BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

MODULE

Module No. 1: Week 1: THIRD Quarter

THE ROLE OF BUSINESS IN SOCIAL AND ECONOMIC
DEVELOPMENT

Learning Competencies
Differentiate the forms of business organizations in terms of their purpose and
role in socio-economic development.
Code: ABM_ESR12-IIIa-d-1.1
ABM_ESR12-IIIa-d-1.2
ABM_ESR12-IIIa-d-1.3

Objective
After reading this module, the learners will be able to:
1. Identify forms of business organizations and their characteristics.
2. Explain the purpose of business organizations and their role in socio-economic
development.

Let’s Recall
Directions: Read each question and choose the one best answer and write your answer in your activity
notebook.

1. Which of the choices below are the most important personal characteristics of a good
businessperson?
a. observant and the willingness to serve the community
b. a very focus person
c. sharp-witted person
d. media-savvy
2. What is the most important attribute that a business person should have to be an effective and
successful businessperson?
a. has command and genuineness
b. ability to achieve the set goal of the company
c. capability in using techniques appropriately
d. none of the above
3. Trust should be developed by stressing
a. favoritism
b. buddy-buddy system
c. an open and honest communication
d. fairness

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4. Choose below which is the most important factor in determining whether a business enterprise
will be successful?
a. goal to make a big profit
b. skills and knowledge
c. being loved by the employees and the community
d. none of the above
5. Bribery in business is
a. Ethical
b. Unethical
c. It is already part of our system
d. Morality

Let’s Understand
Before we go to the proper lesson, we will first discuss the word Business. When you
encounter the word “Business”, what is the first thing that comes into your mind? Some of you may
think about “Fishball ni Manong Cong”, “Computer shop ni Aling Cely’’, Beauty Parlor ni Aling
Viy, SM, Robinsons, or probably “Palengke”. As you have learned in your accounting subjects and
business finance, the common types of business organizations we practice here in the Philippines
are Sole proprietorship, Partnership, and Corporation. In this module, we will have an overview of
the 3 types of business organization and how each differs from one another.

Sole Proprietorship
This kind of business organization is the simplest and the oldest form of the business
organization not only practiced in the Philippines but in other countries in the world as well. This
kind of business organization is also the most common type that we have in our community due to
its simplicity and quick formation especially during this pandemic that we are now experiencing.
When the pandemic started in our country, most of our Kababayans were laid off, some of them
resorted to the Sole trader-ship or Proprietorship business to survive. Sole Proprietorship can be
described as a business structure solely owned and managed by an individual. When an individual
wants to start this kind of business, they must apply for a business name and be registered with the
Department of Trade and Industry (DTI)-National Capital Region (NCR). In the provinces, the
application may be filed with DTI regional or provincial offices.

Characteristics of Sole Proprietorship

1. Sole Ownership and Management

There is only one owner, which would mean that he/she would be a multi-task, thus, the
the owner is the trader, the manager, accountant, and practically does everything related to
the business. However, this type of business is easy to manage because decision making
would depend on one person, that is the owner. Thou, this type of business is easy to manage
since decisions making would only depend on one owner.

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 2. Unlimited Liability
In a sole proprietorship, the owner has unlimited liability meaning that the owner is responsible
for the loss of the business. Stated differently the owner bears all the burden of any losses that
happen in the business. Thus, if the business becomes bankrupt and there are still payments to
be made, the private assets of the owner like car, house, or land can be sold to clear off the
debts.
3. Limited capital and sole right on profit
The capital start-up of a sole proprietorship is limited only to the resources of its owner.
Thus, when it comes to profit the sole proprietor enjoys everything.
4. Flexible
Choosing the type of business is a sole proprietorship is unlimited as long as it is legal.
The owner can change from time to time as to what products they would sell.
5. Easy to Establish
A sole proprietorship is easy to set up and easier to register. This type of business requires
an only minimal amount of capital and lower cost in registering for government permits and
licenses.

