BUSINESS

- distribution and exchange of all the surplus goods produced in the fields, seas, forests and factories of the earth so that they reach the final consumer in the right place and at the right price.

- any legal activity undertaken on a continuous basis which involve manufacturing, selling/marketing, financing or the creation of service with the objective of obtaining profit

- any activity where resources are invested in anticipation of profit.

Elements of BusinessEconomic activityInvestment of resourcesPricesProfitsRisks

Types of Risks

PhysicalNature (characteristics)Changes in government or

legislaturePersonal and financial statusTheftPhysical distribution

Factors which affect the choice of a particular business The only available opening Available funds Special aptitude or interest Social status Competitive situation Location Social values of the community Potential and present demands

Reasons why people go into business Social approval (prestige) Profit Service to the community Personal satisfaction Livelihood Power Protection and economic security Status Experience, training, and education To exercise one’s profession

Causes of business failure

Poor management Undercapitalization Poor planning Legal problems Accounting problems Lack of frugality Underestimating the competition Location Incapable or dishonest workers Economic conditions

Classification of Business

1. As to activity Industry Commerce Finance Service

2. As to size Micro Small scale Medium scale Large scale

3. As to ownership Sole proprietorship Partnership Corporation Cooperative

1. As to activity

a. Industryconcerned with production, the application of labor upon raw materials so that greater usefulness becomes possible after the processing;

conversion of raw materials into finished products or goods

1. Extractivedraw their products from nature or natural resources

2. Manufacturingwork on raw materials and supplies turned out by the extractive industries;change these materials into various articles; or for further processing either by altering their form to increase their usefulness or combine them with new products

1. As to activity

1. As to activity

b. Commerceactivity that makes available to the buyer the goods he would like to acquire

c. Financeactivity which specializes in providing investment capital or working capital;engaged in capital formation and extending the capital formed to others for wise expenditure

1. As to activity

d. Servicethose which serve the public or

community service in general on a community or national basis

those which may be termed professional or trade services who capitalize on personal talent rendering services in the manner preferred by the client

Receives payment in the form of fees

2. As to size

a. Micro Not more than P3M

1 - 10

b. Small scale P3,000,000 – P15M

11 - 99

c. Medium scale

P15,000,001 –P100 M

100 - 199

d. Large scale Above P100M 200 above

3. As to ownership

a. Sole Proprietorshipthe simplest and oldest form of organization

One man organization Proprietor sole responsible for all the

activities and liabilities of the firm Proprietor and business are one Particularly successful in

Retailing Craftwork Service of a personal nature

Advantages

Simplicity and flexibility of control and movement

Personal income tax Presence of personal elements Secrecy Easy to start, expand or terminate Only small amount of capital is required Profit belongs entirely to the owner Few legal requirements

Disadvantages

Unlimited liability Limited capital and credit accommodation Lack of all around business ability Lack of opportunity for employees Lack of continuity Long and irregular working hours Lack of provision for retirement Limitation upon the extent to which its

powers can be delegated

b. Partnership

Two or more persons bind together to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves

Control of business is held jointly by the partners, in the absence of limiting agreement among the partners, the power of control of management is held equally divided; equal voice in the management, equal shares in profit and loss.

Relationship is based on an agreement either written or oral.

Partnership Agreement or Articles of Partnership must include the following:

Name of firm Location and type of business Length of life of the Partnership Agreement Names of the partners and investment made

by each Distribution of profit and loss

Provision for salaries of partners Agreement on the amount of interest to be

allowed on capital and drawing account balances

Limitation on withdrawal of funds Provision of an accounting system and

fiscal year Method that will be followed in case of

withdrawal of a partner from the firm and other causes of dissolution

Disadvantages

Larger amount of capital Access to greater or better credit facilities Combined judgment and managerial skills Retention of valuable employees Personal interest in business It could be as easily formed as the single

proprietorship There are more persons to handle the

problems of the business Generally free from government control

Disadvantages

Unlimited liability of the general partner, limited for limited partner

Disagreement among partners Difficulty in assigning managerial

responsibilities Group commitment Easily and unexpectedly terminated Lack of continuity

Kinds of Partnership Extent of Liabilities

General Partnera partner who has unlimited liability for the debts of the firm

Limited Partner a partner of a limited partnership who does not

assume responsibility for the debts beyond the amount of his investment

As to participation in management Secret – active, not known Silent – not active, known Dormant or sleeping – not active, not known Nominal – not a partner

As to share of profits/investment Senior Junior Capitalist Industrial

c. Corporation

An artificial being created by operation of law having the right of succession and the power, attributes, properties, expressly authorized by the law or incident to its existence.

Board of directors are elected by the members to fix the policies and conduct of affairs of the company

Operates through delegated authority and responsibility

Life is 50 years an renewable Upon issuance of SEC certificate, the

corporation has start operation within 2 years or the operation would close

Advantages Ease of acquiring large amount of capital Continuity of life of the business Easy to transfer ownership Limited liability of shareholders Ease of expansion Legal entity or legal identity Efficiency of management

Disadvantages More government legal restrictions and

intervention More tax liabilities Greater organizational expenses Lack of secrecy Lack of personal interest Lesser management flexibility than sole

proprietorship

Parties involve in a Corporation Incorporators

Corporators

Stockholders

Members

Kinds of Corporation Stock

Non-stock Profit

Non-profit Open

Close Public

Private Domestic

Foreign

d. Cooperative A voluntary business organization formed

by its members or patrons for the purpose of collectively carrying on a business activity that directly benefit its members

It is a non-profit, owned, managed and democratically controlled on a mutual basis by its members.

Profit is called savings CDA

Principles of Cooperative Open membership Democratic control One man, one vote Limited interest on capital Patronage refund Neutral to political, religious, or other

controversial matters Education to members expansion

Types of Cooperatives Consumer cooperative

Credit or finance

Producer cooperative

Marketing

Multipurpose

Differences between cooperatives and corporations

Factors Corporation Cooperative

Objective/purpose

profit Service to its members

Control on management of the organization

Election of Board of Directors based on the # of sharesProxy allowed

One man, one vote

Distribution of earnings

Based on the # of shares held

Based on the volume of purchase made with the coop

Other types of business ownership Franchising Merger/integration

Horizontal Vertical Lateral Amalgamation

Holding Company Multinational Companies Joint Venture

Franchising – is where a company helps to establish people in business using its name and products or processes. This is a more recent and rapidly growing form of business ownership.

Merger or integration – two or more firms combine together to form a larger unit

Holding company are formed just to take a controlling interest in other firms