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Major Business Organization
Major Business Organization
Business organizations are a major component in the economy. Their main goal is to
attract customers, and to consequently earn profit. Businesses provide for the needs,
wants and demands of the economy.
Businesses have an important partnership with the government. For the economy,
businesses serve as provider goods and services to the consumers, on one hand, and
provide investments, employment and social responsibility to the economy provides the
necessary factors of production to businesses.
Business and government work together for progress and development. Businesses pay
the necessary taxes to the government, and in return, the government provides the
proper infrastructures, such as electricity, water, roads and highways, communication,
railways, etc. these factors are essential in improving the efficiency of operations of the
business sector.
1. It is easy to organize
2. Its organization and operation only involves few business requirements.
3. The single proprietor is the boss. The proprietor has all the freedom in terms of
decision-making. All choice are made by him. Because of this, conflicts and
quarrels in operations of certain large-scale businesses.
4. Financial operations are not complicated. As this type of business is small-scale,
financial operations are not as complicated as the financial operations of certain
large-scale businesses.
5. The owner acquires all the profits. It is one of the best advantages of single
proprietorship. The owner has all the freedom to enjoy his profit, without having
it divided or shared with other stakeholders.
1. Limited ability to raise capital. Since single proprietor businesses are mostly
small, the limitation of its funds serves as a disadvantage, especially so that the
capital owned by the proprietor is the only funds which he can use to operate
the business.
2. The sole proprietor has unlimited liability. This means that the owner of the
business risks not only the assets of his small enterprise, but also his other
personal assets, such as his land, bank deposits and other personal properties,
which are not part of his business. In case of loss, such assets are subject to
financial claims by his creditors.
3. Limited ability to expand. This is due to the business’ limited capital. In most
cases, operations are limited only to areas in which the sole proprietor has
expertise. Not all proprietors are flexible, this is what is required in business
expansion.
4. Business is entirely a responsibility of the owner. The owner has no one to share
the burden of decision making and losses he might incur. Whatever happens to
the business, the owner is only the person to blame.
Partnership
Partnership is a business organization that is an association of at least two or more
persons who agree to place money, property or industry in a common fund with the
aim of sharing the profits among themselves. In addition, a partnership agreement can
be oral or written, although Philippine law requires a written agreement when real
property is involved, or when a limited partnership is being established.
Types of Partners
A capitalist partner is one that provide assets, such as money and property, to be
utilized as the starting capital of the business.
An industrial partner is one that swear to give services or labor to the operation
of the business. He is usually the “hands-on” partner in the business, and he is
involved in various aspects of its operation.
A general partner is one who is liable for partnership problems, particularly the
debts of the business. His liability for business debts extends to his personal
property after partnership assets are exhausted.
A limited partner is one whose liability for partnership problems (for instance his
debts) is limited. His liability is only to the extent of his capital contribution.
Advantages of a partnership
1. Easy to form. The requirements are technically the same with sole
proprietorship. The only additional in the requirements is the partnership
agreement. Unlike a corporation, there are lesser requirements to accomplish in
forming and maintaining a partnership business.
2. Flexibility of operations. There are only few owners in a partnership business.
That is why if there are certain concerns that need to be addressed, there is no
delay in decision making because it can easily be solved by the partners.
Agreements and resolutions as to business matters are immediately decided by
the partners.
3. Efficiency in operations. Simply put, “two heads are better than one.” There is
better management because of the presence of more participants in the
operation of business. With the presence of the partners, more ideas will are also
applied in the operation of the business.
4. Partners are expected to have great interest in the operation of the partnership.
Partners have their own areas of interest and responsibility, which helps in the
smooth operation of the business. The unlimited liability of the partners also
encourages their interest in participating in the venture.
Disadvantages of partnership
1. Partners have unlimited liability for partnership debts. This is one of the identical
disadvantages of single proprietorship and partnership. Partners face unlimited
liability for partnership debts. Partners may not only put their combined money
and property at risk, but also their individual assets as well.
3. Limited ability to raise capital. The amount of capital depends on how much can
be contributed by the partners. Thus, there is also limitation to raise funds for
the business.
4. Conflicts and quarrels between/among partners. Conflicts or quarrels are the
main reason why partnership is unstable. Rules, regulations, policies, number of
hours in the area, responsibility, decision making, agreements and profit
distribution are just some cause of conflicts and quarrel between the partners.
Corporation
A corporation has specific objectives in carrying out the business, in accordance with a
charter or articles of incorporation. This charter is a written document containing the
names of the original incorporators, their initial share in stockownership, and the
objectives and activities of the corporation.
The following are the contents of Articles of Incorporation as provided under Section 14
of the Corporation Code:
By-Law
It may be defined as the rules of action for the internal government of a corporation
and for the government of its officers, stockholders and members. All corporation
formed under the Corporations Code of the Philippines are required to adopt a code by-
laws within one month after its corporate charter from the Securities and Exchange
Commission (SEC). By-laws shall be effective only upon issuance by the SEC of a
certification that the by-laws are not inconsistent with the provisions of the Corporation
Code.
