FINAL NOTES _2024_PRINCIPLES OF BUSINESS ADMINISTRATION-2

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TOPIC ONE
MEANING AND NATURE OF BUSINESS
A Business is any activity carried out with a view of regular production, purchase and sell of goods and services
with the aim of earning profits and acquiring wealth through the satisfaction of human wants.
There are variations in the definition of a business and industry but information from wholesalers in the medical
supply and equipment channel are used to illustrate that the nature of the firms’ business definition is linked
to the following; the level of the firms’ income statement variables and performance criteria, the significance of
strategic and operational variables in explaining firm performance. (Frazier & Howell 1983).
Though generally from different scholars, a business is an organized entity that provides goods, services, or
both to consumers (Kumar & Sharma, 2022). Businesses exist to fulfill consumer needs and wants, create value,
and generate profit. They can range from small local shops to large multinational corporations.
The activities we refer to are those related to production and exchange of wealth i.e. economic activities. Some
other activities that involve working to create wealth such as occupations or employment do not strictly come
in the scope of the meaning of business referred to above. Because business means different things to different
people, we can be guided by certain characteristics to inform ourselves of whether we are dealing with a business
activity or not.
1.1 Key Characteristics of Business

(i) Production of goods and services: Goods may be consumer or producer goods. Services are essentially
intangible and do not result in ownership of anything by the consumer e.g. services provided by
accountants, doctors, consultants, lawyers, etc.
(ii) Exchange motive (wealth): Business activities are directly or indirectly concerned with the transfer of
goods and services for value. Any form of barter trade (exchange of goods/services for goods/services) or
activities like producing products for home consumption or personal use are not regarded as business.
(iii) Regularity or continuity of dealings: The process of dealing in goods and services must be regular or
continuous. E.g. selling a single item like a phone or shoes occasionally is not business. When activities
Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

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dealing in exchange of goods and services are regular, then it is likely that these are business activities
aimed at creating wealth.
(iv) Profit motive: Profit has been found to be a major reason (But not with Peter F Drucker) for starting a
business. To make profit a business must earn revenue that exceeds costs which is accomplished through
the effective and efficient production and marketing of goods and services that customers want. Profit is
a reward for entrepreneur or premium for undertaking a risk. Therefore, where the profit motive is readily
apparent in an activity, then this may be a business.
(v) Uncertainty of return: Though profit is the driving reward for any entrepreneur or risk taker, the nature
of the activity may be such that it may result into a loss as a result of factors beyond the entrepreneur’s
control. If such is the case, then there is an element of risk and most businesses have this inherent
characteristic.
1.2 The 21st Century Business Posture

The business posture and dynamics of the yester years have significantly changed as the way business
is conducted today, especially in this era of the fourth industrial revolution and the proliferation of
technological assisted mechanisms has created a new environment for doing business (Molinaro & Orzes,
2022; Kumar & Sharma, 2022).
Comparatively, yesterday’s businesses seemed to have been in the “dark” keeping themselves with in
limited geographical locations, contacts and markets but business today with the technological boom has
created a global village with the advent of the World Wide Web and social media such as; Tiktok, Twitter,
WhatsApp, Instagram and Face book. This has redefined the way business is conducted especially in
product and service development, marketing and publicity, customer attraction and retention, scouting
and recruitment (Vrontis et al; 2022). Additionally technological boom has changed the economic outlook
and climate of today’s business in a much effective and efficient way.

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1.3 Business Functions

This refers to categories that describe different activities carried out by a business in terms of functions
regardless of their primary economic activity. These are divided into core and support functions, each
playing a crucial role in the overall operation of a business.
1.3.1 Core Functions

(i) Production/Operations Function: This is the process of mixing multiple inputs, both material and
intangibles, such as plans or information, to create output. Furthermore, it can be defined as the process
of using multiple inputs, like land, labor, and capital, to produce outputs in form of goods or services. It
may also be described as the process of creating or manufacturing items and products from raw materials
or components.

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(ii) Marketing and Sales Function: This involves processes for creating, communicating, delivering and
exchanging offerings that have value for customers and clients. Furthermore, marketing involves
understanding consumer needs and promoting products or services to meet those needs. It includes
market research, advertising, sales promotion, and customer relationship management. Effective
marketing strategies attract and retain customers, driving sales and brand loyalty.
(iii) Finance Function: The finance function manages the organization's financial resources. It involves
budgeting, accounting, financial planning, investment management, and ensuring liquidity and
profitability. Proper financial management ensures that the business can meet its obligations and invest
in growth opportunities.
(iv) Human Resources Function: HR is responsible for recruiting, training, and managing employees. This
function ensures that the organization has the right talent and maintains a productive work environment.
HR also handles employee relations, benefits, and compliance with labor laws.
1.3.2 Support Functions
(i) Information Technology (IT): IT supports the technological needs of the business, including managing
computer systems, networks, and data storage. Effective IT infrastructure enables efficient operations
and supports decision-making processes.
(ii) Customer Care: This function handles customer inquiries, complaints, and feedback, ensuring customer
satisfaction and loyalty. Good customer service enhances the customer experience and can lead to repeat
business and positive word-of-mouth.
(iii) Research and Development (R&D): R&D focuses on innovation and the development of new products
or services to maintain a competitive advantage. Investing in R&D helps businesses stay ahead of
competitors and meet changing market demands.
(iv) Legal: The legal function ensures that the business complies with laws and regulations of a given country,
manages legal risks, and handles contracts and litigation. Legal expertise protects the business from legal
issues and supports ethical operations.
Please note that the above functions work hand in hand, none of the above Functions works separately
from the other.

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1.4 Types of Business
Businesses are broadly categorized as Industry and commerce
1.4.1 Industry

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Refers to that part of business that is concerned with the production of goods and services. Typically,
products from industry may be either consumer products (used by final consumers) or producer products
(used by another industrial undertaking to produce other goods).
1.4.1.1 Classification of Industry
Industry manifests itself in the following types best described using the different categories they fall into
three categories:
1. Primary Industry: This sector involves the extraction and harvesting of natural resources. Examples
include agriculture, mining, forestry, and fishing. Primary industries provide raw materials essential for
other industries. It is therefore split into two;
(i) Extraction industries; these are activities geared towards drawing out, extracting or raising various
forms of wealth from the soil, air and water. The goods from such an activity may be used in construction
and manufacturing activities or may be consumed directly like products from fishing and agricultural
products.
(ii) Genetic industries; these engage in reproduction and multiplication of certain species of plants and
animals with the objective of earning profits from their sale. Plant nurseries and Cattle breeding firms are
examples of such industries.
2. Secondary Industry: This sector involves the manufacturing and construction processes that convert
raw materials into finished goods. Examples include factories, construction companies, and textile
manufacturers. Secondary industries add value to raw materials and produce goods for consumers and
businesses. It is therefore split into three;
(i) Capital industries: These are industries which are engaged in the production of heavy machinery like
those producing earth-moving equipment. Companies like CAT are found in such industries.

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(ii) Manufacturing industries: These are industries that are involved in the conversion or transformation of
raw materials to semi- finished or finished products. These industries normally use products of extractive
industries and examples of their output include soap, sugar, iron sheets, scholastic materials, cloth, and
beverages e. t. c. For example; Riham industry, Steel and tube industry
(iii) Construction industries; these design, manufacture or construct a single substantial asset like a bridge,
a building, a dam and roads. The outputs of such industries remain at a fixed site and they normally use
products of manufacturing industries like cement, nails, paint etc. and extractive industries such as sand,
water, bricks etc. They are distinct from the point of view marketability. They are not marketed in the
ordinary sense of being taken to the market to be sold because these products are built, created or
fabricated at a fixed site for example ROKO construction company
3. Tertiary Industry: This sector provides services rather than goods. Examples include retail, banking,
education, and healthcare. Tertiary industries support the economy by offering services that facilitate
production and consumption for example banking i.e. Stanbic Bank, insurance i.e. Prudential insurance
company, Jubilee, UAP, telecommunication i.e. Airtel, MTN, consultancy etc.
1.4.2 Commerce
This covers all those activities that take place in a community in its efforts to distribute goods and services
produced. It includes trade and aids to trade.
1.4.2.1 Trade
The buying and selling of goods and services. Trade can be domestic (within a country) or international
(between countries). Trade is essential for making products available to consumers and businesses.
Trade can be classified as home trade or foreign trade:
(i) Home trade: This refers to the internal trade of a country which is carried on among the people of a
particular country. Home trade is also divided into:

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(a) Whole sale trade: This involves a channel between the producer and the retailers who buy in bulk and
selling in relatively smaller quantities e.g. Depos, Agents e. t. c.
(b) Retail trade: This refers to a link between the wholesalers and the final consumer or the public who
normally buy a variety but in smaller quantities
(ii) Foreign trade: This refers to trade across the borders of different countries i.e. trade between two or more
countries. Foreign trade is further divided into:
(a) Export trade: This involves the swelling of goods and services across the boundaries of a given country
(b) Import trade: This involves buying goods and services from another country or other countries.
1.4.2.2 Aids to Trade
These are auxiliary services that allow smooth flow of trade activities. They include the following:
(i) Transportation: Moving goods from producers to consumers. Efficient transportation systems ensure
timely delivery and reduce costs.
(ii) Warehousing: Storing goods until they are needed. Warehousing helps manage supply and demand
fluctuations and ensures product availability.
(iii) Insurance: Protecting against risks associated with trade. Insurance provides financial protection against
losses due to accidents, theft, or natural disasters.
(iv) Banking: Providing financial services to support trade activities. Banks offer loans, credit, and payment
services that facilitate transactions and business operations.
(v) Warehousing: It involves the storage of goods in a designated facility, allowing businesses to manage
their inventory efficiently and meet market demand promptly.
(vi) Communication: This involves sending and receiving of messages from one party to another.

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1.5 Purpose of Business
The purpose of a business is broadly categorized as:

(i) Economic Objectives
(ii) Social Objectives
Businesses aim at achieving both economic and social objectives.
1.5.1 The economic objectives include:

(i) Creation of a customer: Any product or service brought on the market is intended to satisfy the need of
a customer. Peter Drucker believed that the only valid purpose of a business is to create a customer.
Unless there is a customer to buy the product of a business, it cannot exist to the extent that it is a
customer that determines what a business is by responding to his/her needs through buying the product,
thereby keeping the business in existence.
(ii) Making Profits: If you asked a typical business man what a business is, he is likely to say that it is an
organization to make profit. Even a typical economist is likely to answer like that. Such an observation
would sadly be false and misleading; according to Drucker. This position has been augmented by Urwick
who asserted that earning profits cannot be the objective of a business any more than eating is the
objective of living. In addition, Henry Ford of Ford General Motors declared that mere chasing money is
not business. Never the less, classical economic theory of business enterprise and behaviour argues that
the objective of a firm is profit maximization and although modern economists like Boumol and Joel Dean
believe that profit is not the sole aim of business, they qualify profit maximization as a business objective
in the long run. This leads to an acknowledgement by Drucker that profit maximization is not an
explanation, cause, or rationale of a business; it is a test of the validity of business behaviour and
decisions. Drucker goes on to say that, profit has to functions; first, it the first test of performance, which
is the only effective test, but second, it is the premium for the risk of uncertainty. This gives rise to the
other objectives.

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(iii) Survival: For businesses to be going concerns in complete agreement with the characteristic of regularity
and continuity of dealings, then profits must be made. A business needs to make sufficient profits in
order to survive in the long run and this make survival an important objective of business.
(iv) Growth: Related to profits, every business wants to grow as an indicator that its profit making. Growth
is natural to all activity and as such, as more money is invested and more and profits are made so does
a firm grow.
1.5.2 Social Objectives

(i) Dividends/fair returns to investors: Paying fair dividends to investors rewards them for their
investment and encourages continued or increased investment in the company. Fair returns on
investment attract more investors, providing the company with the capital needed for expansion and
innovation. It also signals the company's financial health and profitability.
(ii) Employment generation: Providing employment opportunities is a fundamental responsibility of
businesses. Employment not only generates income for individuals, allowing them to support themselves
and their families, but also stimulates economic growth. A stable job market reduces poverty and
improves living standards, contributing to social stability and economic development.
(iii) Ethical practices: Adhering to fair trade practices, maintaining transparency, and operating with
integrity. Ethical behavior builds trust and loyalty among customers, employees, and stakeholders.
(iv) Fair deal to labour: Treating employees fairly and ethically is crucial for maintaining a motivated and
productive workforce. This includes offering fair wages, safe working conditions, and opportunities for
career development. Fair treatment of labor reduces turnover, increases employee satisfaction, and
enhances the company’s reputation as a responsible employer.
(v) Timely payments of loans and advances to financial institutions: Meeting financial obligations on
time, including loans and advances, is essential for maintaining a good credit rating and avoiding
penalties. Timely payments ensure the business remains in good standing with financial institutions.
(vi) Timely payments of taxes to government: Paying taxes promptly supports government services and
infrastructure development, contributing to a stable business environment.

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(vii) Protection of environment: Protecting the environment involves adopting sustainable practices that
minimize harm to natural resources and ecosystems. Businesses can achieve this by reducing waste,
lowering emissions, conserving energy, and using eco-friendly materials. Environmental protection
ensures the health and safety of communities, preserves biodiversity, and enhances the company’s
reputation.
(viii) Fair deal to customers: this involves maintaining a good relationship with your customers, producing
quality products and services to customers, disclosing all vital Information regarding products, good
customer care, etc.
(ix) Contribution to research/donations: Contributing to research and making donations demonstrate a
company’s commitment to innovation and social responsibility. Supporting research can lead to new
products and services, driving industry progress. Donations to community causes, charities, and
educational institutions enhance the company’s image, build goodwill, and create positive social impact.
Sample Questions
1. “The sole purpose of my business is to make profits” commented by a young business man in
Mbarara As a business administration student. Explain to him why you think he is wrong.
2. Using AIRTEL as an organization of your choice, discuss how creation of a large customer base has
enabled it to achieve all its other business objectives.
3. Despite the fact that businesses are started with many objectives, sometimes they are unable to achieve
all. Why do some businesses find it so hard to achieve their intended objectives?
4. Which of the following industries is a style of secondary industry?
A. Genetic Industry
B. Construction Industry
C. Extraction Industry
D. Service
5. The following are examples of Aids to trade except:
A. Banking
B. Manufacturing

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C. Insurance
D. Warehousing.
6. The following are economic objectives of the business except:

A. Growth
B. Survival
C. Continuity
D. Profit Motive
7. Which of the following best describes the primary objective of a business?
A) To provide employment
B) To offer charity services
C) To generate profits
D) To support government initiatives
8. Which of the following statements best defines the term "business"?
A) A non-profit organization providing services to the public
B) An entity engaged in the production or distribution of goods or services for profit
C) A government agency regulating market activities
D) A social group focused on cultural activities
9. Which of the following is NOT a characteristic of business?
A) Profit motive
B) Risk and uncertainty
C) Government ownership
D) Production of goods and services
10. Which of the following is NOT considered a characteristic of a business?
A) Regularity in transactions.
B) Profit motive.
C) Involvement in production and distribution.
D) Solely relying on donations for revenue.

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Reference Material
Books
1. Modern Business Administration (6th Ed) by Robert C Appleby

2. Adom, K., Hinson, R. E., Mintah, E. O., & Obuobisa-Darko, T. (2023). Business Administration: An
Introduction for Managers and Business Professionals. CRC Press.
3. Business Administration, a fresh approach by Roger Carter
4. Parsons Carl Copeland (2008). Business Administration, Lightning Source Inc. Publishers
5. Business Administration Hand Book by L. Hall
6. Business Administration and Management (4th Ed) by Deverell
7. Business Administration (4th Ed) by Waswa Balunywa
8. Bagire Vincent (2013). A Revision Guide for Business Administration
9. Linda K. Trevino and Katherine A. Nelson (2010).Managing Business Ethics, 5th Edition, Wiley Publishers
Online Video Resources
Meaning of Company Stocks: https://www.youtube.com/watch?v=o4jfBC0AgIM&list=PPSVE-tivities

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TOPIC TWO
FORMS OF BUSINESS ORGANIZATIONS
In the present-day, complex and dynamic business landscape, the structure of a business plays a key role in
determining its operational efficiency, compliance with legal obligations and strategic flexibility. Business
organizations are in various forms, each tailored to varying needs, goals and contexts. These structures range
from simple, individually owned enterprises to complex, multi-owned corporations. Understanding the
characteristics, advantages, and disadvantages of each form is crucial for business administrators to inform
decisions. The primary forms of business organizations include sole proprietorships, partnerships, joint stock
companies and cooperatives. Each of these forms offers unique benefits and challenges, influencing factors
such as liability, taxation, control, and regulatory requirements.

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2.0 Summary of Forms of Business Organizations (Should be on land scape and 1 page)
Organization Type Registration /Incorporation Membershi Limited Separate Transferability of
p Liability Legal shares
Entity
Sole Proprietorship License/Permit from LC Single No No Yes
Partnership Ordinary 2 – 20 No No No
Professional 2 – 50 No/Exce Yes/No No

pt LLP
Private 1. M & A of Association 1 - 100 Yes/ No Yes Restricted

Ltd. 2. Certification of Transfer to the 1 –
Liab. Co Incorporation 100 members
Public M & A of Association

Joint Ltd.
Stock Co. Ltd. Liab. Co 1. Certification of
Companie by Shares Incorporation
s 2. Certificate of 2 to Infinity Yes/ No Yes YES
Commencement
3. Prospectus
4. Hold a Statutory Meeting
within 30 days of
commencement
Co. Ltd. by Guarantee Charity M & A of Association 1 - 100 Yes/ No Yes No
Government Established by an Act of 100% /51% Yes/ No Yes YES

Companies Parliament minimum
Cooperatives Register the Rules and Minimum of Yes SACCO is

Regulation + Application 30 Limited
YES YES

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TOPIC TWO (A)

SOLE PROPRIETORSHIP
A sole proprietorship is a business entity owned and operated by a single individual. There is no legal distinction
between the owner and the business. This form of business is noted for its simplicity and direct control by the
owner over all aspects of operations. It is the oldest, most common, and simplest form of business organization.
Examples of sole proprietorships include small local businesses such as a neighbourhood bakery, freelance
graphic designer, independent consultants, floral shops, bookstores, saloons farms, retail shops, restaurants,
butchers, secretarial bureaus, etc.
2.1.1 Characteristics/Features
(i) Simplicity: Sole proprietorships are easy to establish and manage with minimal legal requirements.
Unlike corporations, Sole proprietorships do not require formal incorporation procedures or extensive
documentation.
(ii) Ownership: These businesses are owned entirely by one individual, who retains full control and decision-
making authority over the business operations. For instance, a local café can be owned by a single person
who also manages its daily operations, finances, and marketing.
(iii) Liability: The owner has unlimited personal liability for all debts and obligations incurred by the business.
Creditors can seek recourse against the owner's assets in the case of business liabilities. For example, if
a sole proprietor's catering business incurs debt, creditors can claim the owner's savings or property to
settle the debt.
(iv) Taxation: Income generated by the sole proprietorship is computed against the business owner's personal
income. This process is known as pass-through taxation Revenues are taxed only on individuals, not on
the entity itself. It simplifies tax compliance compared to corporate taxation.
(v) Decision Making: Sole proprietors make decisions independently, allowing for quick responsiveness to
market changes and customer needs without needing to consult partners or shareholders. A sole fashion
designer, for instance, can decide on new collections without consulting anyone else.
(vi) Duration: The lifespan of a sole proprietorship is directly tied to the owner's lifespan and willingness to
continue operating the business. Upon the owner's death, the business may cease to exist unless

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provisions for succession are in place. For example, a family-owned bookstore may close if the owner
retires or passes away without a successor.
(vii) Limited source of capital: Sole proprietors often rely on personal savings, loans from family or friends,
or small business loans to fund their ventures. Access to external capital may be limited compared to
larger corporations. For instance, a home-based craft business might be initially funded by the owner's
personal savings and small loans from family members.
(viii) No Separate Legal Entity: Legally, the business and its owner are considered the same entity. Business
assets are not considered legally separate from the assets of the owner. This means the owner assumes
all legal and financial responsibilities associated with the business. For example, a sole proprietor running
a taxi car service is personally responsible for any liabilities or debts incurred.
2.1.2 Formation of a Sole Proprietorship

The formation of a sole proprietorship involves straightforward steps:
(i) Licenses and Permits: Depending on the nature of the business, obtaining licenses or permits from local,
state, or federal authorities may be required. This ensures compliance with regulations governing specific
industries or activities. For example, a home bakery might need health department permits.
(ii) Business Name Registration: In some jurisdictions, sole proprietors may need to register a business
name. For instance, Jane Smith might register bakery name as "Smith's Sweet Treats".
2.1.3 Advantages of Sole Proprietorship

(i) Ease of Formation: Starting a sole proprietorship involves minimal legal paperwork and costs, making
it straightforward and inexpensive compared to other business forms. For example, setting up a pet
grooming service might only require a business license and minimal initial investment.
(ii) Complete Control: Sole proprietors have full autonomy over business decisions, allowing for quick
decision-making and adaptation to market changes. For instance, a freelance web developer can quickly
change their service offerings based on client demands.
(iii) Tax Benefits: Pass-through taxation can result in lower overall tax liability, as business profits are taxed
at the owner's individual income tax rate. An example is an independent real estate agent who reports
earnings on their tax return.

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(iv) Profit Retention: Owners retain all profits generated by the business, providing direct financial
incentives for business growth and success. For example, a single-owner coffee shop keeps all profits
without sharing with partners.
(v) Flexibility: Sole proprietors can easily pivot business strategies, change operations, or adjust to new
market conditions without needing to consult partners or shareholders. For instance, a solo artist can
switch from painting to sculpture based on market trends.
(vi) Direct Motivation: The owner's personal financial well-being is directly tied to the success of the
business, fostering strong motivation and commitment. For example, an independent tutor is highly
motivated to attract and retain students to ensure a steady income.
2.1.4 Disadvantages of Sole Proprietorship

(i) Unlimited Liability: The owner is personally liable for all business debts and legal obligations. Personal
assets, such as homes or savings, can be at risk in the event of business-related lawsuits or financial
difficulties. For example, a sole proprietor of a small construction business risks personal assets if sued
for faulty workmanship.
(ii) Limited Resources: Sole proprietors may face challenges in accessing capital compared to larger
businesses. This can restrict growth opportunities and limit the ability to expand operations. For instance,
an independent retailer might struggle to secure financing for a larger storefront.
(iii) Limited Continuity: The business may cease to exist upon the owner's death or incapacity unless
provisions for succession or transfer of ownership are in place. For example, a local flower shop may close
if the owner retires without a successor.
(iv) Limited Expertise: Sole proprietors must manage all aspects of the business, requiring a broad range of
skills. This can be demanding and may limit the business’s ability to operate efficiently. For example, a
sole proprietor running an IT consulting firm needs expertise in both technical skills and business
management.
(v) Limited Growth Potential: Due to resource constraints and the owner's capacity, sole proprietorships
may face challenges in scaling operations or competing with larger firms. For instance, a single-owner
bakery might struggle to expand to multiple locations.

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(vi) Risk Burden: Owners bear all risks associated with the business, including economic downturns,
industry changes, and competitive pressures, without the support of partners or shareholders. For
example, a sole proprietor in the travel industry may face significant losses during economic recessions.
2.1.5 New Trends in Sole Proprietorship

The evolving business landscape has seen significant changes with the rise of the gig economy. These
trends have had a profound impact on the structure and operations of sole proprietorships. This write-
up explores the characteristics, advantages, and challenges associated with these phenomena and how
they shape the experience of sole proprietors.
A Gig Sole proprietor is characterized by short-term contracts or freelance work, often facilitated through
digital platforms. This model of work contrasts with traditional employment, where individuals hold long-
term, stable positions within a single organization.
Characteristics of Gig Sole Proprietorship

(i) Short-term Contracts: Gig work is typically project-based or on-demand, with engagements lasting from
a few hours to several months.
(ii) Freelance Work: Individuals offer their services independently rather than being long-term employees.
(iii) Digital Platforms: Online platforms such as Uber, Fiverr, and Upwork connect gig workers with clients,
providing a marketplace for services.
(iv) Prevalence: Many gig workers, such as ride-share drivers, freelance graphic designers, and consultants,
choose to operate as sole proprietors.
(v) Flexibility: Sole proprietors in the gig economy enjoy the freedom to set their own schedules and select
clients, tailoring their work to fit their personal and professional goals.
(vi) Autonomy: This structure allows individuals complete control over business decisions and operations,
fostering a sense of independence.
Advantages of Gig Sole Proprietorship

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(i) Flexibility: The ability to determine one's own work hours and client base is a significant draw. This
flexibility can lead to a better work-life balance and the opportunity to pursue multiple interests.
(ii) Potential for Higher Income: Sole proprietors can potentially earn more based on the demand for their
services and their ability to negotiate rates. High-demand skills or services can command premium prices.
(iii) Diverse Opportunities: The gig economy allows individuals to explore various fields and projects,
contributing to a diverse portfolio of experience.
Disadvantages of Gig Sole Proprietorship

(i) Irregular Income: Earnings in the gig economy can be unpredictable, fluctuating based on market
demand and the availability of work. This instability can make financial planning challenging.
(ii) Lack of Employment Benefits: Unlike traditional employees, gig workers do not receive benefits such
as health insurance, retirement plans, or paid leave. They must independently secure and finance these
necessities.
(iii) Self-Management: Sole proprietors are responsible for all aspects of their business, including marketing,
accounting, client relations, and regulatory compliance. This can be overwhelming, especially for those
without a business background.
Conclusion
Sole proprietorships offer a straightforward and flexible way for individuals to start and run their own
businesses. It is perfect where capital requirements are small and risk isn’t too high, where quickness of
decision making is very important, where customers need personal attention via taste and fashion. However,
they come with significant risks, especially regarding personal liability.
REFERENCE MATERIALS
Books

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9. Published articles
Online Video Resources
1. https://www.youtube.com/watch?v=Qp9teuaKcyc
2. https://www.youtube.com/watch?v=Qp9teuaKcyc
3. Sole Proprietorships Explained: How They Work and Why They're Popular
SAMPLE QUESTIONS
1. Identify and discuss the key characteristics that make a business well-suited for a sole proprietorship
structure. Provide examples of businesses that typically thrive as sole proprietorships
2. Discuss the main advantages and disadvantages of operating a business as a sole proprietorship.
3. Evaluate the types of support and resources available for sole proprietors. How can these resources aid in
the success and growth of a sole proprietorship?

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TOPIC TWO (B)

PARTNERSHIPS
A partnership is a business arrangement where two or more individuals agree to share the profits and losses of
a business operated by all or some of them on behalf of others. It is essentially a relationship that exists between
persons with a common goal of making a profit. This type of business structure is characterized by shared
ownership, responsibilities, and decision-making.
Where a partnership is formed to carry out a profession service, the number of professionals, which constitutes
the partnership shall start from two and not exceed fifty (2 to 50). Examples of professionals include lawyers
(law firms), Accountants (accounting firms), etc. For other businesses, their membership starts from two and
not exceeding twenty (1 to 20). In Uganda, partnerships are registered under the partnership ACT 2013.
2.3.1 Characteristics of Partnerships
(i) Non-transferability of Interest: Partners cannot transfer their partnership interest to others without the
consent of the remaining partners. This ensures that new partners are accepted only with the agreement
of the existing partners. For instance, if Partner A wants to sell his share to an outsider, he must get
approval from Partners B and C.
(ii) Plurality of Persons: A partnership must have at least two partners. For banking businesses, the
maximum number is usually 50, while for other types of businesses, it is typically 20.
(iii) Partnership Deed: Partnerships are usually governed by a written agreement known as the partnership
deed, which outlines the rights, responsibilities, and profit-sharing ratios among partners. For instance,
a partnership deed might specify that Partner A receives 40% of the profits while Partner B and C each
receive 30%.
(iv) Principal-Agent Relationship: Each partner acts as both a principal and an agent of the partnership.
This means Partner “A” can make decisions and enter into contracts that will bind partners “B” and “C”.
For example, Partner “A” can negotiate a lease for office space, which all partners are then obligated to
honour.

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(v) Unlimited Liability: Partners have unlimited personal liability for the debts and obligations of the
partnership. Their personal assets can be used to settle business debts if the partnership assets are not
sufficient to pay for all the partnership debts at the time of dissolution of the partnership. For example,
if the partnership owes $100,000, and the partnership business assets cover only $70,000, the partners
must cover the remaining $30,000 from their assets.
2.2.2 Formation of a partnership
2.2.2.1 Procedure of forming a partnership
(i) Reservation of business name (URSB): This is mandatory.

(ii) Register business name (business names registration act.
(iii) Statement of particulars.
(iv) Partnership Deed (not mandatory but prudent practice).
(v) Acquisition of a Certificate of registration- Sec 4 BNRA (business name registration Act).
(vi) Acquisition of a trading license.
(vii) Gazetting.
2.2.2.2 Who can be a partner?

Anyone who is legally capable of entering into a contract can be a partner. This includes individuals who are
sane and financially sound. For instance, an 18-year-old entrepreneur in Uganda accountant can form a
partnership.
Partnerships are created through a partnership agreement (Deed)or by the operation of law, such as the
Partnership Act. In Uganda, partnerships are registered under the Partnership Act of 2010.
2.2.3 Partnership Deed/Agreement

A partnership deed is an agreement that spells out the rights and obligations of each of the partners made out
by partners and witnessed by a solicitor. It is not a must to sign an agreement but it is desirable for clarity and
permanence. If it is absent, the Partnership Act prevails.

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Partnership agreements can be established through various means:

(a) By Word of Mouth: An oral agreement among partners.
(b) By Writing: A formal written agreement, known as a partnership deed.
(c) By Implication: An implied agreement based on the conduct of the parties.
(d) By Holding Out: When someone represents themselves as a partner, they may be held liable as if they
were a partner.
Contents of a Partnership Deed

(i) Mode of sharing the profits.
(ii) Names and signatures of partners
(iii) Interest on capital and drawings.
(iv) Winding up/changes and dissolution.
(v) Nature of business.
(vi) Capital contribution per partner.
(vii) Preparation and auditing of accounts.
(viii) The ratios in which profits/losses will be shared.
(ix) Amounts, if any, partners may draw in advance before ascertainment of profits.
(x) Partners’ salaries if any.
(xi) Admission of new members.
(xii) Duration of the partnership.
2.2.4 Types of Partnerships
(i) General partnership: This is a partnership where all partners participate in the management of the
business and each partner is liable for all business debts/losses. All partners participate in management
and are jointly liable for business debts. For example, a group of doctors opening a clinic where each one
of them has a daily task in the operations

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(ii) Limited partnerships: Partnership in which some partners are not actively involved in the day-to-day
running of the business while others are actively involved in the management of the business. The inactive
partners have limited liability for instance, a real estate investment firm with silent investors who provide
capital but do not manage properties.
(iii) Limited liability partnership (LLP): This s a partnership where all partners have limited liability i.e.,
they are not responsible for the debts and liabilities of the partnership. Not all businesses can register as
LLP’s. LLPs usually include medical partnerships, Law firms, and accounting firms. For example, an
accounting firm where partners are protected from the debts incurred by the firm.
2.2.5. Types of Partners

(i) Active partners: These contribute capital to the business, participate actively in the management of
businesses and are liable to third parties. They are sometimes referred to as “ordinary”, “regular”, 'actual
‘, or 'ostensible partners. For example, partners in a law firm who manage cases and clients.
(ii) Dormant/Sleeping Partners: This is one who does not take any active part in the management of the
business. He contributes capital and shares the profit which is usually less than that of the active
partners. He is liable for all the debts of the firm but his relationship with the firm is not disclosed to the
general public.
(iv) Nominal/Quasi Partners: He/she neither contributes any capital nor shares in the profits nor takes part
in the management of the business. But he is liable to third parties like other partners. He/she is known
to outsiders and earns goodwill for using his name as a partner.
(v) Minor partner: This is a partner below the contracting age. Enjoys limited liability and his decisions are
not legally binding. However, on attaining majority (contracting age), if he continues as a partner, his
liability will become unlimited with effect from the date of his original admission into the firm.
(vi) Partner in profits only: This is a partner who shares in the profits only without being liable of the losses.
He does not take part in the active management of the business.

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(vii) Sub partners: This is a stranger sharing the profits derived from the firm. He/ she shares profits with
one of the partners and has no rights against the firm. For instance, a spouse who shares in a partner's
business profits
(viii) Partner by Holding out: This is one who, without being a partner, conducts himself in such a manner
as to lead third parties (outside world) to believe he is a partner. He is stopped or prevented from denying
he is a partner. He is considered as a partner in the eyes of the law and is liable to third parties.
(ix) Partner by Estoppel: This is one who if declared to be a partner by a partnership firm remains silent
without denying it. He is also considered a partner by holding out and is liable to third parties.
2.2.6 Advantages of Partnerships

(i) Survival Capacity: Partnerships can continue even if there are changes in partners. For example, if a
partner retires, the remaining partners can continue the business.
(ii) Increased Capital: More partners mean more potential for capital investment. For instance, a partnership
of five people can pool more resources than a sole proprietor.
(iii) Management Skills: Combines the expertise and skills of multiple partners. For example, one partner
might be good at marketing while another excels in finance.
(iv) Access to Credit: Easier to secure loans due to combined assets and creditworthiness. For example, a
partnership may obtain a larger loan for expansion than an individual could.
(v) Shared Risks: Losses and risks are spread among partners. For instance, if the business incurs a loss,
it is divided among the partners, reducing the burden on any single individual.
(vi) Flexibility: Relatively easy to form and dissolve. For example, two friends can start a business together
with minimal paperwork and dissolve it if it does not work out.
(vii) Fewer Regulations: Less governmental oversight compared to corporations. For instance, partnerships
generally face fewer regulatory requirements than incorporated businesses.
(viii) Easy Decision Making: Fewer bureaucratic hurdles compared to larger businesses. For example,
decisions can be made quickly in a small partnership without needing board approvals.
(ix) Limited Liability: Some partners can enjoy limited liability, protecting personal assets. For example, in
an LLP, partners are not personally responsible for the firm's debts.

