2018 EDITION

MODULE 3
THE TYPES OF
BUSINESS ORGANIZATION

ATENEO DE ZAMBOANGA UNIVERSITY

Senior High School
Accountancy, Business and Management Department
Lesson 3: TYPES OF BUSINESS VENTURES

E
Ntrepreneurs engage in various activities – some big, some small, and others in between.
Their activities could be trading, manufacturing, or service business. They are supported by
either the family members or members of the community as employees. Entrepreneurs cater
to the people not only in big cities but in small towns as well.

TYPES OF BUSINESS (BASED ON FUNTION)

1) Merchandising or Trading

This refers buying of goods and selling the same without change in form. There are two types of
merchandising: (1) retailing and (2) wholesale.

Retailing – In this type of merchandising, goods are sold in small quantities. The final consumer
may be an individual person or a business unit.

KINDS DESCRIPTION EXAMPLES

This carries wide variety of product line, KCC Department Store
usually clothing, shoes, bags, beauty SM Department Store
(1) Department Store products, home furnishings and household Southway
goods. Gateway

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 Budget Wise
This sells variety of food and household
Yubengco
(2) Supermarket products.
LB Supermarket

Lenin Computer
These carry a variety of models for one Systems
(3) Specialty Stores
kind or limited product line. Expression Mobile
Center Lenin Hardware

These carry high turn-over goods, twenty- 7-Eleven

(4) Convenience stores
four hours a day and seven days a week. Ministop

SM Hypermarket
These are larger than supermarkets and
(5) Superstores Puregold
department stores have emerged.
Super 8

An outlet store in which manufacturers sell

Giordano
their stock directly to the public. A
Guess
manufacturer-owned store selling a firm’s
(6) Factory Outlets or Bench
stock directly to the public. The stock can
Outlet Store Penshoppe
either be first-quality merchandise,
Cotton On
discontinued, irregulars, and cancelled
Celine
orders at a low price.

This kind of retailing is one-on-one selling. Avon

One seller approaches a buyer. Many Natasha
(7) Direct Selling
times, the buyers are friends or relatives of MSE
the seller. Personal Collection

*Other forms of retailers include vendors (market vendor, ice cream vendor, ‘Taho’ vendor),
market stall sellers, ‘Carinderia’, ‘Sari-Sari’ store, etc.

Wholesaling – In this type of merchandising business, goods are sold in big quantities or in
volume. Products sold in this type may either be apparel, electrical goods, groceries and related
products, hardware, plumbing, heating equipment, lumber, construction materials, machinery,
equipment, supplies, motor vehicles, automotive equipment, paper, paper products, petroleum,
or petroleum products. Examples of wholesaler would be Unicity and Unitop Zamboanga.

2) Servicing

It is a type of business whose purpose is to do work or to provide services for people. It is a kind
of business that renders or sells services to customers or clients.

CLASSIFICATION DESCRIPTION EXAMPLES

These include beauty parlors,

David’s Salon
barber shops, daycare centers,
Salon de Elegante
restaurants or snack bars,
Yogi Learning Center
collection or ‘bayad’ centers,
(1) Small Businesses Cecile’s Pension House
flower shops, pension houses,
Baron’s Bakeshop
bake shops, dress shops, car
Aqua Best Water Refilling Station
repair shops, and water stations.

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 MLhuillier
Cebuana Lhuillier
These include banking and
Garden Orchid Hotel
finance, hotel and restaurant
Astoria Regency
services, schools, entertainment
Enchanted Kingdom
(theme park, movie houses, and
(2) Corporations ABS-CBN TV Station
TV productions), hospitals, call
GMA Broadcasting Network
centers, and transportation
Philippine Airlines
services (bus companies, airlines
Cebu Pacific
and shipping lines).
2Go
Aleson Shipping Lines

St. Luke’s Medical Center

These include medical/dental
PJS Law
services by doctors, legal services
SGV & Co.
by lawyers, accounting services,
(3) Professional Services Meralco Industrial Engineering
engineering services, tutoring
Services Corporation (MIESCOR)
services by teachers, and
Kumon Learning Center
services by architects.
WTA Architecture & Design Studio

3) Manufacturing

It is a type of business who manufactures products by converting raw materials into finished
products. The manufacturer buys the raw materials. Then, it makes the raw materials to finished
products by applying direct labor and factory overhead. There are manufacturers of
shoes/footwear (in Marikina), canned goods, soap and toiletries, food products, garment, school
and office supplies, glass wares, silverwares, China wares, or kitchen wares. Examples would be
Mega Fishing Corporation, Uniliver, Nestle, Nutri Asia, San Miguel Corporation, Toyota Motor
Corporation, and Advance Paper Corporation.