The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees.
The time and manner of calling and conducting regular or special meetings of
the stockholders or members.
The require quorum in meetings of stockholders or members and the manner of
voting therein.
The form of proxies of stockholders and members and the manner of voting
therein.
The qualification, duties and compensation of directors or trustees and officers.
The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof.
The manner election or appointment and the term of office of all officers other
than directors or trustees.
In the case of Stock Corporation, the manner of issuing certificates.
The penalties for violation of the by-laws.
Other matters that may be necessary for the proper and convenient transaction
of its corporate business and affairs.
Right of Stockholders
2. It has continued and more or less permanent existence. The life span of a
corporation is 50 years, and subject to renewal for another 50 years. The death
or withdrawal of some officers, stockholders or members does not affect the life
of the corporation.
Disadvantages of corporation
1. Complicated to maintain and not easy to organize. Aside from complying with
capital requirements, there are many paper works involved in securing a charter.
It also takes a longer time to have an approval from the SEC.
3. Subject to higher tax. It is subject to higher tax rate. Corporate income tax is
fixed at 30%, whereas for individuals, the rate range from 0% to 32%. With the
progressive tax system by the government, given the huge revenue of the
corporation, they are required to pay higher percentage of tax.
5. Abuses of corporation officials. Corporate directors and officials may abuse their
powers, especially because of the minimum supervision of stockholders.
6. Some corporation are engaged in questionable activities. Some corporations
engaged in questionable activities just only to pursue their own interest which is
to earn profit, regardless of hurting others in the process. For example, they sell
worthless securities, sell substandard goods or pollute the environment. In short,
they do not comply with their social responsibility.
Classification of Corporations
A stock corporation is one wherein the capital is in the form of shares of stock.
You need to buy the shares to be part of the corporation. At the end, the
corporation earns profits and distributes it to the shareholders in the nature of
dividends.
2. Based on purposes
A parent corporation is one which has controlling interest (more than 50%) on
another corporation so that it has the power either, directly or indirectly, to elect
the majority of the directors of such other corporation.
A foreign corporation is one that is formed, organized or existing under the laws
of another country.
5. Based on whether they want to open in public or not
Voting in a Corporation
In a non-stock corporation, every member may cast as many votes as there are
trustees to be elected but may not cast more than one vote for one candidate, unless
cumulative voting is authorized under the articles of incorporation.
1. Common stock
Common stock represents the basic issue of shares, and has all the basic rights
of share so that it is often referred to as the basic ownership in a corporation.
2. Preferred stock
Preferred stock is a type having certain preferences over common stock. These
preferences may be in the distribution of dividends and/or corporate assets,
upon dissolution of the corporation. If dividends have been declared by the
company, the preferred stockholders are prioritized to receive it first.
3. Class A shares
These are the available stocks offered to Filipino shareholders.
4. Class B shares
These are the available stock offered to foreign investors.
No par values are shares which have not been assigned a definite or fixed value.
7. Founders’ shares
Founder’s shares are those classified, as such in the articles of incorporation and
may be given certain rights and privileges not enjoyed by other stockholders. It
is usually given to incorporators-the formators of the corporation.
Dividends
Kinds of Dividends
1. Cash
This is paid in cash to the stockholders.
2. Property
This is in the form of non-cash assets of corporation.
3. Stock
This is the dividend in the form of stocks of the issuing corporation
4. Scrip
The dividend in the form of promissory notes indicating the kind of benefits
the stockholders shall be entitled to receive in the future (cash, non-cash,
stock or some other form of dividend).
5. Bond
This is in the form of bonds of the company.
6. Liquidating
This refers to return of capital by a corporation.
Cooperatives
The Cooperative Coode of the Philippines was created in 1990, by virtue of Republic Act
No. 6938, which serves as the legal basis for the operation of all cooperatives in the
country.
Principles of Cooperatives
Every cooperative shall conduct its affairs in accordance with Filipino culture and
experience and the universally accepted principles of cooperation, which include the
following:
3. Limited interest on capital. The share capital shall receive a strictly limited rate of
interest.
4. Division of net surplus. Net surplus arising out of the operation of a cooperative
belongs to its members and shall be equitably distributed for cooperative
development, common services, indivisible, in the manner provided in the Code
and in the articles of cooperation and by-laws.
5. Cooperative education. All cooperatives shall make provision for the education of
their members, officers and employees and of the general public based on the
principles of cooperation.
Objectives of a Cooperative
The primary objective of every cooperative is to provide goods and services to its
members, and thus enable them to attain increased income and savings, investments,
productivity, and purchasing power and promote among them equitable distribution of
net surplus through maximum utilization of economies of scale, cost-sharing and risk-
sharing without, however, conducting the affairs of the cooperative for eleemosynary or
charitable purposes.
