Objective

Differentiate the forms of business organizations

Give examples of the forms of business organizations
Show how business organizations contribute to socioeconomic development
Give examples of how fairness, accountability and transparency is practiced in
business and non-profit organizations
Share observations on business policies and practices
Distinguish between good policies/practices and morally unacceptable
policies/practices

Skill

Identify forms of business organizations and their characteristics

Explain the purpose of business organizations and their role in socioeconomic
development
Explain the core principles of fairness, accountability and transparency in the
socioeconomic development of a country
Craft simple �Codes of Ethics� or �Codes of Right Conduct�

Forms and examples of business organizations

A business entity is an organization that uses economic resources or inputs to

provide goods or services to customers in exchange for money or other goods and
services. Business organizations come in different types and different forms of
ownership.

3 Types of Business
There are three major types of businesses:

1. Service Business
A service type of business provides intangible products (products with no physical
form). Service type firms offer professional skills, expertise, advice, and other
similar products.

Examples of service businesses are: salons, repair shops, schools, banks,

accounting firms, law firms, etc..

2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail
price. They are known as "buy and sell" businesses. They make profit by selling the
products at prices higher than their purchase costs. A merchandising business sells
a product without changing its form.

Examples are: grocery stores, convenience stores, distributors, and other

resellers.

3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the
intention of using them as materials in making a new product. Thus, there is a
transformation of the products purchased. A manufacturing business combines raw
materials, labor, and factory overhead in its production process. The manufactured
goods will then be sold to customers.

Example: Automotive, Pharmaceuticals, Food & Beverages, Metals, Technologies, etc..

4. Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of
business. A restaurant, for example, combines ingredients in making a fine meal
(manufacturing), sells a cold bottle of wine (merchandising), and fills customer
orders (service).
Nonetheless, these companies may be classified according to their major business
interest. In that case, restaurants are more of the service type � they provide
dining services.

Forms of Business Organization

These are the basic forms of business ownership:

1. Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set-up
and is the least costly among all forms of ownership.

The owner faces unlimited liability; meaning, the creditors of the business may go
after the personal assets of the owner if the business cannot pay them.

The sole proprietorship form is usually adopted by small business entities.

2. Partnership
A partnership is a business owned by two or more persons who contribute resources
into the entity. The partners divide the profits of the business among themselves.
A partnership involves two or more people (up to 20, with some exceptions) going
into business together with a view to making a profit.

A general partnership is where all partners participate to some extent in the day-
to-day management of the business.
A limited partnership is one formed by up to 20 people. It has at least one general
partner who controls the company�s day-to-day operations.

3. Corporation
A corporation is a business organization that has a separate legal personality from
its owners. Ownership in a stock corporation is represented by shares of stock.

The owners (stockholders) enjoy limited liability but have limited involvement in
the company's operations. The board of directors, an elected group from the
stockholders, controls the activities of the corporation.

In addition to those basic forms of business ownership, these are some other types
of organizations that are common today:

Limited Liability Company

Limited liability companies (LLCs) in the USA, are hybrid forms of business that
have characteristics of both a corporation and a partnership. Whereas the owners
enjoy limited liability like in a corporation. However, LLC may elect to be taxed
as a sole proprietorship, a partnership, or a corporation. A single-member LLC is
considered a disregarded entity and is taxed as a sole proprietorship, filing
Schedule C for the individual's personal tax return. A multiple-member LLC is taxed
as a partnership. The partnership files an information return on Form 1065, with
Schedule K-1's for each member/partner.

4. Cooperative
A cooperative is a business organization owned by a group of individuals and is
operated for their mutual benefit. The persons making up the group are called
members.

Some examples of cooperatives are: water and electricity (utility) cooperatives,

cooperative banking, credit unions, and housing cooperatives, etc.
https://www.accountingverse.com/accounting-basics/types-of-businesses.html

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Business contributions to socioeconomic development
Any business is a risky endeavour with an uncertain life expectancy. It has been,
and should remain, a driver of innovation, a creator of wealth, a harbinger of
economic freedom. The core mission of a profit-driven enterprise is not to fulfil
some philanthropic duty. But neither is it solely to maximize short-term
shareholder value.

