Soc Sci 4A

MODULE 4:

Philippine Industrial
Economy
 OVERVIEW

This module presents the Philippine industrial economy. Philippines is a capitalist democratic
economy not to mention it has already set up a mixed economy in which business ownership and
entrepreneurship assumes our commerce, trade and industry both in the private and public sector.
Lesson 1 provides discussion on the different business organizations present in an economy.
Business firms are organized into three distinct groups. They are the major forms, minor forms and
the modified corporate forms. However, in this lesson, it will just focus on the major forms. Among
these are the sole proprietorship, partnership and corporation. Cooperative which is under modified
form are also presented since it already gained popularity throughout the years and has serve as one
business organization that has truly helped its members. Advantages and disadvantages of these four
types are also presented for the students to fully understand how these business organizations
operate and exist.
Lesson 2 covers the types of market structures such as perfect competition, monopoly,
oligopoly and monopolistic competition, in which business firms operates. This lesson will determine
on what extent business firms in each type of market competes with one another in terms of the
quality of final produced products.
Every nation had gone through the ups and down in their economy. Even the richest country in
the world like United States of America suffered depression. Lesson 3 looks behind the economic
fluctuations that affects each of us and thus focuses its discussion on the business cycle. In particular,
this lesson will also examine the two problems brought about by the business cycle – inflation and
unemployment.

Learning Outcomes:
At the end of the module, students should be able to:
1. Discuss the different types of business organization and its advantages
and disadvantages.
2. Discuss and differentiate the different market structure on which
business firms/organizations operate.
3. Acquire knowledge and concepts related to economic fluctuations as
well as the problems brought by this phenomenon.
 Lesson 1
BUSINESS ORGANIZATION

A basic feature of the capitalists (or mixed) economy is the business firms. The individual
business firms are organizations under a 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 are organized into three distinct groups. They are the major forms, the minor
forms and the modified corporate form. In this module, we will just focus on the major forms of
business organization which are the most common: the sole proprietorship, partnership and
corporation. Cooperative which is under the modified form are also included since it already gained its
popularity in the market.

BUSINESS ORGANIZATION
- is an organization under one management set up for the purpose of earning profits for its
owners by making one or more items available for sale in market
- is an entity aimed at carrying on commercial enterprise by providing goods or services, to
meet the needs of the customers
- the term business organization refers to how businesses are structured and how their
structure helps them meet their goals.

Business organizations constitute a major component of the whole economy. They create
investments, employments, productions and income. They make and supply goods and services to
the economy. Such economic functions help the economy move forward. The following are the forms
of business organizations:

SOLE PROPRIETORSHIP
The sole proprietorship is a business firm owned and operated by a single person. It is the most
popular and simplest form of business organization. This is well suited to professional and service
enterprises.

Advantages of Sole Proprietorship

1. It is easy to organize and the cost of organization is minimal. The only requisite for a sole
proprietorship to legally exist is the owner’s resolution to start operating and getting the required
permits and license. (It is registered through the Bureau of Trade Regulation and Consumer
Protection of the DTI).
2. The single proprietor is the boss. The sole owner has the exclusive power to control the
business. He makes the decisions and enjoys substantial freedom of action. Decisions can be
taken quickly as the owner does not require to consult anybody.
3. The owner acquires all the profits from his business. This gives him more incentives to make
his business grow.
4. The owner can keep his moves unknown to the competitors. As he is not required by law to
share information with anyone, he can proceed with his activities in secrecy. This is a distinct
advantage when competing with others.
5. Less legal formalities as to expand, reorganized, sold or discontinued operations, sell or
purchase assets, etc.
Disadvantages of Sole Proprietorship
1. Limited Capital. Only the resource of the owner is the sole source of capitalization. But financial
resources of a single proprietorship are not enough to transform the business into a large-scale
enterprise. Having small assets and high mortality rates, banks are reluctant to grant big loans
to sole proprietor. Finance is limited to that which the owner himself can raise.
2. Benefits of specialization in business management are not present in small-scale
proprietorship. The talents and skills of other persons are not pooled. Specialization and
division of labor are not maximized.
3. The sole owner may lack the necessary ability and experience. Since a sole proprietorship is
managed by its sole owner, the firm is stuck with whatever ability and expertise the owner
possesses.
4. May have a hard time attracting high-caliber employees.
5. The sole proprietor has unlimited liability. A liability incurred by the sole proprietorship extends
to the owner’s personal assets. Any error in business decision made by the sole owner affects
his personal assets that were not intended to be used in business.
6. The business firm’s life is limited. The existence of the sole proprietorship depends on the
physical well-being of the owner. When the owner is sickly, the attention he gives to the firm is
reduced. When he dies, liquidation of the firm follows.