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2.2.7 Disadvantages of Partnership
(i) Unlimited Liability: Some partners are fully liable for the partnership's debts. For example, if the
partnership cannot pay its debts, partners' personal assets can be used to cover the shortfall.
(ii) Shared Consequences: The actions of one partner can affect all others. For instance, if one partner
incurs debt or legal issues, all partners are responsible.
(iii) Transparency: Less privacy as partnership dealings must be disclosed among partners. For example,
partners must share financial and operational details with each other.
(iv) Limited Resources: Capital and resources can still be limited compared to corporations. For example, a
partnership might struggle to raise as much capital as a corporation with shareholders.
(v) Non-transferability: Partnership interests cannot be easily transferred. For instance, a partner cannot
sell their interest in the partnership without the agreement of the other partners.
(vi) Decision Delays: Agreement among partners may slow decision-making. For example, partners may need
to discuss and agree on major decisions, which can take time.
(vii) Conflict Potential: Disagreements among partners can disrupt business. For example, differing opinions
on business direction can lead to conflicts.
(viii) Continuity Challenges: Partnerships may dissolve with changes in membership. For example, if a
partner leaves or dies, the partnership may need to be reformed or dissolved.
(ix) Motivational Issues: Sharing profits can reduce individual motivation. For example, partners may feel
less motivated if they perceive unequal effort or contribution. When one member leaves for any reason
say death or another person is admitted the partnership dissolves. This does not mean winding up the
business. The dissolution occurs because terms of the new partnership will be different. The relationships
are new e.g. capital contribution, profit and loss sharing ratio etc.
2.2.8 Termination of a Partnership

Partnerships can be terminated under various conditions:
(i) Agreement of partners: Partners may agree to terminate the partnership.
(ii) Departure or admission of partners: A partner may leave or a partner may be added, in which case the
old partnership is terminated and a new one initiated.

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(iii) Dismissal of a partner: A partnership agreement may provide for the dismissal of partners under certain
circumstances. In case this happens and the legally required membership is not upheld or new partners
are admitted, then a partnership may be dissolved.
(iv) Failure to observe the regulations: The Law also dictates the termination of partnerships under certain
circumstances e.g. engagement in an illegal activity.
Conclusion
A partnership is an improvement of a sole proprietorship and is suited for business activities where investment
is not very large and where application of personal skill and judgement is required.
Reference Material
1. Parsons Carl Copeland (2008). Business Administration, Lightning
2. Linda K. Trevino and Katherine A. Nelson (2010). Managing Business Ethics, 5th Edition, Wiley Publishers.
YOU TUBE VIDEO

https://www.youtube.com/watch?v=s8vXZTB3618: Partnerships Explained: Types and Considerations

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TOPIC TWO (C)

JOINT-STOCK COMPANIES
2.3.1 Background to the emergence of Joint-Stock Companies
Following the emergence of the industrial revolution, there emerged complex needs that were associated with
the modern industry and commerce that could not be met by sole proprietorship or partnerships. A new form
of business organization which could mobilize more funds and conduct large operations was needed and as
such The JOINT STOCK Companies were born.
Whereas the origins of joint-stock companies can be traced back to medieval Europe, they became particularly
prominent during the Age of Exploration in the 16th and 17th centuries. It enabled investors to purchase shares
in the company, pooling their resources to fund voyages and share in the profits and these set a precedent for
the growth of Joint-stock companies.
2.3.2 Definition of a company
A company is an artificial person created by law having a separate entity with perpetual succession. This means
that a company is separate from its promoters or subscribers. In Uganda, companies are registered and
regulated by Uganda Registration Services Bureau (URSB).
After incorporation/registration
Upon its birth, a company becomes a body corporate distinct from its subscribers/members and is required to
comply with a number of statutory obligations. Failure to comply may attract penalties both civil and criminal
in nature as well as potential striking off from the business register. These obligations include but are not
limited to:
2.3.3 Statutory obligations of a company

(i) Management/Board

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The Board is critical in keeping the company as a going concern through among others, adopting
corporate governance principles and ensuring compliance with other statutory obligations. Every
company is required to have a director(s) (Sec. 185). In case of a single member company (SMC) in addition
to the sole owner being a director, such an owner shall appoint a nominee and an alternate nominee
director to manage the affairs of the SMC upon the demise of the owner. Action by sole person who acts
as both the director and secretary are prohibited (sec. 188).
(ii) Address
All companies doing business or registered in Uganda are required to have a registered office and a
registered postal address. From the day of commencement of business or 14 days after incorporation,
whichever is earlier, a company shall have an address to which all communications and notices may be
addressed (Secs 115 & 116).
An address is an essential marketing tool for your business and exonerates one from brief case company
syndrome, while at the same time creating a distinction between your professional and private life. For
purposes of the postal address, it may be physical, virtual or even care of (C/O) in cases where an
authorizing document is attached.
Failure to have such an address shall render the company and every officer in default to a fine of twenty-
five currency points (Sec. 115(5)). The registrar of Companies may also elect to deregister the company in
default (Sec. 115(4)).
(iii) Return of allotment

Whenever a Company limited by shares or by guarantee and having share capital, makes any allotment
of its shares to the shareholders, it shall within sixty days thereafter deliver to the registrar of companies
for registration such return of allotment (sec. 61).
Failure to file such a return attracts liability against the officers of the company to the tune of twenty-five
(25) currency points and an additional five currency points for every day during which the default
continues (Sec. 61(3)).

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(iv) Register of members

A company is required to keep, at its registered office, a register of its members (119) and shall notify the
registrar of companies of the place where the register is kept and any changes thereto (119(3)). Failure to
keep such a register attracts a daily default fine of twenty-five currency points against officer responsible
for such a default (119(6)).
(v) Annual Returns

All Companies whether limited by shares of Guarantee are required to submit annual returns to the
registrar of companies within forty-two days after the Annual General Meeting of the company in issue
(Secs. 132,133, 134).
Failure to file Annual Returns attracts a penalty of twenty-five (25) currency points against company and
every officer responsible for the default (132 (4) & 133(3)). Further, if for 5 consecutive years no Annual
Returns have been filed by the Company, the registrar of companies may be prompted to strike off the
company from the register (134(5) & (6)).
6. Company Resolutions
Company decisions are derived through board meetings and shareholders meetings. These decisions are
communicated through board resolutions (Sec.150). Resolutions generally fall into two categories, i.e.
(a) Resolutions passed by the board: These relate to daily operations and may not be registered.
(b) Resolutions passed by members/shareholders: These relate to special resolutions and other
resolutions agreed upon by and affecting the members.
The wording or content of a resolution can determine whether it’s a board resolution or members’
resolution. This is because the two have clear cut boundaries on matters of jurisdiction. Applicants are

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therefore advised to ensure the resolutions are signed by the rightful set of people. A single member may
not sign both as secretary and Director at the same time or on the same application.
2.3.4 Benefits of Registering a Company

When a company is registered, it is said to have been ‘incorporated’ and thereon a certificate of
incorporation is issued. Upon incorporation, the company becomes a body corporate separate from its
owners. In other words, the business entity will be recognized under the law as legal and eligible to
transact in its own name.
This means that the company can, among other things:

1) Own and transfer property;
2) Borrow money and provide security in form of a charge on its assets;
3) Sue (or be sued) in its own name.
The other benefits of formalizing your business include:

1) Identity
2) Corporate status
3) Financial accommodation
4) Corporate rescue
5) Cross border trade
6) Marketing
7) Intellectual Property rights
URSB registers the following types of companies:

1) Single Member Company,
2) Public company,
3) Private company limited by shares,
4) Company limited by guarantee and
5) Foreign company

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A share represents a unit of ownership in a company or financial asset. When an investor buys shares, they
are purchasing a portion of the company’s equity, entitling them to a share of the profits and assets of the
company
2.3.5 Formation of a Joint-Stock Company
The formation of a joint-stock company involves several stages, including the planning, legal procedures, and
regulatory compliance required to establish and commence business operations. This process ensures that the
company is structured legally and is ready to operate within the regulatory framework of its jurisdiction. Below
is a breakdown of the stages involved in forming a joint-stock company:
1. Preliminary Steps
a. Business Idea and Planning:
(i) Conceptualization: The founders identify a viable business idea and assess its potential for
success.
(ii) Feasibility Study: Conduct market research, financial analysis, and feasibility studies to evaluate
the viability of the business idea.
(iii) Business Plan: Develop a comprehensive business plan outlining the company’s objectives,
strategies, target market, financial projections, and operational plans.
b. Choosing the type of Joint-Stock Company:
Decide whether to form: a private joint-stock company or public joint-stock company
(i) A private joint-stock company (limited number of shareholders, shares not publicly traded) or
(ii) A public joint-stock company (shares offered to the public and traded on a stock exchange).
2. Legal and Regulatory Requirements

a. Name reservation:
(i) Selecting a Name: Choose a unique and appropriate name for the company.

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(ii) Name Reservation Application: Submit an application to the relevant regulatory authority to
reserve the company name and ensure it is not already in use.
b. Drafting Legal Documents:
(i) Memorandum of Association (MOA): A document outlining the company’s name, registered office,
objectives, and the extent of liability of its members.
(ii) Articles of Association (AOA): A document detailing the internal rules and regulations governing
the company’s management, operations, and the rights and duties of shareholders and directors.
c. Initial Capital:
(i) Share Capital: Determine the initial capital required for the company and the number of shares to
be issued. This involves deciding the nominal value of each share.
(ii) Subscription of Shares: Ensure that the initial shareholders subscribe to the minimum required
share capital.
3. Registration and Incorporation
a. Filing for Incorporation:

(i) Submission of Documents: Submit the MOA, AOA, and other required documents (e.g., name
reservation certificate, shareholder details) to the Registrar of Companies or the relevant regulatory
authority.
(ii) Registration Fees: Pay the necessary registration fees and stamp duties.
b. Issuance of Certificate of Incorporation:

(i) Verification: The Registrar reviews the submitted documents to ensure compliance with legal
requirements.
(ii) Certificate of Incorporation: Upon approval, the Registrar issues a Certificate of Incorporation,
officially recognizing the company as a legal entity.
4. Post-Incorporation Steps

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a. Commencement of Business:
(i) Public Joint-Stock Companies: If forming a public company, additional steps include issuing a
prospectus, inviting the public to subscribe to shares, and meeting the minimum subscription
requirements.
(ii) Private Joint-Stock Companies: Can commence business immediately upon receiving the
Certificate of Incorporation.
b. Corporate Governance Setup:
(i) Board of Directors: Appoint the initial board of directors as per the AOA. Directors are responsible
for overseeing the company’s management and operations.
(ii) Company Secretary: Appoint a company secretary responsible for ensuring regulatory compliance
and maintaining company records.
c. Regulatory Compliance:
(i) Business Licenses and Permits: Obtain necessary business licenses and permits required for the
company’s operations.
(ii) Tax Registration: Register for taxes, including corporate tax, value-added tax (VAT) and other
applicable taxes.
(iii) Statutory Registers: Maintain statutory registers, including the register of members, register of
directors and register of charges.
d. Bank Account:
Opening a Bank Account: Open a corporate bank account in the company’s name for managing financial
transactions and capital.
e. Annual Compliance:
(i) Annual General Meeting (AGM): Conduct AGMs as required by law, where shareholders can
discuss the company’s performance and make important decisions.
(ii) Financial Statements and Audits: Prepare annual financial statements and conduct audits as
required. Submit annual returns and financial reports to the regulatory authorities.
2.3.6 Characteristics of Joint-Stock Companies

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Joint-stock companies possess several key characteristics that distinguish them from other forms of business
organizations:
(1) Separate Legal Entity/Legal Person: A joint-stock company is a separate legal entity distinct from its
shareholders. It can own property, enter into contracts, sue, and be sued in its own name. Perpetual
Succession, the company’s existence is not affected by changes in its ownership. It continues to exist
until it is legally dissolved.
(2) Limited Liability: The liability of shareholders is limited to the amount unpaid on their shares. Personal
assets of shareholders are protected and cannot be used to settle the company’s debts and liabilities.
(3) Transferability of Shares: Shares of a joint-stock company can be freely transferred by shareholders i.e.
from person to another, providing liquidity and enabling investors to easily buy and sell shares. In the
case of public joint-stock companies, shares are traded on stock exchanges, facilitating market-driven
price discovery and accessibility to a broad investor base.
(4) Capital raising/Large-Scale Investment: Joint-stock companies can raise substantial capital by issuing
shares to a large number of investors. This allows them to undertake large projects and expansions that
require significant financial resources. In addition, a variety of Investors are involved and both individual
and institutional investors can buy shares, diversifying the sources of capital.
(5) Professional Management/Board of Directors: The Company is managed by a board of directors elected
by the shareholders. The board makes strategic decisions and oversees the company’s operations.
(6) Separation of Ownership and Management: Shareholders own the company, but professional managers
run the day-to-day operations, allowing for specialized management expertise.
(7) Regulated Entity
(a) Regulatory Compliance: Joint-stock companies must comply with a variety of legal and regulatory
requirements, including company law, securities law, and financial reporting standards.
(b) Transparency: They are required to maintain transparency through regular disclosures, financial
statements, and audits, which protect investors and maintain market confidence.
(8) Profit Sharing:

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(a) Dividends: Profits are distributed to shareholders in the form of dividends, which are declared by
the board of directors. The amount and frequency of dividends depend on the company’s
profitability and dividend policy.
(b) Capital Gains: Shareholders can also benefit from capital gains if the value of their shares
increases over time.
(9) Ownership Rights
(a) Voting Rights: Shareholders typically have the right to vote on important matters, such as electing
directors, approving mergers or acquisitions, and other significant corporate actions.
(b) Information Rights: Shareholders have the right to receive timely and accurate information about
the company’s performance and activities.
(10) Perpetual Existence/Continuous Existence:
The Company’s existence is independent of its shareholders’ existence. It continues to operate regardless
of changes in ownership or management, providing stability and continuity.
(11) Legal Framework
(a) Incorporation: Joint-stock companies are created through a legal process of incorporation, which
grants them legal status and defines their structure and governance.
(b) Memorandum and Articles of Association: These foundational documents outline the company’s
objectives, the rules governing its operations, and the rights and duties of its members.
2.3.7 Types of Companies

1. Companies incorporated under the companies Act: In Uganda, companies are incorporated under the
Companies Act, which provides the legal framework for the formation, management, and dissolution of
companies. The Companies Act, 2012, which replaced the Companies Act, Cap 110, governs company
incorporation and operations in Uganda. The Act distinguishes between various types of companies, and
there are 3 main types of companies that can be registered under the companies act i.e. companies limited
by shares, companies limited by guarantee and unlimited companies.
2. Companies limited by shares: A company limited by shares is a common type of business structure
where the liability of the shareholders is limited to the amount unpaid on their shares. This structure is

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popular due to its limited liability protection, which ensures that shareholders' personal assets are not
at risk if the company faces financial difficulties. Here’s an in-depth look at companies limited by shares
Characteristics of Companies Limited by Shares

(i) Limited Liability: Shareholder Protection: The liability of shareholders is limited to the unpaid amount
on their shares. If a shareholder has fully paid for their shares, they have no further financial obligation
towards the company's debt.
(ii) Capital Structure: The capital of the company is divided into shares, which can be issued to investors.
Each share represents a unit of ownership in the company.
(iii) Transferability of Shares: Shares can typically be transferred between individuals, subject to any
restrictions outlined in the company’s Articles of Association.
(iv) Separate Legal Entity: Distinct from Owners, the company is a separate legal entity from its
shareholders, meaning it can own property, enter into contracts, sue, and be sued in its own name.
(v) Perpetual Succession: The company’s existence is not affected by changes in ownership or management.
(vi) Management and Control: Board of Directors: Typically managed by a board of directors elected by the
shareholders. The directors make strategic decisions and oversee the company’s operations.
Types of Companies Limited by Shares

(1) Private Limited Company (Ltd)
Private limited company is a type of business entity that offers limited liability to its shareholders but
places certain restrictions on ownership and transfer of shares. It is one of the most common forms of
incorporation for small and medium-sized enterprises (SMEs) and not exceeding one hundred (100)
members, and also a minimum of 1 (one) member.
Characteristics of Private Limited Companies

(i) Shareholder Restrictions: Typically restricts the number of shareholders and prohibits public
trading of shares.
(ii) Transfer of Shares: Share transfer is usually subject to approval by other shareholders or the
board of directors.

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(iii) Strict regulatory requirements: Less stringent regulatory and disclosure requirements compared
to public companies.
(2) Public Limited Company (PLC)

Is a type of business entity that offers its shares to the general public and has limited liability for its shareholders.
This structure is commonly used by larger businesses that seek to raise capital through public investment and
is subject to stringent regulatory requirements.
Characteristics of Private Limited Companies

(i) Public Offering: Can offer shares to the public and are often listed on stock exchanges.
(ii) Number of Shareholders: No limit on the number of shareholders.
(iii) Regulatory Compliance: Subject to rigorous regulatory requirements, including regular financial
disclosures, corporate governance standards, and compliance with securities laws.
3. Government companies
Is a company in which the government (central or state) holds a significant portion of the share capital, usually
more than 50%. These companies are registered under the country's Companies Act and operate like private
sector companies but with government oversight and objectives.
Examples of Government Companies in Uganda

(i) Uganda Electricity Generation Company Limited (UEGCL); Role: UEGCL is responsible for electricity
generation. It manages the development, operation, and maintenance of energy generation facilities. Key
projects include the construction and management of hydroelectric power stations such as the Karuma
Hydroelectric Power Station and the Isimba Hydroelectric Power Station.
(ii) Uganda Electricity Transmission Company Limited (UETCL); Role: UETCL is the sole entity responsible for
electricity transmission in Uganda. It operates the high-voltage transmission network and is also the
single buyer of electricity from generators for distribution to electricity distribution companies.

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(iii) Uganda National Oil Company (UNOC); Role: Established to manage the country’s commercial interests in
the petroleum sector and ensure the development of the oil and gas resources. UNOC is involved in
exploration, production, refining, and trading of oil and gas.
(iv) National Water and Sewerage Corporation (NWSC); Role: NWSC is responsible for providing water and
sewerage services in urban centers across Uganda. It aims to ensure sustainable water supply and sewage
management.
(v) Uganda Development Corporation (UDC); Role: UDC is tasked with promoting and facilitating industrial
and economic development. It invests in strategic sectors and enterprises to stimulate economic growth.
(vi) Posta Uganda (Uganda Post Limited); Role: Provides postal and courier services throughout Uganda. Posta
Uganda also offers financial services such as money transfers.
(vii) Uganda National Roads Authority (UNRA); Role: Responsible for the development, maintenance, and
management of the national road network. UNRA aims to improve the quality and accessibility of roads
across the country.
(viii) Uganda Broadcasting Corporation (UBC); Role: UBC is the national broadcaster of Uganda, providing radio
and television services. It aims to offer informative, educational, and entertaining content to the Ugandan
public.
4. Companies limited by guarantee

A company limited by guarantee is a type of corporate structure primarily used for non-profit organizations,
charities, clubs, and other entities that aim to promote a particular cause rather than distribute profits. In this
structure, members do not hold shares but guarantee to contribute a nominal amount towards the company’s
debts if it is wound up.
Characteristics of companies limited by guarantee

(i) Non-Share Capital; These companies do not issue shares or have shareholders. Instead, they have
members who act as guarantors.
(ii) Membership; Membership is not transferable or saleable like shares. Members may include individuals or
corporate bodies.

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(iii) Purpose and Objectives; Primarily used by non-profit organizations, such as charities, clubs, trade
associations, and educational institutions.
(iv) Surplus Reinvestment: Any profits made are reinvested into the company to further its objectives rather
than distributed to members.
(v) Governance; Governed by a board of directors or trustees, who manage the company’s affairs according
to its mission and objectives.
(vi) General Meetings; Members have the right to attend general meetings and vote on significant matters,
including changes to the constitution and the appointment of directors.
(vii) Legal Status; The company is a separate legal entity from its members, meaning it can own property,
enter into contracts, sue, and be sued in its own name.
(viii) Perpetual Succession; The company’s existence is not affected by changes in membership.
Examples of Companies Limited by Guarantee

(i) Charities and Non-Profits: Many charities and non-profit organizations are structured as companies
limited by guarantee to ensure that their assets are used for their intended purposes.
(ii) Educational Institutions: Some private schools, colleges, and educational trusts use this structure to
focus on educational objectives without profit distribution.
(iii) Professional Associations: Various professional and trade associations adopt this structure to manage
their activities and serve their members.
(iv) Unlimited companies: Are types of business structures where the liability of the shareholders or
members is not limited
Key Characteristics of Companies Limited by Guarantee

(i) Unlimited Liability: Shareholders have unlimited liability, meaning they are personally responsible for the
company's debts and obligations. If the company goes bankrupt or incurs significant debts, the
shareholders must cover these debts with their personal assets.
(ii) Legal Entity: Despite the unlimited liability, an unlimited company is a separate legal entity from its
shareholders. It can own property, enter contracts, and conduct business in its own name.

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(iii) No Obligation to File Financial Statements: In some jurisdictions, unlimited companies may have fewer
obligations regarding the public disclosure of their financial statements compared to limited companies.
This can offer a degree of privacy to the owners.
(iv) Continuity: The company’s existence is not affected by changes in ownership. It continues to exist even if
shareholders change.
(v) Transfer of Ownership: Shares in an unlimited company can usually be transferred, although this might
be subject to certain restrictions laid out in the company's articles of association.
(vi) Unlimited companies are often used in specific situations where the shareholders are confident in the
company’s financial stability or where there is a need for a particular business structure due to regulatory,
financial, or strategic reasons.
Advantages of Joint Stock Companies
Joint-stock companies offer numerous advantages that have contributed to their widespread adoption and
success as explained below:
(i) Limited Liability; Shareholders' liability is limited to the amount they have invested in the shares,
protecting their personal assets from the company's debts.
(ii) Large Capital; Joint stock companies can raise substantial capital by issuing shares to the public. This
is particularly advantageous for large-scale operations requiring significant investment. By issuing shares,
joint-stock companies can raise significant amounts of capital from a large pool of investors. This capital
can be used for expansion, research and development, and other growth initiatives.
(iii) Perpetual Succession; The company’s existence is not affected by changes in ownership. It continues to
exist even if shareholders sell their shares or pass away.
(iv) Transferability of Shares; Shares can be easily transferred from one person to another, providing liquidity
to shareholders.
(v) Professional Management; These companies often have access to skilled professionals and experienced
managers, leading to efficient and effective management.
(vi) Economies of Scale; Large-scale operations can lead to economies of scale, reducing costs and increasing
profitability.

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(vii) Public Confidence; Being subject to regulatory oversight and required to publish financial statements can
enhance public confidence and attract investors.
(viii) Risk Sharing; The risks associated with business ventures are spread among numerous shareholders.
This reduces the financial burden on any single investor and encourages investment in potentially high-
risk but high-reward projects.
(ix) Liquidity; The ability to buy and sell shares on the stock market provides liquidity to investors, allowing
them to quickly convert their investment into cash if needed.
(x) Perpetual existence; The perpetual existence of joint-stock companies ensures stability and continuity in
operations, making them a reliable form of business organization.
Disadvantages of Joint-Stock Companies
Despite their advantages, joint-stock companies also face certain disadvantages and challenges:
(i) Agency Problems; The separation of ownership and management can lead to conflicts of interest between
shareholders (owners) and managers. Managers may not always act in the best interests of shareholders,
potentially leading to inefficiencies.
(ii) Potential for Speculation; The ability to trade shares on stock exchanges can lead to speculative behavior,
where investors focus on short-term gains rather than the company's long-term performance. This can
result in market volatility and potential financial instability.
(iii) Dilution of control; Issuing new shares to raise capital can dilute the ownership percentage of existing
shareholders, reducing their control and influence over company decisions.
(iv) Vulnerability to takeovers; Joint-stock companies are susceptible to hostile takeovers if a significant
number of shares are acquired by an external entity. This can lead to changes in management and
strategy that may not align with the interests of existing shareholders.
(v) Complexity and Costs; The formation and management of a joint stock company can be complex and
costly, involving legal procedures, compliance with regulations, and administrative expenses.
(vi) Regulatory Compliance; Joint stock companies are subject to extensive regulations, including disclosure
requirements, audits, and regular reporting, which can be burdensome.

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(vii) Separation of Ownership and Control; There can be a separation between ownership (shareholders) and
control (management), which may lead to conflicts of interest and agency problems.
(viii) Lack of Personal Touch; The large and impersonal nature of joint stock companies can result in a lack of
personal connection and commitment among employees and shareholders.
(ix) Possibility of Takeover; The ease of transferring shares makes joint stock companies vulnerable to hostile
takeovers, where an outside entity acquires a controlling interest without the consent of the company's
management.
(x) Potential for Mismanagement; In cases where the management does not act in the best interests of the
shareholders, there can be issues of mismanagement and lack of accountability.
(xi) Double Taxation; Profits of the company are taxed at the corporate level, and dividends paid to
shareholders are taxed again at the individual level, leading to double taxation.
The Legal, Regulatory & Compliance Landscape
Standard Incentives for Investors

1. Investment Incentives (See the next topic)
2. Income Tax (See the next topic)
3. Withholding Tax (Incentives where there is a Double Taxation Agreement (DTA) with Uganda) - A taxpayer
may benefit from the provisions of a DTA that Uganda has with another country. According to Income
Tax Act (ITA), the terms of the international agreement to which Uganda is a party prevails over the
provisions of the ITA in case the terms of the international agreement are inconsistent with the provisions
of the Act.
4. Capital Gains Tax (See next topic)
5. VAT (various VAT incentives)
6. Fiscal Incentives under Uganda Free Zones Scheme (See next topic)
7. Non-Fiscal Incentives under the Uganda Free Zones Scheme (See next topic)
Fiscal Incentives under Uganda Free Zones Scheme

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A free-trade zone (FTZ) is a class of special economic activity. It is a geographic area where goods may be
imported, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulation
and generally not subject to customs duty.
Free Zones are designated areas in Uganda where duty free goods are stored, manufactured and or processed
for export. All domestic and foreign investors who export 80% and more of their enterprise output are eligible
to invest in Free Zones under the following benefits:
1. Up to 10 years of Income Tax Exemption for Free Zone Developer whose investment capital is at least
USD 50,000,000 (United States Dollars Fifty Million) from the date of commencement of business.
2. Up to 10 years Income Tax Exemption for Free Zone Operator whose investment capital is at least USD
10,000,000 (United States Dollars Ten Million) for Foreigners and USD 2,000,000 (United States Dollars
Two Million) for Ugandan Citizens from the date of commencement of business.
3. Exemption from taxes and duties on all Export Processing Zone imported inputs that are for the exclusive
use in the development and production output of the business enterprise (raw materials and spare parts).
4. Unrestricted remittance of profit after tax.
5. Exemption from tax on income from Agro-processing.
6. Exemption on income derived from the operation of aircraft in domestic and international traffic or the
leasing of aircraft.
7. Exemption from tax on plant and machinery used in the Free Zones for 5 years and 1 day upon disposal.
8. Exemption from all taxes, levies and rates on exports from the Free Zones.
9. Exemption from import duties and taxes on all goods entering a Free PortZone.
10. VAT exemption on the following supplies i.e. animal feeds and premixes crop extension services, irrigation
works, sprinklers and ready to use drip lines, deep cycle batteries and composite lanterns.
11. Exemption of Withholding Tax on petroleum, petroleum products, plant and machinery, human or animal
drugs and supply/ importation of raw material.
Non-Fiscal Incentives under Uganda Free Zones Scheme
1. Dedicated Business facilitation and aftercare services.
2. Economies of scale resulting from a centralized business structure with access to many clients;

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3. Enhanced Technology uptake;

4. Centralized Customs inspection of buildings, premises, vehicles, vessels entering and leaving the Free
Zone.
Other Tax related Incentives
1. Up to 100% deduction of Scientific research expenditure
2. Up to 100% deduction of training expenditure (not exceeding in aggregate 5 years)
3. Carry forward losses
4. DTA with Uganda- UK (15% WHT), Denmark, Norway, South Africa, India, Italy, Netherlands and
Mauritius (10% WHT)
5. Exporters of finished consumer & capital goods- 10-year tax holiday
6. Up to 2% income tax deduction for employing at least 5% PWDs
Take-home: You have been employed as a manager of a new business in Namanve, suggest ways your bosses
can take advantage of the incentives in the current legal and investment regime
Dissolution of Companies
Dissolution of a company mainly occurs due to corporate insolvency. This refers to a situation when a
company cannot pay off its debts as and when they fall due. At this stage the company may undergo Liquidation
or Administration/Receivership:
1. Liquidation/Winding Up
Liquidation is the process of selling all assets of a company.
2. Corporate Rescue:
a) Administration
Administration is an insolvency procedure designed to help a company survive and it is an ideal solution
as opposed to liquidation. During this process, the company is given breathing space within which to re-
organize its affairs with an aim of turning around the business to profitability and achieving a better
result to the creditors.

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Before administration ensues, the company is first placed in provisional administration and an interim
protective order is made. The provisional administrator appointed by the company is required to call for
a creditors’ meeting to confirm his appointment, and also present his proposals towards the future of the
company for consideration by the creditors. If the creditors by majority vote agree to the proposals, an
execution deed is completed and the company effectively goes into administration.
If the administration fails, the company goes into liquidation and final dissolution used interchangeably
with winding up. Winding up is the process by which the life of a company is brought to an end.
The decision to liquidate or wind up a company may be based on a number of factors. The company may
have realized all the objectives for its incorporation or the shareholders may lose interest in the business
the company was undertaking.
In other cases, the company may have financial difficulties making its operations almost impossible. In
the first two instances, the company may be solvent while in the last instance, the company is insolvent.
In such cases, the shareholders may decide to liquidate or wind up the company. The person appointed
for this purpose (the liquidator) will sell the assets of the company, pay off all its debts, distribute any
balance to the shareholders and the life of the company will come to an end.
Benefits of Formally Winding-Up of a Business/Company

1) Legal obligations imposed on the company, e.g. the obligation to file annual returns and pay taxes and
those obligations acquired in the course of business are extinguished.
2) The company enjoys a sufficient degree of protection against execution or other legal process.
3) Protects the interests of creditors.
4) The company may acquire a new lease of life through business rescue mechanisms such as administrative
receivership or administration.
b) Receiverships

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Receiverships are remedies available to secured creditors (with security) on default of payment by the debtor. A
receiver may be appointed under a debenture or a deed creating security over the Company assets or by court.
A receiver’s main focus is to realize assets and manage the business of a company for the benefit of the security
holder.
REFERENCE MATERIAL
3. Linda K. Trevino and Katherine A. Nelson (2010). Managing Business Ethics, 5th Edition, Wiley Publishers.
4. Companies Act, 2012
On line tutorials:
(a) Private Limited Company: https://www.youtube.com/watch?v=kntCosww9ZQ
(b) Public Limited Company: https://www.youtube.com/watch?v=_Q7W_RUc024
(c) Meaning of Limited Liability: https://www.youtube.com/watch?v=FlaP0wrtjUA
(d) What does it Mean When a Company is incorporated? https://www.youtube.com/watch?v=lHV-c9NJV8E
(e) What is the difference between the Public Sector and Private Sector?:
https://www.youtube.com/watch?v=kkOXWntF8Yo
(f) What is the Difference between Corporation and Incorporation: https://www.youtube.com/watch?v=-
3s8k9ZeDI0.
TOPIC TWO (D)

COOPERATIVE SOCIETIES

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Cooperatives are member-owned and member-operated organizations that aim to meet the common economic,
social, and cultural needs and aspirations of their members. They operate based on democratic principles,
where each member has an equal say in decision-making, regardless of the amount of capital they have
contributed. Cooperatives exist in various sectors and serve a wide range of purposes. Here are the key aspects
of cooperatives:
A Co-operative is a democratic form of business, organized, owned and controlled by its members, and where
all members have an equal say in how the organization is run for the promotion of their economic interests.
A co-operative can be active in almost any field where there is a group with fairly homogeneous and common
needs. Thus:
(i) Where the members are farmers, the benefits will include quality inputs at fair (equitable) prices and
economies of scale in adding value to, marketing and distributing produce;
(ii) Where the members are consumers, the benefits will include the availability of goods at fair (equitable)
prices;
(iii) Where the members are independent retailers, the benefits will include economies in marketing and
distribution, and greater common buying power;
(iv) Where the members are workers, the benefits will include participation in the management of their
enterprise and a fair (equitable) reward for their labour.
(v) Where the members are primary producers, the benefits will include access for their produce and more
control over the added value;
(vi) Where the members are savers or borrowers, the benefits will include a fair return on their savings and
access to credit at a fair (equitable) interest rate.
Cooperatives in Uganda are member-owned and member-run enterprises that operate for the mutual benefit of
their members. They play a significant role in the economic and social development of the country, particularly
in rural areas. Here are some key points about cooperatives in Uganda.

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2.4.1 Purpose of forming a cooperative society
The main objective for people to set up or join a co-operative is to improve their economic as well as their social
status through joint action for the good of all members. However, every co-operative must accomplish this in
a businesslike manner if it is to survive, grow and become sustainable.
Co-operatives are one way a group of people can work together to solve problems facing them. These may
include:
(a) To meet certain needs such as financial services and many others.
(b) To fight exploitation by the powerful individuals or institutions by pooling their own resources to meet their
needs.
(c) To fight unemployment.
2.4.2 Legal and Regulatory Framework in Uganda
The cooperative movement in Uganda is governed by the Cooperative Societies Act, which provides the legal
framework for the registration, regulation, and operation of cooperatives. The Uganda Cooperative Alliance (UCA)
is an apex body that represents and supports cooperatives in the country, providing advocacy, training, and
capacity-building services. Overall, cooperatives in Uganda are vital for promoting inclusive economic growth
and improving the livelihoods of their members, especially in rural areas. They play a key role in various sectors,
including agriculture, finance, and housing.
2.4.3 Characteristics of Cooperatives

(i) Member Ownership: Cooperatives are owned and controlled by their members, who are usually the
customers, employees, or producers involved in the cooperative's activities.
(ii) Democratic Control: Each member typically has one vote, ensuring that control is democratic and not
based on the amount of capital contributed.

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(iii) Economic Participation: Members contribute equitably to the capital of the cooperative and share in
the financial benefits, such as profits or dividends, based on their transactions with the cooperative rather
than their investment.
(iv) Autonomy and Independence: Cooperatives are autonomous organizations controlled by their members.
Any agreements with external entities should ensure democratic control and maintain the cooperative's
independence.
(v) Education, Training, and Information: Cooperatives provide education and training for their members,
elected representatives, managers, and employees to contribute effectively to the cooperative's
development.
(vi) Cooperation among Cooperatives: Cooperatives often work together at local, regional, national, and
international levels to strengthen the cooperative movement.
(vii) Concern for Community: Cooperatives work for the sustainable development of their communities
through policies approved by their members.
2.4.4 Formation of a cooperative society in Uganda
(i) Buying Cooperative Bye-Laws: Buy Co-operative Bye laws. A set of 4(four) books is: Shs.15000/= for
savings & Credit byelaws; Shs. 10000/=for multi-purpose bye laws.
(ii) Mobilizing a minimum number of members: Mobilize a minimum Statutory number of members is 30.
However, the more the better for viability.
(iii) Filling the bye laws: Fill bye laws as per the Uganda Cooperative Alliance guidelines
(iv) Getting a recommendation letter: Get a recommendation letter from the District Co-
operatives/Commercial Officer of your area of operation.
(v) Compiling a financial statement: Compile financial statement of the Society (Income & Expenditure +
Balance Sheet).
(vi) Preparing a comprehensive schedule of shareholders: A comprehensive schedule of all shareholders
showing shares held by each member. It includes entrance fees, shares, saving, and loans if any.
(vii) Buying a copy of cooperative societies Act: Buy a copy of the co-operative societies Act, Cap
112 and the Co-operative Societies Regulations.

