Law on Business Organizations

What is meant by “Business organizations”?

Types of Business Organizations

The basic types of business organizations that are available in the country are the
following:

1. Sole Proprietorship
 This is a form of business organization with only one proprietary
owner; a single individual conducts business under his own name
or under a business name.
 It is the oldest, simplest, and most prevalent form of business
organization.
 It is neither a creature of statute nor a contract; hence, the
reportorial requirements imposed on corporations and registered
partnerships do not apply to sole proprietorship.

2. Partnership
 There is a partnership when two or more persons bind themselves
to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves. (Art. 1767,
NCC)

3. Joint Accounts (Sociedad de Cuentas en Participacion)

 It is present when there is an arrangement whereby merchants may
interest themselves in the transaction of other merchants,
contributing thereto the amount of capital they may agree upon,
and participating in the favorable and unfavorable results thereof
in the proportion that they may determine.

4. Joint Venture
 It is an association of persons or companies jointly undertaking
some commercial enterprise; generally all contribute assets and
share risks.
 It is an organization formed for some temporary purpose.

5. Cooperatives
 It is an autonomous and duly registered association of persons,
with a common bond of interest, who have voluntarily joined
together to achieve their social, economic, and cultural needs and
aspirations by making equitable contributions to the capital
required, patronizing their products and services and accepting a
fair share of the risks and benefits of the undertaking in accordance
with universally accepted cooperative principles.

 The governing law is R.A. 9520 otherwise known as “The

Philippine Cooperative Code of 2008”.
 6. Syndicate
 A group of people who come together to work for a common aim.

 It is an unincorporated business association that is often

encountered among insurance companies who may be
underwriting a large risk or banks that are lending a huge amount.
Syndication is therefore the practice of dividing investment risk
between several persons in order to minimize individual risk.

7. Corporations
 Its separate personality and the limited liability of its components
make a corporation the most desirable business organization for
many businessmen.
 Business corporations have five core characteristics, namely:
(a) Legal personality;
(b) Limited liability;
(c) Transferability of shares;
(d) Delegated Management under a board structure ; and
(e) Investor ownership.

BATAS PAMBANSA BLG. 68

Section 1. Title of the Code. This code shall be known as “The
Corporation Code of the Philippines

 The Corporation Code applies to all corporations already in existence at the time
the Code took effect. (See Sec. 148, CC)

 It is consistent with the mandate under Section 16, Article XIII of the Constitution
for Congress to prescribe all the criteria for the “formation, organization, or
regulation” of private corporations in a general law applicable to all without
discrimination.

The Corporation Code of the Philippines and the general law that it repealed
provide for the formation and organization of corporations, define their powers,
fix the duties of directors and other officers thereof, declare the rights and
liabilities of shareholders and members and prescribe conditions under which
corporations may transact business.

 It promotes the economic and social development of the country through the
development of the corporate vehicle as a means of doing business in the
Philippines.

 GENERAL RULE: The Corporation Code is the primary law that should be
applied in the regulation of corporations.

EXCEPTION: (1) The New Central Bank Act and the General Banking Law
regulate specifically banks and other financial institutions.
 (2) The Insurance Code of the Philippines applies to insurance
corporations.

In these cases, the Corporation Code applies suppletorily.

SECTION 2. 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 following attributes can be derived from the definition of

corporation under Section 2:
(1) It is an artificial being;
(2) It is created by operation of law;
(3) It has the right of succession; and
(4) It has the powers, attributes and properties expressly authorized
by law or incident to its existence.

The basic postulate in corporation law is that “a corporation is an

artificial being created by operation of law.” It owes its life to the
State and its birth is purely dependent on the State’s will.

A corporation is an artificial being