CHAPTER ONE

An Overview of Management and Organization

Introduction
The satisfaction of human wants is a universe concern and this is the basic reason why
organizations are established. Limited resources and the ever−increasing demand for food,
shelter, security, and other basic necessities drive people to devise or use means to ensure that
the right moves are undertaken to satisfy those needs.
A positive approach is the adoption of effective and efficient schemes related to management
and organization. Governments, business firms, and even nonprofit organizations ae expected to
manage their resources properly, or they will fail in the attempt to contribute their share in the
alleviation of property they want.
The foregoing brings the fore the importance of studying management and organization. This
chapter, as well as the succeeding ones, attempt to support the above−mentioned statement.

WHAT IS MANAGEMENT?
Management may be defined as the achievement of organizational objectives through people
and other resources. It consists of several functions, which may be briefly defined as follows:
1. Decision making is the process by which a decision maker determines the available
alternatives and chooses the best solution that suits a given problem.
2. Planning is the process of establishing objectives and suitable courses of action
before taking action.
3. Organizing is the process of arranging an organization’s structure and coordinating
its managerial practices and use of resources to achieve its goal.
4. Staffing refers to the process of recruiting, placing, training, and developing
personnel.
5. Communicating refers to transferring information from one to communicator to
another.
6. Motivating refers to the act of giving employees reasons or incentives to work in
order to achieve organizational objectives.
7. Leading is the process of directing and influencing task−related activities of
organization members.
8. Controlling is the process of controlling actual organizational activities to see that
they conform to planned activities and correcting deviations or flaws.
EFFECTIVENESS AND EFFECIENCY: A BASIC REQUIREMENT
An organization can only survive if its activities are effective and efficient. It is the
responsibility of the manager to see that his organization will achieve its objectives effectively
and efficiently. This is so even if such objectives are parts of a bigger objective.
Effectiveness is a central element in the management process, which requires the
achievement of the objective. For instance, a manufacturer chooses a supplier who provides
needed materials at the required time and quantity. The action qualifies the effective.
Efficiency is also a central element in the management process, which requires that the
minimum amount of the resources is used to achieve an objective. In the example cited above,
the manufacturer may be able to get supplies from his chosen source, but if the costs associated
with the purchase are too excessive, the operation will be inefficient and may place the
organization in the disadvantageous position. This is especially true if profitability is
compromised.
Too much emphasis on efficiency, however, may affect effectiveness rendering any
productive effort useless. An example is the trader who regularly deliver his products to
customers. If he tires his delivery van are the lowest price but of the poorest quality, he may not
be able to fulfill his commitments in time, making his service ineffective and eventually
jeopardizing his business will be in trouble.
It appears that the secret is to have a nice balance of both effectiveness and efficiency. To
emphasize one and disregard the other is not in keeping with good management practices.
WHAT IS A MANAGER?
A manager is one who plans, organizes, leads, and controls other individuals in the
process of pursuing organizational goals. Managers are vested titles like president, department
head, dean, administrator, supervisor, team leader, and the like.
The manager is the one responsible for accomplishing the objectives of his particular unit,
which could be a whole organization, a particular department, or a work group.
Managers are responsible for using materials and talents in the most economical and
productive manner. As such, they are regarded as very important, if not the most important
factor in the economic development of the nation.
THE LEVELS OF MANAGER
Managers function according to the levels they are in. In a small organization, there
normally be just a single manager who is expected to perform all the managerial roles and tasks.
In the transition from a small to a large organization, there may be two levels of mangers
who divide among themselves the managerial roles and tasks.
There are times when the size if the organization justifies setting up three levels of
managers: the top management, the middle management, and the lower management. Figure 1
shows the levels at the various stages of organizational growth.

SMALL MEDIUM LARGE

ORGANIZATIONS ORGANIZATIONS ORGANIZATION

Single
Top Top
Manager
Managers Managers

Employee Front Middle

s Line Managers
Managers

Front
Employees Line
Managers

Employee
s
 FIGURE 1
Level of Managers
(By size of organization)
Top Managers are responsible for the overall performance of the organization. They
formulate strategies, provide leadership, evaluate and shape the method of organizing, and
control the direction of the organization in the effort to accomplish goals. Top managers usually
hold titles such as chief executive officer, president, chairman or senior vice president.
Middle Managers direct the activities of the other managers and sometimes also those of
operating employees. They work with top managers and coordinate with peers to develop and
implement action plans to accomplish organizational objectives. Example of middle managers
are the dean of the business school in a university, the plant manager in a manufacturing
concern, and a branch manager of a trading firm.
Lower level managers are responsible of leading employees in the day−to−day tasks,
which contribute to the organization’s goals. Of the various levels of the managers, they are ones
in direct contact with the employees. Because of this, they are also referred to us “fist line” or
“front line” managers. Apart from performing the other managerial functions of planning,
directing, and organizing, their tasks include correcting errors or solving problems directly
related to the production of goods and services.
MANAGEMENT SKILLS
The effective and efficient performance of management functions such as planning,
organizing, leading, and controlling are possible only if the manager is well−equipped with the
necessary management skills. Such requirements may be briefly described as follows:
1. Technical skills refer to the abilities to use special proficiencies or expertise in
performing specific tasks. They refer to the use of tools, techniques, and specialized
knowledge. Examples of technical skills are an accountant preparing a financial report,
an architect working on a building plan, and a professor writing a book.
2. Human Skills refer to the abilities to work well in cooperation with other persons;
whether they are subordinates, peers, or superiors. A person with good human skills
will have a high degree of self−awareness and a capacity for understanding or
empathizing with the feelings of others.
3. Conceptual skills refer to the ability of the manager to see the organization as a whole
and to solve problems in ways that benefit the total system. Specifically, the manager
who possesses these skills is expected to analyze and solve complex problems. Thus,
the manager with good conceptual skills will have mental capacity to perform the
following:
a. Identity problems and opportunities;
b. Gather and interpret relevant information; and
c. Execute problem−solving decisions that serve the organization’s purpose.
Examples of the situations that require conceptual skills include the promulgation of a
new law. In a company, a manager’s conceptual skills are required in decisions such as
those that affect the selling procedure of the organization in choosing where to
establish a branch of the company.
MANAGERIAL ROLES
The manager is expected to lead his unit or department in achieving its objectives. As
such, he is bound to interact with people and deal with process. In the attempt to produce
results, the manager assumes roles as varied as the following;
1. Interpersonal Roles. These are the roles the manager plays when he interacts with
others. The specific roles under this category are:
a. Figurehead. When the manager perform this role, he acts as the symbolic head pf
the organization and as a result, he is expected to perform a number of duties of
legal or social nature. For example, when a manager cuts the ceremonial ribbon of a
company−sponsored project such as a school building, it provides an example of his
figurehead role.
b. Leader. This role makes the manager responsible for the motivation and activation
of subordinates. As such, he is responsible for actions in staffing, training, and other
 associated duties. He performs the role of leader in virtually all managerial activities
involving subordinates.
c. Liaison. In assuming the liaison role, the manager makes contacts with individuals
in and out of the organization to facilitate the accomplishment of work in his
department. Examples such activities are acknowledgement of mail, external board
work, and other activities involving outsiders.
2. Information Roles. A very important aspect of the manager’s job is to receive and
communicate information. Such roles are vital to his decision making tasks. If he wants
to his subordinates to improve the quality of their decisions, he provides them with
information.
On receiving and sharing information, the manager assumes three specific roles.
These are briefly described as follows:

