Production: Factors and Firm Types
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Contains explanations for factors of production (land, labor, capital, entrepreneurship), four types of business firms (sole proprietorship, partnership, corporation, cooperative), and related terminology (franchise, conglomerate, holding company, multinational, etc).
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Production: Factors and Firm Types
- 1. PRODUCTION Prepared 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
- 2. PRODUCTION Putting together different inputs (factors of production) to create a product or service factors of production production product & by-product
- 5. So I coined a word. :3 LABOR / PAGGAWA Upton Sinclair
- 6. 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 investment ex. equipment, financial capital different from intermediate goods that get used up in production
- 7. 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
- 8. 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)
- 12. 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.
- 13. There are four! Types of BUSINESS FIRMS
- 14. 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.
- 15. BUSINESS FIRM types 1. sole proprietorship/sole trader 2. partnership 3. corporation 4. cooperative
- 16. 1 sole proprietorship owned and controlled by a single individual
- 18. advantage freedom simple, easy and fast set up inexpensive (capital requirement is small) lesser business documents are required conflicts are minimized
- 19. disadvantage unlimited liability proprietor and company are legally the same company’s liabilities are also the proprietor’s personal obligations, exposing you to great risks
- 20. disadvantage ”The law does not afford protection to the personal assets of the entrepreneur from claims against his business.”
- 21. disadvantage short-term no continuity of existence beyond the proprietor’s lifespan
- 22. 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
- 24. 2 PARTNERSHIP income is equally divided among partners, unless there is a written provision that dictates otherwise
- 25. 2 PARTNERSHIP main investor and one personally liable is called the general partner
- 26. 2 PARTNERSHIP the others are called limited partners because they have only limited liability, as if they were shareholders in a corporation
- 27. 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
- 28. DISADVANTAGE quarrels between partners may occur unlimited liability short-term
- 29. 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
- 30. 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
- 34. disadvantage larger amount of expenses and effort required in set up and maintenance articles of incorporation, and other documentary requirements corporate acts must be supported by board resolution maintenance requirements (reports, etc.)
- 35. disadvantage double taxation company’s income as well as shareholder’s income (dividends)
- 36. advantage limited liability “the law affords the corporation a personality separate and distinct from that of its stockholders”
- 37. advantage limited liability veil of corporate fiction “any claim against a corporation is limited only to whatever the corporation’s assets can satisfy”
- 38. advantage limited liability “you will not be liable beyond your investment in the corporation”
- 39. advantage long-term a corporation can exist even after the death of its stockholders because of the separate personality granted to it by law
- 40. advantage relatively easier to get additional financial capital for it initial public offering (sale of stocks) use other people’s money to expand business shareholders invest in order to get: a) dividends b) stock appreciation (sell shares for higher price)
- 41. 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
- 42. 3 CORPORATION types in the Philippines 2. non -stock • all other foundations, educational institutions, non-profit organizations, and associations registered as corporations
- 43. Publicly-held vs Privately-held Privately-held Corporation shares are owned by company’s founders, management, private investors, family or friends of the business Publicly-held Corporation a portion of shares were sold to the public via an initial public offering
- 44. examples of privately-held companies Mars, Inc.
- 45. examples of privately-held companies local example: Uymatiao Trading Corporation
- 46. examples of publicly-held companies
- 47. examples of publicly-held companies Look up http://whoownsfacebook.com/ for a more complete list of the biggest shareholders of Facebook
- 48. 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.
- 49. important terms holding company may 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
- 50. important terms subsidiary partly or completely owned by another company that holds a controlling interest in the subsidiary company conglomerate a corporation that is made up of a number of different, seemingly unrelated businesses
- 51. example parent corp. / holding co. subsidiary
- 55. important terms multinational transnational corporation has its facilities and other assets in at least one country other than its home country have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management
- 56. examples
- 57. 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
- 58. 4 Cooperative Watch the video Introduction to Cooperatives by the Singapore National Co-operative Federation: https://www.youtube.com/watch?v=rtzuz2j9LI4
- 59. 4 Cooperative Also watch the video What is a Co-operative? by Co- operatives UK: https://www.youtube.com/watch?v=90FL_bBE4mw
- 60. 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
- 61. local example
- 62. 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
- 63. 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
- 64. 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.ht m Does it Matter How You Own Your Franchise? http://www.franchising.com/articles/does_it_matter_how_you_o wn_your_franchise.html
- 65. Student Questions! What type of business is Avon?
- 66. Student Questions! What type of business is Avon? This tells us it started out as a partnership.
- 67. Question! What type of business is Avon? It later became a corporation.
- 68. Student Questions! equity value of the shares issued by a company operating income OI = Gross Income - Operating Expenses - Depreciation & Amortization
- 69. Student Questions! net income net earnings, net profit, “bottom line” income minus cost of goods sold, expenses and taxes
- 70. Video Reflection Watch: https://www.youtube.com/watch?v=_zwh9dPyidA 1. 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.
- 71. 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
Editor's Notes
- The large majority of businesses in the Philippines are sole proprietorships.
- The large majority of businesses in the Philippines are sole proprietorships.
- registration of trade name w/ DTI takes between 1-2 days after that, they can already proceed with the usual business registration at the Mayor’s Office, BIR and other applicable agencies
- *same Taxpayer Identification Number as the owner, reflected in his/her personal income tax as a self-employed taxpayer
- For example, if an enterprise operating under a single proprietorship is sued by one of its employees for a labor claim, the personal assets of the entrepreneur, including his house and other personal belongings, will become subject of the suit.
- Some types of professional practices, like law and accounting, can only be organized as partnerships.
- Some types of professional practices, like law and accounting, can only be organized as partnerships.
- *has its own Taxpayer Identification Number *5000 is paid-up initial capital
- *has its own Taxpayer Identification Number *5000 is paid-up initial capital
- *has its own Taxpayer Identification Number *5000 is paid-up initial capital
- *has its own Taxpayer Identification Number *5000 is paid-up initial capital
- *has its own Taxpayer Identification Number *5000 is paid-up initial capital
- *expensive because of the professional fee for lawyer or accountant hired to process the incorporation *SEC’s regular requirements (annual or quarterly): reports, financial statements, board resolutions hiring of personnel additional costs
- *has its own Taxpayer Identification Number *5000 is paid-up initial capital
- A directory compiled by the Department of Finance can be viewed here: http://www.gov.ph/directory/government-owned-andor-controlled-corporations/
- Very large multinationals have budgets that exceed those of many small countries.
- Definition lifted from “A to Z’s of Franchising” by the Philippine Franchise Association. Retrieved from http://www.pfa.org.ph/index.php?option=com_content&view=article&id=139&Itemid=50
- Operating Income is a synonym for earnings before interest and taxes (EBIT)
- Operating Income is a synonym for earnings before interest and taxes (EBIT)