PRODUCTIONPrepared by Sue Quirante for RTPM-DSHS

All lifted copyrighted content were used in the spirit of Fair Use to teach economics concepts in a public school setting. This material may not be used for commercial purposes.Last edited October 15, 2016

PRODUCTIONPutting together different inputs

(factors of production) to create a product or service

factors of productio

n

production

product&

by-product

Factors ofProduction

So I coined

a word. :3

LABOR / PAGGAWA

Upton Sinclair

different from money money is used simply to

purchase goods and services for consumption

capital is more durable and is used to generate wealth through investmentex. equipment, financial

capitaldifferent from intermediate

goods that get used up in production

Capital (Investopedia)

an input that can be used to create wealth

besides being used in production, capital can be rented out for a monthly or annual fee to create wealth

Capital (Investopedia)

Capital does not exist until it is produced.

To create wealth, capital must be combined with labor.

When people invest in capital by foregoing current consumption, they can enjoy greater future prosperity. (investment)

ENTREPRENEUR/ENTERPRISE

Let’s get

down to

business!

RENTINTEREST

WAGE

PROFIT

FACTOR PAYMENTSTypes of Income

ACTIVITY 1 SAMPLE

ACTIVITY 2 INSTRUCTIONS

Pick a strip of paper.Find other factors of production which

can join you to make a good or service.Once you have found fellow FOPs,

paste your strips on a ¼ sheet of paper.

Label each FOP appropriately: LAND, LABOR, CAPITAL or ENTREPRENEUR.

Write the product at the back.

There are

four!

Types ofBUSINESS FIRMS

BUSINESS FIRM

An entity that employs the factors of production (resources) and produces goods and services to be sold to consumers or firms of the government.

BUSINESS FIRM types

1.sole proprietorship/sole trader

2.partnership3.corporation4.cooperative

1 sole proprietorship

owned and controlled by a single individual

1 sole proprietorship

advantage

freedomsimple, easy and fast set up

inexpensive (capital requirement is small)lesser business documents are required

conflicts are minimized

disadvantage

unlimited liabilityproprietor and company are legally the same

company’s liabilities are also the proprietor’s personal obligations, exposing you to great risks

disadvantage

 ”The law does not afford protection to the personal assets of the entrepreneur from claims against his business.”

disadvantage

short-termno continuity of existence beyond the proprietor’s lifespan

2 PARTNERSHIP

formed by 2 or more individuals called partners, binding themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves

2 PARTNERSHIP example

2 PARTNERSHIP

income is equally divided among partners, unless there is a written provision that dictates otherwise

2 PARTNERSHIP

main investor and one personally liable is called the general partner

2 PARTNERSHIP

the others are called limited partners because they have only limited liability, as if they were shareholders in a corporation

2 PARTNERSHIP

registration with the Securities and Exchange Commission (SEC) takes between 5-8 days and the requirements are similar to that of a corporation

DISADVANTAGE

quarrels between partners may occur

unlimited liabilityshort-term

3 CORPORATION

an artificial person created by law (vs a natural person)

registered in the SEC (for as low as P5000 in paid-up capital)

minimum of 5 incorporators

3 CORPORATION defined

“A 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.”

~The Corporation Code of the Philippines

3 CORPORATION example

3 CORPORATION example

Universal Robina Corporation

3 CORPORATION example

disadvantage

larger amount of expenses and effort required in set up and maintenancearticles of incorporation, and other documentary

requirementscorporate acts must be supported by board

resolutionmaintenance requirements (reports, etc.)

disadvantage

double taxationcompany’s income as well as shareholder’s income (dividends)

advantage

limited liability“the law affords the corporation a personality separate and distinct from that of its stockholders”

advantage

limited liabilityveil of corporate fiction“any claim against a corporation is limited only to whatever the corporation’s assets can satisfy”

advantage

limited liability“you will not be liable beyond your investment in the corporation”

advantage

long-terma corporation can exist even after the death of its stockholders because of the separate personality granted to it by law

advantage

relatively easier to get additional financial capital for itinitial public offering (sale of stocks)use other people’s money to expand businessshareholders invest in order to get:

a) dividendsb) stock appreciation (sell shares for higher

price)

3 CORPORATION types in the Philippines

1. stock• have capital stock divided into shares and are

authorized to distribute to the holders of such shares dividends or allotments of the surplus profits

3 CORPORATION types in the Philippines

2. non -stock• all other foundations, educational institutions,

non-profit organizations, and associations registered as corporations

Publicly-held vs Privately-held

Privately-held Corporationshares are owned by company’s founders, management, private investors, family or friends of the business

Publicly-held Corporationa portion of shares were sold to the public via

an initial public offering

examples of privately-held companies

Mars, Inc.

examples of privately-held companies

local example:Uymatiao Trading Corporation

examples of publicly-held companies

examples of publicly-held companies

Look up http://whoownsfacebook.com/ for a more complete list of the biggest shareholders of Facebook

