2nd Sem Midterm Lessons - Forms of Business Organizations PDF

FORMS OF BUSINESS ORGANIZATIONS Sole Proprietorship -​ A business owned by one person -​ In sole proprietorships, a single Business person...

FORMS OF BUSINESS ORGANIZATIONS Sole Proprietorship -​ A business owned by one person -​ In sole proprietorships, a single Business person holds the entire operation -​ An entity in which economic as his personal property, resources or inputs, such as managing it on a day-to-day materials and labor, are put basis together and processed to -​ They are attractive to small provide goods or services to investors because they are customers relatively easy to start up -​ The owner is called an owner, The Main Goals of Doing a Business proprietor or manager. -​ Profit-making -​ However, you will learn in this subject that profit-making is not the only purpose of doing a ADVANTAGES DISADVANTAGES business. It entails a lot of Formation: less Liability: The responsibilities tha​ t include the complicated in business owner welfare of society at large preparation of will be held directly documents and responsible for any cheaper compared losses, debts, or The Three Common Forms of Business to starting a formal violations coming Organization corporation. from the business. ​ Sole Proprietorship ​ Partnership ​ Corporation Tax benefits: no Taxes: While there requirement to file are many tax a separate business benefits to sole Why is it important to learn this? report. One will list proprietorships, a -​ Knowing the different forms of the business main drawback is business organization will help information and that the owner figures within must pay you understand their nature, his/her individual self-employment advantages and disadvantages. tax return. taxes. Thus, it will also help you realize what form of business you would like to engage in the future. Decision making: Lack of Business decision “continuity”: The of business among the owners. remains the business may structure. responsibility of the discontinue if the owner. The owner owner becomes can also fully deceased or Shared Financial Disagreements transfer the sole incapacitated. Commitment: Each Among Partners: proprietorship at business partner With multiple any time as he/she has equally partners, in the deems necessary. invested in the business, there can success of the be disagreements business. like management styles, salary Difficulty in raising schemes, etc. capital: Generating the capital or the initial funds is usually provided by Complementary the owner. Skills: A good partnership should be able to utilize the strengths, resources, and Partnership expertise of each -​ A single business where two or partner. more people contribute money, property or industry (labor or skill) and who share ownership Partnership Incentives for of the business with the intention Employees: of dividing the profits or losses Partnerships have among themselves an employment -​ The owners are called partners advantage over other entities if they offer ADVANTAGES DISADVANTAGES employees the opportunity to Easy and Joint and become a partner. Inexpensive: Individual Liability: Partnerships are Similar to sole generally an proprietorships, inexpensive and partnerships retain easily formed type full, shared liability Corporation  -​ An entity created by law that is corporate level and separate and distinct from its again at the owners and its continued individual level, if such profits are existence is dependent upon the distributed to the corporate statutes of the state in shareholders. which it is incorporated. Ease of transfer of More costly: There -​ The owners are called ownership: It’s are a required stockholders or shareholders easy to transfer number of board ownership interests meetings and in a corporation. annual shareholder meetings/sessions. ADVANTAGES DISADVANTAGES Credibility: A Separate legal More time and business with an personality: money spent in Incorporation or acquired a legal organizing: In a ‘Inc.’ sign after its personality corporation, it will name often sounds separate and require more time more credible in distinct from its and money than the business stockholders. forming other sole context. and partnership business types. The Importance of Business Ease of raising More paperwork: -​ Business organizations play a funds: In a Several corporation, it is documentations vital role worldwide as easy to raise and paper works significant contributors to additional funds required by economic development, job since it has the governmental creation, and the general health option to sell agencies monitor shares of the corporations. and welfare of economies. corporation. Continuity: It can Higher tax: have a perpetual Corporate profits TYPES OF BUSINESSES BASED ON existence, which may be subject to means it can higher overall taxes ACTIVITIES outlive its owner since the because it is a government ​ Service separate person in imposes taxes on ​ Merchandising the eyes of the law. profits at the ​ Manufacturing  the normal operating expenses any Service Business business has, it also has production -​ Provide an activity or the costs, such as purchasing new materials performance of a task with a and labor for producing goods. commercial purpose such as Merchandising businesses that consulting, accounting, purchase finished goods have to buy transportation, cleaning, the goods and then mark up the hospitality, traveling or merchandise before they