Contracts and business sectors

1. Grade 10 business studies topics
Topic 1 ( contracts)
A contract is an agreement between two or more people and is binding by law.
· One party makes an offer and another accepts.
· It can be verbal or in writing.
· Some contracts are only legal in writing, as a written contract agreement.
(a) Employment contract (between employer and employee)
An employment contract is an agreement between an employer and an
employee where the employer promises to pay the worker for specific work which
the worker promises to do.
· The contract has to follow the stipulations of the Basic Conditions of
Employment Act
75 of 1997 (BCEA).
· The Act specifies:
Minimum payment
Maximum working hours
Minimum leave
Deductions from salaries or wages
Minimum period of notice for ending the contract and should be included in the
contract.
(b) Insurance (between insurer and insured)
A business needs to protect itself from risks that could result in a loss.
- Insurance policies cover them against losses.
- An insurance contract is an agreement between the business that needs
insurance and the insurance company.
- The insured promises to pay the insurer a fixed amount per month (called a
premium) and the insurer in return promises to cover the insured for any losses
suffered from specific events or risks.
- The insurer will replace the losses or pay an amount to cover the losses.

2. - There are two types of insurance:
Life or long-term (lives of important people in the business can be insured.
Should these people die, money will be paid out by the insurance company to
cover loss.)
Short-term (covers loss of assets due to accidents or crime).
(c) Lease agreement (between lessor and lessee)
Contract where one business leases goods to another business.
·-It involves the lessor (business that owns goods) and lessee (business that
rents goods such as equipment, copiers, and computers).
- The lessee uses the goods and never becomes the owner.
- The lessor agrees that the lessee will use the asset for a period of time.
- Lessee agrees to pay lessor a specific sum of money.
Advantages for the lessee:
- A large capital outlay is not required.
- Goods never become outdate.
·-The lessee can deduct leasing expense for tax purposes.
(d) Hire purchase (between seller and buyer)
One business sells goods to another person or business and allows them to take
the goods immediately.
- Payment is done in instalments over a specified period.
- A hire purchase transaction is a credit transaction.
Maximum interest charged and maximum period to repay is laid down by law.
-The National Credit Act and the Hire Purchase Act regulate credit transactions
and hire purchase agreements.
- The buyer only owns the goods once last instalment has been paid.
- The seller can take the goods back if the buyer does not honour the agreement.
- The types of goods that can be bought on hire purchase include things such as
furniture, equipment and vehicles.
(e) Rental agreement (between landlord and tenant)
The Rental Housing Act 50 of 1999 regulates all rental contracts.

3. - A rental agreement is drawn up to rent premises.
- The rented property never becomes the property of the tenant.
-The rental agreement specifies: the period of agreement deposit paid by the
tenant amount of rent payable each month and date of payment percentage
increase every year rights and responsibilities of the landlord and tenant other
terms and conditions like payment of water and electricity and maintenance.
Topic 2 ( business sectors)
1.1 Primary sector
- Activities include harvesting, collecting or extraction of raw materials from the natural
environment – from the ground, the sea, fresh water or plant sources.
- Can be classified into agricultural products, fisheries, forestry and mining.
1.2 Secondary sector
- Processes raw materials from the primary sector and supplies it to the tertiary sector.
- Input is used to manufacture products by means of a production process. The result is
called the output.
- Manufacturing can include manufacturing of semi-finished products that are sold to
manufacturers or the consumer.
- Semi-finished products can be used in further production of goods or finished
products, such as metal sheets used to make tin cans.
1.3 Tertiary sector
Activities include bringing the products from the secondary sector to the end
consumers, transport of people, communications, and many other services such as
education, health, banking and administration.
The difference between the formal and informal sectors
1. Formal sector-The formal business sector is all businesses which are formally
registered to operate under an acknowledged form of business ownership. Forms
of ownership include companies, partnerships, close corporations (CCs) or sole
proprietors.
- The purpose of businesses in this sector is to make profit.

4. - Businesses in the formal sector are registered with SARS for tax and contribute
to the GDP (Gross Domestic Product) of the country.
- They are registered with the Department of Labour to pay UIF (to the
unemployment insurance fund).
- Most businesses need to have their books audited.
-Businesses in this sector have fixed premises and offer employment to more
than one worker.
2. Informal sector
-The purpose of businesses in the informal sector is survival.
-These businesses are not registered and do not contribute to the GDP of the
country.
-Examples are hawkers, street vendors, house-sitters, handyman services.
-Illegal activities such as drug dealing and illegal shebeens also fall into this
category.
- Informal businesses should by law declare income for tax and register
employees.
- It is difficult to get loans or credit facilities because there is no official record of
income.
This limits growth.