2. THE NATURE AND AIMS OF BUSINESS
´ WHAT IS BUSINESS?
´ Business is any lawful economic activity concerned with the production
and/or distribution of goods or services for profit. An entity is still a business if
its objective is to make profits. Businesses vary in size, as measured by the
number of employees or by sales volume
´ Characteristics of Business
´ Economic Activity
´ Business necessarily has to be an economic activity. But what exactly is an
economic activity? Any activity that gives a monetary return is an economic
activity.
´ Production or Trading of Good or Services for Sale
´ Business is interested in every activity that is concerned with the production or
purchase of goods for selling, this makes it one of the most important
characteristics of a business.
3. CHARACTERISTICS OF BUSINESS
´Economic Activity
´Business necessarily has to be an economic activity.
But what exactly is an economic activity? Any activity
that gives a monetary return is an economic activity.
´Production or Trading of Good or Services for Sale
´Business is interested in every activity that is
concerned with the production or purchase of goods
for selling, this makes it one of the most important
characteristics of a business.
4. ´ Sale or Exchange of Goods and Services
´The third and crucial one of the characteristics of business
after production or procurement is to sell that product for
the money. A sale or exchange must take place between
the seller and the buyer.
´ Regularity in Dealings
´Business is a repeatable economic activity that generates
money. For example, if you sell your old bike and it
generates money.
´ Profit Earning
´The sole purpose of business is the maximization of profit. It
steps into the market with the main objective of earning a
profit. For the survival of business in a market, generating
profit is extremely necessary.
5. ´ Risk Factor
´It is well known “Higher the risks, higher the
return”. Business attracts risk. While initiating business it is
not guaranteed 100% that the business will be successful.
´ Uncertainty of Returns
´Businessmen invest huge capital in their activities to
sustain and extract profit from the business.
´ Legal Activity
´The business has to be legal and lawful. Business is an
extremely important activity for a country but it is not
above the law.
6. ´ Objective:
´ Economic Objective of Business:
´1. Profit Earning - Business is a set of activities undertaken with the
prospect of sale for the purpose of earning a profit.
´2. Market Share / Creation of Customers - There is only one valid
definition of business purpose; to create a customer. Profits are not
generated out of thin air. They are the result of the hard work of the
businessman to satisfy the needs of the customers.
´3. Innovation & Utilization of Resources - Innovation normally means
to change processes or creating more effective processes, products
and ideas.
´4. Increasing Productivity - Productivity is a scale to measure the
efficiency of the business activity. It is usually the last objective but
just as important because productivity is measured by the output
given by the activities. It is the end result of any business activity.
7. ´ Objective:
´ Social Objective of Business:
´1. Providing Goods & Services at Reasonable Prices - Business exists in
the first place to satisfy the needs of the society. It’s the first and major
social objective of the business.
´2. Employment Generation - Business generates employment.
Therefore, it is the social objective of a business to give chances to
beneficial employment to individuals of the society.
´3. Fair Remuneration to Employees - The people on the inside of the
business are more valuable i.e. employees. They are an asset of the
business and make a ground-breaking contribution to the business.
´4. Community Service - business can make and help in the
advancement of society are created.
8. Classification of Business Activities
´ Industry
´ Commerce
´ Industry
´The sector where raw material gets converted into useful
products is called industry.
´Activities related to production & processing as well as
activities related to rearing & reproduction of animals or
other living species are all included in the industry.
´The purpose of industry is to create form utility by converting
raw materials into useful forms of finished products.
9. ´ Industry can be classified into three broad categories
´ Primary Industry
´ This is also known as extractive industries. It includes activity
connected with the production of wealth directly from natural
resources such as water, air, & land etc. Primary industry includes
activities like extraction & processing of natural resources etc.
´ These industries are further subdivided as follows:
´Extractive industry: These industries extract or draw out products
from natural sources. Raw materials that are mostly products of the
soil are some basic supply of extractive industries. Manufacturing
industries transform these products into many other useful goods.
