Organization and

Management
3rd Quarter – Module 3
Forms and Economic Roles of Business
Organizations

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 Good day Learner! Today, you are
about to learn the different
FORMS AND ECONOMIC
ROLES OF BUSINESS
ORGANIZATIONS

This module explains and discusses the various forms of business

organization and its economic roles in the business organization including the
advantages and weaknesses to determine the best practices in choosing a
business.

The following are the things that you will learn after
the lesson:

• identify the different forms of business;

• identify the best practice in choosing a
business; and
• recognize the weak and strong point of the
different form of business.

Here are words that can help you understand thoroughly the lesson:
Business – is an organization or economic system where goods and services
are exchanged for one another or for money.

Hybrid Business – refers to companies that may be classified with more than
one type of business.

Merchandising Business – refers to businesses which buy product at

wholesale price and sell the same at retail price.

Manufacturing Business – refers to businesses which buy productions with

the intention of using them as materials in making a new product.

Sole Proprietor – a business is owned and managed by only one person.

Partnership – a business owned by two or more persons who contribute

resources into the entity.

Corporation – is a business organization that has a separate legal

personality from its owners.

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 Cooperative – is a business organization owned and managed by a group of
individuals for their mutual benefits.

Now, let’i iee how far you know…

Answer the questions below.

Pretest:

Direction: Read carefully the statement below and choose your answer from
the given options.

Hybrid Business Corporation General Partnership

Cooperative Merchandising Business Partnership
Manufacturing Business Sole Proprietorship Manufacturing Business
Joint Ventures Business General Partners

1. It is a business being run by a group of individuals for mutual benefits.

2. A type of business that may be classified with more than one type of
business.

3. It is said to be an artificial business created by legal personality from

its owners and its ownership is represented by shares of stock.

4. It is an organization of people where good and services are

exchanged from one another or for money.

5. This is the easiest and least expensive form of ownership to organize.

6. It is a type of business which provides intangible products.

7. The business is owned by two or more persons who contributed

resources but may have limited life; it may end upon withdrawal or death of partner.

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 8. Also known as “buying and selling” business.
9. A type of business that buy products or raw materials for the purpose
of transforming it into finished product to be sold to the customers.

10. It is a type of partnership where partners divide responsibility, liability

and shares of profit or loss in the business.

How do you find the test? Don’t worry if you feel you got a low score. Just
remember that there’s always room for learning. Proceed to the next activity. Learning
is fun!

Before you proceed to the

discussion, can you identify the
following pictures below?

Activity #1 – Picture Identification as to What Type of Business

Direction: Identify the following pictures below whether it is a service,

merchandising, manufacturing or a hybrid type of business.

1. 2. 3.

4. 5.

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 6. 7.

There are Different Types of

Business

Business is an entity or enterprise that provides goods and services in

exchange for some form of money or another. It can be a privately owned, non-profit
organization or state-owned business. These entities consider the three basic
problems in economy in establishing their business:
a.) What to produce?
b.) How to produce?
c.) For whom to produce?

There are four major types of businesses:

Service Business a type of business which provides intangible products.
Service type firms offer professional skills, expertise, advice, and other similar
products.

Examples of service businesses are schools, repair shops, hair salons, banks,
accounting firms and law firms.

Merchandising Business is a business which buys products at wholesale

price and sells the same at retail price. They are known as “buy and sell”
businesses. They make profit by selling the products at prices higher than their
purchase costs.

Examples are grocery stores, convenient stores, distributors and other

resellers.

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 Manufacturing Business unlike a merchandising business, buys products
with the intention of using them as materials in making a new product. A
manufacturing business combines raw materials, labor, and factory overhead
in its production process. The manufactured goods will then be sold to
customers.

Examples are baked good, shoe manufacturing, grape wine production,

cosmetic manufacturing, processed food, canned goods, and others.

Hybrid Business is a company that may be classified in more than one type
business. A restaurant, for example combines ingredients in making a fine meal
(manufacturing), sells a cold bottle of wine (merchandising), and fills customer
orders (service).

Activity #2 – Business Ownership Identification

Direction: Identify the pictures below whether it is a sole, partnership, corporation,

or a cooperative business.

1. 2. 3.

4. 5.

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There are basic forms of business ownership:

Business is owned by
Business is owned
two or more person
and operated by only who contribute
one person resources for the
entity
Sole

Proprietorship Partnership
Business
Ownership

Corporation Cooperative

A business A business owned

organization that has and operated by
separate personality group of individuals
from its owners. for their mutual
benefit

By considering the advantages and disadvantages of the different business

ownership, best practices will then be recognized in choosing a business to be
established.
SOLE PROPRIETORSHIP
Advantages Disadvantages
• Easiest and least expensive form ofownership • Sole proprietors have unlimited liability and
are legally responsible for all debts against the
• Sole proprietors are in complete control, and business. Their business and personalassets
within the parameter of the law, may make are at risk.
decisions as they see fit.
• May be at a disadvantage in raising funds and
• Profit from the business flow-through directly are often limited to using funds from
personal savings or consumer loans.

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 to the owner’s personal tax return.
• May have a hard time attracting high-caliber
• The business is easy to dissolve, if desired. employees, or those that are motivated by the
opportunity to own a part of the business.

• Some employees’ benefits such as owner’s

medical insurance premiums are not directly
deductible from business income.

Examples: sari-sari store, flower shop, vulcanizing shop, car wash, etc.

PARTNERSHIP
Advantages Disadvantages
• Partnerships are relatively easy to establish; • Partners are jointly and individually liable for
however, time should be invested in the actions of other partners.
developing the partnership.
• Profits must be shared with others.
• With more than one owner, the ability to raise
funds may be increased. • Since decisions are shared, disagreement can
occur.
• The profits from the business flow directly
through to the partners’ personal tax return. • Some employee benefits are not deductible
from the business income on tax returns
• Prospective employees may be attracted to
the business if given the incentive to become • The partnership may have a limited life; itmay
a partner. end upon the withdrawal o death of a partner.

