UNIT I

THE ROLE OF
BUSINESS IN SOCIAL AND
ECONOMICDEVELOPMENT
 CHAPTER 1:
NATURE AND FORMS OF BUSINESS
ORGANIZATION
 A. WHAT IS BUSINESS?
A business is defined as an organization or enterprising entity
engaged in commercial, industrial, or professional activities. Businesses can
be for-profit entities or non-profit organizations that operate to fulfill a
charitable mission or further a social cause.

The term business also refers to the organized efforts and activities of
individuals to produce and sell goods and services for profit. Businesses
range in scale from a sole proprietorship to an international corporation.
Several lines of theory are engaged with understanding business
administration including organizational behavior, organization theory, and
strategic management.
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
1. Sole Proprietorship
A sole proprietorship is a business owned by a single individual or, in some
cases, a married couple.

Advantage of The Sole Proprietorship Disadvantage of A Sole Proprietorship

1. Simplicity. There's no paperwork to set
one up because you quite literally are the
business.
2. There's no legal separation between you
and the company.
1. You are personally responsible for all of
the debts, taxes and other financial
obligations of the business, including
legal judgments.
2. This is known as having "unlimited
liability."
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
2. Partnership
A partnership is a company jointly owned by two or more people whose
ownership shares, rights and responsibilities should be spelled out in a partnership
agreement.
Advantage of Partnership Disadvantage of Partnership
1. Partnerships also have the benefit of 1. Partners will be taxed on the profit
simplicity. Beyond the partnership regardless of whether they actually,
agreement, there's little paperwork received that profit in cash.
involved. 2. Even if the money was reinvested in the
2. partnerships don't pay income taxes firm, they still have to pay taxes on it.
themselves. Instead, they file a tax 3. In any partnership, at least one partner
return showing how much profit they must be a "general partner" who has
made, if any, and then the partners pay unlimited liability for the business's
taxes on that profit as personal income. debts.
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
3. Corporation
A corporation is a business owned by shareholders. This form of business
ownership protects its owners with "limited liability." That means you can lose the
money you invest in the company, but beyond that, debts and other financial obligations
belong to the corporation, not to the owners.

Advantage of Corporation Disadvantage of Corporation

1. On the downside, corporations must pay 1.
income taxes on their profits.
2. Any profits distributed to the owners as
dividends get taxed again as the owners' 2.
personal income, meaning corporate
profits are subject to "double taxation."
Incorporating also involves legal
formalities, including filing articles of
incorporation with the state
Following the corporate requirements of
the state of incorporation and issuing
stock, even if you're the only
shareholder.
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
4. Limited Liability Corporation (LLC)
Limited liability companies (LLCs) in the USA, are hybrid forms of business that
have pharmaceutics of both a corporation and a partnership. An LLC is not
Incorporated; hence, it is not considered a corporation. Nonetheless, the owners enjoy
limited liability like in a corporation. An LLC may choose to be taxed as a sole
proprietorship, a partnership, or a corporation. (www.accountingverse.com).

An LLC is a limited liability company. This business structure protects the

owner's personal assets from financial liability and provides some protection
against personal liability. There are situations where an LLC owner can still be
held personally responsible, such as if he intentionally does something
fraudulent, reckless, or illegal, or if she fails to adequately separate the
activities of the LLC from her personal affairs. (www.inéestopedia.com)
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
4. Limited Liability Corporation (LLC)
Advantages of a Limited Liability
Company
1. Limited liability: As the name implies,
members' liabilities for the debts as 5. Fewer corporate formalities.
obligations of the LLC are limited to 6. Ability to use the cash method of
their own investment. accounting.
2. Pass-through taxation: For taxation 7. Ability to place membership interests in
purposes, income from your business a living trust.
be treated as your own personal 8. Ability to deduct losses.
income 9. Tax flexibility
3. Limitless ownership
4. Freedom in management
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
4. Limited Liability Corporation (LLC)

Disadvantages of a Limited Liability

Company
1. Owners must immediately recognize
profits.
2. Fewer fringe benefits.
3. Building capital
4. Higher fees
5. Lack of case law
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
5. Cooperative
Often referred to as a "co-op," a cooperative is a limited liability business that can
organize for-profit or not-for-profit. A cooperative differs from a corporation in that it
has members, not shareholders, and they share decision-making authority. Cooperatives
are typically classified as either consumer cooperatives or worker cooperatives.
Cooperative are fundamental to the ideology of economic democracy ("Business,"
2016).
A cooperative is a business organization owned by a group of individuals and is
operated for their mutual benefit. The persons making up the group are called members
cooperatives may be incorporated or unincorporated.
Some examples of cooperatives are water and electricity (utility) cooperatives, cooperative
banking, credit unions, and housing cooperatives.(www.accountingverse.com).
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
5. Cooperative