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(viii) Enclosing photographs: Enclose photographs of irrespective people to handle the Society’s accounts.
(ix) Paying registration fees: Registration fee of Shs 50000/= on Account No. 6000010330 Barclays
Bank IPS Branch Account Name: Audit and Supervision Fund.
2.4.5 Principles of Cooperatives

There are seven principles of cooperatives and these are explained below:
(i) Voluntary and open membership: Co-operatives are voluntary organisations, open to all persons able to
use their services and willing to accept the responsibilities of membership, without gender, social, racial,
political or religious discrimination.
(ii) Democratic member control: Co-operatives are democratic organisations controlled by their members
who actively participate in setting their policies and making decisions. Men and women serving as elected
representatives are accountable to the membership. In primary co-operatives members have equal voting
rights by virtue of the “one member, one vote” rule.
(iii) Member economic participation: Members contribute equitably to, and democratically control, the
capital of their co-operative. At leastpart of that capital is usually the common property of the co-operative.
Members usually receive limited compensation, if any, on capital subscribed as a condition of membership.
Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly
by setting up reserves, part of which at least would be indivisible; rewarding members in proportion to
their transactions with the co-operative; and supporting other activities approved by the membership.
(iv) Autonomy and independence: Co-operatives are autonomous, self-help organisations controlled by their
members. If they enter into agreements with other organisations, including governments, or raise capital
from external sources, they do so on terms that ensure democratic control by their members and maintain
their cooperative autonomy.
(v) Education, training and information: Co-operatives provide education and training for their members,
elected representatives, managers and employees so that they can contribute effectively to the
development of their co-operatives. They inform the general public, particularly young people and opinion
leaders, about the nature and benefits of co-operation.

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(vi) Cooperation among Co-operatives: Co-operatives serve their members most effectively and strengthen
the cooperative movement by working together through local, national, regional and international
structures.
(vii) Concern for Community: Co-operatives work for the sustainable development of their communities
through policies approved by their members.
(viii) Values: Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity
and solidarity.
2.4.6 Types of Cooperatives in Uganda
1. Agricultural Cooperatives: Focus on improving the production, processing, and marketing of

agricultural products. They provide members with access to inputs, credit, and markets. For example,
Bugisu Cooperative Union (BCU): Established in 1954, BCU is one of the oldest coffee cooperatives in
Uganda, serving farmers in the Bugisu region. It is known for producing high-quality Arabica coffee,
Wamala Growers Cooperative Union: This cooperative focuses on cotton farming and processing,
supporting farmers in the Wamala region.
2. Savings and Credit Cooperatives (SACCOs): Offer financial services such as savings and loans to their
members. SACCOs are crucial in promoting financial inclusion, especially in rural areas where access to
banking services is limited. For example, Uganda Cooperative Savings and Credit Union (UCSCU): A
national apex body that supports and promotes SACCOs in Uganda, providing training, financial services,
and advocacy., Pride Microfinance Limited (MDI): Originally a SACCO, it has grown into one of the leading
microfinance institutions in Uganda, offering a range of financial services to its members.
3. Consumer Cooperatives: Operate retail outlets that sell goods and services to their members at fair
prices.
4. Producer Cooperatives: Owned and operated by producers who work together to process and market
their products. For example, Masaka Cooperative Union: Known for its involvement in multiple
agricultural activities, including coffee production.

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5. Housing Cooperatives: Provide affordable housing solutions to their members. For example, National
Cooperative Housing Union (NACHU): A prominent organization that supports the development of housing
cooperatives, helping members acquire affordable housing through pooled resources.
6. Worker Cooperatives: Owned and managed by their employees, who share in the profits and decision-
making. For example, Uganda Private Teachers’ Union (UPTU): Functions as a cooperative to provide
support services to private school teachers, including savings and loan facilities, and collective bargaining.
2.4.7 Advantages of Cooperatives
(i) Economic Empowerment: Cooperatives enable members to pool resources and achieve economies of
scale, improving their economic stability and growth.
(ii) Access to Credit: SACCOs provide members with access to affordable credit, helping them invest in
productive activities and improve their livelihoods.
(iii) Market Access: Agricultural cooperatives help farmers gain better access to markets, negotiate better
prices, and reduce exploitation by middlemen.
(iv) Social Capital: Cooperatives promote social cohesion and solidarity among members, fostering a sense
of community and mutual support.
(v) Capacity Building: Many cooperatives provide training and education to their members, enhancing their
skills and knowledge.
(vi) Democratic Control: Cooperatives are democratically controlled by their members, ensuring that
decisions are made in the best interests of the community.
2.4.8 Reasons for the collapse of cooperatives in Uganda
The collapse of cooperatives in Uganda, particularly during the late 20th century, can be attributed to a complex
interplay of various factors. Here are some of the primary reasons for the collapse:
(i) Political Instability for example, the 1970s-1980s Turmoil: Uganda experienced severe political
instability, including the dictatorial regime of Idi Amin (1971-1979) and subsequent civil unrest. This
period saw widespread economic disruption, which adversely affected cooperative activities and

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Continuous civil wars and conflicts in the 1980s further destabilized the economy and disrupted
cooperative operations.
(ii) Nationalization and Economic Decline: Idi Amin's nationalization policies and economic
mismanagement led to the collapse of many businesses, including cooperatives.
(iii) Currency Devaluation: Frequent devaluations of the Ugandan shilling during the 1970s and 1980s
eroded the financial stability of cooperatives, making it difficult to conduct business.
(iv) Government Interference for example over-regulation: Cooperatives were heavily regulated by the
government, limiting their autonomy and operational flexibility and political Manipulation where the
governments often used cooperatives as tools for political gain, compromising their primary economic
objectives.
(v) Corruption and Mismanagement/Leadership Issues: Poor leadership and lack of managerial skills
among cooperative leaders led to inefficiencies and mismanagement. In addition, widespread corruption
and embezzlement of funds by officials undermined the financial health of cooperatives, leading to their
collapse.
(vi) Financial Constraints/Lack of Access to Credit: Cooperatives struggled with limited access to credit
facilities, restricting their ability to invest and grow. In addition, many cooperatives accumulated
unsustainable levels of debt, leading to insolvency.
(vii) Market Liberalization and Competition: The liberalization policies of the late 1980s and 1990s exposed
cooperatives to competition from more efficient private enterprises. Further, cooperatives lost their
monopolistic control over certain markets, leading to reduced revenues and market share.
(viii) Structural and Organizational Issues: Many cooperatives continued to use outdated practices,
resulting in inefficiencies and high operational costs and failure to adopt modern management techniques
and technologies made cooperatives less competitive.
(ix) External Factors Global Market Conditions: Fluctuations in global market prices for key commodities
(like coffee and cotton) affected the revenues of cooperatives involved in these sectors. Furthermore,
natural disasters: Occasional droughts and other natural disasters disrupted agricultural production,
impacting cooperatives' primary activities.
2.4.9 Efforts to Revitalize Cooperatives

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In recent years, there have been efforts to revive the cooperative movement in Uganda. These efforts include:
(i) Policy Reforms: Introducing favorable policies and regulatory frameworks to support cooperative
development.
(ii) Capacity Building: Training cooperative leaders and members in modern management practices and
financial management.
(iii) Financial Support: Improving access to credit and financial services for cooperatives. For example,
Emyooga, Parish Development Model.
(iv) Promoting Good Governance: Encouraging transparency, accountability, and good governance within
cooperatives to rebuild trust and sustainability.
2.4.10 Reasons for the resurgence of cooperatives in Uganda
1. Economic Empowerment and Poverty Reduction

(i) Income Generation: Cooperatives provide a platform for members to pool resources, access better
markets, and improve their income levels.
(ii) Job Creation: They create employment opportunities, particularly in rural areas where formal
employment is limited.
2. Access to Finance and Credit
(i) Savings and Credit Cooperatives (SACCOs): These cooperatives offer members access to savings and
affordable credit facilities, which are crucial for starting and expanding small businesses.
(ii) Financial Inclusion: Cooperatives enhance financial inclusion, especially for marginalized and
underserved communities.
3. Agricultural Development
(i) Market Access: Agricultural cooperatives help farmers access better markets and negotiate better prices
for their products.
(ii) Input Supply: They provide members with affordable agricultural inputs like seeds, fertilizers, and tools.
(iii) Training and Capacity Building: Cooperatives offer training in modern farming techniques, improving
productivity and sustainability.

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4. Government Support and Policy Reforms

(i) Favorable Policies: The Ugandan government has implemented policies and regulatory reforms to
support the growth and sustainability of cooperatives.
(ii) Financial Support: Government initiatives and programs provide financial support and incentives for
cooperative development.
5. Social Cohesion and Community Development
(i) Collective Bargaining Power: Cooperatives enhance the bargaining power of members, enabling them
to secure better deals and services.
(ii) Community Support: They foster a sense of community and mutual support among members,
contributing to social stability.
6. Capacity Building and Training
(i) Education Programs: Various organizations and government agencies provide training and capacity-
building programs for cooperative members and leaders.
(ii) Management Skills: Improved management practices and governance structures have been promoted to
ensure better administration and accountability.
7. Market Liberalization and Globalization
(i) Competition and Efficiency: Exposure to global markets has encouraged cooperatives to become more
competitive and efficient.
(ii) Export Opportunities: Cooperatives have access to international markets, providing opportunities for
higher income from exports.
8. Technological Advancements
(i) Digital Platforms: The use of digital platforms for marketing, financial transactions, and management
has improved the efficiency of cooperative operations.
(ii) Information Access: Technology has made it easier for cooperatives to access market information,
training materials, and financial services.
9. Support from Development Partners
(i) International Organizations: Support from international organizations and development partners has
provided financial resources, technical assistance, and capacity-building support.

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(ii) Non-Governmental Organizations (NGOs): NGOs have played a significant role in supporting
cooperative development through various programs and initiatives.
10. Enhanced Governance and Accountability
(i) Regulatory Oversight: Strengthened regulatory frameworks ensure better oversight and accountability
of cooperatives.
(ii) Member Participation: Increased emphasis on democratic governance and member participation has led
to more transparent and accountable cooperatives.
Examples of Revival Efforts

(i) Uganda Cooperative Alliance (UCA): The UCA has been instrumental in promoting cooperative
development, providing training, advocacy, and support services.
(ii) Government Initiatives: Programs such as the "Prosperity for All" (Bonna Bagaggawale) initiative has
focused on revitalizing cooperatives as a means to achieve broad-based economic growth.
NOTE: The revival of cooperatives in Uganda is driven by their potential to contribute to economic empowerment,
financial inclusion, agricultural development, and social cohesion. Support from the government, development
partners, and the adoption of modern practices and technologies have also played crucial roles in the resurgence
of cooperatives.
…END…

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TOPIC THREE
MULTINATIONAL CORPORATIONS
Multinational corporations (MNC) are also referred as multinational companies (MNC), transnational
corporations (TNC) and Multinational enterprises (MNE).
A Multinational corporation is an entity headquartered in one country that does business in one or more foreign
countries. Chances are the clothes you are wearing, the smartphone in your pocket, and the transportation you
take to work all have one thing in common: they were likely manufactured by an MNC, as are 90% of American
imports.
A multinational Corporation is a company that has business operations in at least one country other than its
home country and generates revenue beyond its borders. A Multinational corporation can also be defined as a
company headquartered in one country but with operations in one or more other countries.
According to International Labour Organization, the essential nature of the multinational enterprise lies in the
fact that its managerial headquarters are in one country, while the enterprise carries out operations in several
other countries as well.
3.1 How Multinational Corporations Operate
Multinational corporations operate through the following ways.

(i) Establish sales organisations abroad: MNCs typically consist of a parent company headquartered in
one country, with subsidiaries, branches, or joint ventures in multiple host countries. The parent
company maintains strategic control over its global operations, setting overall goals, policies, and
standards. The established sales organisations are separate legal entities in the countries where they
operate.
(ii) Licenses use of patents and technology to foreign firms that make and sell the MNCs products:
MNCs often have a centralized management, with the most important decisions made at the headquarters.

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However, some adopt a more decentralized approach, giving regional or country-specific management
teams greater autonomy.
(iii) Establish foreign manufacturing facilities, but control remains at the home office: Developing an
international presence can open up new markets where multinationals can sell goods or produce the
same quality of products at low costs. MNCs can thus reduce prices and increase the purchasing power
of consumers worldwide.
3.2 Examples of Multinatiponal Corporations

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3.3 Features of Multinational Corporations
(i) Productive organisations: Productivity refers to the efficiency with which an organization works. MNCs
are able to maximize productivity and build long term results since they have access to good technology,
good management, systems and other good resources.
(ii) They are owned and controlled by the parent company: MNCs typically consist of a parent company
headquartered in one country, with subsidiaries, branches, or joint ventures in multiple host countries.
The parent company maintains strategic control over its global operations.
(iii) International operations: Operates and has a significant market presence in multiple countries, engages
in a wide range of business activities across different industries and sectors.
(iv) Large number of customers: MNCs operate in multiple countries which drives the large customer base
for their goods and services. These are important because they drive revenues and enable MNCs to survive
and thrive.
(v) They have large number of competitors: Multinational companies have very many competitors since
they operate in very many countries. These competitors come from the different countries where they
operate. These include brands and businesses that offer goods or services that satisfy the same customer
needs all over. These can be direct or indirect competitors within countries MNCs operate.
(vi) Structured way of decision making: MNCs are controlled and operated by the parent company
worldwide, these companies are globally managed and major decisions are performed at the headquarters.
Since they use similar procedures for decision making, they are written down to enable different branches
follow the same procedures for decision making examples include decisions relating to change in line of
production.
(vii) Large Scale production: MNCs operate on a global scale where they carry out mass production of goods
and services using specialized machines and processes. They make sure that they produce enough
products using standardized designs and machinery to serve the entire market.
(viii) They use Advanced technology: MNCs have on them huge amounts of investment which allows them
to use the best technology available to boost their products and their company, this also includes
investing in research and development to discover new technologies.

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(ix) Efficient operations: MNCs are known for optimizing business processes and resources. This is for the
purpose of reducing operating costs while maintaining or improving productivity.
(x) Efficient Management: MNCs are run by very competent and capable individuals. They have suitable
managers to take care of their business operations, finances, and expansion. They attract top talents due
to their resources and reputations.
(xi) Monopolistic market: MNCs enter the market and compete for market share with other local companies.
They offer products that are similar but not identical to those of local manufacturers. Products are
differentiated through pricing and marketing strategies.
3.4 Procedure for Registration of Multinational Corporations in Uganda
A Foreign Company which establishes a place of business within Uganda shall within 30 days deliver to the
registrar with the following documents. The business registration directorate is responsible for registration of
multinational companies in Uganda.
(i) A certified copy of the charter, statute or Memorandum and Articles of Association: This includes
all the conditions which are required for the registration of the company.
(ii) List of all directors and Secretary: This includes the permanent residence of the directors, their
contacts and roles and responsibilities to the company.
(iii) All charges owed: This relates to loans or other bills including principal, interest, fees, and other charges.
(iv) Names and address of one or more person resident in Uganda: An individual is considered resident
if they have a permanent home in Uganda, spend on average 122 days per year over 3 years and many
other factors.
(v) Full address of registered office: This is the official address of an incorporated company or any other
legal entity and includes the location or street and P.O Box number.
3.4 Advantages of Multinational Corporations to the Host Country
(i) Creation of employment opportunities in the host countries: Third world countries are known for
having high rates of unemployment, and with the increased production of goods and services by MNCs

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through local agents and subsidiaries, a number of jobs are able to be created. This leads to increased
levels of income among the local communities thus improving people’s standards of living.
(ii) Helps removal of monopoly (domination) and improve the quality of domestic made products:
MNCs offer products similar to those of local manufacturers at affordable prices with high quality levels.
This increases the choice of goods and services available to local consumers and thus reducing monopoly
while reducing people’s cost of living.
(iii) Promotes exports and reduce imports by raising domestic productions: Increasing exports ranks
among the highest priorities of any government wishing to boost economic growth. MNCs are critical
drivers of international trade, accounting for a significant share of global exports and imports. They help
integrate countries into global value chains, fostering specialization and efficiency in production process.
(iv) Transfer of technology, capital, and entrepreneurship: MNCs are capable of technology diffusion
knowledge creation and research & development capacity. This enables home countries to focus on the
intellectual capital and innovation capabilities rather than depending on cheap labour to develop their
economies.
(v) Increase in the investment level and thus, the income: MNCs enable the local people to acquire
managerial skills in terms of running businesses, they also transfer advanced technology to the
communities they operate from. This encourages people to start up small scale investments which
increases their income levels.
(vi) Goods are made available at cheaper price due to economies of scale: MNCs have the capacity to
produce high levels of output which results into reduced costs of production. This enables multinational
companies to sell their products at relatively low prices which benefits local consumers as this increases
the choice of goods and services available for consumption.
(vii) They can lead to the introduction of new management techniques: MNCs employ latest management
techniques; people employed by MNCs do a lot of research in management which enables them to
professionalize management along latest lines of management theory and practice. This leads to
managerial development in host countries.
(viii) They can lead to new businesses being set up locally once people have learned new skills: With the
increased managerial and technical skills obtained from MNCs people are able to start and sustain new
businesses which leads to increased levels of income and thus improving people’s standards of living.

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(ix) Often more efficient than local companies: MNCs are more efficient in a way that they are able to
reach their target markets more easily due to the fact that they manufacture in the countries where they
have a large market share and easily have access to raw materials and cheap labour.
(x) Promotion of international brotherhood and culture: MNCs integrate economies of various nations
with world economy. Through their international dealings, MNCs promote international brotherhood and
culture, and pave way for world peace and prosperity.
3.5 Advantages of multinational corporations to the home country
(i) Acquisition of raw materials from abroad: MNCs usually get raw materials and labour supplies from
host countries at relatively low prices especially from developing countries. This increases the level of
production for goods and services in the home country due to the availability of raw materials and other
resources.
(ii) Technology and management expertise acquired from competing in global markets: Through
operating in many countries and providing quality services, MNCs are able to attract and retain the best
personnels on the market in terms of managerial and technical skills, this quality labour force can be
used in their home countries to increase production and boost economic growth.
(iii) Export of components and finished goods for assembly or distribution in foreign markets: This
leads to increased export earnings for the country which also presents an opportunity to capture
significant global market share. Companies that export spread business risk by diversifying into multiple
markets.
(iv) Inflow of income from overseas profits, royalties, and management contracts: MNCs usually have
high levels of earnings obtained from the large market share they possess in the host countries. These
profits a repatriated back to their home countries which increases the level of investment and thus high
levels of income.
3.6 Disadvantages of Multinational Corporations

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(i) Limited quantities (quotas) of imports: Import quotas are government-imposed restrictions on the
trade of a particular commodity, aiming to either limit its quantity annually or protect domestic producers.
This limits on how many of a specific good or a type of good that can be imported into the country at a
certain period which reduces on the choice of goods and services available for consumption by the local
market.
(ii) Slowdown in the growth of employment in home countries: The MNC foreign investments deplete
capital resources in terms of materials and technology needed for domestic investment, thus undermining
economic growth and new job creation in the home country. This results to low levels of income in the
home country thus poor standards of living.
(iii) Destroy competition and acquire monopoly powers e.g., UTL case: MNCs are well established and
have access to advanced technology, skilled labour, and a large market share, they produce in huge
quantities and at a low cost because of the readily available market. This may force local competitors out
of business because they lack the necessary resources thus enabling MNCs to monopolize the market
which disadvantages the consumers.
(iv) The host county is likely to lose its economic sovereignty: Multinational Corporations may lead to
loss of economic sovereignty by host governments where they lose the power to make independent
decisions. This is as a result of the strong contribution MNCs have towards the economies of the host
countries in terms of funding and investment.
(v) Likely exploitation of Labour in the host nation: MNCs can lead to exploitation of labour especially
in countries with weak labour laws, this is as a result of multinational companies taking unfair advantage
of their labour force that is to say in terms of paying them low wages, poor working conditions or
environment and other kinds of unfair treatment at the workplace.
(vi) They can force local firms out of business e.g., Schweppes: MNCs can result into local companies
going out of business. Usually, MNCs are more powerful when it comes to money and other resources,
they resort to aggressive pricing to gain market share which in turn may drive local companies out of
business because they cannot compete at the level of these huge companies.
(vii) They are very powerful and can influence the government of a country: MNCs can have direct impact
on the economic and social decisions made by the host governments, these may include decisions

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regarding budget allocation, incentives, and other monetary policies as a result of these MNCs being the
biggest funders of the economy.
(viii) Local employment can be dependent on one large employer: Multinational corporations employ quite
a large number of people in the local community due to their nature of producing on a large scale, this
can negatively affect the labour force once these companies move to another country in search for better
incentives.
(ix) They may use up natural resources which may not be renewable: MNCs are known for production of
goods and services on large scale and as well as having a large customer base, this leads to increased
exploitation of natural resources in order to meet the increasing demand for their goods and services. The
activities are likely to lead to destruction of the environment and livelihoods of the local population
through widespread pollution.
(x) The profit they make goes back to the ‘home’ country: This is also known as profit repatriation
whereby the multinational corporations send foreign earned profits or financial assets back to their home
countries. This limits economic growth in the host country since these profits are not re invested back
into the economy and may as well lead to currency fluctuations in the host country.
(xi) They can be ‘foot-loose’ and may move to another country if better incentives offered: MNCs have
the ability to place and re locate themselves at any location without significant effect from factors like
resources, land, and labour. This nature of operation may leave communities vulnerable to sudden job
losses.
(xii) Loss of cultural moorings. Undermine local cultures and traditions, change the consumption habits
for their benefits against the long-term interests of local community: The change in consumption
habits where communities shift from consuming locally produced goods to goods produced by these
foreign firms may force the local producers out of business.
(xiii) The problem of dumping: Dumping is when MNCs dump products at artificially low prices in the host
countries, this is a form of unfair competition as products are being sold at a price that does not
accurately reflect their cost. This makes it difficult for the local firms to compete and can lead to them
falling out of business. For example-Chinese products are priced low on the Ugandan market.
TOPIC FOUR

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BUSINESS COMBINATIONS
A business combination occurs when two or more separate businesses are joined together through either
common ownership or one firm taking control over the other. This working together can be achieved either
through acquiring assets, liabilities, or a significant portion of the acquiree's voting stock (shares that allow a
company to vote on key issues) or where two or more firms come together to form one big firm. Some examples
of business combinations are: Airtel and Warid, DFCU and Crane Bank, Airtel Uganda and K2 Telecom, Ken
freight and Spedag Uganda, etc.
Business combinations take place through mergers or takeovers (acquisitions).

(i) Mergers are agreed amalgamations between two firms to form a new identity or new entity.
(ii) Takeovers are ones where one firm seeks (acquirer) control over another. The acquiring company’s
management usually takes control of the taken-over firm sometimes leading to changes in management
team of the acquired company. Takeovers can be ‘friendly’ or ‘hostile’
4.1 Reasons for Business Combinations
(i) Need for Growth: Business combination can help an organization to expand its the market share,
product lines and the geographical expansion quickly rather than organic growth or internal growth. The
growth will help in Increasing Shareholder Value and will Improve the value of the overall business for
shareholders (Deloitte, Mergers & Acquisitions: A strategic approach, 2024). A good example of such
growth is Airtel combined with Warid such that it can grow. Deloitte merged with Haskins & Sells to form
Deloitte Haskins & Sells in 1972 then with Touché Ross in 1989 to form Deloitte & Touché.
(ii) Need to create Synergy: Combining resources and expertise can lead to increased efficiency, cost savings,
and improved profitability (PwC, Strategy& Deals: Mergers & Acquisitions, 2024). The merger of Coopers
&Lybrand and Price Waterhouse in 1998. Note. Synergy refers to the interaction or cooperation of two or
more organizations, substances, or other agents to produce a combined effect greater than the sum of
their separate effects

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(iii) To gain access to limited Resources: Since most valuable resources are scarce, some organizations go
for combinations to get access to such important resources for example updated technology, talent pool,
customer base, strategic location etc.
(iv) Diversification to spread risks: Reduce risk by entering new markets or industries (EY, Building a
resilient business through M&A, 2024). This is possible when organizations dealing in different products
come together such that it can offer a number of products to the market so that if one is affected by the
business environment, the other can work for the organization (Picfare and Nytil)
(v) To Eliminate Wasteful Competition: Merging with competitors to increase market share. Sometimes
organizations face wasteful or cut throat competition which needs to be dealt away with, this will drive
those that are much negatively affected to go for combinations to reduce the competition. Businesses are
forced to combine to eliminate intense competition to avoid over supply and collapse of prices. E.g. OPEC
(Oil Producing and Export Countries).
(vi) To enable businesses, survive in hard times of the Business cycles. Business cycles refer to the
ups and downs a business goes through in its entire life. It Consist of booms (peak prosperity) and
depressions (low economic activity. Many organizations opt for business combinations to avoid closure.
During a period of depression, economic activity drops to low levels thus business units think of
combinations in an attempt to regulate supply and raise the level of prices.
(vii) Need to enjoy Economies of Scale. Organisations want to enjoy advantages of large-scale production.
Since business combinations enable organisations to grow bigger, they run for business combinations
such that they can grow big, produce on large scale production. The advantages of large-scale production
lead, to lower unit costs e.g. raising finances or low costs of raw – materials (bulk purchase), R&D
(viii) Influence of tariffs. Tariffs are taxes that are charged by one country on the goods imported from another
country. Also known as Mother of Trusts Used to protect infant industries in a country from foreign
competition. This makes a number of firms come up in the infant industry encouraged by the protection
which result into a lot of competition within the industry creating a desire to co- operate and hence
combinations
(ix) To gain respect for big businesses. People generally admire and have more confidence in big businesses.
Thus, business owners take pride in owning or being associated with large sized organizations. Try to

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bring several firms under one roof to become big. Companies like General Motors, Toyota, Toshiba, Ford,
General Motors, MacDonald's, IBM, Coca –cola have worldwide respect because they are big.
4.2 Types of Business Combinations
(i) Horizontal/parallel/unit trade combination
This is a combination of firms at the same stage of production or the same plane of trade. Thus, it is a result of
units in the same trade, or producing the same product joining together with a common end in view. E.g. Total
and Caltex, Warid Telecom and Airtel Uganda, Nile Bank and Barclays Bank. It occurs for organizations which
have been previously competitors due to being in the same industry & at the same stage of production or the
same plane of trade. This is because of the need to monopolize the market, reduce competition, advantages of
large-scale production, pooling resources together for research. However, this may lead to overproduction.
(ii) Vertical combination/sequence/process

This is the integration of firms at different but successive stages of production in the same industry. This can
be forward or backward integration.
(a) Backward vertical integration is where a firm at a higher stage of production absorbs a firm at a lower
stage of production. In other words, it’s when a company combines with another that supplies the
products or services needed for production.ie Kinyara Sugar Works Vs Sugarcane growers.
(b) Forward vertical integration is where a manufacturer combines with his retailers so that he can control
the market.
It also refers to where a firm at a lower stage of production merges with a firm at a higher stage of production
to control the market i.e. Sugarcane growers merging with sugar factories.
Advantages of vertical combinations

(i) Increased Control: The company gains greater control over the entire supply chain, from raw materials
to finished goods. This allows them to ensure quality, optimize production flow, and potentially reduce

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reliance on external suppliers. (Source: NetSuite, How Does Vertical Integration Work? Pros, Cons and
Examples, https://netsuite.folio3.com/blog/introduction-to-netsuite-verticals-understanding-industry-
specific-solutions/)
(ii) Cost Reductions: By eliminating the need for external suppliers or distributors, the company can
potentially reduce overhead costs and negotiate better pricing on bulk purchases of raw materials. (Source:
Tutor2u, Advantage and Drawbacks of Vertical Integration,
https://www.tutor2u.net/economics/reference/recent-examples-of-vertical-integration)
(iii) Improved Efficiency: Vertical integration can streamline operations by eliminating handoffs between
different companies. This can lead to faster production times, reduced inventory levels, and improved
responsiveness to customer demands. https://www.investopedia.com/terms/v/verticalintegration.asp)
(iv) Enhanced Innovation: By controlling different stages of the production process, a company can foster
closer collaboration between departments and potentially accelerate innovation in product design,
manufacturing techniques, and distribution channels. (Source: Machines ANCA, The benefits and risks
of vertical integration, https://machines.anca.com/)
(v) Improved Quality Control: With greater control over the entire process, the company can ensure
consistent quality standards throughout the supply chain, potentially leading to a more reliable and
higher-quality final product. (Source: Tutor2u, Advantage and Drawbacks of Vertical Integration,
https://www.tutor2u.net/economics/reference/recent-examples-of-vertical-integration)
(vi) Competitive Advantage: Vertical integration can give a company a competitive edge by allowing it to
react faster to market changes, control pricing more effectively, and potentially differentiate itself from
competitors with a more streamlined and efficient operation.
https://www.investopedia.com/terms/v/verticalintegration.asp)
(vii) Lateral/Allied Combinations
These are combinations of firms that manufacture different kinds of products but these products are
related. These can be convergent or divergent. I.e. Printing press unit vs. units dealing in machinery,
papers and ink.
(iii) Lateral combination is divided into:

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(a) Convergent Lateral integration

This is where various small firms join the bigger firms to supply raw materials. E.g. Printing Press unit
combining with units engaged in manufacturing of paper, ink, typesetting equipment, printing chemicals,
and machinery to get supply of raw materials.
(b) Divergent Lateral integration

This is where the big firm joins the smaller firms to supply them with raw materials i.e. the product of
the firm becomes the raw material of many other firms. It happens where several products can be
manufactured from the material produced by the firm. E.g. a steel mill that supplies steel to many allied
firms for the manufacture of a variety of products like tubing, wire, nails, machinery, locomotives, etc.
For example, Steel and Tube Uganda has established a mill that provides raw–materials for nails mesh,
roofing, and others.
(c) Diagonal/Service combination
This takes place when a unit that is producing essential auxiliary goods and services combines with the
main line of production for example a school and a bookshop or a Transport company operating many
buses combining with a mechanical workshop that repairs buses.
(iv) Circular/mixed combination

Here the firms that integrate are producing different commodities. These sell their commodities under
one central agency. E.g. combination of sugar and steel industries. Advantages of diversification accrue
to such a combination/diversification of risk.
Other types of Business Combinations
(i) Federations: These are independent companies collaborate for a specific purpose but maintain separate
ownership and control i.e. Uganda Wrestling Association (UWF), Federation of Motorsports Clubs of
Uganda (FMU), Federation of Uganda Football Associations (FUFA), etc.

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(ii) Pools: These are similar to federations, but with a stronger central governing body that coordinates
activities.
(iii) Cartels: These are arrangements or agreements between competitors to control prices, production, or
markets, which are often illegal due to antitrust concerns (Department of Justice Antitrust Division,
Antitrust Laws, 2024).
(iv) Partial Consolidations: Acquire a portion of another company's assets or equity, but not full control
(Corporate Finance Institute, Partial Acquisition, 2024).
4.3 Advantages of Business Combinations
(i) Diversification of business: Since business combination can bring together organizations producing
different products or just related products, it makes a business produce arrange of products which helps
in the spreading of the risk in the business hence survival in periods when some products are not working
well and others are profitable
(ii) Reduce /prevent unnecessary competition: Some businesses compete to the extent of selling products
below the unit cost which makes them unprofitable. Business combination helps to reduce such terrible
competition hence making the business more profitable
(iii) Advantages of large-scale production: Economies of scale refers to advantages that a business enjoys
due to large scale production. As organizations combine, they are able to produce on large scale which
helps the business to incurs relatively lower cost of production per unit. This lower cost of production
can emanate from being able to bargain as a large producer and many others
(iv) Control of the market: This comes from the reduction in the number of competitors in the market. This
gives control or power to the few or one remaining in the market as a result of combination. This also
makes the organization enjoy the advantages of being a monopoly in the market. The control can be on
the prices, bargaining power and others
(v) Increased efficiency and develop managerial abilities: Since one of the reasons for business
combinations is to share the scarce valuable resources, it makes the firm which had no access to such
resources become more efficient than before and those who had no better management can learn from
the efficient management of the other firm

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(vi) Stability during recessions: A recession refers to a prolonged downturn of economic activities. During
this period, almost all the macro-economic factors are unfavorable for the business. So, business
combination can help firms suffering the recession to survive when they come together as one business
(vii) Production of quality products: This is possible due to better management and the limited quality
resources gained from business combination. This can also be as a result of one firm being able to control
the quality of raw materials got from the other firm which it combined with. An example is when sugar
factories combine with the out growers and they are given seeds, fertilizers, pesticides and many others
to ensure the quality of sugarcanes to be used in sugar production
(viii) Increased share value: Business combinations allow businesses to grow externally which enables the
organization at hand to also grow the share value of its owners. This can come from the increased
customer base, efficiency and increased profitability.
(ix) Increased public confidence: Usually, big firms are more trusted and respected compared to the small
ones. Since business combinations allow firms to grow, they will be more respected by stakeholders like
government, financial institutions, employees, suppliers and many others.
4.4 Disadvantages of Business combinations
(i) Concentration of economic power in few hands: Economic power refers to a firm, individual or state
having access to wealth, valuable natural resources, monopoly powers or superior technology. This makes
such organization having a lot of control and authority in the country hence negative control
(ii) Small firms may be driven out of the market: Since those firms that combine grow and expand, they
can easily out compete the small ones due. This makes most small companies to close hence loss of
revenue by the country and loss of advantages of competition
(iii) Encourages monopoly and its disadvantages: Production of poor-quality products & overcharging of
customers. Since business combinations reduce the number of players in the market, competitions and
its good side is not enjoyed in the country.
(iv) Its along and costly process i.e. expensive: The process of business combination is very expensive
since it involves a lot of steps and requires a lot of expertise who require to be paid. There are also
Integration challenges and costs associated with merging cultures, systems, and processes.

