Lesson 1: Origins and Roles of Business Organization

 Entrepreneur - A person who uses these opportunities to organize and operate

a business, and who accepts the risks of operating a business.
The word Entrepreneur first appeared in the French dictionary in 1723. It was
used to describe a person who undertakes and manages a business by taking a
financial risk.
Not all Entrepreneurs would have the same skills, experiences and assets, nor
the capability to do all task. As results, a division of labor in the economic system
occurs.

 Division of Labour – it is the separation of task, which allows an individual to

be an expert in one thing in order to improve efficiency of society.
The Concept of a modern corporation;
A business organization is a group of individuals systematically united for the
accomplishment of a common purpose or undertaking for profit in any of the several
ways allowed and regulated by law.
As such, Government agencies in the Philippines, like the securities and
exchange commission (SEC), exercise adequate supervision over business
organization activities and operations. Their role is to develop and foster good
governance and enhance investor protection. Under the Corporation Code of the
Philippines ( Batas Pambansa Bilang anim na put’walo), corporation are established,
not only for private gains but also as “ Effective partners of the government in
spreading the benefits of capitalism for the social and economic development of the
nation.
Roles of Business Organization in Society Business Organization have multiple
roles in the society. The main role is to provide products and services needed. They
also provide employment. The wages that employees receive are use to purchase
other goods and services. Profits from the organization are used to compensate
stockholders.
As percentage of the income is paid to the government as taxes. The taxes are
used to provide infrastructure and pay for services for the Filipinos.
Business Organization also greatly affect society in many other ways. They serve
as catalyst to generate more income, as individuals require more food, housing,
equipment, and other services. Successful businesses contribute in the generations
of more jobs income and boosts the economy of the nation.

Lesson 2: Forms and Purpose of business Organization

 A. Sole Proprietorship. – A business owned by a single individuals

The roles of sole proprietorship;

- The owner he or she own capital and manages the business himself/Herself.
-He/She has the capacity of enter into contracts and obligations.
-He/she is wholly responsible for the gains and losses of the business. -Since
he/she is working for himself/herself, he/she has the complete power over business
decisions. However, the business relies heavily on the owner’s skills set, which
could be limiting at times.

Characteristic of sole proprietorship;

- A sole proprietor is subjected to minimum legal requirements and capital. It
is relatively easy and convenient to form and to close this type of business. However,
Because of this larger businesses and financial institutions find it riskier to work with
sole proprietor.
- Financing expansion projects require the owner to source the money
him/herself. Sole proprietor have no protection from their creditors. A creditor is a
person, bank, or other business that has lent money to another party. When a sole
proprietor fails to settle his/her loan, his/her personal and business assets can be
claimed to pay off business debts.
- The owner needs to account for income and expenses. The business that
makes a profit increases the owner’s income by the same amount and the owner is
responsible for any taxes due.
- Once the proprietor passes away the life of the business end as well.
- Sole proprietorship is ideal for small enterprise that service the surrounding
neighbourhood, such as sari-sari stores, barbershop, and water stations. This form of
business is not recommended for high risk enterprises because it puts the owner’s
personal assets at risk, especially if he/she is taking on a significant amount of debt
for the business.

B. Partnership. – To or more individuals come together, contribute resources

to form a business, and agree to divide the profit among them, a partnership is
formed. A partnership can hold assets and incur debts in its name.

The Partners – co own the business and share responsibilities in running the
organization. They may have an agreement on specific roles they will play and a
division of responsibilities, authority and profits and losses among them. The
agreement details the rules and procedure that guide the ownerships and operations.
The advantages of this form of organization lies in the ease of forming the
organization and the additional capital and collective resources available to the
business. The burden of work is shared among the partners . if this burden is
properly aligned, the partners create synergy within the company that enables
individuals contributions to have a greater outcome.
Compared to sole proprietorship partnership have less taxation burden. A
partner is considered an agent of the partnership therefore there is a risk of loss that
is due to the incompetence and or fraud of other partners.
A partner inters cannot be transferred to another without the consent of the
other partners.but in partnership there is no power of succession. The death of a
general partner causes the dissolution of the partnership.
Architectural firms and law firms are good examples of partnership organization.

