CHAPTER 7: BUSINESS ORGANIZATION & MANAGEMENT

BUSINESS ORGANIZATIONS constitute a major component of the whole economy; they create
investments, employments, productions and incomes

FREE-ENTERPRISE ECONOMY where private business organizations & the government are partners
of development & progress

EXTERMNAL ECONOMIES OF SCALE electrification, transportation, and communication facilities

PROFIT MOTIVE natural aspiration of a business

PETER DRUCKER a management specialist who said that the purpose of business is to create
customers

WILLIAM STANTON a marketing expert who stated that the wants of the customers should be
identified & satisfied

SINGLE PROPRITORSHIP is a form of business organization which is owned by one person

PARTNERSHIP is a form of business organization in which 2 or more persons agree to own & operate
a business

SILENT PARTNERS only provide the financial capital but they do not participate in the management

INDUSTRIAL PARTNER does not contribute money to the business organizations but is responsible for
its management

CORPORATION is a legal entity, distinct & separate from the stockholders who own it; is an artificial
being created by operation of the law, having the right of succession & the powers, attributes, &
properties expressly authorized by law/incident to its existence

STOCKS certificates of ownership

BONDS certificates of indebtedness

50 YEARS life-span of a corporation

MULTINATIONAL CORPORATION a corporation which maintains its headquarters in one country (rich
country) but performs production, marketing, finance, & personal functions within many other
countries (mostly poor countries)

COOPERATIVE only organizations composed primarily of small producers & consumers who
voluntarily join together to form business enterprises which they themselves own, control, &
patronize

PRESIDENTIAL DECREE NO. 175 defines cooperative

SMALL PRODUCER is an individual who provides (or together with his family) the primary labor
requirements of his business enterprise, or one who earns at least 50% of his gross income from
his labor

MANAGEMENT is responsible for properly allocating & using the resources of the organization, like
manpower, money, machines, and materials

LIFETIME EMPLOYMENT SYSTEM is very helpful in developing a deep sense of corporate loyalty
among employees
PROFIT stimulates individuals to engage in business activities

PROFIT MAXIMIZATION minimized costs of production & maximized output without sacrificing the
quality of its products

MAJOR FORMS OF BUSINESS

1. Single proprietorship
2. Partnership
3. Corporation

ADVANTAGES OF SOLE PROPRIETORSHIP

1. Easy to organize
2. Single sole proprietor is the boss
3. Owner acquires all profits from the business

DISADVANTAGES OF SOLE PROPRIETORSHIP

1. Financial resources are not enough to transform the business into a large-scale enterprise
2. Benefits of specialization in business management are not present
3. Unlimited liability

ADVANTAGES OF PARTNERSHIP

1. Easy to organize
2. Better management
3. Possibility of bigger resources than the single proprietorship

DISADVANTAGES OF PARTNERSHIP

1. Conflicts among the partners are likely to crop up

2. Lacks stability
3. Unlimited liability

ADVANTAGES OF A CORPORATION

1. Limited liability
2. Has the most effective means of raising money capital
3. Permanent existence
4. Capable of getting the most efficient management

DISADVANTAGES OF A CORPORATION

1. Not easy to organize

2. Abuses are likely to emerge
3. Some corporations are engaged in questionable activities
4. Very impersonal or formal relationship between officers & employees

SIMILARITIES BETWEEN A COOPERATIVE & A CORPORATION

1. Factors of production are privately owned & managed

2. Both depend on business efficiency to survive in a competitive market
3. Their activities & operations are both regulated & supervised by the government
4. Both enjoy a reasonable degree of economic freedoms

DIFFERENCES BETWEEN A COOPERATIVE & A CORPORATION

 1. A cooperative is for service while a corporation is for profit
2. Membership in a cooperative is open & voluntary while in a corporation membership is only for
wealthy relatives & friends
3. Government in a cooperative is democratic while in a corporation government is a rule of
minority
4. Savings/net profits are refunded to the members of a cooperative on the basis of their
individual patronage while in a corporation, profits are distributed to the stockholders on the
basis of number of their shares

JOBS OF MANAGEMENT

1. Managing a business
2. Managing managers
3. Managing worker and work

JAPANESE STYLE OF MANAGEMENT

1. Life-time employment system

2. Company-based unions

SOCIAL RESPONSIBILITIES OF MANAGEMENT

1. To their company
2. To their employees
3. To their customers