Prepared by: AGCortez

FORMS OF BUSINESS ORGANIZATION

The Organizational Vehicle

Before a business can open its doors to

the buying public, there has to be a vehicle by which products and services can be bought or availed of from the seller.
Before selecting the form of ownership, an

entrepreneur must carefully analyze the pros and cons of each type of business organization.

Forms of Business Organizations in the Philippines

Corporation
Partnership Single Proprietorship Cooperative

Corporation
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 has a separate juridical personality, corporate debts are not debts of stockholders. Stockholders have only an indirect interest over corporate assets, it is the corporation that has direct ownership.

Corporation Code and SEC

Articles of incorporation and by-laws initially provide the following;
corporate purposes

Authorized capitalization
Qualifications, duties, and compensation of

officers and employees time, place and manner of conducting regular and special meetings Time for holding the annual election of directors

Some Aspects of Corporate Form and Partnership Form

They may have implication on management function, namely;

formation/creation dissolution Degree of control by owners Profit distribution/Profit sharing Degree of Formality Transfer of Ownership Taxation Administration

Advantages of Corporate Form

1) Ease of transfer of ownership 2) Ability to attract larger amount of capital from financing institutions 3) Greater formality in the conduct of business 4) Fixed tax rate at 35% of net taxable income 5) Stability due to ease of change of ownership interest. 6) Limited liability of owners 7) Ability to have perpetual life. 8) More pronounced separation of ownership from management

Disadvantages of Corporation
1. Cost and time involved incorporation
2. 3. 4. 5.

process Subject to fix tax rate Potential for diminished managerial incentives Legal restrictions and regulatory red tape may slow down the implementation of plans and programs Potential loss control by founder(s) of the corporation

Partnership
A partnership is an association of two or more

business partners who bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves
the assets, liabilities, and profits of the business according to the terms of the partnership agreement. Securities and Exchange Commission (SEC) just like the corporation.

In a partnership, the co-owners (partners) share

A partnership is to be registered with the

Advantages of Partnership
1. Ease of establishment 2. Division of profits based on partnership 3. 4. 5. 6. 7.

agreement Larger pool of capital than proprietorship Larger pool of talent than proprietorship Ability to attract limited partners Little government regulations Business income taxed as individual income

Disadvantages of Partnership
1. Unlimited liability of general partners 2. Difficulty in disposing of partnership

interests without dissolving partnership 3. Lack of continuity 4. Potential for personal and authority conflicts 5. Partners are bound by law of agency

Types of Partners
1. General- liability extends up to his separate properties
2. Limited- liability is limited only to his capital

contribution 3. Managing- one who manages the affairs of the business. 4. Industrial- one who contributes services only.

Sole Proprietorship

The sole proprietorship or single proprietorship is a form of business organization initiated, organized, owned or capitalized and managed by a single person ( usually the business owner ).
As defined, the entrepreneur is the capitalist, the manager, administrator and in the beginning of the business, he practically does everything for the business. A single proprietorship business format is to be registered with the Bureau of Domestic Trade of the Department of Trade and Industry (DTI)

Advantages of Single Proprietorship

Less regulation by government
less conflict and disagreements in manner of

management easier to increase or decrease capital best suited for small businesses tax rate is lower than that of corporate form or partnership form when net taxable income is less than Php500,000

Disadvantages
unlimited liability
Limited capital limited management expertise Lack of continuity of the business

The Cooperative
Republic

Act 6938, otherwise known as the Cooperative Code of the Philippines, defined a cooperative as a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

Forms of Cooperatives
1)

Credit cooperatives
They are in the form of credit union to promote savings and thrift among members and to accumulate funds to be lent to members These are formed to undertake the cooperative or joint production of agricultural or industrial products.

2) Producers Cooperatives

3)

Consumers Cooperatives
These are primarily established to procure goods for resale to members These are engaged in the provision of services which members avail of.

4) Service Cooperatives

Forms of Cooperatives
5) Marketing Cooperatives

These are primarily established to centralize the purchasing of inputs needed by producer members as well as the selling of the produce of members

6) Multi-Purpose Cooperatives
Combination of two types of cooperatives

Distinctive Characteristics of Cooperative

produce/procure goods and services for use by their members
They generate to their members in the form

of patronage refund and dividends benefits will be accrued by all members

Universal Cooperative Principles

Open and voluntary membership
Democratic Control Limited interest on capital Division of net surplus Provision for the education of members Cooperation among members

Advantages of Cooperatives
Captive market
Tax advantages Democratic control Minimum level of formality Easier access to capital other privileges e.g access to government

facilities and resources

Disadvantages
rule of one man one vote may limit the amounts members are willing to invest.
Limited share capital may limit its ability to

finance expansion The orientation towards maximizing direct member benefits and participation can complicate business decision making and may render it more difficult to achieve economical business operations.