Republic of the Philippines

Laguna State Polytechnic University

Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

LSPU Self-Paced Learning Module (SLM)

Course FM 101 – FINANCIAL MANAGEMENT
Sem/AY First Semester AY 2020-2021
Module No. 2
Lesson Title Business Organization and Trends
Week
1 week
Duration
Date November 12– 16, 2020/ November 19-23, 2020
This lesson explain the foundation of the basic legal forms of business organizations such as, sole
Description proprietorship, partnership and corporation. The students will know the features, attributes,
of the advantages and disadvantages of each business organization and finally determine the adoptable
Lesson form to an enterprise. Furthermore, the students will understand the important business trends
today.

Learning Outcomes
Intended Students should be able to meet the following intended learning outcomes:
Learning • Gain knowledge about the three basic forms of business organizations.
Outcomes • Know the features of a partnership and attributes of a corporation.
• Understand the similar features in both a corporation and a partnership.
• Know the advantages and disadvantages of each form of business organization.
• Understand the important business trends such as: Increased globalization of business,
improving information technology, corporate governance and outsourcing.
Targets/ At the end of the lesson, students should be able to:
Objectives • Determine the basic legal forms of business organizations.
• Identify the features of a partnership and attributes of a corporation.
• Determine the similar features in both a corporation and a partnership
• Give the advantages and disadvantages of each form of business organization.
• Be aware of the important trends in business today.

Student Learning Strategies

Online Activities A. Online Discussion via Google Meet

Student will be advised to promptly attend twice, the one-hour class discussion on
(Synchronous/
business organization and trends. To have access to the online discussions,
Asynchronous)

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

students will be provided a link before the actual meeting via their e mail or
messenger account in the facebook.

The online discussions will happen either on the last week of October or first week
of November, 2020, depending on your class schedules and via the Google
Calendar.

(For further instructions, refer to the created “Class Group Chat” or see the
schedule of activities for this module)

B. Learning Guide Questions

1. What are the three basic forms of business organization?
2. What are the basic features of a partnership and attributes of a corporation.
3. What are the similar features found in both a corporation and a partnership
4. What are the advantages and disadvantages of each form of business
organization?
5. Between the three basic forms of business organization. Describe the ability of
each form to access capital.
6. What are the common trends of business today?

Note: The quality of insight that you will post during online discussion forum will receive additional
scores in class participation.

Lecture Guide

The Organization of The Business Firm.

The business firm is an entity designed to organize raw materials, labor, and machines with
the goal of producing goods and/or services Firms

1. purchase productive resources from households and other firms,

2. transform them into a different commodity, and
3. sell the transformed product or service to consumers

For business firm engaged in retail or trading activities, transforming purchased goods into
a different commodity does not necessarily take place.

Every society, no matter what type of economy it has, relies on business firms to organize
resources and transform them into products. In market economies, most firm choose
their own price, output level, and methods of production. They get the benefits of sales
revenues, but they also must pay the costs of the resources they use.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Business firms can be organized in one of here ways: as a proprietorship, a partnership, or

a corporation. The structure chosen determines how the owners share the risks and
liabilities of the firm and how they participate in making decisions.

Legal Forms of Business Organization

Proprietorship

A sole proprietorship is a business owned by a single person who has complete control
over business decisions. This individual owns all the firm’s assets and is responsible for all
its liabilities. More businesses are sole proprietorship than any form of business
organization. From a legal point of view, the owner of a proprietorship is not separable
from the business and is personally liable for all debts of the business. From an accounting
point of perspective, however, the business is an entity separate from the owner
(proprietor). Therefore, the financial statements of the business present only those assets
and liabilities pertaining to the business.

The owner cannot be paid salary or wages from the business. Instead, the owner may
withdraw funds or other property from the business. These withdrawals are treated as
reduction of owner’s equity or financial interest of the owner in the business. The
business itself does not pay any income taxes. The income or loss of the business is
reported on the owner’s personal income tax return on a supporting schedule.

