BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

BOWEN UNIVERSITY, IWO

BUS 210 LECTURE NOTES

BY

Dr. OLUWABUNMI FALEBITA

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

COURSE OUTLINE

1. Nature and Scope of business: History of business, Definition of a Business,

Characteristics of a business, Objectives of business
2. Forms of Business ownership
3. Organizational Structure
4. Business Environment
5. Social responsibility of business
6. The Role of international organization
7. Industrialization and development
8. Problems of Nigerian business enterprises

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

History, Nature and scope of business:

Business or trade is as old as life. During the primitive era, business was transacted by means
of exchange, for instance a hunter could exchange his hunted animals for clothing with a
craftsman who specialized in cloth making.
The term business encompasses all human activities which tend to satisfy needs and wants of
human beings living in a society. It covers the provision of finished products or goods to desired
people, to satisfy the economic wants of the people at a profit. It involves ability to cope with
changing environment over time.

Factors that contributed to the development/ evolution of business

Important factors that influenced the evolution and development of business include;
1. Introduction of money; which served as legal tender, replacing gold and silver and trade
by barter.
2. Advent of technology which increased production capacity.
3. Improved means of transportation such as railway, roads, and air, which enhanced
transportation of goods.

Definition of a Business:
A business is an organization or enterprising entity engaged in commercial, industrial or
professional activities for profit.

It is an organization or economic system where goods and services are exchanged for one
another or for money.

It is the organized effort of individuals to produce and sell, for a profit, the goods and services
that satisfy societal needs. An organization seeking to make profit, through individuals working
towards common goals. These goals vary based on the type of business and the business
strategy being used. A business must provide a service, product or good, that meet the need of
society in some way.

A business refers to the activity of making, buying and/or selling goods or providing services
in exchange for money and for profit making (Merriam Webster’s Learner’s dictionary, 2018).
Every human activity, which is engaged in for the sake of earning profit.
An activity of individuals, operating for the aim of manufacturing and distributing product and
services at a profit.
Successful businesses continuously innovate and improve the core of what they do, to thrive in
turbulent conditions, businesses need to see around the corners, that is look beyond the now.

Characteristics of a business
1. Businesses must be the result of individuals (entrepreneurs) working together in an
organized way
2. Businesses must satisfy a societal need through Economic activities
3. Deal in goods and services/ production of G&S
4. Risk
5. A business must seek to make profit, essential for business continuity.
6. Sales, no transaction of business until a good is sold
7. Finance

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

8. Management
9. Regularity
10. Creation of utility
11. Consumer satisfaction
12. Planning

Objectives of business:
1. Profit earning
2. Production of goods or delivery of services
3. Creation of markets
4. Technological improvement

Assignment 1: Write on History of Businesses generally and in Nigeria, prepare a power

point presentation. Due for submission on Tuesday (25/09/2018) by 8am to my email
address ([email protected]). Group presentation will be
during the class by 4pm in CALT.

Forms of business ownership:

There are 5 main forms of business ownership . The form of business ownership you choose
will directly affect how much taxes you have to pay and what business licenses and documents
you will need. Many small businesses start as one form of ownership and change to another as
it grows. This is perfectly acceptable. In summary, deciding the form of ownership that best
suits your business venture should be given careful consideration.

Some distinguishing factors for forms of business are:

 Limited Liability– limited liability ensures that your personal assets are not at stake to
cover business debt. For example in a sole proprietorship you do not have limited liability
so if someone sues your business your car, house, and money are at stake. In a corporation
you do have limited liability so your personal belongings are not at stake.

 Taxes– Some forms of business ownership are taxed more than others.

 Raising Capital– It is easier to raise money for certain business structures over others. In a
corporation for example, you just need to sell shares to raise money, however keep in mind
that when you sell shares you are selling a portion of ownership.

 Licenses and Permits– Some forms of business ownership are more complicated to set up.
A corporation for example needs more paperwork and is more expensive to set up than a
sole proprietorship.

