NATURE AND FORMS OF BUSINESS ORGANIZATIONS

A business is an active process which is an integral part of human society.

• It is an organization where economic resources or inputs, such as materials and
services, are brought together and distributed to deliver or to give consumers goods,
products, or outputs.
• It involves significant operations such as buying, assembling, distributing, advertising,
selling, and accounting.

PROFIT- Most businesses aim to earn profit. The term profit refers to the difference
between the amount received and the amount spent on something purchased,
produced, or manufactured. The fundamental reason for examining business
activities from a moral point of view is that business organizations should, in
principle, help promote the common good and protect the rights and interests of
individuals.

3 TYPES OF ORGANIZATIONS:
1. Service businesses provide services to customers rather than products. Examples: computer
repair, laundry services, tutoring, delivery services, wellness (such as gym or spa), etc.
2. Merchandising businesses sell to customers products they buy from other businesses.
Examples: sari-sari stores, bookstores, department stores, groceries, supermarkets, etc.
3. Manufacturing businesses turn basic inputs into products which are sold to consumers.
Examples: shoe manufacturing, baked goods, candle manufacturing, cosmetics manufacturing,
wine production, etc

Forms of Business Organizations

1. Sole Proprietorship- It is a one-person business. The owner has full control over the finances
and operations and decides alone.

Advantages of Sole Proprietorship:

a. Tax preparation is faster. Simply file an individual income tax return including losses and
profits to your business. Your personal and business income is considered the same and the tax
implications for self-employed individuals would apply.
b. Sole proprietorship has lower start-up costs.
c. Handling money for the business is easier.
d. Sole proprietorships have the least government rules and regulations that affect them.
e. The sole proprietor can own the business for as long as he/she wants, and when he/she wants
to move out, he/she can cash in and sell the business.
f. Even in common practice, the sole proprietor can pass the business down to his/her heir.

Disadvantages of Sole Proprietorship:

a. The sole proprietor is personally liable for all debts and actions of the enterprise.
b. There is lack of financial control because of looser structure of sole proprietorship.
c. There could be difficulty in raising capital.
2. PARTNERSHIP- It is a business relationship between two or more people. It refers to an
arrangement where individuals share a business venture's profits and liabilities. The partners give
feedback on how to use the capital and other critical strategic decisions that may provide
different perspectives.

ADVANTAGES of PARTNERSHIP:
a. Partnership business lacks formality as compared with managing a limited company or
corporation.
b. It is easy to start. The partnership may be created either verbally or in writing.
c. You share the burden. You have companion and support.
d. Every partner would add his/her own expertise, skills, experience, and connections to the
business, thus giving it a greater chance of success.
e. There is better decision-making. Two heads are better than one.
f. There is privacy. The business deals may be kept confidential by the partners.
g. The partners own and control the business.
h. The more partners there are, the more funds are available in the company, which can be used
for possible expansion. Its borrowing capacity is also likely to be higher.
i. There is an easy access to profits in a business partnership. The partners just have to divide the
profits.

DISADVANTAGES of PARTNERSHIP-:
a. The business does not have any independent legal status.
b. The business has no separate legal personality, so the partners are personally liable for the
debts and losses incurred.
c. The partnership business often seems to lack the sense of prestige more closely associated with
a corporation.
d. A partnership will often find it more difficult to raise money than a corporation.
e. There is a potential of differences and conflicts.
f. Decision-making can be slower because there is a need for consultation among partners.
g. The profit must be shared among the partners.
h. It may require a lot of time and energy thus may affect life-work balance.
i. The profits earned by the partnership will be translated to income on the individual partners.
Thus, they are subject to income tax in the financial year in which they are made.
j. There are limits on business development like unlimited liability, lack of funding opportunities,
and a lack of commercial status, etc.

3. CORPORATION- It is an entity created by law that is independent and distinct from its
owners and relies on the corporate laws of the state in which it is incorporated to continue its
existence. Corporations have an advantage in generating money for the company. It can raise
funds by selling shares of stocks. It files taxes separately from its owners.

ADVANTAGES of Corporation
a. The liability of the shareholders of a corporation is limited up to the amount of their
investments.
b. A publicly held corporation may sell shares or issue bonds to raise substantial amounts.
c. It is easy for a shareholder to sell shares in a corporation.
d. A corporation’s life has no limit, ownership can pass through many generations
DISADVANTAGES of Corporation
a. The corporation pays taxes on its income depending on its type and the shareholders pay
dividend taxes, so income gets taxed twice.
b. The management team of a corporation can operate the business without any real oversight
from the owners.

The Core Principles Underlying Fairness, Accountability, and Transparency in

Business Operation and Stewardship

Fairness is giving to a person what is due to him/her. It has something to do with justice
because the employer checks whether the members have the benefits and burdens
distributed evenly to them.

Examples of fairness:
1. A boss listening to both sides of the story before judging who is right and who is wrong.
2. An employer giving 13th month pay to all his/her employees.
3. A person paying the right price for a product purchased or for a service received.

Accountability- The most important aspect of preventing and detecting corruption is the sound
accountability structures. A civil society organization without proper systems of accountability is
fragile and open to rumors of mismanagement and abuse of authority. Worst of all, lacking it will
prevent the organization from enjoying full respect and legitimacy in the eyes of its stakeholders,
including those bearers of duties that it intends to advocate with.

Accountability is the explication and justification process. It is about testing, forming a

judgment, and taking an action if necessary. It also comes with responsibilities. Holding
people to account for those actions which they are responsible for is fair.

Accountability is therefore an obligation to demonstrate that work has been carried out in
accordance with agreed rules and standards, or to report on performance results fairly and
accurately in relation to mandated roles and/or plans

Examples of accountability:
1. A cashier admits he/she lost the company’s collection and it is his/her mistake.
2. An engineer who is assigned on a project is the one to be blamed if the project did not meet
the deadlines.
3. An employee (A) recommended his cousin to be their company janitor, but the latter stole the
cellular phone of their secretary. Therefore, Employee A may be blamed for recommending
his/her cousin and should pay or replace the lost cellphone.

Transparency- Transparency, at the individual level, considers intrinsic or ethical salience as an

important feature of the relational dimension of a person. It is described as a personal quality
which is necessary to develop unity between and among individuals. A transparent approach
makes a person more honest and sincere in his/her relationships, in communicating his/her
points of view, and in working actively to find shared meanings and goals.
Transparency helps people to consider how the actions of social organizations such as
multinational agencies and non-governmental groups offer meaningful support to civil
society and whether funding is being properly spent.

Examples of transparency:
1. Reporting accurately the company’s financial situation and risks to investors
2. Holding and selecting bids according to an open pre-defined process
3. Having an open process of decision-making such as in hiring additional employees