Among the advantages of a sole proprietorship are:

1. Ease of entry and exit

A sole proprietorship requires no formal charter and is inexpensive to form and
dissolve.
2. Full ownership and control
The owner has full control, reaps all profits and bears all losses.
3. Tax Savings
The entre income generated by the proprietorship passes directly to the owner.
This may result in a tax advantage if he owner’s tax rate is less than the tax rate
of a corporation.
4. Few government regulations
A sole proprietorship has the greatest freedom as compared with any form of
business organization.

Major disadvantages of the proprietorship form include:

1. Unlimited liability
The owner is personally liable or responsible for any and all business debts. Thus,
the owner’s personal assets can be claimed by the creditors if the firm defaults

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited
on its obligations.

2. Limitations in raising capital

Fund raising ability is limited. Resources may be limited to the assets of the owner
and growth may depend on his or her ability to borrow money.

3. Lack of Continuity
Upon death or retirement of the owner, the proprietorship ceases to exist.

Therefore, the proprietorship may be an ideal form of business organization when the
following conditions exist:

• The anticipated risk is minimum and adequately covered by insurance.

• The owner is either unable or unwilling to maintain the necessary
organizational documents and tax returns of more complicated business
entities.
• The business does not require extensive borrowing.

Partnership

A partnership is a legal arrangement in which two or more persons agree to contribute

capital or services to the business and divide the profits or losses that may be derived
therefrom. Partnership may operate under varying degrees of formality. For example, a
formal partnership maybe established using a written contract known as the partnership
agreement which is filed with the Securities and Exchange Commission.

Features of a Partnership:

1. Contribution to a common fund – Each of the partners must contribute to the

common fund to be used as capital for the business.

2. Voluntary agreement.

3. Hope for a profit

4. Lawful business

5. All partners should know the contents of the articles of co-partnership.

6. Relationship among partners is fiduciary in character in that the partners are

considered agent of the firm and that of the other partner in respect to all
partnership acts.
7. It has a separate and juridical personality from that of the owners.

Partnership may be either general or limited.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited
A general partnership is one in which each partner has unlimited liability for the debts
incurred by the business. General partners usually manage the firm and may enter into
contractual obligations on the firm’s behalf. Profits and asset ownership may be divided in
any way agreed upon by the partners.

A limited partnership is one containing one or more general partners and one or more
limited partners. The personal liability of a general partner for the firm’s debt is unlimited
while the personal liability of limited partners is limited to their investment. Limited
partners cannot be active in management.

Advantages of a partnership include among others the following:

1. Ease of formation
Forming a partnership may require relatively little effort and low start-up costs.

2. Additional sources of capital

A partnership has the financial resources of several individuals.

3. Management base
A partnership has a broader management base or expertise than a sole
proprietorship.

4. Tax implication
A partnership like a proprietorship does not pay any income taxes. The income or
loss of the business is distributed among the partners in accordance with the
partnership and each partner reports his or her portion whether distributed or not
on personal income tax return.

Disadvantages of partnership are:

1. Unlimited liability
General partners have unlimited liability for the debts and litigations of the
business.

2. Lack of continuity
A partnership may dissolve upon the withdrawal or death of a general partner,
Depending on the provisions of the partnership.

3. Difficulty of transferring ownership

It is difficult for a partner to liquidate or transfer ownership. It varies with
conditions set forth in the partnership agreement.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

4. Limitations in raising capital

A partnership may have problems raising large amounts of capital because many
sources of funds are available only to corporations.

Corporations

A corporation is an artificial being created by law and is a legal entity separate and distinct
from its owners. This legal entity may own assets, borrow money and engage in other
business entities without directly involving the owners. In many corporations, owners
who are also called shareholders do nor directly manage the firm. Instead they select
managers designated as the Board of Directors to run the firm for them. The Board of
Directors is authorized to act in the corporation’s behalf.

