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The Role of Business in Social and Economic Development
What is Business?
A business is an organization or economic system where goods and services are exchanged for
one another or for money. Every business requires some form of investment and enough
customers to whom its output can be sold on a consistent basis to make a profit. Business can be
privately owned, not-for-profit, or state-owned.
Basic Forms of Business Organizations
1. Sole Proprietorship – also known as a sole trader, is owned by one person and operates
for their benefit. The owner may operate the business alone or with other people. A sole
proprietor has unlimited liability for all obligations incurred by costs or judgments
against the business. All assets of the business belong to a sole proprietor, including for
example a computer infrastructure, any inventory manufacturing equipment, and/or retail
fixtures, as well as any real property owned by the business.
The vast majority of small business start out as sole proprietorships. These firms are
owned by one person, usually, the individual who has day-to-day responsibility for
running the business. Sole proprietorships own all the assets of the business and the
profits generated by it. They also assume complete responsibility for any of its liabilities
or debts.
Advantages of a Sole Proprietorship
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law,
may make decisions as they see fit.
• Profits from the business flow-through directly to the owner’s personal tax return.
• The business is easy to dissolve if desired.
Disadvantages of a Sole Proprietorship
• Sole proprietors have unlimited liability and are legally responsible for all debts
against the business. Their business and personal assets are at risks.
• May be at a disadvantage in raising funds and are often limited to using funds
from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are
motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner’s medical insurance premiums are not
directly deductible from business income (only partially as an adjustment to
income).
2. Partnership – is a business owned by two (2) or more people. In most forms of
partnerships, each partner has unlimited liability for the debts incurred by the business. In
a partnership, the partners should have a legal agreement that sets forth how decisions
will be made, profits will be shared, disputes will be resolved, how future partners will be
admitted to the partnership when needed; Yes, it is hard to think about a “break-up” when
the business is a defined process, there will be even greater problems. They also must
decide up front how much time and capital each will contribute.
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Advantages of a Partnership
• Partnership are relatively easy to establish; however, time should be invested in
developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners’ personal tax
return.
• Prospective employees may be attracted to the business if given the incentive to
become a partner.
• The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death
of a partner.
3. Corporation – The owners of a corporation have limited liability and the business has a
separate legal personality from its owners. Corporations can be either government-owned
or privately owned. They can organize either for profit or as not-for-profit organizations.
A privately owned, for-profit corporation is owned by its shareholders, who elect a board
of directors to direct the corporation and hire its managerial staff. A privately owned, forprofit corporation can be either privately held by a small group of individuals, or publicly
held, with publicly traded shares listed on a stock exchange.
Advantages of a Corporation
• Shareholders have limited liability for the corporation’s debts or judgments
against the corporation.
• Generally, shareholders can only be held accountable for their investment in the
stock of the company.
• Corporations can raise additional funds through the sale of stock.
• A corporation may deduct the cost of benefits it provides to officers and
employees.
Disadvantages of a Partnership
• The process of incorporation requires more time and money than other forms of
organizations.
• Corporations are monitored by the government and some local agencies, and as a
result, may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders
are not deductible from business income; thus, this income can be taxed twice.
4. Cooperative – Often referred to as a “co-op”, a cooperative is a limited liability business
that can organize for-profit or non-profit. A cooperative differs from a corporation in that
it has members, not shareholders, and they share decision-making authority.
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A cooperative is a business organization owned by a grouped of individuals and is
operated for their mutual benefit. The persons making up the group are called members.
Cooperatives may be incorporated or unincorporated.
Advantages of a Cooperative Organization
• Generally inexpensive to register.
• A cooperative organization is owned and controlled by members.
• Members have an equal vote at general meetings regardless of their level of
investment or involvement. One member, one vote.
• All members must be active in the co-operative.
• This type of organization has a limited liability.
• Profit distribution (surplus earnings) to members is carried on in proportion to the
use of service; surplus may be allocated in shares or cash.