PARTNERSHIP
Partnership is that form of business organization owned and operated by two or more persons.
These persons bind themselves to contribute money, property or industry to a common fund with the
intention of dividing the profits among themselves.

Characteristics:
• Minimum of 2 and maximum of 20 partners
• The relation between the partners is created in the form of a contract. Written contract is called
“Partnership Deed”
• The firm means partners, the partners mean the firm.
• The profit is divided in any ratio as agreed
• No partner can sell/transfer his interest in the firm to anyone without the consent of other
partners

Classification of Partnership
A. As to Object
1. Universal Partnership. All the present property (the partners contribute to the property)
which actually belongs to them to a common fund with the intention of dividing the same
among themselves as well as the profits, which they may acquire.
2. Particular Partnership. Binds the partnership only to all the profits that they may acquire
by their industry or work during the existence of partnership
a. Industrial Partners – does not contribute money to the business organizations
but he is responsible for its management
b. Silent Partners - provides only financial capital but do not participate in the
management
B. As to Liability
 1. General Partnership. An association of two or more persons who are actively involved
in the business and all of which have unlimited liabilities.
2. Limited Partnership. An arrangement whereby the liability of one or more partners is
limited to the amount invested in the business. It is a requirement, however, that there
must be at least one partner with unlimited liability.

Advantages of Partnership
1. Partnerships are also easy to organize. The partners will only have to agree on basic aspects
like the nature of the business, location of the offices and plants, capitalization and others. To
formalize what has been agreed upon, a contract of partnership is drawn.
2. Better management because of the presence of more participants in the operations of the
business. The knowledge and skills of the partners may be pooled together to the advantage of
the firm. When these people are made to work in close coordination, the partnership will be
hard to beat in business competition. Division of labor and specialization are present.
3. The combined resources of the partners provide a bigger source of funding. With this, the
partnership obtains a higher credit rating.

Disadvantages of Partnership
1. Conflicts or quarrels between or among the partners regarding the management policies of
the business are likely to crop up. The risks of a conflict increase as there are more partners.
Most often, operations are affected when conflict arises. If the partners do not agree and they
are full of suspicion and ill feeling, possibility of the collapse of the industry is present.
2. It lacks stability. For a partnership to continue existing, all partners must remain willing to
continue operating the business. Even if only a single partner dies or withdraws from the
business, the partnership is terminated.
3. Dissolving a partnership is difficult. When a partnership is undergoing dissolution, it may not be
easy to divide whatever assets are left for distribution to the partners. This is so because some
of the assets may be fixed or immovable. Dissolution becomes more difficult when there are
liabilities to be shared by the partners.
4. Partners are also subject to unlimited liability. Although one or more partners may opt for limited
liability, there must be at least one partner who must bear the burden of unlimited liability.

CORPORATION
A corporation is a form of business organization recognized by law as a separate legal entity
having all the rights of an individual. It is a legal entity distinct and separate from the individuals
(stockholders) who own it. Corporation Code states that “Corporation is 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.” Compose of not less than 5 but not more than 15
incorporators, each of whom must hold at least one share and must be registered with the Securities
and Exchange Commission.

Examples:
National Power Corporation (NAPOCOR), Philippine Amusement and Gaming Corp.
(PAGCOR). METROBANK Corp., RFM Corporation, Ayala Holdings Corp., ROBINA Corp., and
JOLLIBEE.