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(v) The process can fail, not all the time the combination is successful: In case it fails, a lot of money is
lost and a lot of confusion.
(vi) Employee uncertainty: employees become unproductive at the time when things are not yet clear
because they do not know whether they will lose their jobs or not. It also results into unemployment
REFERENCE MATERIALS
1. Gomes-Casseres, B. (2015). Remix strategy: The three laws of business combinations. Harvard Business
Press.
Online Video
Business Combinations - General Concepts: https://www.youtube.com/watch?v=MbskJJjBat8&t=102s
TOPIC FIVE
THE PRODUCTION FUNCTION
Production has been defined in various ways, yet certain parts of each definition overlap. In economic words,
production is the process of mixing multiple inputs, both material and intangibles, such as plans or information,
to create output. Furthermore, it can be defined as the process of using multiple inputs, like land, labor, and

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capital, to produce outputs in form of goods or services. It may also be described as the process of creating or
manufacturing items and products from raw materials or components. According to several economic
definitions, production is the process of converting inputs into outputs, such as raw materials and end
commodities or services.
5.1 Sub-functions/sub-units/roles of the Production Function

The production function is split into five sub-functions/units:
(i) Production planning unit: This sets production targets, the required resources, overall schedules, all
the necessary steps involved in production and their dependencies.
(ii) Purchasing department: This is responsible for providing the materials, components and equipment
required to keep the production process running smoothly.
(iii) Stores department: This is responsible for stocking all the necessary tools, spares, raw materials and
equipment required in production.
(iv) Design and technical support department: This is responsible for researching new products or
modifications to existing ones, estimating costs for producing in different quantities and by using different
methods.
(v) Works department: This is concerned with the manufacture of products.
5.2 Factors of Production
(i) Land: Land is a broad term for the surface of the earth; economically, land encompasses everything that
'nature' offers to humanity at no cost. In addition, land can refer to a variety of things, such as resources
that are available on a particular plot of land, commercial real estate, and agricultural land. Everything
that is derived from the land, including natural resources used to produce goods and services, is called
land. Water, oil, copper, natural gas, coal, and forests are some of the most common land or natural
resources. Land resources serve as the basic ingredients for production. These resources could be
nonrenewable, such as oil or natural gas, or renewable, like forests. Natural resources such as gold and
oil can be extracted from the land and refined for human use.
(ii) Labour: The effort that individuals put forth to produce products and services is known as labor. The
work performed by professional or casual labor is included in labor resources. Moreover, labour is the

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personal effort put out by a person to introduce a good or service to the market. Production workers
receive remuneration based on their skill level and training in exchange for their time and labor.
(iii) Capital: These are equipment, instruments, and structures that people use to create goods and services.
Some common examples of capital include delivery trucks, computers, conveyor belts, hammers, and
forklifts. Though money is not considered a capital factor of production because it is not directly involved
in the creation of an item or service, it is sometimes referred to as capital in business. This is because it
facilitates the acquisition of capital goods like capital products.
(iv) Entrepreneurship: Entrepreneurship is the secret ingredient that connects all the other components of
production to produce a good or service for the consumer market. The most successful business people
are innovators, who develop new products and services or find new ways to generate old ones. Many of
the inventions we see today would not exist if entrepreneurs had not devised new ways to mix land, labor,
and capital.
5.2 Types of Production Processes
1. Job Production/Unit production: This is a type of production process where custom or bespoke items
are manufactured individually according to specific customer requirements. This method is typically used
when products are unique or require specialized manufacturing techniques.
Characteristics of job production/unit production
(i) High customization: Products are tailored to meet the unique specifications of each customer.
(ii) Skilled Labour. Requires highly skilled and versatile workers with expertise in various aspects of the
production process.
(iii) Low volume: Typically involves producing one-off items or small batches and production volume is
usually low compared to other production types.
(iv) Flexible production process: Production processes are highly flexible to accommodate different product
designs and requirements.

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(v) High costs: Higher per-unit costs due to the bespoke nature of the products and costs can include
specialized materials, skilled labour, and custom tooling.
(vi) Longer production time: Production times can be longer compared to mass production due to the
detailed and specific nature of the work.
(vii) Quality control: Quality control is critical and is often performed throughout the production process.
Each item is carefully inspected to ensure it meets the required specifications and quality standards.
Advantages of Job Production
(i) Customization and Flexibility: Ability to produce unique and highly customized products and flexibility
to meet specific customer demands and preferences.
(ii) High-quality Products: Emphasis on craftsmanship and attention to detail and often results in high-
quality and premium products.
(iii) Job Satisfaction for Workers: Skilled workers often find job production rewarding as it allows them to
utilize their expertise and creativity. Workers experience variety and engagement through different
projects.
(iv) Adaptability: Easy to make design changes and modifications during the production process and suitable
for prototypes and small-scale projects.
Disadvantages of Job Production

(i) Higher Costs: Higher per-unit production costs due to the lack of economies of scale and expensive
materials and specialized labour contribute to overall costs.
(ii) Long Lead Times: Longer production times can result in extended lead times for customers; planning
and design phases can be time-consuming.
(iii) Complex Scheduling and Planning: Requires meticulous scheduling and planning to ensure timely
completion of jobs, and coordination of different processes and materials can be complex.
(iv) Limited Scalability: Not suitable for large-scale production or high-volume orders, and scaling up
production while maintaining customization and quality can be challenging.

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Examples of Job Production

(i) Custom Furniture: Designing and creating unique furniture pieces tailored to customer specifications,
and involves specialized woodworking techniques and high-quality materials.
(ii) Tailored Clothing: Custom-made clothing designed and sewn to fit an individual’s measurements and
style preferences, and includes bespoke suits, dresses, and wedding gowns.
(iii) Specialized Machinery: Manufacturing machinery and equipment tailored to specific industrial needs,
and often involves engineering and precise fabrication.
(iv) Bespoke Jewellery: Creating custom jewellery pieces based on individual design requests, and involves
detailed craftsmanship and the use of precious metals and gemstones.
Therefore, Job production is an essential production process for industries requiring high levels of
customization and craftsmanship. Despite its higher costs and longer lead times, job production offers
unparalleled flexibility and the ability to produce unique, high-quality products that cater to specific customer
needs. This type of production is particularly valuable in markets where differentiation and personalization are
key competitive advantages.
2. Batch Production: Batch production is a manufacturing process where products are produced in groups
or batches rather than in a continuous stream. This method is particularly useful for producing a limited
quantity of a product or varying products with similar production processes.
Characteristics of batch production

(i) Production in Batches: Products are manufactured in specific quantities, known as batches each batch
goes through the complete production process before starting a new batch.
(ii) Flexibility: Allows production of different products with minimal changes to the production line and
suitable for manufacturers who need to switch between products frequently.
(iii) Economies of Scale: Offers cost savings for medium-sized production runs and benefits from bulk
purchasing of raw materials for each batch.
(iv) Quality Control: Easier to maintain quality as each batch can be inspected and tested before proceeding
and problems can be detected early and adjustments made for subsequent batches.

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(v) Resource Utilization: Efficient use of machinery and labour as the same setup can be used for multiple
batches and reduces downtime between batches compared to job production.
Advantages of Batch Production

(i) Cost Efficiency: Lower costs compared to job production due to standardized processes and economies
of scale, and cost savings on labour and material handling.
(ii) Flexibility and Customization: Ability to produce a variety of products without significant changes in
the production line, and customization is possible for different batches, catering to varying customer
needs.
(iii) Inventory Management: Can produce batches based on demand forecasts, reducing the risk of
overproduction or stockouts, and allows for better inventory control compared to continuous production.
(iv) Improved Scheduling: Production can be scheduled around demand, allowing for better resource
planning, and flexibility to adjust production schedules based on market trends and customer orders.
Disadvantages of Batch Production

(i) Setup Time and Costs: Each batch requires setup time, which can be significant depending on the
complexity of the products, and frequent changeovers between batches can lead to downtime and
increased setup costs.
(ii) Inventory Costs: Holding inventory of raw materials and finished goods can be costly, and risk of holding
obsolete or excess inventory if demand forecasts are inaccurate.
(iii) Quality Variation: Variability in quality can occur between batches if processes are not consistently
controlled, and requires stringent quality control measures to ensure uniformity.
(iv) Production Delays: Delays in one batch can impact the production schedule of subsequent batches,
coordination and planning are essential to avoid bottlenecks.
Examples of Batch Production

(i) Baking: Baking bread, cookies, or cakes in batches. Each batch follows a specific recipe and process.
Adjustments can be made for different Flavors or types of baked goods.

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(ii) Pharmaceuticals: Production of medicines in batches based on specific formulations. Allows for
production runs of different drugs or dosages.
(iii) Clothing Manufacturing: Producing a specific number of garments in a batch. Different styles, sizes,
and colours can be produced in separate batches.
(iv) Chemical Production: Manufacturing chemicals in batches to ensure precise mixing and reactions.
Suitable for producing specialty chemicals or varying formulations
Therefore, batch production is a versatile manufacturing process that balances efficiency with flexibility. It is
particularly advantageous for medium-sized production runs and products that require customization. While it
offers several benefits, such as cost efficiency and improved inventory management, it also comes with
challenges like setup time and potential quality variation. Proper planning, scheduling, and quality control are
essential to maximize the benefits of batch production and minimize its drawbacks.
3. Mass Production
Mass production is a manufacturing process that produces large quantities of standardized products. It involves
the use of assembly lines, automated machinery, and a systematic approach to producing goods efficiently and
at a lower cost per unit. This type of production is ideal for items that are in high demand and require
consistency in quality and performance.
Characteristics of mass production

(i) High Volume: Mass production is designed to produce a large number of identical products. This high
output allows companies to meet significant market demands.
(ii) Standardization: Products are made to a standard specification with little to no variation.
Standardization ensures uniformity and quality control across all units produced.
(iii) Economies of Scale: The high volume of production leads to reduced costs per unit due to economies of
scale. Bulk purchasing of materials and optimized use of machinery contribute to cost efficiency.
(iv) Assembly Line: Production often takes place on an assembly line where each worker or machine performs
a specific task. This method speeds up the production process and minimizes the time taken to complete
each unit.

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(v) Specialization: Workers and machines specialize in specific tasks, which increases efficiency and skill.
Specialization allows for the rapid and repetitive execution of tasks, improving productivity.
(vi) Automation: Mass production heavily relies on automated systems and machinery. Automation reduces
labour costs, increases precision, and ensures consistent quality.
(vii) Reduced Labor Skill Requirements: Due to the repetitive nature of tasks on the assembly line, workers
do not need high levels of skill. Training for specific tasks is straightforward and quick.
(viii) High Initial Investment: Setting up mass production facilities requires significant capital investment in
machinery, technology, and infrastructure. However, the high initial costs are offset by the long-term
efficiency and lower production costs.
Advantages of Mass Production

(i) Cost Efficiency: Lower cost per unit due to economies of scale. Reduced material costs through bulk
purchasing.
(ii) Speed and Efficiency: High output rates ensure products are produced quickly. Efficient use of time
and resources leads to faster production cycles.
(iii) Consistent Quality: Standardization and automation ensure uniformity in product quality. Less
variability reduces defects and increases customer satisfaction.
(iv) Market Penetration: Ability to produce large quantities allows companies to meet high market demands
and expand their reach. Competitive pricing due to low production costs can increase market share.
Disadvantages of Mass Production

(i) Lack of Flexibility: Mass production is not suited for custom or specialized products. Changes in design
or production process can be costly and time-consuming.
(ii) High Initial Costs: Significant capital investment is required to set up mass production facilities.
Maintenance and upgrading of machinery add to ongoing costs.
(iii) Risk of Overproduction: Producing large quantities without accurate demand forecasting can lead to
overproduction. Excess inventory can result in storage costs and potential wastage.
(iv) Monotonous Work: Repetitive tasks can lead to worker boredom and decreased motivation. High
turnover rates may result from job dissatisfaction.

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Examples of Mass Production

(i) Automobiles: Car manufacturing is a classic example of mass production. Assembly lines produce
thousands of identical vehicles with standardized parts.
(ii) Electronics: Smartphones, televisions, and other consumer electronics are produced in large quantities.
Consistent quality and features are ensured through mass production techniques.
(iii) Packaged Foods: Products like canned goods, snacks, and beverages are mass-produced to meet high
consumer demand. Standard recipes and automated processes ensure uniformity.
Therefore, Mass production revolutionized manufacturing by enabling the efficient and cost-effective production
of large quantities of standardized products. While it offers significant advantages in terms of cost savings,
speed, and quality consistency, it also comes with challenges such as high initial investment and lack of
flexibility. Understanding these characteristics and considerations helps businesses determine when and how
to implement mass production to optimize their manufacturing processes.
4. Continuous Production
Continuous production is a type of manufacturing process characterized by the uninterrupted flow of materials
and constant production of goods. This method is typically used for products that are in high demand and
require a consistent, ongoing output. Here are the detailed aspects of continuous production.
Characteristics of continuous production

(i) High Volume Production: Continuous production is designed for large-scale manufacturing where
products are needed in vast quantities. The process is set up to run 24/7, maximizing output and
efficiency.
(ii) Standardization: Products made through continuous production are highly standardized. There is little
to no variation in the final products, ensuring consistency and uniformity.
(iii) Automation: The production process is highly automated, involving advanced machinery and technology.
Human intervention is minimal, primarily focused on monitoring and maintaining the systems.

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(iv) Efficiency and Speed: Continuous production systems are optimized for speed, allowing for the rapid
creation of products. The seamless flow of materials and operations reduces downtime and enhances
efficiency.
(v) Economies of Scale: The high-volume nature of continuous production leads to significant economies of
scale. Per-unit costs decrease as the volume of production increases, making this method cost-effective
for large outputs.
(vi) Investment and Maintenance: Initial setup costs are high due to the need for specialized machinery
and infrastructure. Regular maintenance is crucial to ensure the smooth functioning of the continuous
production lines.
Examples of Continuous Production

(i) Oil Refining: Crude oil is continuously processed to produce fuels, lubricants, and other petrochemical
products. The process involves multiple stages like distillation, cracking, and reforming, all running
continuously.
(ii) Chemical Production: Chemicals such as ammonia, sulfuric acid, and ethylene are produced in large
quantities through continuous processes. This involves constant mixing, heating, and reaction stages.
(iii) Energy Generation: Power plants, particularly those based on fossil fuels or nuclear energy, operate
continuously to meet the constant demand for electricity. The process includes the continuous
combustion of fuels, heat generation, and electricity production.
(iv) Steel Manufacturing: Continuous casting and rolling processes are used to produce steel in large
volumes. Molten steel is continuously cast into slabs, billets, or blooms, which are then rolled into
finished products.
Advantages of Continuous Production

(i) Consistent Quality: The standardized nature of continuous production ensures high and consistent
product quality. Automated systems reduce the risk of human error, leading to fewer defects.
(ii) High Efficiency: Continuous operation minimizes downtime and maximizes production efficiency. The
process is designed to optimize resource utilization, reducing waste.

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(iii) Cost-Effectiveness: Economies of scale significantly lower the cost per unit of production. Automation
and high output volumes contribute to overall cost savings.
(iv) Reliable Supply: Continuous production provides a steady and reliable supply of products. This is crucial
for industries where constant availability of products is essential, such as energy and chemicals.
Challenges of Continuous Production

(i) High Initial Investment: Setting up a continuous production system requires significant capital
investment in machinery, technology, and infrastructure. The costs can be prohibitive for smaller
companies or those with limited financial resources.
(ii) Flexibility: Continuous production is less flexible compared to batch or job production. Changes in
product design or variations are difficult to implement without disrupting the entire production process.
(iii) Maintenance and Downtime: Although the systems are designed for continuous operation, they require
regular maintenance to prevent breakdowns. Unplanned downtime can be costly and disrupt the
continuous flow of production.
(iv) Environmental Concerns: Continuous production, especially in industries like chemical manufacturing
and energy generation, can have significant environmental impacts. Proper waste management and
environmental controls are essential to mitigate these effects.
5.3 Key Production Decisions
1. Product design:
This is a decision required to produce a suitable product for the market. An effective and efficient product design
decisions influence what raw materials are required, how skilled the Labour force needs to be, what type of
machinery must be used, which manufacturing processes are best, how inventory is stored, and ultimately how
product is distributed to customers. Product design gives businesses a stronger competitive advantage, which
boosts their performance in the market. Furthermore, that tendency will be followed by strong brand
identification for your company in the sector
Factors that determine Product design

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Product design is a multifaceted process influenced by numerous factors that determine the final outcome. Key
considerations in product design include the following:
(i) User Needs and Preferences: Understanding the target audience is paramount. Designers must consider
the specific needs, preferences, and behaviours of the end-users to create products that provide value
and enhance user experience.
(ii) Functionality: A product must perform its intended function effectively. This involves defining the core
features and capabilities of the product. Designers need to ensure that the product meets the practical
needs of the user and solves a particular problem efficiently.
(iii) Aesthetics: The visual appeal of a product can significantly impact its success. Design elements such as
shape, colour, texture, and overall appearance play a crucial role in attracting users and creating a
positive perception of the product.
(iv) Materials and Technology The choice of materials and the technology used in manufacturing affect the
product's durability, functionality, and cost. Designers must select appropriate materials that meet the
product's requirements while considering sustainability and environmental impact.
(v) Cost and Budget: Economic constraints often shape product design. Designers need to balance
functionality and quality with cost-effectiveness. This includes considering manufacturing processes,
materials, and the overall budget allocated for product development.
(vi) Market Trends and Competition: Staying informed about current market trends and competitors'
products is essential. Designers must ensure that their product stands out in the market, offering unique
features or improved performance over existing solutions.
(vii) Regulations and Standards: Compliance with industry standards, safety regulations, and legal
requirements is critical. Designers must ensure that the product adheres to all relevant guidelines to
avoid legal issues and ensure user safety.
(viii) Sustainability and Environmental Impact: With increasing awareness of environmental issues,
sustainable design practices are becoming more important. Designers must consider the product's
lifecycle, including materials, manufacturing processes, and end-of-life disposal or recycling.

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(ix) Innovation and creativity: Innovation drives product differentiation and competitive advantage. Creative
thinking can lead to unique solutions and novel features that set a product apart from others in the
market.
(x) Cultural and social factors: Cultural and social contexts can influence product design. Designers must
consider cultural sensitivities, social norms, and local preferences to ensure the product resonates with
its intended audience.
(xi) Brand identity: A product should align with the brand's identity and values. Consistency in design
elements helps reinforce brand recognition and loyalty among consumers.
(xii) Technical constraints: Technical limitations, such as manufacturing capabilities and technological
feasibility, can impact design decisions. Designers need to work within these constraints to create viable
products.
(xiii) Feedback and Iteration: Continuous feedback from users and stakeholders is crucial for refining the
product design. Iterative design processes allow for improvements and adjustments based on real-world
usage and feedback.
2. Plant Location
Plant location refers to the process of determining the most appropriate site for establishing a manufacturing
or production facility. The choice of plant location is critical as it can significantly influence operational
efficiency, production costs, supply chain logistics, and overall business success. Several key factors are
considered when selecting a plant location.
Considerations for a Plant Location
(i) Proximity to raw Materials: Ensures a steady supply of essential inputs. This reduces transportation
costs and time for raw materials.
(ii) Access to Markets: Minimizes distribution costs and this enhances customer service with quicker
delivery times.

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(iii) Transportation and Infrastructure: Availability of efficient transportation networks (roads, railways,
ports, airports). Reliable infrastructure such as utilities (electricity, water, gas) and communication
systems.
(iv) Labour availability and costs: Access to a skilled and affordable labour force. Consideration of local
labour market conditions, wage rates, and labour laws.
(v) Economic and political stability: Stable local economy and political environment to ensure
uninterrupted operations. Reduced risks of disruptions due to political unrest or economic downturns.
(vi) Government Policies and incentives: Favourable government regulations, tax policies, and available
incentives or subsidies in addition to legal and compliance requirements.
(vii) Environmental and Community Impact: Compliance with environmental regulations. Efforts to
minimize negative impacts on the local community and environment.
(viii) Cost of Land and facilities: Cost of acquiring land and constructing facilities. Balancing benefits with
real estate and development costs.
(ix) Quality of Life: Impact of local living conditions on employee satisfaction and retention and availability
of housing, education, healthcare, and recreational facilities.
(x) Scalability and future Expansion: Availability of additional land or facilities to accommodate future
growth in consideration of long-term strategic plans.
(xi) Industrial Inertia: The presence of other industries also attracts more industries.
(xii) Soil and climate especially for agro-based industries
3. Plant layout
The term "plant layout" describes how physical facilities, such as furniture, machinery, and other items, are
arranged within a factory building to maximize material flow at the lowest possible cost and with the least
amount of handling required during the product's processing from the time raw materials are received until the
finished product is shipped. The main goal of plant planning is to create a physical configuration that most
economically produces the needed output, both in terms of number and quality. Optimizing plant layout should
ideally comprise allocating space and setting up equipment to minimize total operating expenses.

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A smooth production flow should be ensured by the layout of the plant. The layout of a plant takes into account
all areas associated to production, the machinery and equipment in the production area, and frequently the
areas occupied by staff. Decisions about plant layout can be influenced by a variety of factors, including location
of the plant, management policies, product type, production volume, floor space availability, manufacturing
method, and machine and equipment repairs and maintenance. The layout of a plant's numerous machines,
production spaces, and staff comforts all affect how efficiently things are produced. The seamless and quick
transfer of materials from the raw material stage to the finished product stage can only be ensured by a well-
designed plant. Plant layout includes both new layouts and upgrades to the current layouts.
Types of plant layout
1. Process Layout Also known as a functional layout, this type group’s similar machines and processes
together. It is commonly used in job shops and batch production environments.
Advantages of process lay out

(i) Flexibility in handling a variety of products or processes.
(ii) Specialization of equipment and labour can lead to increased efficiency.
(iii) Easier to supervise and manage.
Disadvantages of process lay out

(i) High material handling costs due to the long travel distances.
(ii) Complex scheduling and workflow management.
(iii) More space is required compared to other layouts.
Example: A machine shop where lathes, milling machines, and drill presses are grouped together.
2. Product Layout/Line layout: This type arranges equipment in a sequence that matches the steps of the
production process. It is ideal for mass production of standardized products.

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Advantages of product lay out

(i) High efficiency and productivity for high-volume production.
(ii) Reduced material handling costs.
(iii) Simple and straightforward workflow.
Disadvantages of product lay out

(i) Inflexible; not suitable for products with variations.
(ii) High initial setup costs.
(iii) Disruptions in one part of the line can halt the entire production process.
Example: An automobile assembly line where each workstation performs a specific task in sequence.
4. Fixed Position Layout:
In this layout, the product remains stationary, and workers, materials, and equipment are brought to the site.
It is suitable for large, heavy, or immovable products.
Advantages of fixed position lay out

(i) Reduces the movement of heavy or bulky products.
(ii) High flexibility in accommodating product changes.
(iii) Centralizes materials and equipment around the work area.
Disadvantages of fixed position lay out

(i) High material handling costs for transporting materials and tools to the site.
(ii) Increased complexity in managing multiple activities and workers at the same location.
(iii) Limited space can lead to congestion and inefficiency.
Example: Construction of ships, aircraft, and large machinery.
5. Combination layout/Mixed layout:

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This type is used when a single layout type is not sufficient to meet the requirements of a complex
manufacturing process. It combines various layout types within the same facility.
Advantages of mixed lay out

(i) Flexibility to accommodate diverse production processes.
(ii) Improved efficiency by integrating the strengths of different layout types.
(iii) Can be customized to specific production needs.
Disadvantages of mixed lay out

(i) More complex to design and manage.
(ii) Requires careful planning and coordination.
(iii) May involve higher costs for setup and maintenance.
Example: A manufacturing plant that combines process layouts for machining areas, product layouts for
assembly lines, and fixed position layouts for large-scale construction projects.
Selecting the appropriate plant layout depends on various factors, including the type of product, production
volume, workflow requirements, and available space. An effective layout can significantly enhance operational
efficiency, reduce costs, and improve overall productivity
Qualities of a good Plant Layout
A good plant layout is crucial for optimizing manufacturing processes, improving efficiency, and minimizing
costs. The following qualities characterize an effective plant layout:
(i) Efficient workflow: Streamlined Processes: The layout should ensure a smooth and logical flow of
materials, work-in-progress, and finished goods through the production process, minimizing
backtracking and unnecessary movement. There is also mminimum handling: Reducing the number of
handling steps decreases the risk of damage, loss, and inefficiencies.

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(ii) Flexibility/Adaptability: The layout should be flexible enough to accommodate changes in production
processes, product designs, and volumes without requiring extensive modifications. Scalability: The
ability to scale operations up or down easily to meet changing demand.
(iii) Space utilization/Optimal Use of Space: Efficiently using available space to ensure that equipment,
workstations, and storage areas are properly arranged without overcrowding or underutilization. Storage
Solutions: Adequate provision for raw materials, work-in-progress, and finished goods storage that
facilitates easy access and inventory management.
(iv) Safety of employees: Safe Working Environment: Ensuring that the layout promotes a safe working
environment by reducing hazards, providing clear pathways, and complying with safety regulations.
Emergency Provisions: Incorporating safety features such as fire exits, first aid stations, and emergency
evacuation routes.
(v) Employee Comfort and Productivity: Ergonomics: Designing workstations and equipment placement
to minimize physical strain and enhance worker comfort. Break Areas: Providing adequate break areas,
restrooms, and other facilities to support employee well-being.
(vi) Ease of Supervision and Management/Visibility: The layout should allow for easy supervision and
management of the production process, enabling quick identification and resolution of issues.
(vii) Accessibility: Ensuring that supervisors and managers can easily access all areas of the plant for effective
oversight.
(viii) Cost Efficiency/Reduction of Waste: Minimizing waste through efficient use of materials, energy, and
labor. Lower Operating Costs: Designing the layout to reduce operating costs, including those related to
material handling, maintenance, and utilities.
(ix) Integration with Supply Chai/Supply Chain Coordination: The layout should facilitate smooth
integration with the supply chain, including efficient receipt of raw materials and distribution of finished
goods. This also includes loading and unloading: Provisions for efficient loading and unloading areas to
support timely delivery and shipment.
(x) Quality Control: This is done in inspection points: Incorporating checkpoints for quality control
throughout the production process to ensure product standards are maintained. It also includes
contamination control: In industries where contamination is a concern, the layout should minimize the
risk of cross-contamination.

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(xi) Environmental Considerations/Sustainability: Incorporating sustainable practices in the layout

design, such as energy-efficient lighting, waste reduction systems, and environmentally friendly
materials. It also involves compliance that is ensuring the layout meets environmental regulations and
standards.
(xii) Communication and Information Flow/Efficient Communication: Facilitating effective
communication among workers and between different departments to ensure coordination and timely
information sharing. It also involves having in place information systems: Integration of information
systems to support production planning, monitoring, and control.
(xiii) Maintenance and Upkeep: This involves accessibility for maintenance that is ensuring that equipment
and machinery are easily accessible for regular maintenance and repairs to minimize downtime. It also
involves cleanliness that is designing the layout to promote cleanliness and ease of maintenance.
(xiv) Technological Integration: This involves automation that is incorporating advanced technologies and
automation where appropriate to enhance productivity and efficiency, and upgradability that is ensuring
that the layout can accommodate future technological advancements and upgrades.
By focusing on these qualities, a plant layout can significantly enhance operational efficiency, safety, and overall
productivity, leading to a more successful and sustainable manufacturing operation.
Factors that determine plant layout
Designing an effective plant layout involves considering a multitude of factors to ensure the optimal
arrangement of equipment, machinery, and workflows. Here are the key factors that determine plant layout:
(i) Nature of the Product: This includes product type that is the complexity, size, and characteristics of the
product influence the layout. For example, heavy or bulky products may require a fixed position layout,
while standardized, high-volume products may benefit from a product layout, and product variety that is
facilities producing a wide range of products might need a more flexible layout, like a process or cellular
layout.

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(ii) Production Process. Process Type: The nature of the manufacturing process (e.g., batch production,
mass production, continuous production) determines the layout. For instance, continuous production
processes typically use product layouts. Sequence of Operations: The order of operations required for
production affects the flow and placement of machinery and equipment.
(iii) Volume of Production. Production Scale: High-volume production usually necessitates a product layout
for efficiency, while low-volume or custom production might be better suited to a process layout. Future
Scalability: The layout should consider future expansion and increased production volumes.
(iv) Space Availability. Facility Size and Shape: The physical dimensions and shape of the plant building
influence the layout design. Efficient use of available space is crucial. Space Constraints: Constraints like
columns, walls, and other structural elements must be considered.
(v) Material Handling. Material Flow: Efficient movement of raw materials, work-in-progress, and finished
goods through the plant is essential. Layout should minimize material handling distances and costs.
Handling Equipment: The type and capabilities of material handling equipment (e.g., conveyors, forklifts)
impact layout decisions.
(vi) Labor and Workforce. Labor Availability and Skills: The local labour market and the availability of skilled
workers influence the layout. Ergonomic considerations are also important to ensure worker comfort and
efficiency. Labor Laws and Regulations: Compliance with labour laws, including safety and working
conditions, must be factored in.
(vii) Safety of employees. Workplace Safety: Ensuring a safe working environment by minimizing hazards
and providing clear pathways is critical.
(viii) Utilities and Services. Utility Requirements: Availability and placement of utilities such as electricity,
water, gas, and compressed air affect the layout. Support Services: Provisions for maintenance, storage,
restrooms, and break areas are necessary.
(ix) Regulatory and Environmental Compliance. Regulations: Compliance with industry standards, safety
regulations, and environmental laws is mandatory. Environmental Impact: Considerations for waste
management, emissions control, and sustainable practices are important.
(x) Technology and Automation. Technological Integration: The need for advanced machinery, automation,
and information systems affects the layout. Future Upgrades: Layout should accommodate future
technological advancements and upgrades.

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(xi) Flexibility and Adaptability. Layout Flexibility: Ability to adapt to changes in product design, production
processes, and market demand is essential.
(xii) Logistics and Supply Chain Integration. Inbound and outbound logistics: Efficient layout design for
receiving raw materials and shipping finished products is crucial.
(xiii) Economic Considerations. Cost Efficiency: Balancing the cost of layout design, equipment placement,
and operational efficiency is vital. Budget Constraints: Working within budget limitations while optimizing
layout performance.
(xiv) Brand Considerations. Brand Image: The layout can reflect the company’s brand and values,
contributing to a positive image. Employee Morale: A well-designed, aesthetically pleasing workspace can
improve employee morale and productivity.
(xv) Maintenance and Upkeep. Accessibility for maintenance: Equipment and machinery should be easily
accessible for regular maintenance and repairs. Cleanliness and orderliness: Design the layout to
facilitate cleaning and maintenance, promoting an orderly work environment.
(xvi) Environmental Conditions. Climate and Weather: In certain industries, climate control (temperature,
humidity) can be critical and impact layout decisions. Natural Disasters: Consideration for disaster-
proofing the facility based on local risks (e.g., earthquakes, floods).
Considering these factors comprehensively ensures the plant layout is optimized for efficiency, safety,
productivity, and adaptability, contributing to the overall success of the manufacturing operation.
5.4 Production Planning and Control
(i) Production planning

Production planning is defined as determining the future levels of manufacturing operations within an
organisation. It involves setting plant and equipment capacities, setting possible production targets,
deciding on the size of labour force and setting the desired levels of inventory.
(ii) Production control
Production control involves comparing actual production levels with planned production levels and taking
corrective action in case of any deviations.

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Production control and planning oversees and plans the distribution of labor, supplies, workspaces,
equipment, and manufacturing procedures. It determines the most cost-effective method of producing
final items with the lead times required to satisfy demand for manufacturing.
By effectively allocating internal resources to fulfill orders or demands from customers, production
planning enables manufacturers to operate more intelligently. It provides answers for what, when, and
how much to make. It determines the number of raw materials, bill of materials, or alternative bill of
materials that are required to meet demand in addition to establishing production capacity. It then creates
a feasible production schedule.
Production control provide visibility and reporting while keeping an eye on output and measuring
performance. Production control is the first to know when corrective action is needed. It uses a variety of
control strategies to reach the highest possible production performance levels.
Production planning and control can help in sourcing materials more effectively, expediting production,
cutting costs, minimizing resource waste, and streamlining the production process. Maximizing the
resources employed in the manufacturing process, such as labor, materials, and productivity time, is the
primary objective of production planning and control. Production managers' main goal in using this
strategy is to make sure that the output meets the predetermined standards for quality, quantity, and
timeliness.
Production planning and control can be accomplished by following a set of procedures. In order to make
sure that every person participating in the production contributes to the operation's success, production
managers should also stress the significance of adhering to the defined process from beginning to end.
Planning, routing, scheduling, loading, dispatching, expediting, inspecting, and correcting are some of
the actions involved in this process. In general production control and planning guarantee that the
necessary resources are available when needed. To maximize output, workers, materials, and equipment
must be available as needed. It is the focal point of a company engaged in manufacturing. The more a
business grows, the more crucial production planning and control is to its seamless operation.

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Types of Production Plans
(i) Short Term Production Plans (Operational Plans): These usually last for a period of one year, but they
can extend to utmost 18 months. They assist the production manager to carry out the day today activities
in the production department in line with the overall organisational objectives. Examples of short-term
production plans include activities like routing, scheduling etc.
(ii) Medium Term Production Plans (Technical Plans): These usually last for a period of 2-5 years. They
help the production managers to plan for the future and also form the basis for long term planning.
(iii) Long Term Production Plans (Strategic Plans): These usually last for a period of 5 years onwards.
They help the production manager to look into the future and to take on long-term profitable
opportunities. This helps the organisation to achieve its long-term goals. Examples of long-term
production plans include replacement of machines, factory expansion etc.
Activities involved in Production Planning and Control
(i) Routing: Is an aspect of planning by which the route or path over which work will flow is determined. It
involves determining where and by whom work shall be done and the necessary sequence of operations.
The objective of routing is to ensure that work goes to the best man in the system and the cheapest but
efficient and systematic sequence of operations is adopted.
(ii) Loading: This is an aspect of production planning that deals with the effective utilization of machines.
The available workload to be performed and the available capacity of the machines should be considered.
The largest workload should go to the best machine in the system. While loading, the situations should
be avoided namely under loading and overloading of machines. Under loading may result from poor
planning or lack of demand. This may lead to machined redundancy. Overloading results from too much
work. This may lead to overworking of machines, which may increase wear and tear, and hence gradual
breakdown of machines. Too much work may also call for overtime, which may lead to poor health of the
workers.

