LESSON 1: THE NATURE AND
FORMS OF BUSINESS
ORGANIZATION
BUSINESS AND BUSINESS
ORGANIZATIONs
Business - is an activity that is part and
parcel of human society.
- 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.
Businesses are usually complex enterprises
involving major activities like Purchasing,
Manufacturing, Marketing Advertising,
Selling, and Accounting.
Objective of Businesses
- To earn profit ( although this is not
the only aim)
Profit - is the difference between the
amount earned and the amount spent in
buying, operating, or producing something.
- We focus on businesses operating to
earn profit, even though many of the
same concepts and principles also
apply to not-for-profit organizations.
The fundamental reason for examining the
activities of business from moral perspective
- Is that the business organization, in
principle, should help in the
promotion of the common good and
in the protection of person’s rights
and interest
Businesses make the goods and service you
use each day. That includes the products and
services used by other businesses as well as
those needed by individual consumers.
There are generally three (3) types of
business organization operated for profit:
1. Service Business
2. Merchandising Business
3. Manufacturing Business
1. Service Business - provide services rather
than products to consumers
2. Merchandising Business - sell products
they purchase from other businesses to
customers.
3. Manufacturing Business - change basic
inputs into products that are sold to
customers
The Various forms of Business Organization
- A business organization may take the
form of a Proprietorship, Partnership,
or Corporation.
- The three types of business earlier -
service, merchandising, and
manufacturing – may be organized
as proprietorships, partnerships, or
corporations.
- Given the large size and huge
amount of resources required to
operate a manufacturing business,
most manufacturing businesses, such
as San Miguel Corporation, are
corporations.
- Most large retailers like Sm
Supermalls, Robinsons, and Ayala
Malls are also corporations.
1. Sole Proprietorship - a business owned by
one person.
Advantages of sole proprietorship:
- Total undivided authority
- Low organizational cost and license
fees.
- Tax savings
- No restrictions on type of business
- ( as long as it is legal )
Disadvantages of sole proprietorship:
- Unlimited liability
- Limitation on size ( and thus on
fund-raising power )
- Limited management’s ability to be
jack-of-all-trades.
2. Partnership - as association of two or
more people as partners; it refers to an
arrangement in which the individuals share
profits and liabilities of a business venture.
Chief Characteristics:
- Association of individuals
- Mutual agency
- Limited life
- Unlimited liability
- Co-ownership of property
The association of individuals in a
partnership may be based on as simple act as
a handshake ; however, it is preferable to
state the 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.
Mutual Agency - an act of any partner is
binding on all other partners, so long as the
act appears to be appropriate for the
partnership.
- This is true even when partners act
beyond the scope of their authority.
- Partnerships have a limited life.
- Partnerships dissolution occurs
whenever a partner withdraws or a
new partner is admitted.
- Each partner has unlimited liability.
- Each partner is personally and
individually liable for all
partnerships liabilities.
- Creditor’s claims attach first to the
partnership assets and then to the
personal resources of any partner,
irrespective of that partner's capital
equity in the company.
3. Corporation - an entity created by law that
is separate and distinct from its owners and
its continued existence is dependent upon
the corporate statutes of the state in which it
is incorporated.
The characteristics that distinguish a
corporation from proprietorships and
partnerships are:
a. The corporation has separate legal
existence from its owners.
b. The stockholders have limited
liability.
c. Transferable ownership rights (
ownership is in shares of stock )
d. Ability to obtain capital ( relative
ease)
e. The corporation can have a
continuous life.
 f. The corporation is subject to
numerous government regulations.
g. The corporation must pay an income
tax on its earnings, and the
stockholders are required to pay
taxes on the dividends they receive:
the result is double taxation of
distributed earnings.
h. An artificial/juridical “person”
endowed with ability for self -
management; that is, the
management structure is at the
discretion of the board of directors.
Comparison and Contrast Among the
various forms of Business Organization
- The owner of a sole proprietorship
has complete control over the
company’s finances and operation.
- Sole proprietorship are not required
to consult with anyone when it
comes to making business decisions
- All partners of partnership have
input regarding how the company’s
resources are used and other
important business decisions.
- In a partnership business, all partners
are responsible for making decisions
that will impact the business.
- This may provide multiple
viewpoints, which could potentially
lead to better business decisions.
- The sole proprietorship can maintain
complete control over all aspects of
the business. There are no
shareholders to pacify and no board
directors to appease.
