even if hundred members
die at a time the chances of its survival is still there. Even in a
period of resignation, disability etc., the company is not threatened.
(vi) Adaptability: It is adaptable to small medium and large scale

companies according to the fund available to the firm.
(vii) Capital Transfer: you can transfer your capital at will if you are
not satisfy with the company.
(viii) Flexibility: for the fact that we have many members as
shareholders, members of board, managers etc with diverse
experience and knowledge, the running of the company will be
perfect using the verse of experience personnel thereby giving
room for flexibility.
(ix) Enjoyment of Large Scale Production unlike One-Man
Business: Because of the number of owners, finances, flexibility
etc. a company has a better advantage of producing goods in a large
quantity.
(x) Share Holders Interest is Safeguarded: Because there is no
secrecy, the shareholders have nothing to fear.
(xi) No managerial Responsibility: You can be a share holder and yet
you are not part of the management. It means that others are
managing the business for you.
(xii) Employees may become Co-owners: Employee will become
owner either by deliberate action of the management of the
companies or by buying shares.
(xiii) Democratic Management: The Company is run democratically;
election of board of directors is by vote. In meeting, if no quorum
is formed there will not be a meeting.
3.8 Disadvantages of Public Limited Company
(i) Double Taxation: Most corporations are faced with double

taxation. In Nigeria, federal, state and local government charge
companies different taxes.
(ii) Hard to Establish: Methods of establishment and finance needed
for such kind of business is high and it require a large capital outlay
which may scare out a lot of investors.
39
(iii) No Privacy: Company and allied matter decree expect this type of
company to publish its account annually, making it public affairs.
(iv) Non-Flexibility: It is hard to switch business because the papers

for registration state what they are to do. If you change condition, it
means you are to form another company entirely.
(v) Special performance must be sought from government to transact
business outside the location in which you were registered.
(vi) Cooperation is Non Existence: Most companies have problems
of misunderstanding between both managers and managers or with
workers; it may be because of the large nature.
(vii) Owners are Separate from Managers: Therefore there is the
tendency of the managers not running it well since they are not the
owners.
(viii) Huge capital is required for its formation, it therefore become
more complex to manage compares to one-man business.
(ix) Delay in policy and decision making.
(x) Suppression of individual initiatives.
4.0 CONCLUSION
We have two types of joint stock Company, i.e. public and private. There
formation is almost the same; the benefit of public is the improvement on
the private. All of them have basic benefits and disadvantage to its owner.
In what ever angle, this kind of business has a brighter future compare to
one man business to partnership.
5.0 SUMMARY
This unit was able to look at the definition of a joint stock company, the
requirement for registration. Joint stock is of two types private and public.
Company‟s advantage takes care of the weakness of the public company.
Enumerate five (5) reasons why you will prefer a private company.
Denedo Charles (2004). Business Method Simplified. Bida: Blessed

Concepts Print.
MODULE 2
Unit 1 Types of Business
40
Unit 2 Business Environment – General

Unit 3 Business Environment – Specific
Unit 4 Legal Issues on Business - Sales of Goods
Unit 5 Legal Issues in Business Law of Contract
UNIT 1 TYPES OF BUSINESS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Types of Business
3.2 Producers
3.3 Processors
3.4 Manufactures
3.5 Intermediaries
3.6 Service Business
4.0 Conclusion
5.0 Summary
6.0 Tutor-Make Assignment
1.0 INTRODUCTION
This unit, types of business introduces you to the study of various

businesses that you can decide to enter into, for you to be on your own.
We have about five types of business depending in how you look at them.
This unit discusses five types of business, their definition and the detail of
each type.
2.0 OBJECTIVES
define types of business

explain different types of business
explain which business you can decide to embark on.
3.0 MAIN CONTENT
3.1 Types of Business
41
You may want to ask what the difference between type and kind of
business is.
- Types of business, is the distinct business activity that one can

center into with the aim of satisfying customers.
- While kind of business is how to organize a business concern in
order to carry out any of the types of business.
3.2 Producers
A producer is that person who is involve in producing those goods and

services for distribution. Producers are more involve in producing goods
that we can refer to as raw materials.
You take an example of:
- Farmer- he is a producer, involve in producing yam, beans,

cassava eggs.
- Mining: He dig for minerals like gold, diamond etc
- Fishing: He goes into the sea and catch fishes for sale to other to
use for consumption or for producing other products.
- Forestry business: Bringing in timbers into the market to sell to
builders etc.
All these people are involved in gathering products in their original forms,
from natural resources such as land and water.
3.3 Processors
These are business for any man that may not be able to produce product
from their natural form, what they do is to add value to such product in
order to sell it to another buyer.
Businesses that change products from their original forms into more
finished forms are processors; take an example of the following:
- Paper Mills: They get raw materials from woods, waste paper and
produce exercise books, tissue papers
- Oil Refineries: Crude oil is gotten from the ground and refine into
petrol, diesel, jelly etc
- Steel: Raw materials are gotten from various locations and they
are turn into steel and steel is produce into another product.
These products that are processes are transformed into processed goods.
42
- Do you consider yam that is turn into yam flour. (elubo), cassava
turn into (Garri). All business operating in this fashion are referred
to as processors.
3.4 Manufacturers
You may be thinking of manufacturers as the only business people are

involved in, when manufacturing is mentioned, but they are not.
Manufacturers could combine the activities of producers and processor
together to get a finished product. Dangote for instance may have a sugar
cane farm, producing sugar cane, Dangote hare is a producer: - Sugar cane
may be process into granulated sugar he is a processor. A situation where
sugar is cubed, packaged makes Dangote a manufacturer and combining
all the characteristics of a producer, processor and a manufacturer.
Manufacturer therefore turns raw or processed goods into finished goods.

Finished goods are those products that are produced and ready for the
market.
Manufactures are business set up to carry out the activities involved in

making finished goods out of processed goods Brown (1997).
Other examples of Manufacturers are:
- Bakery: Producing different types of product of various sizes.
Automobile factory: make cars out of processed goods like steel,

aluminum, glass, plastic etc.
Manufacturers are just involved in producing
- Consumer goods- you buy in the shops

- Consumables- (food, drink, cigarettes)
- Consumer durables, which has a longer life (e.g. Radios, domestic
appliances, televisions and cars
- Producer goods- include
Machinery, raw materials, commercial vehicles wares etc.

Manufactures are concern with:-
- Product mix-Range of product and brands they produce.

- Diversified - making a range of goods which may be sold to
different markets.
43
1. List ten different manufacturers within your area.

2. Mention five companies that is able to combine two or more
characteristics of types of business, apart from Dangote
3.5 Intermediaries
The function of intermediaries is for them to transport and distribute

goods.
An intermediary is a business that moves goods from one business to

another.
These intermediaries are mostly wholesalers and retailers.
- A Wholesaler: Is that business man that buys goods from a

manufacturer in large quantity and resell to retailers in a smaller
quantity.
Wholesaler performs the following functions:
Buying
Selling
Dividing or bulk breaking
Transportation
Ware housing
Financing
Risk bearing
Market information
Management services and advice
A retailer is that business that buys goods from a wholesale and resell
them directly to the final consumer.
Retailers like wholesales perform the function of wholesalers but added

are:
- Breaking the bulk

- Give credit to customer
- Located close to customer
These and more are the functions of retailers different from wholesale‟s.
The entire producer takes decision on either to sell directly or through an
intermediary.
There are four main methods.
44
i. Direct from the producer to the customers;- Is the system mostly

used by mail order companies
ii. The traditional method is via a wholesale‟s to a retailer outlets and
then to the consumer
iii. Many companies deal directly with retailers particularly large
retail chain
iv. Manufacturers that produce goods for tradesmen usually distribute
them via a specialist merchant
DIRECT
P C
R U
O W/S R S
D T
O
U R M
E
C R
E SPECIALIST S
R MERCHANT
S
w/s= wholesaler
r = retailers
One important aspect of intermediation business is transportation.
As a manufacturer you decide on the best method of transporting goods.

This will depend on
- The distance involved

- Types of goods
- Urgency
- Cost
- The customer
Because of these factors, you have to choose any of these modes of

transport action air transport
- It is faster than most methods
- Use for goods that are needed urgently
45
- The disadvantage is the air disaster Nigeria has been witnessing
Road Transport
More flexible
Use for adverting
Cost- if driver travel along distance
Rail
Carry heavy goods at the same time

Less accident
Not flexible
3.6 Service Businesses
Service business is that business that is increasing in number very

Rapidly: In the U S by “mid 90s 75 percent of the workforce was
employed by service business”. Brown (1997). In Nigeria, the story is not
different since the coming in of Obasanjos administration and attention
given to tourism, there has been an increase in service industry and more
Nigerian have been employed in service industry.
Service business provides services instead of goods to consumers.

Goods service industry sells are intangible, which you can not touch.
Examples of such service industry include:
- Movie theatres
- Car washes
- Airlines
- lawn care specialist
- Mechanics
- Doctors
Service industries are operated to provide:
(i) Assistance for Business - for instance if you leave your

destination to any where in Nigeria with plane you decide to
lodge in a hotel before the following morning business discussions,
it means that your business has been assisted by service industry.
Banks could equally serve as assistance for business. For instance banks
grant credit to business men to carry out their activities. Importer and
exporter require bankers to aid them in their businesses.
46
(ii) Insurance is another service area that is required to reduce the risk
of trading. It covers all standard risk like theft, fire, goods on
transit.
(iii) Communication is another service area that aid business. It helps
because up-to date information is required. This information can be
assessed through computers, satellite links and fax machines.
(iv) Service industry employ specialist for instance you need
advertising agencies to plan a campaign, design of art work etc.
4.0 CONCLUSION
You have learnt in this unit that there are basically about five types of
businesses. Being you, sole Trader Company etc your business fall under
any of these categories.
5.0 SUMMARY
A business man may combine all the characteristic, or may be involve in

almost all the types of business .Dangote business for instance is found in
all these classes of business i.e. in production, processing, manufacturing
intermediating and service production. These activities if well managed
help in customer satisfaction.
Discuss the intermediation function of wholesalers and discuss four

methods a producer can get through to a customer.
Brown Betty & John Dow (1997). Introduction to Business Our Business
and Economic World. New York: McGraw-Hill Inc.
Carol Cary Forth, Maureen Ranlinson Mike Neld (1993). Business

Education. London: Heinemann.
UNIT 2 BUSINESS ENVIRONMENT - GENERAL
CONTENTS
47
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Business Environment?
3.2 Business Environment
3.2.1 Economy
3.2.2 Technology
3.2.3 Natural Environment
3.2.4 Politics and the Law
3.2.5 Culture and Society
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit introduces you to some of the business environments these unit
will discuss the economy technology and natural environment as it affect
business.
2.0 OBJECTIVES
After studying this unit, you should be able to know how:
the economy affects businesses

effect of technology on business
natural environment and its effect on businesses
effect of Politics and the Law on the Business
effect of Culture and society on Business.
3.0 MAIN CONTENT
3.1 What is Business Environment?
A business concern cannot operate in isolation; there are forces that shape
every business. There are factors that a business concern can control and
some he cannot control. Those factors that a business man cannot control
are called external or macro factors to a business man, try to look at the
environment and operate his business within the limit of this environment.
For instance, if sharia do not allow selling of alcohol in a particular state,
and your interest is to sell alcohol in that state, you look at the
environment and see where you can take advantage for instance in Niger
state alcohol can only be sold in Barracks, if that is the case, your interest
of selling alcohol in Niger State, will be limited to Barracks.
48
The factors that cannot easily be changed, which are referred to as macro
environment include the following:
- Demography
- Economy
- Social and cultural factors
- Political and legal forces
- Technology
- Competition
Micro factors, which you can refer to as controllable factor, are those
factors that you can manipulate to your advantage. They include
employees, managers, owner, financial institution, suppliers, consumers,
government agencies, competitors, and the public.
A business concern couple with it‟s environment can be depicted thus
3.2 Business Environment
3.2.1 Economy
The economic environment consists of factors that affect businesses; these

factors may be those factors that affect consumers in terms of purchasing
power and patterns, because at the end of the day, consumers‟ action
affects business either to by or not buy. The purchasing power of a
consumer depends on.
- Income
- Prices
- Savings
Credit companies must be aware of major trends in income and of the

changing consumer spending patterns. Attention should be based on the
following:
(a) Changes in Income- real income per capital are affected by

inflation, high unemployment and increase taxes. These reduce the
amount of money people have to spend. If this happen, you will
turn to more cautious buying. Many companies will introduce
economy versions of their products and will use price appeals in
their advertising. Some people will postpone purchases of durable
products while others will purchase them out of fear that prices
may increase in the future. Many families will begin to feel that a
large home, two cars, foreign trips and a private higher education
are beyond their reach.
49
However, as economic conditions improve, incomes will rise and people

will demand higher quality products and better service and they will be
willing to pay for it. They will buy more-time saving product and services;
engage in more travel and entertainment, buy of more physical fitness
products, engage in more of cultural activities and more continuing
education.
These behaviours of consumers based on income, has effect in a business

concern that you‟re operating in.
(b) Changing Consumers Spending Patterns- consumers spending

on major goods and services categories has seen changing over the
years, food, housing, household operations and transportation
consumes two third of their one‟s personal income, i.e two third of
ones personal income is expended on these items.
(c) Low Rate of Savings and High Debt - Consumer expenditures

are affected by consumer‟s savings and the amount of money
owned (debt) other people. Your savings are a major source of
financing your purchases. You can increase your purchasing power
through borrowing. Your credit has been a major contribution to
the rapid growth of the economy in some countries. It enable
people to buy more than their current income and savings can allow
this, creating more jobs and still more income and more demand.
Major economic changes in variables such as income, cost of living,

interest rates on loans, savings and borrowing patterns has a big impact on
businesses in an economy.
Companies whose product has high income and price sensitive need to
invest more money in sophiscated economic forecasting. This will give
adequate forewarning which will enable the company to take the necessary
steps to alter its products, reduce its cost and come out of economic storm.
1. Are you a civil servant? Look at the economy from 2003. List
some of the items you have acquired...
50
1
2
3
4
2. What has lead to increase in your assets?
1
2
3.2.2 Technology
Technology creates opportunities for a company to increase consumer

satisfaction and thereby gain competitive advantage over others. Today,
many products are available that were not in existence even a decade ago,
for example computers, communication satellites, compact disc and birth
control pills often an improvement in a vital component of a product can
make the difference that is needed to create large market opportunities and
spur competition. Technology has been called the process to “creative
distribution” in the sense that new development in technology not only
creates new products and new markets but also destroy existing ones. For
example, as colour TV sets are introduced, black and white sets have lost a
substantial part of their market.
Again a country‟s economy growth rate is affected or influenced by how

many major new technologies are discovered. Each new technology
creates major long term consequences that are not always forceable. The
contraceptive or family planning pill, for example, has led to smaller
families, more working wives and larger, discretionary incomes resulting
in higher expenditures in convocation, travel, durable goods and other
things. Technology has however got its limits. Technological
improvement is limited by the laws of nature. The goal of technology
management is to identify the limits of a given earlier technology so that a
new technology can be developed to replace it.
Businesses men need to understand the changing technological

environment and how new technologies can serve human needs. They
must be alert to the undesirable side-effects of any new technological
innovation that might harm the users and create consumers distrust and
opposition.
Again, various groups are opposed to technological development because
they see it as threatening the natural environment, individual privacy,
simplicity and even the human race.
All these affect business positively and negatively. It is left for the
business to scan the environment and take advantage of the positive
aspects.
51
1. In 80‟s as a student in a college, we were use to charcoal iron,

toady I may not be able to use it again.
Look around you of recent and list items that technologically has
improve.
- i. e. Charcoal iron - electric iron
1
2
3
4
5
2. Has this any effect on any business you have seen or you are
running?
3.2.3 Natural Environment
The Natural environment can affect the location of a business, what

activities they undertake and how costly these activities are in recent
times. There has been a growing awareness of the effect of industrial
activities on the physical environment, both directly through the depletion
of resources, (such as minerals and forests) and through air, land and
water Roy et al (1994).
Kotler (1999) the deterioration of the natural environment is a major

global concern. In many world cities, air and water pollution have reached
dangerous levels. There is great concern about certain chemicals creating a
hole on the Ozone layer and producing a “green house effect” that will
lead to dangerous warming of the earth.
Natural environment provide the following challenges:
- Shortage of Raw Materials: Raw materials that are gotten from

the earth can be classified into two finite renewable and non
renewable infinite. Renewable include products like forests, and
food. Those company that use goods for production are expected to
get their raw material from the forest. This result to deforestation
these companies must use this resources wisely. When this land is
deforested, farming becomes a problem.
52
- Finite Non-Renewable ie Oil, Coal Platinum: Zinc, Silver:

“Firms making products that require these increasing scarce
minerals face substantial cost increase. It is difficult to pass the cost
to consumers. Companies are expected to go into research to find
alternatives.
- Increased Energy Costs: Nigeria crude has risen to a high price of

N70 per litre because of this, we look for alternative energy i.e. use
of alcohol and ethanol. If the prices of oil goes down it will have
effect on oil exploration and it help companies that use oil if the
prices are low, all these affect business.
- Increased Pollution Levels: Businesses that are engaged in

production are found of polluting the environment. for instance
polythene are littered everywhere in Nigeria. i.e. waste from pure
water, it may have effect on ozone layer.
All these have effect on businesses.
3.2.4 Politics and the Law
Political environment could be looked at from the point of view of the

type of leadership in the nation. What are the policies of the leaders
atimes? How peaceful is the nation under the leadership?
In Nigeria 1993, we had three different Head of State within six months
with the annulment of June 12 election, the political situation in the
country was dicey, foreign investors were repatriating their investment.
Nigerians were not sure of what will happen in the next minute. Easterners
were relocating from north to the east and vice versa. There is no doubt
that this political situation must have affected company‟s strategies.
Nigeria leadership under the ruling party of PDP (People Democratic
Party) is dispose to privatization, deregulation and commercialization.
This style of leadership or this idea will in no small way affect business.
Benue cement Gboko is a good example because of privatization; the
company was closed down for over one year because of the resistance
from the Benue people.
Legislation are promulgated to regulate business activities just as citizens

are responsible for knowing and obeying the laws of the land, businesses
must be aware of the laws and regulation affecting their activities because
violations of such laws and regulation not only subject the company to
prosecution but they are also costly in terms of the bad publicity the
company receives as a result.
Reasons for Government Laws:
53
i. To protect businesses from each other

ii. To protect consumers from unfair business practices
iii. To protect the interest of the society against unofficial business
behaviour in addition to the laws themselves companies must be
aware of regulating agencies because the impact of legislation
depends largely on how companies and the court interpret the laws
and how they are enforce.
Examples of Government law enforcement agencies in Nigeria that

regulate businesses:
1. Standard organization of Nigeria- (SON) 1971

2. National Agency far ford and Drug administration and control
(NAFDAC)-1993
3. Drugs and Related products-1992
4. Environmental impact regulation
5. Trade malpractice (miscellaneous offences) Decree 1992
6. Consumer protection council.
Others
- Nigeria invested promotion council 1995

- Foreign exchange (monitoring and miscellaneous provisions)
1995
- Immigration Act 1963
- Dumped and subsidize at Act No 9 of 1955
- Customs duty drawback regulation 1958
- Privatization and commercialization Dec 1988 etc.
3.2.5 Culture and Society
The socio-cultural environment consists of institutions and people that

make up a social grouping. A company‟s environment scanning must
focus on the beliefs, value and norms of behaviour that are learned and
shared by the people in that social grouping, values are defined as the likes
and dislike, the positive and negative feelings that colour a persons view
of the word and influence his behaviour, clearly they are the source of
consumers needs and what that businesses most try to satisfy. Kotler has
identified the following cultural characteristics and trend that may be of
interest to business
(a) Core Cultural Values are Difficult to Change: The people living
in a particular society held many core beliefs and values that are
difficult to change. For example, people in a particular society may
believe in being hard working, in getting married, in giving charity
and in being honest. Core beliefs are passed on
54
from parents to children and are reinforced by the major social

institutions such as the schools, churches, government.
(b) Secondary Cultural Belief is more open to Change: From

example, believing in the institution of marriage is a core belief but
believing that people ought to get married is a secondary belief
therefore, businesses selling family planning product can make
more impact on people by arguing that people should not be
married at all.
(c) Each Culture Consists of Sub-Cultures: A sub-culture refers to

various groups with shared values that result from their special life
of experiences or circumstances. These people share common
beliefs, preference and behaviours. To the extent that sub-cultures
have different needs and wants as well as consumption behaviour.
(d) Peoples Views of Themselves: People differ in some relative

emphasis they place on self-gratification been very strong over the
years. The implications of a “me me society” are many. For
example, people will buy products, brands and services that are a
symbol of self expression.
(e) People View of others: In recent years also, there has been a
gradual shift away from a “me me society” to „‟we we‟‟ society
more and more people now look for serious and long-lasting
relationship with others. Some recent adverting features people in
groups sharing things with others. This create a bright future for
social support, product and services that promote direct
relationships between human beings such as health, clubs, vacation
games, picnics, camping etc. These things allow people who are
alone or feel isolated to begin to feel that they are not. Product such
as televisions, home videos, games and computer are often used.
(f) People’s Views of Organsation: People differ in their attitude

towards corporation government agencies, trade unions and other
organization. Most people are willing to come for those
organizations although they may be critical of particular ones.
(g) People’ View of Society: People also differ in their attitude

towards the society. There are those who want to defend it (the
preservers) those who want to run it (the makers) those who want
to take what they earn from it (the takers) those who want to
change it (the changers) those who are looking from something
55
deeper from it (the seekers) and those who want to escape from it
(the escapers).
(h) People’s View of Nature: People‟s love for nature is leading to

more camping‟s, linking and fishing. Business has responded to
this with hiking boars, tenting equipment and others.
(i) People’s View of Universe: People vary in their beliefs about the
origin of the universe and their place in it. More people are
(loosing their religious orientation as a result, they seek more of the
good life here on earth. Self-fulfillment and immediate gratification
are raising cultural values.
4.0 CONCLUSION
Natural environment economy and technology has a serious effect on

business. Business need to scan this environment very well and take
advantage of the areas that has advantage.
5.0 SUMMARY
These environment help business in a great deal: for instance if the income
of an individual increase it is likely to increase his purchasing power. This
environment presents never ending opportunities; these opportunities tell
business the trends to follow.
1. FROM 1999 that Obasanjo took over from your view point, assess
the economy of Nigeria and its effect on business. You can limit
your assessment to salary increase and technology (i.e GSM).
2. List five different types of laws in Nigeria that can affect business
in Nigeria.
Kotler Phillip (1999). Marketing Management, Analysis Planning and

Control Millennium Edition. India: Prentice Hall.
UNIT 3 BUSINESS ENVIRONMENT - SPECIFIC
CONTENTS
1.0 Introduction
56
2.0 Objectives
3.0 Main Content
3.1 Specific Business Environment
3.2 Employees
3.3 Managers
3.4 Owners
3.5 Financial institutions
3.6 Suppliers
3.6.1 Forecasting
3.6.2 Materials Management
3.6.3 Statistical Stock Control
3.6.4 Material Requirement Planning
3.7 Customers
3.8 Government Agencies
3.9 Competitors
3.10 The Public
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit will discuss some specific environment of business which can
conveniently be referred to as internal or micro environment, that is, a
business whose operation is within. It means that he can manipulate some
of these factors to his own advantage.
In this unit, we are going to discuss the effect of employees of an

organization, the managers, the owners and financial institutions as they
affect a business.
2.0 OBJECTIVES
At the end of the unit study, you should be able to:
identify who is a manager and his effect on business

identify who are the owners and its effect on business
discuss the financial institution that relates with a business
discuss the effect of suppliers, customers, competitors, government
agencies and the public on a business.
3.0 MAIN CONTENT
3.1 Specific Environment
57
The environment that is referred to as specific unlike the general is what a

business man can face head on that is directly related to his business. In
this unit, the following are discussed.
- Employees
- Managers
- Owners
- Financial institutions
- Suppliers
- Customers
- Government agencies
- Competitors
- The Public
3.2 Employees
In an organization, workers are employed that will help organization

continue to interact with its customer for profit.
ABC enterprise Nigeria Limited is a business outfit, it provides services in

the area of fumigation, it has on its pay roll about eighteen workers. The
eighteen workers are the employees of ABC enterprises. Has an employee
any effect on an organization?
Employees can make a business to fail or succeed.
If a business succeeds, the employee‟s are therefore encourage to work

for the organization.
If a business fails, it means workers do not cooperate with the

organization.
Unit of the study has been able to discuss those factors that can affect
workers positively and negatively which we refer to as satisfiers and
dissatisfies of an organization,. The pay and conditions of employees
covered by trades unions are deal- with through collective bargaining,
other workers such as the managers where the employees are more likely
to make individual bargains and their pay and conditions may be related to
their individual performance.
3.3 Managers
Managers are the decision makers in an organization; they embody its

attritions and philosophy and therefore play a central role on its
58
performance. The success of the organization is usually bond up with their

personnel performances. The knowledge of manager about their own
organization can be of great value to a competitor for whatever reason has
tends to be almost instantaneous.
Effect of managers from the positive side can:
- Increase the profit for an organization.

- Improve cordial relationship among workers.
- It multiplier effects is that, it can improve on customer‟s inflow to
the organization.
- It improves on the prospect of a business.
The side effect of bad managers is:
- Company can go under due to bad management.

- Frequent strikes
- Low sales, low profit etc.
3.4 Owners
Private companies are owned and often managed by the same individuals
whereas public companies are owned by shareholder who may or may not
be managers. Large public companies are owned by their share holders
who may have voting right through which they can influence the policy of
the organization, but the effectiveness of their degree of control is a matter
of debate.
Many years ago, James Bumhan, in the management revolution argued

that ownership had been divorce from control. It is certainly true that
companies like ICI have thousands of shareholders who it would be very
difficult to organize to exert an influence on the other hand; the existence
of thousands of shareholders provides a great opportunity to a few large
shareholders to act collectively. The effective ownership and therefore the
policy of the organization can be changed by a “take over” by a large
shareholders who will then replace the top management by those whose
active aid objectives are on line with their own small shareholders can
indirectly extent an influence operations by selling their shares. The
function in share price and therefore in the value of the company, is a
major influence on management. An important objective has to be keeping
the shareholders happy.
From your own opinion name at list five (5) effects and benefits of the
owners of a business on a business.
59
Effect
(i)
(ii)
(iii)
(iv)
(v)
Benefit
(i)
(ii)
(iii)
(iv)
(v)
3.5 Financial Institutions
Organization has links with a variety of financial institutions, such as

commercial and merchant banks both at home and overseas, insurance
companies and building society.
Borrowing takes place from commercial banks to finance both short –

term and long-term operation, such as the purchase of machinery.
Merchant banks are often used in an advising capacity to help in a
takeover bid or to protect against a hostile take over and they also help to
organize the issue of shares to raise capital.
There is usually a very close relationship between an organization and its

bankers, or stock brokers and the development and maintenance of the
relationship may be the responsibility of Finance Director.
SELF ASSESSMENT EXSERCISE 2
List five areas banks can help or relate with business.
i.
ii.
iii.
iv.
3.6 Suppliers
An important activity of all organization is the purchase of supplies of

equipment, Raw materials, service, and energy and so on. An
60
organization is dependent on its suppliers and managers need to ensure

that the business does not become so dependent on one supplier that it
assumes a dominant position. By dividing purchases among different
supplies it may be possible to encourage competition and thereby obtain
better prices and services. Before you choose which of the best supplier of
your services, the following must be looked into.
- Forecasting and its uses

- Material management
- Statistical stock control
- Material requirement planning
3.6.1 Forecasting
Market forecast as needed so that short, medium and long-term plans can
be constructed by operations managers. The tactical plans are usually for a
period of up to one or two years ahead, where strategic plans are usually
concerned with the achievement of longer term objectives e.g., of:
Tactical
- inventory (stock) planning

- Purchasing planning
- Financial planning
Strategic
- Supply planning
- Training planning
- Financial planning
All these will affect which supplies to choose for supplies of services or
production.
3.6.2 Material Management
As automation reduces the amount of labour in the production process

materials and machinery become relatively more important. It is a major
part of the operations of managers‟ job to control and utilize effectively
the flow and stocks of materials throughout the factory system, from
purchase of the raw materials to dispatch of the finished goods to the
customer
3.6.3 Statistical Stock
61
When doing things, you consider:
- Re-order level at what quality will look for supplier to supply me

more.
- Economic order quantity that the most convenient quantity of
items to order so as not to have overstocked items in the
warehouse or under stock.
When to order and how much to order when graphically display, where
the arc equates, that is the economic order quantity.
3.6.4 Material Requirement Planning
In many manufacturing concerns, production of the finished products is

scheduled for some time ahead (weeks or perhaps months). When the
scheduled output of the finished product is known, it is possible to derive
the exact requirement for the components from which that product is
constructed. It can be ensure that stocks of those components are available
for use as required, such a system, possible only when the demand for
components or parts is dependent on that for a finished product, clearly
allows operation at low stock levels than would be the case for reactive
systems of statistical stock control.
3.7 Customers
The buyers of an organizations‟ products wants value for money, i.e. low
price, high quality and good service, they may be knowledgeable about
the products or may be susceptible to persuasive advertising.
Final consumers are in a week bargaining position as individuals, but

when they act collectively they can determine the future of a business.
Consumers have become more militant through the formation of
protection agencies and pressure group such as the consumer association.
Where organizations sell to other organization, they may be in danger of
being dominated by a single customer.
3.8 Government Agencies
All organization have to deal with governmental bodies, for example the
departmental of trade and industry has special sections which concentrate
on the situation in and prospect for particular industries and which
maintain connection with the trade association, employer and employee
bodies, representing those in the industry.
Other bodies exist to stimulate export, give advice to business and deter
monopolistic practice and to protect consumer. The extent to which the
62
government should seek to influence business practice and to protect

consumers is a subject of debate.
In Nigeria here, we have some organization like:
- Nigerian export promotion council. If an organization wants to

export any of their products outside Nigeria, this organization is
contacted. They equally look for products that are worthy to be
exported so as to encourage exportation.
- Nigerian Investment Promotion Council: This organization tries to
encourage foreign investors to come and invest in Nigeria.
These and many more are such organization that has contact with
businesses operating within and outside this country.
List five organizations that have a relationship with business concerns.
1.
2.
3.
4.
5.
3.9 Competitors
In some ways the most immediate elements of a firm‟s environment are

the numbers, size and behaviour of competing firms. There are several
characteristics, types of market which may be classified according to the
type of product and number of competitors. Market behaviour is
interdependent, if a firm tries to expand its share of the market, it can only
do so at the expense of the other. If it charges lower or higher price than
its competitors it may either lose or gain business or start a price war. In
markets where there are few competitors, there is a high degree of
interdependent of decisions as competitors analyze each other‟s strategies
and the result might see an uneasy truce f or a collective decisions to share
the market and not to compete.
The type of market in which you operate in will determine the number of
competitors you have and the intensity of competition The following are
the types of market:
Monopoly
63
This is a case of a single seller in the market. This can come up because
of:-
Natural circumstances
Legal reason.
Monopolies face a downward – sloping market demand curve and

therefore have the price to fix either price or output, but not both. A
monopoly supplies can increase profit at any give level of output by price
discrimination, the most common form of which is to charge different
parts of the market. This is to treat the market as if divided into segments.
Example of monopoly market in Nigeria is:
- Nigeria railways
- Power holding company of Nigerian (PHCN).
Monopoly is in a downward turn. List five examples of companies in

Nigeria that had monopoly and know they are into a competitive market.
(i)
( ii)
( iii)
( iv)
( v)
COMPETITION
The most price competitive market is one in which there are no dominant
firms, the products of all firms are identical (and therefore impossible to
differentiate) and both consumers and producers know and can take
immediate advantages of any opportunities. this describes the perfect
market in which customers and supplies have perfect information on
buying and selling, there is a single homogeneous (identical) product and
each firms‟ share of the market is so small that if it went out of business or
if it doubled its output, it would have no effect in the market price.
Markets characterized by monopolistic competition and much more
common. Hence firms are relatively small but they seek to become the
monopolist product of their product by market it different firm those of
their competitors.
OLIGOPOLY
64
Where there are a small number of firms each of which has significant
market share their decisions about production and price have
repercussions on competitors. There may be mixture of large and small
firms. In such circumstances the small firms have to take their lead from
the large ones when it comes to pricing. Price leadership is also
characteristics of markets in which one firm is much more efficient than
the rest and is used as a guide by the rest of the firms for their pricing
policy.
The products of oligopolistic industries may be identical or differeciated.