The fundamental role of business has remained relatively constant: providing the
goods and services that people need or want. What has changed dramatically over
time are the expectations placed on businesses. Boards of directors, management and
investors of large corporations are now expected to address an array of social,
economic and ecological challenges.
https://www.weforum.org/agenda/2014/01/role-business/

Socioeconomics is the social science that studies how economic activity affects and
is shaped by social processes. In general it analyzes how societies progress,
stagnate, or regress because of their local or regional economy, or the global
economy.
The socioeconomic factors that determine health include: employment, education, and
income. Socioeconomic refers to society related economic factors. These factors
relate to and influence one another. For example, your employment will dictate your
income.

What are the contributions of business to the socioeconomic development?

Employ People
Provide people with :
� income for living expenses
� source of satisfaction and achievement
� sense of identity and pride.

Technological change and innovation

� Competition delivers products which are better, cheaper or more convenient
� Technology is the key to:
� lower costs
� improved quality or
� the delivery of goods/services more quickly

Choice
� offered to consumers when business sector is healthy and diverse
� where you work, eat, shop and what you buy
� allows people to specialise in what they do and interests pursued

Entrepreneurship
� many aspire to run own business
� offers a sense of independence and control
� can achieve dramatic success and build substantial wealth

Social Role
� a place where people meet, interact more than anywhere else outside of
family
� take people overseas or into situations they otherwise would not experience

Basis of a nation�s economy

� A strong economy is built on performance of business
 � Business success effects entire society
� Increases wealth and economic activity

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Fairness, Accountability and Transparency in Business and Non-profit Organizations

A business entity is an organization that uses economic resources or inputs to

provide goods or services to customers in exchange for money or other goods and
services.
Nonprofit organization. A nonprofit organization (NPO), also known as a non-
business entity, not-for-profit organization, or nonprofit institution, is
dedicated to furthering a particular social cause or advocating for a shared point
of view.

Fairness,
What�s The Point Of Fairness In Business?

�Who says life is fair, where is that written?� This is a powerful quote from the
movie classic The Princess Bride. It points to a truth everyone experiences and
knows to be true. Life is not fair!

Even customers can experience this during the buying process. It�s also not
uncommon for shareholders and suppliers to experience this during difficult
financial times.

Fairness: ability to make judgments free from discrimination or dishonesty.

The value of Fairness is about the process of decision-making, not the outcome.

In a business setting, the goal is to make good decisions that serve the needs of
the business without harming anyone (i.e. customers, employees, shareholders,
suppliers, and the community at large).

Does that mean everyone will like the decisions made? No.
Does that mean some will see the decisions as unfair? Yes.
That�s life.

Ways to Instill Fairness at Work or Any organization

Control your power. There is power in your position and/or ability to influence
others. Control the urge to use it when not getting your way, and never abuse it.
Remember: just because you can, doesn�t mean you should.
Model it. Apply the stated rules and defined processes equally to everyone,
including yourself. If Fairness means anything to you, then it�s crucial that you
actually do what you say to others.
Avoid favoritism. Go with facts over feelings. Engage others based on their skills,
experience, and attitude, not on how you feel about them.
Change the rules. If a rule or process clearly shows discrimination to certain
individuals or groups, work to change it. But be careful of introducing new biases
with a proposed change that swaps out one type of discrimination for another.
Consider perceptions. When trying to make a fair decision, consider how others will
perceive it. Some might not care, while others might feel especially targeted. Be
prepared to address the perception of discrimination with facts and logical
reasons.
Be honest. Always be prepared to explain the rationale behind decisions, including
what is known, not known, and why now. Also, be honest with yourself and understand
why you tend to lean in a certain direction vs. others (Note: we all have a natural
internal bias).
Acknowledge mistakes. Decisions are made with available data, which are never
perfect. When a poor decision is made, acknowledge it, explain what�s been learned,
make the necessary adjustments, and move on. If needed, apologize to those
negatively impacted by it.
Live the Golden Rule. Always treat others as you would like to be treated. This
tends to be easier in familiar situations. But in unfamiliar situations, this
requires putting yourself in the shoes of others, which can be difficult.
Acknowledge when you can�t possibly understand how others feel.