Partnership
As the name suggests, this type of business has two or more owners who enter into a contract. These
owners bind themselves to contribute money, property, or services to a common fund to split up the revenue
and losses among themselves. The division of profits or losses depends on the agreement made by the
partners but in cases where there is no agreement, the partners will share the profit and losses equally. Under
the civil code of the Philippines, a partnership is considered a juridical person. Although a partnership is
not a natural person however it is granted by law with certain duties and rights and is recognized as a legal
person and has a distinct identity. There are many kinds of partnership that are practiced in our country, the
common ones are General Partnership ( liable to the extent of his separate property after all the assets of
the partnership are exhausted), Industrial Partnership (one who contributes labor or industry), Capitalist
Partnership (one who gives money or property to the common fund of the partnership) and Limited
Partnership (one who is liable only to the extent of his contribution).

Characteristics of Partnership

1. Joint Contribution
There is no partnership without joint contribution for building up capital for the business, the
partners may give in a form of money, plant, property and equipment or services which may be
personal manual efforts or intellectual.
2. Division of Profits or Losses
The nature of the partnership is that partners should divide profits and losses equally unless the
partnership, when formed, has an agreement as to what percentage one partner will receive in
terms of profits and losses equally.
3. Joint-Ownership of contributed assets
All contributed assets by the owners become the property of the partnership and thus make each
partner a co-owner of all the contributed assets.
4. Limited Life
The partnership has a limited life. Once a partner withdraws, dies, incapacity, insolvency, or the
expiration of the partnership agreement, the partnership will be dissolved.
5. Unlimited Liability
All partners, except limited partners, are held liable for all the debts incurred by the partnership.
The creditors may claim up to the personal properties of the partners once the partnership's
properties are exhausted.

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 Income Taxes
Partnerships, except general professional partnerships, are subject to a tax rate of 30% of taxable
income per R.A. NO.9337.

6. Equity accounts.
Each partner has its equity account. Each partner’s equity account will show the partner’s
contributions to the business, share in the profit, and the partner’s drawings.

Corporation
A corporation is governed by law and comprises or owned by numerous stockholders or shareholders
thru their shares of stocks. As shareholders, they can have the right to elect or vote the board of directors to
oversee the organization’s affairs or business, depending on their number of shares. The said entity has its
rights and liabilities separate from the owners. As the law states, a corporation is considered an individual.
It has the same rights and responsibilities as a person. It can also buy, sell and own properties, enter into
contracts, and can bring lawsuits and be sued as well. A corporation can be formed by at least five (5)
individuals but not more than 15 individuals but under a new legal business structure in the Philippine, the
new revised corporation code (RCC) allows a single person to form a corporation, which is what we call –
the ONE PERSON CORPORATION or also known as (OPC).

Characteristics of Corporation
1. Separate legal structure
A corporation is like an artificial being. The law treats it as an individual a corporation can carry
out on its own. The Corporation’s obligations are not linked to the owners. It means that the
shareholder’s assets cannot be touched by the creditors to pay for the corporation’s liabilities.
2. Unlimited life
The lifespan of a corporation does not end or dissolve the corporation when a stockholder dies,
becomes insane, or sells his/her shares of stocks. In short, the corporation can have a
continuous life unless the board of directors and owners vote to dissolve the business, or the said
entity becomes bankrupt or its lifespan of 50 years expires.
3. Transferable ownership
An individual’s ownership in a corporation is determined by the number of shares he/she owns.
The number of Stock shares may be owned by an individual or many stockholders. The owners
have the right to transfer ownership without asking permission from the other shareholders.
4. Ability to obtain capital
The corporation can raise funds to finance their upgrading, new investments or
merely just financing their daily operations through the issuance of bonds and stocks.
5. Dividends
Corporations distribute their dividends to their investors. Most dividends are given four times a
year or some prefer paying it twice a year, annually, monthly, or rarely. This may be in a form of
cash payment or additional shares of stocks.
6. Double Taxation
It is said to be double taxation because corporates are taxed on their annual earnings and these
earnings are the ones used to pay for the dividends for the shareholders which are also taxed by
the government.
7. Limited Liability
Stockholders are liable only for corporate debts up to the number of their shareholdings.

