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Chapter 2: Enterprise Ownership

Monica Sharlene C. Calupe
Angelica Pauline A. Cruz

Abstract
This chapter discusses the concept of ownership and
what it means in terms of its application to industrial
enterprise. The Enterprise Ownership chapter mainly
talks about the types and forms of ownership.
Moreover, it discusses the advantages and
disadvantages of the main ownership forms, namely
public and private enterprise. In addition, this chapter
also talks about the factors which affect the choice of
the form of ownership.

Introduction
San Miguel Corporation, SM Group of Companies,
Philippine Long Distance Telephone (PLDT)
Company, Jollibee Foods Corporation – these are
some of the names of large businesses in the
Philippines which people are familiar with. Along with
these big companies and corporations, small scale
businesses can also be seen. Some of these are sari-
sari stores, bakeries, beauty parlors, car repair shops
and the like. With that, some may wonder how those
businesses were started. Some may realize those
were initiated by either one person or groups of
people – varying in the business‟ form of ownership
and in the way they are organized for operation.
A business can be owned publicly or privately.
Whenever starting a business enterprise, necessary
policy decisions must be established privately owning
a business can be in the form of sole proprietorship,
partnership, corporation, corporate combinations and
cooperative organization. On the other hand, owning
it publicly can be in the form of public corporation or
non-incorporated public enterprise (1).

Significance of the Chapter
Most large-scale enterprises are organized in the form
of conventional business corporations, in which the
firm or enterprise is owned collectively by investors of
capital. Other ownership patterns are prominent in a
number of important industries. The common forms of
enterprise ownership are proprietorship, partnership,
and corporation. However, current types would
include firms that are owned by their customers.
It is evident that businesses or enterprises have
diverse pattern of ownership. Different industries and
national economies exhibit different distributions of
ownership forms. Whatever type of ownership an
enterprise is organized, its main concern is to
maximize profit.
This chapter is significant as it discusses the different
types and forms of enterprise ownership. The
knowledge herein would help the readers; particularly
the businessmen and future entrepreneurs adapt the
best type of ownership appropriate to their enterprise.
Knowledge about the form of ownership and the way
businesses are organized are keys to successful
management of an enterprise. With that, the
conditions of production can largely be determined.
Furthermore, this chapter gives emphasis on some
factors to consider in choosing the type and form of
ownership for their enterprise, thus promoting
assistance to make sound business decisions.

Objectives of the Chapter
The purpose of this chapter is for the reader to:
 Understand the concept of ownership itself
and when applied to industrial enterprise
 Identify and distinguish the types of enterprise
ownership.
 Describe and distinguish the forms of each
type of enterprise ownership.
 Understand the advantages and
disadvantages of the forms of ownership
 Identify the factors that affect the choice of
ownership form and describe how these
factors influence the enterprise.
 Know the importance of ownership in having
a successful management of enterprise

Main Discussion
Definition of Ownership
Ownership is usually defined by words such as
possession, property, authority, right, title and claim.
However, it is more like having a right to have control
over a thing or property. Ownership is a legal term,
meaning a legal title to a thing, the right to
possession, control, and disposal (1). For most
dictionary definitions, ownership is thought as what is
owned is one‟s property (2). However, ownership
viewed under rights and legal economic discussions
is defined as residual control rights to assets, that is,
the right to determine the uses of assets (3).
Definition of Enterprise Ownership
An ownership when applied to industrial enterprises is
called Enterprise Ownership. Riggs and his co-
authors from the „Industrial Organization and
Management‟ book said that this ownership means
title to and possession of the assets of the enterprise,
the power to determine the policies of operation, and
the right to receive and dispose of the proceeds (1).
Types of Enterprise Ownership
The following are the different types of enterprise
ownership:
 Private ownership: The ownership by an
individual and not the government is said to
be the private ownership. Here, individual
owns and operates their self-owned
businesses or property.
Example:
Sari-sari stores, bakeries, beauty parlors, car
repair shops, etc.