- On the other hand, corporations have
an advantage when it comes to
raising capital for the business – the
ability to raise funds through the sale
of stock.
- Corporations file taxes separately
from its owners.
- Owners of the corporation only pay
taxes on corporate profits paid to
them in the form of salaries, bonuses,
and dividends with any additional
profits awarded as corporate tax rate,
which is usually lower than a
personal income tax rate.
- This is opposed to single
proprietorships which often pay
income tax twice, first of the
business earnings and then on
personal income when the owner
draws a salary to take distributions
from the company
Forms of Business Organization
Forms of Business Entity
Proprietorship - is owned by one
individual.
Characteristics
- 70% of business entities in
the united states
- Easy and cheap to organize
- Resources are limited to
those of owner
- Used by small businesses
Partnership - is owned by two or more
individuals
 Characteristics
- 10% of business organization
in US (combined with limited
liability companies)
- Combines the skills and
resources of more than one
person.
Corporation - organized under state or
federal statutes as a separate legal taxable
entity.
Characteristics
- Generates 90% business
revenues.
- 20% of the business
organizations in US
- Ownership is divided into
shares called stock.
- Can obtain large amounts of
resources by issuing stock.
- Used by large businesses
Limited Liability Company - combines the
attributes of partnership and a corporation
Characteristics
- 10% of business organizations in the
US ( Combined with Partnership)
- Often used as an alternative to a
partnership
- Has tax and legal liability advantages
for owners.
LESSON 2:
LESSON 3:
Accountability
- Accountability is not synonymous
with responsibility.
- Accountability is the process of
explanation and justification.
Example:
The treasurer of a cooperative withdrew
P20,000 cash from a bank. On her way to
the office, she passed by the public market
and since it was market day, there were a lot
of people in the area. A man suddenly
snatched her bag where the money was
placed. Although shocked and sad, she
promised to pay the P20,000 through salary
deduction.
Transparency
- Transparency is the act of being
open, honest, and truthful in all
business dealings.
- Transparency can enhance the
reputation of a company and attract
more customers.
Example:
The manager of the company ordered
materials for their office extension. He/she
declared the actual amount and attached the
official receipt for future reference.
Fairness
- Fairness is the quality of making
judgments that are free from
discrimination.
- fairness requires treating all
employees equally, regardless of
their performance or contributions.
Example:
The boss noticed that his/her two clerks
were not talking to each other. He/she
ordered the two to come to his/her office one
at a time to listen to both sides before he/she
decides.
Definitions of Ethics
- The term Ethics is derived from the
green work “ethos” which means
“characteristic way of thinking”
- Ethics , as a science, does not only
evaluate the morality of our human
conduct but also provides us with a
common understanding of the
universal, objective, and irreversible
moral principles that should govern
our human behavior and guide our
moral decisions ( Roa, 2011)
- Ethics are moral principles that
guide the conduct of the individual
(Racelis, 2017)
- These are rules of behavior based on
ideas about what is morally good
and bad (Merriam-Webster
Dictionary)
Why is ethics important in business?
- Ethical conduct, whether at the
corporate, professional, or personal
level, is a direct reflection of the
principles and values which regulate
the person and the institution he/she
represents.
- Organizations establish their own
culture that is socially expressed as
their ideals. Such principles or ideals
have an impact on the relationships
within the company, efficiency,
prestige, performance and retention
of employees, legalities, and the
wider community they work in.
- Most organizations generate a list of
organizational values and codes of
conduct to be recognized and
adhered by all workers.
- Motivating and enhancing
constructive actions, and at the same
time building an atmosphere that
prevents unethical behavior are vital
obligations on the part of both
administrators and workers
How to Apply Ethics?
- At the individual level, organizations
ought to concentrate on improving
and encouraging every employee to
respect and adhere to ethical
principles.
- Certain aspects of individual ethics
have their roots in the individual.
- Achieving a strong sense of
professionalism and recognizing
certain professional decisions' ethical
implications are the key components
of education, individual reflection,
and experience.
Ethical Issues in Business
Ethical Issues in Finance
- Under the umbrella of finance and
accounting, fairness in trading
practices, trading conditions,
financial contracting, sales practices,
consultancy services, tax payments,
internal audits, external audits, and
executive compensation are
included, whereas specific corporate
ethical/legal abuse includes insider
trading, bribery/kickbacks,
misleading financial analysis, and
fraud on securities.
