Teacher: JETHRO G.

OREJEULA Subject: Business Ethics and Social Responsibility

Week: 1 Module: 1

THE NATURE AND FORMS

OF BUSINESS ORGANIZATION
Intended Learning Outcomes:
Differentiate the forms of business organizations in terms of their purpose and
role in socio-economic development

BUSINESS AND BUSINESS ORGANIZATION

A business is an activity that is part and parcel of
How can the main human society: it is an entity in which economic resources
purpose of business in or inputs, such as materials and labor, are put together and
society be reconciled with processed to provide goods or services or outputs to
its other roles? customer. Businesses are usually complex enterprises
involving major activities like purchasing, manufacturing,
marketing, advertising, selling, and accounting.

Profit is the difference between the amount earned and the amount spent in
buying, operating, or producing something.

Businesses make the goods and services you use each day. That includes the products
and services used by other nosiness as well as those needed by individual consumers.
There are generally three types of business organization operated for profit: services,
merchandising, and manufacturing businesses.

3 TYPES OF BUSINESS ORGANIZATIONS OPERATED FOR PROFIT:

1) Service businesses provide services rather than products to customers.
2) Merchandising businesses sell products they purchase from other businesses to
customers.
3) Manufacturing businesses change basic inputs into products that are old to
customers.

THE VARIOUS FORMS OF BUSINESS ORGANIZATION

The three types of business we discussed earlier–services, merchandising, and

manufacturing–maybe organized as proprietorships, partnerships, or corporation. Given
the large size and huge amount of resources to operate a manufacturing business, most
manufacturing businesses, such as San Miguel Corporation, are corporation. Most
large retailers like SM Supermalls, Robinsons, and Ayala Malls are also corporation.

MR. JETHRO G. OREJUELA | 0951967174 | jethroorejuela101@gmail.com

KING THOMAS LEARNING ACADEMY | SENIOR HIGH SCHOOL DEPARTMENT

1. Sole Proprietorship – a business owned by one person.

 Advantages of a sole proprietorship: (a) total undivided authority; (b) low

organizational cost and license feels; (c) tax savings; and (d) no
restrictions on type of business (as long as it is legal).

 Disadvantages of sole proprietorship: (a) unlimited liability; (b) limitation on

size (and thus on fund-raising power); and (c) limited by management’s
ability to be jack-of-all-trade.

2. Partnership – an association of two or more people as partners; it refers to an

arrangement in which the individuals share profits and liabilities of business
venture. Its chief characteristics are: (a) association of individuals; (b) mutual
agency; (c) limited life; (d) unlimited liability; and co-ownership of property.

The association of individuals in a partnership may be based on as simple an act

as a handshake; however, it is preferable to state the agreement in writing.
 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 separate entity.

Mutual agency means that an act of any partner is binding on all other
partners, so long as the act appears to be appropriate for the partnership. This is
true even when partners act beyond the scope of their authority. Partnerships
have limited life. Partnership dissolution occurs when a partner withdraws or a
new partner is admitted. Each partner has unlimited liability. Each partner is
personally and individually liable for all partnership assets and then personal
resources of any partner, irrespective of that partner’s capital equity in the
company.

3. Corporation – an entity created by law that is separate and distinct from its
owners and its continued existence is dependent upon the corporate statues of
the state in which it is incorporated.

The characteristics that distinguish a corporation from proprietorship and

partnerships are:

a. The corporation has separate legal existence form its owners.

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

Table 1. Forms of Business Organization

Form of Business Entity Characteristics

Proprietorship is owned by
one individual
Partnership is owned by
two or more individuals
Corporation is organized
under state of federal
statues as a separate legal
taxable entity
 70% of business entities in the United States.
 Easy and cheap to organize.
 Resources are limited to those of the owner.
 Used by small businesses.
 10% of business organizations in the United States
(combined with limited liability companies).
 Combines the skills and resources more than one
person.
 Generates 90% of business revenues.
 20% of the business organizations in United States.
 Ownership is divided into share called stock.
 Can obtain large amounts of resources by issuing
stock.
 Used by large businesses.

Limited liability company  10% of business or organizations in the United

(LLC) combines the States (combined with partnership).
attributes of a partnership  Often used as an alternative to a partnership.
and a corporation  Have tax and legal liability advantages for owners.

NOTE:

 In the Philippines, application of incorporation for Corporation is to be filed on

Security on Exchange Commission or SEC
 Charter/Articles of incorporation. This will be granted upon approval of SEC.
 Bylaws. Rules and procedures for conducting corporation’s affairs.

Name: ______________________________________ Strand/Section: ____________

Teacher: JETHRO G. OREJEULA Subject: Business Ethics & Social Responsibility
Week: 1 Type of Assessment: Formative Assessment Deadline: February 26, 2020

Instructions: Compare and Contrast.

What are the major forms of business organization?

MR. JETHRO G. OREJUELA | 0951967174 | jethroorejuela101@gmail.com

KING THOMAS LEARNING ACADEMY | SENIOR HIGH SCHOOL DEPARTMENT

Name: ______________________________________ Strand/Section: ____________
Teacher: JETHRO G. OREJEULA Subject: Business Ethics & Social Responsibility
Week: 1 Type of Assessment: Summative Assessment Deadline: March 05, 2020

Differentiate the forms of business organizations in terms of their purpose and

role in socio-economic development

Instruction: Write your answer on the space provided.

1. What is the importance of business organizations to the world economy?

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2. Explain the role of each form of business organization in the economy.

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3. What is a corporation? What are the benefits and drawbacks of corporation?

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MR. JETHRO G. OREJUELA | 0951967174 | jethroorejuela101@gmail.com

KING THOMAS LEARNING ACADEMY | SENIOR HIGH SCHOOL DEPARTMENT