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(iii) Scheduling: This involves drawing up a timetable for completion of production activities. This facilitates
keeping track of materials, equipment, and labour. The timetable for production ensures that work goes
uninterrupted throughout the production process. This increases production efficiency. Scheduling
involves determining when to start production activities, how long they will take to be completed and the
date/time of completion. Scheduling is done using techniques such as Charts and Graphics Critical Path
Method (CPM) Programmes Evaluation and Review Techniques (PERT).
(iv) Materials Handling: This the way in which materials used in the production process are handled during
movements from one place to another i.e. from stores to machines for usage in production processes and
from the transporters to the stores. This is an important area of concern for the production managers
because material’s handling costs amount to about one fifth of the total costs of production. Today,
however, robots are widely used to minimise breakages and other kinds of damages.
Basic Rules for materials handling

i. Minimise handling: It is preferable to move workers rather than materials.
ii. Plan Handling: Keep the distance between operations as short as possible.
iii. Select correct handling equipment: Use simple, standard equipment for handling materials.
iv. Make the most effective use of handling equipment: Avoid machine overload and under load.
a) Quality control. This is a process through which a business seeks to ensure that product quality is
maintained or improved. Quality control requires the company to create an environment where
management and employees strive to attain total quality management in the production process right
from first stages of production up to the final stages of production.
b) Dispatching. This involves releasing the materials, machines, and workers to different production areas
based on the production schedule. It ensures that the materials and equipment are delivered to different
production sections on time and that the workers are assigned to their designated tasks. It also involves
the release of orders and their instructions and it follows the routing and scheduling directions. This step
ensures all items are in place for the employees to do their jobs.

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c) Plant Maintenance This is the task of keeping the factory building and equipment in a satisfactory
condition according to plant operations requirements and standards set by management.
Objectives/aims of Maintenance
(i) To enable product quality and customer satisfaction to be achieved through correctly adjusted serviced
and operated equipment.
(ii) To maximise the useful life of the equipment.
(iii) To keep equipment safe and prevent the development of safety hazards.
(iv) To minimise the total production costs directly attributable to equipment service and repair.
(v) To minimise the frequency and severity of interruptions to operating processes.
(vi) To maximise production capacity from the given equipment resources.
Functions of the Maintenance (Works) sub-department

(i) Plant instalment and mechanical maintenance.
(ii) Electrical installation and regular maintenance.
(iii) Building addition and maintenance of existing structures.
(iv) Plant overhaul/changing worn-out parts.
(v) Equipment spares and store keeping.
(vi) Plant record keeping.
(vii) Factory cleaning and ensuring of hygiene e.g. lawn mooring, mopping, sweeping etc.
Maintenance is very important especially in a continuous flow of production where breakdown in one
machine may lead to a stoppage in the whole production system.
In a modern maintenance firm, maintenance may be done by outside firms on a contract basis.
Methods of Plant Maintenance
(i) Breakdown Maintenance

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Under this method the plant will be repaired when there has been actual breakdown. This method leads
to great losses in the organisation because of interruption of work schedules and jobs are not completed
on time. It may also lead to loss of customer orders. The cost of replacement of an item as an individual
(individual replacement) is usually greater than that of replacing items as a group (group replacement).
(ii) Preventive Maintenance

Here, equipment is prevented from breaking down to avoid losses associated with stoppages in
production. It involves preplanning of maintenance so that there is routine inspection of machines,
replacement of worn-out parts and regular oiling. The production manager has to be able to trade-off
between preventive maintenance and breakdown maintenance in order to minimise the costs of the
operating system. Advances in technology have enabled the development of systems, which reduce the
cost of maintenance while improving operational performance. These are usually computer-based devices,
which enabled the detection of faults before severe difficulties, and even damages occur.
REFERENCE MATERIAL
a) Modern Business Administration (6th Ed) by Robert C Appleby

b) Business Administration, a fresh approach by Roger Carter
c) Parsons Carl Copeland (2008). Business Administration, Lightning Source Inc. Publishers
d) Business Administration Hand Book by L. Hall
e) Business Administration and Management (4th Ed) by Deverell
f) Business Administration (4th Ed) by Waswa Balunywa
g) Bagire Vincent (2013). A Revision Guide for Business Administration
h) Linda K. Trevino and Katherine A. Nelson (2010).Managing Business Ethics, 5th Edition, Wiley Publishers
i) Published articles: Rao, Y. S. (2023). Production and operations management. Academic Guru Publishing
House.15 (20), 15140.
TUTORIAL VIDEOS
Video on production click on the link below:

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a) Introduction to production functions – https://www.youtube.com/watch?v=4kFLOoA5l4s

b) Types of Plant Layout, Explanation with Advantages and Dis-advantages:
https://www.youtube.com/watch?v=DrO5sS51Yk8
c) Facility Layout in Operations Management - Product vs Process Oriented Layout & Fixed:
https://www.youtube.com/watch?v=qKca93vGPho
d) https://youtu.be/TWXAzr-Bhfc?si=WED1x0NzdVk-7PmW
e) https://youtu.be/lZTH53eSsFY?si=GHpL10jMcNTblo0O

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TOPIC SIX
THE FINANCE FUNCTION
Finance is defined as the management of money and includes activities such as investing, borrowing, lending,
budgeting, saving and forecasting. Notably all business activities have financial implications therefore finance
can be discussed in 4 contexts i.e. as an instrument of exchange, as a managerial function, as an area of study
and as a process. In this context, it will concentrate on finance as an instrument and a process. As an
instrument of exchange, finance refers to money, money convertibles or money’s worth.
Finance as a process looks at three key things i.e.

(i) Planning for how much is needed.
(ii) Looking at the best source or combination of sources.
(iii) To procure finances at reasonable cost to enable sustainability.
6.1 Key Financial Decisions

The financial decisions are divided into long- and short-term decisions. They are very important because
they help in the utilization of the financial resources to enable the continuity of any business.
(i) Financing decision or capital structure decision. This is a decision about where to raise funds for
business operation. Prior to deciding a specific source of finance, it is advisable to evaluate advantages
and disadvantages of different sources of finance and its suitability for purpose. The decision has to
address two questions that is to say; how much capital should be raised to fund the firm’s operations
for both existing & proposed? And what is the best mix of financing these investment proposals? In
order to answer this question, Efforts should be made to obtain an optimal financing mix, an optimal
financing indicates the best debt-to-equity ratio for a firm that maximizes its value, in simple words,
and the optimal capital structure for a company is the one which offers a balance bet ween cost and
risk.
(ii) Capital budgeting decision/Investment decision: This is a decision about investment of current funds
for the benefits to be realized in future. This makes the decision risky and complicated. The finance
department of an organization has to decide to allocate funds into profitable ventures so that there

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is safety on investment and regular returns is possible. Therefore, while considering investment
proposal it is important to take into consideration both expected return and the risk involved. Under
this decision, money can be invested in expansion of business, diversification of business,
productivity improvement, product improvement, research and development, acquisition of long-term
assets (tangible and intangible), and mergers and acquisitions.
(iii) Working capital management decision: This decision is all about determining how much is needed to
be used in the day today running of the business. This decision looks at the business being able to offset
its short-term obligations as they fall due. Working capital primarily deals with currents assets and
current liabilities. In fact, it is calculated as the current assets minus the current liabilities hence
also called Net working capital. Working capital measures a company’s liquidity and short-term
financial health to avoid insolvency. It indicates the business’s ability to fund operations and respond to
financial stress or opportunities.
The key areas of working capital decisions are: Deciding how much inventory to keep, deciding the
ratio of cash and credit sales, proper management of cash, effective administration of bills receivables
and payables and investment of surplus cash.
(iv) Dividend decision: Dividend decisions are the financial decisions related to distribution of share of
profits amongst shareholders in the form of dividends. The dividend decision involves deciding the
amount of profit (after tax) to be distributed to the shareholders as dividends and the amount of profit
to be retained in the business for further growth of the business. Dividend decisions should be taken
keeping in view the overall objective of maximizing shareholders’ wealth.
N.B: The above decisions carry important financial implications, (Profitability Vs liquidity). Before the industrial
revolution, finance needs were limited as most of the production was labour intensive and also businesses were
small. However, after the industrial revolution, businesses expanded. Industries became more capital intensive
and therefore more capital was required to run businesses efficiently. However, this could not be raised by
individuals. It was such a situation that led to the growth of financial institutions and insurance firms to try
and provide the so much needed capital. Today, finance plays a major role in a modern economy. In fact,

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various scholars have attributed the gap between developing countries and developed countries to capital
differences and management.
6.2 Need for Finance

All businesses need money to finance business activities therefore money can be categorized into three:
(i) Start-up costs (Set up costs): One of the reasons why businesses need money is to cater for the costs
incurred to start a business. As a business is started, a lot of money is spent on things like paying
experts to guide on registration and compliance procedures, paying rent for the space to be used or
acquiring land where the offices are to be established, buying equipment and the materials to be used in
production.
(ii) Expansion (Cost for expansion): Since a business is a going concern, it has to keep growing and
expanding. At this stage, the business needs finance to acquire larger premises, better equipment, more
employees more tools, money for research and development, mergers and acquisitions and very many
others.
(iii) Everyday expenses (Day-to-day running costs): Businesses spend money in form of working capital to
finance the day-to-day operations. Here funds are spent on things like paying bills, wages, materials,
salaries, interest on loans, etc.
6.3 Roles and Functions of a Finance Manager

(i) Forecasting the required amount of capital: This is a key responsibility of a finance manager to
calculate the capital necessities of a business. This will help a business to estimate how much it requires
for the effective operations. The expected profits, costs and future programmes and policies of a business
usually determines the amount of capital requirement.
(ii) Deciding the composition of capital: Here the manager looks at what the capital required will be
composed of. After making the estimation of how much is needed by the business, the structure of capital
is to be decided which includes both short- term and long- term debt equity analysis. The structure of
capital depends on the amount of equity capital a business is possessing and further funds which have
to be raised from investors outside.

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(iii) Selection of financial sources. This is all about knowing where the funds needed by the business will
come from. A finance manager has to decide on the source of finance after looking at the costs involved
in the procurement of funds from a particular source. Since a business has many choices for getting
additional funds and has to choose a source, the cheapest and less risky source must be considered.
Some of the sources are issue of shares and debentures, loans from banks and financial institutions,
public deposits in the form of bonds, etc.
(iv) Allocation and Investment of funds: It is the finance manager who has to decide to allocate funds into
profitable ventures based on the possibility of safety on investment and regular returns.
(v) Distribution of surplus: The finance manager has to take decisions about the distribution of the surplus.
This can be done by surplus declaration and recognizing the rate that will be shared.
(vi) Cash Management: Achieving control over available cash is a challenging task before finance manager.
Taking decision regarding cash management is a very important duty of finance manager. Ready money
is necessary for payment of wages and salaries, electricity bills and water bills, interest payment, meeting
existing liabilities, maintenance of enough stock, purchase of raw materials, etc.
(vii) Financial control: Financial control is a critically important activity to help the business in meeting its
objectives. The finance manager has to have control over finance for which he has to answer important
questions like- Are assets being used efficiently? Are the businesses assets secure? Does management
act in the best interest of shareholders and in accordance with business rules? etc. Depending on the
earning ability, market price of the share, shareholders’ expectations proper plans are to be prepared for
which he has to follow techniques like ratio analysis, financial forecasting, cost and profit control, etc.
(viii) Utilization of funds: Funds should be invested in those ventures which provide safety and adequate
return with least cost. The finance manager has to make sure that the funds procured is efficiently utilized.
6.4 Scope of the Finance Function

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(i) Acquisition of funds: This involves determining the financing mix/capital structure of the firm. Funds
have to be raised from the cheapest and most effective sources in order to maintain the best capital
structure. Before acquisition of funds, there must be analysis of the costs and risks attached to each
source such that the cheapest source of capital is used.
(ii) Utilization of funds: Finance being the life blood of any organization, the funds available have to be well
utilized to make sure that the business flourish and grow in the long run. Funds raised have to be invested
or utilized in the most efficient manner. Management therefore has to make a decision on how much to
be allocated to working capital (current assets), fixed assets and how the surplus or the profits will be
used (utilization looks at the 3 financial decisions i.e. working capital management, capital budgeting and
dividend decision)
Current assets include inventory, receivable, cash and marketable securities. While investing in current assets,
management has to tradeoff between profitability and liquidity. The decision on how much to invest in fixed
assets requires management to carry out capital budgeting. Capital Budgeting is the evaluation of the long-
term investment proposals that a company has on hand. After the evaluation of all the proposals, the selection
of the best investment proposal is done (Capital rationing).
The surplus or profits over and above the fixed costs and tax payments of the organization need to be effectively
allocated and utilized for its growth and sustenance. Dividends to shareholders and bonuses to employees must
be optimal to enlist continued support and involvement; it must not be too high or too low.
6.5 Determining Capital Requirements Mix
It is the responsibility of the management of a company to plan its finances so as to ensure that a company
earns sufficient profits. It is essential that a company is neither under-capitalized nor over-capitalized.
Management must find the cheapest sources of finance and put these to use in the best possible manner. This
generally involves estimation of fixed capital requirements, determining working capital requirements and the
capital structure to be adopted by the company. It also involves examining the various sources of finance.

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6.5.1 Determining Fixed Capital: Fixed capital is the investment in fixed assets like plant and machinery,
land, building, furniture and patents. Fixed assets are used to meet the long-term obligations of a
company. The amount of fixed capital acquired usually depends on the nature and size of the firm.
6.5.2 Determining working capital: Working capital, also called Net Working Capital (NWC), is the difference
between a company’s current assets and current liabilities. Working capital is the capital invested in
current assets like inventory, debtors and bills receivable. Working capital meets the short-term
obligations of a company which include:
(i) It measures a company’s liquidity and short-term financial health, indicating the ability to fund
operations and respond to financial stress or opportunities.
(ii) Negative working capital occurs when current liabilities exceed current assets, suggesting potential
liquidity issues.
(iii) Positive working capital shows a company can support ongoing operations and invest in future growth.
(iv) High working capital isn’t always a good thing. It might indicate that the business has too much
inventory, is not investing its excess cash, or is not taking advantage of low-cost debt opportunities.
6.6 Factors that determine the size of working capital.
(i) Size and Nature of the business: The nature & size of a business significantly influences its working
capital needs. Larger firms need more working capital compared to smaller firms therefore it is best to
determine the amount of working capital buffer relative to either gross revenue or total expense. Likewise,
companies of different nature require different amount of working capital. For example, a service-oriented
company with minimal tangible goods may demand less working capital than a retail business, which
must manage extensive inventory. For a manufacturing entity, ample working capital is vital. This
encompasses salaries, raw materials, and maintaining inventory until products are sold. Larger
manufacturing units, producing significant monthly units, require substantial working capital for
seamless operations.

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(ii) Length of the production process or production cycle: A long production cycle, involving the
conversion of raw materials into finished products, demands increased working capital. The necessity
arises to sustain stocks of raw materials, work-in-progress items, and finished goods. Manufacturing
companies, with extended production timelines, face the challenge of requiring a heightened level of
working capital to support the entire production cycle effectively. The reverse is true for organizations
with a short production cycle
(iii) Market volatility: A firm facing high unpredictability in the business climate needs a larger working
capital compared to those that are operating in markets that are somehow stable. The reason for this is
to enable organizations in volatile environment respond to the changes or demands when they arise.
(iv) Proportion of the cost of raw materials to total cost: Businesses that spend a lot of money on raw
materials need more working capital compared to those that spend less on raw materials in relation to
their total costs
(v) Nature of technology employed by the firm: Labour intensive organizations are supposed to keep a
high working capital compared to organizations that are capital intensive. This stems from the fact that
organizations employing more people than machines have a lot of daily expenses to make for example
spending on staff welfare like buying food, medical, insurance, wages and salaries etc. hence making
such organizations to keep cash at hand and at bank to cater for such. Contrary, those which are capital
intensive do not need a lot for daily operations
(vi) Rapidity of turnover: This looks at the rate at which stock is turned into cash. Businesses with a high
turnover need not to keep a lot of working capital because they are expected to make sales which can be
used to run the business unlike those that take long to make sales. Such will need a high working capital
to make the business operate in the times when sales are not being made
(vii) Terms of credit granted to customers: A company’s working capital requirements can be influenced by
its credit and payment policies. The speed at which a business can collect payments from customers
directly affects working capital. A streamlined accounts receivable process, including effective credit
management and timely invoicing, ensures a steady cash inflow hence need to keep a low working capital.
Selling goods on credit on relaxed terms will require high working capital than companies with strict
terms as the time taken to receive payments from ‘accounts receivable’ can create a fund gap.

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(viii) Terms of credit given by suppliers: A corporation can save money on working capital by receiving a free
loan from its suppliers by negotiating longer payment terms. Negotiating favorable credit terms with
suppliers and optimizing payment schedules can contribute to an extended cash conversion cycle,
positively impacting working capital hence keeping low compared to when the credit terms are not
favorable and cash has to be paid out
(ix) Seasonal variations: Certain businesses operate in cyclical or seasonal patterns, selling products at
specific times. This nature can result in increased working capital needs during peak seasons. Take, for
instance, a charismas card manufacturer experiences heightened demand in the Christmas season,
necessitating elevated working capital to meet the seasonal upswing in product demand. The same
company will need low working capital when the peak season is off
(x) Market conditions or Economic conditions: External economic factors such as inflation, interest rates,
and overall economic stability can significantly influence working capital. Adapting to economic changes
and having contingency plans in place is essential. Whenever market conditions are not favorable, a
higher working capital is maintained compared to a time when they are favorable
(xi) Reliability of suppliers: Whenever suppliers are reliable, there is no need to keep buffers for raw
materials and finished goods because they can ever supply in the time the materials are needed. In such
situations, the business can use methods like just in time to and hence low working capital and the
reverse is true when suppliers are not reliable.
(xii) Source of funds: Balancing debt levels is critical for determining working capital Whenever businesses
use more of borrowed funds than owners’ equity, they are supposed to keep higher working capital to
periodically cater for the cost of capital i.e. interest compared to those that are using their own capital
which requires no payment of interest
(xiii) Company growth or Growth phase: In rapid growth phases, businesses demand substantial working
capital to fuel expansion. The imperative to boost receivables and inventory becomes pronounced.
Conversely, contracting businesses experience lower working capital needs. Expansion plans, especially
in manufacturing, necessitate increased working capital
6.7 Capital Structure

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This refers to the composition of a firm’s long-term sources of finance. The mix of a firm’s permanent long-term
financing are represented by debt and equity. This implies that it looks at the mix of both owners’ and borrowed
capital adopted by a firm. The capital structure concentrates on the relationship between various long-term
sources of capital e.g. equity shares, preference shares, debentures, etc. The appropriate capital structure
maximizes the long-term market price per share. Businesses are normally faced with a problem regarding the
proportion of funds to be raised by issue of shares and that to be raised through borrowing. A company is said
to be unlevered as long as it has no debt, while a firm with debt in its capital structure is said to be leveraged.
Features of appropriate capital structure
A sound or appropriate capital structure should have the following features:
(i) Generating maximum returns: It should generate maximum returns to the investors without additional
cost(profitability)
(ii) Flexibility: It should be flexible such that it provides funds to finance the profitable venture of a business
(Flexibility)
(iii) Solvency: It should not use too much debt to ensure that the business is solvent in the long run(solvency)
(iv) Minimum risk of loss of control: The capital structure should have minimum risk of loss of control of
the organization
(v) Conservation: It should be determined within the debt capacity of the organization and not
beyond(conservation).
Factors that determine capital structure

These factors are both internal and external.
Internal factors that determine capital structure:

(i) Managerial risk aversion: Conservative managers fear to take risk and therefore tend to rely on use of
more equity capital than debt in the company’s capital structure. Since use of debt is riskier than use of
equity, some managers tend to shy away from using a lot of debts and go for equity because they feel

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safer compared to using a lot of debt. Managers who are not risk averse do the opposite because they
lack fear for borrowing.
(ii) Retention of firm control: When companies want to retain the prepared shareholders and where
promoters want to retain control of the company, they will raise a larger part of the capital by issues of
debentures and preferred shares because these don’t want to lose any of their voting rights.
(iii) Profitability of a business (Cash inflows Vs outflow): Firms that have more profits tend to have lower
debt because of the fact that they can use more of retained earnings than borrowed funds. If external
finance is required, the first choice is to issue debt, then possibly with hybrid securities such as
convertible bonds, then eventually equity as a last resort. The less profitable firms are those mainly
financed through external funding because they cannot raise their own internal finances. Therefore, more
debt is used by such companies in their capital structure compared to the profitable ones which will use
more retained earnings and equity states that firms prefer internal funds rather than external funds.
(iv) Trading on Equity: This is the ability of the firm to employ debt in its capital structure to magnify the
earnings of its equity shareholders. A firm is said to trade on equity if the cost of debt is less than the
benefits realized from employing debt. The general return on investment is higher than the fixed rate of
interest and fixed preferred dividend. Equity shareholders, therefore get additional profit.
(v) Asset structure –collateral securities: Most capital structure theories argue that the type of assets
owned by a firm in some way affects its capital structure choice. Issuing debt secured by property with
known values avoids these costs. For this reason, firms with assets that can be used as collateral may be
expected to issue more debt to take advantage of this opportunity. Firms that have more tangible assets
tend to have higher debt in its capital structure compared to those with less
(vi) Liquidity: This looks at the Liquidity refers to the ease with which an asset, or security, can be converted
into ready cash without affecting its market price. organizations that have a higher liquidity are able to
service borrowed finance since it’s a must to pay interest periodically. Those organizations which have
low liquidity are advised to use more of owners’ equity in their capital structure.
(vii) Growth rate: Businesses that are growing are expected to use more debt in its financing since higher
growth opportunities implies a higher demand for funds, and, ceteris paribus, a greater preference on
external financing through the preferred source of debt.

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(viii) Cost of capital-borrowing capacity: This looks at the ability of an organisation to sustain borrowed
funds. All capital used by any business has accost attached and therefore accompany or business must
use more of the source it can afford.
Internal factors that determine capital structure
(i) Size of the business: Firms that are large (in terms of assets) tend to employ more debt than owners’
equity. The size of a business is a crucial factor that shouldn’t be ignored while determining a capital
structure. A small business faces difficulties in raising funds. This happens as they aren’t yet scaled
enough and have less credibility for significant and long-term borrowings. Even if they remain successful
in growing, they are bound to some disadvantages of poor debt-to-equity ratio and higher interest rates.
Accordingly, larger firms may issue debt at lower costs than smaller firms. In this case therefore, we can
expect size to be positively related to leverage.
(ii) Nature of the business: Less debt should be employed for high-risk businesses and the opposite is true.
Whenever the business is too risky, it’s better to use owners’ equity to avoid risking borrowed funds. This
implies that such risky businesses will employ more of equity funds in its structure compared to the
borrowed funds and the reverse is true
(iii) Legal requirements: Sometimes, the law dictates as to what classes of shares and debentures are to be
issued. Companies have to comply with this. In addition, the controllers of Capital Issues Act usually
require companies to have a debt-equity ratio of 2:1.
(iv) Level of interest rate: Whenever interest rates are very high, the business should opt for cheaper sources
in order to reduce the cost of capital.
(v) Timing in the Market: Consider prices of shares Vs the interest charged on borrowed capital. Capital
market conditions can determine the cost of capital at the present time alongside risk issuing any new
projects. On several conditions, people don’t want to invest in a firm owing to market volatility or the
firm’s aspects. Similarly, in above normal market conditions, a firm shouldn’t raise funds at an increased
cost of capital. It is also advisable for firms to go for more borrowed funds when the interest rates in the
markets are low

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(vi) Attitude of lenders- Creditor requirements: Willingness of the lenders to provide borrowed capital. The
firm will use more of borrowed funds when the lenders are positive about provision of money to the
business and having relaxed requirements and the reverse is true when the lenders attitude is negative
on provision of debt
(vii) Availability of funds: The business normally goes for funds that are more available than the others. In
seasons when the financial institutions have money to lend out to businesses, the capital structure will
be mainly leveraged.
(viii) Taxation policy: When the taxation policy is not favorable, most corporations run for more debt such
that they can be in position to get a tax shield since interest is treated as an expense in the statement of
comprehensive incomes
6.8 Sources of Finance

An organization has got various sources of finance to choose from in order to finance its fixed and working
capital requirements. Capital is divided into two:
(i) Owned capital

(a) Share capital
(b) Retained earnings
(ii) Borrowed capital
(a) Debenture issue
(b) Loans
(c) Capital markets products.
Sources from the point of view of length of period
(i) Long term sources (5 years and above)

(a) Ordinary/Equity shares/Common stock
(b) Preference shares
(c) Debentures

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(d) Retained earnings

(e) Bonds
(f) Loans from financial institutions
(ii) Medium term sources (Between 1 year and 5 years)

(a) Term loans
(b) Debentures
(c) Preference shares
(iii) Short term sources (Below 1 year)

(a) Trade credit
(b) Overdraft (Bank credit)
(c) Short term loans
(d) Purchase/discount of bills
(e) Letters of credit
(f) Factoring
(g) Accruals
Long Term Sources of Finance
1. Ordinary/Equity shares/Common stock: These shares have got the following features:
(i) Equity capital cannot be paid back during the life time of the company.
(ii) The rate of dividend got by the shareholders depends on profits earned
(iii) The dividend on ordinary shares is paid after paying the dividend on preference shares
(iv) Ordinary shareholders have full voting rights therefore the control of the company lies with them.
(v) In case of liquidation, ordinary shareholders are the residual claimants of the assets of the company.
(vi) Ordinary shareholders are risk takers hence the capital they provide is sometimes referred to as
venture capital

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Note: A share is a participation in the provision of capital for a company. This only applies to public limited
companies whose shares are bought and sold on the Stock Exchange. This is done by inviting members of the
public through the prospectus to buy shares.
Advantages of ordinary shares
(i) They do not place a burden on company resources because dividend depends on profit.
(ii) Provide long term finance to the company.
(iii) Do not create a charge on the assets of the company.
(iv) Shareholders have full voting rights and can therefore control the company
(v) In times of profits, dividends can be very high.
Disadvantages of Ordinary shares
(i) Excessive issue of ordinary shares may lead to over capitalization if capital is not profitably used.
(ii) In reality, equity shareholders are usually scattered and ill-organized hence they don’t have control.
(iii) Residual claimants in case of liquidation.
2. Preferred/Preference shares: These shares which carry a preferential right regarding both payment of
dividends and return of capital
Features of Preferred shares

a) Preference shareholders receive a fixed rate of dividend
b) Preference shareholders carry preferential voting rights
c) The dividend on preference shares is paid before that of equity shareholders
d) Preference shares may be participating or non-participating, redeemable or irredeemable, cumulative or
non-cumulative and convertible or non-convertible.

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Types of Preference shares
(i) Participating VS Non-participating preference shares

a) Participating preference shares: These shares whose shareholders are also included in sharing
of dividends with ordinary shareholders after getting their own fixed dividends.
b) Non-participating preference shares: These are shares, whose shareholders are not included in
the sharing of dividends with ordinary shareholders after getting their fixed dividends.
(ii) Redeemable preference shares VS Irredeemable preference shares

(a) Redeemable preference shares: These are shares, whose share capital is paid during the life time
of a company
(b) Irredeemable preference shares: These are shares, whose share capital cannot be paid during
the life time of a company.
(iii) Cumulative VS Non-cumulative Preference Shares

(a) Cumulative preference shares: These are shares where if the company is not making profits in
any given period, dividend payment for that particular period is transferred to the period when the
company makes profits whereas the opposite is true for
(b) Non-cumulative shares: These are shares where if the company is not making profits in any given
period, dividend payment for that particular period is not transferred to the period when the
company makes profits.
(iv) Convertible Vs. Non-convertible

(a) Convertible preference shares: These are shares that can be converted into equity shares of the
issuing company after a predetermined period of time
(b) Non-convertible preference shares: These are shares that cannot be converted into equity
shares of a liable or issuing company.
2. Debentures:

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A debenture is an acknowledgement, under seal, of a debt or a loan. A prospectus or statement in lieu of

a prospectus is issued inviting the public to buy or subscribe to debentures.
Features of Debentures
(i) Debentures create a fixed charge on the assets of the company
(ii) They carry a fixed rate of interest which has to be paid regardless of whether the company has made
profits or not.
(iii) They are normally redeemed after a specified period
(iv) When a company is forced into liquidation, debenture holders are paid before preference and ordinary
shareholders.
(v) Interest on debenture is paid before payment of dividend to shareholders.
(vi) Debentures are generally freely transferable by debenture holders.
Types of Debentures
(i) Convertible debentures: These are securities that can be converted into equity shares of the issuing
company after a predetermined period of time. Convertibility is a feature that corporations may add to
these securities to make them attractive to the buyers and they tend to have lower interest rates than
non -Convertible securities due to this advantage.
(ii) Non-convertible debentures: These are securities that cannot be converted into equity shares of a liable
or issuing company. Due to lack of this feature, they usually carry high interest rates than convertible
ones.
(iii) Redeemable and irredeemable debentures
(a) Redeemable debentures: These are debenture that can be bought back by the issuing company.
(b) Irredeemable debentures: These are debentures that can not be bought back by the issuing
company.
(iv) Mortgaged and naked debentures
(a) Mortgaged: These are debentures which are backed by collateral security.
(b) Naked debentures: These are debentures which are not backed by collateral security.

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Advantages of Debentures
a) Debenture issue allows a company to trade on equity
b) Debentures provide long term finance to the company
c) Creditors face smaller business risk because they are assured of interest whether the company has made
profits or not.
Disadvantages of Debentures
a) Debenture issue creates a charge on the assets of the company.
b) Debenture issue places a burden on company resources because interest has to be paid even during
times for poor performance.
c) Companies that do not have collateral security cannot issue debentures
d) Excessive issue of debentures may cause over capitalization.
4. Bonds: A bond is a formal contract to repay borrowed money with interest at fixed intervals
Key terms in bonds

(i) Nominal/Principal/Face value/Issue price: This is a price at which investors buy the bonds and
amount which has to be paid at the end.
(ii) Maturity Date: This is the date at which the issuer has to repay the nominal amount.
(iii) Coupon: This the interest rate that the issuer pays to bond holders.
Note: The features, advantages and disadvantages of bonds are similar to those of debentures
5. Retained Earnings: These are undistributed portions of profits of the company. A company ploughs
back profits which are converted into reserves and used for the financial requirements of the company.
Ploughing back of profits or internal financing is especially useful in times of depression.
Advantages of retained earnings

(i) Cheap source of finance.
(ii) Retained earnings do not create a charge on the assets of the company

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(iii) Facilitates a stable dividend policy as a company is able to meet deficits in non-profitable years by paying
out of the retained profits.
(iv) Useful for expansion and diversification
(v) It’s a flexible source of capital. It can allow a company’s capital structure to be flexible.
(vi) It increases the share value of the company
(vii) Avoids excessive taxation or the double taxation
(viii) Increases the company’s earning capacity
Disadvantages of retained earnings

(i) Shareholders may be dissatisfied thinking that the company is retaining profits at the expense of paying
sufficient dividends to them.
(ii) Retained earnings carry an opportunity cost which is the cost of the alternative foregone.
(iii) Its prone to misuse.
(iv) Can easily lead to over capitalization.
6. Loans from financial institutions: These are borrowed from financial institutions at a given interest
rate and they are repayable after a period of 5 years and above.
Medium Term Sources of Finance
These have a period between 1 year and 5 years.

(d) Term loans
(e) Debentures
(f) Preference shares
N.B: See the above explanations on each and consider the time period of 1 year up to 4 years (Between 1 and 5
years).
Short-Term Financing

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(i) Trade Credit: This is credit given by manufacturers, wholesalers and retailers at the incidence of sale.
The usual duration of such credit is usually 30-90 days no interest is expressly charged. The factors to
consider while determining trade credit are earnings record over a period of time in which the firm with
high earnings is looked at favourably by suppliers and liquidity position of the firm which is usually
measured by studying the acid test and current ratios of the firm; and finally, record of payment which
helps in determining the credit worthiness of the firm.
(ii) Bank Overdraft: The customer is allowed by the bank to overdraw against his current account and pay
interest on it. The borrower can draw as often as he requires provided the outstanding do not exceed the
overdraft limit. He also enjoys the facility of paying back and when he requires. Interest is charged only
on the running balance, not on the limit sanctioned.
(iii) Accruals: Accruals are normally regarded as a “free source of financing because the firm doesn’t pay any
interest on them. Accruals usually increase when the level of activity in the firm expands. On the contrary,
payment period is determined by the practice in the industry and provisions of the law. Any delay in tax
payment, for instance, may lead the concerned firm into payment of penalties.
(iv) Short term/Commercial loans: These are advances of fixed amounts which are credited to the current
account of the borrower. Interest is charged on the entire loan amount, irrespective of how much he
draws. Loans are payable on demand or in periodical installments using postdated cheques or demand
promissory notes. Penalty interest is charged if payments are made on time.
(v) Purchase/Discount of Bills: A bill arises out of a trade transaction. The seller of goods draws the bill
on the purchaser. A bill may be either clean (not supported by any document) or documentary (supported
by a document like a railway receipt or bill of lading). The purchaser accepts the bill then the seller offers
it to the bank for purchase or discount. When the bank purchases the bill, it releases the funds to the
seller. The bank presents the bill to the purchaser (acceptor) of the bill on the due date and gets its
payment.
(vi) Letters of Credit (Indirect form of bank credit): This s an arrangement whereby a bank helps its
customer to obtain credit from his/ her suppliers. When a bank opens a letter of credit in favour of its
customers for some specific purposes, the bank undertakes the responsibility to honor the obligation of
its customers should the customers fail to do so.