a. Monitor. In making the right decisions concerning various aspects of an

organization, the manager is expected to collect information that will be useful in
performing his job. This information is shared with other members of the
organization whenever they are needed.
In acting as a monitor, he handles all mails and contacts categorized as concerned
primarily with the receiving information using such sources as news bulletin, special
magazines, and observational tours.
b. Disseminator. There are certain types of information that the manager may
consider useful to his subordinates. When he receives such information from
outsiders or from subordinates, he transmits them to the concerned members of the
organization. Some of this information may be factual, and some may involve
interpretation and integration. As information disseminator, the manager sees to it
that relevant incoming information is properly shared with subordinates.
c. Spokesperson. There are occasions when outsiders seek information about the
organization and the manager, as spokesperson accordingly. He is serves as expert
on organization’s industry.
To effectively perform the role of spokesperson, the manager sees to it that his
views are heard on occasions requiring his presence such as board meetings. He
also maintains contact with the outsiders and provides information when they are
required.
3. Decisional Roles. The major part of the manager’s job is to make decisions. As such, he
must use the information he processes to make decisions that solve problems.
As decision maker, the manager assumes the following roles:
a. Entrepreneur. In acting this role, the manager searches the organization and its
environment for opportunities and initiates projects to bring about positive change.
He also supervises the design of certain projects. His role as entrepreneur requires
his participation in strategy and review sessions involving initiative or design of
projects to improve performance.
b. Disturbance Handler. Sometimes, organizations face important but unexpected
disturbance such as striking employees dissatisfied with the compensation scheme,
a disagreement among middle managers involving questions jurisdiction, and the
sudden decrease in sales of the different branches of the organizations. As
disturbance handler, the manager is expected to respond to such unwelcome
pressures by formulating strategies and reviewing such disturbance.
c. Resource Allocator. The manager is responsible for the allocation of organizational
resources of all kinds such as personnel, funds, machines, or buildings and facilities
to individual employees or units. As such, he is expected to be actively involved in
scheduling, acting on requests for authorization, budgeting, and the programming
of subordinates’ work.
WHAT IS AN ORGANIZATION?
An organization is a collection of people working together to achieve a common purpose. It
is the means used by people to achieve certain objectives. A mere grouping of people will not
qualify as an organization unless it has some objectives to achieve. In order to do this, people in
a group must interact, use knowledge and techniques, and work together in patterned
relationship.
Dealing with organizations has become a way of life for all of us. Even if we want to, we
cannot escape their clutches. When we go to school, we reckon with the organization running it.
Our ability to communicate was enhanced to a great degree by organizations like Nokia,
Samsung, Apple, and some others with the latest handy phones they sell.
Charitable organizations like Red Cross, provide assistance to the poor and sick. Local
governments are organizations that run the political affairs of provinces and municipalities.

BASIC PRINCIPLE OF MANAGEMENT AND ORGANIZATIONS

There are certain principles that should be considered in the study of management and
organizations of business enterprises. These principles are enumerated below.
1. Management Principles. The various management principles applicable in managing a
business enterprise are as follows;
a. Division Labor. This means breaking a job into specialized tasks to increase
productivity. For example, the total job of financing appliance sales, may be divided
into tasks such as credit investigation, collection, sales, and accounting.
b. Authority. This is the right of a person in position to give orders and the power to exact
obedience. For example, a sales manager has the right to expect from the sales
supervisors the required volume if sales for a given period.
c. Discipline. This provides uniform application of behavior to certain activities; the
outcome of which is readily predicted. If discipline is not practiced objectives will be
very hard to achieve.
d. Unity of Command. This means that each employee must have only one supervisor.
Reporting it directly to more than one supervisor creates problems and reduces
productivity.
e. Unity of Direction. This means that the efforts of everyone in the organization must be
coordinated and focused in the same direction. It will be hard to achieve organizational
objective if some components of the organization are not moving toward the identified
objective.
f. Subordination of the Individual Interest to the General Interest. This means that the
goals of the organization (e.g., 25% ROI for the current year) should take precedence
over individual goals like a 10% increase in the salaries of certain employees. When
the reverse happens, it will be difficult for the organization to success it goals will
always be set aside.
g. Remuneration. Employees should be paid fairly in the accordance with their
contribution to the organizational effort. This must be applied to salaries, bonuses, and
benefits.
h. Centralization. Power and authority must be centralized as much practicable.
Decentralization must be instituted, however, when the firm grows to a considerable
size
i. Scholar Chain. This means that subordinates should observe the official chain of
command unless authorized by their respective superior to communicate with each
other.
j. Order. This means that human and non−human resources must be in their proper
places. The production manager, for example, must hold office at the production site.
k. Equity. This is the result of kindliness and justice and is a principle to guide
management and employee relations.
l. Stability of Tenure. High employee turnover is counterproductive. To motivate
employees to stay with the company, effective manpower planning and
implementation are necessary.
m. Initiative. Management should encourage employees to act on their own volition when
confronted with an opportunity to solve a problem.
n. Esprit de Corps. This means that manager should emphasize teamwork by building
harmony and a sense of unity among employees. Harmony breeds high morale and is
more productive than discord.

2. Principles of Organization. Knowledge of the basic principles of organization is a useful

guide n organizing business enterprises. These principles are as follows:
a. Principle of objective. The objective of the organization must first be determined and
laid out clearly before any activity is undertaken. The objective will serve as the guide
in determining whether a certain activity is required or not. If the company’s objective,
for example, is to sell financing services, then the entire organization must be built
 around that objective, and every employee of the company must think and act in
terms of selling financing services.
b. Principle of Analysis. Managers in organizations must be able to break a problem down
into its components, analyze these components, and then come up with a feasible
solution. In the attempt to achieve objectives, the analytical ability of managers and
employees will be crucial.
c. Principle of Simplicity. The organization should be built in the simplest manner that
should make the achievement of objectives possible. Only activities that are absolutely
necessary should be undertaken, and those, which are not, should be eliminated. For
example, a business engaged in manufacturing men and women’s clothing should not
include choir singing in its activities. If it does, it will only draw their attention from
becoming more productive.
d. Principle of Functionalization. Business firm are not supposed to be organized to
accommodate individuals. Rather, it should be built around the main functions of the
business. For example, if the company’s objective is to sell financing services, the
functions should be related to such objectives like credit department, financial
planning department, sales, and so forth.

