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Entrepreneurship

Grade 9
QUARTER 1- WEEK 7-8
Lesson 7:
Acquire Fundamental Skills in
Managing a Business

Department of Education ● Republic of the Philippines


INTRODUCTION
This lesson deals with legal forms of business ownership.

WHAT WILL YOU LEARN?

Department of Education
Division of Occidental Mindoro
At the end of the module, you are expected to:

1. identify the legal forms of business ownership; and


2. discuss the advantages and disadvantages of the legal forms of business.

WHAT IS THIS MODULE ABOUT

Welcome to the Module “Acquiring Fundamental Skills in Managing a Business”.


This module contains instructional materials and activities for you to complete.

The unit of competency “Acquire Fundamental Skills in Managing a Business” contains the
knowledge, skills and attitudes required for the course Entrepreneurship.

You are required to go through a series of learning activities in order to complete each of
the learning outcomes of the module. Follow these activities on your own and answer the Self-
Check at the end of each learning activity.

If you have questions, don’t hesitate to ask your teacher for assistance.

WHAT DO YOU
ALREADY KNOW

PRE TEST
Answer the questions below honestly. Write the letter only of your answer in
your activity notebook.

Department of Education
Division of Occidental Mindoro
1. The term legal form refers to the type of business ownership. Which type of business
ownership is the simplest and most common?
a) Cooperative c) Partnership
b) Corporation d) Sole proprietorship

2. Partnership is a business form owned by two or more persons. Which among the choices
below is NOT an advantage of partnership?
a) If one partner commits mistake, the other has to suffer the consequences.
b) No income tax is levied on the partnership itself but on the owners as individuals.
c) Partners agree as to when the partnership will end.
d) Partners decide as to who shall pay debts in case the business is unable to pay its
liabilities.

3. Which of the following is NOT an advantage of a corporation?


a) Corporation continue to exist for a maximum of 50 years
b) Continuity of existence is not affected by death of a stockholder
c) Each stockholder shares in the ownership of the company, together with the
incorporators.
d) Subject to a more government control.

4. Which of the choices below makes sole proprietorship advantageous to the owner?
a) All profits goes to the owner
b) All the risk are for the owner
c) Owner shoulders any liability incurred in the business.
d) Unlimited liability

5. Which of the choices below is NOT true about a cooperative?


a) Each member is entitled to only one vote
b) Initiated by individuals numbering from a minimum of five to a maximum of fifteen
c) Owned by twenty-five or more individuals
d) Responsibility for paying liabilities is borne equally by the members

LESSON 7

DIFFERENTIATE THE LEGAL FORMS OF BUSINESS OWNERSHIP


WHAT IS THIS LESSON ABOUT?

This lesson discusses the fundamental skills in managing a business.

WHAT WILL YOU LEARN?

At the end of the lesson, you should be able to:

Department of Education
Division of Occidental Mindoro
1. identify the legal forms of business ownership; and
2. discuss the advantages and disadvantages of the legal forms of business.

LET US STUDY

Words to Study
Legal forms refer to the documents of ownership of a business.
Business is a legally recognized organization designed to provide goods and /or
services to consumers.
Enterprise is a business undertaking
Proprietorship is the state or right of a proprietor or owner.
Liability refers to the amount that is owed.
Transaction is a business deal or agreement.
Income is the gain or recurrent benefit usually measured in money that derives from
capital or labor.

Deciding the business ownership


A business first exists in your mind is an idea. When this idea is developed and put into
writing, it becomes a plan. As you gather your resources be it material or human resources, you
are making your plan into a reality. And when you register it, it becomes a legal entity, with
appropriate rights and responsibilities.

Once you have identified your project or business, you are ready to organize and set
up your own enterprise. This means that you have to decide on its forms of ownership then
later the location, hire and train personnel, raise funds, acquire machinery and equipment,
and finally register the business.

The term legal form refers to the form of ownership of a business. You may decide to share
ownership with other people if you are not the only source of project ideas or if you do not have
enough capital and experience to start the business on your own.

Sole proprietorship. A sole proprietorship is a business unit owned and managed


by only one person. It is the simplest and most common form.

Most small businesses start as sole proprietorships. Here, you and the business are
essentially one. You, as the sole proprietor owns all the assets.

As such, you will exclusively enjoy the benefits to be derived from the business. If you
decide to become a sole proprietor, you do not need to consult anyone on matters related to
setting or running the business.

Advantages of a Sole Proprietorship Disadvantages of a


Sole Proprietorship
 Relatively low start-up costs
 Greatest freedom from regulation  Unlimited liability
 Owner in direct control of decision-  Lack of continuity in business
making organization
 Minimal working capital required  Difficulty in raising capital
 Tax advantages to owner  All the risks are of the owner

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Division of Occidental Mindoro
 Owner is the boss  Owner shoulders any liability incurred
 All profits to owner in the business
 In cases of death, the business may be
passed on to another by virtue of a will.

Partnership. Under this business form, two or more persons are owners of the business. The
owners define their rights and duties as partners in the business through a partnership agreement.

