Lesson 3.

1 Principles, Tools, and Techniques

Objectives:

1. Identify the principles and tools in creating a business;

2. Explain the four ways to form a business;
3. Distinguish between Small, Medium, and Large Scale Businesses
4. Apply SWOT analysis as a tool in creating a business opportunity.

A business is just a small portion of an industry. It is an undertaking by a person or a

group of persons who are partners, or stockholders who own a juridical entity known as a
corporation. Its main objective is to earn profit for the owners. An industry, on the order hand, is
the aggregation of the different businesses engaged in the same line of undertaking. For example,
Celine has a business firm that is part of the country’s shoe industry
For a person but up a business, it is essential that essential that an industry analysis first
be made. Commonly used is a system known as the SWOT analysis, which list the strengths,
weaknesses, opportunities, And threats that the business faces
BUSINESS ORGANIZATION
From a legal point of view, there are four ways to form a business:

1. Sole Proprietorship

This is generally the simplest way to set up a business. A sole proprietorship is

owned by a single individual who is singly responsible for running the business. The
sole proprietor enjoys exclusive control and decisions-making as well as gets all the
profits earned but he also shoulders all losses and has unlimited liability which means
payment of his loans will extent to his personal assets.

2. Partnership

A partnership is an agreement in which two or more persons combine their

resource In business with a view of making profit. A partnership agreement is draw
up and profits are divided among the partners according to the terms of agreement.
There are two types of partnership:

a) The general partnership. All owners share the management of the business and
each is personally responsible for a must assume the consequences of the actions
of the order partners. All general partners have unlimited liability which means
loan payments will extent to their personal property.

b) The limited partnerships. Some members are general partners who control and
manage the business and may be entitled to a greater share of the profit while
others partners are limited and contribute only capital, take no part in control or
management, and are liable for debts to a specific extent only.

3. Corporation
A corporation is a legal entity that is separate from its owners the shareholders. No
is personally liable for the debts, obligations, or acts the corporation. Directors and
officers can bear liability for their involvement with the corporation. Thenlegal entity of
the corporation gives it an individual identity of its own. Corporations normally can exist
for a life of 50 years, which is renewable for another 50 years. Owners have limited
liabilities. However, corporations are burdenedby heavy taxes.
4. Cooperative
 A cooperative is an entity organized by people with similar needs to provide themselves
with goods or services or to jointly use available resources to improve their income

Cooperative members have an equal say in decision-making with one vote per member
regardless of number of shares held, there is open and voluntary membership and surplus earning
is returned to the members according to the amount of their patronage.

SMALL, MEDIUM,AND LARGE SCALE BUSINESS

It is also important to study the classification of businesses as to the size based on the
worth of the business assets.In the Philippines, total assets for micro business are worth below $
1,500,001. For the small business, total assets are from $1,500,001 to $ 15,000,000.Medium
business has total assets from $ 15,000,001 to $ 60,000,000.Any business with assets in excess of
$ 60,000,000 is considered large scale.
For any form of business organization, the business must be registered with the
appropriate government agencies.In the case of sole proprietorships and partnership,100% must
be owned and capitalized by Filipinos.For corporations, at least 60% of the outstanding capital
stocks must be owned by Filipinos citizens. Business activity conducted may be within major
sectors of industry,services,practice of profession, or operation of tourism- related business and
agri-business.
The choice of which from of business organization may be a personal preference of the
owner,based on his objectives, his available resources,and the scope of operations.

References:

Rosemary P. Dinio, PhD., and George A. Villasis. Applied Economics, REX Book Store. First
Edition