Lesson 1

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
processed to provide goods or services or outputs to customers.
Profit

 Difference between the amount earned and the amount spent in buying, operating, or
producing something.
Forms of business organization:
1. Sole Proprietorship- owned by 1 person
Advantages:
a. Total undivided authority
b. Low organizational cost and license fee
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

2. Partnership- an association of 2 or more people as partners; refers to an arrangement in

which the individual share the profits an liabilities of a business venture.

 A partnership is a legal entity for certain purposes

 A partnership is an accounting entity for financial reporting purposes.
 Net income of a partnership is not taxed as a separate entity

3. 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:

 The corporation has separate legal existence from its owners

 The stockholders has its limited liability.
 Transferable ownership rights (ownership is in shares of stock)
 Ability to obtain capital
 The corporation can have a continuous life
 The corporation is subject to numerous government regulations
 The corporation must pay an income tax on its earnings and the stockholders are
required to pay taxes on the dividends they received: the result is double taxation of
distributed earnings.
 An artificial/juridical “person” endowed with ability for self-management, that
is, the management structure is at the discretion of the board of directors.