Special case: GOCCs

government-owned and controlled corporations (GOCCs) are stock or non-stock corporations established by a special charter or law for the interest of everyone and subject to the test of economic viability. It is owned or controlled by the government directly, or indirectly through a parent corporation or a subsidiary corporation.

important terms

holding companymay be a parent corporation, limited liability

company or limited partnership that owns enough voting stock (shares/interest) in another company to control its policies and management

important terms

subsidiarypartly or completely owned by another

company that holds a controlling interest in the subsidiary company

conglomeratea corporation that is made up of a number of

different, seemingly unrelated businesses

example85.4%57.24%

parent corp. / holding co.

subsidiary

example

Filipino Conglomerates

important terms

multinationaltransnational corporationhas its facilities and other assets in at least one

country other than its home countryhave offices and/or factories in different

countries and usually have a centralized head office where they co-ordinate global management

examples

4 Cooperative

a farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits

in the Philippines, monitored by the Cooperative Development Authority

4 Cooperative

Watch the video Introduction to Cooperatives by the Singapore National Co-operative Federation:

https://www.youtube.com/watch?v=rtzuz2j9LI4

4 Cooperative

Also watch the video What is a Co-operative? by Co-operatives UK:

https://www.youtube.com/watch?v=90FL_bBE4mw

4 Cooperative

An example of a cooperative is electric cooperatives. Watch the video The Electric Cooperative Story by NRECA:

https://www.youtube.com/watch?v=tenKnIx4ouY

local example

Student Questions!

What is franchising?refers to the method of practicing and using another’s perfected business concept

the franchisee is granted the right to market a product or a service under a marketing plan or a system that uses the trademark, name, logo and advertising owned by the franchisor

Question!

What is a franchise?FinLit explains what is a franchise in this video

called How Does Franchising Work?https://www.youtube.com/watch?

v=EmjA6O2HIus

Student Questions!

If you want to know more:Planning on a Partner for Your Franchise? Here are

some Pro’s and Con’s. http://www.franchiseknowhow.com/buying_franchise/

partner.htmDoes it Matter How You Own Your Franchise?

http://www.franchising.com/articles/does_it_matter_how_you_own_your_franchise.html

Student Questions!

What type of business is Avon?

Student Questions!

What type of business is Avon?

This tells us it started out as a partnership.

Question!

What type of business is Avon?

It later became a corporation.

Student Questions!

equityvalue of the shares issued by

a companyoperating income OI = Gross Income -

Operating Expenses - Depreciation & Amortization

Student Questions!

net incomenet earnings, net profit,

“bottom line”income minus cost of goods

sold, expenses and taxes

Video Reflection

Watch: https://www.youtube.com/watch?v=_zwh9dPyidA1. What qualities did the character(s) possess

that are essential characteristics of entrepreneurs?

2. Do you have these characteristics already?a. Yes? Cite a situation that proves you have

these characteristics. Were you born this way or did you learn it? Explain.

b. No? Think of three ways a student like you could learn how to become an entrepreneur. Which of these can you do right now? Explain.

References

-. (2011). “Personal Exemptions for Income Tax in the Philippines.” Tax & Accounting Center, Inc. Retrieved from http://taxacctgcenter.org/personal-exemptions-for-income-tax-in-the-philippines/

-. (2013). “Sole Proprietorship, Corporation or Partnership: Choosing your business enterprise”. Nicolas & De Vega Law Offices. Retrieved from http://ndvlaw.com/sole-proprietorship-corporation-or-partnership-choosing-your-business- enterprise/

-. (2015). “What are Capital Goods?” wiseGEEK. Retrieved from http://www.wisegeek.org/what-are-capital-goods.htm Abrugar, Victorino. (2011). “What are Deductions and Exemptions to Income Tax (Philippines). BusinessTips.ph. Retrieved

from http://businesstips.ph/what-are-deductions-and-exemptions-to-income-tax-philippines/ Anlacan, Ruben, Jr. (2013). “Be A Sole Proprietorship, Partnership Or Corporation?”. BusinessCoach, Inc. Retrieved from

http://www.businesscoachphil.com/be-a-sole- proprietorship-partnership-or-corporation Corporation Code of the Philippines, B.P. 98 (1980) Department of Education. (2015). Ekonomiks 10: Araling Panlipunan – Modyul para sa Mag-aaral. Philippines: Vibal Group,

Inc. Department of Finance. (2011). “What are GOCCs?” Department of Finance. Retrieved from http://www.dof.gov.ph/?

page_id=1530 Investopedia Staff. (2015). “Capital”. Investopedia. Retrieved from http://www.investopedia.com/terms/c/capital.asp Investopedia Staff. (2015). “What’s the difference between publicly- and privately-held companies?” Investopedia.

Retrieved from http://www.investopedia.com/ask/answers/162.asp Pamaos, Fred B. (2007). “Forms of Business: Sole Proprietorship, Partnership, Corporation”. Philippine e-Legal Forum.

Retrieved from http://jlp-law.com/blog/forms-of-business-sole-proprietorship-partnership-corporation/ Online Educational Videos, links are indicated in the slides