ORGANIZATION &

MANAGEMENT
PREPARED BY: REIZEL JANE PASCUA

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Proc:
ORGANIZATION &
MANAGEMENT
Chapter 2.
The Firm and its Environment

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 Procedure
FORMS OF BUSINESS ORGANIZATION
• Sole Proprietorship
• Partnership
• Corporation
• Cooperatives

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 SOLE PROPRIETORSHIP
• This business organization has a single
owner.
• The owner receives all profit, absorbs all
losses, and is solely responsible for all debts
of the business.

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 ADVANTAGES OF
SOLE PROPRIETORSHIP

1. Easy to start
2. No corporate taxes
3. No profit sharing

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 DISADVANTAGES
SOLE PROPRIETORSHIP
1. Unlimited liability
2. Limited Life

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 PARTNERSHIP
• ARTICLE 1767- By the contract of partnership
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.
Two or more persons may also form a
partnership for the exercise of profession.
(1665a)

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 PARTNERSHIP
1. “A partnership is an association of two or more
persons to carry on as co-owners a business for
profit” (Uniform Partnership Act, Sec. 6.)
2. “A partnership is a legal relation based upon the
expressed or implied agreement of two or more
competent persons where by they unite their
property, labor or skill in carrying on some lawful
business as principals for their joint
profit.”(Mechem, Elements of the Law of
Partnership 1923, p.1.)

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 PARTNERSHIP
3. “A partnership is a joint undertaking to shape
in the profit and loss.” (Eastman vs. Clark)
4. “A partnership is the status arising out of a
contract entered into by two or more persons
whereby they agree to share as common
owners the profits of a business carried on by all
or any of them on behalf of all of them” (31
Words and Phrases, p. 291.)

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 PARTNERSHIP
5. “A partnership is an organization for
production of income to which each partner
contributes one or both of the ingredients of
income, which are capital or service.” (Ibid., p.
292.)

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 PARTNERSHIP
6. “A partnership is an entity, distinct and apart
from the members composing it, and, for the
purpose of which it was created; it is a person
having its own assets and liabilities and any
benefit or liability attaching to a member of the
partnership, results from the partnership
relation.” (Ibid., p. 293.)

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CHARACTERISTICS OF PARTNERSHIP
1. Mutual Contribution
a. Proprietary or financial interest
b. Form of contribution
b.1.) Money– checks, drafts
b.2.) Property- real or personal, tangible or
non-tangible
b.3.) Industry- work or services of the party

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CHARACTERISTICS OF PARTNERSHIP
1. Mutual Contribution- “without the element
of mutual contribution to a common fund,
there can be no partnership”
2. Division of profits or losses
3. Mutual Agency- “any person can bind the
other partners to a contract if he is acting within
his express or implied authority.

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CHARACTERISTICS OF PARTNERSHIP
4. Co-ownership of contribute assets
Article 1769. In determining whether a
partnership exists, these rules shall apply:
(2) Co-ownership or co-possession does
not of itself establish a partnership, whether
such co-owners or co-possessor do or do not
share any profits made by the use of property;
• There is co-ownership whenever the
ownership of an undivided thing belongs to
different person.
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CHARACTERISTICS OF PARTNERSHIP
4. Co-ownership of contribute assets
Example:
a.) A and B inherited from their father an
apartment which is leased to third person. Are
they partners?
Answer: No, they are merely co-owners or co-
possessors.

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CHARACTERISTICS OF PARTNERSHIP
5. Limited Life- Partnership may be dissolved
by the admission, death, insolvency, incapacity,
withdrawal of a partner or expiration of the term
specified in the partnership agreement.
6. Unlimited Liability- All partners are
personally liable for all debts incurred by the
partnership.
7. Income taxes- Partnerships are subject to
tax at the rate of 30% (per R.A 9337)

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CHARACTERISTICS OF PARTNERSHIP
8. Partners’ Equity Income- Each partner has
a capital account and a withdrawal account that
serves similar functions.

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 Advantages versus Proprietorships
1. Bring greater financial capability to the
business.
2. Combines special skills, expertise and
experience of the partners.
3. Offer relative freedom and flexibility of action
in decision-making.

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 Disadvantages versus Corporation
1. Easily dissolved and thus unstable compared
to corporation.
2. Mutual agency and unlimited liability may
create personal obligations to partners.
3. Less effective than a corporation in raising
large amount of capital.

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 Classification of Partnership
1. According to Object
• ARTICLE 1776- As to its object, a partnership
is either universal or particular.
a.) Universal Partnership of all present property-
“A partnership of all present property is that in
which the partners contribute all the property
which actually belongs to them to a common
fund”(Art. 1778)

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 Classification of Partnership
1. According to Object
• ARTICLE 1776- As to its object, a partnership
is either universal or particular.
b.) Universal Partnership to all profits- Universal
partnership of profits comprises all that the
partners may acquire by their industry or work
during the existence of partnership. (Art. 1780)

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 Classification of Partnership
1. According to Object
• ARTICLE 1776- As to its object, a partnership
is either universal or particular.
c.) Particular partnership- A particular
partnership has for its object determinate things,
their use or fruits, or a specific undertaking, or
the exercise of a profession or vocation. (Art.
1783)

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 Classification of Partnership
2. According to Liability:
a.) General- All partners are liable to the extent
of their separate properties.
• Who are liable pro rata and subsidiarity.
b.) Limited- the limited partners are liable only to
the extent of their personal contributions.

