ORGANIZATION AND MANAGEMENT_GRADE 11 ABM

UNIT II: THE FIRM AND ITS ENVIRONMENT

MODULE 3 (Q1 - W4)

Learning Competencies:
1. Describe the local and international business environment of a firm
2. Explain the role of business in relation to the economy
3. Discuss the different phases of economic development
4. Differentiate the various forms of business organizations

LESSON 2: The local and international business environment of the firm

See:
✔ https://prezi.com/dwsv788swdtf/local-and-international-business-environment-of-
the-firm/#:~:text=The%20definition%20of%20business%20environment,and
%20demand%20and%20business%20regulations.
✔ https://www.youtube.com/watch?v=4KR29BMH0yE

LESSON 3: Business and the economy

In any market economy, business plays a huge role.  Business is the engine of an
economy.  Business provides jobs that allow people to make money and goods and
services that people can buy with the money they make.  Without business, the economy
would be very inefficient and/or very primitive.

In any economy, people need jobs.  In any but the most primitive economies, people need
to be able to buy goods and services.  Businesses provide for both of these needs.  Most
businesses provide people with jobs.  If I open a restaurant, I will need to hire cooks, wait
staff, dishwashers, and other people.  My business is providing jobs for many people.  Now
imagine how many people get their jobs from large companies.  A large company can
provide thousands of jobs. This is incredibly important to an economy.

These businesses also provide the things that people need to buy.  If you need a cell
phone, you have to buy it from a business because you certainly cannot make your own.
Most people cannot make their own clothes and must buy them from a business.  Most
people do not cut their own hair and must pay a business for their haircuts.  Without
businesses, people would not have goods and services that they could buy.

Economies can exist without businesses, but they are not nearly as strong.  Imagine
an economy where every person works only for themselves.  No one starts a business and
hires other people.  This economy would be very primitive as people would only buy and sell
things they could make themselves.  Alternatively, imagine an economy where there are no
businesses because the government is in charge of the economy.  The government will
provide jobs and goods and services, but it will not do so efficiently.  The government might
not provide the things that people want.  It might run its factories and other operations poorly

1
ORGANIZATION AND MANAGEMENT_GRADE 11 ABM

because they could not go broke if they failed to satisfy their customers. This would be an
inefficient economy.

Business, then, plays a central role in any market economy. It is the engine that
allows an economy to run because it provides jobs as well as goods and services.1

See:
✔ https://prezi.com/caxalxhhyhyo/5-phases-of-economic-development/
✔ https://www.slideshare.net/RichPagaduan1/phases-of-economic-development

LESSON 4: Forms of business organizations

A business entity is an organization that uses economic resources to provide

goods or services to customers in exchange for money or other goods and services.
Business organizations come in different types and in different forms of ownership.

These are the basic forms of business ownership:

1. Sole Proprietorship. It is a business owned by only one person. It is easy to set-

up and is the least costly among all forms of ownership. The owner
faces unlimited liability; meaning, the creditors of the business may go after the
personal assets of the owner if the business cannot pay them. It is usually adopted
by small business entities.

2. Partnership. It is a business owned by two or more persons who contribute

resources into the entity. The partners divide the profits of the business among
themselves.

In general partnerships, all partners have unlimited liability. In limited

partnerships, creditors cannot go after the personal assets of the limited partners.

3. Corporation. It is a business organization that has a separate legal personality

from its owners. Ownership in a stock corporation is represented by shares of
stock. The owners (stockholders) enjoy limited liability but have limited
involvement in the company's operations. The board of directors, an elected
group from the stockholders, controls the activities of the corporation.

In addition to those basic forms of business ownership, these are some other types
of organizations that are common today:

1 https://www.enotes.com/homework-help/what-role-business-economy-716463#:~:text=In%20any%20market%20economy
%2C%20business,with%20the%20money%20they%20make.&text=In%20any%20but%20the%20most,to%20buy%20goods
%20and%20services.

