Organizing a Business

Business Defined
It is any lawful economic activity concerned with the production and / or distribution of goods or services for profit. The amount of capital investment, the size of the organization, and the number of employees are also immaterial in determining if an economic activity qualifies as business.

A. Legal forms of Business Organization

Sole Proprietorship Partnership Corporation Cooperatives

 Sole proprietorship it is a one-person business that is perhaps the easiest and simplest business enterprise to organize in the Philippines. it is inseparable from its owner. The law recognizes the business entity and the owner. The owner must report all business income and losses as the entrepreneur files and pays taxes.

Sole Proprietorship
Advantages Relatively low start-up costs Disadvantages Unlimited liability

Greatest freedom from government regulation

Owner is in direct control of decisions in the enterprise making Minimal working capital required Tax advantages to owner All profits go to the owner

Lack of continuity in business organization in the absence of the owner

Highest mortality rate Difficulty raising capital Relative difficulty to compete with bigger businesses All losses borne but the owner

 Partnership
It is simply a business owned by two or more people who havent filed to become a corporation. No paperwork needs to be filed to business with another person.
Limited partnership General partnership

partnerships
Advantages Ease of formation compared to corporations Relatively low start-up costs Additional sources of investment capital Possible tax advantages Limited regulation Broader management base Disadvantages Unlimited liability Lack of continuity in case a partner withdraws or dies Divided authority among partners Difficulty raising additional capital due to needed consent of all partners Hard to find suitable partners Possible development of conflict between partners

Usually better managed than sole proprietorship

Action of one partner is understood to be the action of all partners

 Corporation
It acquires a juridical personality upon formal registration and recognition with the SEC. This means that a corporation is treated as a person, separate and district from its owners. Owners are generally called incorporators and stockholders.

Corporations
Advantages Limited liability Specialized management due to presence of corporate officers Disadvantages Closely regulated and monitored by the SEC Most expensive form of business organization to organize

Ownership is transferable due to shares of Corporate charter restrictions stocks

Continuous existence of the business even after withdrawal or death of an owner Separate legal entity from owners Possible tax advantages and other incentives (e.g economic zones) Easier to raise capital Extensive record keeping necessary

Double taxation of dividends (corporations and stockholders) Possible development of conflict between shareholders and executives Limited range of business, dependent on corporate charter

 Cooperatives
A corporation organized and controlled by its members, who pool resources together to provide themselves and their patrons with goods, services, or other benefits. A cooperative business structure provides democratic control base on one-member-onevote, open and voluntary membership and patronage dividends.

Cooperatives
Advantages Owned and controlled by members Democratic control (i.e one member, one vote) Limited liability Profit distribution (surplus earnings) To members in the form of dividends Dividends are in proportion to a members use of cooperatives services Disadvantages Possible development of conflict between members Numerous members tend to diminish ones share in total dividends Longer decision making process than corporations due to more votes to count Requires members to participate for success Extensive record keeping necessary

Highly encouraged by government due to Less incentives for members to invest the benefits received by a greater number additional capital of people

MAJOR CHARACTERISTICS OF THE LEGAL FORMS OF BUSINESS ORGANIZATION

Type of Business organization Sole proprietorship Partnerships Number of people needed to be registered one More than one Main government agency involved Department of Trade and Industry Securities and Exchange Commission Securities and Exchange Commission Variety of businesses that may be engaged in Broad, any legal business Broad, any legal business as long as partners allow Limited to what articles of incorporation state.

Corporations

At least 5

Cooperatives

At least 15

Cooperative Development Authority

Primary limited to what articles of incorporation state