Introduction to Finance: Definition, Tasks, and Business Organizations - PDF

Here's the transcription of the images in structured markdown format: ### CHAPTER 2 | SLIDE 2 Knowledge is studying to gain wisdom to uphold the truth. ## CHAPTER II ## Introduction to Finance --- ### CHAPTER 2 | SLIDE 5 ## FINANCE: DEFINITION * derived from the Latin word *finer* meaning...

Here's the transcription of the images in structured markdown format: ### CHAPTER 2 | SLIDE 2 Knowledge is studying to gain wisdom to uphold the truth. ## CHAPTER II ## Introduction to Finance --- ### CHAPTER 2 | SLIDE 5 ## FINANCE: DEFINITION * derived from the Latin word *finer* meaning "to end" or "to pay." When a person pays his bill, the financial matter is ended * the operational or practical side of economics, the practical science of the production, and distribution of wealth (Shetty et al. 1995) * the efficient acquisition, distribution/allocation, and utilization of scarce money/fund resources --- ### CHAPTER 2 | SLIDE 6 ## Finance Tasks 1. Allocating available funds - determining where to use funds currently available to the firm. 2. Acquiring needed funds – obtaining funds from the right sources at the right time. 3. Utilizing acquired funds - using the funds to achieve set goals. --- ### CHAPTER 2 | SLIDE 7 ## CLASSIFICATION OF FINANCE **A. As to Form of Negotiation** 1. *Direct Finance* - involved in direct borrowing with direct relationship between borrower and lender. 2. *Indirect Finance* - involves the use of financial intermediaries. --- ### CHAPTER 2 | SLIDE 8 **B. As to User** 1. *Public Finance* - revenue and expenditure patterns of the government. 2. *Private Finance* - finance other than public finance. a. Personal finance - conducted by consumers/individuals. b. Finance of non-profit organizations - conducted by non-profit organizations. c. Business finance - conducted by businesses or enterprises for profit. --- ### CHAPTER 2 | SLIDE 9 ## FINANCE IN THE BUSINESS WORLD * **Business** - any lawful economic activity that involves rendering service, trading, manufacturing, construction, mining, and financial entities; uses and performs finance functions. * **Efficiency** - the relationship between input and output; getting something done at the least cost, time, and effort. * **Effectiveness** - a measure of quality; producing the desired result. $\text{Efficiency + Effectiveness = Productivity}$ --- ### CHAPTER 2 | SLIDE 10 ## TYPES OF BUSINESS ORGANIZATIONS **A. As to Nature or Purpose** 1. Service 2. Trading/merchandising 3. Manufacturing 4. Banking and finance 5. Mining/extractive industry 6. Construction 7. Genetic industry (agriculture, forestry, and fishing/fish culture) --- ### CHAPTER 2 | SLIDE 11 1. Service - rendering service (e.g., barber shops, dental/medical clinics, laundry shops). 2. Trading - buying and selling goods (e.g., sari-sari stores, hardware stores, department stores). 3. Manufacturing - buying raw materials and converting them into finished products (e.g., Procter and Gamble, San Miguel Brewery, BFGoodrich, Sterling). 4. Banking and Finance – using money as the main object (product) of the business (e.g., BDO, PNB, credit card companies, credit unions, savings and loan associations, insurance companies). --- ### CHAPTER 2 | SLIDE 12 5. Mining or extractive industries - extracting natural resources like oil, gas, gold, copper, cement, etc. (e.g., Caltex (Philippines), Inc., Nido Petroleum Philippines Pty., Ltd., Japan Petroleum Exploration Co., Ltd, Vulcan Industrial and Mining Corporation) 6. Construction companies - building houses, buildings, schools, roads, bridges, etc. (e.g., F.F. Cruz and Company, JAO Builders, V. V. Soliven, CM Builders, Inc., DM Consunji, Inc.) 7. Genetic industries – production or multiplication and reproduction of certain species of plants and animals, either for sale or for production of bio-products like wool, leather, medicinal herbs, etc. --- ### CHAPTER 2 | SLIDE 13 **B. As to Ownership** 1. Sole or Single Proprietorship 2. Partnership 3. Corporation 4. Cooperative * Business Entity Concept - irrespective of ownership, the business is separate and distinct from the owner(s). --- ### CHAPTER 2 | SLIDE 14 1. **Single/Sole Proprietorship** * a business unit owned and controlled by a single individual referred to as a sole/single proprietor | Advantages | Disadvantages | | :----------------------------- | :------------------------------------------ | | * ease of formation | * unlimited liability | | * needs only minimum capitalization | * limited access to capital | | * sole decision maker | * limited skills, talents, and capabilities | | * easy to terminate | * inability to attract or retain good employees| | | * limited term of existence (short life) | | | * difficulty in measuring success | | | * personal problems may