The Role of

Business
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in Social
and Economic
Development
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Lesson 1: The Nature and Forms of
Business Organization
 Objectives:

- Define and describe business and business organization

- Identify and describe the various of business organization: sole

proprietorships, partnerships, and corporations

- Compare and contrast the various forms of business

organization; and

- Illustrate the role of each form of business organization in the

economy.
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Introduction
 This module contains two (2) lessons
which will set our focus on the Nature and
Forms of Business Organization and the
Social Functions of Business. Through
these lessons, we will learn the different
business organizations their form and
their role in the socioeconomic
development.
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Business and Business Organization

 Business

 The activity of making, buying, or selling goods

or providing services in exchange for money
 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.
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Profit

 Is the difference between the

amount earned and the amount
spent in buying, operating, or
producing something.
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Three(3) Types of Business
Organization 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 sold customers.
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The Various Forms of Business
Organization
 Sole Proprietorship – a business owned by one
person.
 Advantages of a sole proprietorship: (a)total undivided
authority (b) low organizational cost and license fees
(c ) tax savings (d) no restrictions on type of business.
 Disadvantages: a) unlimited liability b) limitation on
size c) limited time management’s ability to be jack-of-
all-trades.
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The Various Forms of Business
Organization

 Partnership – an associate of two or more people

as partners; it refers to an arrangement in which
the individuals share the profits and liabilities of a
business venture.
 Characteristics are: ( a) association of individuals
(b) mutual agency (c) limited life (d) unlimited
liability and (e) co-ownership of property.
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The Various Forms of Business
Organization
 Partnership 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 a
separate entity.
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The Various Forms of Business
Organization

 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.
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The Various Forms of Business
Organization

 Corporation an entity created by law

that is separate and distinct from its
owners and continued existence is
dependent upon the corporate statutes
of the state in which it is incorporated.
 The Various Forms of Business
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Organization
 Characteristics to distinguish a corporation from sole and Partnership:

- The corporation has a separate legal existence from its owners

- The stockholders have limited liability

- Transferable ownership rights

- 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, ang the stockholders
are required to pay taxes on the dividends they receive; the result is double
taxation of distributed earnings.

- An artificial/juridical “person "endowed with ability for self-management

 These comparisons and contrast are summarized in table 1 below.
Forms of Business Entity Characteristics
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Proprietorship is owned by one individual. • 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
Partnership is owned by two or more
individuals • 10% of business organizations in the US (combined with
limited liability companies)
• Combine the skills and resources of more than one person.

Corporation is organized under state or • Generates 90% of business revenues.

federal statutes as a separate legal taxable • 20% of the business organizations in the US
entity. • Ownership is divided into shares called stock
• Can obtain large amounts of resources by issuing stock
• Used by large businesses.

• 10%of business organizations in the US (combined with

Limited Liability Company (LLC) partnerships)
Combines the attributes of a partnership • Often used as an alternative to a partnership
and a corporation. • Has tax and legal liability advantages for owners.
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Lesson 2: The Social Functions of
Business

 Why should business be

Ethically Sensitive?
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Lesson 2: The Social Functions of
Business

 Business play a major role in keeping any economy

alive. Therefore necessary to ensure the proper and
ethical governance of businesses. Business people –
managers and employees, but above all the
organizational leaders – must behave in an ethical
manner in managing and operating a business.
Otherwise, no one will be willing to invest in or loan
money to the business.
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Lesson 2: The Social Functions of
Business

 Ethics – moral principles that govern a

person’s or groups behavior.
 Ethics can be distinguished from morality
deals with principles of right or wrong conduct
in general, while ethics is more concerned with
standards of conduct acceptable to a group, a
profession, or members of an organization.
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Four (4) main reasons that may
persuade a business to act ethically:
 Legal reasons, of which there are several different sorts

 Public image reasons, which again, might encompass a

number of different types

 Pragmatic reasons, acknowledging that sometimes, acting

ethically might be the most direct path to business
success; and

 Moral reasons, where it is affirmed that these reasons are

different from each of the other three types.
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