sell it. maintenance, among others. -​ Are now delivered not just Manufacturing Business physically but also through -​ Any business that uses virtual platforms like web-based components, parts or raw systems or mobile apps. materials to make a finished -​ Customers normally perceive good. value from an intangible activity -​ These finished goods can be sold and customer service is an directly to consumers or to other essential part of it. manufacturing businesses that use them for making a different Merchandising Business product. -​ Sells goods, also known as -​ Manufacturing businesses in merchandise. today's world are normally -​ Good examples of merchandising comprised of machines, robots, businesses include retail computers, and humans that all clothing, grocery stores and work in a specific manner to bookstores. create a product. -​ Some businesses produce the goods they sell, while other The Primary Role of Business in merchandise businesses buy and Economic Development sell goods they've purchased -​ Business organizations play a wholesale. Or it could be a vital role worldwide as combination of the two. significant contributors to economic development, job For a business that produces what it creation, and the general health sells, not only does the business have  and welfare of economies and stakeholders. Professional Ethics -​ It is the practice of ethics above Who are the Stakeholders? the requirements of the law that ​ Investors is selected by professionals ​ Customers ​ Suppliers Organization's Code of Ethics ​ Employees -​ A formal document that states ​ Community an organization's primary values and the ethical rules it expects The relationship between companies employees to follow and their stakeholders is a two-way -​ It is a set of rules about good and street, because businesses engage and bad behavior influence the groups mentioned above -​ It is a guide of principles and those groups similarly have the designed to help professionals ability to engage and influence conduct business honestly and businesses in various ways. with integrity -​ A code of ethics document may outline the mission and vision of CODES OF ETHICS AND BUSINESS the business or organization, how professionals are supposed CONDUCT to approach problems, the ethical principles based on the Ethics organization's core values, and -​ The discipline dealing with what the standards to which the is good and bad with moral duty professional is held. and obligation. -​ It may be general or professional 1.​ Mission Statement ethics -​ It is a specific task with which company is charged General Ethics -​ the mission statement clearly -​ It is the appropriate personal and effectively guides the behavior imposed by society and business or the organization in its moral duties guiding individuals decision-making  ​ Volunteering in waste Ex. management promotion To inspire all the young athletes of the ​ Rejecting business products, country, tell them to dream and go for television shows that promote it! objectionable shows ​ Production and delivery of 2.​ Vision Statement organically-grown fruits and -​ It means something that you vegetables imagine ; a picture that you see in ​ Uprightness or truth in your mind advertising -​ The vision statement helps to ​ Preparation and obedience to the ensure the alignment of the business code of ethics decisions to the company goal Unethical Practices Ex. To make innovations that everyone ​ Accounting Manipulation - could access and adapt depending on accounting books and financial their needs. statements can be manipulated to show a more favorable result 3.​ Principles of accounting transactions. A -​ Moral rules or beliefs, company may hide its true status philosophical principles that help and present a better picture of its you know what is right and financial statements to investors. wrong and that influence your action that will be followed by ​ Overbilling - some service the organization's members providers are guilty of charging -​ It also includes acceptable more than the actual price for the behavior as well as conduct service given. This destroys the considered as unethical and reputation of a service provider malpractice. and may result in lower sales for the company. Ethical Practices ​ Serving an honest day's work ​ Misleading Advertisements - among the employees these are advertisements which  mislead consumers by making because they are losing profit, promises which the product when in reality, they are just cannot really deliver. This may giving higher salaries to their temporarily increase the sales executives. Whatever is saved but once the consumers figure from laying off workers is given out the truth, they end up to senior management perks. dissatisfied, thus resulting in lower sales. ​ Poor Quality of Materials - in manufacturing processes, poor ​ Making False Claims - some products may be the result of managers tend to take credit for low-quality raw materials used something like charity works to lower the total cost of which they actually are not a part production. Victims of these poor of. Some vendors, suppliers, or or faulty products may file legal sellers use dangerous chemicals action against dishonest to increase the quantity of manufacturers product being manufactured or perhaps cut short the production ​ Insider Trading - stock market is to reduce expenses. characterized as the buying or selling of shares of stock on the ​ Customer Service Failure