hinder operation/success| --- ### CHAPTER 2 | SLIDE 15 2. **Partnership** * An association of two or more persons who have agreed to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. * Two or more persons may form a partnership for the exercise of a profession. Such partnerships are called general professional partnerships. * The owners of a partnership are called partners. * The aggregate concept views the partnership as a collection of rights and responsibilities of the individual partners. * Each partner is an agent of the partnership. This means that any act of the partner within the scope of the business of the partnership binds the partnership and the other partners. --- ### CHAPTER 2 | SLIDE 16 Nature of a Partnership * easier to form than a corporation * allows the pooling of resources for some common purpose(s) * employed not only for small operations, but also for large-scale operations * may be composed of two partners only or dozens of partners * contractual in nature; can be formed either by an oral contract or by a written contract --- ### CHAPTER 2 | SLIDE 17 ## Essential Requisites of a Partnership 1. A contract of partnership which may be oral or written, expressed or implied, subject to the rules contained in Art. 1771 to 1773 of the New Civil Code. 2. Two or more persons who have the legal capacity to enter into the contract of partnership. 3. Valuable contribution to a common fund which may consist of money, property, or industry. 4. An intention to divide the profits between or among the partners. 5. Lawful purpose(s) --- ### CHAPTER 2 | SLIDE 18 ## Characteristics of a Partnership 1. Mutual agency - every partner is an agent of the partnership. 2. Voluntary association - partners voluntarily join together to form the partnership; no one is forced to become a partner. 3. Based on contract - the agreement of the partner, be it oral or written, is the essential requisite for partnership formation. 4. Limited life - a partnership is dissolved upon the death of a partner, the insolvency of a partner, the termination of the project or purpose or the time for which the partnership was formed, and the admission of a partner. --- ### CHAPTER 2 | SLIDE 19 5. Unlimited liability - since there is always a general partner in any partnership, the liability of the partnership extends to the personal assets of the general partner. 6. Division of profit - basic reason for forming a partnership and should be contained in the agreement; otherwise, it would be based on their capital contribution. 7. Co-ownership of contributed assets - any asset invested or contributed by a partner to the partnership becomes the property of the partnership; hence, the common property of all the partners. --- ### CHAPTER 2 | SLIDE 20 | Advantages of a Partnership | Disadvantages of a Partnership | | :------------------------------------- | :----------------------------- | | * ease of formation | * limited life | | * allows pooling of financial resources| * unlimited liability | | * allows pooling of skills, expertise, and experience | * mutual agency | | * less government control, supervision, and intervention than corporations| --- ### CHAPTER 2 | SLIDE 21 ## Organizing a Partnership * A partnership may be constituted in any form, except: * where the capital of the partnership is three thousand pesos or more, in which case the contract of partnership shall appear in a public instrument which must be recorded in the Office of the Securities and Exchange Commission (SEC); * where immovable or real rights are contributed into the partnership, in which case a public instrument shall be necessary; and * a limited partnership, which must be registered with SEC. --- ### CHAPTER 2 | SLIDE 22 ## Registration with the SEC 1. Filing of business name with the SEC. 2. Submission of the following to the SEC: a. Articles of Co-Partnership; b. Verification slip for the business name; c. Written undertaking to change business name, if required; d. TIN of each partner and/or that of the partnership; e. Registration data sheet for partnership in six copies; and f. Other documents that may be required. 3. Pay the registration/filing and miscellaneous fees. 4. Forward documents to the SEC Commissioner for signature. --- ### CHAPTER 2 | SLIDE 23 ## Contents of the Articles of Co-Partnership 1. Name, nature, purpose, and location of business 2. Names of the partners, indicating whether they are limited or general and their corresponding addresses and citizenship 3. Amount of cash, a description and agreed value of any other property to be originally contributed by each partner, and any additional contribution that may be made by the partners 4. Term or duration of the partnership; date the partnership should commence or end 5. Duties, rights, and powers of each partner 6. Manner of dividing profits/losses among the partners --- ### CHAPTER 2 | SLIDE 24 7. Conditions under which the partners may withdraw money or other assets for personal use 8. Provisions as to whether salaries and/or interests on partners' capitals shall be allowed or not 9. Manner of keeping the books of accounts, length of the accounting period, and the date it should commence or end 10. Provisions pertinent to dissolution 11. Provisions pertinent to liquidation 12. Other special provisions and stipulations --- ### CHAPTER 2 | SLIDE 25 ## Types of Partnerships as to Liability of Partners 1. General Partnership (as to liability) – all of the partners are general partners, that is, no partners are limited partners. 