A Business Undertaking

A business undertaking is an organisation which is engaged in some industrial or commercial activity. It represents an institutional arrangement for carrying on any kind of business activity. It may be owned and controlled by a single individual or by a group of individuals who have entered into a formal or informal agreement to jointly conduct the business.

Every business undertaking is a separate and distinct business unit. It has its own identity and separate ownership. It can be distinguished from other undertakings on the basis of its own­ership, management and control.

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".

Thus, a business undertaking may be defined as an organisation operating under separate ownership, management and control and carrying on any business activity with independent risk- bearing.

All business undertakings are directly or indirectly engaged in the transfer or exchange of goods and services for value. They deal in goods and services on a regular basis. Their main motive is to earn profits and they are exposed to various types of risks.

Characteristics of a Business Undertaking

The basic features of a business undertaking are as follows:

1. Separate identity:

Every business undertaking has a separate identity. It has a distinct name and separate existence. Its assets and liabilities are independent of the other undertakings. Its accounts are separate from those of the persons who own it.

2. Independent ownership:

A business undertaking is owned by the persons who contribute its capital. The owners may be private individuals or the government. Every business undertaking thus has an independent unit of ownership.

3. Independent management:

The form of management of an undertaking depends on its nature and size and legal requirements. But every business undertaking has its own independent management. The management of one undertaking does not interfere in the working of other undertakings. The management of each undertaking takes independent decisions concerning different aspects of business.

4. Element of risk:

Every business undertaking involves risk. Profit is the reward for bearing risk. The risk of an undertaking is borne by its owners though some of the risks may be covered through insurance.

Types of Business Undertakings

Business undertakings may be classified into three broad categories as follows:

1. Private Sector Undertakings:

These undertakings are owned, controlled and financed by private businessmen. There is no Government participation in them. The main motive of private sector undertakings is to earn profits. Their main characteristics are as under:

(a) Private Ownership and Control:

A private sector undertaking is fully owned and con­trolled by the private entrepreneurs. It may be owned by one individual or by a group of individuals jointly. When owned by one person, it is called Sole Proprietorship.

A group of persons may joint own the firm in the form of joint Hindu family business, partnership, joint stock company or cooperative society.

(b) Profit Motive:

The main objective of private sector undertakings is earning profits. Prof­its provide the reward for the risk assumed and the required return on capital.

(c) No State Participation:

There is no participation by the Central or State Governments in the ownership and control of a private sector undertaking.

(d) Private Finance:

The capital of a private sector undertaking is arranged by its owners. The sole trader contributes the capital of a sole proprietorship. In case of partnership, capital is invested by the partners. A joint stock company raises capital by the issue of shares and debentures. A private sector undertaking can also raise loans to meet its long- term and short-term needs for funds.

(e) Independent Management:

A private sector undertaking is managed by its owners. In case of sole proprietorship and partnership, the owners directly manage the firm. The management of a joint stock company lies in the hands of directors who are the elected representatives of the shareholders.

2. Public Sector Undertakings:

These undertakings are owned and operated by the Central and State Governments. The main characteristics of public sector undertakings are given below:

(a) State Ownership:

Public