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(vii) Factoring: A factor is a financial institution, which offers services relating to management and financing
of debts arising from credit sales. A factor selects accounts of the client and assumes responsibility for
collecting the debt. He then advances money to the client against not yet collected debts. The amount
advanced is normally 70% to 80% of the face value of the debt and carries an interest rate, which may be
higher than that charged by commercial banks. Factors normally charge a commission of 1 to 2% of the
face value of the debt factored.
REFERENCES
1) Ekpo, N. B., Etukafia, N., & Udofot, P. O. (2017). Finance manager and the finance function in business
sustainability. International Journal of Business, Marketing and Management, 2(1), 31-38.
2) Kadam, R. N. (2012). Financial Management for the Organizational success: Challenge before finance
managers. International Journal of Advanced Research in Management and Social Sciences, 1(1), 128-134.
3) Swathi, P. (2015). A Comprehensive Review on The Sources of Finance. Themed Section: Engineering and
Technology, 1(4), 521-531.
4) Santos, A. M., Cincera, M., & Cerulli, G. (2024). Sources of financing: Which ones are more effective in
innovation–growth linkage? Economic Systems, 48(2), 101177.
5) Modern Business Administration (6th Ed) by Robert C Appleby
6) Business Administration, a fresh approach by Roger Carter
7) Parsons Carl Copeland (2008). Business Administration, Lightning Source Inc. Publishers
8) Business Administration Hand Book by L. Hall
9) Business Administration and Management (4th Ed) by Deverell
10) Business Administration (4th Ed) by Waswa Balunywa
11) Bagire Vincent (2013). A Revision Guide for Business Administration
12) Linda K. Trevino and Katherine A. Nelson (2010).Managing Business Ethics, 5th Edition, Wiley Publishers
ONLINE VIDEO LINKS
a) Introducing the Finance Function – https://www.youtube.com/watch?v=TQAW_-gTPsk

b) Role of Finance function: https://www.youtube.com/watch?v=Qn65mzsd9eE

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c) Business finance: https://www.youtube.com/watch?v=FI42PpU0phc

d) What is finance: https://www.youtube.com/watch?v=JEVirFX6goE
e) Meaning of Company Stocks: https://www.youtube.com/watch?v=o4jfBC0AgIM&list=PPSV
f) How does a stock Market Work? https://www.youtube.com/watch?v=A7fZp9dwELo
g) https://youtu.be/Jj0LJQlee14?si=neCWDzBFQofjixa_

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TOPIC SEVEN
BUSINESS SUSTAINABILITY
Business sustainability has now taken center stage in business organizations across the world. It has therefore
been taken as a consideration when stating the vision statement and mission statement of the business
organization before commencing normal business. Businesses are therefore considered to be successful when
they attain economic sustainability (continuous profit making), social sustainability (being mindful of the
wellbeing of people) and environmental sustainability (being mindful of the planet/natural environment through
adopting measures that preserve the environment as opposed to damaging/degrading it).
As a result, business managers/administrators/entrepreneurs are therefore becoming more mindful about the
economic (profit), social (people) and environmental (planet) when conducting their business activities since
these three pillars are now being considered key determinants of business success. Business managers should
therefore ensure that as they strive hard to see that their businesses are profitable, their businesses should not
impose negative impacts like air pollution and water pollution for social wellbeing and all sorts of environmental
degradation through their business activities.
Business sustainability helps to achieve various sustainability development goals (SDGs) launched by the
United Nations in September 2015 including; no poverty, quality education, clean water and environment,
responsible consumption & production, climate action and protection of life below and on land.
7.1 Meaning of Business Sustainability

Business Sustainability refers to the ability of the business to balance the environmental, social and
economic aspects known as Triple Bottom Line or 3 Ps of planet, people and profit (Elkington, 1994). It
is also defined as a business strategy that focuses on long-term profitability with integration of
environmental and social issues into the business model (Spiliakos, 2018). Business sustainability is
further defined as the ability of a business to meet the needs of the present without compromising the
ability of the future generations to meet their own needs (The Brundtland Commission’s Report, 1987).

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A true measure of success for businesses should be determined not only by their reported earnings, but
also by their governance, social responsibility, ethical behaviour, and environmental performance (Rezaee,
2016). Thus, business sustainability is measured by economic, governance, social, ethical, and
environmental (EGSEE) dimensions (Rezaee et al., 2019). Thus, business sustainability is measured by
economic, governance, social, ethical, and environmental (EGSEE) dimensions (Rezaee et al., 2019;
Elkington, 1997).
N.B: A sustainable business, or a green business, is an enterprise that has a minimal negative impact or
potentially a positive effect on the global or local environment, community, society, or economy that is business
that attempts to meet the triple bottom line.
7.2 Pillars/components/elements of Business Sustainability

Business sustainability is composed of three elements including; economic sustainability, social
sustainability and environmental sustainability as illustrated below:
These are explained below:
1. Economic Sustainability: Economic sustainability refers to a practice that support long-term business
growth without negatively impacting social, environmental, and cultural aspects of the community. This

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pillar puts emphasis on optimizing the business budget and plays a key role in sustainable development
as it opens more doors for success in the other pillars of sustainable development.
2. Social Sustainability: Social sustainability is about identifying and managing business impacts, both
positive and negative, on people. This pillar puts emphasis on making sure that communities and
societies can thrive and continue to exist in a healthy, fair, and equal way. It focuses on improving people’s
quality of life, fostering strong relationships, and ensuring everyone has the chance to fulfill their potential.
Business administrators should therefore ensure the well-being of their employees by implementing
governance that conveys social values.
3. Environmental Sustainability: Environmental sustainability refers to the responsible management of

natural resources to fulfill current needs without compromising the ability of future generations to meet
theirs. This pillar puts emphasis on preserving the environment when conducting business activities.
Integrating environmental targets into business management is essential from a corporate social
responsibility (CSR) perspective. Practicing corporate social responsibility is therefore essential in
preserving environmental sustainability.
7.3 The Tripple Bottom Line
The triple bottom line expands the traditional idea of profit maximization objective of a business entity to include
two other equally important elements of social and environmental impacts of the business. The triple bottom
line is made up of three elements: people, planet, and profit that argue that an organization should take their
performance analysis beyond the traditional measures of financial performance. When combined, these three
elements can help your business grow and expand while helping to create a sustainable future (Elkington,
1994).

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Illustration of Tripple Bottomline
These are explained below:

1. People: The first “P” is for people, and it refers to the social impacts of the business, including treating
well the employees of the business as well as the local community where the business is situated/located.
Helping people in the community has benefits to the community as well as the business itself.
2. Planet: The second “P” is for the planet, and this one focuses on the environmental impact of our actions
as a business. Businesses who follow this philosophy will take important steps to become more
sustainable by reducing waste, investing in renewable energy, managing resources efficiently, and
improving overall business operations through the 5 Rs of sustainability.
3. Profit: Profit is the final element in the triple bottom line and is the most familiar one. Sustainable and
triple bottom line-focused companies will understand that financial profitability doesn’t have to be
diametrically opposite of “people” or “planet.” Instead, when all the three Ps work together, you can
arguably reap triple the benefits.
7.4 Principles of Business Sustainability
Business sustainability involves several principles and these are discussed below:

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(i) Economic value alignment: Ensuring sustainability initiatives align with business objectives, cost
savings, revenue generation, risk management, brand building, and long-term profitability.
(ii) Continuous improvement: Adopting sustainability as an ongoing journey rather than a destination.
Regular evaluation and evolution of strategies are imperative as risks and opportunities evolve over time.
(iii) Transparency and accountability: Measuring, reporting and taking responsibility impacts, both positive
and negative. Ethical conduct and compliance with regulations are mandatory.
(iv) Innovation: Developing creative strategies and technologies to maximize positive impact and minimize
harm. This requires moving beyond incremental improvements to transformational solutions.
(v) Systems thinking: Evaluating how business activities interact with social, economic, and ecological
systems. This enables identifying unintended consequences ad interconnected issues.
(vi) Collaboration: Working across sectors and stakeholders to solve complex sustainability challenges.
Partnership is essential to drive systemic change.
(vii) Life cycle thinking: Assessing environmental, social, and economic impacts across the entire life cycle
of products and operations.
7.5 Challenges to Business Sustainability
(i) High operational costs involved: One major barrier is that sustainability initiatives often require
significant amounts of money. Installation of renewable energy systems, green building renovations,
supply chain transformations, and other efforts are costly. Since the payback periods are longer, some
companies struggle to justify these investments. A long-term mindset and patience are necessary.
(ii) Difficulty measuring and demonstrating sustainability: It is difficult for businesses to accurately
measure, track, and report on sustainability metrics. While frameworks exist, quantifying carbon
emissions, energy savings, waste reduction, and other impacts remains a challenge. Without clear
sustainability data, organizations struggle to demonstrate the impact of their efforts both internally and
to external stakeholders. More maturity in measurement practices is still needed.
(iii) Difficulty in reconciling economic and sustainability goals: A persistent obstacle is balancing
sustainability with profits, growth, and other economic goals. Some green initiatives save money or fuel

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growth, but others require trade-offs. Companies need strategies to align innovation and sustainability
with core business objectives so that they are complementary rather than competing priorities. This
integration remains tricky for many organizations.
(iv) Difficulty in balancing interests of various stakeholders: Business sustainability involves
understanding the needs of diverse groups, from shareholders and employees to customers, regulators,
and local communities. Balancing these varied interests adds layers of complexity to sustainability
strategies. Open communication and collaboration are essential, though reconciling competing demands
remains an ongoing process.
(v) Uncertain outcomes from radically new models: Pursuing innovative sustainability models involves
risks and uncertainties. Radical business model innovations require a tolerance for failure and
experimentation. The outcomes of emerging solutions like the circular economy, regenerative agriculture,
and agile manufacturing contain uncertainty of returns.
(vi) Supply Chain Challenges: It is particularly hard for small or medium-sized businesses to develop a
robust supply chain model if larger suppliers might not pay attention to their demands or requests. All
in all, the biggest challenge is transparency and finding suppliers who are willing to be transparent about
their practices, their manufacturing processes and, raw materials. Reliable suppliers of raw materials,
tools and equipment are needed for sustainability practices to be implemented if a business seeks to
reduce waste, improve efficiency, and seeks to develop end products that don't just lower costs, but also
take social and environmental sustainability dimensions in to consideration.
7.6 Advantages of Business Management Practices
Sustainable business practices don't just benefit the environment and local community; they can also bring a
wide range of benefits to the business itself, including greater profitability. Here are some important benefits
that come with more sustainable business practices:

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(i) Reduced costs: Energy-efficient processes and appliances don't just help reduce emissions; they also
help you save money by reducing the consumption of energy. The massive increase in the cost of energy
since 2022 is a strong incentive to be smarter with energy consumption and reduce these costs.
(ii) Increased revenue: Sustainable business practices make money. While essential, it's not just about
doing the right thing ethically. Sustainable businesses can cultivate a positive public image, a reputation
for behaving responsibly. These ethical businesses attract customers who are passionate about
supporting social or environmental issues.
(iii) Improved employee morale: Employees may be more likely to be happy (and therefore more productive)
when they work for a company that is committed to sustainability. Ethically-minded employees will be
attracted to companies whose social or environmental values align with their own. Sustainability often
comes hand-in-hand with other positive cultural traits. A positive and progressive culture is also likely to
give employee well-being plenty of attention.
(iv) Improved efficiencies: Going paperless is a popular method of making a business more sustainable, but
it is not just about reducing waste. Taking important documents and processes online (or digital) can
make that information more easily accessible, and easier to process. This can greatly improve
collaboration, administration and overall efficiency.
(v) Competitive advantage from new capabilities: Leading in sustainability can be a differentiator that
sets businesses apart. Developing expertise in renewable energy, resource efficiency, life cycle analysis,
and other capabilities can become a source of competitive advantage. Sustainability leaders are perceived
as innovators, earning prestige and customer loyalty.
(vi) Cost savings through efficiency gains: Many green initiatives also deliver significant cost savings
through energy efficiency, waste reduction, and conservation. Investments in equipment upgrades, data
analytics, automation, and other efforts can generate major reductions in operating expenses. The
financial benefits are both immediate and lasting.
(vii) Helps to meet emerging consumer, regulatory, and societal demands. Business sustainability opens
doors for new offerings that meet emerging consumer, regulatory, and societal demands. For example,
electric vehicles, renewable energy services, recyclable packaging, and sharing platforms are examples of
innovations driven by sustainability that led to meeting emerging consumer, regulatory, and societal
demands.

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(viii) Improved brand reputation: Sustainability helps boost brand reputation with consumers, investors,
and other stakeholders. Companies recognized as sustainability leaders often benefit from increased trust,
admiration, and loyalty. They are perceived as purpose-driven organizations on the cutting edge.
(ix) Access to new markets and partnerships: A commitment to sustainability opens doors to new
partnerships, customers, and markets. Like-minded organizations seek out sustainability champions to
work with, providing access and. Leadership in green business is a gateway for attractive collaborations
across sectors.
(x) Attract and retain talent: Involving employees in sustainability can also increase motivation and
productivity.
(xi) New opportunities and emerging markets: Companies that have sustainability strategies increase their
chances of winning new or repeat business, as they demonstrate a commitment to reducing their
environmental impact and improving their social practices.
(xii) Government incentives: In some regions, such as European Union countries, governments offer
incentives, tax breaks, or grants to SMEs that adopt sustainability practices.
(xiii) Easy access to capital: Investors and financial institutions increasingly favor sustainable businesses,
making it easier for SMEs to secure funding and loans. These benefits not only contribute to the SME's
bottom line but also play a vital role in addressing pressing global challenges such as climate change,
resource depletion, and social inequality. By integrating sustainability into their core strategies, SMEs
can secure a brighter and more sustainable future for themselves and the plane
REFERENCE MATERIAL
Adom, K., Hinson, R. E., Mintah, E. O., & Obuobisa-Darko, T. (2023). Business Administration: An Introduction for
Managers and Business Professionals. CRC Press.

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TOPIC EIGHT
BUSINESS ETHICS AND BUSINESS SOCIAL RESPONSIBILITY
The evolution of business ethics into business social responsibility (BSR) began with a focus on ethical behavior
to build trust with stakeholders through honesty, integrity, fairness, and accountability. Over time, businesses
recognized the importance of considering all stakeholders, including employees, customers, and the
environment. This led to the emergence of Corporate Social Responsibility (CSR), which extended ethics to social
and environmental responsibilities. Businesses then integrated these responsibilities into their core strategies,
driven by public demand for responsible behavior. Regulatory frameworks and standards like the Global
Reporting Initiative (GRI) (Is an international not-for-profit organization with a network-based structure whose
mission is to sustainably improve the world by enabling organizations understand and communicate the
impacts of their activities on the people and the environment) encouraged transparency and accountability. The
focus shifted to sustainable development, balancing economic growth with social equity and environmental
protection. Modern BSR now involves stakeholder collaboration and innovation to address complex challenges,
contributing to global goals like the UN Sustainable Development Goals (SDGs)-17 adopted in 2015 to achieve
peace and prosperity for people and the planet.
8.1 Key Concepts
(i) Ethics: These are codes of values and principles that govern the action of a person, or a group of people
regarding what is right versus what is wrong. Therefore, ethics set standards as to what is good or bad
in organizational conduct and decision-making.
(ii) Business Ethics encompass the ethical principles and standards that govern conduct in the business
realm, whereas Business social responsibility (BSR) is a holistic management concept that defines
responsible conduct within a company, encompassing its goals, values, competencies, and the concerns
of stakeholders (Suwala & Albers, 2020). Companies that consistently exhibit ethical behavior and a
commitment to social responsibility achieve superior outcomes (Carroll, 2021).

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It involves the examination of appropriate business policies and practices regarding potentially
controversial subjects, including Business governance, insider trading, bribery, discrimination,
Business social responsibility, and fiduciary responsibilities.
8.2 Principles of Business Ethics
(i) Integrity: Being honest and having strong moral principles. Integrity involves doing the right thing even
when no one is watching. It means adhering to ethical standards and being truthful in all business
dealings. For example: A Ugandan company like Uganda Breweries Limited (UBL) demonstrates integrity
by adhering to high ethical standards in their operations, ensuring product quality and safety, and being
honest in their advertising and communications e.g. ‘Smoking is harmful to your health ‘
(ii) Fairness: Ensuring equal treatment and fairness in business dealings. It means treating all stakeholders
equally and without discrimination, providing equal opportunities, and ensuring just treatment in all
business interactions. For example: MTN Uganda has been recognized for its efforts in promoting fairness
in the workplace by providing equal employment opportunities and implementing policies that prevent
discrimination based on gender, race, or disability.
(iii) Transparency: Maintaining openness and clarity in communication and operations. It involves being
open about company operations, decisions, and financial performance. It includes clear and honest
communication with stakeholders. E.g. Stanbic Bank Uganda practices transparency by regularly
publishing its financial reports, engaging in open communication with customers and investors, and
being clear about its business practices and policies.
(iv) Accountability: Being responsible for one’s actions and their consequences. It means taking
responsibility for one’s actions and being willing to explain and accept the outcomes, whether positive or
negative. E.g. Kampala Capital City Authority (KCCA) has shown accountability by addressing public
concerns transparently, taking responsibility for city management, and implementing corrective
measures when necessary.
(v) Respect for Others: Valuing and considering the rights and feelings of others. Respect for others involves
acknowledging the inherent worth of all individuals, treating everyone with dignity, and valuing diverse
perspectives. E.g. Cipla Quality Chemical Industries Limited respects its employees and the community

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by ensuring safe working conditions, engaging in community health initiatives, and fostering a respectful
and inclusive workplace culture.
8.3 Business Social Responsibility

Business Social Responsibility (BSR), often referred to as Corporate Social Responsibility (CSR), is the
practice of companies taking responsibility for their impact on society. This involves going beyond legal
obligations and integrating social, environmental, and economic concerns into their operations and
interactions with stakeholders. “BSR” was loosely referred to as a set of societal expectations against
business practices. BSR is a business model that helps a company to be socially accountable to itself,
stakeholders and the public. It’s important for people to differentiate Business Social Responsibility and
Individual Social Responsibility i.e. Business social responsibility (BSR) refers to the ethical obligation of
companies to act in ways that benefit society and the environment, such as through sustainable practices
e.g. Waste Reduction, Water Conservation: Coca-Cola has programs to reduce water usage and improve
water efficiency in its production processes, community engagement, and ethical business operations.
Individual social responsibility (ISR), on the other hand, pertains to the duty of individuals to contribute
positively to society, which can include volunteer work, ethical behavior, and environmentally conscious
actions. While BSR focuses on the collective impact of businesses, ISR emphasizes personal actions and
contributions.
8.4 New trends in Business social responsibility (BSR)

Business social responsibility (BSR) is shaped by several emerging trends and evolving expectations. Here
are some key aspects:
(i) Integration with Core Business Strategy: Beyond Philanthropy (Desire to promote the welfare of
others, typically through the donation of money to good causes, is evolving in response to new challenges
and opportunities): Companies are moving beyond traditional philanthropy and integrating social
responsibility into their core business strategies. This includes embedding ethical practices,
sustainability, and social impact into business models and decision-making processes.

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(ii) Sustainability and Environmental Stewardship: There is a growing emphasis on reducing carbon
footprints and achieving carbon neutrality. Companies are investing in renewable energy, sustainable
practices, and innovative technologies to minimize environmental impact.
(iii) Stakeholder Engagement: Collaborative Initiatives: Businesses are increasingly collaborating with
governments, non-profits, and other organizations to address social and environmental challenges
collectively.
(iv) Technology and Innovation: Digital Transformation: Technology is playing a significant role in
advancing BSR. Companies are leveraging digital tools and platforms to improve sustainability practices,
enhance transparency, and engage with stakeholders. This is through advanced data analytics and
reporting tools such as power BI, google analytics are being used to measure and report the social and
environmental impact of business activities more accurately.
(v) Global Challenges: Climate Change: Businesses are recognizing their role in combating climate change
and are taking proactive steps to mitigate its impact.
8.5 Scope of Business Ethics and Business Social Responsibility
(A) Responsibility to share holders

(i) “Are owners who invest their money in the business.”
(ii) Safeguard the capital of the shareholders - make profits
(iii) Provide a fair return on their investment (reasonable dividend) –commensurate to earnings
(iv) Adequate reserve to provide dividend in lean years
(v) Ensure longevity of business - By growth, innovation, diversification, the business should
consolidate and improve its position and help to strengthen the share price
(vi) Transparency in the operation of business - Expectation of ethical and moral behavior
(B) Responsibility to Customers.

(i) “A customer is the foundation of business and keeps it in existence.”
(ii) Right to safety - Provide quality products that are safe

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(iii) Efficient distribution system to ensure stoppage of hoarding and black-marketing (unfair trade
practices) –black marketing involves buying and selling of goods above the prices set by the
government or dealing with illegal products.
(iv) Supply products at a reasonable price & after sale service
(v) To understand customer needs and to take necessary measures to satisfy these needs
(vi) The Right to product knowledge & Education – disclose through advertisements both the positive
and negative effects of the products.
(vii) The Right to full value - Ensure product utility & performance as advertised
(viii) Right to justice – good customer service and treatment
(ix) The Right to product Choice. Ability of consumers to choose the products and services they want –
avoid monopoly
(x) The Right to be heard. Ability of consumers to express legitimate complaints to the appropriate
parties.
(xi) Ensure fair measurements
(xii) Avoid misleading through advertisement Information about the product
(C) Responsibility to Employees.

(i) Payment of fare wages or salaries – based on nature of work and prevailing market rates
(ii) Healthy and safe Working conditions
(iii) Provision of Labor welfare facilities (Housing, transportation and medical facilities)
(iv) Training and education should be provided
(v) Proper atmosphere for accomplishment and promotion – fair staff adjustments
(vi) Grievance handling system
(vii) Provision for their participation in decision making
(D) Responsibility to Government.

(i) Responsible companies are good corporate citizens. They contribute to the development of industry
and economy. These responsibilities include:
(ii) Follow the guidelines of the government while setting up the business

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(iii) Conduct the business in a lawful manner-shouldn’t indulge in any corrupt practices or unlawful
activities
(iv) Pay the taxes honestly and on time
(v) Provide legally required data
(vi) Implement government schemes e.g. agriculture, NAADs, PDM, Youths Livelihood Program
(vii) Respect government rules and regulations regarding business operation
(viii) These companies find it easier to obtain license, credit from public and supply order from
government
(E) Responsibility to Community

(i) Public Health Issues. What to do about inherently dangerous products such as alcohol, tobacco,
vaccines, and steroids.
(ii) Protecting the Environment. Using resources efficiently, minimizing pollution.
(iii) Recycling. Reprocessing used materials for reuse.
(iv) Developing the Quality of the Workforce. Enhancing quality of the overall workforce through
education and diversity initiatives.
(v) Charitable work. Cash contributions, donations of equipment and products, and supporting the
volunteer efforts of company employees. – contribute to the general welfare of the community.
(vi) Preserve and promote social and cultural values
(vii) Generate employment opportunities.
(viii) Provide infrastructure such roads, hospitals and schools
(ix) Contribute towards the upliftment of weaker sections of the society (Women, youth and the
disabled).
(F) Responsibility to Creditors

(i) These include suppliers of raw materials and other components to the business organizations who
usually provide these on credit and financial institutions from which funds are borrowed.
(ii) A good relation with suppliers and financial institutions is essential for quality & continuous supply
of raw materials, other inputs & funds for continuous production.

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(iii) Unfair Practices; breaking contract, Delayed payment, taking advantage of loopholes
(iv) Businesses need to provide honest payments and on time to the creditors
(G) Responsibility to Competitors

(i) Competitors brand assassination.
(ii) Restrictive trade practices; price discrimination, tie-up sale, exclusive dealership
(iii) Unfair trade practices- misleading advertisement, tricky prices, unreasonable product guarantee
8.6 Benefits of Business Social Responsibility

(i) Attraction and retention of Quality and Talented Human Resource: Sustainable and employee-
focused BSR practices boost talent recruitment and retention by prioritizing worker welfare. Companies
that invest in wellness, diversity, and supportive initiatives often see reduced turnover and enhanced
employee motivation.
(ii) Creates brand awareness: Brands linked to good causes can influence consumer decisions, with BSR
serving as a powerful marketing tool. Consumers are more likely to support brands that give back to
society, making BSR an effective strategy for attracting attention and loyalty.
(iii) Risk Mitigation/management for stable cash flow: Engaging in BSR helps companies mitigate risks
like reputation damage and regulatory fines. Proactively addressing social and environmental issues and
complying with regulations ensures stability, reduces costs, and supports cash flow.
(iv) Increased access to Capital: Investors, financial institutions and donors favor businesses with strong
BSR reputations, often supporting those with impactful activities. A good BSR track record can attract
investment and enhance brand appeal in a competitive market.
(v) Boosts business reputation: Engaging in BSR enhances a company's reputation and brand image,
attracting customers, investors, and partners. It builds trust, customer loyalty, and can give a competitive
edge by fostering a positive public image.
(vi) Customer Retention: Clients prefer reputable brands for trust and service reliability. BSR builds loyalty
and trust, showing commitment to societal values, which attracts like-minded clients. This results in
higher satisfaction and retention.

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(vii) Costs savings: Firms can benefit by strategically managing resources to reduce waste and emissions.
Implementing sustainable practices, such as recycling, cuts production costs and minimizes
environmental impact, aligning with environmental BSR goals.
(viii) Reduction staff turnover: Contemporary workers thrive on a sense of togetherness, which can be
fostered through team-building and BSR activities. Such initiatives, like volunteering for charity, enhance
communication, teamwork, and reduce turnover.
(ix) Opportunity to partner with Government to drive Economic Growth: In resource-constrained
countries like Uganda, BSR activities, such as MTN Uganda’s solar kit donations, enhance community
services and education. This fosters economic growth and benefits businesses by increasing local
purchasing power.
8.7 Limitations of Business Social Responsibility
(i) Conflict between the purpose of business and the concept of social responsibility/Pursuit of profit
as a major objective. Businesses prioritize maximizing profits, often conflicting with BSR goals due to
increased costs. Balancing profit with social and environmental responsibilities is challenging, as
achieving equilibrium between societal contributions and returns remains difficult.
(ii) Broad scope of BSR: The expanding range of BSR issues, including sustainability and human rights,
complicates business management and resource allocation. New global regulations increase compliance
complexity, adding to operational costs and challenges.
(iii) The cost implication BSR has on Businesses: BSR activities, though valuable for community
engagement, incur costs that can burden businesses, particularly small enterprises. Competing with
established companies that leverage BSR for public visibility and employee benefits can be challenging.
(iv) Increment in Stakeholder/ Investors expectations: As BSR has shifted from optional to essential,
businesses must demonstrate social and environmental responsibility to attract investment. Startups
may struggle with this expectation, needing to elevate their BSR efforts to remain competitive.
(v) Navigation of more Complex Ethical requirements: BSR now encompasses more than legal
compliance; businesses must also address fair labor practices and sustainable production. The ethical
focus has expanded to include broader environmental and social responsibilities.

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(vi) The actual benefit received by the community is negligible or non-existent: BSR interventions often
favor businesses through brand recognition rather than genuine community impact. Businesses invest
minimally, focusing on brand image and market access, with little societal benefit relative to their profits.
Without standardized BSR metrics, impact and progress remain unmeasured at the house hold level.
(vii) Complexity of Regulatory framework: The expansion of BSR activities and the introduction of new
regulations related to Business responsibility have increased the complexity of regulatory frameworks.
Governments must navigate intricate compliance requirements and ensure consistency across different
industries and sectors.
(viii) Difficulty in balancing economic growth objectives with BSR goals: Governments often grapple with
the challenge of balancing economic growth objectives with BSR goals. Encouraging businesses to engage
in responsible practices while maintaining competitiveness and economic development can be a delicate
balancing act.
8.8 Solutions sought to address the existing challenges
(i) Balancing profit and social responsibility: When starting a BSR initiative, balance profit with ethical
responsibility and societal contribution. Treat Social Responsibility as a marketing tool and long-term
objective to market products and create brand awareness, ultimately growing the company's profit
alongside its BSR efforts.
(ii) Proper budgeting and Partnerships: Companies should budget properly for BSR activities and consider
partnering with other firms to reduce costs and enhance impact. For example, several companies,
including Next Media and Vivo Energy, collaborated on the "Taasa Obutonde" (Protect the Environment)
campaign to recycle plastic waste in Uganda.
(iii) Transparency and reporting: Companies should adopt transparent reporting practices, using
standardized frameworks like Global Reporting Initiative, to provide stakeholders with comprehensive,
consistent, and comparable information about their BSR initiatives, ensuring clarity and accountability.

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(iv) Collaboration with stakeholders is pivotal: Businesses should engage diverse stakeholders, including
households and local communities, to shape BSR initiatives. Partnerships with NGOs and others can
address societal challenges collectively.
(v) Education and training: Promoting BSR involves training employees to foster responsibility and
educating consumers about ethical and environmental impacts, empowering them to make informed,
responsible choices.
(vi) Innovation in green product development is vital: Companies should develop eco-friendly products
that meet household sustainability needs, considering the entire life cycle. Invest in R&D for innovative
solutions to benefit society and minimize harm.
(vii) Strengthening regulations: Governments should enhance BSR regulations to cover sustainability, labor,
and ethics. Establish a regulatory body to monitor compliance, ensuring guidelines aren't overly complex.
(viii) Implementing incentive programs: Implement incentive programs, such as tax benefits or grants, to
reward businesses with exemplary BSR practices. Establish BSR awards to recognize and encourage
responsible behavior.
(ix) Creating public awareness: Invest in awareness campaigns and educational programs to inform
consumers about BSR issues and responsible purchasing. Standardize BSR reporting, require impact
disclosures, and research BSR effects to empower informed decisions and enhance Business
accountability.
REFERENCES
1. Carroll, A. B. (2021). Business social responsibility: Perspectives on the BSR construct’s development and
future. Business & Society, 60(6), 1258-1278.
2. Katamba, D., & Wickert, C. M. (2021). Business Social Responsibility in Uganda: Localizing the Global
Business Social Responsibility Agenda: Lessons from Uganda. In Current Global Practices of Business
Social Responsibility: In the Era of Sustainable Development Goals (pp. 563-578).

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3. Suwala, L., & Albers, H. H. (2020). Business spatial responsibility and sustainable development goals. In
Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals (pp. 141-153).
Berlin, Heidelberg: Springer.
11. Linda K. Trevino and Katherine A. Nelson (2010).Managing Business Ethics, 5th Edition, Wiley
Publishers
Online Video Link
a) Business Ethics: Corporate Social Responsibility: https://www.youtube.com/watch?v=xoE8XlcDUI8

b) What is Corporate social responsibility (#CSR) ? https://www.youtube.com/watch?v=1bpf_sHebLI
c) Business Ethics Corporate Social Responsibility: https://www.youtube.com/watch?v=EFkSfvvAVeE
https://www.youtube.com/watch?v=mCgV_43oLnc&pp=ygU8YnVzaW5lc3Mgc29jaWFsIHJlc3BvbnNpYmlsaXR
5IGJ1c2luZXNzIGFuZCBidXNpbmVzcyBldGhpY3Mg

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TOPIC NINE
BUSINESS ENVIRONMENT
The business environment is dynamic and constantly evolving, requiring businesses to adapt and respond
strategically to changes in order to maintain competitiveness and achieve sustainable growth (Jahan, 2024).
Understanding the business environment helps organizations anticipate trends, identify risks and
opportunities, and formulate effective strategies to navigate and thrive in the market both regionally and locally
(Chege & Wang, 2020). It is therefore important for business administrators to understand both the internal
and external environment in which they operate.
Business environment refers to the internal and external factors and forces that affect the organization's
performance either positively and negatively. Business environment also refers to the sum total of all internal
and external factors that influence the functioning and performance of a business positively or negatively.
It involves the internal aspects including; men, money, materials, machinery and markets that shape the
strengths and weaknesses faced by the business. It also involves the external aspects including; political,
economic, social, technological, ecological and legal environmental conditions that shape the opportunities and
threats faced by the organization.
9.1 Business Environment Analysis

Analyzing the business environment involves evaluating various internal and external factors that can
impact an organization's performance. Below are some tools and frameworks commonly used for this
purpose.
External Environment Analysis Tools:

(i) PESTEL Analysis: This involves an evaluation of the macro-environmental factors affecting an
organization. These include the political, economic, social, technological, ecological, legal factors.

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(ii) Porter's Five Forces: This involves analyzing the industry structure and competitive intensity. Involves
analyzing the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat
of substitute products or services and rivalry among existing competitors.
(iii) Competitive Analysis: This involves studying competitors to understand their strengths, weaknesses,
strategies, and market positions.
(iv) Scenario Planning: This involves evaluating the potential future scenarios and their impacts on the
business.
(v) Value Chain Analysis: This involves examining the value-adding activities of a business to identify
competitive advantages.
(vi) Benchmarking: This involves comparing business processes and performance metrics to industry bests
and best practices from other companies.
SWOT Analysis: This involves an assessment of internal strengths and weaknesses, and external opportunities
and threats of the business as guided in the table below:

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SWOT ANALYSIS
Strengths Weaknesses
 These are internal capabilities that  These are internal limitations
provide advantages to the business or deficiencies that create
operations. disadvantages to the
business operations.
 They include; availability of abundant
 They include; areas that need
resources, skills and competences
improvement, lack of
and other competitive advantages.
resources, new markets, etc.
 Processes or systems that
need enhancement
Opportunities Threats
 These are external factors the  These are external factors
organization can capitalize on. that could cause trouble for
 They include; market trends, new the business.
markets and technological  They include; changing
advancements. regulatory environment, stiff
competition, economic
downturns, political
instability and economic
shocks such as COVID-19.
Internal Environment Analysis Tools
(i) Resource-Based View (RBV): This tool focuses on the organization's resources and capabilities as
sources of competitive advantage.

