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FORMS OF

BUSINESS
ORGANIZATIONS

Corporation

Partnership

Sole
Proprietorship

PURPOSE OF BUSINESS
ORGANIZATIONS
Service

Companies perform services for a fee.


Law firms, accounting and audit firms, stock brokerage, beauty
salons, and recruitment agencies.

Merchandisin
g

Companies purchase goods that are ready for sale and then sell
these to customers.
Car dealers, clothing stores and supermarkets.

Manufacturing

Companies buy raw materials, convert them into products and


then sell the products to other companies or to final consumers.
Paper mills, steel mills, car manufacturers and during
manufacturers.

SOLE
PROPRIETORSHIP

SOLE PROPRIETORSHIP

A business that is owned exclusively by one person

This business organization has a single owner called the PROPRIETOR who generally is

also the manager.


Sole proprietorships tend to be small service-type business and retail establishments.

Physicians, lawyers and accountants.

ADVANTAGES OF SOLE
PROPRIETORSHIP
Easy to get established
Full control over all business decisions
Owners keep all profit
Flexibility
Tax Advantages

DISADVANTAGES OF A SOLE
PROPRIETORSHIP
o It can be difficult to raise money for the business
o Responsible for every aspect of the business
o Unlimited liability
o Limited skills and knowledge

PARTNERSHIP

PARTNERSHIP
An association of two or
more persons to carry on,
as co-owners, a business
for profit.
(Uniform
Partnership
Act,
Section 6)

Money
COMMON
FUND

Property

Industry

CHARACTERISTICS OF A
PARTNERSHIP
Mutual Contribution
Division of profits or loses
Co-ownership of Contributed Assets
Mutual Agency
Limited Life
Unlimited Liability
Income Taxes
Partners Equity Accounts

KINDS OF PARTNER
1.

General Partner

2.

Limited Partner

3.

Capitalist Partner

4.

Industrial Partner

5.

Managing Partner

6.

Liquidating Partner

7.

Dormant Partner

8.

Silent Partner

9.

Secret Partner

10. Nominal partner or partner by estoppel

ADVANTAGES AND
DISADVANTAGES
Advantages VS. Proprietorship
1.

Brings greater financial capability to the business.

2.

Combines special skills, expertise and experience of the partners.

3.

Offers relative freedom and flexibility of action in decision-making.

Advantages VS. Corporations


4.

Easier and less expensive to organize.

5.

More personal and informal.

Disadvantages
6.

Easily dissolved and thus unstable compare to corporation.

7.

Mutual agency and unlimited liability may create personal obligations to partners.

8.

Less effective than a corporation in raising large amounts of capital.

CLASSIFICATIONS OF PARTNERSHIP
1.

According to object:
A.
B.
C.

2.

According to liability:
A.
B.

3.

B.

Fixed
At will

According to purpose:
A.
B.

5.

General
Limited

According to duration:
A.

4.

Universal partnership of all present property.


Universal partnership of profits.
Particular partnership.

Commercial or trading
Professional or non-trading

According to legality of existence:


A.
B.

De jure
De facto

DISTINGUISH BETWEEN PARTNERSHIP AND


CORPORATION
PARTNERSHIP

CORPORATION

1. Manner of Creation

Mere agreement of partners

Created by operation of law

2. Number of Persons

Two or more persons

At least 5 but not exceeding


15

From execution of the


articles of partnership

Issuance of certificate of
incorporation by SEC

Every partner is an agent

Vested on the Board of


Directors

Liable to the extent of


personal assets

Stockholders are liable only


to the extent of their
interest or investment.

6. Right of Succession

NO

YES

7. Terms of Existence

Any period of time

Not exceed 50yrs w/


extension

3. Commencement of
Juridical
Personality
4. Management
5. Extent of Liability

CORPORATION

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

(Corporation code of

the Philippines, Sec. 2)

ATTRIBUTES OF A
CORPORATION
Is an artificial being
It is created by operation of Law
It enjoys the right of succession
It has the powers, attributes, properties

ADVANTAGES OF A
CORPORATION
The corporation has the legal capacity to act as a legal entity
Shareholders have limited liability
It has continuity of existence
Shares of stock can be transferred without the consent of the

other shareholders.

Its management is centralized in the board of directors.


Shareholders are not general agent of the business.
Greater ability to acquire funds.

DISADVANTAGES OF A
CORPORATION
A corporation is relatively complicated in formation and

management.

There is a greater degree of government control and

supervision.

It requires a relatively high cost of formation and operation.


It is subject to heavier taxation than other forms of business

organizations.

DISADVANTAGES OF A
CORPORATION
Minority shareholders are subservient to the wishes of the

majority.

In large corporation, management and control have been

separated from ownership.

Transferability of shares permits the uniting of incompatible

and conflicting elements in one venture.

CLASSES OF CORPORATION
STOCK CORPORATION

NON-STOCK CORPORATION

OTHER CLASSIFICATION OF
CORPORATION
According to Numbers of Persons.
a) Corporation Aggregate.

b) Corporation Sole.
According to Nationality.
a) Domestic
b) Foreign

OTHER CLASSIFICATION OF
CORPORATION
According to whether,
a) Public corporation
b) Private corporation
According to charitable or not
a) Ecclesiastical
b) Eleemosynary
c) Civil corporation

OTHER CLASSIFICATION OF
CORPORATION
According to legal right to existence
a) De jure Corporation
b) De facto corporation
) Degree of Public participation with regards to share

ownership.
Close corporation
Open Corporation

OTHER CLASSIFICATION OF
CORPORATION
According to Relation to Another corporation
a) Parent of holding corporation
b) Subsidiary Corporation.

STEPS IN THE CREATION OF


CORPORATION
Promotion
Incorporation
Formal organization and Commencement

ARTICLES OF INCORPORATION
The name of the corporation.
The specific purpose or purposes for which the corporation is formed.
The principal place of the business which must be within the

Philippines.

The term of existence


The names nationalities and residences of the Incorporators
The number of directors or trustees which shall not less the (5) nor

more than (15)

The names, nationalities and residences of the persons who shall act

as directors or trustees until the first directors or trustees are elected


and qualified.

If stock corporation : authorized share capital in pesos

RIGHTS OR SHAREHOLDERS
Right to be issued certificate of stock or other evidence of share

ownership and to transfer such shares.

Right to attend and vote in person or by proxy at shareholders

meeting.

Right to elect and remove directors.


Right to adopt, amend or repeal the by-laws.

RIGHTS OR SHAREHOLDERS
Right to purchase a portion of new shares issued to maintain the

same percentage of stock ownership. This right is known as the


pre-emptive rights. However, this right is not absolute and maybe
be denied.

Right to receive dividends when declared.


Right to inspect corporate books and records, and to receive

financial reports of the corporations operations.

Right to participate in the distribution of corporate asset upon

dissolution.

COMPONENTS OF A
CORPORATION
Corporators
Incorporators
Shareholders
Members
Subscribers
Promoters
Underwriters

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