C. Corporation – is an entity that is legally recognized as separate and distinct

from its owner. As such, like person , it can own, buy, and sell things. it can enter
into a contract, sue other persons or businesses, and be sued by them. It can also
outlive its owners when its ownership is transferred through a sale or gift of shares.

There are two types of corporation : Private and Public.

Their main difference lies on who can be part of the stockholders of the
corporation. In the first type the group of founders, the management, or a group of
private investors owns privately held corporations. In the second type, Public
corporations are companies that have sold a portion of itself to the public through
an initial public offering of its stocks. Public Corporations in the Philippines are listed
in the Philippine Stock Exchange ( PSE).
Corporation are required to disclosed their financial information to the public by
reporting their financial statement to the government.
Compare to other forms of businesses the main advantage of public corporation
is their ability to raise fund for expansion or projects through selling stocks ( equity)
or bonds (debts). Private Corporation raise fund privately; this practice might limit
their expansion projects. Moreover, because private corporation do not have to
answer to the general public, decision are made internally. On the other hand public
corporation raise fund by selling shares to the public. Being listed makes it easier for
stockholders to buy and sell shares.
 Whichever way the organization is funded, a corporation is formed by combining
capital investments in the form of capital stock. The investors become part of the
business as shareholders.
A set of board of directors is voted in by the share holders. Under the
supervision of the securities and exchange commission (SEC) a corporation is
required to file articles of incorporation and By- Laws. This document defines the
ownership, operating procedures, and condition of the business. It is more
complicated to form a corporation and needs to meet more legal requirements than
a sole proprietorship or partnership organization. At least five incorporators or
founders are needed in order to form a corporation in the Philippines.
As a legal entity recognized by the government, the corporation exempts its
shareholders from personal liabilities beyond the amount of their capital
investments. The corporation is taxed for its income. Individuals shareholders will
have to pay taxes when dividend are paid.
The power to bind the corporation rest in the board of directors unless it is
delegated to the management. The board of directors makes the major policies and
final decisions for the business. The officers and management team are in charge of
the corporation’s daily operations. Not all stockholders have direct involvement in
decision-making and have no access to profits without the board’s approval. A
corporation’s life is limited by law to 50 years, extendible to not more than 50
years for each extension. The death of a stockholder does not affect the existence of
a corporation. A stockholder may transfer his/her share by sale of stock even
without the consent of other stockholders.

Advantages and Disadvantages of starting a corporation:

Advantages:
1. Capacity to hold property and exist as a legal unit or distinct entity
2. Exemptions of shareholders from individual liability
3. Continuity of existence despite death or changes in shareholders.
4. Transferability of shares
5. Centralized Management under the Board of Directors (BOD)
6. Standardized methods for the protection of shareholders and creditors

Disadvantages:
1. Costly to incorporate
 2. Possibility of takeovers by oppositions
3. Minority Stockholders have little power over the majority stockholders
4. Subject to government restrictions and controls

D. Non profit organization - This organization is formed to serve a public

purpose rather than for financial gain. It is limited to charitable, educational,
scientific, religious , or literary purposes.
A non profit organization does not pay income taxes on money it receives for
charitable purposes. The fund are raised by asking for grants and donations.
Such organizations are under the control of a board of directors, selected by the
founders of the said organizations. Liabilities, if any, are limited to just the valuation
of corporate assets.

E. Cooperatives - A Cooperative is a business owned and controlled by all the

members of the business. Individuals or companies who belong to the cooperative
join together to conduct business: to market their product, to purchase supplies, or
to provide services. Successful operations should increase profits and lower the cost
for its members. Each owner’s member gets to vote and make choices. However,
Decisions making is generally difficult and slow since consensus has to be reached.
Establishing co-ops is generally easy and requires little money.

