Business Ethics

and Social Responsibility

First Quarter – Module 1
Forms of Business Organization
Business Ethics and Social Responsibility– Grade 12
Alternative Delivery Mode
Quarter 1- Module 1: Forms of Business Organization
First Edition, 2020

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Published by the Department of Education

Secretary: Leonor Magtolis Briones
Undersecretary: Diosdado M. San Antonio

Development Team of the Module

Writer: Razell Rose G. Ramos

Editor: Sher-amie Grace R. Macoco
Reviewers: Jerville Jake M. Cabansag Deejay R. Opelac
Gladys B. Lampitoc Jennifer C. Bungubung
Gracialyn L. Austria
Management Team: Tolentino G. Aquino Marilou B. Sales
Arlene A. Niro Aubrhey Marie R. Oasay
Gina A. Amoyen
Editha T. Giron

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Department of Education – Region I
Office Address: Flores St., Catbangen, City of San Fernando, La Union
Telefax: (072) 682-2324; (072) 607-8137
E-mail Address: region1@deped.gov.ph

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 12
Business Ethics and
Social Responsibility
First Quarter – Module 1
Forms of Business Organization

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Introductory Message
For the facilitator:
Welcome to the Business Ethics and Social Responsibility Alternative Delivery Mode (ADM)
Module on Forms of Business Organization.
This module was collaboratively designed, developed and reviewed by educators from public
institutions to assist you, the learners to meet the standards set by the K to 12 Curriculum
while overcoming the learners’ personal, social, and economic constraints in schooling.
This learning resource hopes to engage the learners into guided and independent learning
activities at their own pace and time. Furthermore, this also aims to help them acquire the
needed 21st century skills while taking into consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:

Notes to the Teacher

This contains helpful tips or strategies that will help you in
guiding the learners.

As a facilitator you are expected to orient the learners on how to use this module. You also
need to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.

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For the learner:
Welcome to the Business Ethics and Social Responsibility Alternative Delivery Mode
(ADM) Module on Forms of Business Organization.
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to process
the contents of the learning resource while being an active learner.
This module has the following parts and corresponding icons:

Target This will give you an idea of the skills or

competencies you are expected to learn in
the module.

Pre-test This part includes an activity that aims to

check what you already know about the
lesson to take.

Jumpstart In this portion, the new lesson will be

introduced to you in various ways such as a
story, a song, a poem, a problem opener, an
activity or a situation.

Discover This section provides a brief discussion of

the lesson. This aims to help you discover
and understand new concepts and skills.

Explore This comprises activities for independent

practice to solidify your understanding and
skills of the topic. You may check the
answers to the exercises using the Answer
Key at the end of the module.

Deepen This section provides an activity which will

help you transfer your new knowledge or
skill into real life situations or concerns.

Gauge This is a task which aims to evaluate your

level of mastery in achieving the learning
competency.

Answer Key This contains answers to all activities in the

module.

At the end of this module you will also find:

References This is a list of all sources used in developing this module.

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The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of the module.
Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer Pre-test before moving on to the other activities included in the
module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not hesitate to
consult your teacher or facilitator. Always bear in mind that you are not alone.
We hope that through this material, you will experience meaningful learning and gain
deep understanding of the relevant competencies. You can do it!

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 Target

This module was designed and written for the use of learners. It is made to help
you master the subject Business Ethics and Social Responsibility. The scope of this
module permits it to be used in many different learning situations. The language used
recognizes the diverse vocabulary level of students. The lessons are arranged
according to the standards of the most essential learning competencies.

The module will provide you with information and activities that will help you
understand the Forms of Business Organizations in terms of their purpose and role in
socioeconomic development.

After going through this module, you are expected to:

1. differentiate the forms of business organizations (ABM_ESR12- IIIa-d-1.1);

2. give examples of the forms of business organizations (ABM_ESR12- IIIa-d-
1.2);
3. show how these organizations contribute to socioeconomic development
(ABM_ESR12-IIIa-d-1.3)

Before going on, check how much you know about this topic. Answer the pretest on
the next page on a separate sheet of paper.

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 Pretest

As an initial phase of learning forms of business organizations in terms

of their purpose and role in socioeconomic development, it is better to determine how
familiar you are with the topic by simply answering the questions.
MULTIPLE CHOICE. Read and understand the following statement. Write your
answers on a separate sheet of paper.