Ethical Issues in Human Resource (HR)
Management
- Human Resource Management 's
tasks include hiring and orientation,
performance evaluation, training and
development, labor relations, and
health and safety concerns.
- Among the ethical issues are
discrimination by age (the young
ones are preferred over the older
ones), gender preference, sexual
orientation, race, ethnicity, disability,
and physical appearance are all
ethical issues that the HR oversees.
Ethical Issues in Sales and Marketing
- Ethics in marketing includes
practices in pricing, which involves
unlawful acts such as price
manipulation and price skimming.
- According to Hayes (2020), price
skimming is a product pricing
strategy by which a firm charges the
highest initial price that customers
will pay and then lowers it over time.
- On the other hand, advertising has
raised concerns over offensive
advertisements, objectification, and
school marketing.
Ethical Issues in Production
- Business ethics typically deals with
company's duties to ensure its goods
and industrial procedures do not
inflict unnecessary harm.
- Many products and services can be
generated and used at zero risk and it
can be difficult to assess the ethical
path.
- However, there are consumers who
patronize products that damage
them, for example, tobacco products.
- Output can have adverse effects on
the environment like air pollution,
destruction of habitats, and urban
sprawl.
LESSON 4:
What is Code of Ethics?
- Code of Ethics is a set of rules about
good and bad behavior.
- It is a guide of principles designed to
help professionals conduct business
honestly and with integrity.
- A code of ethics document may
outline the mission and values of the
business or organization, how
professionals are supposed to
approach problems, the ethical
principles based on the organization's
core values, and the standards to
which the professional is held.
Saucer and Sims (2013) offer
recommendations for developing Code of
Ethics in business organizations:
- Adopt code of ethics (use the Code
of Ethics of other companies as a
reference and modify according to
the needs of the company).
- Offer training on ethics (for
management and employees).
 - Hire and foster individuals with
ethical value.
- Deal with immoral activities.
Employees must know the
implications and effects of making
unethical actions, and should be
ready to accept consequences.
- Take constructive measures.
- Carry out a social audit. Conduct
survey to employees once in a while.
- Cover all whistleblowers. These
people detect illegal activities within
organizations and disclose the
actions to the authority or managers.
- Empower the defenders of integrity.
Support those who work with
honesty and integrity.
- Ensure executive commitment. The
anonymity of those who report
the problems should be practiced.
- Communicate the principles of
conduct within the company and
across the industry.
- Assign an officer who is clearly
responsible for the enforcement of
ethical standards. He/she can be
consulted for advice.
- Establish a procedure for violations
of ethical standards, and fully review
any offenses reported.
- Ensure high perseverance by the
company's board of trustees.
- Lead by example, above everything
else.
One way to tackle ethical situations is by
using the four-way test to evaluate
decisions.
This four-way test consists of asking four
questions:
1.Is my decision truthful?
2.Is my decision fair to all who are affected
by it?
3.Will this build the organization's
goodwill?
4.Will the decision benefit all parties with
vested interest in the outcome?
Code of Ethics
1.Vision
- means something that you imagine; a
picture that you see in your mind
(Merriam-Webster Dictionary). The
vision statement helps to ensure the
alignment of the decisions to the
company goals.
Example: To make innovations that
everyone could access and adapt depending
on their needs
2. Values
- (value means something thought of
as important or useful) Values in
business help to ensure that all of the
employees work towards the
company goals.
Example: We commit ourselves to serve our
customers with quality service and utmost
respect.
3. Mission
- a specific task with which a person
or a group is charged
(Merriam-Webster Dictionary).
- The mission statement clearly and
effectively guides the business or the
organization in its decision-making.
Example: To inspire all the young athletes of
the country… tell them to dream and go for
it!
4. Principles
- moral rules or beliefs that help you
know what is right and wrong and
 that influence your actions
(Merriam-Webster Dictionary).
Examples:
Customers have to be respected. Make sure
to deliver quality product.

- Code of Ethics aims to lessen

conflicting issues as it explains to
what degree such conflicts can be
avoided and what parties can do if
these conflicts happened.
- Professionals therefore cannot say
that they were ignorant of the
immoral nature of their improper
behavior.
- Often relevant is the possibility of
disciplinary action (e.g. disbarment
of a lawyer) which helps minimize
unnecessary disagreements or
offensive behavior where a
confrontation is imminent or is likely
to happen.