´Genetic industry: The industries involved in the activities of rearing &
breeding of living organism i.e. birds, plants, animals etc. are
known as a genetic industry.
10. ´ Secondary Industry
´ This industry is concerned with converting raw material into finishing
product. The materials which have already been extracted at the primary
stage is the concern of the secondary industry. Secondary industries may
be further divided as follows:
´ Manufacturing industries: These industries are engaged in the process of
conversion of raw materials or semi-finished goods into finished goods.
These industries create from the utility by changing the form of raw
materials into finished products.
´ Construction industries: These industries are concerned with the
construction of buildings, dams, roads etc. These industries use the
products of manufacturing industries such as cement, iron & steel, lime
etc.
´ Tertiary Industry
´ These industries are concerned with providing those services which
facilitate a flow of goods & services. This industry helps in the activities of
the primary & secondary industry.
11. ´Commerce
´We can refer to commerce as all those activities
which help directly or indirectly in the distribution
of goods to the ultimate consumer. There will be
no use of producing goods unless & until these
goods reach the ultimate consumer. Goods are
produced at one place & consumers are
scattered at different places. Commerce can be
classified into two broad categories:
´Trade
´Aids to trade
12. ´ Trade
´ Trade is an integral part of commerce. It includes buying & selling of
goods & services. The trade segment of commerce brings together
the manufacturer & the consumer, i.e. it is a link between the
manufacturer & the consumer.
´ Trade can be classified into two types:
´ Internal trade: It refers to buying & selling of goods or services within
the geographical boundaries of a country. It is also known as home
trade or domestic trade. Under internal trade, goods & services are
bought & sold in the home currency only. The internal trade can be
two types: Wholesale trade and Retail trade
´ External trade: When the buying & selling of goods & services is
beyond the geographical limits of the country it is called external
trade. It is also known as trade between two or more countries. In
external trade, the market is very wide. External trade is of the
following types: Export trade, Import trade and Entrepot trade
13. ´ Aids to Trade
´ The activities which help in the smooth flow of trade are
known as aids to trade. These activities make buying &
selling of goods easier.
´ These help in removing various hindrances of trade which
arises in production & distribution of goods.
´ The common aids to trade are:
´Transport & communication
´Banking & finance
´Insurance
´Warehousing
´Advertising
15. Organizing A Business
´ Types
1. Sole proprietorship
´ A sole proprietorship is a type of business organization in which an
individual personally owns the business. The sole proprietorship has no
separate legal personality from its owner and the latter is personally
liable for all its debts and obligations.
2. Partnership
´ A partnership is formed when two or more persons bind themselves to
contribute money, property or industry to a common fund with the
intention of dividing the profits and ownership among themselves. While
the partnership is a separate legal entity from its partners, the latter are
personally responsible for the debts and obligations of the partnership.
16. 3. Corporation
´ A corporation is owned by several people, called shareholders, and
has a personality separate and distinct from them. Shareholders are
responsible for the debts of the corporation only up to the extent of
their capital contribution. Corporations can either be stock or non-
stock and are controlled by the Board of Directors or Trustees.
NOTE:
´ The relationship of the joint venture partners is generally governed
by the terms of the joint venture contract, supplemented by the law
on partnerships. As a rule, corporations cannot enter into
partnerships with one another but they are allowed to enter into
joint ventures.
17. FACTORS TO CONSIDER IN
ORGANIZING A BUSINESS:
´1. The liability of owners for all business debts
and obligations;
´2. Tax treatment;
´3. Control and management of the business;
´4. Ease of raising capital; and
´5. Ease of establishing the business.
18. ISSUE SOLE
PROPRIETORSHIP
PARTNERSHIP (AND
JOINT VENTURES)
CORPORATION
Liability of
Owners
The owner is
personally liable for
all the obligations of
the sole
proprietorship.