2
ORGANIZATION AND MANAGEMENT_GRADE 11 ABM

4. Limited Liability Company (LLC). These are hybrid forms of business that
have characteristics of both a corporation and a partnership. An LLC is not
incorporated; hence, it is not considered a corporation. But, the owners enjoy
limited liability like in a corporation. An LLC may elect to be taxed as a sole
proprietorship, a partnership, or a corporation.

5. Cooperative. It is a business organization owned by a group of individuals and is

operated for their mutual benefit. The persons making up the group are
called members. Cooperatives may be incorporated or unincorporated. Some
examples of cooperatives are: water and electricity (utility) cooperatives,
cooperative banking, credit unions, and housing cooperatives.2

BUSINESS ADVANTAGE/S DISADVANTAGE/S

FORM
Sole 1. It is the easiest and 1. Unlimited liability
Proprietorship least expensive form 2. Expansion problems
of business due to lack of capital
organization 3. Lack of continuity
4. Cannot take
2. Personal decision advantage of large
making scale buying.
3. All profits belong to
the owner
4. Personal satisfaction
5. Business affairs are
kept very private.

Partnership 1. easy to set-up 1. Unlimited liability

2. Provides a larger 2. Disagreement
capital base and hence among the partners
more growth may cause delays in
prospects decision making
3. Work load is shared 3. Lack of continuity.
4. Responsibility and
control is also shared
5. Provides a diversified
pool of expertise
resulting in efficient
management.

Corporation 1. Limited liability 1. Formation is not

2. Continuity of easy.
existence 2. Controlled by a
3. Benefits of large group.
2 https://www.accountingverse.com/accounting-basics/types-of-businesses.html

3
ORGANIZATION AND MANAGEMENT_GRADE 11 ABM

scale operation 3. Excessive

4. Professional government
management control.
5. Social benefit 4. Delay in policy
decisions.3
Limited Liability 1. Greater permanency 1. Company formation
Company and stability of is very complicated
company life and requires legal
2. Limited liability in work
case of any loss 2. Double taxation
3. Transfer of Owner is 3. Exploitation of
very easy shareholders
4. The grab huge capital 4. Stock exchange
and investors speculation is
harmful for
shareholders4

Cooperative 1. Easy formation. 1. Lack secrecy.

2. Limited liability. 2. Lack of business
3. Perpetual existence. acumen.
4. Social service. 3. Lack of interest.
5. Open membership. 4. Corruption.
6. Tax advantage. 5. Lack of mutual
7. State assistance. interest.5
8. Democratic
management.

There are three major types of businesses:

1. Service Business. It provides intangible products (products with no physical form).
Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks, accounting
firms, and law firms.
2. Merchandising Business. It buys products at wholesale price and sells the same at retail
price. They are known as "buy and sell" businesses. They make profit by selling the
products at prices higher than their purchase costs. A merchandising business sells a
product without changing its form. Examples are: grocery stores, convenience stores,
distributors, and other resellers.
3. Manufacturing Business. Unlike a merchandising business, a manufacturing business
buys products with the intention of using them as materials in making a new product.
Thus, there is a transformation of the products purchased.

3 https://www.slideshare.net/RahulKaurav/unit-2-p2-29092488
4 http://studylecturenotes.com/forms-of-business-organization-features-advantages-disadvantage/
5 https://www.yourarticlelibrary.com/business/cooperative/advantages-and-disadvantages-of-cooperative-society-
discussed/40799

4
ORGANIZATION AND MANAGEMENT_GRADE 11 ABM

A manufacturing business combines raw materials, labor, and overhead costs in its

production process. The manufactured goods will then be sold to customers.
4. Hybrid Business. It may be classified in more than one type of business. A restaurant,
for example, combines ingredients in making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising), and fills customer orders (service).6

NAME: Date:
Professor: Section: Score:

ACTIVITY 2.2.1
1. Distinguish the various forms of organization in the following areas:

Sole Partnership Corporation Cooperative

Proprietorship

Control

No. of owners

Liability of owner/s

Ease of organization

Degree of management
specialization

6 Ibid.