basis of information known only -​ poor customer service is also to a trader (an “insider”, considered unethical somebody belonging to the -​ failure to replace a damaged company, as opposed to the product or not being able to public) or to a few persons. serve warranty is considered ethical. ​ Pollution and Resource - some -​ failure to refund a complaining forms of pollution are part of customer is also another people's daily experience. example, as well as being rude. Exposure to atmospheric pollutants produces a broad ​ Layoff and High Compensation spectrum of health hazards, - some companies are guilty of especially for the poor, and laying off workers allegedly  causes millions of premature LAWS THAT PROVIDE FOR THE LEGAL deaths. RESPONSIBILITIES OF PHILIPPINE ENTERPRISES ​ Whistleblower - the act, for an Commercial Laws employee (or former employee), ​ Corporation Code of BP 68 of disclosing what he believes to -​ dictates legal responsibility toward be unethical or illegal behavior to investors and owns and guarantees higher management (internal the business is managed in the whistleblowing) or to an interest of stockholders. external authority or the public -​ Right of the shareholders (external whistleblowing) ​ Consumer Act or RA 7894 -​ Details the legal responsibilities LEGAL RESPONSIBILITIES towards buyers, suppliers, tradesmen and distributors ETHICS ORGANIZATION IN THE -​ informs suppliers, tradesmen and PHILIPPINES: distributors of their rights and the penalties for noncompliance with 1.​ Management Association of the law Philippines (MAP) -​ took the lead in the practice of Must implement: business ethics which involves their -​ protection against hazards of health regular sessions of the organization and safety allow for evaluation of individual -​ protection against deceptive, unfair practice of business ethics and unconscionable sales -​ provision of information and 2.​ Philippine Food Chamber of Food education to facilitate sound choice Manufacturers Inc. (PFCFM) -​ involvement of customer -​ participates in the task of representatives in making social and responsible, self-imposed, moral economic policies. guidelines such as: Regulatory and Scientific Affairs, Small and Medium Labor Laws Enterprise Group and Legislative. ​ Minimum Wage Law -​ follows a standard for minimum wage earners  ​ Migrant Workers and Overseas ​ Clean Water Act FIlipino Act -​ protects bodies of water from -​ promotes the rights of migrant and pollution from land-based resources overseas workers ​ Environmental Awareness and Environmental Laws Education Act ​ Environmental Compliance -​ catalyze the environmental Certificate education in the country -​ it attest compliance with environmental laws, the Agricultural Laws Environmental Impact System -​ enterprises engaged in agricultural (EIS) and commitment to the ventures need to be knowledgeable Environment Management Plan on the impact of laws promulgated (EIP) for their guidance ​ PD 1586 ​ RA 8435: Agricultural and -​ established an environmental Fisheries Modernization Act of impact statement system 1997 -​ created the Network-Information ​ Toxic Substance & Hazardous & Network which provides access to Nuclear Waste Control Act supply-demand and other data. -​ covers importation, manufacture, processing, storage, transportation, ​ RA 8550 Fisheries Code of 1998 sale and disposal of unregulated -​ provides that the application for chemical substances (Philippine licenses of fishing vessels is Environment Impact System/EIS) administered by the municipalities ​ Clean Air Act ​ RA 10068: Organic Agriculture Act -​ oversees the formulation of a of 2010 holistic national program against air -​ established the National Organic pollution Agriculture Board which houses the Bureau of Agricultural and Fisheries ​ Philippine Ecological Solid Waste Product Standards who is in charge Management Act of product registration, labeling -​ manages the control, transfer, requirements and other business process and disposal of solid waste documents for the sale of organic products.  -​ it was a financial scandal in the USA CORPORATE GOVERNANCE where the shares of the involved corporations became worthless Corporate Governance Solution to the Enron Scandal -​ It is a set of procedures designed to -​ These strengthen financial reporting ensure that the company is and corporate governance for public managed in the interest of the companies. shareholders. ​ Public Accounting Reform -​ system of rules, practices and ​ Sarbanes-Oxley Act processes by which a company is directed and controlled. Protection Regulation for Companies in -​ It outlines the framework for the Philippines achieving a company's objectives while balancing the interest of ​ Audited Financial Statements stakeholders, including -​ financial statements inspected by an shareholders, management, independent auditor to examine the employees, customers, suppliers authenticity, accuracy and fairness and the community. of the presentation of the information Public Companies -​ These are corporations whose ​ Code of Ethics shares of stock are traded or listed -​ a guide of principles designed to in the stock market. help professionals conduct business with integrity The Importance of Corporate Governance ​ prices of shares of stocks increase ​ Corporation Code of the when the investing public believes Philippines in the integrity of the financial -​ legal responsibilities toward statements investors and owners