 Public ownership: A business enterprise is
said to be publicly owned when the ownership
is by political bodies of government and it was
established for the good of the people. In
other words, a business organization is wholly
or partly owned by the state and controlled by
a public authority (5). The government runs
the business on behalf of the general public.
This type of ownership is also known as
common ownership.
Example:
National Power Corporation (NAPOCOR),
Bangko Sentral ng Pilipinas (BSP),
Government Service Insurance System
(GSIS), Home Development Mutual Fund
(PAG-IBIG), etc.

 Mixed business units: Type of ownership
wherein private and public sectors work
together for the good of the enterprise. The
business is owned by private and public
sectors. Usually, the enterprise is owned by
the government and it is operated by private
sectors (1).
Example:
Light Rail Transit (LRT), North Luzon
Expressway (NLEX), Philippine Airlines
(PAL), etc.

Forms of Public Enterprises
The following are the different forms of public
enterprise:
 Public corporation: this form of public
enterprise refers to the company or a firm
which has issued shares through initial public
offering. Any investment, entity or funds
owned by government is known to be "public"
property. An individual can publicly purchase
stock from this enterprise thus, having
common public as shareholders or members
of the company (6).
Example:
Land Bank of the Philippines (LBP), Philippine
Amusement and Gaming Corporation
(PAGCOR), Duty Free Philippines, etc.

 Non incorporated public enterprise: this form
of public enterprise is established for a
specific public purpose by government,
usually for the benefit of people (1).
Example:
Philippine Charity Sweepstakes Office
(PCSO), Social Security System (SSS),
Philippine Health Insurance Corporation
(PHILHEALTH), Overseas Workers Welfare
Administration (OWWA), etc.
Forms of Private Enterprises
The following are the different forms of private
enterprise:
 Individual or Sole proprietorship: this form of
private enterprise is owned only by one
person. Usually the owner is also the
manager of the business. The owner supplies
the capital or borrows funds from the banks or
other leading institutions (7). All the risks of
the business is shouldered by the owner
since he is responsible for the management
of his/her business. Thus, making the
business all in the hands of the sole individual
(1).
Example:
Boutique, sari-sari store, repair shop,
housekeeper, tutor, etc.
Advantage and Disadvantages of Sole
Proprietorship
Advantages:
 The business is owned and operated by a
single individual: an individual can operate a
sole proprietorship under their own name, or
under another name they've chosen. What‟s
more is that the individual owns 100% of
his/her business. He/she is the one that runs
his/her small business and no one else can
tell them what to do or how to do it.
 The management and control is in the hands
of the owner: The individual has a complete
control and decision-making power over the
business. He/she may hire employees to help
him run the business.
 The profits earned go to the owner: the owner
gets to keep all the profits gained by his/her
business.
 There are no legal formalities: business
operation is not governed by any special act
or ordinance. Establishing and operating the
individual‟s business is simple and it‟s easy to
change the legal structure later if
circumstances change. Furthermore, the
individual can easily wind up your business.
Disadvantages:
 There is an unlimited liability for debts: when
the business is faced by debts, the owner is
liable to fix it. The individual himself are held
responsible for all the risks to be faced in the
business. Nobody else can be blamed when
unfortunate events occur. All responsibilities
and business decisions fall on the shoulders
of the sole proprietor.
 The finance is shouldered by the owner: the
capital to start the business will be provided
by the owner. Nevertheless, he/she may also
borrow funds from the banks or other leading
institutions.

 Partnership: this is a form of private
enterprise with two or more owners. The
owners, called partners, agree on capital
contributions, management or the firm,
distribution of profits and losses, and other
matters pertaining to the operation of the firm
(7). Under this form, owners can be general
or limited. General partners both manage the
business and are responsible for the debts
facing the business. On the other hand,
limited partners are just responsible to the
extent of their investments. They may not be
really involved in the management of their
business (1).
Example:
Beauty parlor, barber shop, restaurant,
accounting firm, etc.
Advantage and Disadvantages of Partnership
Advantage:
 The business is owned by one or more
individual: there is this famous quote saying,
“Two heads are better than one.” Having
more than one owner in the business makes
knowledge and skills wider and would create
more room for brainstorming. Thus, the
betterment of their business.
 The finance is shouldered by the owners: with
more than one owner, more funds may be
contributed. Their funds for their capital may
increase as well.
 There is a sharing of risk when the business
is faced by unfortunate events: risk can be
lessen since it is faced by two or more
individual in the business. The losses of the
firm and other associated risk in business are
shared by the partners.
Disadvantage:
 The profits are distributed: Profits must be
equally shared with others.
 Disagreements between partners may occur:
Since decisions are shared, disagreements
can occur. A partnership is for the long term,
and expectations and situations can change,
which can lead to breaking the bond of their
partnership. Also, one have to consult their
partner and negotiate more as he/she cannot
make decisions by himself/herself.
 There is an unlimited liability for debts: as a
general partnership is that all partners are
personally liable for business debts and
liabilities.

