Figure 1.

1 Comparison of the Three Forms of Business Organizations

Sole Proprietorship Partnership Corporation
Owners one owner two or more owners five or more owners
Capitalization depends on the depends on the depends on the type
needs of the business needs of the business of business as
prescribed by law
Life or Term of dependent on the dependent on the fifty years and
Existence owner partners renewable
Management managed by the sole managed by one or managed by the
Structure proprietor more partners board of directors
Profit Distribution to sole owner to partners based on to stockholders
agreement or based based on declaration
on law of the board of
directors
Reporting
Requirements to to to
1. Municipal Mayor 1. Municipal Mayor 1. Municipal Mayor
2. DTI 2. DTI 2. DTI
3. BIR 3. SEC 3. SEC
4. SSS 4. BIR 4. BIR
5. Pag-Ibig or HDMF 5. SSS 5. SSS
6. PhilHealth 6. Pag-Ibig or HDMF 6. Pag-Ibig or HDMF
7. PhilHealth 7. PhilHealth
Income Taxation pays individual partner pays pays corporate
income tax individual income tax income tax,
on his share or stockholders pay on
partnership profit dividends received
some partnerships
are exempted from
income tax, others
are taxed like
corporations
Liability to Third unlimited liability unlimited liability for limited liability of
Party general partners, stockholders
limited liability for
limited partners
Ronnie M. delos Reyes
Jared I. Bautista
STATEMENT OF CHANGES IN OWNER’S EQUITY
Learning Competencies
1. Discuss the different forms of business
2. Prepare an SCE for a single proprietorship
Forms of Business
1. Sole Proprietorship
- This is the simplest form of business organization: only one individual owns the
business.
2. Partnership
- It refers to an association of two or more persons to carry on as co-owners of a
business for profit.
A. The classification of partners as to their liability for partnerships debts are:
1. General Partner - One who is liable for partnership debts to the extent of his personal
property after all partnerships assets have been exhausted.

2. Limited Partner - One whose liability for partnership debts is limited to his capital
contribution.

3. General-Limited Partner - One who has all the rights, power, and subject to all
restrictions of a general partner whose liability is limited to his general contribution

B. As to contributions, partners are grouped into

1. Capitalist Partner - One who contributes money or property to the capital of the
partnership.

2. Industrial Partner - One who contributes his work, labor, or industry to the partnership.

3. Capitalist-Industrial Partner - One who contributes money or property as well as his work or
industry to the partnership

3. Corporation
- This refers to a separate body consisting of at least five individuals treated by law as
a unit.
Corporate Formation
Promoter is one who undertakes to form corporation, or causes it to be formed for a specified
purpose/s; undertakes to procure for the corporation, the capital, rights, property, and
organization necessary to achieve such purpose/s.
The cost incurred in the formation of the corporation is called organization cost.
Statement of Owner’s Equity
The statement of owner's equity portrays changes in the capital balance of a business over a
reporting period.
The concept is usually applied to a sole proprietorship where income earned during the period
is added to the beginning capital balance and owner draws are subtracted. The result is the
ending balance in the capital account.
Beginning Capital Balance
+ Income earned during the period
- Losses incurred during the period
+ Owner contributions during the period
- Owner draws during the period
= Ending capital balance
Net Income
Net income - NI is equal to net earnings (profit) calculated as sales less cost of goods sold,
selling, general and administrative expenses, operating expenses, depreciation, interest, taxes
and other expenses. This number appears on a company's income statement and is an
important measure of how profitable the company is.
Net income also refers to an individual's income after taking taxes and deductions into account.
Net Loss
A net loss, sometimes referred to as a net operating loss (NOL), occurs when expenses exceed
the income or total revenue produced for a given period of time. Businesses that have a net
loss don't necessarily go bankrupt because they may opt to use their retained earnings or loans
in order to stay afloat. This strategy, however, is only short-term, as a company without profits
will not survive in the long-term.