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 Classification of Partnership
3. According to Duration:
a.) Partnership with a fixed term or for a
particular undertaking. – the term for which the
partnership is to exist is fixed of agreed upon or
one formed for a particular undertaking, and
upon the expiration of the term or completion of
the particular enterprise, the partnership is
dissolved, unless continued by the partners.

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 Classification of Partnership
3. According to Duration:
b.) Partnership at will – in which no time is
specified and is not formed for a particular
undertaking and which may be terminated
anytime by mutual agreement of the partners.

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 Classification of Partnership
4. According to Purpose:
• Commercial or Trading Partnership - one
formed for the transaction of business.
• Professional or Non-Trading Partnership - one
formed for the exercise of profession.

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 Classification of Partnership
5. According to Legality of existence:
a.) De jure partnership - one which has
complied with all the legal requirements for its
establishment.
b.) De facto partnership - one which has failed
to comply with all the legal requirements for its
establishment.

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 KINDS OF PARTNERS
1. General Partner- one who is liable to the
extent of his separate property after all the
assets of the partnership are exhausted.
2. Limited Partner- one who is liable only to
the extent of his capital contribution.
3. Capitalist Partner- one who contribute
money or property to the common fund of the
partnership.

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 KINDS OF PARTNERS
4. Industrial Partner- One who contributes his
knowledge or personal service to the
partnership.
5. Managing Partner- one whom the partners
has appointed as manager of the partnership.
6. Liquidating Partner- one who is designated
to wind up or settle the affairs of the partnership
after dissolution.

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 KINDS OF PARTNERS
7. Dormant Partner- one who does not take an
active part in the business of the partnership
and is not known as partner.
8. Silent Partner- one who does not take an
active part in the business of the partnership
though may be known as partner.
9. Secret Partner- one who takes active part in
the business but is not known to be a partner by
outside parties.

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 KINDS OF PARTNERS
10. Nominal Partner or partner by estoppel-
one who is actually not a partner but one who
represents himself as one.

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 ARTICLES OF PARTNERS
The following essential provisions may be
contained in the agreement:
1. The partnership name, nature, purpose and
location;
2. The name, citizenship and residence of the
partners;
3. The date of formation of the partnership;

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 ARTICLES OF PARTNERS
4. The capital contribution of each partner, the
procedure for valuing non-cash investments,
treatment of excess contribution (as capital or
loan) and the penalties for a partner’s failure to
invest and maintain the agreed capital;
5. The right and duties of each partner;
6. The accounting period to be adopted, the
nature of accounting records, financial
statements and audits by independent public
accountants;

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 ARTICLES OF PARTNERS
7. The methods of sharing profit or loss,
frequency of income measurement and
distribution, including any provisions for the
recognition of differences in contribution;
8. The drawings or salaries to be allowed to
partners;
9. The provision for arbitration of disputes,
dissolution, and liquidation.

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 SEC REGISTRATION
• SEC- Securities and Exchange Commission

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 CORPORATION
• Section 1. Title of the Code – This Code shall
be known as “The Corporation Code of the
Philippines.”
• The law governing private corporations in the
Philippines is now embodied in Batas
Pambansa Blg. 68 which took effect on the
date of its approval on May 1, 1980.
• Act No. 1459 – popularly known as the
Corporation Law

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 CORPORATION
• The Batas Pambansa Blg. 68, states
“This bill is intended to supplant the
present Corporation Law, Act No. 1459,
as amended, and to be hereafter known
as the Corporation Code of the
Philippines.”

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 CORPORATION
Scope of the Code
• The Corporation Code of the Philippines is a
law which:
1. Provides for the incorporation, organization,
and regulation of private corporations, both
stock and non-stock, including educational
and religious corporation;
2. Defines their powers and provides for their
dissolution;
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 CORPORATION
Scope of the Code
• The Corporation Code of the Philippines is a
law which:
3. Fixes the duties and liabilities of directors or
trustees and other officers thereof;
4. Declares the rights and liabilities of
stockholders or members;
5. Prescribes the conditions under which
corporations including foreign corporations may
transact business;
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 CORPORATION
Scope of the Code
• The Corporation Code of the Philippines
is a law which:
6. Provides penalties for violations of the
Code; and
7. Repeals all laws and parts of laws in
conflict and inconsistent with the Code.

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 CORPORATION
• Sec. 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.

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 Attributes of a Corporation
1. A corporation is an artificial being with a
personality separate and apart from its
individual shareholders or members.
2. It is created by operation of law.
3. It enjoys the right of succession.
4. It has the powers, attributes and properties
expressly authorized by law or incident to its
existence.