 Corporation: this is a form of private
enterprise owned by not less than five
persons called shareholders. It is organized
by operation of law (7). In a corporation, an
individual has the right to enter into contracts,
loan and borrow money, sue and be sued,
hire employees, own assets and pay taxes.
The most important aspect of a corporation is
limited liability. That is, shareholders have the
right to participate in the profits, through
dividends and the appreciation of stock, but
are not held personally liable for the
company's debts (8).
Example:
ABS-CBN Corporation, Ayala Corporation,
Digital Telecommunications Philippines, etc.
Advantage and Disadvantages of Corporation
Advantage:
 The business is owned by groups of persons:
The ownership is represented by the number
of share certificates held by a person, and this
makes the transfer of ownership very easy.
 There is a limited liability in the business: the
shareholders have limited liability for the
corporation's debts since a corporation is
considered a separate legal entity. The
personal assets of shareholders are not at
risk for satisfying corporate debts or liabilities.
 Tax payment is manageable: Since a
corporation is a separate legal entity, it pays
taxes separate and apart from its owners.
Owners of a corporation only pay taxes on
corporate profits paid to them in the form of
salaries, bonuses, and dividends.
 There is a specialized management:
Corporations have a set management
structure. Shareholders are the owners of a
corporation, who elect a Board of Directors,
which then elects the officers. Other than the
election of directors, shareholders do not
typically participate in the operations of the
corporation. The Board of Directors is
responsible for the management of and
exercising the rights and responsibilities of a
corporation. The Board sets corporate policy
and the strategy for the corporation. The
Board elects officers, usually a CEO, vice
president, treasurer and secretary, to follow
the policies set by the Board and manage the
corporation on a day-to-day basis. In a small
corporation, the lines between the
shareholders, Board of Directors, and officers
tends to blur because the same people may
be serving in all capacities.
 Transferring of ownership is possible: Shares
of corporations are generally freely
transferable because as a separate entity, the
existence of a corporation is not dependent
upon who the owners or investors are at any
one time. A corporation continues to exist as
a separate entity and is not terminated or
dissolved even when shareholders dies or sell
their shares. Shares of corporations are freely
transferable unless shareholders have "buy-
sell" agreements limiting when and to whom
shares may be sold or transferred. Also,
securities laws may restrict the transferability
of shares.
 Continuous Existence: A corporation
continues to exist until the shareholders
decide to dissolve it or merge with another
business.
 There is a possible tax advantages: Since a
corporation is a separate legal entity, it pays
taxes separate and apart from its owners (at
least in the typical C Corporation). Owners of
a corporation only pay taxes on corporate
profits paid to them in the form of salaries,
bonuses, and dividends. The corporation
pays taxes, at the corporate rate, on any
profits.
 It can attract investment: The built-in stock
structure of a corporation makes it attractive
to investors.
 It is easy to raise a capital: The stock
structure also allows corporations to attract
key and talented employees by offering an
ownership interest in the form of stock options
or stock.
Disadvantage:
 Corporation is the most expensive form to
organize: It costs money to incorporate. A
corporation pays fees for filing the articles of
incorporation with the secretary of state, fees
for the first year franchise tax prepayment,
fees for various governmental filings, and
attorney fees.
 It requires extensive record keeping: lots of
paperwork are done in a corporation for
reports and tax returns, records about the
meetings of shareholders and Board of
Directors, licenses, business bank accounts,
and others. This is for the corporate
formalities that must be followed.
 Corporate Formalities must be followed: The
proper corporate formalities of organizing and
running a corporation must be followed in
order to receive the benefits of being a
corporation.
 Disclosure of Names of Corporate Officers
and Directors. Most states do not require that
names of shareholders be a matter of public
record; however, many states require that the
names and addresses of corporate officers
and directors be listed on one or more
documents filed with the Secretary of State.
 Dissolution: Since corporations have a
perpetual existence, states provide a
mechanism for dissolving a corporation and
liquidating its assets. Dissolution does not
happen automatically. A corporation can be
dissolved voluntarily or involuntarily. A
corporation's officers and directors are
charged with responsibility for dissolving the
corporation, including gathering corporate
assets, paying creditors and outstanding
claims, and distributing remaining assets to
shareholders.
 Double Taxation: C corporations have
potential double tax consequences-once
when the company makes its profit, and a
second time when dividends are paid to
shareholders. S corporations can mitigate this
tax issue.