In either case the firms have to consider the effect of their decisions on
their competitors; oligopolistic market tend to be characterized by inform
and stable prices and competition which takes place through advertising
and sales technique design, packaging and the development of new
products.
3.10 The Public
Most people have direct relationships with only a few organizations

through their more or purchasing behaviour on the other hand, they may
be inflated indirectly by a great many.
The whole nature of society is that the numbers of it are interdependent.

Efficient companies ultimately bring benefits to everyone through lower
prices and better quality products. Poor products and after sales service in
exports can lead to a bad reputation from which all firms might suffer in
the end, irrespective of whether or not they deserve to. Similarly,
managers and workers who had been well trained help to raise the general
level of ability of the work force from which the whole economy will
benefit.
Many large companies and public bodies now employ public relations
specialists in order to create a favourable image with the general public
through radio, television and the newspapers. When public opinion is
favourable, companies become esteemed and known for that, for example,
they have plenty high – quality applicants for jobs.
An area of potential conflict between organization and the general public

lies in the natural environment, companies, public or private can be a force
for good or even by affecting the quality takes and through the land,
rivers, lakes and oceans, the air we breath and the buildings we work in
and look at. The interests of the general public are not only represented by
government studies but also increasingly by bodies such as Green peace,
the customers association and the Rambles Association.
4.0 CONCLUSION
65
No business can operate in isolation because of this any businessman that

run either one man business or organization they need to consider factors
like:
Suppliers, Customers, Competitors, The public, Government agencies

must be looked into seriously because they have:
Positive-- effect on a business and if well utilized, a company can

succeeds.
Negative-- if not well looked into can cause a company to fail.
5.0 SUMMARY
At the end of the unit, we‟ve been able to learn about supplies and how to
study them to know when, where and how they should supply you goods
while costumers are of corporate and individual in nature.
Government agencies are set up to regulate, promote and help business to

carry out their business.
Depending on which market you operate it will determine your level of

competition, which the public has a stake in any business established.
List 10 states in your business and discuss one as it affects your business.
Business Studies An Introduction to Management and Business Studies

Oxford: Heinemann.
UNIT 4 LEGAL ISSUES IN BUSINESS - SALES OF

GOODS
CONTENTS
66
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Sales and Agreement to Sale
3.2 Sales and Other Contracts Distinguished
3.2.1 Bailment
3.2.2 Hire Purchase
3.2.3 Exchange
3.3 Condition and Warranty
3.4 Transfer of Property
3.5 Transfer of Title
3.5.1 Sales by Agent
3.5.2 Estoppels
3.5.3 Sale under Special Power
3.5.4 Sales in Market
3.5.5 Sales by a Factor
3.6 Performance of Contract of Sale
3.7 Place and Time of Delivery of Goods
3.8 Delivery of Wrong Quality
3.9 Breach of Contract of Sale and Remedies
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The unit of sales of goods is one of the legal issues in business, the unit
introduces specifically those agreements to sell, the importance of
warranty to sales of goods .The unit also discuss those breach of contract
in terms of sales and how they can be addressed.
2.0 OBJECTIVES
define sales and agreement

distinguish sales and other contracts
discuss how to transfer title
explain what are breach of contract and how it can be resolved.
3.0 MAIN CONTENT
3.1 Sales and Agreement to Sale
67
Kurfi (2005) Define contract “as a contract where by the seller transfer or
agreed to transfer the property to the buyer for money consideration,
called price”.
If you are into a business and you have an item to sell or willing to sell, it
either.
(i) When you transfer the title of the goods to a buyer this contract is
called sales.
(ii) In a situation where an agreement is to pass on the possession of
an item in a future date, with some conditions attached, it is called
agreement to sales.
In a situation where the conditions are fulfilling, sales has taken place. If
you sell and deliver well then, contract of sales has taken place and the
first owner will seize to be the owner and the second party takes
possession.
Goods that can be used for this sale are:
- Motor vehicles
- Ships
- Aero planes etc.
3.2 Sales and Other Contracts Distinguished
Contract of sales is different from the following:
3.2.1 Bailment
This is an agreement between two parties that goods should be delivered

to another party or that goods should be transfer from second party to the
third party based on the instruction given by the first party.
3.2.2 Hire Purchase
It is an agreement between two parties for the second party to have an

item under some conditions, until such conditions are fulfill, the item is
still that of the first party.
3.2.3 Exchange
It is a transfer of goods from one party to another. There may not be

exchange of money.
68
It could lead to contract, if where price is partly involved and party of

goods are settle with goods.
(1) Give good example of bailment.

(2) State a very good example of hire purchase.
(3) Have you ever exchange any good? State your experience.
3.3 Conditions and Warranty
These are terms commonly found in sales of goods.
- Conditions -is a term use that if not fulfill can cancel a contract.
- Warranty: It is a condition of sales that if discovered lead to a
right of damage only or possible replacement.
Some conditions of warranty.
(i) Stipulation as to the Time
In a commercial contract, time of delivery is necessary especially where

perishable items are involved. If the time stipulated is breach, it means that
the contract has been breach, the injured party can ask for refund.
(ii) Undertaking as to Title
Once a contract of sales is entered into, it is agreed that:
- You have a right to sales, subject to any agency agreement or sale

by the holder of power of attorney.
- There is implied warranty from the seller that the buyer will enjoy
“a quite possession of the goods”
- Warranty as to freedom of encumbrances that the goods brought
shall be free from any disturbances by the third party that was not
declared by the seller.
(iii) Sales by Description
If your, sale goods are by description, the description should correspond

to the description given, if not there will be a breach of contract.
(iv) Sales by Samples
It states that
69
- There is an implied condition that the bulk shall correspond with

the sample or quality and quality.
- That the buyer should have an opportunity to compare the bulk
with the sample.
- There is an assume condition that the goods shall be free from any
defect rendering them unmarketable which will not be apparent in
the sample.
Name five products that have warranty.
3.4 Transfer of Property
Once goods are sold they are to be transferred especially from one party to
another.
One of the reasons for doing this is to know the rights, duties or liabilities
of the parties involved. Who is to pay for damages, destruction or loss of
the goods because of these the difference between the following is
necessary.
(1) Specific or Ascertain Goods
Kurfi (2005) says specific goods are goods identify and agreed upon at the
time of the sale. Under this condition goods are to be transferred to the
buyer at the time the parties intend it to be transferred.
In this contract intention of the parties must be known there are from way
in knowing the intention of the parties.
Kurfi (2005) state the form of the condition thus.
Where there is an unconditional contract from the sale of specific goods in

a deliverable stage the property in goods passes to the buyer when the
contract is made and it is immaterial whether time of payment or of
delivery or both postponed.
If a seller is bound to do something for the purpose of putting them into a

deliverable state, the property does not pass until such thing is done and
the buyer has nothing thereof.
If goods sold are to be weight or measured for the purpose of ascertain
price, it must be done. If not, the buyer has nothing there of.
If all condition are fulfilled the goods must be pass on to there buyer. It is
established that
70
- If the buyer signify approval

- If they do not singly approve
2. Unascertained Goods
Kurfi (2005) states that in unascertained goods are “where there is a

contract for the sales of unascertained goods, no properly in the goods is
transferred to the buyer unless and until the goods are ascertained.
3.5 Transfer of Title
In business law, it is believed that “no one is legally capable of giving

what he does not have. It means that you can‟t sell what you do not have,
where there is an agreement to sell, you should have the right to sell at the
time when the property or goods is to pass.
It is only the owner of goods that has the right to transfer the title of such
goods to another person. Sometime it may not always be so. In such cases
we have
3.5.1 Sales by Agent
You can sell goods to another person with the consent of the original
owner, you are now the agent. If you sell without his consent, he (the
owner) can recover his goods.
“However, the owner is liable to compensate the purchaser for any
improvement he had affected on the goods while they are on his
possession”.
3.5.2 Estoppels
Kurfi (2005) Say a person by his conduct or acquisance allows others to

believe in a state of things and they acted to his detriment. Such a person
will be excluded or denied the state things.
He went further to say it is a situation whereby the owner of the goods by

his conduct is precluded from denying the sellers authority to sell, and it
applies in cases of agency by estoppels based upon the general
representations made by the principal i.e. the seller has his authority to
sell.
3.5.3 Sale under Special Power
Goods can be sold under some special common law or any statutory
power e.g.
71
- Liquidator of a company
- Unpaid seller of goods
3.5.4 Sales in Market
Where goods are bought in a market place, you can buy from the market
provided you buy in good faith.
3.5.5 Sale by a Factor
Kurfi (2005) a factor is a type of mercantile agent entrusted with a sale of

goods for sale only, and it is allowed by law to sell in his own name.
3.6 Performance of Contract of Spice
This involves delivery of goods sold, either on behalf of the seller and
their acceptances and payment of the price on behalf of the buyer.
- Delivery: Kurfi (2005) says it‟s the voluntary transfer of

possession from one person to another, this transfer may be actual
or constructive”.
- Constructive delivery may be any of the following form
- By affirmation i.e. the third party acknowledges to the buyer he

holds the goods on his behalf
- Transferring to the buyer
- Possession passes to the buyer without actual delivery
- Transfer of document of title
3.7 Place and Time of Delivery of Goods
When an agreement is reach for delivery of goods, the time and place must
be stated. If not stated, you deliver to his place of business, if he has more
than one place of business, where the transaction took place, which is
where to deliver.
In case where time is not stated, you will deliver at a reasonable time.
3.8 Delivery of Wrong Qualities
It is expected that the seller, write delivery the exact goods agreed upon. If
the goods are less or more, the buyer has the right to accept or reject such
goods.
72
3.9 Breach of Contract of Sale and Remedies
Contract between a seller and a buyer may be breached. Disagreement

may arise i.e. the form of refusal or rejection of goods and refusal to pay.
In such situation the law will prevail.
- Breach by the Seller
The seller can breach a contract and you can react to such a breach in one
of the following ways.
Right to reject the goods

You have the right to bring an action for damages as well as for
specific performance.
An action for money paid for the goods in the contract.
Breach by the buyer
The following remedies are available to him
Failure to take delivery

Failure to accept goods
Failure to pay for the goods
The seller has the right to resell
4.0 CONCLUSION
You have learned in this unit that the business of sales has it legal
implication for you as a buyer and the seller. Once you agree to sell and
buy you are legally bonded. In case of failure you can face legal
implication.
5.0 SUMMARY
Sales of good in business in particular as such it helps in areas of sales of

goods, and agreement to sales. A sale of goods is a general guide to
business men so that they can be ethical in their day to day business of
selling. Once you are at fault as a buyer or seller you will know which
action and how to rectify such a problem.
6.0 TUTOR MARKED ASSIGNMENT
DISCUSS the following.
Hire purchase
Delivery of wrong quantity
73
Warranty
Sales by description
Aminu K. Kurfi (2005). Business Law in Nigeria. Kano: Bench Mark

Published.
UNIT 5 LEGAL ISSUES IN BUSINESS LAW OF

CONTRACT
CONTENTS
1.0 Introduction
74
2.0 Objectives
3.0 Main Content
3.1 Definition of Contract
3.2 Classification of Contract
3.2.1 Expressed Contract
3.2.2 An Implied Contract
3.2.3 Quasi-Contract
3.2.4 Bilateral Contract
3.2.5 Unilateral Contract
3.2.6 Joint Contract
3.2.8 Entire Contract
3.2.9 Several Contracts
3.3 Essential Element of Contract
3.3.1 Offer
3.3.2 Acceptance
3.3.3 Consideration
3.3.4 Intention to Create Legal Relation
3.3.5 Legal Capacity of the Parties
3.3.6 Formalities Required by the Law
3.3.7 Legality of the Object of the Contract
3.4 Contractual Terms
3.4.1 Condition and Warranties
3.5 Violating Elements in a Contract
3.6 Remedies for Breach of Contract
3.7 Privity of Contract
3.8 Discharge of a Contract
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit of legal issues in business faces on law of contract. Its helps you
to know what contracts are in business. If you are doing business, contract
is a serious agreement between two parties. Different types of contracts
exist, that you will learn what constitute a contract. If contracts are
violated, you will know how to handle such.
2.0 OBJECTIVES
By the end of this unit, you should be able to:
tell what a contract is, its characteristics and types of contract

what constitute violation of a contract
75
remedies to the violation of a contract.
3.0 MAIN CONTENT
3.1 Definition of Contract
Kurfi (2005) define a contract as a promise or a set of promises, for the

breach of which the law gives a remedy or the performance of which the
law recognizes as a duty.
Contract is classified into two:
- Contract under seal

- Simple contract
Contract under seal is a written form of contract that, is signed by both

parties and sealed on it.
Simple contract is an informal contract. This contract may be written,

oral or mere conduct of the parties.
3.2 Classification of Contract
Kurfi(2005) Identify nine classes of contract, they are:
3.2.1 Expressed Contract
A contract is expressed when the parties manifest their agreement by

words. Contract that is written, oral or under seal is called expressed
contract.
3.2.2 An Implied Contract
It is implied by the act or conducts of the parties and it is sanctioned by

the law.
3.2.3 Quasi-Contract
Quasi means something looking or resembling something. A Quasi

contract can best be described by an example of a doctor who treats an
accident patient brought in by a passerby. The doctor will recover his cost
of services from the patient. In this case, it is to discourage one party from
unjustly benefiting from a contract that was not expressed.
76
3.2.4 Bilateral Contract
A contract where two parties are making a mutual promise:
3.2.5 Unilateral Contract
It‟s a situation where an offer is made and acceptance is subject to legal

obligation. For instance if you find my lost GSM Handset I will give you
five hundred Naira (N500). If found, you are bound to give the finder
N500.
It‟s a contract where two or more people are involved and jointly bound
to fulfill the obligation.
3.2.7 Joint and Several Contracts
It is a contract where by two or more people are not only equally bound
together in a contract also individually bound.
3.2.8 Entire Contract
It is a contract where the contract in question must be hundred percent

completed before, the contract sum is given in full.
3.2.9 Several Contracts
Contracts were the contract can be executed in pieces.
3.3 Essential Element in a Contract
Kurfi (2005) says there must be seven conditions fulfilled in a contract

before it can be enforceable. They are:-
3.3.1 Offer
Is a promise or a commitment to do or reframe from doing some

specifying things in the future. An offer has also been defined as a
proposition, made by one party called the offeror to another party called
the offeree. Three conditions must be fulfilled for an offer to be legal.
- Offer must be definite and certain
77
- Proposition must come from the person, liable to be bound should

the said terms be accepted.
- The offer must be communicated to the offeree.
The following are limitations to treat; as such, they do not amount to an

offer:
- Exhibition of goods for sales in a shop

- Advertisement of sales in catalogue or mass media
- An auctioneers request for bids
- An invitation to tender
- Negotiating for sales of land and or other complicated contracts.
Offer can be terminated by:
- Rejection
- Counter offer
- Revocation
- Lapse of time.
- Occurrence- a non-occurrence of a condition
- Death
3.3.2 Acceptance
If an offer is made, a reply to it is refer to as acceptance. The acceptance

must not attach any other condition to accept the offer, if not, it will be
regarded as a counter offer.
Acceptance is genuine, if the following are present:
- You must display an intention to accept,

- You must communicate the acceptance to the oferror.
In term of communicating an offer, the following condition must prevail:
- Silence is not an acceptance

- In a special case you can wave an acceptance
- Communication will depend on the type of offer
- There are various rules under the post rules
3.3.3 Consideration
Kurfi (2005) define consideration as the price for which the promise is
bought. All contracts must be supported by a consideration. A bare
promise is not legally binding.
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The following four rules governing consideration must be observed:
- It must be sufficient and need not to be adequate.