2. Limited Partnership – at least one (but not all) is a limited partner. There should be at least one general partner to assume unlimited liability. --- ### CHAPTER 2 | SLIDE 26 ## Types of Partners **A. As to Liability** 1. *General Partner* - his liability extends up to his personal assets. 2. *Limited Partner* – his liability extends up to his interest in the partnership only. **B. As to Investment** 1. *Capitalist Partner* – invests money or property. 2. *Industrial Partner* – invests skill, talent, or knowledge. 3. *Capitalist-Industrial Partner* - invests money or property, and skill, talent, or knowledge. --- ### CHAPTER 2 | SLIDE 27 4. **Corporation** * an artificial being, organized in accordance with the provision of law in which ownership is divided into shares of stocks * 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 (Corporation Code of the Philippines) * required to be organized by five or more persons, called incorporators * shareholders or stockholders are the owners of a corporation which include the incorporators --- ### CHAPTER 2 | SLIDE 28 ## Characteristics of a Corporation 1. Separate legal existence (artificial being) 2. Created by operation of law 3. Transferable units of ownership 4. Limited liability of stockholders 5. Continuity of existence 6. Centralized management by the Board of Directors --- ### CHAPTER 2 | SLIDE 29 ## Advantages of a Corporation * legal capacity * limited liability of shareholders * transferability of shares or right of succession * continuity of life of the corporation * greater ability to acquire funding * greater ability to acquire talents, skills, and expertise --- ### CHAPTER 2 | SLIDE 30 ## Parties to a Corporation 1. Corporators - include the incorporators, the other stockholders, or members (for non-stock corporation). 2. Incorporators – founders (five, but not more than fifteen). 3. Stockholders/shareholders - those who own shares of stocks. 4. Members - corporators of a non-stock corporation. 5. Promoters - find potential incorporators or stockholders for the corporation being formed; prepare the prospectus to invite investors and sometimes work to obtain the charter or approval of the Articles of Incorporation. --- ### CHAPTER 2 | SLIDE 31 * Board of Directors (not less than five nor more than fifteen) - governing body of the corporation; elects the Chairman of the Board and the corporate officers; formulates the overall policies of the corporation. * Corporate Officers - officials of the corporation including the President, the Vice Presidents, the Treasurer, the Corporate Secretary, etc. --- ### CHAPTER 2 | SLIDE 32 ## Incorporation and Organization of a Corporation 1. Promotion - bringing together of the incorporators and persons interested in forming the corporation and procuring subscriptions or capital for the corporation. 2. Incorporation - process of formally organizing the corporation, which includes: a. registration of business name with the SEC b. drafting and execution of the Articles of Incorporation c. execution of sworn affidavits and bank deposit certificate d. filing of the Articles of Incorporation with the SEC e. issuance by the SEC of the Certificate of Incorporation --- ### CHAPTER 2 | SLIDE 33 3. Formal Organization and Commencement of Business Operations - includes the following: * adoption of By-laws * election of the Board of Directors * election of officers * commencement of business operations --- ### CHAPTER 2 | SLIDE 34 ## The Articles of Incorporation 1. Name of the Corporation 2. Specific purpose(s) for which the corporation is formed 3. Location or principal place of business (should be in the Philippines) 4. Term for which the corporation is to exist (not exceeding fifty years) 5. Names, nationalities, and residences of the incorporators 6. Names, nationalities, and residences of the persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with the Code --- ### CHAPTER 2 | SLIDE 35 7. In case of stock corporations, the amount of authorized capital stock, the number of shares into which it is divided, and the par value of each share (in case of par value shares) 8. In case of sto