Advantages of Corporation
 1. A member has limited liability. When bankruptcy arises, shareholders losses money they’ve
invested, but are not responsible for any debts incurred by the corporation.
2. It has the most effective means of raising money capital for its operations and expansions. This
is because corporations are able to pool large amounts of funds through the sale of shares of
stock. The price per share could be made low enough to attract even the smallest investor.
 Types of Corporation securities
o Stocks – certificates of investment or ownership
o Bonds – certificate of indebtedness
3. It is capable of getting the most efficient management considering its huge resources and large-
scale operations. Shareholders can sit back and earn dividends, while someone they hired runs
the business
4. It has a permanent existence. The corporation is a legal entity, so the name of the company
stays the same and they continue to do business despite changes in ownership. Life span of
corporation is 50 years and subject to renewal for another 50 years. Death or withdrawal of
some officers and members does not affect the existence and operation of corporation. It has
perpetual life.

Disadvantages of Corporation
1. Corporations are more expensive and complicated to organize. Aside from capital
requirements, there are many paperwork’s involved in securing charter. It takes longer time to
secure approval from SEC regarding the organization and operation of Corporation. It is
expensive and difficult to get a corporation charter – cost thousands of dollars.
 Charter – written document which contains the objectives and activities of
corporations among other things.
2. Incomes derived from corporations are taxed twice. First, when the corporation realizes profits,
second, when the individual stockholders declare as part of their personal income the dividends
they received from the corporation.
3. Corporations are subject to more extensive government restrictions and reporting requirements.
Corporations are required by the government to submit annual reports. This requirement
exposes the corporation to its competitors.
4. Employees lack personal identification and commitment with the company. The relationship
between the corporation and employees is too impersonal. Employees do not feel deep
attachment to the corporations resulting to less work commitment.
5. Control may be exercised by small group of stockholders only. Abuses of corporation officials
are likely to emerge in situations where many stockholders do not participate actively in the
affairs of their corporation

COOPERATIVES
Cooperatives are owned and managed by at least 15 persons who voluntarily joined together
for the purpose of mutual assistance and benefits.
Presidential Decree 175 defines cooperative as “only organizations composed primarily of small
producers and consumers who voluntarily join together to form business enterprises which they
themselves own, control and patronize”. Cooperatives are formed to make their members individually
profitable or to save money. Cooperatives have been very effective in improving the social and
economic conditions of the poor people.

Example:
 Phil. Army Finance Center Producers Integrated Cooperative (PAFCPIC) - members: active
service, retirees, reserved force, regular civilian employee. Besides loan service, it has their own
grocery, canteen, water refilling station, commercial space rental. Consider as one of the billionaire
cooperatives in the Philippines.

Similarities of Cooperative and Corporation

1. Factors of production are privately owned and managed.
2. Both depend on business efficiency to survive in a competitive market.
3. Their activities and operations are both regulated and supervised by the government.
4. Both enjoy a reasonable degree of economic freedom.

Differences of Cooperative and Corporation

1. A cooperative is for service while corporation is for profit.
2. Membership in a cooperative is open and voluntary while in a corporation, membership is only
for wealthy relatives and friends.
3. Government in a cooperative is democratic. It is one man one vote and no proxy voting. In
corporation, it is one share one vote, and more shares more votes. It is the rule of the minority.
4. Saving or net profits are refunded to the members of a cooperative on the basis of their
individual patronage while in a corporation, profits are distributed to the stockholders on the
basis of number of their shares.

Characteristics of Cooperatives
1. Open to all with voluntary membership.
2. Democratic control – one member, one vote regardless of how much is your investment.
3. Low interest rate on borrowed capital – maximum 8% in the Philippines.
4. Capital is supplied by the members.
5. Workers are members of the cooperative.
6. Tax free by the government.
7. Registered under Cooperative Development Authority not under Securities and Exchange
Commission.
8. Patronage Refund – distribution of dividends according to purchases and patronage.
9. The objective is for mutual assistance and for self-reliance. Profit maximization is not its
ultimate objective.

Kinds of Cooperatives
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 assist 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 o their
products.
4. Consumer’s Cooperative. The purpose of this firm is to provide members with quality goods
and services at reasonable prices.
5. Service Cooperative. This firm is organized to make services readily available to its members
at a lower cost.