- It must move from the promisee though not necessarily to the
promisor.
- Consideration may be executory or executed but must not be past.
- It must not be illegal; immoral or contrary to public policy
3.3.4 Intention to Create Legal Relation
In business any contract should have an intention to have a legal

intention. If not it will not be a contract.
When there is an agreement that relates to commercial or business, it

means, there is an intention to create legal relationship.
Where the parties to a contract expressly exclude an intention to

create legal relationship.
Domestic, family or social affairs have no intention to create a
legal relationship.
3.3.5 Legal Capacity of the Parties

To enter into any legal contract with anybody, you must access his
capacity to do so.
The following may have a limited capacity.

- Infants
- Persons of musical mind or lunatic
- Drunkard persons
- Illiterate etc
3.3.6 Formalities Required by the Law

Contract which must be under seal
Contract which must be in writing
Contract which must be evidence in working
3.3.7 Legality of the Object of the Contract
When if contract entered is illegal, the entire contract becomes null and
void
A contract is illegal if any of the following happen:
- To Violation the law of the land
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- If its contrary to public policy
SELF ASSESESMENT EXCERSISE 1
List five conditions, of rejection of offer.
3.4 Contractual Terms
Terms vs. representation.
Terms dictate the rights and obligations of the parties to the contract.
Misrepresentations are statements that are not part of the contract and not
binding on any of the party.
3.4.1 Condition and Warranties
Kurfi (2005) says condition is a very important contractual term if,

breech the whole contract may be canceled.
If a warranty just like condition is breeched, damages might be paid. It

does not lead to cancellation of contract.
3.5 Violating Elements in a Contract
A contract may be null and void depending on any of the following

reasons:
Mistake- it could come as a different mistake from both parties,

ignorance by two parties on a contract agreement.
Misrepresentation
Contract can be violated if there is misrepresentation .Because of that,
buyers must be aware and the sellers must deal with the buyers in an
utmost good faith.
Undue difference: - A contract is valid when it is discovered that
there was no special relationship between the parties.
When if you enter into any contract with your master and you can‟t
fulfill it, if a case is taken up it could be assume to have been agreed
upon because of undue influence. Other examples are: - Lecturer and
student, Doctor and patient e.t.c.
Illegality
Any contract that is not based on rule of law, is void and it cannot state
the test of law
3.6 Remedies for Breach of Contract
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(i) Damages may be paid: - If it is established as to who breach the

contract, either the buyer or the seller.
(ii) Quantum meruit (as much as he desires) it could be claimed in a
variety of circumstances e.g.
Where the defendant has abandoned or repudiated the contract.

Contract done under a void contract.
Where the parties have agreed to terminate the contract
Where one party has obtained a benefit.
(iii) Specific Performance: Kurfi (2005) says it is a specific

performance; it is an equitable remedy for breach of contract. It is a
decree issued by the court ordering a defendant to perform a
promise that he has made under the contract. It may be awarded in
addition to or instead of damages.
(iv) Injunction: It is a decree by the court ordering a person to do or not

to do a certain act.
3.7 Privity of Contract
It means here that a person, who is not a party to a contract cannot suffer
or enjoy the burden of contract.
There are exceptions to these:
Agent-an agent can be brought into a contract

Assignment of contractual obligations
Certain comments concerning land.
Statutory exception.
3.8 Discharge of a Contract
A contract may be discharged by the following way:
Performance
Express agreement
Breach of contract
Frustration
4.0 CONCLUSION
In this unit we have discussed contract, various types of contract, the

essential of contract, whom you should and you should not enter into
81
contract with. All will assist in doing business as you go along in

establishing your own business.
5.0 SUMMARY
This unit gives you more or less a first aid when you have a problem with
contract that you have entered into or you are about to enter into before
any other action is taken. No business will ever progress without contract;
this will assist in guiding your day to days activities in business so, that
you will not waste your finances on contracts that are not legal in the sight
of law.
Discuss all the essentials of a contract.
Aminu K. Kunfi (2005). Business Law in Nigeria. Kano: Benchmark

Publishers.
MODULE 3
Unit 1 Social Responsibility of Business

Unit 2 Accounting in Business
Unit 3 Marketing in Today‟s Business
Unit 4 Communication in Business
Unit 5 Entrepreneurship
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Unit 6 Insurance
UNIT 1 SOCIAL RESPONSIBILITY OF BUSINESS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Social Responsibility of Business
3.2 Implication of Social Responsibility
3.3 The Case of Social Responsibility of Business
3.4 Factors that Account for the Neglect of Social Responsibility
3.5 Social Responsibility and the Nigerian Entrepreneur
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The public is becoming an increasingly vocal component of the external

environment of business. As consumers become better informed and more
aware of their rights, authority is likely to be challenged by people who
have grievances as customers or as employees. In Nigeria, for the past few
years government has taken the view that it should be less involved and
interfere less in social life. This puts a greater onus on managers to take
new initiatives to deal with the issues arising in the business environment,
to achieve the socially desirable trends that otherwise would be the
responsibility of government.
2.0 OBJECTIVES
At the end of this unit, you should know:
what social responsibility is

why the need for social responsibility
reason why business neglects their social responsibility know
the effect of social responsibility and the entrepreneur.
3.0 MAIN CONTENT
3.1 The Social Responsibility of Business
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The pervasive influence of large business organizations of the society,

makes the issue of social responsibility very important. Business venture
will not survive if it fails, to contribute to the needs of the society in which
it is located.
Social responsibility is the obligation (of managers) to pursue the policies,

to make decisions, or to follow lines of action which are desirable in terms
of objectives and values of our society. More so, social responsibility is an
interpersonal relationship mutual interdependence that exists when people
are continuously or continuously dependent upon one another in both an
organized and unorganized way.
Social responsibility can also be regarded as implied, enforced felt

obligation of managers, acting in their official capacities, to serve or
protect the interests of groups other than themselves.
As a working definition, social responsibility is personal obligation of

people as they act in their own interests, to assure that the rights and
legitimate interests of others are not impinged. Thus, socially responsible
persons will obey the laws of the land because the rights of others are at
stake. They are free moral agent social responsibility is seen as: the
intelligent and objective concern or the welfare of society which restrains
individual and corporate behaviour from ultimately destructive activities,
no matter how profitable and which leads in the direction of positive
contributions to human betterment.
3.2 Implication of Social Responsibility
The neutral and negative aspects of personal behaviour are as important as

the positive.
Social obligation is owed by individuals and not by organizations. A

university, social club, church, corporation does not discharge a
responsibility; it can act only by means of the persons who invoke its
name. Social responsibility is a personal attribute; there is no action
without personal action.
Everybody in the society has social responsibilities to discharge because,

as the owner of an enterprise, he is also a member of the greater society
will also affect the businessmen. They will breath polluted air, drink
polluted water, be part of the crowded city lives in the slum, use unsafe
products; be misled by false advertising and could be denied of some of
their social benefits because of their political party, ethnic group or
religious beliefs. The organization must make a positive social impact on
the society on which its economic well-being depends.
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3.3The Case of Social Responsibility of Business
Business social responsibility exists in all the enterprises with their

customers, owners, employees, suppliers, creditors, management,
government, and the society as a whole.
The social responsibility of economic enterprises is in the efficient use

of resources, to produce economic wealth (production of goods and
services to satisfy people‟s material wants).
In the production of goods and services, a business enterprise is
socially responsible in such a way, that no restriction is placed upon
the legitimate rights and interests of any person.
To observe by word and deed the ethical standards of society.
Business enterprises discharge their obligations to employees by
giving them better-than-competitive wage and fringe benefits.
Economical prices and quality merchandise to consumers.
Gifts and scholarships to educational institutions in their vicinity.
In terms of education and research which have a direct relationship to the

future of the business by making available better trained human resources
or advanced knowledge which will be beneficial to the business.
Donations, provision of social infrastructures e.g. clinic, good roads,

etc to the business.
Donating services and maintaining uneconomical operations.
Job generation.
Free tax collections and donations of services of gifted managers to the

government.
Sacrificing the right to manage to the unions.
3.4 Factors that Accounts for the Neglect of Social

Responsibility
There are many factors that accounts for the apparent neglect of social
responsibility in Nigerian Business Enterprises. They include:
Relative small size of Nigerian business enterprises: The smallness in

terms of size and financial strength of social responsibility, as a task
that must be seriously considered.
85
Profit maximization pursuit, by large enterprises owned by foreign

firms to the detriment of caring less for social responsibility. They see
social responsibility on the part of the indigenous businessmen as act
of patriotic gesture on their part.
Unethical, business practice-dishonesty, embezzlement, smuggling,

hoarding etc.
Limited educational background of many entrepreneurs.
Lack of initiative on the part of the government.
The general down turn of the economy resulting in off of employees

while at the time, the government is fighting to reduce unemployment,
are working against national interests.
Lack of professionalism in management style: many Nigerian

managers do not perceive social responsibility as one of the key
functions of management. Their training and experience do not arouse
such consciousness in them as some, considered it a novel, or at best
informal and intuitive managerial function.
Societal little expectation of social responsibility as the various bodies

to play dominant role in enforcing conformity (FEPA, SON, Federal
Ministry of Health FIRO etc) were non-functioning. Generally, there is
no well established department of public affairs, scarcely any group of
individual bodies that scrutinize corporate social responsibility or
social welfare in any Nigerian business organization. At best, the only
effective tool that the government uses to obtain compliance is
persuasion.
Some of the foreign entrepreneurs come from countries where the

consciousness for social responsibility is at best in its basic infancy
e.g. Britain, Taiwan, India etc.
Total reliance of publicly owned enterprises in the provision of
services in rail, air, port, broadcasting, (radio and television) health,
postal and communication services, Electricity, Oil drilling, refining
and distribution, water, iron and steel etc. Since these large enterprises
are financed by the tax payers, it is assumed that they are socially
responsible since, their pre-occupation is in social welfare
redistribution.
Ignorance of the role business enterprises should play in the area of

social responsibility.
86
For our society to survive, practical importance must be attached to

business social responsibility such as its being attached to profit. The
society should not be allowed to decay or degenerate into slums, due to
lack of attention but, all business owner, management, creditors,
employees, customers have a loud role to play in social responsibility by,
supporting social needs with company revenue thus, achieving credibility.
It is highly expected on the part of Nigerian business enterprises to have
charitable and cultural programmes, get involved in youth projects, make
liberal donations to educational institutions, and be keenly interested in the
personal needs of the individuals who participate directly or indirectly in
their organizations.
3.5 Social Responsibility and the Nigerian Entrepreneur
The frequently mentioned social responsibility includes:
Contribution to community development.

Employment opportunities generation.
Price control.
Avoidance of smuggling.
Environment sanitation.
Product safety guarantee.
Consumers oriented labeling.
Prevention of product defects.
Assist government in identifying and making credit facilities available
to qualified farmers, fish and shrimps farmers etc.
Fair advertising.
Generous donations and support for games and sports.
Contributions to arts.
Rural development.
Donations to orphanages and rehabilitation centers.
Contributions to educational institutions and research centres in form
of scholarship and research grants.
To elimination poverty and provide quality health care.
Apprenticeship schemes for the unemployed e.g. Leventis group,
UAC etc.
Releasing understandable accounting statements.
Students revealed that majority of Nigerian business enterprises, have not

shown sufficient interest in their social responsibilities. No enterprise
exists in isolation; managers should respond to socially approved values
and help in formulating and articulating ethical norms as part of their
social responsibility so as to be successful in their business endeavours.
87
4.0 CONCLUSION
Social responsibility in our daily business is important in such a way that

it assists government in providing less for the environment where a
particular business operates though, not highly enforced in Nigeria. If
done, it will help a great deal.
5.0 SUMMARY
Social responsibility of an organisation, is to continue to provide for its

immediate environment while interacting with their customers.
Social responsibility may include, building of schools, hospitals,

scholarship etc to a business environment.
Nigerian factor has contributed to businesses that are not carrying out its
social responsibility.
In years to come, more and more businesses will carry out its social
responsibility.
Briefly discuss five reasons why businesses do not carry out its social
responsibility.
Roy Wilkinson et al (1994). Business Studies an Introduction to

Management and Business Studies. Oxford: Heinemann.
UNIT 2 ACCOUNTING IN BUSINESS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Accounting
3.2 Books of Accounts
3.2.1 Ledger
3.2.2 Journal
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3.2.2.1 Reasons for using Journal

3.2.2.2 Uses of Journals
3.2.2.3 Types of Journal
3.3 Cash Account
3.4 Accounting Terms
3.5 Roles of Accounts in Business
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit tries to see what accounting is. Its roles in a business, concern
like, one-man business, or corporate organization. Books like ledge
journal cash book balance sheet are use regularly when relating accounting
information‟s.
2.0 OBJECTIVES
At the end of this unit, one should be able to:
define accounting
differentiate various books of accounts
state reasons why accounting is needed in business
define balance sheet trading profit and loss account and trial balance.
3.0 MAIN CONTENT
3.1 Definition of Accounting
Accounting is generally regarded as the language of business, as used in

describing the transactions entered into, by business transactions and also
the result of such transaction. Accounting data in the contemporary society
is the systematic formulation and communication of economic data related
to all types of business and government activities. The most important
function of accounting data is to provide information which will enable all
that have anything to do with a business concern know the result or
activities of the business. Although accounting records are empirical in
nature as they show the results of the past activities of establishment. If
one assumes that the factors that shaped the past are likely to continue to
shape the future, the accounting records also have a predictive value. This
is the major assumption that makes the interpretation of accounts a
worthwhile exercise.
89
Financial accounting is the art of identifying, recording, analyzing,

summarizing, and finalizing business transactions and interpretation of
result because money, fund, capital, finance, investment, dividend policy
and profit and loses in business needs to be accounted for and properly
managed. This is therefore based on accounting equation which states
that:-
CAPITAL + LIABILITIES = ASSETS
The capital is the total amount supplied by owner of the business or

owners‟ equity or net worth; while liabilities consist of money owing on
goods supplied to the firm, and for expenses and loans given to the firm.
Assets include the resources possessed by the firm. Assets consist of
properties of all kinds; such as building, machinery, stocks of goods,
motor vehicles, also, benefits such as debts owing by customers and
amount of money in the bank account. The accounting equation is
assessed in a financial position statement called the BALANCE SHEET.
Accounts have to obey the principles of double entry system in recording
transactions so as to make sure that the total naira amount of its most
equals the total naira amounts of credits. The RULE is (In every debit
entry, there must be a corresponding credit entry and vice-visa). There, it
shows that our account must balance.
Henceforth, in recording any transaction, always debit the receiver and

credit the giver.
The following diagram shows the application of this rule to each class
of accounts.
CASH ACCOUNTS PERSONAL ACCOUNTS REAL ACOUNTS
Debit Credit Debit Credit Debit Credit

Receipts Payment Receiver Giver Property Property
Acquired Realized
NOMINAL ACCOUNTS
Debit Credit
Expenses & Loses Incomes & Gains
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3.2 Books of Accounts
The books used in accounting are the following; (a) Ledger (b) Journal;
and (c) Cash books.
3.2.1 Ledger
The principal book of accounts is the LEDGER which contains a

permanent record in a classified form, of all the transactions of trader. The
ledger accounts are a means of accumulating in one place, all information
above changes in specific assets, liabilities and owner‟s equity. No entry
can come inside the ledger without going through the journal or the
subsidiary book. Hence, the journal is an instruction to the ledger. This
will help to prevent fraud. A ledger is ruled as:
DB CR
Date Particulars Folio No Date Particulars Folio No
From the above, the ledger is divided into two namely:
1) Debit Column and (2) Credit Column. A page of a ledger is

referred to as Folio. A folio can contain many accounts and many accounts
are contained in a folio.
The classification of entries into appropriate ledger accounts demands

extreme accuracy on the part of the book keeper, but provided a few
simple rules are observed; the work presents no difficulties which cannot
be easily overcome.
Thus, the whole of a trader‟s transaction with another person, recorded in
a ledger account, bearing that person‟s name.
LEDGER ACCOUNTS
Ledger account is divided into Personal and Impersonal.
PERSONAL is divided into:
- Debtors-persons who owe money