Factors of production are privately owned and managed. They both on business
efficiency to survive in a competitive market. Also, their activities and operations are
regulated and supervised by the government. Lastly, they both enjoy a reasonable
degree of economic freedom.
The previous chapter discusses the different types and classifications of business
organizations. These types of business organizations are identified according to the
number of owners of the business.
This chapter identifies the different types of market structure. Market structure is a
classification system for the key traits of a market, including the number of firms, the
similarity of the products they sell, and the ease of entry into and exit from the market
structure. In particular we will look into the characteristics of each with the end in view
of distinguishing one from the other.
There are four major type of market structure, namely: (1) perfect competition, (2)
monopoly, (3) monopolistic competition, and (4) oligopoly. We discuss them individually
below.
Perfect Competition
Very easy entry and exit. This means that there are no barriers to entry or impediments
to the exit of existing sellers. That is, new firms face no barriers to entry. Barriers can
be in the form of financial, technical, or government imposed barriers such as licenses,
patents, permits, copyrights, etc. anyone who wishes to plant tomatoes or sweet potato
needs only a plot of land.
However, in the real world, no market exactly fits the three assumptions of perfect
competition. The perfectly competitive market structure is only a theoretical or ideal
model, but some actual markets do approximate the model fairly closely. Typical
example of this type of market structure is the agricultural sector or farm products
markets.
Monopoly
Monopolistic Competition
Product differentiation can be real or imagined. It does not matter which is true so long
as consumers believe such differences exist. In our previous example, many customers
think that Don Pedro’s seafood restaurant is the best along the Manila Bay area
although there are other restaurants that offer a similar product. The importance of this
viewpoint, therefore, is that consumers are willing to pay slightly high price for Don
Pedro’s seafood.
Our example makes clear that under monopolistic competition rivalry centers on non-
price factors in addition to price competition. With non-price competition, a firm under
this type of market structure competes, using marketing strategies like advertising,
packaging, product development and innovation, better quality, and better service,
rather than lower price. Non-price is an important characteristic of monopolistic
competition that distinguishes it from perfect completion and monopoly.
Easy entry and exit. In a monopolistically competitive market, there are no barriers to
entry preventing new firms entering the market or obstacles in the way of existing firms
leaving the market. Thus, unlike a monopoly, firms in a monopolistically competitive
market face low barriers to entry. However, entry in perfectly competitive market.
Because monopolistically competitive firms sell differentiated products, it is somewhat
difficult for new firms to become established. For instance, we can establish our own
seafood restaurant along Manila bay since we can easily get business permit, secure a
loan, lease a property, and start serving seafood without too much trouble. However,
our restaurant may have trouble attracting customers because Don Pedro’s seafood
restaurant has established a reputation of being the best seafood restaurant in the
area.
Oligopoly
Few sellers. Under oligopoly, the bulk of market supply is in the hands of relatively few
large firms who sell to many small buyers. We can therefore say that oligopoly is
competition ‘among the few’. We are familiar with the ‘Big Three’ oil companies to
mean that these three firms dominate the industry. But what does ‘few firms’ really
mean? As with other market structures, the answer is there is no specific number of
firms that must dominate an industry before it is an oligopoly. Basically, an oligopoly is
a consequence of mutual interdependence, that is, it is a condition in which an action of
one firm may cause a reaction from other firms. In other words, a market structure with
a few powerful firms makes it easier for oligopolists to collude. The large number of
firms under perfect competition and the absence of other firms in monopoly rule our
mutual interdependence and collusion in these market structures. We can therefore say
that the ‘few sellers’ condition is met when these firms are so large relative to the total
market that they can affect the market price.
Difficult entry. Similar to monopoly, there are formidable barriers of entry which make it
difficult for new firms to enter the market. High barriers to entry in an oligopoly protect
firms from new entrants. These barriers include exclusive financial requirements,
control over essential resource, patent rights, and other legal barriers. But the most
significant barriers to entry in an oligopoly market is economies of scale. For example,
larger oil firms achieve lower average total costs than those incurred by small oil firms
thus, we can see that even with the deregulation policy of the government, still the
dominant players in the industry are the ‘Big Three’.
There are special types of market structure. These include (1) bilateral monopoly, (2)
bilateral oligopoly, (3) duopsony, (4) duopoly, and (5) monopsony.
Bilateral monopoly is a market situation comprising one seller (like monopoly) and only
one buyer (like monopsony). Bilateral oligopoly is a market competition with significant
degree of seller concentration (like oligopoly) and a significant degree of buyer
concentration (like oligopoly). Duopsony is a market situation in which there are only
two buyer but many sellers. Duopoly is a subset of oligopoly describing a market
situation in which there are only two suppliers. Lastly, monopsony is a form of buyer
concentration, that is, a market situation in which a single buyer confronts many small
suppliers.