EDUCATING MANAGERS
A very important concern in management is the training managers. Business firms should
make sure that their managers are well qualified to handle the jobs assigned to them. As
mentioned earlier, the skills required of managers in the effective performance of their jobs are
those referred to as technical, human, and conceptual.
Among the three skills, technical is said to be the easiest to acquire. Universities and
colleges provides students with opportunities to acquire technical skills related to management.
These management courses are offered at the undergraduate and graduate levels. Another way
of acquiring technical skills is through company sponsored training programs.
Human skills are more difficult to teach and learn. This is so because human relations
involve many complex emotional elements, and it is not easy to convince students that a
particular interpersonal approach is superior to another. Nevertheless, schools attempt to teach
human skills by requiring business students to take subject in psychology, human behavior, and
public relations. For the most part, however, the prospective manager can acquire human skills
through more direct means like on−the−job training observation tours.
Conceptual skills appears to be the most difficult to teach because it involves mental
habits that have to be developed early in life. As conceptual skills constitute a large part of
managerial skills needed by top managers, executive development programs were designed for
them.
 CHAPTER 2
Business and its environment
INTRODUCTION
Knowledge about management and organization is very useful especially in human
endeavors like operating a business firm. This will be more significant, however, if such is
supplemented by a basic knowledge of business and its environment. This chapter attempts to
provide such requirement.
Business Defined
Business may be defined as all profit−seeking activities and enterprises that provide
goods and services necessary to an economic system. Profits refer to the rewards for business
persons who take the risks involved in producing and marketing goods and services.
KIND OF BUSINESS
According to the nature of the principal activity performed, business may be classified into
three main divisions:
1. Commerce. Business firms, which are engaged in buying and selling of goods and
services, are classified as commerce. Also included in this category are trading,
merchandizing, and marketing. Examples of commerce as a kind of business are
supermarkets, dry goods stores, peddlers, sari−sari stores, importers, and many others.
2. Industry. Industries are those, which are mainly engaged in production. Goods produced,
which are intended for use of business and industry are called producer’s goods.
Industry business may be further classified into;
a. Genetic Industries are those involved in agriculture, forestry, and fish culture.
b. Extractive industries are those involved in the extraction of goods from natural resources,
which include mining, lumbering, hunting, and fishing.
c. Manufacturing industries convert raw materials into finished products. Examples are firms
engaged in the manufacture of drugs, plastics, food, liquor, footwear, motorcars, tools,
office supplies, etc.
d. Construction industries are those engaged in building infrastructure like airports,
seaports, dams, and highways and dwelling units.
3. Services. A service business is one, which sells service to the buyer. Service firms may be
classified as:
a. Recreation− movie houses, televisions, and radio stations, theaters for drama and
stage presentation, resorts, and the like;
b. Personal− restaurants, barber shops, transportation, hotels, tailoring shops, slimming
salons, and the like; and
c. Finance− banks, insurance companies, investments houses, financing institution, credit
unions, savings, and loans associations, and the like.
OBJECTIVES OF BUSINESS
A business firm is established primarily for profit. There are other reasons, however, why
anyone would want to start a business. Some of these are to do work that is enjoyable, to do
something for pleasure and pride, and to achieve financial independence.
Professional managers maintain that a business firm should achieve the following multiple
objectives;
1. Creation and distribution of a product or service;
2. Satisfaction of personal objectives like profits for owners, salaries, and other compensation
for executives, wages and other compensation for employees, psychic income for all,
including pride in work, security, recognition, and acceptance;
3. Protection and enhancement of the human and physical resources of society; and
 4. Economy and effectiveness of operation.
THE ENVIRONMENT OF BUSINESS FIRMS
Organization will succeed or fail depending on the environments that confronts them. The
manager of the particular business organization is not entirely helpless. He can do something
about the environment, or make some adjustments in the organization. Managing environment
requires a clear orientation and an understanding of the factors in the environment that affect
business and the application of the right strategies toc harness these factors to a business firm’s
advantage.
The environmental factors that affect the activities of the organization may be internal or
external.
MATCHING THE ORGANIZATION WITH THE ENVIRONMENT
Why do some organization thrive in certain environments where others fail? The answer
may be derived from determining whether the organization in question is fitted to the
environment where it operates. Not all environments are similar in terms of business
considerations. One environment may be friendly to one particular type of business, while
another may be hostile for that business.
SURVIVAL STRATEGIES IN UNCERTAIN ENVIRONMENTS
To survive and grow in uncertain environments, two general options are available to
business organizations. These are the following:
1. Application of Coping Strategies. Coping strategies refer to the transformation of a part or
all of the organization to make its activities more compatible with existing environmental
issues.
2. Adoption of Environmental Control Measures. Environmental control refers to management
actions to identify and influence environmental factors to obtain more positive effects on
organizational activities.
COPING STRATEGIES
Coping strategies are those used to protect internal operations from the harmful effect of
changes in the environment. These strategies are as follows;
1. Buffering. This refers to setting up buffers for both input and output sides of organizational
activities in order to absorb and cope with the environmental uncertainty. Programs or
practices are instituted to prevent environmental factors from upsetting the production
process. An example input buffer is the stock file of fuel by a shipping company to provide
some assurance of unhampered operation for a certain period.
When the production outputs of finished goods are not disposed as fast as they are
produced, it may cause disruption in the production activities of the firm. If such
disruption jeopardize operations, management may choose to sell their products at
low prices, sometimes even lower than production costs. This action is referred to
as buffering on the output side.
2. Smoothing. Irregular demand is always a problem for many business firms. This is so
because of the difficulty of making adjustments concerning manpower and equipment.
This remedied by smoothing which refers to efforts involved in reducing changes in the
environment. An example of smoothing is the offering discounts during slack seasons like
selling raincoats at big discounts during summer.
3. Forecasting. This refers to making predictions, projections, or estimates of future events or
conditions in the environment in which the organization operates. If forecasting is
effective, the business firm will be able to make the necessary adjustments in its operation
to meet changes on the environment. For instance, a newspaper publisher who was able
to forecast and determine a steady decline in newspaper readership, will have the
advantage of considering other options before the event actually happens.
4. Rationing. This happens when the organization ignores some operation and emphasize
others in order to preserve the most critical functions of the technical core. An example is
the university, which temporarily deploys its research personnel to assist in enrollment
activities. After the enrollment period, the reassigned employees go back to their
permanent units.
5. Boundary Spanning. This is the process of creating jobs or roles in which individual
employees are require to “have strong communication links within their department, with
 people in other units, and often with the external community”. The individuals, called
boundary spanners, gather and collect critical information, which can be used for planning
