Fabm1

• Business is an activity where goods or services are exchanged for money
• Entrepreneur or businessman is a person engaged in business
• Forms of Business Organizations:

  • Sole or Single Proprietorship is a business owned by only one individual
  • It is the most common and simplest form of a business organization
  • The business owner is called a "sole proprietor"
  • Sole proprietorship is registered with the Department of Trade and Industry
• Advantages of Sole Proprietorship:

  • You are the boss and keep all the profits
  • Decision making is simple because you have complete control over the business
  • Relatively easier and less costly to form due to fewer formal business requirements
  • Lower extent of government regulation and relatively lower taxes
• Disadvantages of Sole Proprietorship:

  • You assume all the risk of loss
  • You take all the responsibility and rely mostly on yourself in making decisions
  • More difficult to raise funds because you rely mostly on personal assets and loans to finance the business initially
  • You are personally liable for the debts and obligations of the business
• Partnership is a business owned by two or more individuals who entered into a contract to carry on the business and divide the earnings among themselves
• Partnership is registered with the Securities and Exchange Commission (SEC)
• Advantages of Partnership:

  • Better business decisions can be made because "two heads are better than one"
  • Business risk and responsibility of running the business are shared with partners
  • Easier to form compared to corporations and cooperatives, only a contractual agreement between partners is needed
  • Lesser capital compared to corporation
  • Relatively lower extent of government regulation compared to corporations
• Disadvantages of Partnership:

  • Making business decisions may lead to conflicts among partners
  • Profits need to be shared with partners
  • Limited life, can be easily dissolved by withdrawal, retirement, death, or insanity of partners
  • Greater capital compared to sole proprietorship.
  • The partners can be held liable for partnership debts up to their personal assets
• Corporation:

  • Owned by more than one individual
  • Created by the operation of law rather than a contract
  • Ownership is represented by shares of stocks
  • Owners are called stockholders or shareholders
  • Registered with the Securities and Exchange Commission (SEC)
  • An artificial being or a juridical person, separate from its owners in the eyes of the law
  • Incorporators or founders of corporations shall not be less than 5 but not more than 15 individuals
  • A corporation can have as many stockholders as its authorized capitalization permits
• Advantages of Corporation:

  • Stockholders not on the board of directors are relieved from managerial responsibilities
  • Limited liability of owners, liable for corporate debts only up to the amount they have invested
  • Greater capital and ease in raising additional funds by issuing shares
  • Easy transfer of shares if the corporation is listed, through stock trading
  • Unlimited life, withdrawal, retirement, death, or insanity of stockholders does not dissolve the corporation
• Disadvantages of Corporation:

  • 'Say' on corporate affairs depends on the number of shares owned
  • More difficult and costly to form due to formal business requirements
  • Greater extent of government regulation and higher taxes
  • Dividends can only be received after being declared by the board of directors
• A cooperative is owned by more than one individual and is formed in accordance with The Philippine Cooperative Code of 2008
• Owners of a cooperative are called members, who join together to contribute capital and cooperate to achieve certain goals
• Members of a cooperative need to patronize the cooperative's goods or services
• If a cooperative earns profit (net surplus), a farmer can recover costs through patronage refund
• A member who has not patronized any services of the cooperative for an unreasonable period may be removed upon majority vote of the board of directors
• A cooperative must have founding members of not less than 15 individuals, but can have as many members as its by-laws permit
• A cooperative is registered with the Cooperative Development Authority (CDA)
• Advantages of a cooperative:

  • Each member is entitled to one vote regardless of shareholdings
  • Generally exempt from paying taxes
  • Easier and less costly to form compared to a corporation
  • Members are liable for cooperative debts only up to the amount they have invested
  • Withdrawal, retirement, death, or insanity of one member does not dissolve the cooperative
• Disadvantages of a cooperative:

  • Prone to poor management due to elected board of directors
  • Susceptible to corruption
  • Funds accumulated in the "reserve fund" are not returned to members upon dissolution
  • More difficult to sustain growth compared to a corporation. This is in part because of the lack of management expertise. Moreover, a cooperative's success strongly depends on the members' cooperation. The success of a business depends on continuing effort of each member.
  • Approval of the board of directors is needed before a member can transfer shares
• Service Business:

  • Offers services as its main product rather than physical goods
  • Examples include schools, hospitals, and laundry shops
• Advantages of Service Business:

  • No need to worry about inventory, warehousing, and distribution costs
  • Minimal supplies necessary in providing services
  • Small capital needed as you are selling your skill set
  • Perceived as an expert in your chosen field
• Disadvantages of Service Business:

  • May not have flexible personal time
  • Suffer from decline in demand during economic difficulties
  • Business success depends on credibility and reputation
• Merchandising Business:

  • Buys and sells goods without changing their physical form
  • Examples include grocery stores, pharmacies, and vegetable stand businesses
• Advantages of Merchandising Business:

  • Lower start-up capital compared to manufacturing firms
  • Can take advantage of price fluctuations
  • Lower cost of quality
  • Easier to start as no expertise or special skill required
• Disadvantages of Merchandising Business:

  • Need a retail store in a strategic location
  • Less flexibility in managing costs
  • Tedious inventory tracking
  • Low self-satisfaction as you did not produce the products sold
• Manufacturing Business:

  • Buys raw materials and processes them into final products
  • Examples include bakeries and cellphone manufacturing businesses
• Advantages of Manufacturing Business:

  • High growth potential
  • Opportunity to establish a lasting brand
  • High self-satisfaction
  • No need for a strategically located retail store
  • Better pricing policy due to mass production
  • Greater flexibility in managing costs
• Disadvantages of Manufacturing Business:

  • High start-up capital required
  • Conceptualizing a viable business is difficult
  • Need to be continuously innovative and abreast of technology changes
  • Reliance on raw materials
  • Managing a manufacturing business can be difficult
• Hybrid Businesses:

  • Engage in more than one type of activity
  • Classified into one of the major types based on the activity most in line with the business purpose