Bottom Line: Embracing the value of Fairness is about the process of decision-
making, not the outcome. Fair decisions are made with available data; in an
environment of honest, open dialogue; and with intentional effort to remove any
biases that could cause perceived discrimination. All of this leads to better
decisions, happier employees, and a stronger bottom line.

Accountability, Being accountable simply means being responsible for decisions

made, actions taken, and assignments completed.
Accountability in business is critical, as the concept enhances the ethics of
managers.

Accountability in Companies
Accountability also has a strong connection to expectations. Employees who do not
meet the expectations of their supervisor are held accountable for their actions
and must answer for their inability to do so.

Accountability is crucial to ensuring high performance within an organization.

However, managers must clearly communicate their expectations to the person who is
responsible for the specified action or task. Clear communication of expectations
and well defined goals is a very effective tool to enhancing performance at every
level of organization.

Without defined goals, employees lack a frame of reference for how they are
performing in the workplace. They are unable to rely on guidelines or a structure
that helps them achieve their performance goals. In many organizations, the
management team and board of directors create goals for themselves and the general
manager, while the general manager creates goals for department managers. This
process is replicated throughout the organization, down to the department managers
who create goals for entry-level employees.

https://courses.lumenlearning.com/boundless-management/chapter/core-requirements-
of-successful-managers/

Transparency,
It�s ironic that a word like �transparency� can have several confusing meanings,
even in a business context. While transparency as a concept is often most visible
in the realm of social responsibility and compliance, its real benefit is when it�s
seen as a business priority.

Transparency is about information. It is about the ability of the receiver to have

full access to the information he wants, not just the information the sender is
willing to provide. Transparency embodies honesty and open communication because to
be transparent someone must be willing to share information when it is
uncomfortable to do so. Transparency is an individual being honest with himself
about the actions he is taking. Transparency is also the organization being upfront
and visible about the actions it takes, and whether those actions are consistent
with its values. What would cause someone act contrary to his or her values? What
are the influences and factors inside an organization that cause individuals to
veer from actions or decisions that they do not believe are right?
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Observations on business policies and practices

Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be taken by
the subordinates in an organization. It permits the lower level management to deal
with the problems and issues without consulting top level management every time for
decisions.

Business policies are the guidelines developed by an organization to govern its

actions. They define the limits within which decisions must be made. Business
policy also deals with acquisition of resources with which organizational goals can
be achieved. Business policy is the study of the roles and responsibilities of top
level management, the significant issues affecting organizational success and the
decisions affecting organization in long-run.

Features of Business Policy

An effective business policy must have following features-

Specific- Policy should be specific/definite. If it is uncertain, then the

implementation will become difficult.
Clear- Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
Reliable/Uniform- Policy must be uniform enough so that it can be efficiently
followed by the subordinates.
Appropriate- Policy should be appropriate to the present organizational goal.
Simple- A policy should be simple and easily understood by all in the organization.
Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
Flexible- Policy should be flexible in operation/application. This does not imply
that a policy should be altered always, but it should be wide in scope so as to
ensure that the line managers use them in repetitive/routine scenarios.
Stable- Policy should be stable else it will lead to indecisiveness and uncertainty
in minds of those who look into it for guidance.

Definitions:

Policy:
A �policy� is any standard, statement, or procedure of general applicability
adopted by the Board of Trustees pursuant to authority delegated by law or the
Board of Governors.
A policy is a set of ideas or plans that is used as a basis for making decisions,
especially in politics, economics, or business.

Regulation:
Regulations are the rules which are authorized by the legislation. By nature it is
rigid, unable to bend, or not flexible.

Rule:
-are set of instruction which tells us the way things are to be done. Made as per
(according to) Conditions and Circumstances. Set By Individual and/or Organization.
Moreoften, rules are flexible.

