Business

Ethics and
Social
Responsibility
UNIT I: T HE ROLE OF BUSINESS IN
SOCIAL AND ECONOMIC DEVE LOPMENT
Lesson 1: The Nature and Forms
of Business Organization
Learning Objectives:

At the end of the lesson, the learner should be able to;

1. Define and describe business and business organization;

2. Identify and describe the various forms of business organization: sole proprietorships,
partnerships, and corporations;

3. Compare and contrast the various forms of business organization; and

4. Illustrate the role of each form of business organization in the economy.

 SHORT ACTIVITY

DIRECTIONS: ANALYZE EACH STATE ME NT AND ANSW E R T RUE , I F

THE STATEMENT IS CORRECT AND FAL SE , IF T HE STAT E ME NT IS
INCORRECT. YOU MAY RAISE YOUR HAND IF YOU WANT TO ANSW E R.
Business is a passive process.

FALSE
Tax preparation is more difficult in a sole
proprietorship than in a corporation.

FALSE
A corporation is a separate entity distinct
from all the owners.

TRUE
Your liability as a shareholder is only limited
to the amount of your investment.

TRUE
A partnership may generate funds through
sharing of stocks.

FALSE
A corporation may be owned by one person.

FALSE
Handling money for a sole proprietorship is
easier than partnership.

TRUE
Bookstores and sari-sari stores fall under the
service business category.

FALSE
The sole proprietor can pass the business
down to his/her heir.

TRUE
Business and Business
Organization

Business – 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.
Business and Business
Organization
Businesses are usually complex enterprises involving major activities like:
• purchasing
• manufacturing
• marketing
• advertising
• selling and
• accounting
 “earn a 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.
3 Types of Business
Organizations
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 to customers.
The Various Forms of Business
Organization
1. Sole proprietorship – a business owned by one person.
Advantages:
a. total undivided authority
b. low organizational cost and license fees
c. tax savings
d. no restrictions on what type of business (as long as it is legal)
The Various Forms of Business
Organization

Disadvantages:
a. unlimited liability
b. limitation on size (and thus on fund-raising power)
c. limited by management’s ability to be jack-of-all-trades.
 The Various Forms of Business
Organization
2. Partnership – an association 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:

a. association of individuals

b. mutual agency

c. limited life

d. unlimited liability

e. co-ownership of property
The Various Forms of Business
Organization
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 Various Forms of Business
Organization
The characteristics that distinguish a corporation from proprietorships
and partnerships are:
• The corporation has a separate legal existence from its owners.
• The stockholders have limited liability.
• Transferable ownership rights (ownership is in shares of stock).
• Ability to obtain capital (relative ease).
The Various Forms of Business
Organization
• 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, and 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,
that is, the management structure is at the discretion of the board of directors.
file an application of incorporation
with the government
“Securities and Exchange Commission or SEC”
 “charter or articles of
incorporation”

- THE ARTICLES OF INCORPORATION FORMALLY CREATE

THE CORPORATION
 “bylaws”

- RULES AND PROCEDURES FOR CONDUCTING THE

CORPORATION’S AFFAIRS
Cost may be incurred in
organizing a corporation
These costs include:
a. Legal fees
b. Taxes
c. State incorporation fees
d. License fees
e. Promotional costs
These costs are considered Organizational Expenses
Comparison and Contrast Among the
Various Forms of Business Organization
Form of Business Entity
Proprietorship is owned by one individual.
Partnership is owned by two or more
individuals.
Characteristics
• 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.
• 10% of business organizations in the United
States (combined with limited liability
companies).
• Combines the skills and resources of more
than one person.
Comparison and Contrast Among the
Various Forms of Business Organization
Form of Business Entity
Corporation is organized under state or
federal statutes as a separate legal taxable
entity.
Limited liability company (LLC) combines
the attributes of a partnership and a
corporation.
Characteristics
• Generates 90% of business revenues.
• 20% of the business organizations in the
United States.
• Ownership is divided into shares called
stock.
• Can obtain large amounts of resources by
issuing stock.
• Used by large businesses.
• Often as an alternative to a partnership.
• Has tax and legal liability advantages for
owners.
The Role of Each Form of Business
Organization in the Economy
Small businesses owned by sole proprietors are well recognized
worldwide as vital and significant contributors to economic
development, job creation, and the general health and welfare of
economies. Microbusinesses form a dynamic, integral part of the
market economy, providing goods and services and a gateway by
which millions enter the economic and social mainstream of society.
In the US, for example, about half of all private-sector workers are
employed by microbusiness firms.
The Role of Each Form of Business
Organization in the Economy
On the other hand, the Industrial Revolution brought with it
new forms of machine production that enabled businesses to
make massive quantities of goods to ship and sell in national
markets. These changes, in turn, required large organizations
to manage the enormous armies of people that had to be
mobilized to process the output of these machines on long
assembly lines in huge factories.
The Role of Each Form of Business
Organization in the Economy
The result was the large corporation that came to dominate
our economies. These large businesses, in general, offer
better jobs than small businesses, in terms of both
compensation and stability. Also, corporations provide such
benefits as: links with suppliers, increased consumer
spending, the transfer of knowledge from one firm to
another, and the sharing of pools of workers.
The Role of Each Form of Business
Organization in the Economy
However, competitive forces sometimes fail to steer companies in a socially
beneficial way and instead, lead them to act in a socially harmful manner. For
example, a company might knowingly pollute a neighborhood with substance that
is not yet illegal, in order to save the costs of reducing its pollution and thereby be
more competitive. This wave of large corporations has brought with it a host of
new ethical issues, including the possibilities of exploiting the workers who labor
at the new machines, manipulating the new financial markets that finance these
large enterprises, and producing massive damage to the environment.