The structure of a cooperative organization ensures:

1. All members have an equal say (one vote per member, regardless
of the number of shares held).
2. Open and voluntary membership.
3. Limited interest on share capital.
4. Surplus is returned to the members according to amount of
patronage.
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
5. Cooperative
Advantages of a Cooperative Development Corporation, 2015)
Organization One member, one. vote. (Kadu,
1. Generally inexpensive to register. 2016)
(Small Business Development 4. All members must be active in the
Corporation, 2015) co-operative. (Small Business
2. A cooperative organization is Development Corporation, 2015)
owned and controlled by 5. This type of organization has a
members. (Kadu, 2016) limited liability. (Kadu, 2016)
3. Members have an equal vote at 6. Profit distribution (surplus
general meetings regardless of earnings) to members is carried on
their level of investment or in proportion to the use of service;
involvement, (Small Business surplus may be allocated in shares
or cash. (Kadu, 2016)
 B. BASIC FORMS OF
BUSINESS ORGANIZATIONS
5. Cooperative
Disadvantages of a Cooperative
5. There is usually limited distribution of
Organization
profits to members and some cooperatives
1. A cooperative organization entails longer
may prohibit the distribution of any
decision-making process. (Kadu, 2016)
surplus. (Small Business Development
2. It requires members to participate for
Corporation, 2015)
success. (Kadu, 2016)
6. Members providing greater involvement
3. It has less incentive; and there's also a
or investment than others will still only get
possibility of development of conflict
one vote. (Small Business Development
between members. (Kadu, 2016)
Corporation, 2015)
4. As co-operatives are formed to provide a
7. Extensive record keeping is necessary in
service to members rather. than a return
this form of organization. (Kadu, 2016)
on investment, it may be difficult to
8. Requires ongoing education programs for
attract potential members seeking a
members. (Small business Development
financial return. (Small Business
Corporation, 2015)
Development Corporation, 2015)
 C. BASIC
CLASSIFICATIONS OF BUSINESS
1. Service Businesses
A service type of business provides intangible products (products with no physical
form). Service type firms offer professional skills, expertise, advice, and other, similar
products. Examples of service businesses are schools, repair shops, hair salons, banks,
accounting firms, and law firms.

a. Service businesses offer intangible goods

or services and typically charge for labor
or other services provided to government,
to consumers, or to other businesses.
Interior decorators, consulting firms and
entertainers are service businesses.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
1. Service Businesses

b. Financial businesses include

banks and other companies that
generate profits through
investment and management of
capital.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
1. Service Businesses

c. Transportation businesses deliver

goods and individuals to their
destinations for a fee.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
1. Service Businesses

d. Utilities produce public services

such- as-electricity— or sewage
treatment, usually under a
government

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
2. Merchandising Businesses
This type of business buys products at wholesale price and sells the same at retail
price. They are known as "buy and sell" businesses. They make a profit by selling the
products at prices higher than their purchase costs. A merchandising business sells a
product without changing its form. Examples are grocery stores, convenience stores.

a. Retailers and distributors act as

middlemen and get goods produced by
manufacturers to the intended consumers;
they make their profits by marking up their
prices. Most stores and catalog companies
are distributors or retailers.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the
intention of using them as materials in making a new product. Thus, there is a
transformation of the products purchased. A manufacturing business combines raw
materials, labor, and factory overhead in its production process. The manufactured
goods will then be sold to customers.

a. Agriculture and mining

businesses produce raw material,
such as plants or minerals.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
3. Manufacturing Business

b. Manufacturers produce products,

either from raw materials or
from component parts, then sell
their products at a profit, for
example, cars, clothing or pipes.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
3. Manufacturing Business

c. Real-estate businesses sell, rent,

and develop properties -
including land, residential
homes, and other buildings.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
3. Manufacturing Business

d. Information businesses generate

profits primarily from the sale of
intellectual property—they
include movie studios,
publishers, and Internet and
software companies.

("Business," 2016; www.accountingverse.com)

 C. BASIC
CLASSIFICATIONS OF BUSINESS
4. Hybrid Business
Hybrid businesses are companies that may be. classified in more than one
type of business.
A restaurant, for example, combines ingredients in making a fine meal
(manufacturing), sells a cold bottle of wine (merchandising), and fills customer
orders (service).
Nonetheless, these companies may
be classified according to their major
business interest. In that case, restaurants
are more of the ice type— they provide
dining services.

("Business," 2016; www.accountingverse.com)

 THANK YOU
FOR LISTENING!
SEE YOU FOR THE NEXT LESSON
CHAPTER II
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