The Role of Business in Social and Economic Development

What is Business?
A business is an organization or economic system where goods and services are exchanged forgone another or for
money. Every business requires some form of investment and enough customers to whom its output can be sold
on a consistent basis to make a profit. Business can be privately owned, not-for-profit, or state-owned.

Basic Forms of Business Organizations

1.Sole Proprietorship – also known as a sole trader, is owned by one person and operates for their benefit.
The owner may operate the business alone or with other people. A sole proprietor has unlimited liability for all
obligations incurred by costs or judgments against the business. All assets of the business belong to a sole
proprietor, including for example a computer infrastructure, any inventory manufacturing equipment, and/or retail
fixtures, as well as any real property owned by the business.

The vast majority of small business start out as sole proprietorships. These firms are owned by one person, usually,
the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of
the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or
debts.

Advantages of a Sole Proprietorship

•Easiest and least expensive form of ownership to organize.
•Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
•Profits from the business flow-through directly to the owner’s personal tax return.
•The business is easy to dissolve if desired.

Disadvantages of a Sole Proprietorship

•Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their
business and personal assets are at risks.
•May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer
loans.
•May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a
part of the business.
•Some employee benefits such as owner’s medical insurance premiums are not directly deductible from business
income (only partially as an adjustment to income).

2.Partnership– is a business owned by two (2) or more people. In most forms of partnerships, each partner has
unlimited liability for the debts incurred by the business. Ina partnership, the partners should have a legal
agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future
partners will be admitted to the partnership when needed; Yes, it is hard to think about a “break-up” when the
business is a defined process, there will be even greater problems. They also must decide up front how much time
and capital each will contribute

Advantages of a Partnership
•Partnership is relatively easy to establish; however, time should be invested in developing the partnership
agreement.
•With more than one owner, the ability to raise funds may be increased.
•The profits from the business flow directly through to the partners’ personal tax return.
•Prospective employees may be attracted to the business if given the incentive to become a partner
•The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership
•Partners are jointly and individually liable for the actions of the other partners.
•Profits must be shared with others.
•Since decisions are shared, disagreements can occur.
•Some employee benefits are not deductible from business income on tax returns.
•The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

3.Corporation – The owners of a corporation have limited liability and the business has a separate legal
personality from its owners. Corporations can be either government-owned or privately owned. They can organize
either for profit or as not-for-profit organizations. A privately owned, for-profit corporation is owned by its
shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately
owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with
publicly traded shares listed on a stock exchange.

Advantages of a Corporation
•Shareholders have limited liability for the corporation’s debts or judgments against the corporation.
•Generally, shareholders can only be held accountable for their investment in the stock of the company.
•Corporations can raise additional funds through the sale of stock.
•A corporation may deduct the cost of benefits it provides to officers and employees.

Disadvantages of a Partnership
•The process of incorporation requires more time and money than other forms of organizations.
•Corporations are monitored by the government and some local agencies, and as a result, may have more
paperwork to comply with regulations.
•Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business
income; thus, this income can be taxed twice.

4. Cooperative – Often referred to as a “co-op”, a cooperative is a limited liability business that can organize
for-profit or non-profit. A cooperative differs from a corporation in that it has members, not shareholders, and they
share decision-making authority. A cooperative is a business organization owned by a grouped of individuals and
is operated for their mutual benefit. The persons making up the group are called members. Cooperatives may be
incorporated or unincorporated.
Advantages of a Cooperative Organization
•Generally inexpensive to register.
•A cooperative organization is owned and controlled by members.
•Members have an equal vote at general meetings regardless of their level of investment or involvement. One
member, one vote.
•All members must be active in the co-operative.
•This type of organization has a limited liability.
•Profit distribution (surplus earnings) to members is carried on in proportion to the use of service; surplus may be
allocated in shares or cash.
Disadvantages of a Cooperative Organizations
•A cooperative organization entails longer decision-making process.
•It requires members to participate for success.
•It has less incentive, and there’s also a possibility of development of conflict between members
•As co-cooperatives are formed to provide a service to members rather than a return on investment, it may be
difficult to attract potential members seeking a financial return.
•There is usually limited distribution of profits to members and some co-cooperatives may prohibit the distribution
of any surplus.
•Members providing greater involvement or investment than others will still only get one vote.
•Extension record keeping is necessary in this form of organization.

Basic Classification of Business

1.Service Businesses – a service type of business provides intangible products (products with no physical
form). Service type firms offer professional skills, expertise, advice, and other similar products. Examples of
service business are schools, repair shops, hair salons, banks, accounting firms, and law firms.

a. Service business - typically charge for labor or other services provided to government, to consumers, or to
other business. Interior decorators, consulting firms and entertainers are service business.
b. financial business –include banks and other companies that generate profits through investment and
management of capital.
c. transportation business – deliver goods and individuals to their destinations for a fee.
d. Utilities –produce public services such as electricity or sewage treatment, usually under a government.