in the technical core. The information gathered can also be used to reduce uncertainty in
some areas of operation.
6. Structural Complexity. This is when business adapts to the environment by setting up
departments or subsystems that will respond to specific groupings environmental factors.
For example, the production of a book publishing company may create another unit that
will deal with authors’ concerns. Another example is the creation pf senior citizens lanes in
various governments’ offices and large retail establishments.
7. Executive Succession. One way of adopting uncertainty in the environment is the adoption
of an effective executive succession. The replacement of a top manager by another
manager is referred to as executive succession. The following advantages may be derived
from an effective executive succession:
a. Enables the organization to hire executives with the new energy and vitally;
b. Provides organization with the way to bring in specific skills needed to analyze and
respond to the environment; and
c. Provides a coordinated means of replacing retiring executives
ENVIRONMETAL CONTROLLING
So far, the discussion have focused on how business firm can apply specific strategies to
cope with the changes in the environment. The business firm has another option, however. It
may make some moves to control the environment. Controlling the environment consist of two
categories. They are as follows:
1. Creating Favorable Linkages. The objective pf creating favorable linkages is to reduce
environmental uncertainty. This can be achieved by using any of the following methods:
a. Merges. There are times when the activities of one business firm cause uncertainty to
another. For instance, a certain manufacturer of grocery products failed several times
in its commitment to deliver items that were purchased earlier by a big retailing firm.
To reduce or eliminate this uncertainty, the big retailer decide to acquire the supplier
company. Such move is called merger, and it constitutes method for controlling the
environment.
b. Joint Ventures. There also times when a company finds it difficult to operate in a
particular market, especially those located overseas. A car manufacturer, for instance,
may create a favorable linkage by forming a temporary business partnership with a
local distributor. Such method or reducing environmental uncertainty is called joint
venture.
c. Interlocking Directorates. When some members of the board of directors of one
company is also member of the board of another company, such arrangement is called
interlocking directorates. This happens when the expert need by the company is a
current member of the board another corporation. A retired bank executive, for
instance, may be recruited to sit on board of directors of a company even if he is
currently a member of the board of another company.
d. Executive Recruitment. Companies hire executives who has prior experience in the
industry. For instance, it is not hard to determine the benefits that may be derived by a
local university which recruits as president a recently retired regional director of a
government agency which oversees the operation of local colleges and universities.
e. Institutional Advertising. This type of advertising is designed to build goodwill for a
company among stockholders, employees, distributors, the public, the government. An
example is the advertisement of Our Lady of Fatima University congratulating its
graduates who declared topnotches in the board exam for physicians, nurses, physical
therapists, and medical laboratory science (Philippine Star, March 4, 2012, p.17)
f. Resource Flows. This terms refers to the pattern of resource exchanges between the
organization and other organizations in the environment. In the attempt to control the
environment, the manager can make important decisions on the pattern of exchanges.
His options fall under any of the following:
i. Frequency of exchanges. For instance, a university may decide to set
relationships with many book distributors or to rely only on one distributor. Once
the relationship is established, the university may choose to buy books more
often or occasionally.
 ii. Quantity Involved in the Exchanges. A decision may also be adapted on the
quantity of books that will be purchased. All of the above will be done in the
interest of better performance in the organization.
2. Manipulating the Environment. Organization may attempt to manipulate the environment
by using any or all of the following;
a. Changing Elements. A business organization may seek to manipulate its environment
by changing one or more environmental elements in which it operates. For example, a
large distributor of motorcycles signed an exclusive distribution contract with the
manufacturer of Suzuki Brands. The benefit offered to the distributor is substantial
financing support provided by the manufacturer. After more than ten years of
successful operations, the manufacturer of Yamaha, Kawasaki, and Honda motorcycles
made a successful penetration of the various market segments including those served
by the Suzuki distributor. The viability of the distributor’s operations was placed in
jeopardy. To avoid the consequence of declining sales, the distributor changed its
competitive element of a single brand dealership to a multi−brand leadership. This
change brought the distributor back to its former competitive strength.
b. Lobbying. This term refers to the act of attempting to influence business and
government to crate legislation or conduct an activity that will help a particular
organization. Lobbying usually involves paying an individual to present the interests of
the organization to decision−makers in the government. The lobbyists may be
employees of the organization or may be hired by the organization on a full−time or
part−time basis. An example of lobbyist in the Philippines in PROGUN which “became
heavily involved in political lobbying and advocacy…to protect firearm rights for
Filipinos”
c. Forming Trade Associations. One way of manipulating the environment is through trade
associations, which are composed of member organizations that share a common
interest.
Members of trade associations pool of their resources to influence government policies
affecting their business. There are many trade associations existing in the Philippines.
Some of them are as follows:
i. Philippine Petroleum Sea Transport Association, Inc.
ii. Association of Petrochemical Manufacturers of the Philippines
iii. Cement Manufacturers Association of the Philippines
iv. Association of Flexible Packaging Manufacturers of the Philippines
v. Philippine Appliance Industry Association
 CHAPTER 3
ETHICS AND SOCIAL RESPONSIBILITY
INTRODUCTION
Can business use whatever means, fail or foul, to make profits? May a business firm hire
someone to spy on a competitor’s planned moves? Will be alright for a company’s purchasing
officer to receive gifts from a supplier? May a company continue to manufacture products whose
chemical residues harm the environment? These and other similar business behaviors happen
every now and then, but should the propriety of such actions to be concerned of business firms?
If allowing the foregoing actions become the norm rather that exception, would it be to
the best interest of everybody including business firms? Answers to such question permeate a
body of principles that modern business persons try to consider in the pursuit of their goals.
Philosophers maintain the view that society with a low regard morals will disintegrate after
a period of time. To avoid chaos and destruction, and to make “life in society possible”
adherence to the practice of moral principles regulating human relations becomes necessary.
The above concerns direct out attention to the twin topics of human business ethics and
social responsibility.
WHAT IS BUSINESS ETHICS?
To obtain the proper perspective in defining business ethics, some basic terms must
be cleared first. Ethics refers to the study of morals and moral choices of human beings. The
subjects covered by ethics include the behavior of individuals and groups, which are governed by
standards, rules, and codes of conduct. The moral principles defining right and wrong behavior of
businesspersons and their agents are called business ethics. It implores them to adhere to
certain ethical conduct when dealing with people especially those affected by their business
activities.
THE NEED OF ETHICAL BEHAVIOR
People in highly developed economies were at first to experience and to be aware of
unethical behavior of business firms. Many of them pushed for exchanges in the way
businesspersons pursue their trade. Some of their ideas found their way in legislative bodies,
which later accommodated them by passing laws in support of their agenda on business ethics. A
long process is undertake before an issue on ethics become a law, even if many of these
concerns remain discretionary on the part of the businessperson.

