Grade 12 ABM Business Ethics and Social Responsibility PRELIMS

Lesson 1 The Role of Business in Social and Economic Development

What is a business?
 An organization or economic system where goods and services are exchanged for one another or for money
 Requires some form of investment and enough customers to whom its output can be sold on a consistent basis in
order to make a profit.
 Also known as an enterprise, agency or a firm
 An entity involved in the provision of goods and/or services to consumers

Countries have different laws that may ascribe different rights to the various business entities.

Basic Forms of Business Organizations

1. Sole Proprietorship
 Owned by one person, called proprietor, who has full control and authority in running the business, owns all the
assets, enjoys all the profits and solely responsible for all the liabilities of the company
 Not ideal for high-risk businesses because they put proprietor’s personal assets at risk
 Must apply for a business trade name and be registered with the Department of Trade and Industry.
Note: The proprietor is one in the same with the business. The proprietor and his proprietorship business/businesses
is considered as one taxpayer sharing a single TIN for tax purposes.

2. Partnership
 Owned by two or more individuals, called partners
 Under the Civil Code of the Philippines, it is considered as juridical person, having a separate legal personality
from that of its owners (partners).
 Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and
obligation of the partnership, or limited a juridical, where one or more general partners have unlimited liability
and the limited partners have liability only up to the amount of their capital contributions.
 A partnership with more than three thousand pesos (P3,000.00) capital must register with Securities and
Exchange Commission (SEC).
 Partnerships are generally treated like corporations for income tax computation purposes.

3. Corporation
 This is a business that is owned by its shareholders (natural or juridical persons).
 It is composed of juridical persons established under the Corporation Code and regulated by the SEC with a
personality separate and distinct from that of its stockholders.
 The liability of the shareholders of a corporation is limited only to the amount of their share capital.
 It consists of at least five to 15 incorporators, each of whom must hold at least one share and must be registered
with the SEC.
 The minimum paid up capital is P5,000.

4. Cooperative
 A cooperative is a duly registered association of persons with a common bond of interest, who have voluntarily
joined together to achieve a lawful common social or economic end, making equitable contribution to the capital
required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.

Basic Classifications of Business

1. Service Business
This provides intangible goods or services to customers. It usually generates profit by charging for labor or other
services rendered to consumers, government or other companies.

2. Merchandising Business
This type of business purchases products from other businesses or manufacturers and sell them to customers.

3. Manufacturing Business
This business type converts raw materials, labors and overhead into finished products that are available for sale to
customers.

4. Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of business.

Business owners take on a decision of what business type they want to venture in order to prepare all that should be
ready for the operation of the enterprise. The foreseen expenses and outlays of cash and other resources depend on the
nature of the business; that is why it is necessary to have a good direction of what business type the owner wants to
explore.
There are instances when the business evolves into another type if resources provide. They may take on one business
type and may eventually decide to expand and transform into another business form. Regardless, the owner or owners of
the business must show readiness in this particular decision.