They are:
1. Sole Proprietorship: owned by an individual.
2. Partnership: owned by between 2 and 20 persons, while for banks, it is owned by 2-
10 persons e.g. Olu & Demi Enterprises.
3. Limited Liability Company: Private and Public Limited Company; Owned by 2-
50 persons e.g. Bala & Sons Limited, Owned by 7 persons upwards e.g. First Bank
Nigeria, Lever Brothers, Cadbury etc.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

4. Public Corporation: Owned by the government e.g. PHCN, NNPC.

5. Co-operative Societies: Owned by any number of persons e.g. Bowen University Co-
operative society.

1. Sole Proprietorships
Sole proprietorship means exclusive ownership of a business by an individual. There are no
legal requirements for its establishment. Any person who buys, sells and provides a product or
service under his own name is the proprietor of that business, e.g. Pamy’s Makeover, Adebayo
Watch repairing, etc. The vast majority of small business start out as sole proprietorships. These
firms are owned and operated by one person, usually the individual who has day-to-day
responsibility for running the business. Sole proprietors own all the assets of the business and
the profits generated by it. They also assume complete responsibility for any of its liabilities or
debts. In the eyes of the law and the public, the sole proprietor is one and the same with the
business. This means the financial debts of your small business is considered your financial
debts.
You can operate a sole proprietorship under your own name, or under another name you've
chosen, provided the legal designations of other forms of business, such as Ltd. or Inc. are not
added.

Characteristics of sole Proprietorship

- It is the oldest and simplest form of business
- It is most common form of business ownership
- It is unincorporated
- It is the easiest to set up, with the least amount of paperwork
- There are no requirements for disclosure of information to tax authorities
- It has no separate legal existence

Advantages of a Sole Proprietorship

 Easiest and least expensive form of ownership to organize: One of the biggest
advantages of a sole proprietorship is that setting up (requires less paper work than
other forms of business) and administering the business is comparatively easy and
inexpensive.
 Sole proprietors are in complete control, and within the parameters of the law, may
make decisions as they deem it fit.
 Sole proprietors receive all income generated by the business to keep or reinvest.
 The business is easy to dissolve, if desired.
 You have full control over your business- You are your own boss!
 You can receive tax breaks for some of your business expenses such as a home office
and travel (provided the purpose of travel was for business of course).

Disadvantages of a Sole Proprietorship

 May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans, It is often more difficult to raise money for a sole
proprietorship
 May have a hard time attracting high-caliber employees, or those that are motivated by
to own a part of the business.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

 Some employee benefits such as owner’s medical insurance premiums are not directly
deductible from business income, only partially deductible as an adjustment to income).
 The most significant downside of operating a sole proprietorship is that you are fully
responsible for all the debts your small business may face. If something goes wrong
with your business, you will have to pay. Sole proprietors have unlimited liability, their
business and personal assets are at risk.
 Selling a small business can be more complicated than selling a corporation since the
business assets are involved.
 After the demise of the entrepreneur, the business will probably soon follow.

2. Partnerships
Partnership is an association of two or more persons who enter into a business as co-owners to
share profits and losses together. In a Partnership, two or more people share ownership of a
single business. Like proprietorships, the law does not distinguish between the business and its
owners. Partnership is a form of business ownership of between 2 and 20 persons, while in the
case of banks, it is owned by 2-10 persons to carry on as co-owners of business for profit.
The partners also share the losses that arise from such business, likewise ownership and control
of the business. The Partners should have a legal agreement that sets forth how decisions will
be made, profits will be shared, disputes will be resolved, how future partners will be admitted
to the partnership, how partners can be bought out, or what steps will be taken to dissolve the
partnership when needed. Though it is hard to think about a “break-up” when a business is just
getting started, but many partnerships split up at crisis times and if there is no defined process
for separation, there will be even greater problems.

They also must decide up front how much time and capital each partner will contribute, etc.
Partnership may also be defined as the relationship between two or more persons, wherein they
contribute skill, money, or property for the purpose of establishing, owning and managing a
business organization, with the sole objective of making profit.

Purpose of forming partnerships may include the following:

a) To attract more capital or more skills into a business for the purpose of expansion.
b) In order to share profits
c) To spread the risk of losses among several persons.

