Meaning of Business Undertaking.
A business undertaking is an institutional arrangement to conduct any type of business activity. The undertaking maybe run by one person or association of persons. It may be based on formal or informal agreement among persons who undertake to run the concern. According to Wheeler, a business undertaking is "a concern, company or enterprise which buys and sells, is owned by one person or a group of persons and is managed under a specific set of operating policies." The persons join together and pool their resources and conduct the activities of the undertaking for the benefit of all.
Characteristics of a Business Undertaking
A business undertaking (also called business enterprises, business concern or business firm) has the following characteristics:
I. Separate Entity:
A business undertaking has a separate entity. Every undertaking has its own working and conducts its own business. It has its own assets and liabilities. The debts owned by one undertaking cannot be recovered from any other undertaking.
II. Separate Ownership:
An undertaking is owned by the persons who contribute towards its capital. There is a direct link between capital contribution and ownership. If capital is contributed by a private individual. It will be a private undertaking. If the capital is contributed by the government or by the institutions owned by the government then it will be a public undertaking.
III. Separate Management:
Every undertaking has its separate management. It does not mean that same persons cannot be on the management of other concerns. In India same persons may be on the Board of Directors of a number of companies. Separate management implies independent decision-making. Every management decides about the utilization of its resources, type of products to be produced, volume of output, marketing channels etc. The levels of management will be decided on the basis of the scale of operations.
IV. Independent Risk Bearing:
Every business involves many risks. Some risks can be insured but others will have to be borne by the owners. An undertaking may earn profits but it may incur losses too. All types of losses or risks have to be borne by the owners of the undertaking and none else.
V. Exchange of Goods and Services:
A business undertaking deals in exchange of goods and services. The goods to be exchanged may either be produced or procured from other sources. The exchange is generally for money or money's worth.
VI. Dealing in Goods and Services:
All business undertakings deal in goods and services. The goods may be consumers' goods or producers' goods. The consumers' goods are those which are purchased by them for consumption or day-to-day use. These goods include food products, clothes, tooth paste soap, etc. The producers' goods are those which are meant for further use in production. These goods may be machines, plants tools, equipments etc. The services, on the other hand, may be water supply, electricity supply, transport facilities etc.
VII. Profit Motive:
All business undertakings are run to earn profits. An undertaking started for social service will not be called business undertaking because the aim is not to earn profit. The incentive of earning profit keeps the undertaking going. The aim is to get back more than what has been invested.
VIII. Continuity of Transactions:
The transactions in business undertakings are continuous or regular. They are engaged in a series of successive transactions over time and space.
IX. Risk and Uncertainly:
Every business undertaking is exposed to risks and uncertainties. Business is influenced by future events and future is always uncertain. There are chances of price fluctuations, demand changes, consumer likings and disliking, etc. There may be fire, earthquake, strike by workers etc. All, these factors make a business undertaking risky and uncertain.
X. Social Responsibility:
The only aim of business undertakings is not to increase profits. They own some responsibility to the society also. The society expects business undertakings to provide cheap and better quality goods to consumers. They are also expected to contribute towards social amenities by opening schools, hospitals, parks, etc. not only for the employees but also for people living in those localities. Business undertakings should also avoid water and air pollution by their wastes.