Disadvantages of a Cooperative Organizations
• A cooperative organization entails longer decision-making process.
• It requires members to participate for success.
• It has less incentive, and there’s also a possibility of development of conflict
between members.
• As co-cooperatives are formed to provide a service to members rather than a
return on investment, it may be difficult to attract potential members seeking a
financial return.
• There is usually limited distribution of profits to members and some cocooperatives may prohibit the distribution of any surplus.
• Members providing greater involvement or investment than others will still only
get one vote.
• Extension record keeping is necessary in this form of organization.
Basic Classification of Business
1. Service Businesses – a service type of business provides intangible products (products
with no physical form). Service type firms offer professional skills, expertise, advice, and
other similar products. Examples of service business are schools, repair shops, hair
salons, banks, accounting firms, and law firms.
a. Service business - typically charge for labor or other services provided to
government, to consumers, or to other business. Interior decorators, consulting firms
and entertainers are service business.
b. Financial business – include banks and other companies that generate profits through
investment and management of capital.
c. Transportation business – deliver goods and individuals to their destinations for a
fee.
d. Utilities – produce public services such as electricity or sewage treatment, usually
under a government.
2. Merchandising Businesses – this type of business buys products at wholesale price and
sells the same at retail price. They are known as “buy and sell” business. They make a
profit by selling the products at prices higher that their purchase costs. A merchandising
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business sells a product without changing its form. Examples are grocery stores,
convenience stores, distributors, and other resellers.
a. Retailers and distributors – act as middleman and get goods produced by
manufacturers to the intended consumers; they make their profits by marking up their
prices. Most stores and catalog companies are distributors or retailers.
3. Manufacturing businesses – Unlike a merchandising business, a manufacturing business
buys products with the intention of using them as materials in making a new product.
Thus, there is a transformation of the products purchased. A manufacturing business
combines raw materials, labor, and factory overhead in its production process. The
manufactured goods will then be sold to customers.
a. Agriculture and mining business – produce raw material, such as plants or minerals.
b. Manufacturers – produce products, either from raw materials or from component
parts, then sell their products at a profit, for example cars, clothing or pipes.
c. Real-estate business – sell, rent and develop properties including land, residential
homes and other buildings.
Purpose of Establishing a Business Enterprise
Why Start a Business?
1.
To make money and have financial independence
2.
To be your own boss
3.
To self-actualize / To fulfill own interest and enjoyment
4.
To Make Dreams Come True
5.
To use your skills and knowledge for yourself
6.
To have a second career
7.
To have variety at work
8.
To create opportunities
9.
To take up a challenge
10. To employ relatives, friends, and community members
11. To come up with better ways, to create, to innovate
12. To be efficient
13. To set and meet own deadlines
14. To avoid commuting
15. To create a customer
16. To offer value
17. To have more life, more freedom
18. To solve problems
19. To move society, to change the world, to make the world better
20. To build our future
Core Principles in Business Operations
1. Fairness – refers to the level of even-handedness in dispensing justice whereby claims
are recognized in the order of their legal and contractual priority. Justice means giving
each person what he or she deserves or, in more traditional terms, giving each person his
or her due. Justice and fairness are closely related terms that are often today used
interchangeably.
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Justice usually has been used regarding a standard of rightness, fairness often has been
used with regard to an ability to judge without reference to one’s feelings or interest;
fairness has also been used to refer to the ability to make judgments that are not overly
general but that are concrete and specific to a particular case.
a. Principles of Justice
“Individuals should be treated the same, unless they differ in ways that are relevant to
the situation in which they are involved.”
b. Different Kinds of Justice
• Distributive Justice – refers to the extent to which society’s institutions ensure
that benefits and burdens are distributed among society’s members in ways that
are fair and just.
•
Retributive or Corrective Justice – refers to the extent to which punishments
are fair and just.
•
Compensatory Justice – refers to the extent to which people are fairly
compensated for their injuries by those who have injured them; just compensation
is proportional to the loss inflicted on a person.