Partners are
personally liable for
all the obligations
of the partnership.
This means that if
the partnership
declares
bankruptcy, the
unpaid creditors
can run after the
personal assets of
the partners.
Liability of the
owners is limited
to their share in
the capital. If a
corporation
becomes
insolvent, the
shareholders are
not liable to pay
for the
corporation’s
outstanding debts.
19. ISSUE SOLE PROPRIETORSHIP PARTNERSHIP
(AND JOINT
VENTURES)
CORPORATION
Tax Treatment Taxed as individuals.
Percentage ranges from
5%-32% depending on
the taxable amount.
Generally, fixed at
30% of net income.
Generally, fixed at
30% of net income.
Control and
Management
The owner has full
control of the business.
Management is
directed by the
partners holding a
majority stake.
The Corporation is
controlled by its
Board of Directors.
Members of the
Board of Directors
are elected by the
shareholders.
20. ISSUE SOLE PROPRIETORSHIP PARTNERSHIP (AND
JOINT VENTURES)
CORPORATION
Ease of
Raising Capital
Limited by the credit-
worthiness of the
owner.
In a partnership,
the partners jointly
raise capital for the
business and agree
on contribution and
sharing. Debts may
be incurred by the
partnership and the
partnership
leverages the
collective credit-
worthiness of all
partners.
Corporations have
various options in
raising capital such
as equity financing,
debt financing,
stock-option plan,
debt-to-equity
conversion, etc.
Investors are aware
that their personal
assets are insulated
from creditors in
case of the
corporation’s
insolvency.
21. ISSUE SOLE
PROPRIETORSHIP
PARTNERSHIP (AND
JOINT VENTURES)
CORPORATION
Ease of
Establishment
Sole Proprietorships
are the easiest
to establish as only
registration with
the DTI is required.
Bureau of Internal
Revenue (“BIR”)
registration and
local business
permits are also
required.
Partnerships are
registered with the
SEC. BIR
registration and
local business
permits are also
required. Joint
Ventures are not
required to be
registered. They
may be created by
agreement of the
parties.
Corporations are
registered with
the SEC.BIR
registration and
local business
permits are also
required. The SEC
and the BIR require
annual reports in
the form of General
Information Sheets
and Financial
Statements.
23. ´Ethics - is a set of moral standards for judging
whether something is right or wrong
´Business ethics is the study of appropriate
business policies and practices regarding
potentially controversial subjects including
corporate governance, insider trading, bribery,
discrimination, corporate social responsibility,
and fiduciary responsibilities.
24.
25. Examples of Unethical Business Activities
´ Taking things that don’t belong to you
´ Saying things you know are not true
´ Giving or allowing false impressions
´ Buying influence or engaging in a conflict of interest
´ Hiding or divulging information
´ Taking unfair advantage
´ Committing improper personal behavior
´ Abusing power and mistreating individuals
´ Permitting organizational abuse
´ Violating rules
´ Condoning unethical actions
26. Governing Laws on Business Ethics
´ Bribery of public officials is penalized under Articles 210 to 212 of the
Revised Penal Code
´ Republic Act No. 3019 (The Anti-Graft and Corrupt Practices Act) is the
main anti-corruption law.
´ Republic Act 6713 (The Code of Conduct and Ethical Standards for
Public Officials and Employees) prohibits public officials and employees
from soliciting or accepting, directly or indirectly, any gift, gratuity,
favor, entertainment, loan or anything of monetary value from any
person: (a) in the course of their official duties; or (b) in connection with
any operation being regulated by, or any transaction which may be
affected by, the functions of their office.
´ Presidential Decree No. 46 (Giving of Gifts on any Occasion) punishes
the act of giving, or offering to give, to a public official or employee.
27. Assignment #1
´1. Discuss the advantages and disadvantages of
every type of business organization.
´2. Get a news clippings about the recent
unethical issue from public (government) or
private entities.