- Creditors- persons to whom you owe money
IMPERSONAL is divided into:
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- Real - Such as land, plant and machinery, furniture and fitting,

Lorries and car etc Debit the account if receive (receiving value) but credit
the account if giving value
For example ledger account for asset cash provides a record of the cash
receipts, cash payments, and the current cash balance. Maintaining a cash
account, the internal management can keep track of amount of cash
available for meeting payrolls and for making current bases of assets or
services. The record of cash is also found useful, planning future
operations and advance planning of applications for loans. The
development of the annual budget requires estimating average; the
expected receipts and payments of cash, those estimates cash flow are
naturally based to some extend on the ledger accounts using past cash
receipts and payments.
3.2.1 Journal
A journal is a subsidiary book, a book of prime entry as book of original

entry where, we record our financial transactions in chronological order or
as they occur. The journals are day-to-day record of the business wherein
both aspects of all transactions are recorded in chronological order.
To the internal management thus, the journal is found useful in the

following ways:
a) Shows all information about a transaction in one place and also

provides an explanation of the transaction.
b) Provides a chronological record of the entire event in the life of a
business.
c) Helps to prevent errors and irregularities.
3.2.1.1 Reasons for Using Journal
(1) It removes dependence on the brain because, transactions are

recorded as they are made.
(2) Omission is totally reduced or removed to the barest minimum.
(3) It encourages the use of staff in areas that they are best suited
(specialization).
(4) Errors, irregularities and fraud are reduced to the barest minimum
because, the journal provides enough explanation of the entries and
details the necessary supporting evidence.
(5) Some transactions are of a complicated nature and without the
journal the entries may be difficult, if not impossible, to
understand.
92
(6) If a book-keeper left a firm, the absence of a journal could leave

many items unexplained.
3.2.1.2 Uses of Journals
a) The purchase and sales of fixed asset on credit,

b) Correction of errors.
c) Opening entries
d) Other transfers
3.2.1.3 Types of Journal
There are about five types of journal, namely:
(1)Sales, (2) Purchase (3) Return inwards, (4) Return outwards and (5)
Journal proper or principal journal. All the above mentioned types of
journal are all books of prime entry. The journal in its usual form is
divided by vertical lines into 5 columns in which you can enter, in respect
of each item, namely:
(1) Date, (2) the particulars or the Narrative, (3) the name of accounts to
be debited, (4) the name of accounts to be credited and (5) The reference
(folio).
3.3 Cash Account
Cash account or cash book is a part of ledger. Cash account is a book in

which particulars of all monies received or paid are recorded. Cash
account thus fulfills the functions of both a ledger account and a journal.
Cash receipts are values coming in; hence, amounts of cash received
centered on the debit side of the cash account and posted to the credit side
of the appropriate ledger accounts.
Cash payments are values going out: such transactions must therefore be
recorded on the credit side of his cash book and posted to the debit side of
the ledger account of the persons or things receiving the value. The
cashbook is merely the cash account and the bank account might be
together in one book. The cash book is ruled so that the debit column
account and the credit columns of the cash and bank accounts placed
alongside each others.
3.4 Accounting Terms
BALANCE: Trial balance is not an account itself and it is not part and
parcel of the double entry system. It only tests the arithmetic accuracy of
the entries or postings in the ledger thus, helping to show debit and credit
balances on the ledger accounts.
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TRAINING, PROFIT AND LOSS ACCOUNT: Is drawn by

management to compare the result obtained with the result expected
because, the sole aim-of business venture is making profit.
BALANCE SHEET: The balance sheet is a snap short picture of a

business, owning its financial position at a point in time and if properly
interpreted, can provide the management with a good deal of useful
information as regards strengths and weakness of the business as a whole
and its individual sections as well.
3.5 Roles of Accounts in Business or Why do we Prepare

Account
At this junction, having known the various accounts available to any
business venture, we will like to consider the role of accounting data in
internal performance evaluation. An organization can be looked at in the
following functions performed:
1) Profit Determination: Once a profit can be determined, you will

be able to know how much one can spend out of profit without
consuming capital and how much that can be set aside for
ploughing back or reinvested into the business. Also, he will want
to know the actual profits compared with the profits he had hope to
make.
2) Credit Dealing: It helps in knowing one‟s debtors and creditors.

This is made possible from the available transactions (data) that
has been recorded during the period.
3) Determination of Solvency Level: that is the capacity to pay debts

of the business enterprise. This also provides needed information as
a basis for making business decisions that will enable management
guide the company on a profitable and solvent course. Management
therefore, need the assurance that the accounting data received are
accurate and dependable through the development of internal
control unit and that, all the following will be measures, taken by
the organization:
(i) For the purpose of protecting its resources against fraud, waste
and inefficiency;
(ii) Ensuring accuracy and reliability in accounting and operating
data;
(iii) Securing compliance with company‟s politics;
(iv) Evaluating the level of performance in all divisions of the
company.
94
The prospect for the solvency level are affected by an enterprise‟s ability
to generate enough cash to meet its obligation when due and its other cash
operating needs to reinvest in income operation and to pay cash dividends.
Accounting data provides information for predicting comparing and
evaluating enterprise earning power.
4) It Helps Management as a Control Measure: financial

accounting is found useful in business development because it
helps management as a control measure. It aids control, it avoids
pilferage of stock through the use of stock bin-cards, store
requisition card, ushers, vouchers etc.
5) Budget Planning: Another role of accounting data is the internal

performance valuation of an organization‟s budgeting vis-à-vis: -
planning and control of daily operations of business activities for
the future. Management needs specialized information for long and
short range planning and for major decisions such as, the
introduction of new product(s) or the closing of older plant,
arrangement or not to arrange short term borrowing to finance
operations. They use the best available quantifiable information to
make the organization function in most effective and efficient
manner possible.
6) Furthermore, financial accounting in Nigeria business environment

aids planning by giving direction to the organization so that, one
can tailor ones actions towards achieving the set goal, establish
objectives for the organization; helps the business enterprise to
manage uncertainty thus, paving way in making certain
assumptions of the future occurrences, and also helps in
strengthening and unifying the organization.
7) Helps to know the financial position of a business as at a given
time.
8) Serves as a tool to find out the efficiency of the management.
9) Serves as a bed-rock of decision making process for willing

entrepreneur or investor.
10) Supplies information in judging management ability to utilize

enterprise resources in the most effective way.
11) It also provides factual and interpretive information to satisfy

user‟s needs.
95
12) Gives a true and fair view of all transactions which may be useful to
security analyst, stock exchange and managers of other companies,
analyzing the position of the company in the light of circumstances
and policies; proper valuation of assets and adequate provision can
be made for any loss or diminution in the value thereof.
13) It enables the company to rationalize their expansion,

diversification, retrenchment, Mergers and acquisition.
4.0 CONCLUSION
Accounting follows double entry system where debit is equal to credit.

In accounting capital plus liabilities is equal to assets.
We have three books of account which include:
- Ledger.
- Journal and.
- Cash account.
Accounting helps business in determining:
- Profit.
- How to manage a business.
- Credit planning and a host of others.
All these records are presented in trading profit and loss account and
balance sheet.
5.0 SUMMARY
At the end of this unit, we have been able to see how corresponding,
entry help in accounting for a business concern.
Information can be collected from journal, ledger and cash account to help
in business plans which include profit making, future investment, and a
host of others.
Discuss briefly the role of accounting in business
96
Frank Wood and Joshua Omuya (1999). Business Accounting I. West

African Edition. Harlow, Essex UK: Longman Group Limited Bank
Mill.
UNIT 3 MARKETING IN TODAY’S BUSINESS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Marketing Mix
3.1.1 Product
3.1.2 Price
3.1.3 Place
3.1.4 Promotion
3.2 Product Planning
3.2.1 Types of Product
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3.2.2 Product Life Cycle

3.2.3 Meeting Consumers Needs
3.2.4 Consumer Motivation
3.2.4.1 Rational Motives
3.2.4.2 Emotional Motives
3.2.4.3 Patronage Motives
3.2.5 Market Research
3.3 Pricing
3.4 Packaging
3.5 Promotion
3.6 Distributing Goods and Services
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit provides you some insight into marketing as it affects the
practice of business activities of today. Marketing in today‟s business has
gone beyond merely providing goods and services for public to make
money, instead the customers‟ needs and wants satisfaction is seen as the
first objective for business existence and the provision of qualitative goods
and services as the means to achieve the objective. The world‟s marketing
environment is fast changing so much so that, any business firm that lags
behind fizzles out. For any company to remain in business therefore, its
marketing activities have to be closely coordinated and made compatible
with one another and with all other activities of the company.
The company also has to adapt itself to delivering the desired satisfaction
in the areas of qualitative and desired product or service development,
right base price determination for the product or service, most effective
distribution method that provides time and place utility, and the best ways
to promote the product or service.
2.0 OBJECTIVES
At the end of this unit, you should be able to:
state the place of marketing, in today‟s business

explain what marketing mix is
identify the various marketing variables
say what product planning involves
identify types of product
state the stages involved in product life cycle
98
explain how consumers are motivated

define marketing research and state the importance
explain distribution of goods and services.
3.0 MAIN CONTENT
3.1 Marketing Mix
Basically, marketing mix can be defined as the combination of marketing

decisions that are used to market specific products over a specified time
period. The term is used to describe the way a company continues or
blends the four inputs or variables of marketing which are the product,
price, place, and promotion to appeal to its target customers. These four
ingredients are popularly called the four Ps of marketing and they are the
controllable marketing variable because a company can control them to
achieve its objectives in the target market.
3.1.1 Product
This is defined as “everything the customer receives that is of value in

terms of a perceived want, need or problem”. Product can also be defined
as “anything that can be offered to a market for attention, acquisition, and
consumption that might-satisfy a need or want” Kotler et al (2001). A
product represents an array of various benefits, attributes, characteristics
or satisfactions that are valuable according to your needs and desires. To
manage the product attributes successfully, marketer must find an
unsatisfied need or want and a unique way of satisfying such a need.
3.1.2 Price
Price is what is paid in exchange for the product (goods) received or

service enjoyed. It is also defined as the kindness or money that has to be
paid for a commodity or service. Kindness refers to a bartering situation
where parties involved exchange goods and services. Price can have more
than one meaning in non-businesses marketing. Thus, museums ask for
donations, churches pass collection plates and politicians seek votes, these
are included in the general concept of price. In pricing, a company must
determine the right base price (the minimum price it is prepared to receive
in exchange for its products). It must then establish policies concerning
discounts to be offered, freight (transport) payments and many other price-
related variables.
3.1.3 Place
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This is otherwise known as distribution which is a process of ensuring that

product or service is available when and where it is required. Distribution
provides time and place utility and sets the stage for possession utility
since a product is of no use if it is not readily available at the time you
need it.
3.1.4 Promotion
This is a marketing mix variable that is used to inform, remind and

persuade the customers to make purchases of the company‟s products. It
consists of such activities as; personal selling, advertising, sales
promotion, and public relations/publicity. This together are called the
promotional mix.
3.2 Product Planning
This involves all activities which enable producers and middlemen to

determine what should shoot up the company‟s line of products.
Product planning takes into consideration the strength of the firm, the
firm‟s market potential, the firms‟ sales potential and the profit
possibilities of the product to determine whether product development is
feasible.
The activities centering on product planning and development include

decision making in the areas like:
(i) The product the company should make and the one it should buy.
(ii) Whether the company should expand or simplify its line.
(iii) The new uses available for each item.
(iv) The quality of the product for the intended use and in which
market is it right?
(v) The fraud, package and label to be used for each product.
(vi) The style and design of the product and the size, colours and
materials.
(vii) The quantities of each item to be produced and inventory controls
to be established.
3.2.1 Types of Product
Products and services fall into two broad classes depending on the types
of consumers using them:
1. Consumer products and;

2. Industrial products
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Broadly defined, products also include other marketable entities such as

experiences, organization, persons, places etc.
1. Consumer Products: These are those products bought by final

consumers for personal consumption. Marketers usually classify
these goods further based on how consumers go about buying
them. Consumer products include convenience products, shopping
products, specialty products and unsought products. They differ in
the way they are bought and marketed.
i. Convenience Products- are products and services that consumers

buy frequently, immediately and with less or minimum comparison
and effort. Examples include soap, candy, newspapers and fast
food. They are usually low-priced and placed in many locations for
easy availability.
ii. Shopping products- are less frequently purchased consumer

products and service that consumers compare carefully on
suitability, price, quality, and style. Consumers spend more effort
and time gathering information and comparing them. Examples are
furniture, clothing, used car, major appliances, and hotel and motel
services.
Marketers of this class of products distribute them through fewer outlets

but provide deeper sales support to help customers in their comparison
efforts.
iii. Specialty Products- are consumers‟ products that the customer

really wants by, making special effort to get them. Specialty
products are products that customers are willing to search for. They
don‟t have to be expensive and may be once-in-a-lifetime
purchases. Any branded product that consumers insist on by name
is in this category.
iv. Unsought products- are consumer products that the consumer either
does not know about or knows about but does not normally think of
buying. Most major new innovations are unsought until the
consumers don‟t search for products in this category and in fact,
they probably won‟t buy the products if they see them unless
advertising, personal selling, and other marketing efforts can show
their value. There are two other types of unsought products, new
unsought and regularly unsought products.
(a) New unsought products- are products offering really new ideas the
potential customers don‟t know about yet (innovations).
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Information promotion can help convince customers to accept or

even seek out the product.
(b) Regularly unsought products-are products (like encyclopedia and

gravestone) that stay unsought but are bought forever. There may
be a need but potential customers are not motivated to satisfy such
need. Personal selling is very important for this class of product.
2. Industrial Products: These are products purchased for further

processing or use in conducting a business. Thus, the difference
between a consumer product and an industrial product is based on
the purpose for which the product is bought. If you buy a tractor for
use personally, the tractor is a consumer product but where the
same tractor is purchased for use in an agricultural firm
(commercial farm), it becomes an industrial product. The three
groups of industrial products and services are:
(a) Materials and parts which include raw materials and manufactured
materials and parts. Raw materials consist of farm products (wheat,
livestock, vegetables, cotton, fruits) and natural products like fish,
crude petroleum, lumber, and iron ore). Manufactured materials
and parts consist of component materials (iron, wires, yarn, and
cement) and component parts (castings, small motors, tires). Most
manufactured materials and parts are sold directly to industrial
users. Price and service are the major marketing factors, branding
and advertising seem less important.
(b) Capital items are industrial products that aid in the buyer‟s
production or operations, including installations and accessory
equipment. Installations include major purchases like buildings
(factories offices) and fixed equipment like generators, drill
presses, large computer systems, elevators). Accessory equipment
includes portable factory equipment and tools (hand tools, lift
trucks) and office equipment (fax machines, desks). They have a
shorter life than installations and simply aid in the production
process.
(c) Supplies and services: Supplies include operating supplies like

(hurricanes, pencils paper, coal) and repair, maintenance items like
(paint, nails, brooms). Supplies are the convenience products of the
industrial field, as they are usually purchased with minimum effort
or comparison. Business services include maintenance and repair
services (window cleaning, computer repair) and business advisory
services (legal, management
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consulting, advertising). Such services are usually supplied under

contract.
3.2.2 Product Life Cycle (PLC)
This is the course of a product‟s sales and profits over its lifetime. It
involves five distinct stages:
i. Product development begins when the company finds and develops

a new-product idea. During product development, sales are zero
and the company‟s investment costs mounts.
ii. Introduction: Is a period of slow sales growth as the product is
introduced in the market. Profits are nonexistent in this stage
because of the heavy expenses of product introduction.
iii. Growth is a period of rapid market acceptance and increasing
profits.
iv. Maturity is a period of slowdown in sales growth because the
product has achieved acceptance by most potential buyers‟ Profits
level off or decline because of increased marketing outlays to
defend the product against competition.
v. Decline is the period when sales fall off and profits drop.
Not all products follow this product life cycle. Some products are
introduced and die quickly; others stay in the mature stage for a long time.
Some enter the decline stage and are then cycled back into the growth
stage through strong promotion or repositioning.
The product life cycle concept can describe a product class (petrol-
powered automobiles), a product form (minivans), or a grand (the Toyota).
The product life cycle concept applies differently in each case. Product
classes have the longest life cycles because their sales stay in the mature
stage for a long time. Product forms, in contrast, tend to have the standard
product life cycle shape. Product forms such as “cream doctorates,” and
the “dial telephone” passed through a regular history of information rapid
growth, maturity, and decline .
3.2.3 Meeting Consumers’ Needs
To sell products successfully, marketing exports must understand the

needs of consumers. As a consumer, you spend your money to meet three
basic needs: physical needs, social needs, and psychological needs.
Physical needs include the necessities of life such as food, clothing,
housing, transportation, the need for health, safety, and security. When
you go to the doctor, purchase a life insurance policy, or put dead bolt
locks on your doors, you are meeting physical needs. Social needs are
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the need to be loved and accepted by others. The desire to be attractive,

especially to the opposite sex grows out of these needs.
Marketing specialists appeal to our social needs when they sell such items
as skin care products and deodorant.
Psychological needs involve, the need for approval and prestige. To meet
psychological needs, people buy things that show they have accomplished
something. One person might buy very expensive shoes. Another might go
to a fashionable restaurant, what “basic needs” is a debatable issue.
Since people buy items to meet their need, a distinction is made between
no discretionary and discretionary income.
Non discretionary income is used to buy items to meet basic needs.