Advantages of a Partnership Disadvantages of a Partnership


 The partners decide as to who shall be  Any action of one partner within the
responsible for paying debts in case the scope of business binds the other
business is unable to pay its liabilities partner as well. Thus, if one partner
later. commits a mistake, the other has to
 They agree as to how much will be the suffer the consequences as well.
share of each one in the profits of the  Partners also have to be consulted each
business and what business time a decision or action concerning the
responsibilities will be assigned to each. business needs to be made. This means
 The partners agree as to when the taking more time to get things done.
partnership ends such as when one
partner agrees to a buy-out offer or
when one of the partner dies.
 No income tax is levied on the partnership
itself but on the owners as individuals.

Corporation: This business form is initiated by individuals called incorporators,


numbering from a minimum of five to a maximum of fifteen.

Advantages of a Corporation Disadvantages of a Corporation


 The incorporators put up the initial or  The corporation is subject to more
starting capital of the business. To get government control.
additional capital, shares of stocks are  The corporation is relatively complicated
sold to interested parties called the in form and management. It needs high
stockholders. cost of formation and operation.
 Each stockholder shares in the  Its credit is weakened by the limited
ownership of the company, together liability of the stockholder.
with the incorporators.  It is subject to a heavier taxation.
 The right of the stockholder to vote on  The stockholders’ voting rights have
matters affecting the corporation become theoretical especially in a big
depends on the number of shares he or corporation because of the use of
she holds. proxies.
 The number of shareholders in the  The stockholders have little voice in the
corporation is used as basis for conduct of the business of the
computing the share of each one in the corporation.
profits of the corporation. This share is
called the dividend.
 The life of the business does not depend
on the stockholders.
 It has continuity in existence for a

Department of Education
Division of Occidental Mindoro
maximum of 50 years.
 Continuity is not affected by death of a
stock holder or by the transfer of shares
of stocks from one stockholder to
another.
 In case of losses, liabilities are settled
through the sale of the assets of the
corporation.

LET US REMEMBER

An entrepreneur should carefully choose what legal form of business he has


to venture. He has to consider or study very carefully the advantages and
disadvantages of each.

LET US APPLY WHAT YOU HAVE LEARNED

Activity 1

Read the following carefully. Then answer and discuss the questions at the end of the story. Write
your answer in a separate sheet of paper.

Jane and Rose are best of friends working in the same agency. While they were having
their coffee break one day, Rose having three children going to school complained to Jane how
difficult to make ends meet with the meager salary they are receiving. When Jane heard her
friend, she said “why don’t you put-up a sideline? You are a good cook. You can sell peanut
adobo, brittle, peanut butter or other food products. I am sure you will not have problems in
terms of raw materials because these raw materials are abundant in our community.

Rose is sold to the idea and persuaded her friend to be her partner. The two friends
contributed P2,000.00 each to start the business. They agreed to have equal profit. Rose would
take care of production while Jane will concentrate in marketing.

Jane started getting orders while Rose concentrated in cooking. When they succeeded in
getting big orders they decided to register their business as a partnership under the name R & J
Food Products. From then on, their customers have regular orders and even becoming bigger.

After six months of operation, the partners earned P20,000.00 and they decided to divide it
equally between them. Meanwhile, Rose was exhausting herself with her production efforts, while
Jane’s life went on very casually because once the first orders have been booked, most of the
buyers placed repeated orders.

Before the business reached its first year anniversary, Rose got sick and advised to rest.
Rose can no longer cook and Rose husband’s forbade her to continue the business.

1. What went wrong with the business?

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Division of Occidental Mindoro
2. If you were Rose would you enter into a partnership with a friend or would you register the
venture as a sole proprietorship?

3. Were the partners right in splitting the profits equally?

4. Discuss the advantages and disadvantages of partnership.

HOW MUCH HAVE YOU LEARNED?

POST TEST

Direction: Select the letter of your answer and write it on a sheet of paper.

1. The term legal form refers to the type of business ownership. Which type of business
ownership is the simplest and most common?
a) Cooperative c) Partnership
b) Corporation d) Sole proprietorship

2. Partnership is a business form owned by two or more persons. Which among the choices
below is NOT an advantage of partnership?
a) If one partner commits mistake, the other has to suffer the consequences.
b) No income tax is levied on the partnership itself but on the owners as individuals.
c) Partners agree as to when the partnership will end.
d) Partners decide as to who shall pay debts in case the business is unable to pay its
liabilities.

3. Which of the following is NOT an advantage of a corporation?


a) Corporation continue to exist for a maximum of 50 years
b) Continuity of existence is not affected by death of a stockholder
c) Each stockholder shares in the ownership of the company, together with the
incorporators.
d) Subject to a more government control.

4. Which of the choices below makes sole proprietorship advantageous to the owner?
a) All profits goes to the owner
b) All the risk are for the owner

Department of Education
Division of Occidental Mindoro
c) Owner shoulders any liability incurred in the business.
d) Unlimited liability

5. Which of the choices below is NOT true about a cooperative?


a) Each member is entitled to only one vote
b) Initiated by individuals numbering from a minimum of five to a maximum of fifteen
c) Owned by twenty-five or more individuals
d) Responsibility for paying liabilities is borne equally by the members

6-15. Answer the following questions. (5 points each)

1. If you engage into business, what form of ownership would you choose and why?

2. Conduct a simple survey in your community. Find out what business forms are existing.
Present your findings to class.

ANSWER KEY

Pre-test Post-Test

1. d 1. d
2. a 2. a
3. d 3. d
4. a 4. a
5. b 5. b

Department of Education
Division of Occidental Mindoro

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