The Nature and Forms of Business PDF

The Nature and Forms of Business Oganizations BUSINESS I s a n a c t i ve p r o c e s s w h i c h i s a n integral part of human society. It is an organization where economic resources or inputs, such as materials and services are brought together and distributed to deliver or to give...

The Nature and Forms of Business Oganizations BUSINESS I s a n a c t i ve p r o c e s s w h i c h i s a n integral part of human society. It is an organization where economic resources or inputs, such as materials and services are brought together and distributed to deliver or to give consumers goods, products, or outputs. BUSINESS -It involves signif icant operations s uch a s b uying , a s s e m b ling , distributing, advertising, selling, and accounting PROFIT Refers to the difference between the amount received and the amount spent on something purchased, produced, or manufactured. The fundamental reason for examining business activities from a moral point of view is that business organizations should, in principle help promote the common good and protect the rights and interests of individuals. THREE TYPES OF BUSINESS ORGANIZATIONS SERVICE BUSINESSES- Provide services to customers rather than products. Ex. (Computer repair, laundry services, tutoring, delivery services, wellness(such as gym or spa etc.) MECHANDISING BUSINESSES- sell to customers products they buy from other businesses. Ex.(sari-sari store, bookstores, department stores, groceries, supermarkets, etc.) THREE TYPES OF BUSINESS ORGANIZATIONS MANUFACTURING BUSINESSES- turn basic inputs into products which are sold to consumers Ex. (shoe manufacturing, baked goods, candle manufacturing, cosmetics manufacturing, wine production etc.) FORMS OF BUSINESS ORGANIZATIONS 1.SOLE PROPRIETORSHIP- It is a one-person business. The owner has full control over the finances and operations and decide alone. Advantages: a.Tax preparation is faster. Simply file an individual income tax return including losses to your business. Your personal and business income is considered the same and the tax implications for self-employed individual would apply. FORMS OF BUSINESS ORGANIZATIONS Advantages: b. Sole Proprietorship has lower start-up cost. c. Handling money for business is easier. d. Sole proprietorship have the least government rules and regulations that affect them. e. The sole proprietorship can own the business for as long as he/she wants, and when he/she wants to moved out, he/she can sell the business. e. Even in the common practice, the sole proprietorship can pass the business down to his/her heir. Disadvantages: a. The sole proprietorship is personally l i a b l e for a l l d eb ts a nd a cti ons of the enterprise. b. There is lack of f inancial control because of looser structure of sole proprietorship. c. There could be difficulty in raising capital. Example of Sole Proprietorship: *Bookeeping Business *Financial Planner *Computer Repair Services *Catering Company *Freelance Writer 2. PA R T N E R S H I P - It is a business relationship between two or more people. It refers to an arrangement where individuals sha re a business venture’s prof it a nd liabilities. The partners give feedback on how to use the capital and other critical stra te gic d e c isio n s th a t ma y prov id e different perspectives. FOUR TYPES OF PARTNERSHIP: 1.General Partnership (GP)- is the most basic form of par tnership. It does not require forming a business entity with the state. In most cases, par tner s for m their business by signing a partnership agreement. Ownership and prof its are usually split evenly among the partners, although they may establish different terms in the partnership agreement. FOUR TYPES OF PARTNERSHIP: 2.Limited Partnership (LP)- are formal business entities authorized by the state. They have at least one general partner who is fully responsible for the business and one or more limited partners who provide money but do not actively manage the business. Limited partners invest in the business for f inancial returns and are not responsible for its debts and liabilities. FOUR TYPES OF PARTNERSHIP: 3.Limited liability Partnership (LLP)- operates like a general par tnership, with all par tners actively managing the business, but it limits their liability for one another actions. The partners still bear full responsibility for the debts and legal liabilities of the business. But they are not responsible for errors and omissions of their fellow partners. LLP are not permitted in all states and are often limited to certain professions such as doctors, lawyers and accountants. FOUR TYPES OF PARTNERSHIP: 4.Limited liability limited Partnership (LLLP)- is a newer type of partnership available in some states. It operates like an LP with at least one general partner who manage the business, but LLLP limits the general partner’s liability so all partners have liability protection. Advantages: a.Partnership business lacks formality as compared with managing a limited company or corporation. b. It is easy to start. The partnership may be created either verbally or in writing. c. You share the burden. You have companion and support. Advantages: d.Ever y par tner would add his/her own expertise, skills, experience and connections to the business, thus giving it a greater chance of success. e. There is a better decision-making. Two heads are better than one. Advantages: f. There i s pri va cy. The bus i nes s dea l s m ay kept confidential by the partners. g. The partners owns and control the business. h. The more partners there are, The more funds are available in the company which can be used for possible expansion. Its borrowing capacity is likely to be higher. i. There is an easy access to prof it s in a business partnership. The partners just have to divide the profits. Disadvantages: a. The business does not any independent legal status. b. The business has no separate legal personality, so the partners are personally liable for the debts and looses incurred. c. The partnership business often seems to lack the sense of prestige more closely associated with the a corporation. d. A partnership will of the f in d it more dif ficult to raise money than a corporation e. There is a potential of differences and difficulties. Disadvantages: f. Decision-making can be slower because there is a need for consultation among partners. g. The profit must be shared among the partners. h. It may require a lot of time and energy thus may affect life-work balance. i. The prof its earned by the partnership will be translated to income on the individual partners. Thus they are subject to income tax in the f inancial year in which they are made. j. Th ere a re l i m i t s o n bu s i nes s devel o pm ent l i ke unlimited liability, lack of funding opportunities, and a lack of commercial status. etc. 3. CORPORATION- It is an entity created by law that is independent and distinct from its owner and relies on the corporate laws of the state in which its is incorporated to continue its existence.Corporations have an advantage in generating money for the company. It can raise funds by selling shares of stocks. It files taxes separately from its owner. Advantages: a. The liability of the shareholders of a corporation is limited up to the amount of their investments. b. A Publicly held corporation may sell shares or issue bonds to raise substantial amount. c. It is easy for a shareholder to sell shares in a corporation. d. A corporation’s life has no limit, ownership can pass through many generations Disadvantages: a. The corporation pay taxes on its income depending on its type and the shareholders pay dividend taxes, so income gets taxed twice. b. The management team of a corporation can operate the business without any real oversight from the owners.