Attributes of a corporation:

1. It is an artificial being- It is a legal entity having the right to enter into contract. It
can own properties in its name and it can sue and be sued under its corporate
name.

2. It is created by the operation of law-a corporation is created when the procedure

set by law has been properly followed. When the corporation has acquired its
certificate of incorporation, it has also acquired its legal existence.

3. It has the right of succession-Stockholders have the right to transfer ownership of

their stocks in a corporation to others. The death, solvency, or incapacity of
stockholders will not affect the existence of the corporation.

4. It has the power, attributes and properties expressly authorized by the by-laws or
incident to its existence. The corporation can do only those powers expressly and
impliedly conferred upon it by its character or articles of incorporations registered
with the Securities and Exchange Commission.

The incorporations process is initiated by filing the articles of incorporations and other
requirements with the Securities and Exchange Commission (SEC). The articles of
incorporation includes among others the following:

• Incorporators
• Name of the corporation
• Purpose of the corporation
• Capital stock
• Authorized shares

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

After the corporation is legally formed, it will then issue its capital stock. Ownership of
this stock is evidenced by a stock certificate. The corporate bylaws which are rules that
govern the internal management of the company are established by the board of directors
and approved by the shareholders. These bylaws may be amended or extended from time
to time by shareholder.

Advantages of a corporation are:

1. Limited Liability
Shareholders are liable only to the extent of their investment in the corporation.
Thus, shareholders can only lease what they have invested in the firm’s shares, not
only other personal assets. However, limited liability is not all-encompassing.
Government may pass through the corporate shield to collect unpaid taxes, Also,
it is not uncommon for creditors to require that major shareholders personally
co-sign for credit extended to the corporation. Thus, upon default by the business,
the creditors may sue both the corporation and shareholders who have co signed.

2. Unlimited life
Corporations continue to exist even after the death of the owners. The maximum
legal life of a corporation is 50 years but may be renewed for the desired additional
life not to exceed 50 years.

3. Ease in transferring ownership

Shareholders can easily sell their ownership in most corporations by selling their
stock without affecting the legal form of business organizations. The ability to sell
stock provides corporations with a stronger base and the capital needed for
expansion.

4. Ability to raise capital

Corporations can raise capital through the sale of securities such as bonds to
investors who are lending money to the corporations and equity securities such as
common stock to investors who are the owners.

Disadvantages of a corporation include:

1. Time and cost of formation

Registration of public companies with the SEC may be time-consuming and costly.

2. Regulation
Corporations are subject to greater government regulations than other forms of
business organizations. Shareholders can not just withdraw assets from the
business. They can only receive corporate assets when dividends are declared and
these amounts may be subject to limits imposed by law.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

3. Taxes
Corporations pay taxes on income they have earned. The complexity of the
subject of taxation demands the advice of a qualified tax accountant.

Similar features found in both a corporation and a partnership:

1. Corporations and partnerships have a juridical personality.

2. Both comprise several people or owners.

3. Both act only thru their registered agents.

Important Business Trends

Four important business trends should be noted, namely:

• Increased globalization of business

• Ever improving information technology (IT)
• Corporate Governance
• Outsourcing

Globalization of the Firm

Most large corporations operate on a global basis and with good reason: investing
abroad has proven to be highly profitable. Decisions to build plants and produce
goods abroad are also motivated by the attraction of low-cost labor and the easy
transfer of highly efficient technology that gives competitive price advantages to
foreign operations.

As domestic demand reaches maturity, the search for new markets leads
corporation to invest and sell abroad. The trend to develop a presence abroad
Is also motivated by a desire to hedge against risks. Because economic activity
differs from one country to the next, diversification abroad tends to dampen the
overall fluctuations of sales and earnings, thus reducing the risk exposure of a
corporation. Fortunately, the advent of new financial instruments, including
financial derivates, such as futures and swap agreements, provides managers with
new tools for hedging and minimizing foreign risks.

