Commerce · Ch 3 — Classification of Business Activities
Meaning of Business and Its Broad Classification
Meaning of Business and Its Broad Classification
1. Meaning of Business and the Broad Division into Industry and Commerce
Business is an economic activity involving the regular and continuous production and/or exchange of goods and services, undertaken with the object of earning profit, while satisfying the wants of society.
Characteristics of business:
- An economic activity — undertaken to earn income/profit, not out of love or social obligation.
- Dealing in goods and services — a business either produces/deals in goods (tangible products) or renders services (intangible benefits like transport, banking, insurance).
- Regularity of transactions — a single, one-off sale is not "business"; business implies transactions carried out again and again over time.
- Profit motive — earning a profit is a legitimate and necessary objective; a business that never covers its costs cannot survive or grow.
- Element of risk — profit is never guaranteed; every business faces the risk of loss from factors like changing demand, competition, fire, theft, or bad debts.
- Creation of utility — a business creates value by changing the form of goods (form utility), moving them to where they are wanted (place utility), storing them until needed (time utility), or transferring ownership (possession utility).
Business, Profession, and Employment compared:
| Basis | Business | Profession | Employment |
|---|---|---|---|
| Nature of work | Production/exchange of goods and services | Specialised, expert personal service | Service rendered to an employer |
| Qualification | No fixed qualification is compulsory | A recognised professional qualification/membership is required | As specified by the employer |
| Reward | Profit | Professional fee | Wage or salary |
| Risk | Present — profit is never certain | Generally lower; fee is for the service rendered | Generally none for the employee |
| Capital investment | Usually required | Usually much smaller, or none | Not required |
| Transfer of interest | Possible (business can be sold) | Not usually possible | Not applicable |
The broad classification of business activity: every business activity is classified into one of two great branches:
- Industry — concerned with the PRODUCTION side: extracting, growing, breeding, manufacturing, or constructing goods, i.e. converting resources into a usable form.
- Commerce — concerned with the DISTRIBUTION side: all the activities that move those goods and services from the producer to the final consumer, and every auxiliary service (banking, insurance, transport, warehousing, advertising, communication) that makes that movement possible.
| Basis | Industry | Commerce |
|---|---|---|
| Concerned with | Production/construction of goods and services | Distribution/exchange of goods and services |
An economic activity involving the regular production and/or exchange of goods and services, carried on with the object of earning profit whi …
An economic activity rendering personalised, expert service, based on a recognised qualification, in …
An economic activity in which a person renders service to an employer under a contract of service, in return f …
The branch of business concerned with the production side — extracting, growing, breeding, manufacturing, or constructi …
The branch of business concerned with the distribution side — trade and every auxiliary service that moves goods/services fro …