1. It is an entity in which economic resources or inputs, such as materials and

labor, are put together and process to provide goods or outputs to customers.
A. Business B. Input C. Organization D. Venture

2. This type of business provide services rather than products to customers.

A. Merchandising B. Manufacturing C. Service D. Sole Proprietorship

3. This type of business change basic inputs into products that are sold to
customers.
A. Merchandising B. Manufacturing C. Service D. Sole Proprietorship

4. This is a business owned by one person.

A. Corporation C. Partnership
B. Merchandising D. Sole Proprietorship

5. It is an association of two or more persons engaged in business.

A. Corporation C. Partnership
B. Merchandising D. Sole Proprietorship

6. It is an entity created by law that is separate an d distinct from its owners.

A. Corporation C. Partnership
B. Merchandising D. Sole Proprietorship

7. These are moral principles that guide the conduct of an individual.

A.Business B. Ethics C. Law D. Philosophy

8. As defined by the Word Business Council for Sustainable Development

(WBCSD), this is a “continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the
workforce and their families, local community, and society at large.”
A. Corporate Social Responsibility C. Legal Responsibility
B. Ethical Responsibility D. Social Responsibility

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9. The act of an employee disclosing what he believes to be unethical or illegal
behavior to a higher management or to an external authority or the public.
A. Insider trading B. Moral Reasoning C. Whistle Blowing D. None

10. This American economist famously stated that the only social responsibility of
business is to increase its profits.
A. Adam Smith C. Milton Friedman
B. Karl Marx D. William Sauser

11. Which of the following is NOT a form of business ownership?

A. Corporation C. Retail
B. Partnership D. Sole Proprietorship

12. What form of business is easy to start; owner is own boss; owner keeps all the
profits and shoulders losses?
A. Corporation C. Partnership
B. Franchise D. Sole Proprietorship

13. What form of business consists of two or more people to carry on, as co-owners
of a business for profit?
A. Cooperative C. Partnership
B. Corporation D. Sole Proprietorship

14. Your mother has Php 100,000. She wants to invest her money in the form of
business that has the least amount of personal liability. What form of business
would you recommend?
A. Cooperative C. Partnership
B. Corporation D. Sole Proprietorship

15. How a corporation differs from a sole proprietorship?

A. Corporations are owned by only one person.
B. Sole proprietorships have limited liability for the owners.
C. Sole proprietorships require a legal charter to start the business
D. Corporations can sell stocks to large and small investors to raise money
for the business.

Congratulations! You made it! Now, it’s time to learn further.

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 Lesson
Forms of Business Organization
1

Jumpstart
For you to understand the lesson well, do the following activities.
Have fun and good luck!

Directions: Read and understand the paragraph. Answer the guide questions in a
separate sheet of paper.

Profit Sharing System at

San Jose Kitchen Cabinets Manufacturing
Unity is always necessary, whether in the family, community, company or world affairs.
Without unity all sorts of problems occur. Among the various ways to foster unity in the
company, one of the best is profit sharing. The other reason why profit sharing is
important is that it can play a major role in eradicating poverty. Contrary to the common
notion that profit sharing will reduce profits, in the long term we believe the profits of the
company will even be more.
Our company, San Jose Kitchen Cabinets Manufacturing, started studyin g the
concept of profit sharing in 1982. For about five years, we practiced what I call the
abot-abot system which is actually just giving a portion of our profits to our employees
without a formal system. In 1987, we found the principles on which to base percentage
to be shared with our employees. For about 25 years now, these principles hold and the
percentage has not changed.

Oscar P. Chan Founder

Guide Questions:

1. Write your understanding about San Jose Kitchen Cabinet profit sharing.
2. In your own assessment, how can you relate this on this subject?
3. What is your idea of a socially responsible company?

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 Discover
The Nature and Forms of Business Organization
A business is an activity that is part and parcel of human society: It is an entity
in which economic resources or inputs, such as materials and labor, are put together
and process to provide goods or outputs to customers in exchange of money or other
forms of services in exchange of money or other forms of services. The primary goal
of a business is to earn profit. Profit is the difference between the amount earned and
the amount spent in buying, operating or producing something.
Generally, there are three types of Business Organizations. These are the following:
• Service Businesses. Provide intangible products such as professional skills,
expertise or advice.
• Merchandising Businesses. Sell products they purchased from other
businesses to customers.
• Manufacturing Businesses. Change basic inputs into new products that can be
sold to customers.

There are also Various Forms of Business Organization.

