A commercial entity is an organization that engages in business activities to earn profit. There are many types of commercial entities like sole proprietorships, partnerships, and corporations.
- Sole proprietorships: easy to form, complete control to the owner, unlimited liability for debts.
- Partnerships: share profits and losses among partners.
- Corporations: limit shareholders’ liability.
Case Study: Kay Nielt’s Business Decision
Kay Nielt, a middle-aged woman, wants to start a home-made meal business to serve middle-class workers. She needs some employees as the work is too much for one person. The type of entity she chooses depends on liability, taxes and record-keeping:
- As a sole proprietor, she has unlimited liability for debts.
- As a partnership or corporation, her liability is limited but there is more legal paperwork.
Kay must weigh these factors in deciding what is best for her new business.
A commercial bank is a financial institution that accepts deposits and provides loans. Examples include State Bank of India and Citibank. They serve individuals and businesses and are crucial in fulfilling the financial requirements of industries.
Functionality of Commercial Banks:
- Accepting deposits.
- Utilizing funds for investment and loans.
Credit Creation by Banks
Commercial banks create credit by:
- Advancing loans.
- Buying securities.
- Holding a portion of deposits as reserves and lending the remainder.