Ethics The Purpose of Business

• Is a set of moral principles and values that we use to answer What is the purpose of establishing a business enterprise?
questions of right and wrong. ▪ There must be a purpose why you wish to establish an
• Can also be defined as the study of the general enterprise.
nature of morals and of the moral choices made ▪ The purpose is the reason you want to pursue your
by individuals in their relationships with others. destiny for yourself and for the organization you will
• Today, there is evidence that so many people have forgotten create.
the true meaning of ethics. ▪ Ralph Waldo Emerson said that starting a business
• Today, we think of ethics in pragmatic terms – our choices are of your own is “divine activity”.
based on what seems reasonable or logical to us accor- ding to ▪ Aim high to get business soar high. Keep the right
our personal value system. values in business while adjusting strategies
• This is called ethical relativism, because it casts ethics in along the way.
the role of being relative to what the situation is how or we feel ▪ The purpose is the preparation on doing what is right
about it. and what is worthwhile.
• In truth, ethics is something different! ▪ As such, it creates a sense of obligation.
• The very concept of ethics suggests that there is a real ▪ Also, the purpose provides confidence.
distinction between good and bad, and that it is our ▪ All of these come together to contribute to the enterprise
obligation to do our best to distinguish between these and competitive advantage – “do the right thing and do it
then always try to do what is right. well” – a new way of saying – “Do well by doing good.”
▪ There are a thousand and one reasons why people
• Although we all have different personal values and morals,we
create or start a business or an enterprise. Here are
should recognize that there are some universal principles that
some common reasons:
virtually all religions, cultures, and societies agree upon.
Purposes of Establishing an Enterprise
The Role of Business in Social and Economic Development
1. To Make Money and Have Financial Independence
The Nature of Business
2. To be your own boss..
Business
3. To Self-Actualize/To Fulfill Own Interest and
Merriam-Webster Dictionary easily gives the following
Enjoyment
definitions:
4. To Make Dreams Come True
The activity of making, buying, or selling goods or providing
5. To Use your Skills and Knowledge for Yourself
services in exchange for money;
6. To Have a Second Career
Work that is part of the job;
7. To Have a Variety at Work
(a) The amount of activity that is done by a store, company,
8. To Create Opportunities
factory, etc. The activity of making, buying, or selling
9. To Employ Relatives, Friends and Community
goods or providing services in exchange for money;
Member
(b) Work that is part of the job;
10. To Take Up a Challenge
(c) The amount of activity that is done by a store, company,
11. To Come Up with Better Ways, To Create, To Innovate
factory, etc.
12. To be Efficient at Work
• To have a deeper and richer understanding of a term, it is
13. To Create a Customer
always useful and enlightening to go back to its original
14. To Solve Problems
usage and/or etymology.
15. To Move Society, To change the World, To make the
• According to Online Etymology Dictionary, business comes
World Better
from the Old English word “bisignes” which originally means
16. To Build our Future
“care, anxiety, occupation.”
These reasons can be furtherly be classified into two:
• The adjective is “bisig” which used to mean “careful,
➢ Subjective Reasons for Putting Up a Business
anxious, occupied, diligent.”
• Subjective reasons refer to reasons that motivate the
• This etymology reveals that business does not originally individual to put up a business.
mean an organization or trade in our modern sense of the
• They are “subjective” because the reasons vary from one
term with all its rules, complexities and bureaucracies.
businessperson to another.
• Rather, business is one’s occupation, engagement or
• Since subjective reasons vary from person to person, it
work.
would be difficult to exhaust all possible reasons why one
• Duska and Ragatz, two business ethics scholars, said that establishes a business.
the original and primary meaning of business is “to
• The aforementioned reasons for establishing a business
engage in purposeful activity.”
emanate from the person himself or herself.
• Meanwhile, a group of business ethics textbook authors said
• As such, we are still unable to glean the purpose of
it this way: “The correct response to the question, ‘what is
business apart and independent from those subjective
your business here?’ would be a description of a particular
reasons.
task, not an organization.”
• Hence, we still need to find out the objective purpose and
the reason behind the existence of business in our
society.
 1. Desire to make more income for oneself and his/her
family
2. More Independence
3. To continue the Legacy of the Family
4. To try a Unique and Novel Idea
5. Your desire for Competition
6. To help People in your Small Community or the
Country in general
➢ Objective Reasons for Putting Up a Business
1. Milton Friedman: Profit as the Primary
Responsibility of Business
2. Paul F. Camenisch: The Primacy of Business’ Social
Function
3. Ronald F. Duska: The Motive is not the Purpose
• In our discussions, what we referred to as the “subjective
reasons for putting up a business” and the “objective
purpose of business” coincide with Duska’s distinction
between “purpose” and “motive”.
• In another instance, Duska mentioned an “outside social
view” and an “inside personal view”.
• We know that human person has needs and wants that
cannot be satisfied on one’s own.
• To address this needs, one goes to nature; and nature
provides.
• But, nature has limitations.
• People harness, manage and develop what nature provides
to suit their needs and wants.
• The purpose or rationale behind such activities is to satisfy
needs and wants, not necessarily to gain profit.
• Profit is an incentive to improve the natural
environment.
• Prior to profit motive, the purpose of business is to respond
to a need or a want.
• To criticize the view that the main purpose of business is to
earn profit, is not to deny the fact that profit is an essential
feature of a business enterprise.
• It would be hypocritical to say that as a businessperson you
are not concerned with financial gain.
• Thus, we should forget the profit motive.
• In fact it is his/her moral responsibility to assure that his or
her business is profitable.
• These position of Camenisch and Duska is
supported by many written declarations in our social
institutions.