Competition is intensified with the emergence of foreign industrial power, like

Japan, South Korea and China because of the opportunities for local firms to

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

import lower priced goods for sale in the domestic market. This not only save the
domestic firm need to invest in new capacity, but it also allows to share in the
technological advances of that country.

Globalization of the firm will continue to provide highly profitable opportunities to

domestic firms, but this movement requires careful decision making and highly
skillful financial management.

Ever-improving Information Technology (IT)

Improvements in IT are spurring globalization, and they are changing financial

management as it is practiced in North America, Europe, Southeast Asia and
elsewhere. Firms are collecting massive data and using them takes much of the
guesswork out of financial decisions. For example, when Double-Dragon
Corporation is considering a potential site for a new mall, it can draw historical
results from thousands of other stores to predict results at the proposed site. This
lowers the risk of investing new stores.

Corporate Governance

This trend relates to the way the top managers operate and interface with
stakeholders. At the same, the Securities and Exchange Commission (SEC) which
has jurisdiction over the shareholders and the information that must given has
made it easier to activist shareholders to changes the ways things are done within
firm. Some years ago, the corporation’s chairman of the board of directors was
almost always also the chief executive officer, and this person decides who would
be elected to the board and therefore would have complete control of the firm’s
operations. That made it impossible for shareholders to replace a poor
management team.

Currently, investors who control huge pools of capital (hedge funds and private
equity groups or venture capitalists) are constantly looking for underperforming
firms and they quickly take control and replace manager.

Most firms today have strong written codes of ethical behavior and companies also
conduct training programs to ensure that employees understand proper behavior
in different situations. When conflicts arise involving profits and ethics, ethnical
consideration are so obviously important that they dominate.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Outsourcing

Outsourcing occurs when domestic firms invest and produce goods in foreign countries or
when these firms choose to rely on imports rather than build domestic plans and produce
these goods domestically. Low labor-cost countries, like China, open up new investment
opportunities for corporations from the United States, Europe and Middle-East. Growing
competitive pressures are forcing domestic firms to invest abroad or to import cheap
foreign products.

One major factor responsible for outsourcing is the ease with which technology can be
transferred to abroad. China, India and other Asian countries including the Philippines can
claim technological party while enjoying low costs of production. That is why outsourcing
is such an attractive investment option.

When evaluating the merits of outsourcing a corporate manager is forced to make central
decisions.

1. Invest and produce domestically or move a plant overseas.

2. Import cheaper foreign goods to take advantage of low labor and other costs or shift to
more capital-intensive and technologically advanced operations.

3. Invest abroad in order to gain access to new rapidly growing foreign markets.

Outsourcing relieves managers from having to purchase raw materials or to hedge against
the risk that the prices of these raw materials will increase. An outsourcing firm does not
have to incur the high costs of pension plans, health benefits, pollution control, and
worker safety. Some risks such as technological obsolescence and unforeseen changes in
demand become less important with outsourcing. These and other advantages make
outsourcing an attractive option.

Learning how to work with probability models will help a manager to evaluate the relative
merits of outsourcing compared to domestic investments. Also, given global cost
disparities among countries, outsourcing will continue to pay an important role in business
decision making.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Engaging Activities

1. From the discussion above, give the three basic forms of business organizations and
be able to determine at least five (5) basic features/attributes of each business
organizations.

2. Enumerate the advantages and disadvantages of each form of business organizations

(Give at least three (3) advantages and disadvantages)

Answers:

Use separate sheets if necessary.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Performance Tasks

Performance Task 1

A. Directions: Referring to the basic features of a partnership and attributes of a corporation, identify
the similar features found in both a corporation and a partnership.

