The Business Firm

A feature of capitalist is the business firm. The individual business firm is an organization under single management established for the purpose of making profits for its owners by making one or more items available for sale in the markets.

 Business firms engaged in:

1.      Production –a process of combining various material inputs and immaterial inputs in order to make something for consumption. It is the act of creating output, a good or service which has value and contributes to the utility of individuals includes poultry farming, vegetable, fruit farming and fishpond business.

2.    Manufacturing – process of converting raw materials into finished products. The manufacturer buys the raw materials. He makes the raw materials to finished products by applying direct labor and factory overhead.

3.    Trading or merchandising - a process of buying and selling goods that are produced or manufactured by other firms. Example is direct selling.

4.    Service business – doing works for others. Examples are beauty parlors, spa, medical, dental, accounting other service of professionals.

A business firms that’s operates various plants that produce various types of goods and services is called conglomerate.

Forms of Business Organizations

          Business firms are organized into three distinct groups:

1.      Major forms

2.    Minor forms

3.    Modified Corporate Form

Major Forms of Business Organization

1.      Sole Proprietorship – the simplest form of business organization; only one individual owns all the assets. He is the boss and the general manager of his business.

2.    Partnership – an association of two or more persons to carry on as co-owners of a business for profit. “By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves.” (Art. 1767, New Civil Code)

3.    Corporation – a separate body consisting of at least five individuals treated by law as unit. “An artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.” ( Sec. 2, The corporation Code of the Philippines)

The above forms of business have their own set of advantages and disadvantages, as follows:

SOLE PROPRIETORSHIP

Advantages	Disadvantages
1.      Easy to form        2.    Less Government requirements      3.    Owners can keep his moves unknown to competitors      4.    Fast decision making       5.     Suited to small business	1.      Lack of the necessary ability and experience      2.    Difficulty in attracting and keeping quality employees      3.    Limited source of capital

PARTNERSHIP

Advantages	Disadvantages
1.      Easy to form      2.    Subject to less government requirements      3.    Suited to the practice of a profession      4.    Some are exempted from income tax       5.     Flexibility of operations	1.      Unlimited liability of the partner for the debts of the partnership      2.    Limited term of existence      3.    Limited capital

CORPORATION

Advantages	Disadvantages
1.      Capacity as a legal entity      2.    Practically unlimited life     3.    Limited liability of stockholders for corporate debts     4.    Wider source of capital	1.      Activities limited by the articles of incorporation and corporate by-laws      2.    Possibility of abuse of powers of officers       3.    Subject to more governmental requirements

Limited partnership is an arrangement whereby the liability of one or more partners is limited to the amount invested in the business. It is a requirements, however that there must be at least one partner with unlimited liability

Corporation is a business firm owned by individuals or other corporations. Just like an ordinary person, it has rights to buy and sell and enter into contracts. The owners of a corporation are called stockholders and they have limited liability.

The Minor Forms of Business Organization

1.      Joint Stock Company

2.    Joint Venture

3.    Business Trust

Joint Stock Company is a form business wherein the capital is divided into small units permitting a number of investors to contribute varying amount to the total profits being divided between stockholders in proportion to the number to shares they own.

Joint Stock Company, Common Law Form

1.      Capital is divided into shares which may be transferred by the owner to other persons without the consent of the other members.

2.    The company is managed by a board of directors.

3.    Death or incapacity of any member does not dissolve the company.

4.    It has members than a partnership, not necessarily acquainted with one another, and membership can change without the consent of the members.

Joint Stock Company statutory form.

1.      No legal personality

2.    Mutual agreement governs the relationship between the members.

3.    Liability of members is unlimited unless otherwise authorized by statue.

The Joint Venture the Joint is “a partnership established for a specific project or for a limited time. A joint venture is formed when a foreign company finds a local partners to share the cost and operation of the business.

The business trust is a legal form of business organization where a trustee is appointed to manage the business and operates through a trust relationship. If a person or company is not capable of managing a property, securities or other assets, these are assigned to a trustee and a business trust is formed. The trust company can be a trustee, receiver, guardian or executor of property or estate.

There are different kinds of cooperatives. They are the following:

1.      Credit union- This is one that accepts deposits from its members and lends money, also to its members, at reasonable rates.

2.    Producer’s cooperative- This is organized by members to mutually assists one another in the procurement of raw materials, machinery equipment, and other needs of the producers.

3.    Marketing cooperative- This is organized to assist its members in the marketing of their products.

4.    Consumer’s cooperative- The purpose of this firm is to provide members with quality goods and services readily available to its members at a lower cost.

Mutual companies- A mutual company is a financial- service firm (such as an insurance company or a savings and loan association) owned by its policyholders or depositors.

There are two types of mutual companies

1.      Mutual savings banks- These are firms owned by depositors and which specialize in savings and mortgage loans.

2.    Mutual insurance company- This is Cooperative Corporation organized and owned by the policyholders. Voting control is in the hands of the insured’s.

Financing the Business Firm

  Business firms are financed in a variety of ways. Their sources of financing differ, however, depending on the type of organization they have adapted.

The single proprietorship and partnership have almost identical sources of financing. The difference is that the change of gathering bigger amounts of capital is higher in partnerships than in sole proprietorships.

Corporations are of different mold. They can harness the resources of a large number of people through effective distributions of shares of stocks.