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THE NATURE AND FORMS OF

BUSINESS ORGANIZATION
OBJECTIVES
At the end of the lesson, the students should be able to:
1. Define and describe business and business organization;
2. Identify and describe the various forms of business
organization: sole proprietorship, partnerships, and
corporations;
3. Compare and contrast the various forms of business
organization; and
4. Illustrate the role of each form of business organization in
the country.
BUSINESS AND BUSINESS
ORGANIZATIONS
Business – is an activity that is part and parcel of human
society: it is an entity in which economic resources and
inputs, such as materials and labors, are put together and
processed to provide goods or services or outputs to
customers.
MAJOR ACTIVITIES OF BUSINESS:

• Purchasing
• Manufacturing
• Marketing
• Advertising
• Selling
• Accounting
• Objective of most businesses is to earn a profit.

• Profit – the difference between the amount earned and the


amount spent in buying, operating, or producing
something.
TYPES OF BUSINESS ORGANIZATIONS
OPERATED FOR PROFIT:
1. Service business – provide services rather than products to
consumers.
2. Merchandising business – sell product they purchase from
other business to consumers.
3. Manufacturing business – change basic inputs into
products that are sold to customers.
FORMS OF BUSINESS
ORGANIZATION
1. Sole proprietorship – a business owned by one person.
Advantages:
a. total undivided authority
b. low organizational cost and license fees
c. tax savings
d. no restrictions on type of business(as long as it is
legal)
FORMS OF BUSINESS
ORGANIZATION
Disadvantages of sole proprietorship:
a. unlimited liability
b. limitation on size (and thus fund-raising power)
c. limited by management’s ability to be jack-of-all-
trades
FORMS OF BUSINESS
ORGANIZATION
2. Partnership – an association of two or more people as
partners ; it refers to an arrangement in which the individuals
share the profits and liabilities of a business venture.
Characteristics: a. association of individuals
b. mutual agency
c. limited life
d. unlimited liability
e. co-ownership of property
FORMS OF BUSINESS
ORGANIZATION
• Partnerships have a limited life.
• Partnership dissolution occurs whenever a partner withdraws
or a new partner is admitted.
• Each partner has unlimited liability.
• Each partner is personally and individually liable for all
partnership liabilities.
FORMS OF BUSINESS
ORGANIZATION
3. Corporation – an entity created by law that is separate
and distinct from its owners and its continued existence is
dependent upon the corporate statutes of the state in which
it is incorporated.
FORMS OF BUSINESS
ORGANIZATION
Characteristics that distinguish a corporation from
proprietorships are:
a. The corporation has separate legal existence from its
owners.
b. The stockholders have limited liability.
c. Transferable ownership rights (ownership is in shares of
stock)
d. Ability to obtain capital
e. The corporation can have a continuous life.
FORMS OF BUSINESS
ORGANIZATION
f. The corporation is subject to numerous government
regulations.
g. The corporation must pay an income tax on its earnings,
and the stockholders are required to pay taxes on the
dividends they receive: the result is double taxation of
distributed earnings.
h. An artificial/judicial person endowed with ability for self-
management, that is, the management structure is at the
discretion of the board of directors.
FORMS OF BUSINESS
ORGANIZATION
• The first step in forming a corporation is to file an application
of incorporation with the government ( in the Philippines, this
is done through the Securities and Exchange Commission or
SEC).
• After the application of incorporation has been approved,
the corporation is granted a charter or articles of
incorporation.
• The corporate management and board of directors then
prepare a set of bylaws, which are the rules and procedures
for conducting the corporation’s affairs.

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