Characteristics of Partnership

 It is owned by 2-20 or 2-10 persons.

 Liability: the liabilities of partners are unlimited.
 Formation Motives: to make profit.
 Legal status: It is not a legal entity.
 Source of Capital: Contributions from the partners.
 Method of withdrawing capital: Must be approved by other partners as laid down in
their partnership deed.
 There is no requirement for provision of information to the public
 It is guided by a document called partnership deed.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

Advantages of Partnership
a. Greater Financial Resources: Two to ten or twenty persons can come together
and pool capital funds. It is a convenient way of uniting the interest of persons
who have capital to invest and would like to enter the same line of business. It
has high credit standing. Lenders measure its financial strength in terms of the
personal wealth and reputation of individual members. There is possibility of
expansion because more capital will make this possible which will also increase
its profits.

b. Combined Abilities and Skills: In partnership, there is conglomeration of skills

and talents. It brings about effective and efficient production and marketing of
goods. Since each does what he knows best to do, there is a high level of
specialization. It thus facilitates specialization of talents.

c. Joint and Better Decisions: It is often said that two good heads are better than
one and this is applicable to partnership business where joint and better
decisions are taken by the partners in business.

d. 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.

e. Cordial Relationship Existence between Partners and Customers: In

comparison with the limited liability companies, partnership business is able to
maintain a good public relations with its customers, and workers to work harder
for the success of the business.

f. Application of Division of Labour: This is applicable in its managerial and

administrative hierarchy.

g. Ability to With-Stand Competition: It can do this more favourably than sole

proprietorship because of huge capital resources, increased production and
skilful and talented manpower.

h. Risks and Liabilities Sharing: Unlike sole proprietorship that bears the risks
and liabilities alone, risks and liabilities burden are shared among partners.

i. High Degree of Privacy: Partnership enjoys high degree of privacy as it is not

under any legal obligation to make its account public by submitting it to the
Registrar of Companies.

j. The exit of a member may not affect the business: This is because there are
other partners who play active role in the smooth running of the business,
especially ordinary partnership.

k. Partnerships are relatively easy to establish and cheaper to register, however

time should be invested in developing the partnership agreement.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

l. Tax advantages: Profits of a partnership are only taxed once, that is at the level
of its owners.

m. Flexibility: The partnership type of business is flexible and can be easily

managed and decisions can be made quickly without a lot of bureaucracy.

n. Has the potential of attracting prospective employees to the business if given

the incentive to become a partner.

o. It has a form of regulation, which is through the partnership deed

Disadvantages of Partnership

a. Unlimited Liability: if the business is liquidated, the partners will lose all the
capital invested and if not enough, their personal belongings can be sold to
offset debts.

b. The Business is not a Legal Entity: The partnership business has no legal
backing.

c. Disagreement and Resignation: The business may collapse if disagreement

arises as a result of individual differences both in action and opinion.
Partnership may have a limited life; it may end upon the resignation of active
partners, withdrawal or death of a partner.

d. Bureaucracy leads to slow decision and policy making: The protocol of

forming a quorum among the many people to be consulted before any decision
or policy is made.

e. Risk of Mandatory Dissolution: If for any reason, one of the partners seeks to
withdraw or a new member is to be admitted, the agreement governing the
relationship among existing members must be replaced by a new contract. This
amounts to the formation of a new firm. The physical or mental incapacity,
death or financial insolvency of one of the partners terminates the agreement.

f. Limited Capital: Unlike the limited liability company, the partnership has no
legal right to obtain more capital through shares and debentures from members
of the public.

g. Decrease in Personal Interest: The interest the partners will show in the
business will be minimal because the business is not a personal affair.

h. Restriction on Transfer of partnership: There is a difficulty in effecting

transfer of ownership. The interest of operation is not transferable without the
consent of other partners.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

i. Danger of Friction and Disagreement: Partnership cannot function in the face

of friction, mistrust, and constant stubbornness. Friction may arise as a result of
the introduction of new partners to the business which some may accept while
others may reject. It is therefore important that personalities or view points of
the individual partners be, in general, compatible.

j. No Room for Making Secret Profit: A partner despite his activeness,

creativity and innovation cannot make any secret profit because all profits of
the business are declared and shared according to their agreed modus operandi
of sharing profits.

k. Partners are jointly and individually liable for the actions and decisions of the
other partners.

l. The agreement or contract entered into by one partner is binding on all partners.
So there must be a search for a partner whose judgment and skill is
unquestionable, this is not an easy task.