2.Merchandising Businesses – this type of business buys products at wholesale price and sells the same at
retail price. They are known as “buy and sell” business. They make a profit by selling the products at prices higher
that their purchase costs. A merchandising business sells a product without changing its form. Examples are
grocery stores, convenience stores, distributors, and other resellers.
a. Retailers and distributors – act as middleman and get goods produced by manufacturers to the
intended consumers; they make their profits by marking up their prices. Most stores and catalog companies
are distributors or retailers.

3.Manufacturing businesses – 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. A manufacturing business combines raw materials, labor, and factory overhead in its
production process. The manufactured goods will then be sold to customers.

a. Agriculture and mining business – produce raw material, such as plants or minerals.
b. Manufacturers – produce products, either from raw materials or from component parts, then sell their
products at a profit, for example cars, clothing or pipes.
c. Real-estate business – sell, rent and develop properties including land, residential homes and other
buildings.
 Purpose of Establishing a Business Enterprise
Why Start a Business?
1.To make money and have financial independence
2.To be your own boss
3. To self-actualize / To fulfill own interest and enjoyment
4. To Make Dreams Come True
5.To use your skills and knowledge for yourself
6.To have a second career
7.To have variety at work
8.To create opportunities
9.To take up a challenge
10.To employ relatives, friends, and community members
11.To come up with better ways, to create, to innovate
12.To be efficient
13.To set and meet own deadlines
14. To avoid commuting
15. To create a customer
16.To offer value
17.To have more life, more freedom
18.To solve problems
19.To move society, to change the world, to make the world better
20.To build our future

Core Principles in Business Operations

1.Fairness – refers to the level of even-handedness in dispensing justice whereby claims are recognized in the
order of their legal and contractual priority. Justice means giving each person what he or she deserves or, in
more traditional terms, giving each person his or her due. Justice and fairness are closely related terms that are
often today used interchangeably. Justice usually has been used regarding a standard of rightness, fairness often
has been used with regard to an ability to judge without reference to one’s feelings or interest; fairness has also
been used to refer to the ability to make judgments that are not overly general but that are concrete and specific to a
particular case.
a. Principles of Justice
“Individuals should be treated the same, unless they differ in ways that are relevant to the situation in which they
are involved.”
b. Different Kinds of Justice
•Distributive Justice – refers to the extent to which society’s institutions ensure that benefits and burdens are
distributed among society’s members in ways that are fair and just.
•Retributive or Corrective Justice – refers to the extent to which punishments are fair and just.
•Compensatory Justice – refers to the extent to which people are fairly compensated for their injuries by
those who have injured them; just compensations proportional to the loss inflicted on a person.

2. Accountability – is the obligation of an individual or organization to account for its activities, accept
responsibility for them, and to disclose the results in a transparent manner.
Corporate Accountability refers to the act of being accountable to the stakeholders of an organization,
which may include shareholders, employees, suppliers, customers, the local community, and even the particular
country that the firm operates in. Accountability is often used synonymously with responsibility, blameworthiness,
and liability. As an aspect of governance, accountability has been central to discussions related to problems in the
public, non-profit, and corporate sectors.3.

3. Transparency –refers to the lack of hidden agendas ad conditions, accompanied by the availability of full
information required for collaboration, cooperation, collective decision making. Transparency is the essential
condition for a free and open exchange whereby the rules and reasons behind regulatory measures are fair and
clear to all participants.

Corporate transparency describes the extent to which a corporation’s actions are observable by outsiders.
This is consequence of regulation, local norms, and the set of information, privacy, and business policies
concerning corporate decision-making and operations openness to employees, stakeholders, shareholders, and the
general public. Transparency, in a business or governance context, is honesty and openness. Transparency and
accountability are generally considered the two (2) main pillars of good corporate governance.4.

Stewardship –was originally made up of the tasks of a domestic steward, from stig (house, hall) and weard,
(ward, guard, guardian, keeper). Stewardship, in the beginning, referred to the household servant’s duties for
bringing food and drink to the castle’s dining hall. Steward is a person employed to manage another’s property. In
business, it has been used by the CEOs to denote the concept that “as a steward, you try to leave the company in
better shape for your successor than it was handed over to you by your predecessor.”

Common Practices in Business Organizations

Business practice is a method, procedure process, or rule employed or followed by a company in the pursuit
of its objectives. Business practice may also refer to these collectively.