• The business usually will benefit from partners

who have complementary skills.

Examples: Law firms, medical clinics, and Travel and Tours

Types of Partnerships that you should consider:

1. General Partnership. Partners divide responsibility for management and liability as well as
the shares of profit or loss according to their internal agreement. Equal shares are assumed
unless there is a written agreement that states differently.

2. Limited Partnership and Partnership with limited liability. “Limited” means that mostof
the partners have limited liability as well as limited input regarding management decision,
which generally encourages investors for short term projects, or for investing in capital assets.

3. Joint Venture is like a general partnership, but is clearly for a limited period of time or a
single project. If the partners in as joint venture repeat the activity, they will be recognized as
an ongoing partnership and will have to file as such, and distribute accumulated partnership
assets upon dissolution of the entity.

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 CORPORATION
Advantages Disadvantages
• Shareholders have limited liability for the • The process of incorporation requires more
corporation’s debts or judgements against the time and money that other forms of
corporation. organization.

• Generally, shareholders can only be held • Corporations are monitored by federal, state
accountable for their investment in stock of the and some local agencies, and as a resultmay
company. (Note however, that officers can be have more paperwork to comply with
held personally liable for their actions,such as regulations.
the failure to withhold and pay employment
taxes. • Corporations may result in higher overall
taxes. Dividends paid to shareholders are not
• Corporations can raise additional funds deductible from business income; thus this
through the sale of stock. income can be taxed twice.

• A corporation may deduct the cost of benefits

it provides to officers and employees.

• Can elect Corporation status if certain

requirements are met. This election enables
company to taxed similar to a partnership.

Examples: Smart Communications, Inc, SM Development Corporation, Medical

Doctors, Inc. (Makati Medical Center), Avida Land Corporation

COOPERATIVE
Advantages Disadvantages
• Less Taxation • Less Operational Control

• Funding opportunities • Fixed Pricing

• Further marketing reach • Cooperative may suffer from slow cash flow
since a member’s incentive to contribute
• Reduce costs and improve product and depends on how much they use the
services cooperative’s services and products.

• Perpetual existence, members can join or • Lack of membership and participation may
leave the business without causing cause risk of losing members.
dissolution.

• Democratic organization, monetaryinvestment

does not affect the weight of eachvote, so no
member owner can dominate the decision-
making process.

Example: water and electricity (utility) cooperatives, Cooperative banking, Credit

Unions, and Housing Cooperatives

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 Please answer the succeeding activities below.

Practice Task 1

Direction: Read and identify the statements below. Underline your answer from the
given options.

1. It can be privately owned, state-owned or non-profit organizations that produce goods and
services for the exchange of money or for one another. (Business, Proprietorship)
2. (Service Business, Hybrid Business) is classified for more than one type of business.

3. (Manufacturing Business, Merchandising Business) they are known as “buy and sell”
business.
4. A business that produces intangible products. (Service Business, Manufacturing
Business)
5. A (corporation, cooperative) is a business owned by a group of individual and operated
a business for their common good.

6. The (Sole Proprietorship, Partnership) is the easiest and least costly to set up when
planning a business.
7. It is owned and managed by two or more person who contributed their resources for the
entity. (Sole Proprietorship, Partnership)

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 Practice Task 2

Direction: Write your answer in the crossword puzzle by

referring to the statements below.

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1. A type of business that buys product for the intention of using them to create
finished products to be sold to customers.

2. A business that is owned and managed by a group of people for their common
good.

3. It is a combination of different types of business.

4. It is a business owned by two or more person who contributed resources and

shares profit among themselves.

5. A type of business that concerns with buying and selling of the commodities.

6. The ownership of this business is through a share of stock.

7. This business offers intangible products to its customers.

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 Good job! You are now about to
complete the module by answering the
final test prepared for you. Good
luck learner!

Assessment:
Direction: Encircle the letter from the given options that corresponds to the
statement in each item.

1. It is an organization of people where goods and services are exchanged for one
another or for money.
A. Business C. Commodities
B. Partnership D. Services

2. It is an artificial business created by legal personality from its owners and its
ownership is represented by shares of stock.
A. Corporation C. Sole Proprietor
B. Cooperative D. Partnership

3. A type of business which provides intangible products to the customers.

A. Hybrid business C. Manufacturing business
B. Merchandising business D. Service business

4. A certain business managed by a group of individuals for mutual benefits.

A. Sole Proprietorship C. Partnership
B. Cooperative D. Corporation

5. The business is owned by two or more persons who contributed resources but
may have limited life; it may end upon withdrawal or death of partner.
A. Corporation C. Partnership
B. Sole Proprietorship D. Cooperative

6. This business is classified as having more than one type of business.

A. Service business C. Manufacturing business
B. Merchandising business D. Hybrid business

7. This is the easiest and least expensive form of ownership to organize.

A. Sole Proprietorship C. Partnership
B. Cooperative D. Corporation

8. A type of business where they buy products or raw materials for the purpose of
transforming it into finished product to be sold to the customers.
A. Service business C. Manufacturing business
B. Merchandising business D. Hybrid business

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9. A partnership where partners divide responsibility, liability and shares of profit or
loss in the business.
A. General Partnership C. Joint Venture
B. Limited Partnership D. Preferred Partnership

10. This business is also known as “buying and selling” business.

A. Service business C. Manufacturing business
B. Merchandising business D. Hybrid business

Conduct an interview to the owner of a store near you. Know the type and form
of the business. Ask why he/she chooses such business? For how long now he/she
manages and operates his/her business?

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