• Statements in the Philippine legislature and
Corporate Code support the position of business beyond
the profit motive.
1987 Philippine Constitution
• “The goals of the national economy are a more
equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the
people; and an expanding productivity as the key to raising
the quality of life for all, especially the
underprivileged.”
The Corporation Code of the Philippines
“to establish a new concept of business corporations so that
they are not merely entities established for private gain but
effective partners of the National Government in spreading
the benefits of capitalism for the social and economic
development of the nation.”
Founders of big and successful businesses do not fail to
see as well the narrowness of a solely profit-driven
business.
Forms of Business
1. Sole Proprietorship
• Is a business owned by one person.
• The simplest form of business organization in terms of
getting started, operating and managing.
Features of Sole Proprietorship
a. The life of the business is limited to life of the
owner.
b. the business income is taxed as personal
income.
c. The capital is limited to the wealth of the owner.
d. The owner is solidary liable.
Advantages of Sole Proprietorship
✓ Easy to start business and least expensive
✓ Owner makes all the decisions and is own boss
✓ Owner receives all profits.
✓ No business income taxes.
✓ Psychological—sense of freedom.
✓ Easy to dissolve if desired
Disadvantages of Sole Proprietorship
✓ Capital is limited to what the owner can supply or
borrow.
✓ Unlimited liability - Owner is liable (responsible) for
all debts, even losing personal property if
business fails.
✓ Long hours and hard work necessary and owner
may have limited skills.
✓ Limited life - Life of the business depends upon
owner; it ends if owner quits or dies.
2. Partnership
• Business owned and managed by a small group,
often not more than two or three people, who
become partners.
Types of Partnership
➢ General Partnership
- all partners responsible for the management and
financial obligations of the business.
- Partners divide responsibility for managements and
liability, as well as the shares of profit/loss according
to their internal agreement.
- Equal shares are assumed unless there is a written
agreement that states differently. (Kenner & Speck,
2016)
➢ Limited Partnership & Partnership with Limited Liability
- at least one partner not active in daily running of the
business.
- “limited” means that most of the partners have limited
liability (to the extent of their investment) as well as
limited input regarding management decision, which
generally encourages investors for short-term projects,
or for investing in capital assets.
- This form of ownership is not often used for operating
retail or service businesses.
- Forming limited partnership is more complex and
formal than that of general partnership
-
 ➢ Joint Venture Cooperative Organization Structure
- Acts like general partnership, but is clearly for a limited period 1. All members have an equal say (one vote per member,
of time or a single project. regardless of the number of shares held)
- If the partners in a joint venture repeat the activity, they will be 2. Open and voluntary membership
recognized as an ongoing partnership and will have to file as 3. Limited interest on share capital
such, and distribute accumulated partnership assets upon 4. Surplus is returned to the members according to amount of
dissolution of the entity. (Kenner & Speck, 2016) patronage.
Advantages of Partnership Advantages of Cooperative Organization
✓ Fairly easy to start the business. ✓ Generally inexpensive to register
✓ Easier management – each partner brings ideas and ✓ Owned and controlled my members
expertise to the business. ✓ Members have equal votes regardless of their level of
✓ Special taxes on partnership. investment
✓ More sources of capital available. ✓ All members must be active in the cooperative
✓ More business skills available – usually can attract top talent ✓ Has limited liability
into the business. ✓ Profit distribution (surplus earnings) to members is
Disadvantages of Partnership carried on in proportion to the use of service; surplus may
✓ Partners are jointly and individually liable for the actions of the be allocated in shares or cash. (Kadu, 2016)
other partners. Disadvantages of Cooperative Organization
✓ Profits must shared with others. ✓ Entails longer decision-making process
✓ Since decisions are shared, disagreements can occur. ✓ Requires members to participate for success
✓ Some employee benefits are not deductible from business ✓ Has less incentive, and there’s also a possibility of
income on tax returns. development of conflict between members.
✓ The partnership may have limited life; it may end upon the ✓ If formed to provide service to members rather than a
withdrawal or death of a partner. return on investment, it may be difficult to attract potential
3. Corporation members seeking a financial return.
• Business owned by a number of people (called stockholders or ✓ There is usually limited distribution of profits to members
shareholders) and operated under written permission and some cooperatives prohibit the distribution of any
from the state in which it is located. Charter is granted giving surplus.
business permission to incorporate. ✓ Members providing greater involvement or investment
Advantages of Corporation than others will still only get one vote.
✓ More sources of capital available – stocks and bonds. ✓ Extensive record keeping is necessary in this form of
✓ Specialized managerial skills available. organization
✓ Limited liability - Owners liable only up to the amount of their ✓ Requires ongoing education programs for members.
investment.
✓ Ownership can be easily transferred through the sale of
stock; business not affected by change of ownership.
✓ Unlimited life.
Disadvantages of Corporation
✓ Difficult and more expensive to start the corporation.
✓ Owners do not have control of decisions made each day,
unless they are officers of the company.
✓ Business activities of the corporation limited to those
stated in the certificate of incorporation.
✓ Very detailed record keeping and corporation required to pay
income tax on profits.
✓ More government regulation.
4. Limited Liability Corporation
✓ Are hybrid forms of business that have characteristics of both
a corporation and partnership.
✓ LLC is not incorporated; hence, it is not considered a
corporation. Nonetheless, the owners enjoy limited liability like
in a corporation.
✓ An LLC may choose to be taxed as a sole proprietorship, a
partnership, or a corporation.
5. Cooperative
✓ Often referred to as “co-op”, is a limited liability business that
can organize for-profit or not-for-profit.
✓ Unlike corporations, it has members, not shareholders, and
they share decision-making authority.
✓ Owned by a group of individuals and is operated for their
mutual benefit.