Discretionary income on the other hand is the income left over after the
basic needs are met. Knowing this distinction enables the marketer to
determine the marketing plan to use, for example, advertising; appealing
to the emotions is more frequently used for marketing items purchased
with discretionary income, rather than non-discretionary income.
3.2.4 Consumer Motivation
Two people cannot buy exactly the same goods and services to satisfy
their needs. You buy one brand of toothpaste, and your best friend buys
another brand. Both brands, however, meet the same need. Each of us has
different motives for buying the products that we do buy.
There are three types of motives.
3.2.4.1 Rational Motives
Consumers with this motive are motivated to think logically about a

purchase. When you compare the prices and quality of similar products,
you are being rational.
3.2.4.2 Emotional Motives
Feelings or attitudes cause you to buy on impulse or to buy a product

when logic tells you that you really cannot afford it. They also influence
you to select a particular model, colour, or style of a product.
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3.2.4.3 Patronage Motives
You may always go to the same hair stylist or drink the same brand of soft
drink. Patronage motivation also causes you to be loyal to certain shops
and companies. You may like to shop at one clothing store, even though it
is farther away than another. Companies spend a great deal of money each
year trying to win the loyalty of consumers to their products and services.
3.2.5 Market Research
This involves the gathering of information that business can use to

determine what kind of goods or services to produce. Market researchers
commonly, ask shoppers to take a few minutes to answer questions, taste a
new food or watch a new commercial. So, they study people to find out
what they want to buy and what they are buying. By using market
research, forecasters predict how many goods or services a business man
can expect to sell.
Market researchers also gather information from a wider group of people.

To do this, they use demographics, which is the study of population.
Where people live, how much income they have to spend, and what
newspapers they like to read are just a few examples of information that
market researchers collect.
Researchers gather such information from maps, local businesses, census

reports and chambers of commerce, utility companies, and bus and rail
lines. Please note some market research studies are elaborate and
expensive while others can be quite simple and cheap.
3.3 Pricing
Price is the value that products and sellers place on goods or services.
There are many factors involved in the pricing of a product or service. The
price must cover the total costs of producing, shipping, and promoting the
product, plus a profit.
In determining the total cost of a product, say popcorn, oil, popping the
corn, boxes, and salaries of the workers are costs to be considered. Other
costs could be fixed, costs that remain the same regardless of how much
popcorn is produced which may include rent for workspace, cooking
equipment, any executive salaries; variable costs change depending upon
how much product produced. The costs of oil, popping corn,
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boxes, and salaries for people who are making and boxing the popcorn are
included in the product‟s total costs.
Break-even point is the point reached when the money from product sales
equals the costs of making and distributing the product. After that point is
reached, businesses begin to make a profit on the product.
The way a product is priced delivers certain messages to consumers. If

two similar products range widely in price, the consumer may think that
the higher priced product is of better quality. A very high price suggests
exclusiveness. A very low price may suggest low quality, even though
many low-priced products offer very good value for the money.
Businesses must remember that their pricing strategy conveys an image of
their product in the market place.
In many cases, sellers set the price recommended by the manufacturers,

some sellers base their price on market research that has determined how
much consumers are willing to pay for a particular product. A change in
consumer‟s demand may affect the price the seller has set.
Price can be used as a competitive strategy; Marketing specialists may try

to lure consumers away from their favourite brands by offering nearly
identical products at slightly lower prices. Marketing people also use
pricing to make products more appealing. They might offer special sale
prices on certain products.
3.4 Packaging
The way products are packaged strongly influences consumers as alot of

thought goes into the packaging. Packaging must be attractive. If the
product is a good, the package must explain clearly how to use it. It must
prevent tempering and protect the contents from breaking or spilling.
Some goods such as medications are packaged with special tops so that,
small children cannot open them.
The labels on packages are advertisements for the product. Labels include
the logos, which is the symbol of the manufacturer, and the brand name of
the product. The label also may give directions for using the product and
list the ingredients. Many food labels provide nutritional information as
well.
3.5 Promotion
This includes all of the activities involved in selling product. It means

telling consumers about a product and creating demand for it.
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Advertising is paid promotion. Businesses and organizations use

advertising to promote products and services and to generate ideas and
educate the public. The people who purchase advertisements are sponsors
and they advertise in many different ways. They use television
commercials, categories, magazines and newspaper ads, billboards, direct
mail, and even the products themselves. The makers of designer jeans and
T-shirts display their logos and brand names in a prominent place on their
products. Consumers advertise the product whenever they wear it.
Advertising firms are service business that design and produce

advertisements. Advertising is a highly competitive business. Some
advertisements, particularly television commercials, are very costly to
make. A television commercials may cost N1 million to produce. It may
cost another N500, 000 to purchase air time on television for the
commercial. Although, television commercials cost a lot to make, they
usually generate many millions of naira in product sales.
3.6 Distributing Goods and Services
The place decision that marketers have to take is how and where
consumers will buy their goods and services. To make this decision,
marketers must decide on their channel of distribution which includes all
the people who direct products to consumers. Because these people work
at getting the product from the producer to the final user, they are called
intermediaries. They include:
i. Distributors who are intermediaries that represent a single

manufacturer in a specific geographical area. Cosmetics, cars,
furniture, and shoes are sold through distributors.
ii. Wholesalers are another kind of intermediaries. They receive large

shipments of products from many different producers. They break
the shipments into smaller batches for resale. A company that
makes canned peas may sell a truckload of its peas to a wholesaler.
The wholesaler, in turn, will sell a few cases of peas to each of
several local supermarkets.
iii. Retailers who sell goods directly to the consumer, the final stop in
the channel of distribution. When you buy something in a
supermarket, drugstore, or department store, you are dealing with a
retailer.
4.0 CONCLUSION
You have learned in this unit that for marketing activities to take place,
decisions have to be reached concerning the product type needed to
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satisfy the needs of prospects, the price affordable by them, the best way
to distribute such products or services and the corresponding promotional
efforts that will sensitize people of the product or service availability and
perceived satisfaction packaging is also seen as a silent salesperson for
products as it gives a first-hand information about products whether on
display or on offer.
5.0 SUMMARY
The marketing mix consists of product, price, place and promotion.
Market planning entails decision on whether to produce consumer or
industrial goods and services and considering the life cycle of the product.
Producers of goods and services must understand the psychological needs,
rational, emotional and patronage motives of consumers for buying goods
and services. It was also gathered that market research helps producers
determine what people need and want to only, products are priced,
packaged and promoted to persuade customers to try them.

Differentiate between shopping and specialty products

Adcock, Brad Field, Hallorg & Ross (1995). Marketing Principles and
Practice 2nd Edition. London: Pitman Publishing.
Brown Clow (1997). Introduction to Business. 4 Edition. New York:
McGraw-Hill.
Kotter and Armstrong (2001). Principles of Marketing 9th Edition. Inc:

Prentice-Hall.
UNIT 4 COMMUNICATION IN BUSINESS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Communication?
3.2 The Process of Communication
3.2.1 Actions
3.2.2 Reactions
3.2.3 Interaction
3.3 Types of Communication
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3.3.1 Written Communication

3.3.2 Oral Communication
3.3.2.1 Intrapersonal Communication
3.3.2.2 Interpersonal Communication
3.3.2.3 Group Communication
3.4 Quality of a Good Communication
3.5 Barriers to Good Communication
3.6 Telephoning
3.6.1 Techniques of Making Phone Calls
3.6.2 Techniques of Answering Phone Calls
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit introduces you to the study of communication in business, it

deals with the strategies and skills needed for effective communication in
business and organizations. The quest for a new information and
communication order as a matter of fact brought to the fore, the need for
businesses to make a scientific study of communication and its processes
within their immediate environments and its contribution to international
business relations. As a result, communication studies have, within the last
decade, become the focus of attention of many business and organization.
The universal nature of communication has led to countless definitions of
the term by different authorities.
2.0 OBJECTIVES
At the end of this unit, you should be able to:
define the term communication explain the

types of communication differentiate between
the communication types
highlight the qualities of a good communication
state the barriers to good communication
use telephone effectively to make and answer calls
identify the techniques involved in making and answering telephone
calls.
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3.0 MAIN CONTENT
3.1 What is Communication?
Communication affects every sphere of human endavour. It informs all of

your actions because, it is occasioned by your need to interact with your
fellow-men. It manifests itself in symbolic, verbal forms. Animals and
trees also communicate, but it is your ability to create symbols, ascribe
meanings and interpret massages that elevates you above the status of the
lower animals and gives form and character to your existence.
Communication is a means by which power is acquired, exercised and

sustained. It is the medium through which relationships are established,
extended and maintained. It provides a means by which people in
business, politics and the professions act and interact, exchange
information and ideas, develop plans, proposals and politics, make
decisions and manage men and materials. In business and industry,
communication helps to orient workers to one another and to the goals of
the organization, and it is the means by which such goals can be pursued,
attained, sustained and improved.
It is the lubricant that keeps the machinery of the organization functioning;

it is the means through which roles are identified and assigned; it is the
life-blood of any business. To organize is to communicate. Thus, no
business or organization can survive without communication. Dance and
Larson (1976) listed 126 published definitions of communication, but
there are still others. Let us examine some of these.
1. Communication is any means by which a thought is transferred

from one person to another (Chappell and Read, 1984).
2. Communication is the process by which one person (or a group)
shares and imparts information to another person (or group) so
that both people (or groups) clearly understand one another Udall
and Udall, 1979:5).
3. Communication is not just the giving of information, it is the giving

of understandable information and receiving and understanding the
message. Communication is the transferring of a message to
another party so that it can be understood and acted upon (Eyre,
1983:1).
4. The communication process involves all acts of transmitting

messages to channels which link people, to the languages and
symbolic codes which are used to transmit messages, the means
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by which messages are received and stored, and the rules, customs,
and conventions which define and regulate human relationships and
events (Frank Uatoajah, 1985:2).
5. At all levels in the business among and between executives,

managers, staff, personnel, supervisors and foremen and
employees, the communication process is continuously in action,
conveying information, ideas, attitudes and feelings among
individuals and among groups of individuals (Chruden & Sherman,
1978:325).
3.2 The Process of Communication
This is also known as communication models. You may also see diagrams
and explanations on how communication is carried out. The most
influential of these models and discussions is that of Shannon and Weaver,
two mathematicians. It is known as the Shannon Weaver Model of
communication.
Gold Haber (1983) observes that we can talk about a process because, the
phenomenon of creating and exchanging messages is on going, ever-
changing and continuous. What it really means is that the communication
process involves actions, reactions, and interactions. Let us see what each
of these terms means.
3.2.1 Actions
This refers to the initiative you take (as a sender) to share information,
observations, or opinions with others. You may do so by speaking or
writing, drawing or gesturing.
3.2.2 Reactions
This is a response to the action taken by you (sender). In other words, the
person addressed (the receiver) responds to your initiative of starting the
communication. Depending upon the type of response given, we are able
to determine whether or not the receiver is willing to be a party to the
communication encounter.
3.2.3 Interaction
This has to do with the exchange of messages between you the senders
and receivers. If the receiver is willing to participate, he sends his response
to the initiator. The response may be verbal or non-verbal; that is, he may
write it, speak, or merely carry out an appropriate action. An
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interaction can involve two or more persons provided those who take part
in the encounter share common experiences, codes or symbols. There will
then be a see-saw of continuous exchange among them as long as there is
information to share, or ideas and thoughts to put across.
A practical example of the communication process.
You are an industrialist and your company manufactures Garment using

imported cotton. Suddenly the government announces a ban on imported
cotton and urges manufacturers to find local alternatives. Just as you are
thinking about the serious implications of this action, a friend tells you
about Fantua Cotton Farms Limited. You write a letter to enquiring about
their line of business and what they could do for you. They reply, giving
details of the range of products and their price list. You then place an
order. The goods are sent, you are satisfied and you write back to thank
them and to effect payment, they acknowledge. You have now become
their stable customer and have continued to be involved in the business
transactions as long as the natural goodwill lasts.
This is the form of exchange, the flow of information desired, and the
satisfaction that can characterize a smooth flow of communication. It is
this flow that makes people describes communication as a process. This
flow is also called the model of communication.
3.3 Types of Communication
Human communication falls into two broad categories, Verbal and non-
Verbal. Verbal communication may take the form of written or oral form.
3.3.1 Written Communication
This is the translation of oral messages into alphabetic symbols. These

symbols are then organized together to convey ideas, messages or
information between those who participate in the communication
encounter. The process of learning to write and to organize your thought
in writing begins from childhood and continues into adulthood. Learning
to write, what we want to say and reading what others have written is a
life-long pre-occupation of all serious minded literate people. Once you
have learnt to read and write, you could pick up a biro, a pencil, or any
writing instrument to record your message. It is also of major importance
in the business world because, faulty and imprecise written messages can
lead to business losses, such as loss of time, corporate image, potential
customers and profits.
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Written communication is normally used in the following situations:
i. For personal and business letters.

ii. In queries (normally used to discipline erring staff).
iii. In reports.
iv. For circulars and memos.
v. In essays, compositions and all forms of creative writing.
vi. For questionnaires and forms designed for collecting information.
vii. In telegrams and telexes.
3.3.2 Oral Communication
This is a form of verbal communication in which your speech organs are

used to produce sounds. It is different from the written form where you
make use of your muscles to produce symbols (letters of the alphabet and
words).
Oral communication is used in interpersonal, intrapersonal and group

communication situations.
3.3.2.1 Intrapersonal Communication
It is a process of information transfer, which goes on within you as an

individual. You know very well that ideas and thoughts are not transmitted
as soon as they are generated in you. Rather, each idea or thought that
develops is first weighted, tossed here and there, then you decide how best
to put it before you allow it to escape from within you. This process is
necessary to ensure effective and suitable construction of messages.
At times, during the process of tossing ideas up and down in your mind,
you unconsciously verbalize (say aloud) what is going on within you. In
such situation, no particular receiver is intended. But if somebody happens
to be around then, and he learns you muttering, he might accuse you of
talking to yourself.
3.3.2.2 Interpersonal Communication
Otherwise known as “face –to-face communications” it is the exchange of

ideas and information between two people – you and your friends, you and
your boss in the office or you and your tutor. In this case, you do not keep
your ideas to yourself. You share them directly with someone else, face-
to-face or by telephone or other gadgets of communication. Interpersonal
communication dominates our activities at home, in the school, in the
clinic, in the market, and almost
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everywhere. In business, Industry and similar organizations, interpersonal

communication helps to break the barrier of formal relationships, generate
warmth and create harmony, essential for increased productivity. It is
therefore a very significant form of communication. This form of
communication has a singular advantage of immediate response.
3.3.2.3 Group Communication
When three or more persons come together accidentally, or by design, to

work towards a specific goal, a group is formed. Group communication;
therefore, involve the exchange of ideas and information among members
of a group. Groups exist in several areas of our lives-at school, at home, in
the office, in the club, etc. other examples of groups include members of a
class, or a social organization, and people who belong to the same political
party. Members within a given group share ideas and information with one
another, and this enables them to accomplish the tasks they set themselves.
As a result, if you are a member of any of the groups mentioned above,
you will take part in group communication. The group decides collectively
who should lead, how to raise money, what tasks to undertake and how to
carry out the tasks undertaken. In this kind of situation, the mode of
communication is peculiar to the group and essential to its survival. You
engage in one or other of the three forms of oral communication discussed
in the course of your daily activities whether in lectures, interviews and
meetings.
Oral communication then can be described as concentric in nature. We

begin with our own internal dialogues; move on to sharing our thoughts
with someone else, then with the group.
3.4 Quality of a Good Communicator
Already, a lot has been said on the art of oral communication and to wrap
it up, every communicator should aim at the following for a successful
outing:
a. Ability to Maintain a Balanced Communication Flow: A good

communicator is one who is able to maintain a moderate and
balanced flow of communication as too much and inadequate flow
adversely affects communication.
b. Ability to Manage Interference: The effectiveness of a

communicator lies on his capability in keeping under control, to the
bearest minimum, interferences like noise, ridiculous
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gesticulations, inaudible presentation and so on which hamper

communication effectiveness.
c. Reality: A communicator could either be given a topic or asked to

choose one. Once a topic has been received, regardless of its
source, it must be considered as very important. The communicator
therefore should ensure that it is ideal, realistic to the purpose of
the gathering and the target listeners or simple that the topic is
authentic.
d. Sensitivity: Certain moves should be made by the communicator

to demonstrate how much he cares for the topic and audience. Such
moves are being thorough in his search for data and ensuring a
complete design with a logical outline, in addition to being
responsive or sensitive to the purpose of the presentation.
e. Timing: A good communicator is one conscious of the timing of

communication message as it is only when message is sent at the
right time that the desired result can be obtained.
f. Ability to Select the Right Channel is Another Quality: A

good communicator should have the ability to select the might
channel. Inappropriate channel selection brings about obstacles in
message delivery and comprehension.
g. Another quality is the ability of a communicator to articulate ideas

and combine words in the right order.
3.5 Barriers to Good Communication
This can be defined as blockages that obstruct the flow of information.

