Chapter 1: Business in General PDF

Chapter 1: Business in General Organizations are group of individuals who are working together to achieve a common goal. More contemporary definition places organizations as “structural relationship between various factors in the enterprise. The structural factors...

Chapter 1: Business in General Organizations are group of individuals who are working together to achieve a common goal. More contemporary definition places organizations as “structural relationship between various factors in the enterprise. The structural factors are what are called the five M’s – Man, Materials, Machine, Methods and Money. FOUR CHARACTERISTICS COMMON TO ORGANIZATIONS: 1. Coordination of effort As the old saying goes. “two heads are better than one,” when individuals join together and coordinate their mental and physical efforts, great and exciting things can be accomplished. 2. Common goal or purpose Coordination of efforts cannot take place unless those who have joined together agree to strive for something of mutual interest. A common goal or purpose gives organization members a rallying point. 3. Division of labor By systematically dividing a complex task into a specialized jobs, an organization can efficiently use its human resources. Division of labor permits each organization member to become more proficient by repeatedly doing the same specialized task. 4. Hierarchy of authority According to traditional organization theory, if anything is to be accomplished through formal collective effort, someone should be given authority to see that the intended goals are carried out effectively and efficiently. Two useful ways of classifying organizations are by purpose and by technology. In regard to purpose, organization can be classified as: 1. Business: Business organizations like SMART Telecommunications, Philippine Airline and the Philippine Daily Inquirer, all have underlying purpose to make profit in a socially accepted manner. Businesses cannot survive, let alone grow, without earning a profit, and profits are earned by efficiently satisfying demand for products and services. 2. Non-profit service: Unlike businesses, many organizations survive and even grow, without making any profit at all. They need to be  solvent, of course, but they measure their success not in peso or dollars, but how well they provide a specific service for some segment of society. 3. Mutual benefit organization: Often as in the case of labor unions, or political parties, individuals join together strictly to pursue their own self-interest. Like all other types of organizations, mutual benefit organizations must be effectively and efficiently managed if they are to survive. Survival, in this instance, depends on satisfying the needs of the members. 4. Commonweal organization: Like non-profit service organizations, commonweal organizations, offer public services. But, unlike non-profit service organizations, a commonweal organization offers standardized service to all members of a given population. What Is Business? Business is defined as an organized effort of individual to produce and sell goods in order to satisfy the needs of society. Business primarily aims to satisfy the consumer’s basic and secondary needs. Profit is the main objective of business which distinguishes it from charitable institutions and government agencies. Relationship Between Business and Economy Basically, the role of business is to produce goods and services which consumer need. The business firm produces goods and services from the factors of production provided by society. Consumers, in return, buy these goods and services. Business firms thus contribute to the country’s economic growth. The Elements of A Business System Economics is the study of how a society produces and distributes its desired goods and services. It deals with how society uses its resources to produce goods and services. These economic resources to produce are called factors of production. They are land, labor, capital, and the entrepreneur. Land pertains to all natural resources. Labor refers to the physical and mental efforts of the people who produce the goods and services. Capital includes all man-made resources used in the production of goods and services. The entrepreneurs or the businessman buys and organizes these factors of production to come out with business that will eventually provide goods and services to the econ Why People Engage in Business 1. Social approval – the businessman has a high social standing in the community. It used to be that society looked with greater favor upon the soldier, landlord, doctor and lawyer. 2. Profit – the major factor of motivation for going into business is profit. 3. Service to the community and to employees – many businessmen render service to the community in donating money, sponsoring civic activities, setting up facilities for community needs, or providing opportunities for employment. 4. Personal satisfaction – this personal satisfaction comes about from the social status conferred on those engaged in business. 5. Livelihood – people go in business to earn a living. 6. Power – some people enter into businesses because they expect to rise to position of prestige, power, and leadership. 7. Protection – there are a number of instances where individuals inherit businesses, and, with the apprehension of suffering from loss through selling it, decide to run the business themselves and also for financial security in the future. KINDS OF BUSINESSES 1. Commerce refers to the transfer or exchange of goods and services with the movement of goods from point of production to point of consumption. 2. Industry is primarily concerned with the production of goods, that are used by the consumers, called consumer goods, or, that are used by other industries in the further production of other goods, called industrial or producer goods. 3. Service is the third classification of businesses. These enterprises cater to personal needs of people, or with the rendering of a personal service. LEGAL FORMS OF BUSINESS OWNERSHIP 1. Sole/single proprietorship. A form of business is owned by one person; the simplest, and the most common form of business organization. Advantages of sole/single proprietorship  The owner keeps all the profits.  The owner makes all the decisions.  It is easy to form and operate.  Disadvantages of sole/single proprietorship. The life of the business is limited to the life of the owner. Once the owner dies, the business will cease to operate under the name of the proprietor. The amount of capital is limited only by the wealth of the proprietor. 2. Partnership- A form of business owned by two or more persons. The details of the arrangement between the partners are outlined in a written document called articles of partnership. Profits are divided among partners based on their agreed sharing. The owner is called a partner. Advantages of a partnership Higher capital because two or more persons will contribute to the common fund. It is easy to operate like a sole/single proprietorship Disadvantages of a partnership The profits are divided among the partners. A partner can be held liable for the acts of the other partners. In a lawsuit, the personal properties of the partners can be held beyond their contributions and may be used to answer for any liability of the partnership. 3. Corporation(profit)- A corporation is a business organized as a separate legal entity (artificial person) under the corporation law with ownership divided into transferable shares of stocks. The owners are called stockholders/shareholders. Advantages of a corporation Can easily raise additional funds by selling shares of stocks to the public. Shareholders are not personally liable for the debts of the corporation. The extent of their liability is limited to their equity (ownership) in the corporation.  Disadvantages of a corporation It is relatively complicated to set up. Subject to several legal restrictions as listed in the Corporation Code of the Philippines 4. Cooperatives(non-profit) - A cooperative is a duly registered association of persons with a common bond of interest, voluntarily joining together to achieve their social, economic and cultural needs. Advantages of a cooperative Enjoys certain tax exemption privilege Promotes the concept of sharing resources Disadvantages of a Cooperative Limited distribution of surplus Requires continuous education programs for members. The members have active and direct participation in the business of the cooperative.