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(ii) Balanced Scorecard: This involves measuring the organizational performance across four perspectives
of financial, customer, internal business processes, learning and growth.
(iii) Financial Ratio Analysis: This involves assessing the financial health and performance of an
organization using various financial ratios including; liquidity ratio, leverage ratios, efficiency ratios,
profitability ratios and market value ratios.
(iv) BCG Matrix: Helps in portfolio management by categorizing business units or products into four
categories of; Stars, question marks, cash cows and dogs.
(v) NOISE. NOISE is an acronym for a business environment analysis tool though not widely recognized or
standard in most business strategy frameworks. NOISE in a business context stands for; needs,
opportunities, improvements or issues, strengths and exceptions or external factors. This framework
could function as follows: Identifying the needs of the business or the market (Needs), recognizing
opportunities for growth or improvement (Opportunities), pin-pointing areas within the business that
require enhancements (Improvements), assessing the strengths of the business that can be leveraged
(Strengths) and Considering exceptions or unique factors that might affect the business environment
(Exceptions). Using these tools in combination can provide a comprehensive understanding of the
business environment and help in strategic planning and decision-making.
9.2 Internal Environment
Internal environment are factors operating within the business organization that affect the business
operations and performance either positively or negatively. These elements are under the business firm's
control. They can be analyzed using the 5Ms Model i.e. Men, money, materials, machinery and markets
as explained below:
(i) Men: these are human resources of the business organizations. These influence business performance
in terms of:
(a) Employee skills: These include; competences, experiences, capabilities, interpersonal skills,
motivation, and engagement levels of employees that contribute significantly to organizational
performance. Therefore, high levels of employee skills lead to efficiency in business operations and

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improved business performance while low levels of employee skills lead to inefficiency in business
operations and poor business performance.
(b) Leadership/management style: This includes; close supervision vs less supervision or dictatorial
vs participative styles. The quality of leadership within the organization can impact strategy
formulation, employee morale, and organizational effectiveness. Therefore, a good
leadership/management quality or style leads to improved business performance whereas a poor
leadership/management quality or style leads to a decline in business performance.
(c) Organizational culture: This includes; values, beliefs, norms, and behaviors that shape the
organization’s identity and influence how employees interact and make decisions. Therefore,
business operations and performance are positively affected when its organizational culture is
favourable and negatively affected when its organizational culture is un-favourable.
(d) Organizational structure: The formal framework of roles, responsibilities, and reporting
relationships within the organization affects communication, efficiency, and decision-making
processes. Therefore, business operations and performance are positively affected when the
organizational structure is clear & favourable and negatively affected when the organizational
structure is not clear and unfavourable.
(e) Human resource policies: These include policies on; remuneration, staff adjustments and training
and development among others. Therefore, business operations and performance are positively
affected when human resource policies are favourable and negatively affected when the human
resource policies are un-favourable.
(ii) Money (Financial Resources): These are financial resources/wealth of the business organization. It may
include; physical assets (acting as collateral security), cash at hand and in the banks and bonds etc.
Availability of capital, cash flow management, and financial stability are critical for investment, growth,
and sustainability. Generally, business operations and performance are positively affected when the
financial resources are more available and negatively affected when the financial resources are less
available
a) Materials: This refers to the inputs or raw-materials to be used by the organization so as to produce
goods/services in terms of quality, costs and availability. The range, quality, and uniqueness of
products and services offered by the organization equally impact competitiveness and customer

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satisfaction. Generally, business operations and performance are positively affected when the
materials are more available and negatively affected when the materials are less available.
b) Machinery: This includes the equipment, machines and tools used in the production process.
These influence business performance in terms of up datedness vs. obsoleteness. It also includes
the production process and systems of performing activities in terms of orderly flow vs. disorderly
or simple vs. complicated processes. Generally, business operations and performance are positively
affected when the business uses more efficient technology or machines and negatively affected
when the business uses less efficient technology or machines.
c) Markets: This refers to the consumers/customers of the organization in terms of the
products/services provided by the organization. Products should be attractive to consumers in
terms of value, uniqueness (innovative features) to have a positive impact and the reverse is true.
Generally, business operations and performance are positively affected when the business has a
bigger market base compared to and negatively affected when the business has a smaller market
base.
9.3 External Environment
External environment are factors outside the organization’s control but can significantly impact its operations
and performance. They are analyzed using the PESTEL Model as follows:
(i) Political and Legal Environment
Government policies, regulations, political stability, trade policies, taxation laws, and labor laws can affect
business operations, costs, and market access. Therefore, a favourable political climate characterized by
political stability and security positively affects business financial and non-financial performance whereas
unfavourable political climate characterized by political instability and insecurity negatively affects
business financial and non-financial performance.
Political factors include the following:

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(a) Political system: Democratic pollical system enables business people to participate in making business
related policies thus leading to successful business operations and good business performance whereas
dictatorial pollical system limits involvement of business people from participating in making business
related policies thus leading poor business performance due to unfavourable business policies.
(b) Levels of bureaucracy: Short procedures involved in business processes makes it easy and cheaper to
operate a business thus its positively affecting its progress while long procedures involved in business
processes make it difficult and expensive to operate a business thus negatively affecting its progress.
(c) Levels of transparency: High levels of transparency lead to increased profit margins and thus good
business performance while low levels of transparency lead to reduced profit margins and thus poor
business performance.
(d) Likely changes in the political environment: A high possibility of change in in the political environment
or leadership in the country leads to business success since more resources will be invested in the
business while a low possibility of change in the political environment or leadership in the country leads
to business failure since less resources will be invested in the business.
(e) Foreign Policy: A favourable foreign policy promotes a good relationship between a country and other
countries and this creates a favourable environment for businesses to thrive whereas unfavourable
foreign policy distorts the relationship between a country and other countries and this creates
unfavourable environment for business operations.
(f) Political climate: A stable political climate leads to increased production activities and thus making
businesses to flourish while unfavourable potential environment limits the continuity of production
activities thus limiting the operation and performance of the business.
(g) Government policy: Favourable government policies through charging friendly taxes and giving subsides
among others stimulate business activities and thus its expansion while unfavourable policies like
corruption, favoritism and weak enforcement mechanism discourages business activities and thus
leading to poor business performance.
(h) Legal environment: Complex laws discourage business growth and development while less complex laws
promote business activities and thus increasing chances of business expansion.

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(i) Size of the government expenditure: A big percentage of government expenditure in health, education
or defense encourages many businesses to emerge to respond to the opportunity unlike in sectors where
there is low funding like agriculture while a small percentage of governments expenditure in health,
education or defense leads to reduced chances of investing in such sectors. In addition, increased
government expenditure leads to high personal income which leads to increased purchases and this
leads to increased sales revenue and profitability while less government expenditure leads to low
personal income which leads to reduced purchases and this leads to reduced sales revenue and
profitability.
(j) Level of development of government institutions and departments: Strong government and sensitive
government departments which appreciate the work done by business enterprises facilitate business
operations and lead to good business performance while weak and insensitive government departments
which do not appreciate the work done by business enterprises discourage business operations and
lead to poor business performance.
(ii) Economic Environment

Economic factors such as economic growth rates, inflation, interest rates, and exchange rates influence
consumer spending, demand for products/services levels of unemployment and labour supply,
development of aids to trade e.g. Banking, insurance & education facilities, roads, competition, natural
endowments and business investment decisions. Therefore, favourable economic factors in form of
favourable interest rates, price stabilities and less competition positively affect business operations
whereas favourable economic factors in form of unfavourable interest rates, price instabilities and stiff
competition negatively affect business operations.
Economic factors include the following:
(a) Inflation rate: High rate of inflation increases production costs which leads to low profit levels and poor
performance of business while low rate of inflation reduces production costs which leads to high profit
levels and good performance of business.

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(b) Interest rates: High interest rate increases production costs which leads to low profit levels and poor
performance of business while low interest rate reduces production costs which leads to high profit levels
and good performance of business.
(c) Labour costs: High labour costs increase production costs which leads to low profit levels and poor
performance of business while low labour costs reduce production costs which leads to high profit levels
and good performance of business.
(d) Levels of disposable income: High disposable income leads to high demand for the business products
which leads to high profit levels and business expansion whereas low disposable income leads to low
demand for the business products which leads to low profit levels and business expansion
(e) Organisation of financial markets: High level of organization of financial markets leads to good business
performance while low level of organization of financial markets leads to poor business performance.
(f) Foreign exchange rates: High foreign exchange rate increases production costs which leads to low profit
levels and poor performance of business while low foreign exchange rates reduce production costs which
leads to high profit levels and good performance of business.
(g) Business cycles: Business cycles characterized by economic boom and recovery lead to business
expansion while business cycles characterized by depression and recession lead to decline in business
performance.
(h) Development of aids to trade: High level of development of aids to trade such as banking, insurance &
education facilities, roads, leads to good business performance while low level of development of aids to
trade such as banking, insurance & education facilities, roads, leads to poor business performance.
(i) Level of competition: High level of competition leads to reduced sales and sales revenue thus a fall in
profit levels and poor business performance while low level of competition leads to increased sales and
sales revenue thus an increase in profit levels and improved business performance.
(j) Economic system: This defines the market system established by the government, market structure
and the extent to which all firms compete under fair games and rules. An open free market where the
economic activities are influenced by forces of demand and supply allows businesses to flourish, since it
has more rewards for innovators while a restrictive market economy which only give chance to the
government to control resource allocation, limits business success and performance.

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(k) Administrative issues: Relaxed procedures for registering, licensing, and settling tax obligation for the
businesses encourage business growth and development while tight and excessive number of rules and
procedures hinder business activities and lead to poor business performance.
(l) Level of infrastructures. Availability of infrastructures like roads, good communication networks, power
encourages business activities and thus good business performance while under developed
infrastructural facilities discourage business operations and thus good business performance.
(m) Legal requirements: Clear and effective legal requirements which protects the interests of the business
encourages business activities and thus its growth while laws which do not protect businesses discourage
the development of the business thus business expansion.
(n) Resource availability: Availability of resources like raw materials, land, labour, and capital encourages
business activities and expansion and limited supply of resources hinders business expansion.
(o) Costs of the business: Low operational costs for business operation like low transport costs, low inflation,
low interest rates and low insurance costs, lead to business expansion while high operational costs for
business operation like high transport costs, high inflation, h i g h interest rates and high insurance
costs leads to poor business expansion.
(p) Economic incentives: Presence of economic incentives like tax exemptions, tax holidays,
subsidization, leads to reduced costs of production as well as good financial performance while absence
of economic incentives like tax exemptions, tax holidays, subsidization, leads to increased costs of
production as well as poor financial performance.
(q) The level of development of financial systems. A well-developed financial system like banks and non-
bank intermediaries, security markets, financial instruments like treasury bills, credit cards, bill of
exchange and cheques among others leads to business expansion while under developed financial
systems leads to poor business performance.
(iii) Social and Cultural environment
Demographic trends, cultural values, lifestyle changes, consumer behavior patterns, and societal
attitudes toward issues like sustainability and ethical practices (professionalism) that shape market
demand and preferences. Population demographics like age, gender, family size, race, population growth

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rate, attitudes toward work and leisure or social values, education levels, lifestyle changes such as health
consciousness, liking for small families or single life, cultural aspects such as foods, dress code, color,
words, religious considerations for example e.g. selling condoms in staunchly catholic countries and
income distribution. Therefore, favourable cultural factors positively affect business operations whereas
unfavourable cultural factors negatively affect business operations.
Social and cultural environment factors include the following:

(a) Population demographics: Favourable population demographics in form of age, gender, family size, race,
lead to improved business performance while unfavourable population demographics in form of age,
gender, family size, race, lead to poor business performance.
(b) Level of professionalism and Ethical issues in business: High level of professionalism with increased
ethical practices in business lead to good business performance whereas low level of professionalism with
reduced ethical practices lead to poor business performance.
(c) Attitudes toward work and leisure: Favourable attitudes of employees towards work as opposed to
leisure where workers prefer work to leisure leads to increased production levels thus good business
performance whereas unfavourable attitudes of employees towards work as opposed to leisure where
workers prefer leisure to work leads to reduced production levels thus poor business performance.
(d) Lifestyle changes: Favourable life style changes in form of health consciousness, liking for small families
or single life, lead to improved business performance while unfavourable life style changes in form of
health consciousness, liking for small families or single life, lead to decline in business performance.
(e) Cultural aspects: Favourable cultural aspects in form of foods, dress code, color, words lead to improved
business performance while unfavourable cultural aspects in form of foods, dress code, color, words lead
to decline in business performance.
(f) Religious considerations: Favourable religious considerations in form of selling products like condoms
and pork in staunchly Catholic countries and Muslim countries, lead to improved business performance
while unfavourable religious considerations in form of selling products like condoms and pork in
staunchly Catholic countries and Muslim countries, lead to decline business performance.
(g) Level of income distribution: Fair or equitable income distribution leads to high personal income, high
demand for business products, high sales revenue and profitability thus leading to business expansion

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while unfair inequitable income distribution leads to low personal income, low demand for business products,
low sales revenue and profitability thus limiting business expansion.
(h) Family succession/inheritance: Some individuals inherit family wealth which can be used to
accumulate resources which can be used finance business activities thus increasing chances of business
expansion while absence of inherited wealth limits chances of business expansion due to limited capital.
(i) Population growth rate: A high population growth rate encourages business activities to flourish due
to high demand for goods and services while a low population growth rate discourage business
development due to low demand for goods and services.
(j) Level of education and experience: A higher level of education leads to high income levels of
consumers and thus increase in the demand for business products leading to business expansion while
low level of education leads to low-income levels of consumers and thus decrease in the demand for
business products thus limiting business expansion.
(iv) Technological Environment

This incorporates advancements in technology, digitalization, automation, and innovation affect how
businesses operate, produce goods/services, interact with customers, and compete in the market. Impact
of emerging technologies e.g. mobile money and internet in the telecommunication industry, on-line
learning or teaching, Impact of technological transfer, Rates of obsolescence, Impact of internet reduction
in communication costs and increased distant working. Therefore, use of advanced techniques of
production leads to increased efficiency and effectiveness in production and this positively affect business
operations whereas use of rudimentary techniques of production leads to reduced efficiency and
ineffectiveness in production and this negatively affect business operations.
The technological environment includes the following:

(a) Impact of emerging technologies: These include mobile money and internet in the telecommunication
industry, online learning or teaching/Artificial intelligence. Adoption of efficient techniques of production
leads increased efficiency in production thus to good business performance while use of rudimentary
techniques of production leads to inefficiency in production thus leading to poor business performance.

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(b) Impact of technological transfers. Increased levels of technological transfers into the country increases
efficiency in production thus leading to improved business performance whereas low levels of
technological transfers into the country reduces efficiency in production thus leading to decline in the
level of business performance
(c) Rates of obsolescence: High rate of obsolescence of machines leads to inefficiency in production thus
leading to production of low-quality output, low sales revenue, low profitability and thus poor business
performance while low rate of obsolescence of machines leads to efficiency in production thus leading to
production of high-quality output, high sales revenue, high profitability and thus good business
performance
(d) Impact of internet: Increased use of reliable internet leads to reduction in communication costs and
increased distant working thus leading to improved business performance while absence of reliable
internet leads to increased communication costs and reduced distant working thus leading to decline
business performance.
(v) Ecological factors

These are natural factors that impact business operations and performance positively or negatively.
Favourable natural factors such as climate change, natural disasters, resource availability, increasingly
lead to improved business performance whereas unfavourable natural factors such as climate change,
natural disasters, resource availability, increasingly lead to decline in business performance.
The Ecological factors include the following:

(a) Geographic position: The geographical position constitutes o n e of the most important natural
factors, because of its role in the determination of daylight duration, the daily sunrise and sunset
in year. The geographical p os iti on mainly describes the geographic coordinates like the latitude and
longitude. The latitude influences the daylight variation in a year because the regions near Ecuador
have the smallest variation of daylight during a year (the day is near equal with the night almost all
year long) while the regions near the poles have the biggest variation of daylight in a year. The
longitude influences the moment when the sun will rise or set in a region. The main problem is
that in many cases time zone does not reflect exactly the sun position in the sky. As a resultant,

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even though two regions are set in the same time zone, the sun will rise or set in a different period
of time. T h e r e f o r e , f a v o u r a b l e g e o g r a p h i c a l p o s i t i o n l e a d s t o e f f i c i e n t b u s i n e s s
operations and good performance while unfavourable geographical position leads
to inefficient business operations and poor business performance.
(b) Landscape: The landscape (landform or relief) is the second most important element that has a
significant influence upon the performance of the organization as well as on other natural factors.
The influence of landscape is represented by the additional investments incurred in placing the
economic activity in a specific region. The main activities influenced by the landscape are transport,
constructions and the resource exploitation like agriculture, mining or sylviculture. The transport
activities are mainly influenced by the consumption of energy per distance, for example, the
consumption of fuel per km is cheaper in the plain region than mountain region. The construction
activity is mainly influenced by the cost of stabilization of the terrain, protection against landslide and
so on. In the case of agriculture, the landscape limits the types of plants and animals that can be
grown. The landscape is mainly influenced by the human activity through the process of urbanization,
construction transport ways and quarries. The exploitation of natural resources is mainly influenced
by the difficulty and costs implied by the hampered accessibility on the terrain. Also, in times of
increased competitiveness and globalization, companies tend to organize themselves in clusters on
the base of similarity and regional proximity. This proves to be a real advantage for innovative small
and medium enterprises (SMEs), due to the easy and fast access to suppliers, markets and
knowledge. The accessibility of landforms contributes to the cluster organization and provides
companies the opportunity to be more efficient as they find more specialized assets and suppliers and
they minimize the reaction times contrary to the situation of isolation
(c) Climate: The climate has a direct influence upon the economic activities affected by a seasonal factor
(agriculture, tourism, consumption of certain goods) and an indirect influence on activities that do
not have a seasonal factor (construction, transport, textile industry). The direct influence has a
major impact on the revenues of the companies, mainly in the production process (agriculture) or in
sales of services like tourism. The indirect influence is mainly represented by the costs that companies
must invest in order to adapt to the features of each season (winter product stocks) and the
increase of the consumption of energy and fuels.

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(d) Ecosystem: Ecosystem represents the life form found in a certain area. This category of factors
includes plants and animal which are not considered resources, but influence the economic activity
of the organization. The main two are represented by the endangered species and the pest species.
The endangered species represent the plants and animals that are in low numbers, and that are
protected by national or international laws. The companies must invest additional resources in order
to protect the habitat of this type of species according to the legislation. The dangerous species are
represented by animals and plants that can harm humans or domestic animals. In order to protect
their employees and their assets, companies must invest in ways to adapt their activities in dangerous
habitats. Pest represents the life forms that disrupt the productivity of economic activities by damaging
the company's assets, like the destruction of cereals and vegetables in agriculture branch, damaging
the products and insects can even damage electric equipment. One category is represented by the
parasite microorganisms that provoke disease which can harm the employees. Even if the pandemic
cases can be solved only by the government, companies must instruct their workers in case of
relocation by acquisition of vaccines for the diseases of each region (flu vaccines for employees from
southern regions or yellow fever vaccines for employees from northern regions).
(e) Natural resources: Natural resources are represented by water, minerals, material, organisms or
other substance that can be used by human activity (Newbert, 2008). The importance of natural
resources resides in the ratio between the revenue from exploitation and the cost of exploitation.
Even if the demand and the price are significant elements for company to start the exploitation of a
certain resource, the influence of quantity, quality, density and difficulty of exploitation can result
in turning some areas into non-profitable ones. Natural resources can be divided into renewable
(wind, solar energy, organic material and so on) and non-renewable resources (minerals, oil, gas etc.).
Even the r e n e w a b l e r e s o u r c e s ca n be depleted if they are exploited unsustainably, such is the
case of soil. Natural resources must be used in a responsible way in order to reduce the material
losses and to develop efficient recycling technologies.
(f) Natural hazards. Natural hazards represent the all-natural phenomena that provoke damages and
loss of human life, through their intensity. In many cases, natural hazards are considered to be a
turbulence of the other factors. For example, earthquakes are produced especially in mountain
areas, while hurricanes are specific to regions with tropical climate. Even if the natural hazards are

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unpredictable and cannot be foreseen in the most times, the regions where these phenomena have
a high probability to happen are well known and can be avoided by companies that do not desire to
take any chances. The type of organization mostly influenced by natural hazard is represented by
insurance companies whose profits are influenced by the damaged provoked. The main actions that
companies can take are trying to diminish or to cover the damage of a natural disaster. Even if
companies can cover their loss of assets through insurances, their economic activities will be heavily
perturbed if they do not take actions to reduce the impact of such phenomena. To diminish the
damage companies must invest in: warning alarms, systems that stop the electricity or natural gas
supply to prevent fires, digs against floods, shelters and provisions, constructions that resist
earthquakes, exercises and regulations. Although, companies invest important resources in
protections against hazards, they will never be efficient without governmental investments like: digging
of rivers and seashores, warning systems, assistance plans and so on.
(vi) Legal environment

Competition laws-import and export tariffs, monopoly legislation, labour laws – Employment, workers
compensation & health and safety laws, information disclosure laws, intellectual property laws e.g. patent
& copy right laws, trademarks, product safety, regulatory bodies e.g. NEMA, UNBS, environmental
policies/laws. Understanding and managing both internal and external factors is crucial for business
leaders and managers to formulate effective strategies, mitigate risks, capitalize on opportunities, and
ensure long-term organizational success and sustainability.
Legal Environment includes the following factors:
(a) Competition laws: Favourable competition laws inform of high import tariffs, low export tariffs, and
monopoly legislation, lead to successful business operations while unfavourable competition laws inform
of low import tariffs, high export tariffs and monopoly legislation, lead to poor business performance.
(b) Labour laws: Strong labour laws in form of employment, worker’s compensation & health and safety laws
lead to employee motivation, increased production levels and improved business performance while weak

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labour laws in form of employment, worker’s compensation & health and safety laws lead to employee
demotivation, reduced production levels and reduced business performance.
(c) Information disclosure Laws: Existence of such laws leads to increased ethical behaviours where high
level of confidentiality is observed thus leading to good business image and good performance whereas
absence of such laws leads to reduced ethical behaviours where low level of confidentiality is observed
thus leading to poor business image and performance.
(d) Intellectual property laws: Favourable intellectual property laws such as strong patent & copy right
laws and trademarks reduce duplication levels of the business products and thus leading to reduced
business competition and good business performance while unfavourable intellectual property laws such
as weak patent & copy right laws and trademarks increase duplication levels of the business products
and thus leading to increased business competition poor business performance.
(e) Product safety laws: Existence of favourable product safety laws leads to the production of high-quality
marketable produce in the business thus good business performance while Existence of unfavourable
product safety laws leads to the production of low-quality produce in the business thus leading to reduced
sales revenue and profitability and poor business performance.
(f) Regulatory bodies: Existence of strong and efficient regulatory bodies like NEMA and UNBS with
favourable policies leads to increased efficiency in the business thus good business performance while
Existence of weak and inefficient regulatory bodies like NEMA and UNBS with unfavourable policies, leads
to reduced efficiency in the business thus poor business performance.
(g) Environmental policies/laws: Existence of strong and efficient favourable environmental policies/laws
leads to good business performance while existence of weak and inefficient unfavourable environmental
policies/laws leads to poor business performance.
9.4 Importance of Business Environment Analysis
The business environment holds significant importance for business administrators due to several key
reasons:

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(i) Aids strategic planning: Understanding the business environment enables administrators to identify
opportunities and threats that may impact the organization. This knowledge forms the basis for strategic
planning, helping administrators formulate realistic goals and effective strategies to capitalize on
opportunities and mitigate risks.
(ii) Helpful in risk management: The business environment encompasses various external factors, such as
economic conditions, regulatory changes, and competitive dynamics that pose risks to the organization.
Administrators who are well-versed in the business environment can proactively assess and manage these
risks, minimizing potential disruptions to business operations.
(iii) Helpful in decision making: Business administrators often make critical decisions regarding resource
allocation, investments, product development, and market expansion. A thorough understanding of the
business environment provides administrators with valuable insights and data-driven analysis to make
informed decisions that align with organizational objectives and market conditions.
(iv) Aids adaptability and innovation: The business environment is dynamic and constantly evolving.
Administrators who stay informed about emerging trends, technological advancements, and shifts in
consumer behavior can proactively adapt their strategies and foster a culture of innovation within the
organization. This adaptability is crucial for maintaining competitiveness and sustaining growth in a
rapidly changing marketplace.
(v) Acts as a tool for regulatory compliance: Government regulations and policies significantly impact
business operations across industries. Business administrators need to stay updated on relevant laws
and regulatory requirements within their operating jurisdictions to ensure compliance and avoid legal
issues that could negatively affect the organization.
(vi) Helpful in stakeholder management: Businesses operate within a broader ecosystem that includes
stakeholders such as customers, suppliers, investors, employees, and the community. A comprehensive
understanding of the business environment helps administrators effectively engage with stakeholders,
build positive relationships, and enhance organizational reputation and trust.
(vii) Helpful in resource allocation: Efficient allocation of resources, including financial resources, human
capital, and technological infrastructure, is crucial for organizational efficiency and performance.
Administrators who are aware of economic trends, market demands, and industry developments can
optimize resource allocation strategies to maximize productivity and profitability.

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(viii) Helpful in anticipating changes: Business Environment helps organizations to anticipate changes,
identify opportunities and threats, formulate strategies, and make informed decisions.
(ix) Acts as a foundation for adaptability frameworks: Business administration often gives an avenue to
analyze these environments and teach adaptability frameworks. In essence, the business environment
serves as a foundational framework that informs strategic decision-making, risk management, and
operational planning for business administrators.
(x) Leads to sustainable growth and competitive advantage: By continuously monitoring and analyzing
the business environment, administrators can position their organizations for sustainable growth and
competitive advantage in the marketplace.
9.4 Roles of Government in Business
The government plays several important roles in relation to business, aiming to ensure fairness, stability, and
economic growth within the economy. Here are some key roles of government in business:
(i) Regulation and Legislation: Government creates and enforces laws and regulations that govern
business activities. These regulations cover areas such as labor relations, consumer protection,
environmental standards, taxation, and business licensing. Regulations aim to ensure fair competition,
protect public interests, and maintain ethical business practices.
(ii) Formulating policies for economic stability and growth: This is through monetary and fiscal policies.
The central banks, under government oversight, implement monetary policies to manage inflation rates,
interest rates, and overall economic stability. Stable economic conditions provide a conducive
environment for businesses to operate and plan investments. The government also uses fiscal measures
such as taxation and public spending to stimulate economic growth, manage public debt, and support
key sectors of the economy.
(iii) Providing Infrastructure: Government invests in and maintain infrastructure such as transportation
networks (roads, bridges, airports), communication systems (telecommunications, internet), energy
supply (electricity, gas), and public utilities. Infrastructure development facilitates business operations,
enhances productivity, and supports economic development.

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(iv) Promotion of competition and market efficiency: Government promotes competition by preventing
monopolistic practices and enforcing antitrust laws. Competitive markets encourage innovation,
efficiency, and consumer choice, benefiting businesses and consumers alike.
(v) Protecting Consumer Interests: Government establishes consumer protection laws and agencies to
safeguard consumers from unfair business practices, fraud, misleading advertising, and unsafe products.
Consumer confidence is crucial for maintaining market stability and business sustainability.
(vi) Supporting small businesses and entrepreneurship: Government often provides support programs,
funding, and incentives to promote entrepreneurship and small business development. These initiatives
may include access to finance, business incubators, training programs, and procurement opportunities.
(vii) Enforcing environmental and social responsibility: Government enforces environmental regulations
to mitigate the impact of business activities on natural resources and ecosystems. They also encourage
business social responsibility (BSR) initiatives that promote ethical business practices, community
engagement, and sustainable development.
(viii) Promoting international trade and relations: Government negotiates trade agreements, tariffs, and
export/import regulations to facilitate international trade and protect domestic industries. They also
provide diplomatic support and resolve trade disputes to maintain global economic stability and promote
exports.
REFERENCE MATERIALS


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Online Video Links

a) You tube link introduction to business: Business environment
https://youtu.be/vfNGr5gCbdw?si=Lt7ijgsQfadC9h-Z
b) Bagire Vincent (2013). A Revision Guide for Business Administration
c) David, N., & Jane, B. (2019). Business in Context: An Introduction to Business and its Environment.
Cengage Learning, Inc.

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TOPIC TEN
BUSINESS RISK MANAGEMENT
Risk Management is key in ensuring business success and business managers need to put more attention on
managing business risks in order to achieve business objectives.
10 Key Concepts
(a) Risk: Risk refers to an uncertain event or set of events that should it occur, will have an effect on the
achievement of business objectives. It involves the possibility of an unfavorable outcome or loss, and it
is characterized by uncertainty and variability. Risks can arise from various sources, including internal
factors such as operational inefficiencies or external factors such as economic fluctuations, regulatory
changes, or natural disasters. Risks can arise as a result of a threat that leads to a negative outcome or
an opportunity that leads to a positive outcome.
(b) Risk Management: Risk management refers to the systematic application of procedures to the tasks of
identifying, assessing and controlling of risks, through implementation of planned risk responses. Risk
management is a continuous process that requires discipline and effort from all parties involved. You
need to monitor risks that have a negative impact and ensure changes, if any, need to be made to your
strategy.
(c) Business Risk Management: Business risk refers to the potential for loss or failure faced by a company
in its operations or decision-making processes. In the context of business, risks are inherent in the
pursuit of opportunities and the achievement of goals. They can be categorized into different types, such
as strategic risks, operational risks, financial risks, compliance risks, and reputational risks. Risks can
also be assessed based on their likelihood of occurring and the potential impact they may have on the
organization.
(d) A threat: A threat refers to an uncertain event that could have a negative impact on achievement of the
objectives of a business.
(e) Opportunity: An opportunity refers to an uncertain event that could have a favorable impact on
achievement of objectives of a business.

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An effective risk management process can significantly improve the success of your business. Understanding
and managing business risks is crucial for organizations to ensure their long-term sustainability and success.
Risk Management has become a critical issue as a result of globalization and the continued pursuit for greater
returns never comes to an end. This involves identifying, assessing, and prioritizing risks, implementing
appropriate risk mitigation strategies, and regularly monitoring and reviewing the effectiveness of these
measures. By proactively addressing risks, businesses can minimize potential losses, seize opportunities, and
make informed decisions to navigate uncertainties and achieve their objectives.
10.2 Types of Risks
(i) Systematic Risk
Systematic risk, also known as market risk or non-diversifiable risk, refers to the risk that is integral in
the entire market or economy. These are also called external risks. It is beyond the control of an individual
investor or company and affects all investments in a similar way. Systematic risk cannot be eliminated
through diversification because it is caused by factors that affect the overall market, such as political
events, natural disasters, economic conditions such as interest rates, inflation. Some key characteristics
of systematic risk are:
(a) Market-wide Impact: Systematic risk affects all types of investments, including stocks, bonds,
commodities, and real estate. When the market experiences a downturn, all investments tend to
decline in value.
(b) Non-Diversifiable: Since systematic risk affects the entire market, it cannot be reduced or
eliminated by diversifying one's investment portfolio. Diversification helps to mitigate unsystematic
risk, but it cannot protect against systematic risk.
(c) Unpredictable: Systematic risk is difficult to predict or anticipate as it is influenced by external
factors that are beyond the control of individual investors or companies. Examples of systematic
risk include a war, changes in government policies, global economic crises, or changes in interest
rates set by central banks.

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(ii) Unsystematic Risk
Unsystematic risk, also known as specific risk or diversifiable risk, is the risk that is specific to a
particular company, industry, or investment. It can be reduced or eliminated through diversification by
investing in a variety of assets or sectors. Unsystematic risk arises from factors that are unique to a
specific investment, such as company-specific events, management decisions, competition, technological
changes, or regulatory changes. This risk affects a small number of assets. They are within direct control
of management.
Characteristics of unsystematic
(a) Company or Industry specific: Unsystematic risk is related to the internal factors of a company or
industry. It can be caused by events like a product recall, management changes, labor strikes, or lawsuits.
(b) Diversifiable: Unsystematic risk can be reduced or eliminated through diversification. By investing in a
variety of assets or sectors, the investor can spread out the risk and reduce the impact of any specific
event on the overall portfolio.
(c) Predictable: Unsystematic risk can be analyzed and predicted to some extent. Investors can assess the
risk associated with a particular company or industry by conducting fundamental analysis, reviewing
financial statements, or analyzing industry trends.
Examples of unsystematic risk include:

A company's poor financial performance, a product recall, a lawsuit against a specific company, or a
change in regulations affecting a particular industry, Staff strike, location factors, unavailability of raw
material, poor service delivery, poor controls.
In summary, systematic risk affects the entire market and cannot be diversified away, while unsystematic
risk is specific to a particular investment and can be reduced through diversification. Both types of risks
should be considered by investors when making investment decisions.
10.3 Forms of Risks

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Various risks can pose potential threats or uncertainties that may have negative impacts on individuals,
organizations, or projects. These risks stem from various sources and can yield different consequences.
(i) Financial Risk: This type of risk involves the potential loss of financial resources or the incapacity to
meet financial obligations. It can be triggered by factors such as economic downturns, market volatility,
changes in interest rates, or poor financial management.
(ii) Operational Risk: Operational risks are linked to an organization's day-to-day activities and processes.
They can arise from internal factors like inadequate systems or procedures, human errors, equipment
failures, or supply chain disruptions. This type of risk can lead to operational inefficiencies, customer
dissatisfaction, or even business failure.
(iii) Strategic Risk: Strategic risks are related to an organization's long-term goals and objectives. They arise
from factors such as market condition changes, emerging technologies, competition, or shifts in consumer
preferences. Failing to anticipate and adapt to these risks can result in loss of market share, decreased
profitability, or even business obsolescence.
(iv) Compliance Risk: Compliance risks refer to potential violations of laws, regulations, or industry standards.
Non-compliance can lead to legal penalties, reputational damage, or loss of business licenses.
Organizations need to stay updated on relevant regulations and ensure that their operations and practices
align with legal requirements.
(v) Reputational Risk: Reputational risks involve the potential damage to an individual's or organization's
reputation. These risks can arise from factors such as negative publicity, customer complaints, unethical
behavior, or data breaches. Reputational damage can lead to loss of trust, decreased customer loyalty,
and difficulties in attracting new business.
(vi) Environmental Risk: Environmental risks relate to potential harm to the environment or natural
resources. These risks can result from activities such as pollution, deforestation, or climate change.
Failing to address environmental risks can lead to legal consequences, public backlash, or damage to
ecosystems.
(vii) Hazard risks: Hazard risks refer to potential threats that arise from natural or human-made events,
which can cause harm to people, property, or the environment. These risks are often characterized by
their potential to cause physical damage, injury, or disruption to operations. Effective management of

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hazard risks involves identifying, assessing, and mitigating these threats to minimize their impact on an
organization.
It is imperative for businesses to identify and assess these different types of risks. By doing so, they can
develop effective risk management strategies to mitigate or minimize potential negative impacts. This may
involve implementing preventive measures, creating contingency plans, or transferring risks through
insurance or contractual agreements. Regular monitoring and reassessment of risks are crucial to ensure
ongoing risk management effectiveness.
10.4 Risk Drivers
Risk drivers are factors that contribute to the emergence and impact of potential threats within a business or
project. Both internal and external factors drive risk. Understanding these drivers helps organizations anticipate
and mitigate potential threats.
External drivers
(i) Financial risks: Financial risks refer to the potential for financial loss or adverse effects on a company's
financial health due to various factors. These risks can arise from fluctuations in financial markets,
investment decisions, liquidity issues, and changes in interest rates or currency exchange rates. Effective
management of financial risks is crucial for maintaining the stability and profitability of an organization.
(ii) Operational risks: Operational risks refer to the potential losses or disruptions a business can face due
to failures in internal processes, people, systems, or external events. These risks can affect the day-to-
day operations of an organization and can arise from various sources, including human error, system
failures, fraud, or external events such as Government regulations, Political environment, Culture,
Vendors/suppliers, contracts.
(iii) Strategic risks: Strategic risks are those that threaten the long-term goals, competitive position, and
overall direction of an organization. These risks can arise from both internal and external sources and

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can have significant impacts on the business if not managed effectively. Examples include, Competition,
Customer needs & demands, Industry changes.
(iv) Hazard risks: Hazard risks refer to potential threats that arise from natural or human-made events,
which can cause harm to people, property, or the environment. These risks are often characterized by
their potential to cause physical damage, injury, or disruption to operations. Effective management of
hazard risks involves identifying, assessing, and mitigating these threats to minimize their impact on an
organization.
Internal drivers
(i) Strategic risks: R&D, Intellectual capital

(ii) Operational risks: HR, Systems & processes
(iii) Financial risks: Cash flow, liquidity
(iv) Hazard risk: Safety (Employee and Equipment), Security
10.5 The Risk Management Process
The risk management process involves a five-step approach.