Lesson 3: Core Principle of Good Corporate Governance

 Good governance - In international development, good governance is a way of
measuring how public institutions conduct public affairs and manage public
resources in a preferred way. Governance is "the process of decision-making and
the process by which decisions are implemented.
Stakeholder is a party that has an interest in a company and can either affect or
be affected by the business.
The primary stakeholders in a typical corporation are its investors, employees,
customers and suppliers.
Companies with good corporate governance operate more efficiently; have
better ability to attract customers, lower cost of capital and interest rates on loans,
better access to external finance, higher firm valuation and share performance;
mitigate risks and safeguard against mismanagement. All these help sustain
company growth. Good corporate governance makes companies more accountable
and transparent to investors and gives them the tools to respond to stakeholders
concerns. Poor corporate governance can weaken the potential of the company
which may lead to financial problem and cause long term damage to a company’s
reputation.
Good corporate governance is very important for the socioeconomic
development of the nation. Increased access to capital encourages new investments,
boost economic growth, and provide employment opportunities. The stronger the
enterprises are the stronger the economy will be. (Enterprise a business or a
company)

Core Principles of Good Corporate Governance

The Philippine government operates under the guidance of the Philippine
Constitution. The constitution sets the parameters of the law and defines what is
citizens legally entitle to. Just like government, companies also need to have its own
set of rules and guidelines in order to establish order and discipline within the
organization. In drafting theses guidelines, the following core principles must be
considered.

1. Fairness – each decision made requires balancing the interest of different

stakeholders. Fairness expresses the just and reasonable treatment of the
stakeholders, free from discrimination and according to the rules and principles of
the corporation. Fair practices are able to establish longer term relationship which
are critical to sustain the development of the corporation.

2. Accountability – each decision maker in the corporation should assume

complete responsibility to take initiative and be answerable for his /her decisions,
actions, and behaviours. Everyone must be able to reason and explain for his/her
actions and conduct.

3. Transparency – is the openness and willingness by the company to provide

clear, factual, and timely information that accurately reflects the financial situation,
performance, ownership and corporate governance of the company. Trust from the
stakeholders can be gained only through transparency. Stakeholders should be
informed about the company’s activities, its plan in the future, and the risks
involved in its strategies. All these will help stakeholders have confidence in the
corporation.

Common Practices in Business Organizations Policies and procedures establish the

rules of conduct within an organization. They are enforce to protect stakeholders
of the corporation. The depth and the numbers of procedures depend highly on
the needs of the company:
 1. Employee Conduct ( Accountability ) – employee conduct policy sets the
duties and responsibilities each employee must follow as condition of employment.
Examples are proper dress code, workplace safety procedures, harassment policies
on internet usage. The policies also outline procedure also outline procedures the
company may utilize to discipline inappropriate behaviour, such as giving warning or
termination of employment.

2. Equal Opportunity ( Fairness) – Equal opportunity laws are policies that

promote fair treatment in the workplace. Companies are expected to advocate
anti-discriminatory policies and encourage unprejudiced behaviour within the work
place. The Human Resource(HR) department of a company normally organizes and
established policies in order to avoid discrimination against people in regard to race,
gender, sexual orientation, religion, or cultural beliefs.

3. Attendance and Time Off (accountability, fairness) – Attendance policies

not only outline the employees’ responsibility to adhere to work schedules but also
define how employees may schedule leaves or notification of an absence or late
arrival. It also discusses the disciplinary action employees action employees face for
noncompliance.

4. Computer Use (Transparency, Accountability) – Companies may implement

policies governing the use of computer and internet in the workplace to limit
unnecessary and time wasting internet surfing and social media usage.
Security-conscious companies may require employees to sign a waiver that allow
employers to monitor e-mail or internet activities to ensure confidential information
are secured.

5. Noncompetition ( Fairness) – Some companies require employees to sign a

non-compete agreement that limits employee’s activity to look for the
company’s direct competition and prevent disclosure of confidential information.
The agreement may include exclusion to approach the company’s clients for a
specific period of time.

6. Finance and Accounting ( Transparency) –Accounting policies deal with how

money is handled in the company and how acquisitions and liabilities are recorder. A
well-managed finance department should have clear guidelines on purchases, petty
cash disbursement, and recording. To gain the trust of investors, companies should
also have their records audited by an external auditor to assure compliance with
government bodies and accepted practices. Many corporations in the past have used
the financial side of the business to hide problems and wrongdoings.