Dissolution of Partnership
A partnership may be legally terminated by any of the following reasons
1. Agreement: there may be an agreement as to the life of the business, for instance 20 years
agreement.
2. Death of a partner
3. Withdrawal of a partner: this can call for automatic dissolution of the firm.
4. Bankruptcy or Insanity of a partner

Types of Partnership
 Ordinary/ General Partnership: - In this, all the 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. Partners divide
responsibility for management and liability, as well as the shares of profit or loss
according to their internal agreement. Equal shares are assumed unless there is a written
agreement that states differently. When starting a small business with a partner be sure
to issue a Partnership deed or Agreement. Keep in mind that you never know how
people will react to the stress of running a small business. Your once best friend may
turn into Medusa when faced with the overwhelming stress and challenges of starting a
small business. Make sure your partner is as confident and motivated about your small
business idea as you are. Enter a partnership agreement with only someone you trust.
Remember you will be liable for any decisions made by your partner/ partners for your
small business. For example if someone sues your small business due to a decision
made by your partner you can be held liable as well. Communication is essential in a
Partnership; don’t make any major decisions without consulting with your partner.

 Limited Partnership/ Partnership with Limited Liability: - “Limited” means that

most of the partners have limited liability (to the extent of their investment) as well as
limited input regarding management decisions, which generally encourages investors
for short term projects, or for investing in capital assets. Here, all partners do not take
equal part in the management of the business, the liabilities of the partners are limited

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

to the capital they contributed, But, in compliance with the partnership law, the partner
who is active and has unlimited liability in the business and is the overall risk bearer.
Forming a limited partnership is more complex and formal than that of a general
partnership. A limited partnership consists of at least one general partner (controls the
business) and at least one limited partner (investor). The general partner controls the
business and makes all the decisions while a limited partner just invests money in the
business. The profits will be shared between partners but losses and debts acquired by
the business will be the responsibility of the general partner. The limited partner only
risks losing the amount he/she already put into the business. This form of business
ownership can be useful if you want to keep control of your small business but need
extra funds. However it also comes with a lot of complicated paperwork. Many
entrepreneurs prefer other small business structures when starting a small business
because this form of ownership can be quite complicated to set up.

Characteristics of limited liability partnerships

1. They have at least two designated members
2. “Agreement” between/ among the partners governing mode of operation of the business
is a private document
3. There is organizational flexibility
4. Accounting and filing requirements and procedures are similar to those of a company
5. They are taxed as a partnership

Advantages of limited partnership

 Limited Liability for the limited partner
 General Partner has all the control
 Limited partners can be a valuable source of funds for the business
 Can have unlimited number of owners (however if you have many limited partners it may
be better to form a corporation since it offers more flexibility)
 Unlimited number of shareholders are allowable
 Ability to utilize the financial and managerial strengths of partners
 There is limited protection for limited partners
 Allows for complementary relationships among partners
 There is no limit to the amount of funds that can be generated by partners
 It provides personal asset protection for limited partners up to the amount of investment
 Limited partnership profits are long-term capital gains

Disadvantages of limited partnership

 General partner will be responsible for debts and obligations
 Need to be in compliance with security laws
 A lot of paperwork and extensive documentation required upfront for start up
 There is absence of legal distinction between general partners and the business itself
 The personal assets of general partners are unprotected
 Partnership is terminated upon the death or withdrawal of one of the partners
 There is less protection from excessive taxation and virtually no guarantee for perpetuity

Types of partners

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 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

 Active/ General / Working Partner: - This is the partner(s) who takes active part in
the formation, financing, management and general conduct 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.