PUBLIC OPINION

Issues on Business Ethics

 Some Issues are Some Issues are Left to the
considered by Congress Businessperson to consider

A few issues Some issues

are passed are A few issues Some issues
into law disregarded are are
considered disregarded

AREAS OF CONCERN FOR BUSINESS ETHICS

Ethics covers all areas encompassed by business transactions. The ethical conduct of
businesspersons may be measured against how the following are adhered to:
1. Laws and regulations promulgated by the government ; and
2. Specific ethical required but not yet passed into law
The following are concerns relating to laws and regulations requiring ethical behavior:
1. Product safety and quality;
2. Fair employment practices;
3. Fair marketing and selling practices;
4. The use of confidential information for personal gain;
5. Community involvement;
6. Bribery; and
7. Illegal payments to foreign governments to obtain business.
THE IMPROVEMENT OF ETHICAL PERFORMANCE
Improvement in the ethical conduct of business and those involved in it may be made
through any of the following ways:
1. Ethics Training. If the ethics is really an important aspect of managing business, then its
practice should be expected from the firm’s management and rank−and−file employees.
The acquisition of knowledge in ethics, however, precedes effective implementation.
Learning takes two forms through formal classroom instruction and through actual
hands−on experience and observation.
Formal training in ethics may be made in shorter period than through actual
hands−on experience. When ethics training courses are carefully designed and
administered, they make a positive contribution to the company.
2. Ethical Advocates. An ethical advocate is a person who is knowledgeable about business
ethics, employed by the company, and acts as the company’s conscience. He sits at the
board of directors and sees to it that every policy adapted conforms to ethical standards.
As it is always possible for a group like the board to commit the groupthink and
blind conformity errors, the contribution of the ethical advocate cannot be
discounted.
3. Ethical Codes. Codes of ethics are documents that specify practices that are unethical and
which the company expressly forbids. Examples of unethical practices are kickbacks,
payoffs, receiving gifts, falsification of records, and false claims about products. These
formal documents provide clear directions to management and employees in the
performance of their duties.
The effectiveness of ethical codes depends on the support of top management. If it
is implemented partially or inconsistently, it will just be another piece of paper with very
little value to the organization.
An ethical code of sorts was considered to be in force at the international level by
the 29−member nations of the Organization for Economic Cooperation and Development
 (OECD). The agreement between the nations outlaws bribery as a means used by
companies to win overseas contracts.
4. Whistle−Blowing. There are instances when employees are helpless that they cannot
implement the right ethical conduct required in specific situations. When almost
everybody from top to lower management acts outside of ethical norms, the employee
who feels he must do something resorts to reporting the perceived unethical practice to
outsiders such as the press, government agencies like the Ombudsman and the
Presidential Anti−Commission, public interest groups. This action is referred to as
whistle−blowing.
WHAT IS SOCIAL RESPONSIBILITY?
Social responsibility refers to the concern of business for the welfare of the society.
This definition indicates that the firm must perform its function without harming the
community. It must improve the quality life. It must produce goods or services that will not
adversely affect any component of the society. It can make profits but not to the
detriment of society.
Movies, for example, may be produced and shown to the public, but they must not
be those that devalue morals. Songs may be written, recorded, and sold to the public, but
they must not disregard good taste. Cars may be manufactured and sold, but they must
not be harmful to people when they are used.
INTEREST GROUPS
There are various groups with interests that are different from one another. These
interests must be properly considered by the business firm for it to be successful.
The Business Firm and Various Interest Groups
1. Owners. The interests of the owners (the sole proprietor, the partners, or stockholder)
are expected to be the highest priority. For some reasons, this does not always
happen. The biggest incongruence lies in the corporate form. Because the sole
proprietor directly controls business operations, the highest possible profits may be
expected. This is not so in corporations because ownership and management have
interests that are not wholly similar.
2. Consumer. They constitute a very important group, which must be handled with some
degree of responsibility. Consumers, like any other groups, have rights. The basic
rights of the consumers include those concerning representation, information, a
healthy environment, safety, basic goods and services, choice, consumer education,
and redness.
3. Employees. Business firm should regard employees as among its greatest concerns.
Employee welfare is of utmost importance. Among specific points of interest in caring
about employees are:
a. Healthy and safely. Management should be concerned with reducing incidents of
work−related sickness and injury. Workers in a factory, for instance, must be
informed or properly trained in the use of certain equipment and materials as some
of these pose great risk harm to the workers. Whenever necessary, workers must be
protected with masks or appropriate clothing. The factory and the office must be
kept safe and free of hazards.
b. Appropriate salaries and employee benefits. Employees must be paid with salaries
commensurate to their talents, skills, training, and education. Managers are advised
not to play games with compensation. If they do not live every written and oral
agreement, they risk losing respect.
c. The right to speak out. The right to speak out is everyone’s right in a democracy.
Employees must not be deprived of this right by virtue of their employment.
d. The right to privacy. Employees have the right to live their own private lives without
interference from their employers. Data on personal finances, health, travel abroad,
and affiliation with the organization and other persons must not be concerned of
employers regarding their employee.
e. The right to job security. Employees must be assured of security tenure. They must
not be threatened with dismissal unless there are valid reasons.
4. Minority groups. Various minority groups are found all over the Philippine archipelago;
the Aetius, the Igorot’s, the Damages, and the Ibanags are examples. The denigration
of these groups as second−class citizens or funny looking people including their
conclusion in demeaning scenes in the media happen every now and then. While this
wrong attitude towards minority groups has spilled over into the business community,
management must treat them as equals as far as their employment and promotion are
concerned
 Newspaper abound with reports that cultural minorities are sometimes
affected adversely by the activities of business firms. The construction dams, for
instance, displaces people living in the affected areas. Providing them with
suitable sites for residence and livelihood is a step on the right direction.
5. Women. They constitute a potential force to make business progressive. In spite of
findings that women are no less ambitious than men, no less motivated to do a good
job, and no less qualified, they are still under tapped as a business resource. According
to “The Barriers for the Women in Career Advancement” by Essays, UK, their being
females, most often, bar them of from getting promoted. The view that management
must have is to regard women as a force with potential to leads as much as to follow.
6. Older People The government is slowly recognizing older people, as a group. They are
regarded as “senior citizens” with privileges like discount in many business
establishments. Private companies as security officers hire retires from the armed
forces. Some of them even become directors or consultants of big corporations.
Older people have distinct needs that must be the concern of business.
Many of them are highly qualified and are able to perform special tasks, which
younger people cannot do. Most often, these special tasks are acquired after long
year of experience working on particular jobs. An example is distinct expertise in