A business organization may take the form of a proprietorship, partnership, or
corporation. Each of these forms has major characteristics. Earlier, we discussed the
three major types of businesses such us service, merchandising, and manufacturing.
These types of business can be organized as proprietorships, partnerships, or
corporations.
• Sole Proprietorship – A business owned by one person.
Advantages:
a. Total undivided authority
b. Low organizational cost and license fees
c. Tax savings
d. No restrictions on type of business (as long as it is legal)

Disadvantages:
a. Unlimited liability
b. Limitation on size
c. Limited by management’s ability to be jack-of-all-trades

Sole proprietorships are not essentially tiny or u nknown businesses. In fact, many
famous businesses started as sole proprietorships. Accountants and tax preparers,
freelance writers, bakers and chefs, direct sellers, day care owners can set their
business structure as sole proprietorship.

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 • Partnership – An association of two or more people as partners; it refers to an
arrangement in which the individuals share the profits and liabilities of a
business venture.

Characteristics of Partnership
a. Association of individuals – may be formed through as simple act such as a
handshake.”
b. Mutual agency – act of any partner is binding on all other partners.
c. Limited life – Dissolution occurs when a partner withdraws or a new partner is
admitted.
d. Unlimited Liability – each partner is individually liable for all partnership liabilities.
e. Co-ownership of property – Assets of the partnership are owned by all the
partners.

Example of business partnerships are Twitter, Google, Apple, Microsoft and

McDonald’s.
• Corporation – an 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 incorporated.

Characteristics of Corporation
a. Has separate legal existence from its owners
b. The stockholders have limited liability
c. Transferable ownership rights
d. Ability to obtain capital
e. Can have a continuous life
f. Subject to numerous government regulations
g. Double taxation of distributed earnings
h. An artificial/juridical “person”. The management structure is at the discretion of
board of directors

In the Philippines, application of incorporation is to be filed on Security on

Exchange Commission or SEC. The Charter/Articles of incorporation will be
granted upon the approval of SEC, this formally creates a corporation. Then the
corporate management and board of directors then prepare a set of bylaws which are
the rules and procedures for conducting corporation’s affairs. The cost that may be
incurred in forming a corporation are legal fees, taxes, state incorporation fees, license
fees, and promotional costs.
There are different corporation in the Philippines that includes SM Investments
Corporation, SM Prime Holdings, Ayala Land, MERALCO (Manila Electric Railroad,
and Light Company), San Miguel Foods and Petron Corporation.

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Areas of Business Most in Need of Ethical Attention

The Social Function of Business

Why Should Business be Ethically Sensitive?
Investors and financial institutions will not invest their money on a business
whose people are not conforming to ethical standards. If business have no ethics, it
threatens the survival of human society and in some cases, destroys the fiduciary
relationships of people. By studying this, we begin to bring in the fundamental
concepts of ethics so that business activities will be viewed and examined from the
view of morality. It is important to consider integrity for it is paramount for a successful
managerial career.
Ethics are moral principles that guide the conduct of individuals. There are
times when business managers and employees behave in an unethical manner
which results to fines, termination and lawsuits.
There are four main reasons that may persuade a business to act ethically:
a. Compliance to law or legal regulations`
b. Public image
c. Practicality
d. Moral reasons.

Business is an integral part of a nation’s economy. Thus, it contributes to

poverty alleviation. Poverty is conceptualized as a deficiency or shortage of some sort,
typically in comparison either to the living standards of others within the same society
or culture (called “relative poverty”) – or to a universal measure of adequate provision
(called absolute poverty”).
Small and medium enterprises are defined usually as businesses with up to 250
employees. These are believed to be important contributors to economic growth and
a tool to reduce poverty in developing countries.
Microfinancing is believed to be an effective tool in the war against poverty and
its success have been seen in many developing regions around the world.
Social responsibilities of capitalist business practices
Milton Friedman an American economist, stated that the only social
responsibility of a business is to increase its profits. On the other hand, William Sauser
stated that to William Sauser, business organizations have 4 levels of responsibility:
a) Earning profit; b) Legal responsibility; c) Ethical responsibility; d) Discretionary
responsibility.
Corporate Social Responsibility/CSR means responsibilities of businesses beyond
profit making. As defined by World Business Council for Sustainable Development
(WBCSD), it is a “continuing commitment by business to behave ethically and
contribute to economic development.