Many atimes, a well-intended message does not achieve its purpose. This
is because of several factors, which include the speaker, the receiver and
the environment in which the communication takes place. Some of these
barriers include:
Timing
On your part as the speaker, ineffective timing of the communicated

message could be a barrier to its being accepted. It is totally unacceptable
to call a group of workers during the peak hour (when they are feeling
overworked and under severe pressure) and intimate them of
management‟s decision to cut wages. This can lead to a riot.
Channel Selection
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Inappropriate channel selection could also lead to communication barrier.

Some messages are best related in a face–to-face situation while some are
better written. It is left to the selector to choose the appropriate one. For
example, a reprimand given orally could have a more positive effect than
the one formally typed out like query. Also, a confidential thing is best
expressed in a face-to-face situation which is better than to write out
formal reports or statistical analysis. A wrong selection easily leads to
obstacles.
Feedback
This is supposed to aid the progress and success of communication. The

discerning speaker can use feedback to adjust his message if it is not
getting the desired effect or use it to intensify the message if the effect it is
producing is positive.
Geographic Distance
Distance between an organization‟s headquarters and its divisions could

be a barrier if it is too far. Messages can take a long time in reaching the
divisions and when they do receive the message, implementation may be
late.
Lack of Proper Consultation
If a person is affected by a decision, the person ought to have been

consulted before such a decision is made public. If this is not done, the
intention could be misunderstood.
Personality and Ego Conflicts
These can lead to a block in communication because the parties would just
be seeing their personal differences instead of the message. The bias
underneath would colour the message and disport it. Of course, this
generates misunderstanding.
Communication Load
If the flow of communication is too much, it can be a barrier to

communication as there would be overload which would lead to
conflicting signals. Also, if the communication taking place in an
organization is too little, the organization cannot function properly.
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There are other barriers to good communication that one can get from the
speaker and the listener. On the part of the speaker, these barriers tend to
distract the attention of the listener and draw him away from the substance
of the communication to unimportant things. An example of these is noise,
Ridiculous gesticulations, too much loudness, inaudible
presentation, inappropriate dressing. All this distract one from
communication.
3.6 Telephoning
The telephone is a system used for talking to somebody over a distance

using a wire. The telephone is unarguably one of the most important
technological developments ever. It has eliminated great distances and has
immensely contributed in making the world we live in today to be a
“global hamlet”. The person who operates the telephone is a telephonist
and telephone diplomacy is concerned with the knowledge as skills of
operating the telephone.
The telephonist (mostly the secretary) needs to cultivate good telephone

diplomacy. This is because he/she is perhaps the organizations‟ most
regular public relations person. Many organizations have lost patronage
and good will due to the awkwardness of their telephonist.
3.6.1 Techniques of Making Telephone Calls
The techniques involved in making telephone calls include:
Ensure you have the number you want to call ready. If you are in
doubt, consult the telephone directory.
Conceptualize what you want to say in mind. This is even more so for
very important calls. It is embarrassing to be inarticulate. Familiarize
yourself with the telephone tones.
When the call goes through, greet the receiver, introduce your self and
say whom you wish to speak with e.g. “Good morning, this is Mr.
Bello of Zagayi pharmacy minna, I wish to speak with the human
resources manager.
Apologies for mistakes, e.g., if you are connected with the wrong
number, say “I am sorry, I have the wrong number”.
Speak directly into the mouthpiece.
Your voice should be neither too loud nor toO faint .You should
maintain the golden medium.
Don‟t talk too fast, because you may not be understood and don‟t be
too slow either, because you may bore your listener.
If you want some information from the other person and it may take
time, ask if you could call back later.
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When you want to end the call, thank the person at the other end,
particularly if it is an official call.
Always update your personal directory.
3.6.2 Techniques of Answering Telephone Calls
The techniques include:
Be prompt in answering. It is courteous and efficient.

Introduce yourself or your organization if you are representing an
organization. It is a good tradition for secretaries to say something like
“Good morning sir, this is TONUAD PUBLISHERS LTD, Lagos”.
Talk clearly and fondly

Be friendly and pleasant without daring, playful and unserious.
Be prepared with writing materials in case the caller wants to leave
some messages. Callers should not be kept waiting.
If an incoming call has to be transferred to another extension,
announce the callers name and request to the new extension so that he
/ she does not have to repeat himself/herself.
If there is a disconnection, replace the receivers so that the caller can
re-establish connection
Be attentive and take messages courteously.
If someone calls a person who could be of help more than you e.g “Mr
Tunde Bello is not around, do I connect you with Mr Koce whom I
believe can help?”
Ask only necessary question, and politely too. E.g, “If Mr Koce comes
back, whom should I tell him called?”
The caller should be allowed to signal the end of the conversations
unless it is necessary for you to do so. And if you must end it, do it
courteously. E.g, “Thank you for calling Mallam shehu, goodbye”.
4.0 CONCLUSION
You have learnt in this unit that, communication is the exchange of words
between or among people in a way or manner that produces
understanding. You also learnt that communication can either be spoken
or written. Good and effective communication is not sustainable in a noisy
environment and where the sender and the receiver of message are
relatively too far from each other.
5.0 SUMMARY
Although what constitute good and poor communication factors may be

dear, organizations today are aware of the power of effective
communication system in projecting the image of their businesses.
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They are aware of the role communication plays as the activator of their
contacts especially as the world‟s business environment becomes
globalized. Poor information system sends danger signal to their business
exploit while carefully organized system brings about good
interrelationship among organizations
6.0TUTOR-MARKED ASSIGNMENT
State five (10) ways you can make yourself a good communicator.
7.0REFERENCES/FURTHER READINGS
Bolaji and Alabi (1994). The Principles and Practice of

Communication. The Department of English, Institute of General
Studies, Kwara Polytechnic. Ilorin: Unilorin press.
Charles Deriedo and Sani Mohammed (2004). usiness Method

Simplified. Bida: Blessed Concepts Prints.
Sybil James et al (1998). Introduction to Communication for Business and

Organizations. Ibadan: Spectrum Books Limited.
Osasona and Orijearu (2003). Essentials of English for all Students,

Administrative and Business Forum. Kaduna: CABS.
UNIT 5 ENTREPRENEURSHIP
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Entrepreneurship and Small Business
3.1.1 Entrepreneurship
3.1.2 Small Business
3.2 Characteristics of an Entrepreneur
3.2.1 Desire for Independence
3.2.2 Self-Confidence
3.2.3 Willingness to take Risk
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3.2.4 Ability to Recognize Opportunity

3.3 Advantages of Entrepreneurship
3.3.1 Satisfaction
3.3.2 Full Use of Skills
3.3.3 Profit
3.4 Disadvantages of Entrepreneurship
3.4.1 Total Responsibility
3.4.2 Long Irregular Hours
3.4.3 Financial Risks
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This study unit of introduction to business puts you through to who an

entrepreneur is, characteristics of an entrepreneur, the benefit of being an
entrepreneur and disadvantages of an entrepreneur.
2.0 OBJECTIVES
define entrepreneurship
identify who an entrepreneur is
identify the benefit of entrepreneur
explain the disadvantages of an entrepreneur.
3.0 MAIN CONTENT
3.1 Entrepreneurship and Small Business
Entrepreneurship and small business most times are confused to means the
same, when they are discussed, it is difficult to differentiate. Between a
small business and entrepreneur.
3.1.1 Entrepreneur
He is a person who recognizes a business opportunity and who organizes,

manages, and assumes the risk of a business enterprise focusing on that
business opportunity. Brown (1997).
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One basic characteristics of an entrepreneurship is that, the businesses do

not last. In the U S, 25 percent of entrepreneurship business failed three
years later.
In a situation where the entrepreneurship succeeds, their anticipation will

be to become giant companies.
Some entrepreneurs like to remain their own bosses and take their own
business decisions. Some entrepreneurs on the other hand don‟t dream of
great fame or riches.
3.1.2 Small Business
Brown 1997 say a small business is an independently owned and managed

business that serves a limited geographic area and it is not dominant in its
industry. Though the businesses are small, they are started and maintain
by people with an entrepreneur spirit.
Examples may include:
- Service station
- Print shops
- Appliance stores
- Restaurants
- Video stores etc.
In the U.S, two thirds of new jobs are created by businesses that employ
fewer than 500 people and are less than five years old.
They employ about 60% of the work force

They contribute about 40% of all sales
Young men learnt some basic skills working for small businesses.
Just like in U S, in Nigeria, the situation is not different. Small businesses
have contributed highly to the growth of Nigerian economy. These small
businesses are found mostly in retail and service industries.
SELF ASSESSMENT EXCRSISE 1
(1) Name about five entrepreneurs around your vicinity.

(2) Name about five types of small business in your area.
3.2 Characteristics of An Entrepreneur
An entrepreneur has the following characteristics:
Desire for independence.
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Self confidence.
Willingness to take risk.
Ability to recognize opportunity.
3.2.1 Desire for Independence
One of the consistent characteristics of an entrepreneur is his desire for

independence. What it means is that an entrepreneur would want to work
for himself/herself rather than work for others. They want to take
decisions on their own. There is that believe that when you are fired from
your former organization, you are likely to become a better entrepreneur.
Because of this, you are in a better position to take decision.
A lot of people have resigned their position in organizations, to set up their

own business. What they mostly tell you is that „I can wake at anytime to
go to work‟. It means that it is independence they require.
3.2.2 Self Confidence
There are two characteristic of an entrepreneur that leads him into having
self confidence.
- Self Motivation
Entrepreneur set their own goals rather than having them set by their
bosses.
Since these goals are set by entrepreneurs, it means that they will be
motivated to achieve those goals.
- Self Discipline
Every entrepreneur has self discipline, if not, the business will fail, Brown
(1997) say. “They correct errors and improve on their own performance
without any prompting from some one else. These are confident people
who believe in what they are doing and believe that the job is worth doing
3.2.3 Willingness to Take Risk
Any entrepreneur is a risk taker; they take calculated risks whether

formally or informally. Mostly they take risk informally because they
make calculation within their brain on what to buy, keep and sell latter.
They equally try to figure out the probability of success of their business
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once they are convince that it is high, they will go into such business,
which means they take risk.
Marketing research is undertaken by entrepreneur consciously and

unconsciously. If this research is carried out, they venture into such
businesses.
Entrepreneurs are not tired of trying. If they invest in a business and they
fail, they still try another business so that they can succeed.
Brown 1997 say: an entrepreneur has what he call calculating risks.
(i) Is the goal worth the risk?

(ii) How can I maximize the risk?
(iii) What information do I need before I take the risk?
(iv) Why is this risk important?
(v) Am I willing to try my best to achieve the goal?
(vi) What preparation do I need to make before I take the risk?
(vii) What are the biggest obstacles to achieving my goal?
3.2.4 Ability to Recognize Opportunity
Brown(1997) says entrepreneurs try their hand on opportunities that are

by-pass by others; these opportunities may include:
- Meeting the demand that is not currently met

- Pushing up a product that is much better than what is currently in
the market.
- Solving a problem or annoyance that consumers have.
Entrepreneurs recognize opportunities where they are and they utilize

them by producing product or services that will fill the vacuum identified.
If you are to be an entrepreneur, state about five reasons that will

engineer you into it.
(i)
(ii)
(iii)
(iv)
(v)
3.3 Advantages of Entrepreneurship
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Entrepreneur have some benefits if they venture into the businesses some
of the advantages may include:
- Satisfaction.
- Full use of skills.
- Profits.
3.3.1 Satisfaction
As an entrepreneur, you are going to derive enough satisfaction especially

if you are succeeding in the business. You will discover that the business
takes your time.
For the fact that no one is your boss, you are taking all the profit, an
entrepreneur is a satisfied human being.
I was engaged in a discussion with an entrepreneur who is a drop out from

a polytechnic, he decided to continue with his known business that is
barbing; Three years after, he added up another business i.e. selling of
recharge cards etc and he has succeeded in buying a car out of the
business. I tried to persuade his to go back to school, but his answer is that
school or no school, he will succeed in him business. His answer to me
shows that he was very satisfied with what he was doing as an
entrepreneur.
3.3.2 Full Use of Skills
You will discover that entrepreneurs gain experience in other jobs before
setting up their own business. Take a look at any restaurant around you,
their proprietor must have worked in a big restaurant, or government
restaurant or elsewhere; they combine all to run their business.
In any business you are expected to combin:e
- Planning.
- Controlling.
- Directing.
In managing human and material resources in order to succeed,

entrepreneurs combine all of these together. Hardly do you see any
entrepreneur that is not able to keep record of finances, despite his area of
specialization.
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Entrepreneurs no doubt combine and use his full skills in running his
business.
3.3.3 Profit
If you work in other organizations, you are paid salary at the end of the
month. But if you are running your own business, the profit accruing from
the business after settling all expenses becomes yours.
If you are into a business worth five million naira at the end of the year
you are able to realize money after expenses in excess of one million
Naira, which is called profit, is yours; you can do what you want with it.
3.4 Disadvantages of Entrepreneurship
Despite all the benefits of entrepreneurship to an entrepreneur, there are

some short comings about it. Despite all the disadvantages a lot of people
still go into it.
Some of the disadvantages include:
- Total responsibility.
- Long irregular hours.
- Financial risks.
3.4.1 Total Responsibility
An entrepreneur does everything for his business. The business may

continue to grow and he will employ new hands to help him. At the end of
the day, he is ultimately responsible for the business.
Take for instance a business man who owns a manufacturing concern:
- He manages workers.
- He manages manufacturing.
- Shipping.
- He finds costumers.
- Sell the product
- Supervise the orders.
3.4.2 Long Irregular Hours
Being the owner of your own business, if care is not taken, twenty four
hours will be too short for you.
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A restaurant owner wakes up at three to start preparing for his customers,

at seven in the morning; she/he is at the restaurant up to eleven in the
night, before he gets to the house, it is about eleven in the night, he sleeps
for about two to three hours and starts another day.
This may be a normal day for a restaurant owner. It may be longer or

shorter.
They may always be inconvenient, consider the beer parlous where a

customer wakes the manager up for a bottle of beer, the manager is
tempted to attend to him at an odd time etc.
3.4.3 Financial Risks
An entrepreneur faces problem of how to finance his business. Banks may

be unwilling to grant loan to an entrepreneur because, there may not be
collateral for such. Even individuals may not be willing to borrow him
money for his business.
Take a look at any successful business around you and list some of the
effort that he is putting into the business that, if you were in his shoe, you
will find difficult to do.
(i) -
(ii) -
(iii) -
(iv) -
4.0 CONCLUSION
You have learnt in this unit what business is and who an entrepreneur is.
Since this course is to lead you to how to be on your own, you are left
with a choice, haven seen the benefit and characteristic of entrepreneur, to
choose whether you will be one or not.
5.0 SUMMARY
Despite all the short comings of an entrepreneur, it is still the best method
of becoming independent in doing business. You have confidence in
yourself, take all the profit. And be your own boss.
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Discuss all the characteristics of an entrepreneur.
Betty J. Brown and John E. Clow: Introduction to Business, on Business

and Economic World. McGraw Hill-Contribute.
UNIT 6 INSURANCE
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Insurance
3.2 Classification of Insurance
3.3 Functions of Insurance
3.4 Types of Risks
3.5 Characteristics of an Insurable Risk
3.6 Uninsurable Risk
3.7 Attitude to Risk
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3.8 Risk Measurement