2. Accountability – is the obligation of an individual or organization to account for its
activities, accept responsibility for them, and to disclose the results in a transparent
manner.
Corporate Accountability refers to the act of being accountable to the stakeholders of
an organization, which may include shareholders, employees, suppliers, customers, the
local community, and even the particular country that the firm operates in.
Accountability is often used synonymously with responsibility, blameworthiness, and
liability. As an aspect of governance, accountability has been central to discussions
related to problems in the public, non-profit, and corporate sectors.
3. Transparency – refers to the lack of hidden agendas ad conditions, accompanied by the
availability of full information required for collaboration, cooperation, collective decision
making. Transparency is the essential condition for a free and open exchange whereby
the rules and reasons behind regulatory measures are fair and clear to all participants.
Corporate transparency describes the extent to which a corporation’s actions are
observable by outsiders. This is consequence of regulation, local norms, and the set of
information, privacy, and business policies concerning corporate decision-making and
operations openness to employees, stakeholders, shareholders, and the general public.
Transparency, in a business or governance context, is honesty and openness.
Transparency and accountability are generally considered the two (2) main pillars of
good corporate governance.
4. Stewardship – was originally made up of the tasks of a domestic steward, from stig
(house, hall) and weard, (ward, guard, guardian, keeper). Stewardship, in the beginning,
referred to the household servant’s duties for bringing food and drink to the castle’s
dining hall. Steward is a person employed to manage another’s property.
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In business, it has been used by the CEOs to denote the concept that “as a steward, you
try to leave the company in better shape for your successor than it was handed over to
you by your predecessor.”
Common Practices in Business Organizations
Business practice is a method, procedure process, or rule employed or followed by a company
in the pursuit of its objectives. Business practice may also refer to these collectively.
A. Decorum – is a behavior that is socially correct, calm and polite.
• On Time and Promptness – the way to exhibit professionalism is to consistently be
punctual.
•
On Preparation – must be prepared to conduct a business at hand.
•
On Attire and Appearance – good business etiquette includes dressing appropriately.
•
On Basic Courtesy and Respect – consider the feelings of others and address conflicts
in a straightforward and impersonal manner.
•
On Greetings – standard greetings are an exchange of handshakes and a smile.
•
On Formal and Informal Address – start out by addressing a new business
acquaintance by his or her family name.
•
On Speaking in Meetings – keep the meeting organized by only speaking when you
have the floor.
•
On Listening – listen attentively to the meeting and take notes.
•
On Cell Phones and Laptops – turn off your cellphone or set your phone to vibrate if
you are expecting an urgent call prior to the start of the meeting. Lower the screen of
your laptop so that you do not obstruct anyone’s view.
•
On Appropriate Communication – when calling or receiving a call, you should always
identify yourself and your department, and speak in a polite and considerate manner.
•
On Building Relationships – show others that you value their work by taking the time to
visit and talk with them.
B. Protocol – means the unwritten rules or guidelines that are peculiar to every culture or
organizations, and are supposed to be observed by all parties in the conduct of business,
entertaining, negotiating, politics, etc.
• The Basics of Protocol – the purpose of business protocol is to encourage all employees
in a company to act in a uniform manner.
•
Training in Protocol – etiquette expert notes that an increasingly diverse workforce
requires such training to help people from all walks of life communicate with each other
and work together.
•
Benefits of Protocol – business protocol may unite employees under common goals and
ensure that tasks are executed to the preferences of the company’s owner.
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•
Examples of Protocols in Philippine Business – is spite of the mixture of cultural
influences and its usual tolerance, Philippine society remains very attached to traditional
Asian values.
 Filipino Family-Modeled Businesses – The family is always of vital importance
in the Philippines; not surprisingly, most business organizations are modeled on
the Filipino family. The boss and subordinate often exist in a bata relationship,
basically like that between parent and child (bata literally meaning “child”).
 Business is Personal – the Philippine business environment is highly
personalized and it is good to deal with business matters on a face-to-face basis.
 Status Consciousness – Filipinos are very status-conscious, and the use of formal
titles is an important way of showing respect to your business partners and
colleagues. You should present and receive business cards with both hands.
Include your title and position on the card to make clear the influence and status
you may have.
 Politeness and Ambiguity – given the culture value of pakikisama and the
importance of maintaining social harmony, disagreement or interpersonal tension
of any sort is distasteful.
C. Policies – defines the scope or spheres within which decisions can be taken by the
subordinates in an organization.
Features of Business Policy
• Specific – policy should be specific/definite. If it is uncertain, then the
implementation will become difficult.
• Clear – policy must be unambiguous. It should avoid the use of jargons and
connotations. There should be no misunderstanding in following the policy.
• Reliable/Uniform – policy must be uniform enough so that it can be efficiently
followed by the subordinates.
• Appropriate – policy should be to the present organizational goal.
• Simple – a policy should be simple and easily understood by all in the organization.
• Inclusive/Comprehensive – to have a wide scope, a policy must be comprehensive.
• Flexible – policy should be flexible in operation/application.
• Stable – policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who consider it for guidance.
D. Advertising – is how a company encourages people to buy their products, services, or ideas.
An advertisement (or “ad” for short) is anything that draws good attention towards these
things.
Newspaper
Directories
Magazine
Outdoor and Transit
Radio
Direct Mail, Catalogs, and Leaflets
Television
Online
E. Marketing – refers to the process of product development as well as sales, promotion and
distribution. The whole concept of marketing revolves around the customer. In marketing,
the needs of the customer come first.
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F. Bookkeeping – accounting, simply put, is keeping track of money. The most basic activity in
accounting is bookkeeping. Bookkeeping is the process of recording all financial transactions
to keep track of the cash flow.
G. Reportorial Requirements – business reporting or enterprise reporting is the public
reporting of operating and financial data by a business enterprise. There are so many kinds of
reports, but what are usually required by governments and regulating agencies are the
Annual Report and Financial Statement.
•
Annual Report – is a comprehensive report on a company’s activities throughout the
preceding year. Annual reports are intended to give shareholders and other interested
people information about the company’s activities and financial performance. Annual
report usually includes:
 Notes to the Financial Statements
 General Corporate
 Chairperson’s Statements
Information
 Accounting Policies
 Director’s Report
 Operating and Financial Review
 Balance Sheet
 Other Features
 Cash Flow Statement
 Auditor’s report
 Non-audited Information
 Profit and Loss Account
•
Financial Statement – or financial report is a formal record of the financial
activities and position of a business, person, or other entity. Relevant financial
information is presented in a structured manner and in a form easy to understand.
They typically include basic financial statements, accompanied by a management
discussion and analysis: A balance sheet, an income statement and statement of
changes in equity.
H. Documentation – refers to the process and items which serve as evidence for the validity or
truth of a certain claim or statement. It is necessary for the conduct of any business,
transaction, or project. It serves as a record of every official action taken and may come in
very handy in the future, should a chronological account of events be necessary for legal or
business purposes.
Why is a Code of Ethics Important?
A company’s ethics should reflect the company’s mission and must be communicated to those
who are carrying out the mission. Service industries is a “people business” ethics deal with
relationships with other people. For this reason, a code of ethics is mandatory for this kind of
people enterprise whose managers want to achieve a unified direction and a satisfactory level of
control over the conduct of business.
Reference:
Jerusalem, V., Palencia M, & Palencia J. (2017). Business ethics and social responsibility:
concepts, principles, & practices of ethical standards. Manila, Philippines:
FASTBOOKS Educational Supply, Inc.
Orjalo, V. & Frias S. (2016). Business ethics and social responsibility: Principles, policies,
programs and practices. Quezon City, Philippines: The Phoenix Publishing House, Inc.
Cortez, F. (2016). Business ethics and social responsibility. Quezon City, Philippines: Vibal
Group, Inc.
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