Policy vs Strategy
What are the differences?
The term �policy� should not be considered as synonymous to the term �strategy�.
The difference between policy and strategy can be summarized as follows-

Policy is a blueprint of the organizational activities which are repetitive/routine

in nature. While strategy is concerned with those organizational decisions which
have not been dealt/faced before in same form.
Policy formulation is a responsibility of top level management. While strategy
formulation is basically done by middle level management. (instructions and
implementations)
Policy deals with routine/daily activities essential for effective and efficient
running of an organization. While strategy is the methodology used to achieve a
target as prescribed by a policy.
Policy is concerned with both thought and actions. While strategy is concerned
mostly with action. (procedure before implementation...)

Rules and Policies are sometimes so packed together that it becomes impossible to
segregate one from the other. And it varies from one perspective to the other that
whether rules are based on policies or policies are based on rules. Therefore, it
will be good if we first confine our discussion to an understandable perspective so
that we can understand the difference.

In context of business entities, rules usually mean the rules applied by government
or some other body responsible for regulating business entities.

Rules are clear instructions that must be followed by the entities. And in case if
rules are not followed then entity will have to face some legal action in the form
of penalties, suspension etc. So basically rules are given the ability to have the
protection of their own.

Policies relates to how the rules are going to be implemented. Entities design
their policies on the basis of rules applied by regulatory authorities AND their
business objectives. Policies basically give a direction to the entity that is in
line with both applicable laws and aims that business wants to achieve.

But here is another thing. Based on these policies, management may design internal
rules for imposition of such policies.

Example
A company is required to file a return by last day of the month.This is the rule
set by regulatory authorities.

Entity�s policy can be that returns should be submitted as early as possible so

that our company is never considered in scrutiny.

Whereas, internal rule can be that data pertaining to the returns must be updated
by 20th of every month so that considerable time is available for preparation of
returns.

So, in summary it can be represented as follows:

Rules designed by regulatory authority > Entity wide policies designed by

management > Internal rules designed by management

As said earlier, how rules and policies are connected to each other is a matter of
how we are looking at things. But there is one thing that should be remembered
i.e.:
Rules are clear set of instructions rather dictation which MUST be followed and if
rules are not obeyed i.e. it is considered as breaking the rules and is punished.
This is the case with every rule whether it is applied on entity externally or
entity has implemented it internally.

Whereas, policies can be considered as guidelines to be followed by management and

other staff.

Due to this fact, it is usually said that rules are given �teeth� which is not the
case with policies.

Examples of Business policies in different areas:

ACCOUNTING
Problem Checks
Check Signing Authority
Chart of Accounts
End of Period Review & Year Closing

ADMINISTRATION
Board of Directors� & Shareholders� Meetings, Minutes, and Protocol
File and Record Management
Form Development and Forms Manual
Job Descriptions
Management Reporting

DISASTER MANAGEMENT
Disaster Management Plan
Service Agreements, Emergency Services Agencies, and Community Resources
Emergency Notification Procedures

CUSTOMER SERVICE
Customer Satisfaction Survey
Customer Service Contact / Complaint Handling
Service Satisfaction
Post-Sale Customer Follow-Up
Service Parts Pricing
Warranty and Service Policies

FINANCE AND CREDIT

Account Collection
Bank Loan Applications
Banking Policy and Relations
Business Plans and Forecasts
Customer Credit Approval and Terms
Release of Financial or Confidential Information
Stock Transactions
Weekly Financial and Six Week Cash Flow Reports

Other areas with their policies and procedures:

ENGINEERING

Check the rest of the examples on this link: https://www.bizmanualz.com/business-

sampler-policies-and-procedures

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Distinguish between good policies/practices and morally unacceptable

policies/practices

Check the rest of the examples on this links:

https://www.forbes.com/sites/lizryan/2018/01/22/ten-company-rules-that-are-unfair-
to-employees/#77fce2b45206

https://www.usatoday.com/story/money/business/2015/05/10/cheat-sheet-worst-company-
policies/70898858/