Fundamentals of Business Entities

Posted on Apr 30, 2025 in Business Administration and Management (BAM)

Understanding the Business Entity

A company is an arduous and difficult undertaking, an entity composed of capital and labor as factors of production and business devoted to industrial activities and services for profit and with accountability.

Features of a Company

  • Is a set of production factors.
  • Has goals and objectives.
  • The various factors that comprise the company are coordinated to achieve their ends.
  • This coordination is done by other business factors: management.
  • The company is a system.

Elements That Make Up a Company

  1. INSTRUMENTAL CAPITAL: (Is the set of goods, rights, and assets of a company)
    • Technical capital (elements used for a long time).
    • Financial capital (financial resources that make up the liquid cash).
  2. HUMAN ELEMENT: Workers or employees, the employer, proprietors.
  3. ORGANIZATION.
  4. THE ENVIRONMENT.

Business Theories

  • Theory of Employer Risk: Lies in ensuring the income of production factors by bearing the risk of economic activity and defines the company’s business profit as a reward for that risk.
  • Theory of Business Innovation: Innovation is implementing technical inventions for industrial or commercial purposes.
  • Theory of Techno-Structural Business: The economic activity of these countries is dominated by large corporations that influence price.

Objective of the Company

The entrepreneur has ownership and control. As these two functions fall on the same person, there are no conflicts, in absolute terms, when comparing the benefits to the amount the owner has invested in the company.

Influence of the Environment on the Company

  • GENERAL ENVIRONMENT: (Factors or circumstances affecting all companies within a country or region, regardless of their economic sector, product, or service manufactured)
    • Level of economic development.
    • Economic situation.
    • Political and legal systems of the country.
    • Level of technology.
    • Training level of the country.
  • SPECIFIC ENVIRONMENT:
    • Number of competitors.
    • Suppliers of that product or industry.
    • End customers and preferences.
    • Intermediaries.
    • Specific legislation.

Measurement of Social or Environmental Impact

  • SOCIAL BALANCE: Instrument that measures the impact of the company’s activity on its surroundings.
  • ENVIRONMENTAL AUDIT: Professional study of a company’s environmental impact.

Social Responsibility and Codes of Ethics

The company doctrine should also consider ethical conduct in its work.

Functions of the Company

  • PRODUCTIVE ROLE: To transform some primary elements into capital goods.
  • GENERATION OF EMPLOYMENT.
  • GENERATION OF BENEFITS AND WEALTH.
  • RESEARCH AND DEVELOPMENT.

Markets for Goods and Services

  • The Perfectly Competitive Market: Many suppliers and demanders; the product is homogeneous.
  • Monopolistic Competition: Many different companies and demanders.
  • Oligopolistic Market: A small number of firms; it is more competitive.
  • Duopolistic Market: Two companies.
  • Market Monopoly: There is one business.

Types of Companies

  • Ownership of Capital: Private, Public, Mixed.
  • Its Scope: Local, Regional, National, International.
  • For Its Size: Small, Micro, Medium, Large company.
  • For Its Legal Form: SA, S.COMP, SL.
  • The Dimension:
    1. Technical criteria.
    2. Financial criteria.
    3. Commercial criteria.

Business Growth

Considered from:

  • The techno-productive aspect.
  • The commercial aspect.
  • The financial aspect.

Types:

  • Internal.
  • External.

The Production Process

It is that by which inputs are transformed into finished products, using a certain type of technology.

Types of technology:

  • Manual technology.
  • Mechanical technology.
  • Automation technology.

The Production Function

Is the variable that can potentially affect other functions; it is an economic model that is used to represent a significant mode of business action.

Efficiency

A production system is more efficient if it maximizes the resulting production level for a given level of productive resources.

Business Decisions: Location and Size

The site location chosen by the employer to place their business depends on factors related to their own internal characteristics of the company and whether it is a commercial enterprise or industrial.

External factors:

  • Market demand.
  • Markets for procurement of raw materials.
  • Labor.
  • Supplies.
  • Local terrain.
  • Legal or tax factors.
  • Dynamic factors.

Productivity

It is a relationship between the amount of output and the amount of productive employees.

Productivity of a Factor: Relationship of production volume obtained with the amount of that factor.