and ​ shareholders are suppliers of capital guarantees the business is managed so they should be convinced of the in the interest of stockholders integrity of the communication process with the corporation Real-life example ​ The cost of their investment is lower -​ Corporate Governance Manual of than interest on borrowed money. Cebu Pacific, which contains principles and best practices that Enron Scandal  the Board and Management commit -​ holding to account is the process of to. requiring explanation and justification but is also about What is contained in the Corporate testing, forming a judgement and if Governance Manual? necessary, taking action -​ accountability implies responsibility: ​ Board Governance - states the it is reasonable only to hold people composition, qualifications and to account for those things for which disqualifications of the board of they are responsible. directors Why is Accountability important? ​ Board Committees - enumerates -​ sound accountability is an important committees and responsibility aspect of prevention and detection centers of corruption -​ A civil society organization without ​ Stockholders Rights and proper accountability system is Protection - outlines governance fragile and open to rumors about covenants with stockholders mismanagement and abuse of power ​ Governance Monitoring and -​ Worst of all, it will prevent it from Self-Assessment - allows the enjoying respect and full legitimacy board to create a self-rating system in the eyes of its stakeholders to measure its performance including those duty bearers whom it intends to engage with advocacy. Corporate Governance has strong adherence to the principles of: ​ Fairness ​ Accountability -​ In the context of business -​ In business term, employees will organization, fairness involves perform a job, take corrective action balancing the interest involved in all when necessary and report upward decision-making including any on the status and quality of their decisions related to hiring, firing and performance. the compensation and reward -​ to be accountable is to be liable to system. explain or justify one’s action and -​ It is measured by the equity theory decision which states that people assess  how fairly they have been treated -​ THE ORGANIZATION according to input and outcomes. Core Principles of Business Ethics Why is Fairness important? ​ Honesty -​ fairness had to do with justice. More ​ Integrity concretely, justice looks at the ​ Keeping Promises balance of benefits and burdens ​ Loyalty distributed among members of a ​ Obeying the Law group; and can result from the ​ Respect application of rules, policies, or laws ​ Compassion that apply to society or a group. ​ Leadership ​ Competence ​ Transparency ​ Morale (gives the company a good -​ In business context, the associated reputation) literature has recently analyzed several issues associated with The Notions of Competence corporate transparency such as the ethical justification for information The following are the minimum disclosure, the ethical nature of competencies expected for professionals: corporate information transparency, or the use of transparency in 1.​ Technical skills management-employee -​ Requires the ability to use relationship. special proficiency or expertise to perform How Transparency assessed particular tasks. We can use transparency in two levels: -​ Accountants, engineers, ​ Individual Transparency market researchers, and -​ transparency acquires intrinsic or computer scientists, as ethical salience as an important examples, possess technical feature of a person's relational skills. dimension -​ Managers acquire these -​ YOU skills initially through formal education and then further ​ Organizational Transparency develop them through -​ transparency is identified as an training and job experience important mechanism of social accountability.  -​ technical skills are most -​ Business without ethics destroys important at lower levels of the relationships of people and management threatens the survival of human 2.​ Human skills society. By beginning to study the -​ Demonstrates the ability to social functions of businesses, we work well in cooperation are introduced to fundamental with others. concepts of what is right and wrong -​ Human skills emerge in the in human conduct and their workplace as a spirit of trust, implications for business as an enthusiasm, and genuine important human activity involvement in interpersonal relationships. 4 Main Reasons why business should act -​ A manager with good human ethically? skills has a high degree of 1.​ Legal reasons self-awareness and a 2.​ Public image reasons capacity to understand or 3.​ Pragmatic reasons empathize with the feelings 4.​ Moral reasons of others 3.​ Conceptual skills What is the role of business in poverty -​ Calls for the ability to think alleviation? analytically. -​ Helps secure jobs -​ Analytical skills enable -​ To bridge a gap between sharing managers to break down resources from business problems into smaller parts, organizations to… to see the relations among the parts, and to recognize What makes a company virtuous? the implications of any -​ Business ethics problem for others, as -​ Corporate governance managers assume very high -​ Legal responsibilities responsibilities in -​ Country’s economic development organizations, they must deal with more ambiguous problems that have long-term consequences Why should business be ethically sensitive?