communicating with a particular minority group.
7. The Handicapped. Since handicapped persons may contribute positively to the firm’s
objectives, they must not be discriminated against in any activity like hiring and
promotion. The firm’s management must be responsible for removing hazards and
obstacles, which prevent them from doing their jobs effectively. Facilities that are
especially designed for the handicapped, like special stairways and washrooms, are
now utilized by the more progressive companies. The current trend that allows
employees to do their work at home is also a handicapped−friendly feature of modern
business.
8. The Community at Large. People living communities have problems in common. Some
of these are related to pollution, traffic, substandard products, unfair business
practices, and so on. As a result of these concerns, responsible persons have formed
groups to monitor and recommend appropriate actions to government agencies
Companies that pollute rivers and interesting cases in point. These negative
actions become the subject of criticisms regularly presented in the press. If the
concerned companies do not respond favorably to reasonable request from the
populace, they may find their products or services boycotted in the market.
Nowadays, managers can longer operate as they did twenty or thirty years ago.
There are business activities that may affect any of the widely diverse interests of
people. The modern managers must have multiple abilities and an open mind if he
wants to succeed in his endeavor. It is not now uncommon to find big corporations
assisting rural communities by providing funds for construction of school buildings.
BENEFITS AND COST OF SOCIAL ACTIONS
If business firms are socially responsible, will it be good for business? To property answer
this question, the benefit and the cost approach may be useful.
Benefits
Companies that are socially responsible reap benefits, which may be direct or indirect.
Among the possible benefits are as follows:
1. Improved Employees Satisfaction and Motivation. A socially responsible company is
more likely to provide job satisfaction to its employees. They are also more motivated
to achieve the organization’s goals. When employees know that the products they are
manufacturing, for instance, may harm people, there will be some lingering doubts in
their minds or whether or not it will be right for them to push through with their
assigned tasks. This will affect their concentration and ultimately, their production.
2. Becoming More Aware of Changing Consumer Tastes and Preferences. When the firm
research includes identifying social needs that can be served, it will only be a step
away from knowing any changes in consumers taste and preferences. For instance, a
furniture manufacturing firm that sponsors a social projects on the preservation of
 forests will be able to surmise that consumer would prefer to buy furniture that uses
less or no wooden components.
3. Greater Demand for the Company’s Products and Services. Consumers currently have
better access to information. They get these from the broadcast and print media. This
access to information enables them to identify companies that are socially responsible.
As information is used by consumers in their purchasing decisions, socially responsible
companies may find greater demand for their products and services.
4. Preference for Socially Responsible Companies by Investors. Companies that are
socially concerned may find their stocks sold in the market at a higher market price.
This is the effect of greater demand for the company’s products and services, which, as
has been mentioned earlier, is a result of socially responsible actions.
5. Elimination of Legislative Controls on Business Activity. When social issues become the
concern of legislative bodies, sanctions and other prohibitions may result in more
opportunities lost and lesser chances of profit−making for the firm. When labor laws
were not yet enacted, it was easier to terminate the services of inefficient employees.
Because of abuses, however, laws were passed to protect the efficient ones. The
unwanted effect is that it became difficult to dismiss even the inefficient.
Costs
Even if socially responsible action have benefits, they “cannot be undertaken” without the
attendant cost. These cost refer to the following:
1. Money Spent in Support of Social Projects. To support social projects, funds have to be
taken from whatever source is available within the firm. Most often, this will reduce
whatever amount is available for capital spending. If media reports are true, the money
spent by some big corporations for socially related projects are substantial and could be
used for other purposes.
2. Reduction of Competitive Power. When the company to finance social projects uses part of
available funds this will reduce he funds that could be used for competitive purposes. For
instance, if the company has the money to buy additional delivery equipment to serve of
growing numbers of consumer, but the money is diverted instead of to financing a social
projects, the result could be that some customers will not be served. Competitors who are
not involved in funding in social projects will be happy to note that the firm competitive
power is reduced.
When a firm is not able to keep its competitive stance, there is no assurance that it
will be operating for a long time. Layoffs become a possibility and when they happen, no
amount of social concern for society will bring it back to its feet.
3. Government Regulations May also be Imposed. Even if a company is acting in a socially
responsible way, there is still a chance that the government will step in and impose
regulations even in long areas covered by the company’s social actions.
SOCIAL RESPONSIBILITY STRATEGIES
If the company has already decide on becoming socially responsible, it can do so by
adapting a systematic approach. The approaches are expressed in four basic social
responsibility strategies as follows:
1. Reaction Strategy. In using this strategy the company allows a condition or potential
problem to go unresolved until the public finds out about it. When a problem is brought
before the company, the firm reacts by denying responsibility, they attempts to resolve
the problem, deal with its consequences, then continue doing business to minimize the
negative impact.
2. Defense Strategy. Under the defense strategy, the company tries to minimize to avoid
additional obligations. Among the tactics used are legal maneuvering and seeking the
support of groups that back up the company’s ways of doing business.
3. Accommodation Strategy. When a business assumes responsibility for its actions it uses
the accommodation strategy. This is done when the special interest groups taking the side
of the opposition, or when the business perceives that if it does not react, law will be
passed by Congress to ensure compliance. This means that the company is forced to
accept its economic, legal, ethical responsibilities.
4. Proactive Strategy. In using proactive strategy, the firm goes beyond what is legally and
ethically required. There are numbers companies using proactive strategy. This is
undertaken through sponsorship of cultural shows offered free to the public, scholarships
 for financially−handicapped but deserving students, financial support for the upkeep of
endangered animal species, and many other similar concerns.
SOCIAL AUDITS
When the organization wants to measure its performance regarding corporate social
responsiveness, it does so by the use of social audit. A social audit refers to the systematic
examination of all activities compromising a firm’s social programs. It measures a company‘s
progress toward achieving social goals such as employment of the handicapped and those
belonging to cultural minorities, adoption of anti−pollution measures, improvement of
working conditions, community development, donations to worthy causes, and various
consumer issues.
A social audit may be done through the preparation of the following:
1. A summary of program areas such as consumer affairs, as well as the reasons for
undertaking certain social activities and not others.
2. A report of specific progress and the priorities for each set of activities.
3. A listing of objectives for each priority activity and a description of how the organization is
striving to reach these objectives.
4. A summary report of the costs of each program area and activity to the company.
5. A summary using quantitative measures of the extent of achievement of each social
objective whenever possible.