 Raw Materials – These are what you see in the completed product. For example, in
shoes and handbags, the leather is the raw material. Paper is the raw material for books.
Wood is the raw material for furniture.
 Direct Labor – This is the work on the raw materials as it is converted into finished
product. Direct labor is the work of the carpenter on the wood to convert wood to
furniture.
 Factory Overhead – These are the resources needed or costs that need to be paid for in
making products other than raw materials and direct labor. To manufacture handbags,
some examples of factory overhead are the electricity, salary of the supervisors, phone
bill, rental of factory space, and the water bill. Factory overhead refers to all costs in
manufacturing other than raw materials and direct labor.

TYPES OF BUSINESS (BASED ON THE NUMBER OF OWNERS)

Although numerous and diverse, the legal forms of business organization fall into three categories:
the sole proprietorship, the partnership, and the corporation. To understand the basic differences
among these forms, we need to define each one and understand its advantages and disadvantages.

1) Sole Proprietorship – A sole proprietorship is a business owned by one person who operates it
for his or her own profit. The typical sole proprietorship is small, such as a sari-sari store,
convenience store, barbershop, parlor, and hardware shop.

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 ADVANTAGES
 Owner receives all profits.
 Low organizational cost
 Income is included and taxed on
proprietor’s personal tax return
 Independence
 Secrecy
 Ease of dissolution
DISADVANTAGES
 Owner has unlimited liability – total wealth can be
taken to satisfy debts
 Limited fund-raising power tends to inhibit growth
 Proprietor must be jack-of-all-trades
 Difficult to give employees long-run career
opportunities
 Loses continuity when proprietor (owner) dies

2) Partnership – A partnership is formed through ―a contract whereby two or more persons bind
themselves to contribute money, property, or industry into a common fund with the intention of
dividing profits among themselves. (Art. 1767, Civil Code of the Philippines)

ADVANTAGES
 It is easy and inexpensive to organize, as it is
formed by a simple contract between two or more
persons.
 The unlimited liability of the partners makes it
reliable from the point of view of creditors.
 The combined personal credit of the partners
offers better opportunity for obtaining additional
capital than does a sole proprietorship.
 The participation in the business by more than
one person makes it possible for a closer
supervision of all the partnership activities.
 The direct gain to the partners is an incentive to
give close attention to the business.
 The personal element in the characters of the
partners is retained.
DISADVANTAGES
 The personal liability of a partner for
firm debts deters many from investing
capital in a partnership.
 A partner may be subject to personal
liability for the wrongful acts or
omission of his/her associates.
 It is less stable because it can easily
be dissolved.
 There is divided authority among the
partners.
 There is constant likelihood of
dissension and disagreement when
each of the partners has the same
authority in the management of the
firm.

3) Corporation – A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to
its existence. (Sec. 1, Corporation Code of the Philippines)

ADVANTAGES DISADVANTAGES
 The corporation enjoys a continuous existence
 It is not easy to organize because of
because of its power of succession.
its complicated legal requirements
 The corporation has the ability to obtain a strong
and high costs in its organization.
credit line because of continuity of existence.
 The limited liability of its shareholders
 Large scale business undertakings are made
may weaken its credit capacity.
possible because many individuals can invest
 It is subject to rigid governmental
their funds in the enterprise.
control.
 The liability of its investors or shareholders is
 It is subject to more taxes.
limited to the extent of their investment in the
 Its centralized management restricts
corporation.
a more active participation by
 The transfer of shares can take effect without the
shareholders in the conduct of its
need of prior consent of other shareholders.
corporate affairs.
 Its smooth operation is guaranteed because of its
centralized management.

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Quizzer 1: IDENTIFICATION
Direction: Indicate whether each statement is a retailing activity or not. Write R if the statement is a
retailing activity or NR if the statement is not on the space provided.

______________ 1. Selling mangoes per tree basis

______________ 2. Selling fabrics per roll

______________ 3. Selling machines for installation

______________ 4. Selling laundry soap per bar

Quizzer 2: IDENTIFICATION
Direction: Indicate whether each statement corresponds to a service business or a manufacturing
business. Write S if the statement corresponds to a service business or M if the statement
corresponds to a manufacturing business on the space provided.

______________ 1. The printing of books

______________ 2. Providing piano lessons

______________ 3. Offering tutorial lessons in science and mathematics

______________ 4. The production of softdrinks

______________ 5. Operating or running a kindergarten school

Quizzer 3: MATCHING TYPE

Direction: Indicate whether each statement corresponds to a service business or a manufacturing
business. Write S if the statement corresponds to a service business or M if the statement
corresponds to a manufacturing business on the space provided.

COLUMN A COLUMN B
______________ 1. Taxi Business A. Entertainment Service

______________ 2. Celebrity Manager B. Medical Service

______________ 3. Dermatologist Clinic C. Transportation Service

______________ 4. Barber Shop D. Food Service

______________ 5. Catering Business E. Personal Service

REFERENCES

Banastao, C. B. & Frias, S. A. (2010). Entrepreneurship. Makati City, Philippines: KATHA Publishing Co., Inc.

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