 Inactive/ Dormant / Sleeping Partner: - In this, the partner only contributes part of
the capital used in the formation and running of the business. He receives no salary as
he does not take part in the management and organisation of the business. He takes part
in the sharing of profits and losses of the business as specified in the Partnership Article.

 Nominal or Passive Partner: - Passive partner only exists in name or word as he

contributes nothing financially, but his name is in the formation of the business. Such
a partner does not invest any capital nor does he/she participate in management of the
business. Partner of this nature are only men and women of substance whose name are
greater than silver and gold, like retired Army General; Politicians, Civil Servants,
successful business men, etc. Those people have a share in the profits and liabilities of
the business as specified in the Partnership Deed.

 Silent Partner: this is a partner who does not take an active part or role in the business
but he/she is known to the public as a partner or one of the partners of the business.

 Secret partner: this partner takes active role in the business but he/she is not known to
the public as a member of the partners of the business. This is a type of partner whose
membership as a partner is kept secret from the public. His/her liability is unlimited and
is liable for the losses of the business. He can take part in the working of the business.

 Limited partner: is a partner whose liability is limited only to the amount of his/her
capital contribution to the business. Such partner cannot take part in the management
of the business but can inspect the accounts and receive profit from the business.
Additionally, a partnership cannot be established only with limited partners.

 Partner in profit only: this is a type of partner, who becomes one, for the sole purpose
of profit sharing, but does not share in the loss of the business. He provides capital and
is also responsible to third parties like other partners. Such a partner is generally
inactive but associated with because of his money and goodwill.

 A minor partner: A minor is a type of partner who cannot enter into a contract
according to the act. Hence, such an individual cannot be made partner in the real sense
of the word, he/ she cannot play an active role in the management of the firm. However,
a minor may be taken as a partner with the consent of all partners. His personal property
is not liable to pay the debts of the firm, but can share in profits of the firm.

 Retired or Outgoing Partner: is a partner that leaves the firm while other partners
continue to carry on the business. He/she is liable for all the debts incurred by the firm
before his retirement. He may continue to be liable if proper notice of his retirement is
not communicated to the creditors.

Oluwabunmi Falebita, PhD

 BUS 210 – INTRODUCTION TO BUSINESS (3 UNITS)

 Incoming Partner: A person who joins an existing firm with the consent of all the
existing partners is known as a new or incoming partner. He is not liable for the debts
and obligations of the firm incurred before his joining the firm. He/she however may
be held liable for such debts only if he agrees to it, with the creditors duly informed.
Incoming partner will not only contribute to the capital of the firm but also to pay some
goodwill to the existing partners of the firm.

 Quasi Partner: A quasi-partner is one who is no longer a partner of business but has
left his capital in the business as a loan. He receives interest on such, as the loan is not
paid off.

Articles of Partnership/Partnership Deed/Partnership Agreement The Article of

Partnership is a written contract, guidelines and regulations between partners, to guide the day-
to-day running of the business so as to avoid crisis, confusion, misunderstanding and or
disagreement that may ensue over a period of operation among partners. Partnership deed also
ensures an effective and efficient business practice among partners. This agreement or deed
will state each partner’s rights and responsibilities, how decisions will be made if the partners
cannot agree in a particular argument, also include the portion of profits/ losses for each partner.
For example one partner may invest more into the small business so they may have a larger
percentage of the profits. The deed contains some or all of the followings:
 Name of firm
 Names of the partners
 The place of business / address
 The description of the nature of business/ what d\the business does
 The amount of capital that each partner 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 rights of partners in the business.
 How long the partnership/business shall last.
 How matters shall be determined either by majority vote or not.
 Provision for the admission of new partners.
 The limit of liability of one or more partners.
 The arrangements concerning withdrawals or additional investment.
 Arrangement for the dissolution of the partnership/firm in the event of death,
incompetence, or other causes of withdrawal of one or more of its partners.
Once each partner has signed the instrument, it serves as a legally enforceable contract.

Oluwabunmi Falebita, PhD