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Morality Of Advertising
On the side of the morality of advertising, we tackle about deceptive Ads (those
that make false statements about or misinterpret the product). Advertising is way
where business encourages their customers to buy their products. It is an effective
tool in increasing the profits of the company. However, this tool can be abused through
false or deceptive advertising. Deceptive Ads are used to make false statements or
promises to attract customers to buy the product.
To protect the right of the customers, the government ensures that the morality
of advertising is being followed by all the businesses. Article 108 of the Consumer Act
of the Philippines (R. A. 7394) declares provides “The State shall protect the consumer
from misleading advertisements and fraudulent sales promotion practices.” Article 110
of the same law states that “It shall be unlawful for any person to disseminate or to
cause the dissemination of any false, deceptive or misleading advertisement by
Philippine mail or in commerce by print, radio, television, outdoor advertisement or
other medium for the purpose of inducing or which is likely to induce directly or
indirectly the purchase of consumer products or services. An advertisement shall be
false, deceptive or misleading if it is not in conformity with the provisions of this Act or
if it is misleading in a material respect. In determining whether any advertisement is
false, deceptive or misleading, there shall be taken into account, among other things,
not only representations made or any combination thereof, but also the extent to which
the advertisement fails to reveal material facts in the light of such representations, or
materials with respect to consequences which may result from the use or application
of consumer products or services to which the advertisement relates under the
conditions prescribed in said advertisement, or un der such conditions as are
customary or usual”.
Basic Employee Rights, Job Discrimination, Other Labor-Related Ethical Issues
Labor Code of the Philippines (Presidential Decree No. 442) lays down the
rights of workers in relation to wages, rights to self-organization, collective bargaining,
security of tenure and just and humane conditions of work.
Republic Act No. 6727 known as “Wage Rationalization Act” mandates fixing of
the minimum wages applicable to different industrial sectors. This law rationalized
wage determination by establishing the mechanism and proper standards through the
creation of Regional Tripartite Wages and Productivity Boards (RTWPBs) authorized
to determine the daily minimum wage rates in the different regions.

Policies of Labor Relations

1. To promote and emphasize the primacy of free collective bargaining and
negotiations, including voluntary arbitration, mediation and conciliation, as modes
of settling labor or industrial disputes
2. To promote free trade unionism as an instrument for the enhancement of
democracy and the promotion of social justice and development
3. To foster the free and voluntary organization of a strong and united labor
movement
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4. To promote the enlightenment of workers concerning their rights and obligations
as union members and as employees
5. To provide an adequate administrative machinery for the expeditious settlement
of labor or industrial disputes
6. To ensure a stable but dynamic and just industrial peace
7. To ensure the participation of workers in decision and policy-making processes
affecting their rights, duties and welfare

Insider Trading
This is characterized as buying or selling of shares of stock on the basis of
information known only to the trader or to a few persons. It is a reward without risk,
wealth generated – and injury done to others – by an unfair advantage in information.
Werhane (1989) seem simply to believe that insider trading is inherently immoral.
Pollution and Resource Depletion
Environmental damage is damage or harm done to the environment that
threatens the welfare of all living beings. Threats to the environment come from two
sources: pollution and resource depletion.
Pollution and Resource Depletion is the undesirable contamination of the environment
by the manufacture or use of commodities. Resou rce depletion refers to the
consumption of finite or scarce resources. Pollution is a type of resource depletion as
contamination of air, water and land diminishes their beneficial qualities.
Whistle Blowing
It is act disclosing unethical or illegal beh avior to higher management or to an
external authority or to the public by an employee or former employee of a business
entity.

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 Explore

Here are some enrichment activities for you to work on to master and strengthen
the basic concepts you have learned from this lesson.

Enrichment Activity 1 : Business Search!

What you have to do:
1. Cite a Philippine company who had ethical issues on two of the areas
enumerated below and discuss the said issues.
a. Deceptive advertising
b. Basic employee rights
c. Job discrimination
d. Insider trading
e. Pollution and resource depletion
f. Whistle blowing
2. Write down a description of the nature of the ethics issue.
3. Write down possible ways in which to resolve those ethical issues (on the
part of the company and the part of the public)

Discussion:

Company name:
Issue undergone :

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Activity 2
Match the characteristics of the 3 major types of business ownership under the
appropriate heading. Three answers can be used twice.

• Has limited life (2)

• Keeps all the profits
• Is complex to set up
• Has elected directors
• Has fewer skills to run business
• Has limited liability
• Can sell stocks
• Has total control
• Can sell bonds
• Is viewed as a legal entity
• Has unlimited liability (2)
• Has profits taxed twice
• Must share profits (2)
• Has unlimited life

Sole Proprietorship Partnership Corporation

1. 1. 1.
2. 2. 2.
3. 3. 3.
4. 4.
5. 5.
6.
7.
8.
9.