3.9 Risk Related Terms
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The basis of all types of insurance is that a large number of policyholder
join or pool their resources together, with a view to obtaining cover in
respect of predetermined risks, providing a sufficient spread of risks to
make it possible for the appropriate premiums to be calculated equitably
so that each policyholder‟s premium is in line with the nature and size of
his risk introduced.
In other words, Insurance is a device for grouping the similar risks of

number of persons or companies, the purpose being to spread the costs of
possible individual losses (e.g. from Fire) over a large number of covered
participants. By this means the individual or firms accepts the certainty of
a relatively small premium payment in substitution for the uncertainty of a
possible large loss that would not otherwise be reimbursed.
These pooling of risks makes it possible for those who might sustain large
losses actually suffered while those who did not have losses during the
period make this reimbursement possible through their premium
payments.
2.0 OBJECTIVES
At the end of this unit, students should be able to:
define insurance
explain the characteristics and terms of insurable and uninsurable risk
classification of risk
function of insurance
insurance terms.
3.0 MAIN CONTENT
3.1 Definition of Insurance
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From the above analysis, we now offer a working definition of insurance.
“Insurance operates on the principles that a small payment (or premium)

by a large number of people will cover even a substantial loss that may
occur to relative few”. “A means of pooling the risks of a number of
persons or companies for the purpose of spreading the cost of possible
individual losses in exchange for which risk pooling, each participant
accepts the certainty of a premium-payment obligation in substitution for
the uncertainty of possible large individual losses.”
3.2 Classification of Insurance
Insurance can be classified base on different methods for the purpose

insurance is classified into two:
a. Life Assurance Business which include:
- Individual life Assurance Business and

- Group life Assurance Business
b. General Insurance Business which include:
- Fire insurance business

- Accident insurance business
- Motor vehicle insurance business
- Worker-men compensation business
- Goods – in- transit insurance business
- Marine and Aviation business
- Oil and Gas Insurance business
- Contractors “all risks” and engineering risk insurance
- Credit insurance Bond and Surerity ship
- Railway rolling – Stock insurance business and
- Miscellaneous insurance.
The uncertainly of when risk will occur that result into loss. Therefore, it
will be correct to say that risk is the uncertainly of loss occurring.
3.3 Functions of Insurance
The following are the benefits of insurance both the individual and the
nation as a whole.
Collateral Security
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For the purpose of obtaining a loan from banks most of the time, the banks
demands for one form of collateral security or the other. An important
function performed by insurance is the use of life Assurance policy as
collateral security for the purpose of obtaining such loan with an assurance
that even in the event of death, payment of the outstanding loan can be
repaid.
Employment Opportunity
Another function of insurance is the provision of job opportunities for the

population, thus, helping to solve unemployment problems, with its
attendant social implications.
Foreign Earning
Through the method of reinsurance, our country can obtain invisible

earning which in turn reflect on the balance of payment.
Investment Capital
The various premium collected from the insured especially life assurance
contract provides a veritable source of investment capital for investors.
Loan Facility
Apart from the fact that insurance policy is being used for the purpose of
obtaining loans, the various life offices also grant short time loans to their
life assurance policy holder at the current interest rate, thereby
ameliorating their financial position.
Loss Control
With the teeming experts in the insurance industry, most especially the
surveyors and loss adjusters. They are able to offer advice as to how losses
can be economically control using the various modern technologies
whenever there is loss. For example, the use of fire extinguisher, fire
alarm, sprinkler systems, and burglary alarms for reducing the effect of
loss etc.
Loss Prevention
Prevention has been said to be better than cure. Insurance experts also
advice on practicable ways to prevent losses from happening or at most
how to minimize it effects if it occur. Thy advice on methods of
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construction, installation of fireproof doors/walls etc. in other words risk

prevention deals with eliminating or reducing the factors that may cause a
loss to a person or an organization and minimize the loss when it occurs.
Security
By providing insurance cover, businessmen are guaranteed against actual

losses and so are able to acquire the necessary confidence and tranquility
of mind that are pre-requisites of fruitful adventures and risk-taking in
business.
Social Benefits
The insurance industry affects the environment where they are located and
thus they provide some social benefit such as; sponsoring of football
match, donation to hospitals and motherless home or orphanage,
scholarship awards etc.
Stimulates Savings
Insurance equally encourages savings. The monthly, bi-monthly,

quarterly, half-yearly and yearly premium contribution of the insured
motivate the insured to cultivate the habit of thrift. Savings are either used
in meeting future needs or the money so accumulated now serves as
source of fund for investment.
Stimulus to Business Enterprise
Another positive role of the insurance industry worthy of mention is

stimulus to business enterprise. To the businessman, the assurance that
they would be indemnified in the event of losses is as valuable to them as
the actual payment of money after a loss has taken place. This enables the
businessman to inject funds in further production, order than investing
such funds in low yielding investment.
3.4 Types of Risks
There are several types of risks that may be faced by individuals, business
concern and the nation as whole. For our purpose, therefore we are going
to discuss these basic categories.
Pure Risk
Pure risks are risks, which hold the possibility of a loss or a no loss
situation. In other words, there are two possibilities; it is either there is
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loss or no loss; the latter can be likened to break even situation. For
example, a building may be destroyed by fire or/other perils or it is not
affected nor damaged in any form. Where the building is
damaged/destroyed there is loss and where it is intact without being
damaged nor destroyed then there is no loss or breakeven situation.
Speculative Risk
Speculative risk on the other hand is the type of risk that has three
possibilities. There can be a loss situation, a no loss situation (breakeven)
or profit (gain). A typical example is the issue of shares. When shares of
companies are bought, the unit price may be 50K per share. There is the
possibility that the price may increase, of course, the anticipation of the
shareholder is that the price should rise. It is also possible that the unit
price may remain the same and lastly the price may fall. Where the price
falls, say to 45K per share then there is loss, where the price remains the
same (i.e 50K) then there is no loss (or breakeven) and where the price
rises (for instance 60K) then there is gain. Other example includes:
1. Consumer acceptance or rejection of a product.

2. A change in prices or the risk of competitors entering the market
with a new and better product. (Fluctuation in price).
3. Rising interest rate.
4. Government policy changes or control.
Insurers are only interested in pure risk only because there is no statistical
base for estimating and calculating speculative risk. However, speculative
risk can be handled by hedging which is a method of offsetting loss from
the occurrence of a risk by compensating gain from another activity.
Particular Risk
Particular risks are risk that its origin and its effect are individual in
nature. That is to say, such risk can be called individual concern. For
example, a person riding horse may be injured because of a fall from the
horseback and break his leg. The origin is individual and its effect is
locally felt by the horse rider.
Fundamental Risk
Fundamental risks are risks which both its origin and its consequential
effect is impersonal. In other words, the origins of fundamental risk are
impersonal, and its effects are generally felt by all, e.g. war,
unemployment, volcanic eruption. In most cases, fundamental risks are
132
attributed to the act of God, and any risk that is catastrophic in nature
which affects a wide range of people or property.
It should be noted here too that while particular risks are insurable,
fundamental risk are not and are often taken cared of by the government.
3.5 Characteristics of an Insurable Risk
The following criteria must be present in any risk before it can be insured.
Accidental or Fortuitous
As far as the insured of such risk is concerned, the occurrence of such risk
must be practically unexpected. It must not be deliberately or intentionally
caused by the insured neither should it be designed.
Insurable Interest
This is one of the cardinal principles of insurance. The risk to be insured

must have a relationship with the person insuring it. That is to say the
insured must have financial interest in the subject matter of insurance and
at the same time he stands to benefit the existence of such property or
suffer the loss law. Any risk introduced without insurable interest is
wagering contract.
Large Number of Similar Risk
The working of insurance is based on the principle of large number. For a

risk therefore to be insurable, there must be large number of similar and
independent exposures so that the premium to be paid by the insured will
be low compared to the risk introduced and the burden of the risk will as
well be widely spread.
Monetary Measurement
Any risk to be undertaken by the insurance company should be capable of

assessment in terms of money. In other words, it must be something of
value that can be valued in financial term. Insurer are not interested in
sentimental value, they are interested in the intrinsic value (real/actual
value) of the property.
Particular Risk
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Risks of fundamental nature are usually catastrophic and their effect is

widely spread and such are not insurable. Only particular risk is insurable.
Purpose not Contrary to Public Policy
Public policy can be rules or guiding principles of a community. For a risk

to be considered therefore for the purpose of insurance it must not be
against the norms of the society. For example prostitution is against the
public policy and as such cannot be insured.
Pure Risk Only
Traditionally and because of its features of loss or no-loss condition makes

it practicable for pure risks to be insurable, but speculative risk are not
insurable because of possibility of profit or gain which cannot be
statistically estimated.
Rational Premium
The premium to be charged on such risk must be reasonably fair and

adequate to meet the losses that will emanate from the risk. It must be
comparatively low compared with the risk insurance and premium to be
paid must vary among the types of risk introduced too.
3.6 Uninsurable Risk
Having looked at the characteristics of an insurable risk, it is appropriate

at this point to consider specifically risks and losses that are uninsurable.
Here is a summary:
1. The property of persons following an illegal profession.

2. Property used for an illegal purpose
3. Losses as a result of delay, confiscation, or detention by customs
officers.
4. Losses as a result of wear and tear or depreciation.
5. Losses as a result of cleaning, repairing or restoring.
6. Losses as a result of action of light or atmospheric condition and,
7. Losses as a result of any other gradually operating cause.
3.7 Attitude to Risk
134
Different people react differently to risk. There are individual or

organization that are risk Taker and on other hand of the spectrum are the
Risk Averse and risk Referrer.
Risk Taker
These are individual who recognize that risk exists in the activities they
are involved and yet they are still involved in such ventures that generate
the risk. This is not to say that they expected the risks to occur, but their
anticipation is that the occurrence of the risk will not deter them from the
benefit that would be derived from the activity. Such risk taker however
does make conscious efforts to prevent or reduce the risk or better still
transfer the risk by way of insurance or hedging. Examples of risk taker
are investor in stock exchange market, footballer, divers, racers etc.
Risk Averse
A risk averse person has a strong dislike for risk and as such will do
everything possible to avoid the risk. This however can only be possible
for some particular or personal risk of social nature. Risk that are
fundamental in nature are not generally avoidable especially risk of nature.
A risk averse person usually transfers his risk to the insurer.
In other words, a risk averter is a person who dislikes the existence of risk
or who is prepared to pay a certain amount of money in excess of the
expected risk cost in order to have the risk removed.
Risk Preferred
This is a person who seeks for risky situations by entering into gambling
contracts, and would be prepared to pay a price in excess of expected
winning in other to participate in the gamble.
3.8 Risk Measurement
Risk measurement is involved when each available alternative will result

in a range or set of identifiable outcomes and when the probability of each
outcome can be determined or predicted with a high degree of relative
accuracy. Risk is therefore measurable but only within the limits of
probability. Risk can be measured to a certain degree of available
statistics. Although there is no agreement among experts on how exactly
risk can be measured, the use of the various statistic tools are usually
employed in measuring the range of possible outcomes. Details of these
statistical methods are outside the scope of this text. While it may not be
necessary, to consider the subject of risk measurement further, there is
135
the need to have an understanding of what frequency and severity is all

about.
Frequency
When we refer to frequency of risk, we are referring to the number of

occurrence of such risk or the possible likely outcome of such risk. In
other words, frequency measures the number of occurrence.
Severity
Severity refers to the magnitude of such outcome when it occurs. It

measures the extent of losses as a result of the risk occurring. From the
insurance point of view, the relationship between frequency and severity
shows that there are usually a high frequency of low severity incidents and
low frequency of high severity. For example, there are high frequency of
motor accident and low severity, compared with low frequency and high
severity of aviation accident.
3.9 Risk Related Terms
Knowledge of the following will enhance understanding of this work.
Perils
A peril may be defined as a contingency, which may cause a loss. In

other words, it is a contingency or fortuitous happening, which could
cause losses. In summary, therefore a peril is a cause of loss. In most
cases, peril is used to identify the cause of loss. Examples include motor
vehicle accident, deceases, theft, earthquake, piracy, collision, fire etc.
Some times, the term “Act of God” is often used to denote those perils
operating without the involvement of human beings and as well not
preventable by human beings and as well not preventable by human
efforts or care, for example, flood, lightning, storms, earthquake. Etc.
Hazards
Hazards are those features or conditions that can increase the cause of loss
(i.e peril). That is any can circumstance, situation, or things that can
enhance a particular loss is a hazard. For example, storage of petroleum in
a kitchen is a hazard, which can increase the possibility of loss from the
peril of fire. Hazards may be physical or moral in nature
Physical Hazards
136
Physical hazards refer to those physical characteristics that can enhance

the possibility and severity of loss from a peril. These may include any
features relating to locations, structure, occupancy exposures etc.
Where the physical hazard may increase the potential loss far above what
is expected under an average risk then it said to have bad or poor physical
features. One the other hand where there are features that can reduce both
the frequency and severity of loss, it said to possess good physical
features. Example of bad physical features may include bad tyres and wet
roads as in motor vehicle accident, storage of petroleum within a house as
in fire.
4.0 CONCLUSION
Risk is manageable. Some risks are insurable while some are not.
Insurance is founded on the recognized need to lighten the burden of
people in a period of adversity by cooperative efforts. It is very well
known that the prolong together of resources for the protection of
members of the countries against possible financial and social hardship are
encouraged in many Nigerian communities even before the emergence of
the practice of insurance.
5.0 SUMMARY
Insurance is pooling of risk together for the benefit of those who agree to
do so. In risk those that are insurable are characterize with facts like a risk
having insurable interest, monetary measurement etc. risks are classified
as life assurance and general insurance. it enable you to known which risk
is insurable and which is not insurable
Discuss the characteristic of an insurable risk.
Opaleke Moses (2004). Principle and Practice of Insurance. Bida: Jube-

Evans Books Established.
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What is the course about?

What is the course about?

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What are the main topics covered in the course?

NATIONAL OPEN UNIVERSITY OF

COURSE CODE: BUS205

COURSE TITLE: INTRODUCTION TO BUSINESS

NATIONAL OPEN UNIVERSITY OF NIGERIA

National Open University of Nigeria

First Printed 2009

All Rights Reserved

What You Will Learn in the Course ………………………..…… 1

Course Objectives …………………………………………..…… 2

Working through this Course ……………………………………. 2

Course Materials …………………………………………….…… 2

Study Units …………………………………………………….… 3

Final Examination and Grading ……………..…………….…….. 4

Course Marking Scheme ………………………………………… 4

How to Get the Most from this Course …………………………. 5

Facilitators/Tutors and Tutorials ………………………………… 5