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 Advantages of a Corporation
1. The corporation has the legal capacity to act
as a legal entity.
2. Shareholders have limited liability.
3. It has continuity of existence.
4. Shares of stock can be transferred without
the consent of the other shareholders.
5. Its management is centralized in the board of
directors.

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 Advantages of a Corporation
6. Shareholders are not general agents of the
business.
7. Greater ability to acquire funds.

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 Disadvantages of a Corporation
1. A corporation is relatively complicated in
formation and management.
2. There is a greater degree of government
control and supervision.
3. It requires a relatively high cost of formation
and operation.
4. It is subject to heavier taxation than other
forms of business organization. (30%)

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 Disadvantages of a Corporation
5. Minority shareholders are subservient to the
wishes of majority.
6. In large corporations, management and
control have been separated from ownership.
7. Transferability of shares permits the uniting of
incompatible and conflicting elements in one
venture.

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 Classes of Corporation
1. Stock Corporation – corporation which have
share capital divided into shares and are
authorized to distribute to the holders of such
shares dividends or allotments of the surplus
profits on the basis of the shares held.
2. Non-stock corporation – is one where no part
of its income is distributable as dividends to
its members, trustees or officers.

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 Other Classifications of Corporations
1. According to number of persons:
a. Corporation aggregate – consisting of more
than one corporator.
b. Corporation sole – special form of
corporation usually associated with the
clergy. Consist of only one member or
corporator and his successor is such a
bishop.

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 Other Classifications of Corporations
2. According to nationality:
a. Domestic Corporation – corporation
organized under Philippine laws.
b. Foreign Corporation – corporation organized
under foreign laws.

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 Other Classifications of Corporations
3. According to whether for public or private
purpose:
a. Public Corporation – organized for the
government of a portion of the state.
b. Private Corporation – a corporation created
for private aim.

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 Other Classifications of Corporations
4. According to whether for charitable purpose
or not:
a. Ecclesiastical Corporation – organized for
religious purposes.
b. Eleemosynary Corporation – established for
public charity.
c. Civil Corporation – established for business
or profit

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 Other Classifications of Corporations
5. According to their legal right to corporate
existence:
a. De jure corporation – existing in fact and in
law
b. De facto corporation – existing in fact but not
in law

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 Other Classifications of Corporations
6. According to degree of public participation
with regard to share ownership:
a. Close Corporation – whose share ownership
is limited to selected persons or member of a
family not exceeding 20 persons.
b. Open Corporation – where the share is
available for subscription or purchase by any
person.

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 Other Classifications of Corporations
6. According to degree of public participation
with regard to share ownership:
c. Publicly-held Corporation – with a class of
equity securities listed on an exchange or with
assets in excess of P50,000 and having 200
one more holders, at least 200 of which are
holding at least 100 shares of a class of its
equity securities.

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 Other Classifications of Corporations
6. According to relation to another corporation:
a. Parent or holding corporation – related to
another corporation that it has the power to
either directly or indirectly elect the majority
of the directors of a subsidiary corporation.
b. Subsidiary Corporation – controlled by
another corporation

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 Other Classifications of Corporations
7. According to relation to another corporation:
a. Parent or holding corporation – related to
another corporation that it has the power to
either directly or indirectly elect the majority
of the directors of a subsidiary corporation.
b. Subsidiary Corporation – controlled by
another corporation

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 Other Classifications of Corporations
7. According to whether they are open to the
public or not:
a. Close Corporation – one which is limited to
selected persons or members of a family.
b. Open Corporation – one which is open to any
person who may wish to become a
stockholder or member.

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 Steps in the Creation of Corporation
1. Promotion – the process of bringing together
the incorporators or the persons interested in
the business, of procuring subscription or capital
for the corporation and of setting in motion the
machinery that leads to the incorporation of the
corporation itself.

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 Steps in the Creation of Corporation
2. Incorporation
a. Verification from the records of the Securities
and Exchange Commission (SEC) that the
proposed corporate name is not the same or
similar to an existing corporation.
b. Drafting and execution of the articles of
incorporation (AI) by the incorporators.

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 Steps in the Creation of Corporation
2. Incorporation
c. Deposit by the treasurer of the cash paid for
the shares subscribed in the bank in the name
of the treasurer in trust for and to the credit of
the corporation.
d. Filling of the articles of incorporation with the
SEC together with treasurer’s affidavit,
statement of financial position, certificate of
bank deposit, & certificate as to the name of the
corporation.

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 Steps in the Creation of Corporation
2. Incorporation
e. Payment of the filling fees.
f. Endorsement from other government agencies
if the proposed corporation will engage in an
industry regulated by the government, other
requirements for corporations with foreign equity
and additional requirements based on the kind
of payment of subscriptions; and
g. Issuance by the SEC of the Certificate of
Incorporation
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 Steps in the Creation of Corporation
3. Formal Organization and commencement of
business operations.
- Requires the adoption of by-laws and the
election of the board of directors and of the
administrative officers.

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3. Formal Organization and commencement of
business operations.
- Requires the adoption of by-laws and the
election of the board of directors and of the
administrative officers.

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