A. Decorum – is a behavior that is socially correct, calm and polite.

• On Time and Promptness – the way to exhibit professionalism is to consistently be punctual.
•On Preparation – must be prepared to conduct a business at hand.
•On Attire and Appearance – good business etiquette includes dressing appropriately.
•On Basic Courtesy and Respect – consider the feelings of others and address conflicts in a straightforward
and impersonal manner.
•On Greetings – standard greetings are an exchange of handshakes and a smile.
•On Formal and Informal Address – start out by addressing a new business acquaintance by his or her
family name.
•On Speaking in Meetings– keep the meeting organized by only speaking when you have the floor.
•On Listening– listen attentively to the meeting and take notes.
•On Cell Phones and Laptops– turn off your cellphone or set your phone to vibrate if you are expecting an
urgent call prior to the start of the meeting. Lower the screen of your laptop so that you do not obstruct anyone’s
view.
•On Appropriate Communication– when calling or receiving a call, you should always identify yourself
and your department, and speak in a polite and considerate manner.
•On Building Relationships – show others that you value their work by taking the time to visit and talk with
them.
 B. Protocol – means the unwritten rules or guidelines that are peculiar to every culture or organizations,
and are supposed to be observed by all parties in the conduct of business, entertaining, negotiating,
politics, etc.
•The Basics of Protocol – the purpose of business protocol is to encourage all employees in a company to act
in a uniform manner.
•Training in Protocol– etiquette expert notes that an increasingly diverse workforce requires such training to
help people from all walks of life communicate with each other and work together.
•Benefits of Protocol– business protocol may unite employees under common goals and ensure that tasks are
executed to the preferences of the company’s owner.

Examples of Protocols in Philippine Business – is spite of the mixture of cultural influences and its
usual tolerance, Philippine society remains very attached to traditional Asian values.

Filipino Family-Modeled Businesses – The family is always of vital importance in the Philippines; not
surprisingly, most business organizations are modeled on the Filipino family. The boss and subordinate often exist
in a bata relationship, basically like that between parent and child (Bata literally meaning “child”).
Business is Personal– the Philippine business environment is highly personalized and it is good to deal with
business matters on a face-to-face basis.
Status Consciousness– Filipinos are very status-conscious, and the use of formal titles is an important way
of showing respect to your business partners and colleagues. You should present and receive business cards with
both hands. Include your title and position on the card to make clear the influence and status you may have.
Politeness and Ambiguity– given the culture value of pakikisama and the importance of maintaining
social harmony, disagreement or interpersonal tension of any sort is distasteful.

c. Policies – defines the scope or spheres within which decisions can be taken by the subordinates in an
organization.

Features of Business Policy

 Specific – policy should be specific/definite. If it is uncertain, then the implementation will become
difficult.
 Clear – policy must be unambiguous. It should avoid the use of jargons and connotations. There should
be no misunderstanding in following the policy.
 Reliable/Uniform – policy must be uniform enough so that it can be efficiently followed by the
subordinates.
 Appropriate– policy should be to the present organizational goal.
 Simple – a policy should be simple and easily understood by all in the organization.
 Inclusive/Comprehensive – to have a wide scope, a policy must be comprehensive.
 Flexible – policy should be flexible in operation/application.
 Stable – policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who
consider it for guidance.
D. Advertising – is how a company encourages people to buy their products, services, or ideas. An
advertisement (or “ad” for short) is anything that draws good attention towards these things. Newspaper
DirectoriesMagazine Outdoor and TransitRadio Direct Mail, Catalogs, and LeafletsTelevision Online
E. Marketing – refers to the process of product development as well as sales, promotion and distribution. The
whole concept of marketing revolves around the customer. In marketing, the needs of the customer come first
F. Bookkeeping –accounting, simply put, is keeping track of money. The most basic activity in accounting is
bookkeeping. Bookkeeping is the process of recording all financial transactions to keep track of the cash flow.
G. Reportorial Requirements – business reporting or enterprise reporting is the public reporting of
operating and financial data by a business enterprise. There are so many kinds of reports, but what are usually
required by governments and regulating agencies are the Annual Report and Financial Statement.
.
 Annual Report– is a comprehensive report on a company’s activities throughout the preceding year.
Annual reports are intended to give shareholders and other interested people information about the
company’s activities and financial performance. Annual report usually includes:

General Corporate Information

Accounting Policies
Balance Sheet
Cash Flow Statement
Non-audited Information
Profit and Loss Account
Notes to the Financial Statements
Chairperson’s Statements
Director’s Report
Operating and Financial Review
Other Features
Auditor’s report

 Financial Statement – or financial report is a formal record of the financial activities and position of a
business, person, or other entity. Relevant financial information is presented in a structured manner and in
a form easy to understand. They typically include basic financial statements, accompanied by a
management discussion and analysis: A balance sheet, an income statement and statement of changes in
equity.

H. Documentation – refers to the process and items which serve as evidence for the validity or truth of a
certain claim or statement. It is necessary for the conduct of any business, transaction, or project. It serves as a
record of every official action taken and may come in very handy in the future, should a chronological account of
events be necessary for legal or business purposes.

Why is a Code of Ethics Important?

A company’s ethics should reflect the company’s mission and must be communicated to those who are carrying
out the mission. Service industries is a “people business” ethics deal with relationships with other people. For this
reason, a code of ethics is mandatory for this kind of people enterprise whose managers want to achieve a unified
direction and a satisfactory level of control over the conduct of business.