Production: Factors and Firm Types
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Transcript of Production: Factors and Firm Types
PRODUCTIONPrepared by Sue Quirante for RTPM-DSHS
All lifted copyrighted content were used in the spirit of Fair Use to teach economics concepts in a public school setting. This material may not be used for commercial purposes.Last edited October 15, 2016
PRODUCTIONPutting together different inputs
(factors of production) to create a product or service
factors of productio
n
production
product&
by-product
Factors ofProduction
So I coined
a word. :3
LABOR / PAGGAWA
Upton Sinclair
different from money money is used simply to
purchase goods and services for consumption
capital is more durable and is used to generate wealth through investmentex. equipment, financial
capitaldifferent from intermediate
goods that get used up in production
Capital (Investopedia)
an input that can be used to create wealth
besides being used in production, capital can be rented out for a monthly or annual fee to create wealth
Capital (Investopedia)
Capital does not exist until it is produced.
To create wealth, capital must be combined with labor.
When people invest in capital by foregoing current consumption, they can enjoy greater future prosperity. (investment)
ENTREPRENEUR/ENTERPRISE
Let’s get
down to
business!
RENTINTEREST
WAGE
PROFIT
FACTOR PAYMENTSTypes of Income
ACTIVITY 1 SAMPLE
ACTIVITY 2 INSTRUCTIONS
Pick a strip of paper.Find other factors of production which
can join you to make a good or service.Once you have found fellow FOPs,
paste your strips on a ¼ sheet of paper.
Label each FOP appropriately: LAND, LABOR, CAPITAL or ENTREPRENEUR.
Write the product at the back.
There are
four!
Types ofBUSINESS FIRMS
BUSINESS FIRM
An entity that employs the factors of production (resources) and produces goods and services to be sold to consumers or firms of the government.
BUSINESS FIRM types
1.sole proprietorship/sole trader
2.partnership3.corporation4.cooperative
1 sole proprietorship
owned and controlled by a single individual
1 sole proprietorship
advantage
freedomsimple, easy and fast set up
inexpensive (capital requirement is small)lesser business documents are required
conflicts are minimized
disadvantage
unlimited liabilityproprietor and company are legally the same
company’s liabilities are also the proprietor’s personal obligations, exposing you to great risks
disadvantage
”The law does not afford protection to the personal assets of the entrepreneur from claims against his business.”
disadvantage
short-termno continuity of existence beyond the proprietor’s lifespan
2 PARTNERSHIP
formed by 2 or more individuals called partners, binding themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves
2 PARTNERSHIP example
2 PARTNERSHIP
income is equally divided among partners, unless there is a written provision that dictates otherwise
2 PARTNERSHIP
main investor and one personally liable is called the general partner
2 PARTNERSHIP
the others are called limited partners because they have only limited liability, as if they were shareholders in a corporation
2 PARTNERSHIP
registration with the Securities and Exchange Commission (SEC) takes between 5-8 days and the requirements are similar to that of a corporation
DISADVANTAGE
quarrels between partners may occur
unlimited liabilityshort-term
3 CORPORATION
an artificial person created by law (vs a natural person)
registered in the SEC (for as low as P5000 in paid-up capital)
minimum of 5 incorporators
3 CORPORATION defined
“A corporation is 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.”
~The Corporation Code of the Philippines
3 CORPORATION example
3 CORPORATION example
Universal Robina Corporation
3 CORPORATION example
disadvantage
larger amount of expenses and effort required in set up and maintenancearticles of incorporation, and other documentary
requirementscorporate acts must be supported by board
resolutionmaintenance requirements (reports, etc.)
disadvantage
double taxationcompany’s income as well as shareholder’s income (dividends)
advantage
limited liability“the law affords the corporation a personality separate and distinct from that of its stockholders”
advantage
limited liabilityveil of corporate fiction“any claim against a corporation is limited only to whatever the corporation’s assets can satisfy”
advantage
limited liability“you will not be liable beyond your investment in the corporation”
advantage
long-terma corporation can exist even after the death of its stockholders because of the separate personality granted to it by law
advantage
relatively easier to get additional financial capital for itinitial public offering (sale of stocks)use other people’s money to expand businessshareholders invest in order to get:
a) dividendsb) stock appreciation (sell shares for higher
price)
3 CORPORATION types in the Philippines
1. stock• have capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or allotments of the surplus profits
3 CORPORATION types in the Philippines
2. non -stock• all other foundations, educational institutions,
non-profit organizations, and associations registered as corporations
Publicly-held vs Privately-held
Privately-held Corporationshares are owned by company’s founders, management, private investors, family or friends of the business
Publicly-held Corporationa portion of shares were sold to the public via
an initial public offering
examples of privately-held companies
Mars, Inc.
examples of privately-held companies
local example:Uymatiao Trading Corporation
examples of publicly-held companies
examples of publicly-held companies
Look up http://whoownsfacebook.com/ for a more complete list of the biggest shareholders of Facebook
Special case: GOCCs
government-owned and controlled corporations (GOCCs) are stock or non-stock corporations established by a special charter or law for the interest of everyone and subject to the test of economic viability. It is owned or controlled by the government directly, or indirectly through a parent corporation or a subsidiary corporation.