CHAPTER 4
FORMS OF BUSINESS PARTNERSHIP

INTRODUCTION
The form of business ownership to adapt is a strategic decision that must be considered at
the inception of the business. The decision may later prove to be supportive of the owner’s
objectives or may be the biggest obstacle to achieving them.
Careful thinking must be considered in determining the ownership form as each of the
various types has its own unique features, as well as advantages and disadvantages.
There are three major types of business ownership: sole proprietorship, partnership,
and corporation.
The minor types of consist of the joint stock company, the joint venture, and the business trust.

Form of Business Ownership

MAJOR FORMS MINOR FORMS

JOINT
STOCK
COMPANY
SOLE CORPORATION
PROPRIETORSHIP
JOINT
PARTNERSHIP
VENTURE

GENERAL LIMITED BUSINESS

PARTNERSHIP PARTNERSHIP TRUST
SOLE PROPRIETORSHIP
The sole proprietorship is a type of business entity owned and operated by a single
person. The big percentage of businesses owned by sole proprietorship indicates the popularity
of this ownership type. This is so because certain advantages unique to sole proprietorships.
Advantages of Sole Proprietorship
Sole proprietorship are afforded with advantages pertaining to the following:
1. Ease and Cost of Formation. Among the three ownership forms, the sole proprietorship is
the easiest and less costly to organize. The only request for its legal existence are the
following;
a. The sole owner’s resolve to start operating; and
b. Getting required permits and licenses.
There are many activities that a sole proprietor can do which are extra difficult to do
under the partnership or corporate forms. An example is the setting of the date
arbitrarily for the actual start of operations. The sole owner may change this date
arbitrarily without consulting anybody.
The cost involved informing the sole proprietorship is less than either the partnership
or corporation. This is because only one person makes the decisions in the actual
permission of the business. Also, documentary requirements are not as extensive as
those of the other two forms of ownership.
2. Secrecy. One way of effectively competing with other firms is to know the moves, as well
as the strength and weaknesses of competition. The sole proprietor has the advantage of
keeping his intentions secret. As he does not have, and is not required by law, to share
information with anyone, he can proceed with his activities in secrecy. His competitors can
only guess what his intended moves are.
3. Distribution and Use of Profits. If because his efforts, the business made some profits, the
sole proprietor is the sole beneficiary. He does not have to share with anyone.
If he decides to use the profits expansions, he is not require to consult anybody. He is free
to use it anyway he pleases.
4. Control of the Business. The owner is also invested with the power to solely control solely
the business and sole authority is very important especially under critical competitive
situations. For instance, a consumer is confronted with a situation where he or she must
chose to buy from a sole proprietorship, a partnership or a corporation. If all the prices
quoted by the three firms are identical and the prospective buyer is asking for a lower
one, the sole proprietor has the advantage of making an immediate decision while the
partners will still have consult with each other. Meanwhile, the corporation may be ready
with a lower quotation only after undergoing a long process. If the prospective buyer is in
a hurry, he or she may have to decide in favor of the sole proprietor.
5. Government Regulations. The sole proprietorship is spared from various government rules,
which apply to the partnership and corporation. Moreover, sole proprietorship are required
by the government to submit fewer reports.
Sole proprietorship are also spared from charter restrictions on operations. An
insurance corporation, for example, cannot engage in the retailing of groceries. On the
other hand, sole proprietorship manufacturing furniture can switch to selling agricultural
products in a few days without worrying about violating any restriction.
6. Taxation. The net income of the sole proprietorship is treated as the personal income of
the sole owner and is taxed accordingly. This is not true with partnerships and
corporations where their respective net income is taxed and will be subject to taxation
again when the owners individually receive their shares of the profits.
7. Closing the Business Sole proprietorships cab be dissolved by the owners at will. Although
this is not always exercised, it remains an option of the owners. If the business conditions
had become unprofitable, the sole proprietor has the advantage of immediate cessation of
operations. This allows him to cut losses to the minimum. Once the owner decides or
partners for he does not have any.
Disadvantage of Sole Proprietorship
The smooth operation of sole proprietorships is hindered by the following disadvantages:
1. Owner’s Lack of Ability and Experience. The success of the sole proprietorship will depend
largely on the management skills of the owners. The firm will need a “generalist” with
 sufficient grasp of the various specialized functions like marketing, production, finance,
accounting, personnel, and research.
Unfortunately, it is difficult to find qualified generalists to manage sole
proprietorship. If the sole proprietor lacks of skills of generalist, then it will be very
hard for the firm to succeed.
2. Difficulty in Attracting Good Employees. Sole proprietorships are not known for surviving
long periods. The existence of a sole proprietorship is to co-terminus with the life of its
owner. As a consequence, good employees tent to get employment in a more stable
enterprise, which is most often a corporation.
3. Difficulty of Raising Capital. In sole proprietorships, raising capital will depend on the
financial resources of the sole owner. Even if he can obtain credit, the amount will depend
on his sole capacity to pay. This problem is especially felt when business expansion is
required and becomes more difficult when credit is getting tight and interest rates become
prohibitive. The difficulty in raising additional capital often aggravates the problem of
meeting competition.
4. Limited Life if the Firm. The existence of the sole proprietorship depends on the physical
well-being of the owner. When he is ill, business operations may be affected. Prolonged
illness may make the firm go bankrupt. His death will mean liquidation of the firm.
In any case, employees, customers, and creditors, are saddled with some degree of
anxiety as a result of the limited life of the firm. This limits the opportunities for growth
and expansion, which could be afforded the sole proprietorship.
5. Unlimited Liability of the Proprietor. Any liability incurred by the sole proprietorship
extends to the owner’s personal assets. In theory, the sole proprietor could lose “even his
shirt” if all his their assets are not enough to cover all claims against his business.
Unlimited liability is the greatest disadvantage of the sole proprietorship. The lives
of quite number of former sole proprietors become miserable because of this
disadvantage.
Partnership
A partnership is a legal association of two or more persons as co-owners of an
unincorporated business.
Advantages of Partnership
Partnerships have the discussion of eliminating some of the disadvantages of sole
proprietorships while retaining some of their advantages. The advantage are as follows:
1. Ease of Formation. Like sole proprietorships, partnerships are easy to form. The only
requirement before the partnership commences operations is for the partners to agree on
the basic aspects of the business like then nature of the business location, capitalization,
and so on. A written agreement called the contract of partnership is drawn to formalize
what has been agreed upon.
2. Pooling of Knowledge and Skills. The combined knowledge and skills of the partners
provide the partnership with a distinct advantage. One partner, for instance, may poses
the required skills in manufacturing, while another has the skills in accounting, and
another in marketing. These skills may be used to the advantage of the partnership. This
condition also paves the way for specialization, which is a very important competitive tool
in business.
The partnership form also has the advantage of inviting a person who possess a
much needed skills as partner if for some reason, he could not be hired as an employee.
3. More Funds Available. The combined resources of the partners provide a bigger source of
funds. The condition leads to a higher credit rating for the partnership. The resources
potentials of the partners combined with a high credit rating result in a formidable
financing capability for the partnership.
4. Ability to Attract and Retain Employees. Attracting and retaining employees is a difficulty
inherent to sole proprietorships. Partnerships have the ability to overcome this difficulty by
offering partner status to valuable employees. This advantage also minimize to potential
harm that may be done by a key employee moving over to a competitor.
5. Tax Advantage. The income of the partnership is not taxed separately from partners’
incomes. Any profits derived by the partners are treated and taxed as their individual
incomes.
Disadvantages of Partnerships
 The operation of partnership are hindered by the following disadvantages:
1. Unlimited Liability. Partnerships, like sole proprietorships, are saddled with the
disadvantage of unlimited liability. Although one or two partners may opt to have limited
liability, the remaining partner or partners carry the burden of unlimited burden.
2. Limited Life. When a partner dies or withdraws from the business, the partnership is
terminated. The life of the partnership, in essence, is more limited than the sole
proprietorship. Whereas, the sole of proprietorship depends on the state of health and
willingness of the sole owner to continue, the life of the partnership depends on the health
and willingness of all the partners. If there are five partners, the risk of discontinuance of
the partnership business is five times greater than with the sole proprietorship.
3. Potential Conflict between Partners. There are occasions when partners disagree on
certain ways of operating the business; and there are many potential areas for
disagreement. Among these are adding new product lines, hiring employees, decisions on
credit extensions, and granting employee welfare benefits.
When conflict between partners persists, operation are affected. This may even lead
to bankruptcy. An employee, for instance, may receive conflicting orders form the
partners. The employee may get confused, which in turn, may affect his or her
performance.
4. Difficulty in Dissolving the Business. Partnerships are not as easy to dissolve as sole
proprietorships. After dissolving the sole proprietorship, whatever assets or liabilities left
are the concern of the sole owner alone. In partnership dissolution, it may not be easy to
divide whatever assets may be fixed or immovable. More difficult dissolution happens
when liabilities are to be shared by the partners.
Types of partnership
Partnerships may be classified according to the liability of the partners. They are as
follows:
1. General partnership. Is an association of two or more persons, each with unlimited
liability, who are actively involved in the business?
2. Limited partnership is an arranged in which the liability of one or more partners is
limited to the amount of assets they have invested in the business.
Corporation
A corporation is an enterprise chartered by law, with the most of the legal rights of a
person, including the right to conduct a business, to own and sell property, to borrow money,
and to sue or sued.
The corporate form of business is the third ownership option to open businesspersons.
Owners of corporation are called stockholders. They are issued certificates of ownership
called stocks. Some of these stocks are openly traded in the country’s stock exchange.
Advantages of Corporation
The advantages inherent to corporations are the following:
1. Limited Liability. The liability of stockholders is limited to the amount of their
shareholdings. A stockholder may lose the entire value of his stocks in the event of
bankruptcy. Beyond the said value, he has no more liability.
The limited liability advantage attracts all kinds of investors, big or small. An
investor who has only few thousand pesos to spare may become a part owner of the
corporation by purchasing a limited number of shares. Those who have more money may buy
more shares.
2. Ease of Expansion. The authority granted to corporations to sell its own shares of stock
provides a means to pool large amounts of funds. The price per share of the stocks could
be made low enough to attract even the smallest investors. Because the ownership of the
stocks can be easily transferred, this provides more reason for the investor to buy stocks.
The ability of corporations may change as often as it could without actually dissolving it.
3. Ease of Transferring Ownership. If a stockholder loses interest in the corporation he partly
owns, he may disassociate himself from it by selling or donating his shares to another
person. In effect, the ownership of a corporation may change as often as it could without
actually dissolving it.
 4. Relatively Long Life. Corporations may be established to have lives up to 50 years and
may be extended indefinitely through renewals of documents. Since ownership is readily
transferable, the death or withdrawal of any or all stockholders does not terminate the
corporation. This advantage makes the corporation the most stable among the three
major forms of ownership.
5. Greater Ability to Hire Specialized Management. The expanded operations of corporations
make it possible to divide the overall job into smaller specialized positions. As the various
positions will be quite dissimilar form each other, the demand for management expertise
will be a little more exacting than those required for sole proprietorships and partnerships.
The said requirement paves the way of hiring fully trained management experts. With
specialized management, the corporation is provided with opportunity to grow and
develop more vigorously.
Disadvantages of Corporation
Corporations have disadvantages. These are the following:
1. More Expensive and Complicated to Organize. Among the three major forms of ownership,
more time and money are required to organize a corporation. It takes months or even
years before a corporation can begin serving its customers. It may start operations only
after receiving a certificate of incorporation from the Securities and Exchange Commission
(SEC). The SEC will only issue the certificate of incorporation if it finds that the articles of
incorporation are fully complaint with the requirements.