 Cooperative Organization: this is a form of
private enterprise that is owned and
controlled by its shareholders or members.
The organization is run for the mutual benefit
of its shareholders/members. The
organization is established so its
shareholders/members may purchase goods
or use services of the organization, rather
than being established for the purpose of
earning profits for investors (9).
Example:
Marketing Assistance for the Development of
Entrepreneurs in Cooperatives (MADE),
Nationwide Public Hearing on Standard Chart
of Accounts (SCA) for Transport
Cooperatives, etc.

Chief forms of Cooperative Enterprise

The following are the main forms of
cooperative enterprise:

• Consumer cooperatives: these are
enterprises owned by consumers
and managed democratically which
aim at fulfilling the needs and
aspirations of their members (14).
• Producer cooperatives: these are
organized for group buying and
selling. Also, producer cooperatives
are owned by producers of farm
commodities or crafts that band
together to process and market their
products (15).

 Corporate Combination: this is a form of
private enterprise wherein two or more
corporations under one management
combine in order to gain more profits through
the economies of large-scale enterprise. Most
corporations combine in order to reduce
costs, eliminate competition, control raw
materials and semi-manufactured products,
have experienced and talented employees,
and other economic benefits (1).

Forms of Corporate Combinations

The following are the different forms of
corporate combinations:

• Merger: a form which a corporation
acquires the assets of different
corporations to achieve greater
efficiencies of scale and productivity.
They tend to either form new
corporation or merge the assets in
an existing organization (1).
Basically, when two companies
become one. This decision is usually
mutual between both firms (12).
Example:
Banco de Oro – Equitable PCI Bank
Merger, Digitel Telecommunications
– Smart PLDT Merger, Nissan –
Renault Merger, Philip Morris –
Fortune Tobacco Merger in the
Philippines.

• Holding company: a corporate
combination whose purpose is to
own shares of other companies.
Such form of corporation does not
produce their own goods or services
(1). A holding company must own at
least 80% of voting stock to get tax
consolidation benefits, such as tax-
free dividends (13).
Example:
D. M. Consunji, Inc. (DMCI)
Holdings, Inc., Metro Pacific
Investments Corporation (MPIC),
SM Prime Holdings (SMPC),
Benpres Holdings Corporation, etc.

Types of Corporate Combinations

The following are the different types of
corporate combination:

• Horizontal combinations: It is an
association of two or more business
units of same nature under a single
management. Both the business
units involved in combination are
engaged in same activity (16).
Example:
Banco de Oro (BDO)

• Vertical combinations: Two
companies join together to produce
different goods or services from raw
material to a specific finished
product (17).
Example:
Lenovo, SMC Global Power
Holdings (oil and fuel for power
plants, generation and distribution of
electricity)

• Based on Divergent Functions:

A. Combination through joint
product group: combination
of companies with different
products but manufacture of
any one of the products might
be stopped without affecting
the other products (1).
B. Combination through by
product group: combination
of companies with
businesses that process
same raw materials and
manufacturing it to different
products (1).
C. Combination through like
process: combination of
different companies that work
together to process
operations to manufacture
products (1).

• Convergent Function: companies
produce different products which are
either complementary or auxiliary.
Complementary products are
different products combined to
produce a single product. Here, the
different products are manufactured
together, sold together, bought
together, or used together and
combined into a single product. On
the other hand, auxiliary products
are goods needed only in the
manufacture of the final product but
does not add to the physical material
of the finished goods (1).