important terms
holding companymay be a parent corporation, limited liability
company or limited partnership that owns enough voting stock (shares/interest) in another company to control its policies and management
important terms
subsidiarypartly or completely owned by another
company that holds a controlling interest in the subsidiary company
conglomeratea corporation that is made up of a number of
different, seemingly unrelated businesses
example85.4%57.24%
parent corp. / holding co.
subsidiary
example
Filipino Conglomerates
important terms
multinationaltransnational corporationhas its facilities and other assets in at least one
country other than its home countryhave offices and/or factories in different
countries and usually have a centralized head office where they co-ordinate global management
examples
4 Cooperative
a farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits
in the Philippines, monitored by the Cooperative Development Authority
4 Cooperative
Watch the video Introduction to Cooperatives by the Singapore National Co-operative Federation:
https://www.youtube.com/watch?v=rtzuz2j9LI4
4 Cooperative
Also watch the video What is a Co-operative? by Co-operatives UK:
https://www.youtube.com/watch?v=90FL_bBE4mw
4 Cooperative
An example of a cooperative is electric cooperatives. Watch the video The Electric Cooperative Story by NRECA:
https://www.youtube.com/watch?v=tenKnIx4ouY
local example
Student Questions!
What is franchising?refers to the method of practicing and using another’s perfected business concept
the franchisee is granted the right to market a product or a service under a marketing plan or a system that uses the trademark, name, logo and advertising owned by the franchisor
Question!
What is a franchise?FinLit explains what is a franchise in this video
called How Does Franchising Work?https://www.youtube.com/watch?
v=EmjA6O2HIus
Student Questions!
If you want to know more:Planning on a Partner for Your Franchise? Here are
some Pro’s and Con’s. http://www.franchiseknowhow.com/buying_franchise/
partner.htmDoes it Matter How You Own Your Franchise?
http://www.franchising.com/articles/does_it_matter_how_you_own_your_franchise.html
Student Questions!
What type of business is Avon?
Student Questions!
What type of business is Avon?
This tells us it started out as a partnership.
Question!
What type of business is Avon?
It later became a corporation.
Student Questions!
equityvalue of the shares issued by
a companyoperating income OI = Gross Income -
Operating Expenses - Depreciation & Amortization
Student Questions!
net incomenet earnings, net profit,
“bottom line”income minus cost of goods
sold, expenses and taxes
Video Reflection
Watch: https://www.youtube.com/watch?v=_zwh9dPyidA1. What qualities did the character(s) possess
that are essential characteristics of entrepreneurs?
2. Do you have these characteristics already?a. Yes? Cite a situation that proves you have
these characteristics. Were you born this way or did you learn it? Explain.
b. No? Think of three ways a student like you could learn how to become an entrepreneur. Which of these can you do right now? Explain.
References
-. (2011). “Personal Exemptions for Income Tax in the Philippines.” Tax & Accounting Center, Inc. Retrieved from http://taxacctgcenter.org/personal-exemptions-for-income-tax-in-the-philippines/
-. (2013). “Sole Proprietorship, Corporation or Partnership: Choosing your business enterprise”. Nicolas & De Vega Law Offices. Retrieved from http://ndvlaw.com/sole-proprietorship-corporation-or-partnership-choosing-your-business- enterprise/
-. (2015). “What are Capital Goods?” wiseGEEK. Retrieved from http://www.wisegeek.org/what-are-capital-goods.htm Abrugar, Victorino. (2011). “What are Deductions and Exemptions to Income Tax (Philippines). BusinessTips.ph. Retrieved
from http://businesstips.ph/what-are-deductions-and-exemptions-to-income-tax-philippines/ Anlacan, Ruben, Jr. (2013). “Be A Sole Proprietorship, Partnership Or Corporation?”. BusinessCoach, Inc. Retrieved from
http://www.businesscoachphil.com/be-a-sole- proprietorship-partnership-or-corporation Corporation Code of the Philippines, B.P. 98 (1980) Department of Education. (2015). Ekonomiks 10: Araling Panlipunan – Modyul para sa Mag-aaral. Philippines: Vibal Group,
Inc. Department of Finance. (2011). “What are GOCCs?” Department of Finance. Retrieved from http://www.dof.gov.ph/?
page_id=1530 Investopedia Staff. (2015). “Capital”. Investopedia. Retrieved from http://www.investopedia.com/terms/c/capital.asp Investopedia Staff. (2015). “What’s the difference between publicly- and privately-held companies?” Investopedia.
Retrieved from http://www.investopedia.com/ask/answers/162.asp Pamaos, Fred B. (2007). “Forms of Business: Sole Proprietorship, Partnership, Corporation”. Philippine e-Legal Forum.
Retrieved from http://jlp-law.com/blog/forms-of-business-sole-proprietorship-partnership-corporation/ Online Educational Videos, links are indicated in the slides