The articles of incorporation contains the following:

 The name of the corporation;
 Specific purpose;
 Principal office of the corporation;
 Term of existence of the corporation;
 Names, nationalities, and residences of incorporators;
 Number of directors or trustees;
 Names, nationalities, and residences of directors;
 Amount of authorized capital stock; and
 Other matters.
The treasurer’s affidavit of incorporation and the treasurer’s affidavit must, point by
point, conform to the requirements of the Corporation Code. Complying with these
requirements takes time. However, and this makes it a distinct disadvantage of
corporations.
2. Double Taxation. The profits derived by stockholders are taxed twice by the government.
First, when the corporation realizes profits, and second, when individual stockholders
declare the dividends they receive from the corporation as part of their personal income.
This disadvantage is not present in sole proprietorship and partnerships.
3. More Extensive Government Restrictions and Reporting Requirements. Corporations are
subject to stringent government restrictions and are required to submit various reports on
a periodic basis. An example of a restriction is the prohibition of certain actions by the
corporations are not allowed to distribute stock dividends without first securing the
approval of the SEC.
The submission of financial statement is an example of annual reports required by the
SEC. In complying with this requirement, the corporation is exposing itself to the scrutiny
of its competitor. This is because annual reports are made available to the public.
Competitors do not enjoy this privilege when competing with sole proprietorships and
partnerships.
4. Employees Lack Personal Identification With and Commitment to Corporate Goals. Many
stockholders are detached from the daily operations of the corporation. Those who work
for the corporation mostly do not own the company’s stocks. The relationship between the
corporation and employees is too impersonal. Employees do not feel deep attachment to
the corporation, resulting in less commitment to his work. Employees of sole
proprietorships and partnerships most often know the owners personally. This feeling of
attachment pushes the employee to make the company successful. Such concern is rarely
present in a corporate work atmosphere.

Area of Concern Sole Proprietor Partnership Corporation

1. Liability of unlimited Limited/unlimited limited
owners
 2. Ease of Not easy Not easy Easy
expansion
3. Life of firm Dependent on the Dependent on the Independent of the
owner partners owners
4. Decision Can be made Tends to be slower Tends to be the
making quickly slowest
5. Taxation of Once once Twice
income
6. Ease of easiest easy not easy
formation

Modifications of the Corporate Form of Ownership

The corporate form of ownership has been modified to cater to special needs. Those that
have become popular are cooperatives and mutual companies.
Cooperatives
A cooperative is defined as an “organization composed of individuals or small businesses
that have banded together to reap benefits of a larger organization.” A cooperative is an
organization composed of individuals or businesses that have banded together to reap the
benefits of belonging to a large organization. Cooperatives are not organized for profit, but to
make its members individually profitable or to save money.
Cooperatives are of various types. They are classified according to the special interests of
its members. They are as follows:
1. Credit Union- accepts deposits from members and lends money to its members at a very
reasonable interest rate.
2. Producers Cooperative- assists one another in the procurement of raw materials,
machinery, equipment, and other time-saving devices.
3. Marketing Cooperative- assists members in the marketing if their produce.
4. Consumers Cooperative- provides members with quality goods and services at reasonable
prices.
5. Service Cooperative- makes services readily available and at lower price.
OTHER FORMS OF BUSINESS ORGANIZATION
Minor forms of business consist of the following:
1. The Joint Stock Company. Bannock and others define joint stock Company as “a form of
business enterprise in which the capital is divided into small units permitting number of
investors to contribute varying amounts of the total, profits being divided between
stockholders in proportion to the number of shares they own.”
2. The Joint Venture. It is the best regarded as particular partnership established for a
specific undertaking. This type of organization is created for the purpose of bringing
together several partners to engage in a business activity, which is normally very
specialized and which exists for a limited, specific purpose. A joint venture is mostly
firmed the purpose of producing a movie or a concert, engaging in oil or mining
underwriting or selling of securities.
3. The Business Trust. It is a legal form of organization in which a trustee is appointed to
manage the business and its operations through relationship. Under the trust agreement,
the owners of property, securities, or other assets convey these to a trustee in exchange
for transferable trust certificates. The certificates entitle the owners to participate in the
profits of the operation. However, the liability is transferred to the trustee.