(i) Identifying the risks involved in all aspects of the business: Identify potential risks affecting an
organization using brainstorming, risk assessment, data collection, and risk categories like operational,
financial, strategic, compliance, and environmental.
(ii) Reviewing the probability of the negative events occurring: Assessing risks involves evaluating their
likelihood and impact, using probability and impact assessments. Risk rating involves combining these
assessments to prioritize risks, using tools like risk matrices to visualize and rank them.
(iii) Developing Risk Management Strategies: Develop risk mitigation strategies by planning, implementing,
sharing, and accepting risks. Common approaches include avoiding, reducing, sharing, and accepting.
Outline specific actions, resources, and responsibilities for implementing these strategies to manage or
reduce identified risks.

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(iv) Implementing the Risk Management Plan: Implement the risk management plan by executing planned
actions, allocating adequate resources, and informing all stakeholders about their roles in addressing
identified risks.
(v) Monitoring the situation to see if the plan is effective or if it needs to be altered: The objective is
to track the effectiveness of a risk management plan, making necessary adjustments based on continuous
monitoring and review of risk indicators, measures, and mitigation strategies, and updating risk
assessments and response strategies as needed.
10.6 Tools and Techniques Used in the Risk Identification and Analysis Process
(i) SWOT Analysis: This technique looks at the business from the perspective of its internal strength and
weaknesses as well as the external opportunities and threats. An organization's weaknesses include
internal limitations like insufficient resources, skills gaps, operational inefficiencies, weak brand
reputation, and outdated technology. Strength Include expertise in up-to-date technologies, strong R&D
department, resources and a loyal customer base. Opportunities include market growth, technological
advancements, strategic alliances, regulatory changes, and consumer trends. Threats include market
competition, economic instability, regulatory changes, technological disruption, and social and
environmental issues. Analyzing these factors helps organizations identify areas for improvement and
capitalize on external factors to achieve their objectives.
(ii) PEST (Political, Economic, Social and Technology analysis): PEST analysis is a strategic tool used
to identify and analyze external factors that can impact a business. It helps in identifying potential threats
and opportunities from a broad perspective. Political factors include government policies, regulations,
and political stability, which can introduce risks and opportunities. Economic factors include economic
growth, inflation rates, interest rates, exchange rates, and unemployment rates. Social factors include
demographics, cultural trends, education and skill levels, and health and safety. Technological factors
involve advancements and innovation, which can create opportunities but also pose risks. Investment in
R&D can drive innovation but requires significant resources and risks. Automation and efficiency can

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improve efficiency but may lead to workforce displacement. Cybersecurity raises risks related to data
breaches, cyberattacks, and information security.
(iii) Brainstorming: Brainstorming is a technique used in risk identification and analysis, involving
stakeholders to generate diverse ideas and potential risks through open, collaborative discussions, aiming
to identify both obvious and hidden risks.
(iv) Interviewing method: The interviewing method is a valuable tool in the risk identification and analysis
process, involving direct interaction with stakeholders, experts, and team members to gather insights
about potential risks. This method allows for in-depth exploration of individual perspectives and
experiences, often revealing risks that might not be identified through other techniques. Here’s a detailed
guide on how to effectively use the interviewing method in risk identification and analysis Industry
benchmarking.
(v) Research & Development: Research and Development (R&D) is a vital tool in risk identification and
analysis, particularly in industries with innovation, technological advancement, and product development.
It helps identify risks early, assess their impact, and develop strategies to mitigate them. R&D can be
integrated into the process through market research, technological research, regulatory research,
literature review, feasibility studies, prototype testing, risk identification workshops, scenario analysis,
and continuous monitoring. These steps ensure comprehensive coverage of potential risks, enabling R&D
teams to develop effective strategies to mitigate potential risks. By incorporating R&D into the risk
identification and analysis process, businesses can mitigate potential risks and ensure successful project
outcomes.
(vi) Expert Judgement: Expert judgment is a crucial tool in risk identification and analysis, especially for
complex or uncertain risks. It involves selecting experts, defining objectives, and using the Delphi
technique. Risk identification involves brainstorming, scenario analysis, and historical data. Risk analysis
uses qualitative and quantitative assessments, with expert consensus facilitating discussions. Mitigation
planning involves strategies and contingency plans.
(vii) Auditing and Inspection: This involves systematic examination of processes, systems, products, or
projects to identify potential risks, ensure compliance, and verify control effectiveness.
(viii) Risk assessment workshops: Risk assessment workshops are a valuable tool for identifying, assessing,
and prioritizing risks. They provide a structured environment for stakeholders to discuss and make

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collective decisions. To conduct a successful workshop, define objectives, select participants, prepare
materials, and schedule the workshop. Introduce the workshop with a welcome, ground rules, and an
overview of risk management. Conduct a brainstorming session to identify potential risks, categorize them
into technical, operational, financial, regulatory, or strategic areas, and record all identified risks in a risk
register or whiteboard.
(ix) Business process analysis: Business process analysis (BPA) is a systematic approach to understanding
and improving business processes. It involves examining processes to identify inefficiencies, risks, and
opportunities for improvement. In the context of risk identification and analysis, BPA helps to uncover
potential risks associated with business processes and develop strategies to mitigate them.
(x) Risk Register: A risk register is a comprehensive tool used to document and manage the various risks
that could potentially impact a business. It includes detailed information about each risk, its potential
impact, and the strategies for mitigating and monitoring these risks. Maintaining a comprehensive risk
register ensures stakeholders have access to current information, enables systematic risk identification
and management, supports informed decision-making, improves communication, ensures regulatory
compliance, and enables continuous monitoring. This comprehensive approach supports sustainable
growth and stability by effectively managing potential threats.
10.7 Risk Management Strategies/Risk Responses
Risk management strategies, also known as mitigation strategies, are proactive measures that organizations
take to identify, assess, and minimize potential risks or threats to their operations, projects, or objectives. These
strategies help organizations mitigate the impact of risks and increase their ability to achieve their goals.
(i) Risk Avoidance: This strategy involves completely avoiding activities or situations that pose a high level
of risk. By eliminating the risk altogether, organizations can prevent any potential negative consequences.
(ii) Risk Reduction: This strategy aims to reduce the likelihood or impact of a risk. It involves implementing
controls, safeguards, or safety measures to minimize the probability of a risk occurring or its potential
impact if it does occur.

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(iii) Risk Transfer: This strategy involves transferring the risk to another party, typically through contracts,
insurance policies, or outsourcing. By doing so, organizations shift the financial burden and responsibility
of managing the risk to another entity.
(iv) Risk Acceptance: Sometimes, organizations may choose to accept certain risks if their impact is minimal
or if the cost of mitigation outweighs the potential consequences. This strategy involves acknowledging
the risk and consciously deciding not to take any specific action to mitigate it.
(v) Exploit: This is seizing an opportunity to ensure that the opportunity will happen and that the impact
will be realized.
(vi) Enhance: This is a proactive decision/response undertaken to boost/improve the probability of the event
occurring and impact of the event should it occur.
(vii) Reject: This is a conscious and deliberate decision taken not to exploit or enhance the opportunity,
having determined that it is more economical not to attempt an opportunity response action.
(viii) Fallback: Refers to putting in place a fallback plan for the actions that will be taken to reduce the impact
of the threat should the risk occur. This is a reactive form of the reduce response which has no impact
on likelihood.
10.8 Importance of business risk management
(i) Minimizing financial loss: By identifying and assessing potential risks, businesses can take proactive
measures to mitigate them. This helps minimize financial loss and ensures the long-term viability of the
business.
(ii) Protecting reputation: Effective risk management helps protect a company's reputation. By addressing
potential risks, businesses can avoid negative publicity, legal issues, and damage to their brand image.
(iii) Compliance with regulations: Many industries have specific regulations and compliance requirements
that must be adhered to. By implementing risk management strategies, businesses can ensure they are
in compliance with these regulations and avoid penalties or legal consequences.
(iv) Enhancing decision-making: Risk management provides businesses with valuable insights and data
that can inform decision-making. By understanding potential risks and their potential impact, businesses
can make informed decisions that align with their goals and objectives.

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(v) Seizing opportunities: Risk management is not just about mitigating risks; it also involves identifying
and capitalizing on opportunities. By assessing potential risks, businesses can identify opportunities for
growth, innovation, and competitive advantage.
(vi) Increasing stakeholder confidence: Effective risk management demonstrates to stakeholders, including
investors, employees, and customers, that the business is well-prepared and capable of navigating
potential challenges. This increases stakeholder confidence and enhances relationships with key
stakeholders.
(vii) Ensuring business continuity: Risk management helps businesses develop contingency plans and
strategies to ensure business continuity in the face of unexpected events or crises. This helps minimize
disruptions and allows the business to continue operating smoothly.
(viii) Ensuring proper planning and documentation: It ensures proper planning and documentation of
different assets and their likely risks.
Overall, business risk management is crucial for the long-term success and sustainability of a business. It helps
protect the business from potential threats, enhances decision-making, and builds stakeholder confidence.
10.9 Limitations to risk management in Uganda
(i) Lack of data: The absence of reliable and up-to-date data on risks. This hinders risk managers' ability
to assess and quantify risks accurately, leading to ineffective risk management strategies.
(ii) Limited resources: Uganda has limited financial and human resources dedicated to risk management.
This hampers the implementation of comprehensive risk management plans and limits the capacity to
respond to and recover from risks.
(iii) Weak institutional framework: The institutional framework for risk management in Uganda is often
fragmented and lacks coordination. This results in unclear roles and responsibilities among different
stakeholders, leading to gaps and overlaps in risk management efforts.
(iv) Limited awareness and understanding: There is a lack of awareness and understanding of risk
management concepts and practices among individuals and organizations in Uganda. This obstructs the

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adoption of proactive risk management strategies and undermines the effectiveness of risk management
efforts.
(v) Insufficient risk assessment and monitoring: Risk assessment and monitoring processes in Uganda
are often inadequate and inconsistent. This makes it difficult to identify emerging risks and take timely
actions to mitigate them.
(vi) Inadequate risk transfer mechanisms: There is a limited availability of insurance and other risk transfer
mechanisms in Uganda. This leaves individuals and organizations vulnerable to financial losses in the
event of a risk event.
(vii) Climate change and environmental risks: Uganda is highly vulnerable to climate change and
environmental risks, such as droughts, floods, and landslides. These risks are often difficult to manage
due to their unpredictable nature and the lack of adequate resources and infrastructure to address them.
(viii) Political instability and conflict: Uganda has experienced periods of political instability and conflict,
which can significantly disrupt risk management efforts. These situations often result in limited access
to resources and hinder the implementation of effective risk management strategies.
REFERENCE MATERIALS
Published Articles
Pashapour, S., Bozorgi-Amiri, A., Azadeh, A., Ghaderi, S. F., & Keramati, A. (2019). Performance optimization of
organizations considering economic resilience factors under uncertainty: A case study of a petrochemical
plant. Journal of cleaner production, 231, 1526-1541. https://doi.org/10.1016/j.jclepro.2019.05.171

Page 174 of 190
Online Video Links
a) https://youtu.be/OhVcvGC_XNM?si=wjKY-LQQbyxnrBmI
b) What is Business Risk? https://www.youtube.com/watch?v=sciR-16u7cM
c) How to Make a Risk Assessment Matrix in Excel: https://www.youtube.com/watch?v=KIS4L4kn0RM
d) What is Risk Management? (With Real-World Examples) | From A Business Professor:
https://www.youtube.com/watch?v=cXAqQ7ofdHw
e) RISK MANAGER Interview Questions & Answers! | (How to PASS a Risk Management Interview!):
https://www.youtube.com/watch?v=0rUKvq_g3OA

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TOPIC ELEVEN
INSURANCE
Insurance refers to an essential safeguard against any risk or loss inherent in commercial or personal operations
carried on under a contract between two parties to compensate one party by another upon occurrence of a
defined risk, prior payment of agreed amounts paid must meet the cover.
It is contract whereby, in return for the payment of premium by the insured, the insurers pay the financial
losses suffered by the insured as a result of the occurrence of unforeseen events. Uganda has a regulatory
framework for insurance known as the Insurance Act. The current primary legislation governing the insurance
sector in Uganda is the Insurance Act, 2017.
11.1 Distinction between Insurance and Assurance

Insurance focuses on incidents that may or may not occur while Assurance relates to life, occurrences that will
definitely occur e.g. death:
Insurance (Non-Life Insurance): Assurance (Life Insurance):

 Contracts of indemnity.  It is not a contract of indemnity. Since life lost
 Insurable interest must be present both at the cannot be returned.
time of effecting the contract and also at the time  Insurable interest must be present only at the time
of occurrence of loss. of taking out the policy but need not be present at
 In the case of insurance, the policy cannot be the time of maturity of the policy.
surrendered by the insured before its maturity.  A life insurance policy can be surrendered by the
 In the case of fire and marine insurance, assured before its maturity.
insurance contains only the protection element.  Life Insurance contains both the elements of
security and investment.

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In summary, insurance provides coverage for potential risks, while assurance provides coverage for certain
events. Both play essential roles in financial planning and risk management, but they address different types
of risk and offer different forms of protection.
11.2 Terminologies Used in Insurance
(i) Insurance Policy: A contract between the insurance company (insurer) and the insured (policyholder),
detailing the terms of coverage, exclusions, premiums, and conditions. It serves as a legal document
outlining the agreement between the parties.
(ii) Premium: The amount of money paid by the insured to the insurance company for the coverage provided
by the policy. Premiums can be paid periodically (e.g., monthly, quarterly, annually) and are based on
factors such as risk assessment, coverage amount, and the insured's profile.
(iii) Subject matter: These are the items that one can insure to protect them against risks, for example,
family, house, car, and one’s life.
(iv) Insured: The person, property, or entity covered by the insurance policy. The insured may be an
individual, a group of individuals, or an organization depending on the type of insurance.
(v) Insurer: The insurance company or entity that provides the insurance coverage and services outlined in
the policy. Insurers assume the financial risk of providing coverage and payout claims as stipulated in
the policy terms.
(vi) Liability: Legal responsibility for one's actions or omissions that may result in damages to others. Liability
insurance covers the insured against claims and lawsuits for bodily injury or property damage caused by
their actions.
(vii) Risk: This is the uncertainty of the occurrence of an event that can cause economic losses. Examples of
risks include; damage to property, loss of income, liability for damages or injuries caused to others, or
accidents, and expenses related to illness or injury.

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11.3 Types of insurance
Insurance can be categorized into several types, each serving different purposes and covering various
aspects of life, health, property, and liability. Here’s an explanation of the main types of insurance:
(i) Life Insurance: Life insurance provides financial protection to beneficiaries (typically family members)
upon the death of the insured. It helps replace lost income, cover funeral expenses, pay off debts, or
provide an inheritance.
(ii) Health Insurance: Health insurance covers medical expenses and provides financial protection against
high healthcare costs. It helps individuals and families pay for routine medical care, emergencies, and
preventive services.
(iii) Property Insurance: Property insurance protects against property damage and loss caused by covered
events. It’s also known as insurance intended to compensate for harm to the insured person’s real
property. Property insurance takes various forms like theft or burglary insurance, fire insurance, etc.
(iv) Fire Insurance: It covers the losses caused by fire especially on property.
(v) Marine Insurance: It covers all marine losses, that is to say, the losses incidental to marine adventure.
(vi) Personal Accident Insurance: In this case, the amount payable is compensation for any personal injury
caused to the assured.
(vii) Travel Insurance: Travel insurance covers various risks associated with traveling, such as trip
cancellations, lost luggage, medical emergencies, and travel delays.
11.4 Principles of Insurance
Insurance operates on several fundamental principles that govern how it functions and provides coverage to
policyholders. These principles include:
(i) Utmost Good Faith (Uberrimae Fidei): The insured must therefore disclose all the material information
about the subject matter of insurance. The material information helps the insurer to decide whether to

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accept the risk and at what premium. Breach of this principle renders the insurance contract voidable at
the insurers option and it can refuse any compensation.
(ii) Insurable Interest: The insured must have a legitimate financial interest in the insured property or
person, which means that the insured must derive some financial or other kind of benefit from their
continued existence, without which they would suffer a financial loss. This principle ensures that the
insurance contract is not used for speculative purposes. For example, you can insure your car, but not
your neighbor's car, because you do not have an insurable interest in it.
(iii) Indemnity: Insurance is designed to indemnify the insured, meaning the insurer agrees to compensate
the insured for the actual financial loss suffered, up to the amount of the policy limit. The purpose is to
restore the insured to the same financial position as before the loss, without granting any financial gain
or profit.
(iv) Contribution: If the insured has overlapping insurance coverage for the same risk, each insurer shares
the loss proportionally according to the terms of their respective policies. The aim of this principle is to
distribute the actual amount of loss among the different insurers who are liable under different contracts
in respect of the same subject matter and risk. The conditions for contribution are: The subject matter
should the same, the risk insured must be the same and the insured must be the same. Example: Vivian
insures her house against fire for $15,000 with insurer A and for $30,000 with insurer B. A loss of
$15,000 occurs. A is liable for $5,000 and B is for $10,000. If the whole amount of the loss is paid by A,
he then recovers $10,000 from B.
(v) Subrogation: The insurer assumes the right of the insured to recover the loss from any third party
responsible for it. The purpose of subrogation is to prevent the insured from collecting twice from the
same loss i.e. the insured should not look at the insurance company as a source of income, to keep
insurance premiums lower and to hold the negligent party responsible.
(vi) Proximate Cause: Insurance covers losses caused directly by the insured peril rather than indirect or
remote causes, therefore when a loss is caused by more than one peril the proximate or the primary one
determines the liability of the insurer. This principle helps determine whether a claim is covered under
the policy by examining the chain of events leading to the loss.
(vii) Loss Minimization: The insured must take reasonable steps to minimize the extent of the loss after an
insured event occurs. Failing to do so can affect the insurer's liability to pay the claim.

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(viii) Subject matter: According to this principle, the insured must clearly state the item being insured against
any risk such as the house, car, family or company.
(ix) Re-insurance: According to this principle, if an insured has insured his or her property against a risk
with an insurance company, the insurance company may also insure the same property on the same risk
with another insurance company wholly or partially especially where the compensation is expected to be
expensive and complex beyond the capacity of the first insurance company.
(x) Double insurance: According to this principle, where the insured insures the same risk with two or more
independent insurance companies, the insured cannot recover more than the actual amount of loss
because the contract of insurance (other than life and person accident) is a contract of indemnity.
11.5 Importance of Insurance
(i) Risk Management: Insurance helps individuals, businesses, and societies manage risks effectively. It
provides a safety net against unexpected events such as accidents, illnesses, natural disasters, and theft.
By transferring the financial burden to an insurance company, policyholders can avoid devastating
financial losses that could otherwise be catastrophic.
(ii) Financial Security: Insurance provides financial security to individuals and families by offering
compensation for the loss or damage of property, medical expenses, or loss of income due to disability or
death. This ensures that people can recover and rebuild their lives without facing severe financial
hardship.
(iii) Promotes Savings and Investment: Certain types of insurance, such as life insurance and retirement
plans, encourage long-term savings and investment. Life insurance, for example, ensures that
beneficiaries receive financial support after the insured's death, promoting financial stability for future
generations.
(iv) Supports Economic Growth: Insurance facilitates economic growth by mitigating risks for businesses,
enabling them to operate confidently and invest in new opportunities. It also encourages entrepreneurship
by protecting against business-related risks.
(v) Legal and Regulatory Requirements: In many jurisdictions, insurance is mandatory for certain
activities such as driving a vehicle (auto insurance), owning a home (homeowner's insurance), or running

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a business (liability insurance). Compliance with these requirements ensures that individuals and
businesses can operate legally and responsibly.
(vi) Peace of Mind: Knowing that you are protected by insurance gives peace of mind to individuals and
businesses. It reduces stress and anxiety associated with potential losses and allows people to focus on
their personal and professional goals without constantly worrying about unforeseen events.
(vii) Social Stability: Insurance contributes to social stability by reducing the burden on public funds and
charitable organizations. When individuals and businesses are adequately insured, they are less likely to
rely on government assistance or community support during times of crisis.
11.6 Limitations of Insurance
(i) Low Penetration Rates: Insurance penetration in Uganda is relatively low compared to other countries.
Many people, especially in rural areas, lack awareness about insurance products and their benefits. This
results in a small percentage of the population being covered by insurance.
(ii) Limited Product Variety: The insurance market in Uganda primarily offers basic products such as life
insurance, health insurance, and motor vehicle insurance. There is a lack of diversity in insurance
products tailored to specific needs such as agriculture, small businesses, or niche risks.
(iii) Affordability: Insurance premiums can be relatively high for many Ugandans, especially for
comprehensive coverage. This limits the ability of lower-income individuals and small businesses to afford
insurance protection.
(iv) Trust Issues: There is a perception among some segments of the population that insurance companies
may not pay claims promptly or fairly. This lack of trust can discourage people from purchasing
insurance.
(v) Regulatory Challenges: Inadequate regulatory frameworks and enforcement can undermine consumer
confidence in the insurance industry. Weak regulation may also lead to issues such as fraudulent
practices or unstable insurance companies.
(vi) Infrastructure and Distribution Challenges: Limited infrastructure, particularly in rural areas, hinders
insurance companies from reaching potential customers. Distribution channels such as agents or brokers
may not be well-developed outside major urban centers.

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(vii) Economic Factors: Uganda's economy is vulnerable to various factors such as inflation, currency
fluctuations, and economic instability. These factors can affect insurance premiums and claims
payments, making insurance less predictable for policyholders.
(viii) Cultural and Behavioral Factors: Cultural beliefs and traditional risk-sharing mechanisms in some
communities may discourage the adoption of formal insurance products. For instance, informal social
networks or community savings groups may serve as alternatives to formal insurance.
REFERENCE MATERIALS
1. Allodi, E., Cervellati, E. M., & Stella, G. P. (2020). A New Proposal to Define Insurance Literacy:
Paving the Path Ahead. Risk Governance & Control: Financial Markets & Institutions, 10(4).
2. Holst, L., Rademakers, J. J., Brabers, A. E., & de Jong, J. D. (2021). The importance of choosing a
health insurance policy and the ability to comprehend that choice for citizens in the
Netherlands. HLRP: Health Literacy Research and Practice, 5(4), e288-e294.
3. Peleckienė, V., Peleckis, K., Dudzevičiūtė, G., & K Peleckis, K. (2019). The relationship between insurance
and economic growth: evidence from the European Union countries. Economic research-Ekonomska
istraživanja, 32(1), 1138-1151.
4. Dang, A., Dang, D., & Vallish, B. N. (2021). Importance of evidence-based health insurance
reimbursement and health technology assessment for achieving universal health coverage and improved
access to health in India. Value in Health Regional Issues, 24, 24-30.
5. Lin, X., & Kwon, W. J. (2020). Application of parametric insurance in principle‐ compliant and innovative
ways. Risk Management and Insurance Review, 23(2), 121-150.
6. Klein, R. W. (2012). Principles for insurance regulation: An evaluation of current practices and potential
reforms. The Geneva Papers on Risk and Insurance-Issues and Practice, 37, 175-199.
On line tutorials:
a) What is insurance? https://www.youtube.com/watch?v=aQA7Zt5G_Y0

b) What is Insurance? How Does it Work? Money Instructor:
https://www.youtube.com/watch?v=8NGQFU_PJvQ
c) What are the different types of Insurance? https://www.youtube.com/watch?v=FVE51Lq77Hg

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TOPIC TWELVE
PROJECT MANAGEMENT
Project management is the planning, delegating, monitoring and control of all aspects of the project, and the
motivation of those involved, to achieve the project objectives within the expected performance targets for time,
cost quality, scope, benefits and risks. Project management is the application of processes, methods, skills,
knowledge and experience to achieve specific project objectives. Project management is different from other
management because it has a start and an end and it has a final output.
12.1 Terms used in Project Management

(i) A project is: A project is a temporary endeavor undertaken to create a unique product or service. A
project is a temporary organization that is created for the purpose of delivering one or more business
products.
(ii) Business Case: A business case is the optimum mix of information used to judge whether the project is
(and remains) desirable, viable and achievable, and therefore worthwhile investing in. A business
case provides justification for undertaking a project, programme or portfolio. It evaluates the benefit, cost
and risk of alternative options and provides a rationale for the preferred solution.
(iii) Program: A program refers to a collection of related projects managed in a coordinated way to obtain
benefits and control not available from managing them individually. A program looks at a group of
projects that are similar or related to one another and that are often managed as a group instead of
independently. The reason for managing them as a group is to achieve efficiency of scale.
(iv) Portfolio in the context of project management: This refers to a collection of projects or programs and
other work that are grouped together to facilitate effective management of that work to meet strategic

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business objectives. A portfolio in project management entails grouping of projects and programs. For a
portfolio, the projects or programs can either be related or not. It can also include other project-related
activities and responsibilities. This helps in sharing the resources amongst the different projects and
programs
12.2 Characteristics of projects

The following are the characteristics of project work that distinguish it from business as usual:
(i) Means of change: Projects are the means by which we introduce change. Projects differ from one another
in their activities and goals. The purpose of projects is to implement change, whether that change
represents a major improvement or a slight adjustment.
(ii) Temporary: As the definition above states, projects are temporary in nature. Once the desired change
has been implemented, business as usual resumes (in its new form) and the need for the project is
removed. Projects should have a defined start and a defined end. Projects only last for a defined period.
Companies arrange projects to achieve specific goals. Once a project team achieves its goal or determines
that it can't reach the goal for some reason, the company decommissions the project and the team
members usually return their full attention to regular operations.
(iii) Cross-functional: Projects involve a team of people with different skills working together (on a temporary
basis) to introduce a change that will impact others outside the team. Projects often cross the normal
functional divisions within an organization and sometimes span entirely different organizations. This
frequently causes stress and strains both within organizations and between, for example, customers and
suppliers. Each has a different perspective and motivation for getting involved in the change caused by
the project.

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(iv) Unique: Every project is unique. An organization may undertake many similar projects, and establish a
familiar, proven pattern of project activity, but each one will be unique in some way: a different team, a
different customer, a different location. All these factors combine to make every project unique. Therefore,
every project is inherently unique. Even projects with the same objectives differ because they progress
under different circumstances, with specific resources and according to the varying factors of time and
place.
(v) Uncertainty: The characteristics already listed will introduce threats and opportunities over and above
those we typically encounter in the course of business as usual. Projects are more risky
(vi) Complementary activities: Projects have different activities where one activity complements the other.
12.3 Project lifecycle

A project life cycle has four phases as illustrated below:

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This is illustrated below:

(i) Project initiation/start: This is a project stage where leaders and management look for and use the
information got to decide whether the project is viable or not. It helps in deciding on the necessity of a
project. Projects that are urgent and attract sufficient approval can progress to the next stage. It involves
setting the vision for the project, defining major goals and project justification, Review project charters (a
document that authorises the project manager to start the project from beginning to end), project change
controls and lessons learned from previous projects, identify all of the project stakeholders and also
Identify service/product owners.
(ii) Project planning: From approval, the project moves forward with the company planning each project
activity. Planning involves coming up with goals, objectives, and tasks the team needs to accomplish for
a specific project. It addresses how to complete a project in a certain timeframe, usually with defined
stages and designated resources. The goal of the project, its resources and its timeline are considerations
here.
(iii) Project execution: Once the management team is happy with the project's plans, they enter the
execution phase. The project now begins in full. Project execution is where whatever has been planned is
put into consideration. At this stage, everything is put into action.
(iv) Monitoring and evaluation: Monitoring involves the tracking of project outputs and outcomes as
indicators of project effectiveness, or the extent to which the project achieves its stated objectives while
project evaluation looks at assessment of the project effectiveness. Project managers assess key metrics
throughout the project's development to ensure that it's on target to hit deadlines and deliver the intended

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outcome. This stage takes place throughout the entire life of the project such that in case of any deviation,
correction actions are taken
(v) Project closure: This is the stage where all deliverables are finalized and formally transferred, and all
documentation is signed off, approved, and archived. The project closure process ensures that: All work
has been completed according to the project plan and scope. All project management processes have been
executed. Once development concludes, a final assessment is made to establish whether it has been
successful or not. If so, managements roll out the finished product.
(vi) Monitor and Control/evaluation of Project Work: This is the process of tracking, reviewing, and
regulating the progress to meet the performance objectives defined in the project management plan.
Monitoring includes status reporting, progress and forecasting. Performance reports provide information
on the project’s performance with regard to scope, schedule, cost, resources, quality, and risk which can
be used as inputs to other processes.
12.4 The Project Management Triple Constraint
Figure 1: The triple constraint

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All projects are carried out under constraints, traditionally cost, time and scope. These three important factors,
commonly called the triple constraint, are often represented as a triangle. Each constraint forms the vertices
with quality added as a central theme.
(i) Projects must be delivered within cost.
(ii) Projects must be delivered on time.
(iii) Projects must meet agreed scope, no more - no less.
(iv) Projects must also meet customer quality requirements.
12.5 Critical project success factors
(i) Clearly defined Project objectives & Mission help manage expectations, guide the decision-making process
and provide abasis for monitoring and controlling the project throughout its lifecycle.
(ii) Secure top Management support. Top management is ultimately responsible for ensuring the ongoing
suitability, adequacy and effectiveness of a project therefore as a project manager ensure that top
management is involved in all activities of a project.
(iii) Ensure user involvement and stakeholder’s awareness. This involves determining if stakeholders are fully
aware of the planned project. This can be done through crafting a tailored communication plan for each
group of stakeholders and ensure that your messages are clear.
(iv) Conduct progressive Client Consultation. A thorough consultation can help you identify the right
products and services for each client and also be able to build valuable client relationships.
(v) Recruit and retain Qualified Personnel. It is important to strengthen your recruitment strategy by hiring
candidates who share company goals and values.

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(vi) Agile/live progress. This refers to a flexible and iterative methodology that focuses on delivering value to
the customer in small increments rather than following a fixed plan.
(vii) Effective Communication. This is one of the most basic functions of management, the project manager
who communicates effectively can foster sense of trust and positivity.
(viii) Monitoring & Feedback. With project monitoring managers may look at a project’s progress compared to
initial project goals.
(ix) Maintain client acceptance. This should be done by getting a thorough understanding of what they expect
from the project.
12.6 Causes of Project Failure
(i) Know-it-all attitudes of a financiers or project leaders. When donors or project managers act as though
they know everything chances are high that they are abound to make errors hence project failure.
(ii) Incompetent project implementers this can be as a result of inadequate training or hiring wrong
candidates for a given project. Their lack of expertise results in inability to identify an appropriate
response when the project experiences challenges.
(iii) Limited resources. Resources are anything you need to complete a project for example staff, time, space
etc. When they are limited, it can delay a project and even contribute to poor quality deliverables.
(iv) Poor communication. With today’s app overload, it’s hard to know when and where you should surface
important project updates. That means work may be at risk if project members aren’t aligned on what
communication channels to use, when to use them or who should communicate what.

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(v) Lack of transparency. This can erode trust and lead to suspicions of unethical or illegal activity for
example corruption.
(vi) Uncooperative project stakeholder’s due radicalism, negative mindset.
(vii) Unrealistic expectations. Project managers often have an unrealistic approach when it comes to assessing
their teams, capabilities. They set high expectations that meet their doom. If the project objectives are too
ambitious, it is probable that the team will have missed deadlines.
(viii) Scope creep. This is where project deliverables exceed the project scope and you end up with more work
than you bargained for. This is a major driver of missed deadlines and failed projects.
REFERNCE MATERIAL
1. Project Management Book of Knowledge
ONLINE VIDEO RESOUCES
a) Project Management Basics [QUICK GUIDE] https://www.youtube.com/watch?v=XuyCeYYod_s
b) Intro to Project Management | Google Project Management Certificate:

https://www.youtube.com/watch?v=rck3MnC7OXA
c) Project Management Simplified: Learn The Fundamentals of PMI's Framework:

https://www.youtube.com/watch?v=ZKOL-rZ79gs
d) TOP 10 PROJECT MANAGEMENT Interview Questions & Answers! (How to PASS a PROJECT MANAGER
INTERVIEW!) https://www.youtube.com/watch?v=7NoKql6pVh8

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..…….…THE END……….

FINAL NOTES _2024_PRINCIPLES OF BUSINESS ADMINISTRATION-2

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Page 1 of 190

1.1 Key Characteristics of Business

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.2 The 21st Century Business Posture

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.3 Business Functions

1.3.1 Core Functions

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.3.2 Support Functions

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.4 Types of Business

Businesses are broadly categorized as Industry and commerce

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.4.1.1 Classification of Industry

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

Trade can be classified as home trade or foreign trade:

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.4.2.2 Aids to Trade

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.5 Purpose of Business

The purpose of a business is broadly categorized as:

Businesses aim at achieving both economic and social objectives.

1.5.1 The economic objectives include:

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1.5.2 Social Objectives

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

6. The following are economic objectives of the business except:

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

1. Modern Business Administration (6th Ed) by Robert C Appleby

Online Video Resources

Meaning of Company Stocks: https://www.youtube.com/watch?v=o4jfBC0AgIM&list=PPSVE-tivities

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

FORMS OF BUSINESS ORGANIZATIONS

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

Sole Proprietorship License/Permit from LC Single No No Yes

Professional 2 – 50 No/Exce Yes/No No

Private 1. M & A of Association 1 - 100 Yes/ No Yes Restricted

Public M & A of Association

Government Established by an Act of 100% /51% Yes/ No Yes YES

Cooperatives Register the Rules and Minimum of Yes SACCO is

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

TOPIC TWO (A)

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

2.1.2 Formation of a Sole Proprietorship

2.1.3 Advantages of Sole Proprietorship

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

2.1.4 Disadvantages of Sole Proprietorship

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

2.1.5 New Trends in Sole Proprietorship

Characteristics of Gig Sole Proprietorship

Advantages of Gig Sole Proprietorship

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

Disadvantages of Gig Sole Proprietorship

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

5. Business Administration and Management (4th Ed) by Deverell

Online Video Resources

Department of Business Administration (DoBA) 2024 Faculty of Business Administration MUBS

TOPIC TWO (B)

2.3.1 Characteristics of Partnerships