Lesson 1:

The Nature and

Forms of Business
Organizations
  BUSINESS
 It is an entity in which economic sources or
inputs, such as materials and labor are put
together processed to provide good or
services or outputs to customers.
 Includes major activities like
Business and  Purchasing
Business  Manufacturing
 Marketing
Organizations  Advertising
 Selling
 Accounting
 Objective of most business: EARN PROFIT
Why do we need to
examine the activities
of business from a
moral perspective?
  Business organizations should
Business and help in the promotion of the
Business common good and in the
Organizations protection of persons’ rights
and interests.
  3 Types of Business Organization

Business and Service

Business
Organization Merchandising
Manufacturing
  Service Businesses
 Provides services rather than goods to
customers.
 Provides work performed in an expert
manner by an individual or team for the
Business and benefit of its customers.
Business  Merchandising Business
 Sell products they purchase from other
Organizations businesses to customers
 Manufacturing Businesses
 Change basic inputs into products that are
sold to customers.
 Uses raw materials, parts and components
to assemble finished goods
 Sole Proprietorship
Various
Forms of
Business Partnership
Organizations
Corporation
 SOLE PROPRIETORSHIP
 Business owned by one person.
Various  The owner has full authority on the business
and owns all assets and profits but at the
Forms of same time is personally liable for all the
Organization obligations and losses.
 Simplest form of business organization
 Easiest to register through the Bureau of
Trade Regulation and Consumer Protection
(BTRPC) of the Department of Trade and
Industry (DTI).
 Advantages Disadvantages
Total undivided
Unlimited liability
authority
Limitation
Low organizational
Sole resources(and thus on
cost and license fee
fund-raising power)
Proprietorship Limited by
Tax savings management’s ability
to be jack-of-all-trades
No restrictions on type
of business (as long as
it is legal)
  PARTNERSHIP
 Two or more people bind themselves to
contribute money, property or industry to a
common fund with the intention of dividing
Various the profits and sharing the liabilities among
themselves.
Forms of  General Partnerships
Organizations  Partners have unlimited liability for the debts and
obligations of the business.
 Limited Partnerships.
 One or more general partners have unlimited
liability and the limited partners have liability
only up to the amount of their capital
contributions
 Chief Characteristics

Association of individuals
Partnership Mutual agency
Limited life
Unlimited liability
Co-ownership of property
  A partnership is a legal entity for certain
purposes

 A partnership is an accounting entity for

Partnership
financial reporting purposes.

 Net income of a partnership is not taxed

as a separate entity.
 Advantages Disadvantages
Easy to form Division of responsibility
Access to more capital Delay in decisions
Skill and talent Lack of continuity
No transferability of
Partnership Division of labor
share
Contact with
Unlimited liability
customers
Borrowing capacity Internal conflict
Co-operation between
partners
  CORPORATION

 Entity created by law that is separate and

distinct from its owners and its continued
existence is dependent upon the
corporate statutes of the state in which it is
Various incorporated
Forms of  5 – 15 persons who are called
Organizations incorporators, holds at least one share and
are bound by the articles filed by the SEC.
 The paid-up capital (total amount of
capital received by the ca company from
its shareholders in exchange for shares of
stocks) of a Philippine corporation must not
be less than P5000.
  Has separate legal existence from its owners.
 Stockholders have limited liability
 Transferable ownership rights (ownership is in
shares of stock)
 Ability to obtain capital
 Can have continuous life.
Corporation  Corporation must pay an income tax on its
earnings, and the stockholders are required to
pay taxes on dividends they receive: the result
is double taxation of distributed earnings.
 The artificial/juridical “person” endowed with
ability for self-management, that is, the
management structure is at the discretion of
the board of directors
  Stock Corporation
 Has capital stock divided into shares and is
authorized to distribute to the shareholders
dividends or allots of the surplus profits on
the basis of the shares held.

 Nonstock Corporation
Corporation  Is one where no part of its income is
distributable as dividends to its members,
trustees or officers. Any profit that a
nonstock corporation earns is used to
further promote the purpose of the
organization.
 Charity, religious, professional or other
similar purposes.
 Advantages Disadvantages
Unlimited life Double taxation
Independent
Credibility
Corporation management
Ease of transferring
ownership
Protecting Personal
assets
 Sole Proprietorship
• Has complete control over the company’s
finances and operations
Comparison • Not required to consult anyone when it comes
to making business decisions.
and Contrast
Partnership
Among the • All partners have input regarding how the
Various  company’s resources are used and other

Forms of important business decisions.

Business Corporations
• Has advantage when raising capital for the
Organizations business – the ability to raise funds through the
sale of stocks.
• Corporations file taxes separately from their
owners.
  Small businesses by sole proprietors
contribute to economic development,
job creation, and the general health
Role of Each and welfare of economies.
Form of
Business  Due to the Industrial Evolution which
Organization brought new forms of machines that
could produce massive quantities of
in the goods. To produce the machines, large
Economy business needed people to assemble
them and thus resulted to large
corporations to dominate the
economy.
  Large businesses then offer better jobs than
small businesses in terms of compensation and
stability.

Role of Each  Corporations provide benefits such as: links to

Form of suppliers, increased consumer spending,
transfer of knowledge from one firm to another
Business and the sharing of pools of workers.
Organization
in the  However some companies act in a socially
harmful manner including the exploitation of
Economy workers, manipulating financial markets and
produce massive damages to the
environment