Performance Task 2

B. Directions: Between the three basic forms of business ownership, describe the ability of each form
to access capital.

Rubric for Performance Task 1 and 2

Performance Indicator
Criteria 1 2 3 4
(Unacceptable) (Slightly Acceptable) (Acceptable) (Perfectly Acceptable)

The insight /reaction The insight/reaction The insight/reaction The insight/reaction

presented and the presented and the presented and the presented and the
the corresponding corresponding corresponding corresponding
Uniqueness explanation showed explanation showed explanation showed explanation showed
no originality and some originality and originality and obvious originality
distinction distinction distinction and distinction
Insight/reaction cited Insight/reaction cited Insight/reaction cited Insight/reaction cited
and the and the and the and the
rationalization rationalization used rationalization rationalization
Correspondence presented does not moderately presented dovetailed presented exactly
dovetailed and dovetailed and and agreed with the dovetailed and
agreed with the agreed with the requirement of the agreed with the
requirement of the requirement of the problem requirement of the
problem problem problem
The presentation is The presentation is The presentation is The presentation is
not all-inclusive of slightly broad enough all-inclusive of the comprehensive and
the expected of the expected expected cover all of the
Comprehensiveness event/strategy as event/strategy as event/strategy as expected
required by the required by the required by the event/strategy as
Insight problem problem problem required by the
problem

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Understanding Directed Assessment

Name: ___________________________________________________ Date: ______________ Score: ___________

Course/Year: ____________________________________________ Instructor: ____________________________

Test A. Multiple Choice. Encircle the letter of the best answer.

1. One of the major disadvantages of a sole proprietorship is

a. low operating costs.
b. low organizational costs.
c. the simplicity of decision making.
d. there is unlimited liability to the owner.

2. Which of the following is not a basic feature of a partnership?

a. contribution to a common fund.
b. voluntary agreement.
c. it is an artificial being.
d. relationship among partners is fiduciary in character

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

a. limited liability.
b. unlimited life.
c. time and cost of formation.
d. ability to raise capital.

4. The partnership form of organization

a. avoids the double taxation of earnings and dividends found
in the corporate form of organization.
b. usually provides limited liability to the partners.
c. has unlimited.
d. simplifies decision making.

5. A corporation is
a. owned by stockholders who enjoy the privilege of limited liability.
b. easily divisible between owners.
c. a separate legal entity with perpetual life.
d. all of the above.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Test B. Presented below are three basic forms of business organizations, followed by some of the
advantages and disadvantages relating to those forms of business organizations:
a. Sole Proprietorship b. Partnership c. Corporation

______1. Owner has control

______2. Greater business continuity
______3. Easy transfer of ownership
______4. Limited liability
______5. Greater access to capital
______6. Easy and inexpensive to establish
______7. Few government regulations
______8. Easy to dissolve
______9. No special income taxes
_____10. No sharing of profits
_____11. Greater management expense
_____12. Usually has less access to capital than the other two forms
_____13. Greater tax burden
_____14. Limited management expertise
_____15. Unlimited liability
_____16. Absentee ownership
_____17. Must share profits
_____18. Greater government regulation
_____19. Often difficult to dissolve
_____20. Potential ownership conflicts

Required: Match the letter to each form of business organizations with the appropriate advantage/
disadvantage. Note that each letter will be used more than once and it is possible that a particular
advantage/disadvantage applies to more than one form of the business organizations.

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Learning Resources

Cabrera, Ma. E.B & Cabrera, G. B. (2019-2020). Financial Management. GIC Enterprises & Co., Inc.
Laman, R.B. & Laman ,V.B. and Evia, E.P (2015). FINANCIAL System,Market & Management-the basics-
Prasanna, Chandra, 6th edition. Fundamentals of Financial Management.
Brigham, E.F. & Houston(2012) Fundamentals of Financial Management. Cengage Learning.
elegal.ph> guerilla-guide-for startups > index.php > ii-bu…
www.csun.edu>Web-Stuff>Lecture-Notes-Mid1,pdf(An Introduction to Financial Management-CSUN.edu)
www.researchgate.net>publication>252931751 Financi…PDF (Financial Management Practices:
www.accountingverse.com>accounting-basics>types-...
www.mjobookkeeper.com>article>three-basic-forms-...

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT