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Nature of Business Organizations

  • Business is an active process integral to human society.

  • An organization that brings together economic resources (materials & services) to distribute goods/products to consumers.

Business Operations

  • Significant operations include:

    • Buying

    • Assembling

    • Distributing

    • Advertising

    • Selling

    • Accounting

Understanding Profit

  • Profit is the difference between revenue received and expenses incurred.

  • Business organizations should promote the common good and protect individual rights.

Types of Business Organizations

1. Service Businesses

  • Provide services instead of products.

  • Examples: Computer repair, laundry services, tutoring, wellness services (e.g., gym).

2. Merchandising Businesses

  • Sell products bought from other businesses.

  • Examples: Sari-sari stores, bookstores, supermarkets.

3. Manufacturing Businesses

  • Transform basic inputs into products sold to consumers.

  • Examples: Shoe manufacturing, baked goods, cosmetics.

Forms of Business Organizations

Sole Proprietorship

  • Definition: A one-person business with full control over finances and operations.

  • Advantages:

    • Faster tax preparation on individual's return.

    • Lower start-up costs.

    • Easier financial handling.

    • Minimal government regulations.

    • Ability to sell or pass down business.

  • Disadvantages:

    • Personal liability for all debts.

    • Lack of financial control.

    • Difficulty raising capital.

  • Examples:

    • Bookkeeping, financial planning, catering, freelancing.

Partnership

  • Definition: A business relationship between two or more people sharing profit and liabilities.

  • Types of Partnerships:

    1. General Partnership (GP)

      • Simple agreement, usually even profit split.

    2. Limited Partnership (LP)

      • At least one general partner; others are limited partners with no liability for debts.

    3. Limited Liability Partnership (LLP)

      • Partners manage the business but are not liable for each other's errors.

    4. Limited Liability Limited Partnership (LLLP)

      • Similar to LP but limits liability of general partners.

  • Advantages:

    • Less formality compared to corporations.

    • Shared burden among partners.

    • Diverse skills enhance success; better decision-making.

    • Confidential business dealings; controlled ownership.

  • Disadvantages:

    • No independent legal status; personal liability for debts.

    • Profit sharing; slower decision-making.

    • Time-consuming; potential conflicts among partners.

Corporation

  • Definition: A legal entity independent of its owners, governed by corporate laws.

  • Advantages:

    • Limited liability of shareholders, protecting personal assets.

    • Ability to raise funds by selling stock.

    • Corporations exist indefinitely, ownership can transfer across generations.

  • Disadvantages:

    • Double taxation on corporate income and dividends paid to shareholders.

    • Management can operate with minimal oversight from owners.