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 Deepen

At this point, do the following activity. Each of the various forms of business
ownership has advantages and disadvantages. Classify each characteristic shown
below as an advantage and disadvantage for the different business types by writing
the letter in the appropriate space. Some of the characteristics may be used more than
once.

Advantages Disadvantages

Sole Proprietorships

Partnerships

Corporations

Choices :
a. The owner can always be the “boss”.
b. Can continue operations until further notice
c. Funding is limited to by the amount of personal savings and ability to borrow.
d. Each owner is personally responsible and acts on behalf of the business.
e. Lack of opportunities for employees since firms generally are small.
f. Simplest type of business to organize.
g. Limited liability.
h. Ownership can be easily transferred through th e transfer of stock.
i. Often requires a lawyer to formally set up the business.
j. Unlimited liability.
k. People can buy and sell their shares of ownership without the business ending.
l. Business profits are made by the individual owners(s).
m. The death of the owner can result in the termination of the business.
n. Double taxation.
o. Can grow to be very large.
p. Owner(s) can react quickly to business problems.

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q. Must pay a special tax on the profits.
r. Management often is separate from ownership.
s. Does not have to pay corporate income tax.
t. Combines funds of the more than one person for start-up or expansion.

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 Gauge

MULTIPLE CHOICE. Read and understand the following statement. Write your
answers on a separate sheet of paper.
1. This type of business provide services rather than products to customers.
A. Merchandising C. Service
B. Manufacturing D. Sole Proprietorship

2. It is an entity in which economic resources or inputs, such as materials and

labor, are put together and process to provide goods or outputs to customers.
A. Business B. Input C. Organization D. Venture

3. This type of business change basic inputs into products that are sold to
customers.
A. Merchandising B. Manufacturing C. Service D. Sole Proprietorship

4. This is a business owned by one person.

A. Corporation C. Partnership
B. Merchandising D. Sole Proprietorship

5. It is an association of two or more people as partners.

A. Corporation C. Partnership
B. Merchandising D. Sole Proprietorship

6. It is an entity created by law that is separate and distinct from its owners.
A. Corporation C. Partnership
B. Merchandising D. Sole Proprietorship

7. These are moral principles that guide the conduct of an individual.

A. Business B. Ethics C. Law D. Philosophy

8. As defined by the Word Business Council for Sustainable Development

(WBCSD), this is a “continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the
workforce and their families, local community, and society at large.”
A. Corporate Social Responsibility C. Legal Responsibility
B. Ethical Responsibility D. Social Responsibility

9. This American economist famously stated that the only social responsibility of
business is to increase its profits.
A. Adam Smith B. Karl Marx C. Milton Friedman D. William Sauser

10. The act for an employee of disclosing what he believes to be unethical or illegal
behavior to a higher management or to an external authority or the public.
A. Insider trading B. Moral Reasoning C. Whistle Blowing D. None

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11. Which of the following is an advantage of a sole proprietorship?
A. ease of starting a business. C. pride of ownership.
B. being your own boss. D. all of the above.

12. In which type of organization does one person take all the risks?
A. corporation C. partnership
B. monopoly D. proprietorship

13. What type of business consists of two or more people?

A. Corporation C. Partnership
B. Franchise D. Sole Proprietorship

14. What type of business structure is owned by many people?

A. Corporation C. Partnership
B. Franchise D. Sole Proprietorship

15. What is a major advantage of a business that is a partnership rather than a sole
proprietorship?
A. The business is easy to sell
B. The business is easy to set up
C. The responsibility for the business is shared
D. The partners are not responsible for business debts

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 16
Jumpstart
Pre-test Gauge
Explore
1. A 1. C
Deepen 2. C 2. A
3. B 3. B
4. D 4. D
5. C 5. C
*Answers may vary 6. A 6. A
7. B 7. B
8. A 8. A
9. C 9. C
10.C 10.C
11.C 11.D
12.D 12.D
13.C 13.C
14.B 14.A
15.D 15.C
Answer Key
Reference

ABM_Business-Ethics-and-Social-Responsibility-CG

Racelis, Aliza. 2017. “Business Ethics and Social Responsibility.” Rex Bookstore 856
Nicanor Reyes Sr. St., Sampaloc , Manila

Brandon Gaille. 2015. 8 Famous Business Partners. https://brandongaille.com/8-

famous-business-partners-and-their-stories/

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For inquiries or feedback, please write or call:

Department of Education – Region I

Office Address: Flores St., Catbangen, City of San Fernando, La Union
Telefax: (072) 682-2324; (072) 607-8137
E-mail Address: region1@deped.gov.ph
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