Forms of Business

Organizations
 3 Forms of Business Organization

1. Sole proprietorship – form of organization where

there is only one owner, the proprietor.
2. Partnership – is an association of two or more persons
who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
profits among themselves.
3. Corporation – 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.
 Organizing a Sole Proprietorship

1. Register the business name with the Department of

Trade and Industry
2. Pay the municipal licenses to the local government.
3. Apply for VAT or Non-Vat number.
4. Register with the BIR the books of accounts
(simplified bookkeeping records or journals and
ledger) and the business forms to be used (sales
invoices, cash sales invoices, official receipts, etc.).
 Organizing a Partnership
1. Register the business name with the Department of Trade and
Industry.
2. Have the partnership agreement (articles of co-partnership)
notarized.
3. Obtain a tax account number for the partnership from the BIR.
4. Have the partnership agreement (articles of co-partnership)
notarized and then register with the SEC.
5. Obtain the municipal licenses from the local government.
6. Obtain VAT account number or the non-VAT, as the case
maybe.
7. Register books of accounts (journals and general ledger) and
business forms to be used (sales invoice, official receipts, cash
sales invoices, etc.) with the BIR.
 Registration of Corporations
1. Verification of corporate name with SEC.
2. Drafting and execution of the articles of incorporation.
3. Deposit of cash received for subscribed shares of stocks in a
banking institution in the name of the temporary treasurer, in
trust for and to the credit of the corporation.
4. Filing of the articles of incorporation together with the ff:
-Treasurer’s affidavit
-Statement of assets and liabilities of the proposed corporation
-Authority to verify bank deposits
-Certificate of deposit of each cash paid for subscription
-Personal information sheet of the incorporation
-Commitment to change corporate name if
it is found similar to another corporate
name
 Registration of Corporations
5. Payment of filing and publication fees.
6. Issuance by SEC of the certificate of incorporation.
7. Registration of the corporate name with the
Department of Trade and Industry.
8. Obtaining municipal licenses from the local
government.
9. Obtaining the VAT or non-VAT account number from
the BIR.
10. Registration with BIR of books of accounts and
accountable forms.
 Advantages and Disadvantages of
Sole Proprietorship
Advantages
• It is easy to organize.
• Decisions can be easily
made.
• Financial operations are not
complicated.
• The owner is entitled to all
the profits.
Disadvantages
• Limited ability to raise
capital.
• Unlimited liability.
• Limited ability to expand.
• Business is entirely a
responsibility of the owner.
• Net income is subject to tax
regardless of whether it is
withdrawn or not.
 Advantages and Disadvantages of
Partnership
Advantages
• Easy to form.
• Flexibility of operations.
• Expected to be operated
more efficiently when
compared to sole
proprietorship because of
the presence of more
owners.
• Partners are expected to
have great interest in the
operations because of their
unlimited liability.
Disadvantages
• Partners have unlimited
liability for partnership
debts.
• Limited life.
• Limited ability to raise
capital
• Net income is subject to tax
whether distributed or not.
 Advantages of Corporation

1. It has legal capacity to act as a legal unit.

2. It has continuity of existence.
3. Management is centralized in the board of directors or
trustees.
4. The creation, organization, management and
dissolution processes are standardized because they
are governed by one general incorporation law.
5. Shareholders have limited liability.
 Advantages of Corporation

6. Shareholders are not general agents of the corporation.

7. Shareholders can transfer their shareholdings without
consent of other shareholders.
8. It has the ability to raise more capital.
9. Its ability to more capital makes feasible gigantic
financial ventures.
10. Stockholders are taxed only on their share distributed
earnings.
 Disadvantages of Corporation

1. It is subject to greater degree of governmental control

and supervision.
2. Its cost of formation and operation is relatively high.
3. Its formation and management is relatively complicated.
4. It is subject to higher income tax rate.
5. It has limited powers.
6. It is possible for the board of directors to abuse its
powers.
 Distinctions between a Corporation and
a Partnership
Corporations
a. Governing laws
-Corporation Code
b. Manner of creation
-It is created by law or
operation of law.
c. Number of incorporators
-At least 5 incorporators are
required.
Partnership
a. Governing laws
-Civil Code
b. Manner of creation
-It can be created by mere
agreement of the parties.
c. Number of incorporators
-It may be organized by only 2
persons.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
d. Commencement of juridical d. Commencement of juridical
personality personality
-It begins to have corporate -It commences to acquire
existence and juridical juridical personality from the
personality only from the moment of the execution of
date of the issuance of the the contract of partnership.
certificate of incorporation
by SEC under its official
seal.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
e. Powers e. Powers
-It can exercise only the -It may exercise any power
powers expressly granted authorized by the partners
provided it is not contrary to
by the law or implied from
law, morals, good customs,
those granted or incident to
public order or public policy.
its existence.
f. Management
f. Management
-When management is not agreed
-The power to do business and upon, every partner is an agent
manage its affairs is vested of the partnership.
in the board of directors or
trustees.
 Distinctions between a Corporation and
a Partnership
Corporations
g. Right of Succession
-It has the right of succession.
h. Term of existence
-It may be formed for a term not
longer than 50 years subject to
extension to not more than 50
years in any one instance.
i. Firm name
-It may adopt any name provided
it is not identical or deceptively
similar to any registered firm
name, or contrary to existing
laws.
Partnership
g. Right of Succession
-It has no right of succession.
h. Term of existence
-It may established for any period
of time as stipulated by the
partners.
i. Firm name
-In the case of a limited
partnership, it is required by
law to add the word Limited
(Ltd.) to
its name.
 Distinctions between a Corporation and
a Partnership
Corporations
j. Transferability of interest
-A stockholder has the right to
transfer his shares without
the prior consent of the
other stockholders.
k. Extent of liability to third
parties
-Stockholders have limited
liability, that is, they are
liable only to the extent of
their shareholdings.
Partnership
j. Transferability of interest
-A partner cannot transfer his
interest in the partnership
without the consent of all the
other existing partners.
k. Extent of liability to third
parties
-Partners (except limited
partners) have unlimited
liability.
 Distinctions between a Corporation and
a Partnership
Corporations
l. Effect of mismanagement
-The corporation, as a juridical
personality, can sue or file
a suit against a member of
the board of directors or
trustees who mismanages.
m. Dissolution
-It can only be dissolved with
the consent of the state.
Partnership
l. Effect of mismanagement
-A partner can sue a co-
partner who mismanages.
m. Dissolution
-It may only be dissolved at
any time by the will of any
or all of the partners.