• Lateral or Conglomerate
Diversification: a combination of two
or more corporations engaged in
entirely different businesses together
into one corporate structure. It
usually involves a parent company
and many subsidiaries (18).
Example:
San Miguel Corporation (SMC),
engaged in Banking, Food and
Beverage, Mining, Property
Development and Power
Generation; Ayala Corporation,
engaged in banking, property
development, telecommunication
and utilities; Filinvest Development
Corporation, engaged in banking,
property development and recently
enter the power generation sector;
etc.
Advantage and Disadvantages of Cooperative
Advantage:
 The formation of the business is easy: The
formation of a cooperative society is very
simple as compared to the formation of any
other form of business organizations. Any ten
adults can join together and form a
cooperative society. The procedure involves
in the registration of a cooperative society is
very simple and easy. No legal formalities are
required for the formation of cooperative
society (10).
 Limited liability: In most cases, the liabilities of
the members of the society is limited to the
extent of capital contributed by them. Hence,
they are relieved from the fear of attachment
of their private property, in case of the society
suffers financial losses (10).
Disadvantage:
 There is some loss of independence and
inefficient management: A cooperative society
is managed by the members only. They do
not possess any managerial and special
skills. This is considered as major drawback
of this sector. Inefficiency of management
may not bring success to the societies.
 Disagreements between partners may occur:
The management of the society constitutes
the various types of personnel from different
social, economic and academic background.
Many a times they strongly differs from each
other on many important issues. This
becomes detrimental to the interest of the
society. The different opinions and disputes
may paralyses the effectiveness of the
management.

Factors Affecting the Choice of Ownership Form
The following are the different factors that affect the
choice of ownership form:
 Promoters: they offer some ideas on the
forms of organization.
 Business’ nature and size: The nature of
business is one of the most important factor in
choosing the ownership form of business.
Businesses providing direct services like
tailors, restaurants and professional services
like doctors, lawyers are generally organized
as proprietary concerns. While, businesses
requiring pooling of skills and funds like
accounting firms are better organized as
partnerships. Manufacturing organizations of
large size are more commonly set up as
private and public companies. Moreover, if
the business‟ is small, a single proprietorship
may be considered (19).
 Capital: The capital or funds required to build
and establish a business plays an important
part on the choice of ownership of an
individual. If the investment is small, the
individual might consider choosing sole
proprietorship for his/her business.
 Operating time of the business: this refers to
how long will the business last in the industry.
An individual might consider the ease of
establishing the business and its dissolution
as well.
 Product type to be manufactured: an
individual should consider what type of
product he/she would sell to the public. Sales
of their product would determine their profit in
time.
 Production’s Method and Volume: an
individual should also consider how he/she
would produce the product to be sold, and
how much would they manufacture which will
not lead to their loss.
 Markets to be supplied: an individual should
consider the kind of markets to be supplied.
He/she might consider having targets of
people who would buy his/her product and
where could those people be so that the
individual would know where to market the
product.
 Competitiveness: in building a business, one
can consider having rivalries. It is best to build
a business wherein you have no competitors.
If that‟s the case, then you are the only
provider of the good or service in that place.
 Laws and government: Favorable business
policies will affect the choice of business
ownership because entrepreneurs will
consider benefits given by government which
are advantageous to a certain type of
ownership.

Summary and Conclusion
A business or enterprise is an organization in which
the basic resources such as materials and labor, are
assembled and processed to provide goods or
services to customers. The objective of most
businesses is to maximize profits. These businesses
can be owned privately, publicly or both. Private
businesses are normally organized in one of the
following forms: Individual or Sole Proprietorship,
Partnership, Corporation, Cooperative Organization,
and Corporate Combination. As for the public
enterprises, they are normally organized as public
corporation or non-incorporated public enterprise.
Whatever form of ownership a business adapts, the
economic performance and management of the
business are vital concerns.
In conclusion, ownership plays an important role in
the management of businesses. Obtained knowledge
about the form of ownership and the way businesses
are organized are keys to successful management of
an enterprise. With that, the conditions of production
can largely be determined.

References
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th
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