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Purpose of Business Organizations

History tells us that even before we were conquered by the Spanish people, we were already trading
our products with our neighboring countries. We can categorize business organizations according to their
activities such as service business, merchandising, and manufacturing. We could say that business
organizations are vital in every community or every nation to boosts its economy. As the name suggests
service a business provides services products such as professional skills, expertise, and other similar
services like Schools, Hospitals, clinics, financial institutions, etc. Merchandising business or trading
business is all about the buy and sell of goods without changing the physical form of the product, like
grocery stores, department stores, sari-sari stores, online stores, etc. While with manufacturing business
they are the ones who buy raw materials and make it into a finished product, like car manufacturers, food
processing companies, technology companies, etc. Small and big businesses are greatly responsible for
making the consumer’s life easier. These business organizations are responsible for bringing a different
kind of products and services in the market which was not available years ago, goodwill and services as
such it will continue to improve since these businesses are free to compete with one another and with
competition around this offers the opportunity to make new or improved products and services in the
market. Sole proprietorship proved to be very effective during this pandemic in our country today. Those
workers who were laid off, resorted to selling a different kind of online production to survive.

Business Organization’s Social role

The social role of a business organization small or big is having the best possible goods produced,
rendering good quality services, and having the lowest cost as possible to the consumer in the community
or the whole nation. The business organization's social role also, is that they think of the best ideas for
products and services and at the same time making improvements to existing products that are appropriate
for the time being. Another social role of a business organization is the preservation of the environment.
Business organizations just don’t attain their goals, but they make products that will not only boost owners’
revenues but will also help create jobs in the community and ensure that they make products that will not
harm the environment.

Business Organization’s Economic Development

On the economic development side, the business organization is giving stability and growth to the
community or on a bigger scale the whole world. Since business organizations provide jobs to the people,
in turn, the people are taxed by the government. These taxes are used to finance infrastructure projects like
public roads, bridges, tunnels, power supplies, communication networks so on and so forth that is needed
for a society or a nation to function.

REFERENCES:
• Business Ethics and Social Responsibility By Aliza Racelis
• Business Ethics and Social Responsibility By Dr. Reynaldo A. Padilla
• Philippine Business Ethics (Third Edition) By Alejandro R. Gorospe & Jose Ma. Quintos
• Business Ethics By William H. Shaw
• Fundamentals of Accountancy, Business, and Management 1 -Senior High School By Rodiel C. Ferrer &
Zeus Vernon B. Millan

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 Let’s Apply
Directions: In your activity notebook kindly provide whether each statement
below applies to Sole Proprietorship, Partnership, or Corporation.

1. Separate legal structure

2. The ability to raise funds to finance their upgrading or new investments
3. This type of business is Flexible
4. Generally, formed at least five (5) individuals but not more than 15 individuals
5. Life limited by the death of owners
6. It has double taxation
7. There is only one owner
8. It is an artificial being
9. Joint-Ownership of contributed assets
10. Share certificate is proof of ownership

Let’s Analyze
Directions: Read each word out loud in the box below. In your activity
notebook, group the given companies into the diffent business
organizations as SERVICES, MANUFACTURING AND MERCHANDISING.

Toyota Corp. Robinsons Sari-Sari Store Mitsubishi Corp. Classic Savory

Mercury SM Hypermart Ford Corp. Sharp Corp. Google Egg Vendor
SM Prime Holdings Kuya J Max’s Restaurant Kolin Pure Foods Corp.
Silver Swan Corp. DMCI Homes Boysen David’s Salon Hyatt Hotel
Vegetable Vendor San Miguel Corp Asian Hospital Chowking
China Bank Shakey’s Pizza Ace Hardware Car Dealers Alfra Steel

Let’s Try
Directions: If you were given a task to open a Sole Proprietor Business what
are the basic requirements and procedures in registering said entity? Write
your answers in your activity notebook.