INVESTMENTS AND INCENTIVES Page 1 of 4

FORMS OF BUSINESS

Partnership
It is a contract whereby 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 (NCC, Art. 1767).

NOTE: Two or more persons may also form a partnership for the exercise of a profession (NCC, Art.
1767).

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. (CC,
Sec. 2)

Partnership and PARTNERSHIP CORPORATION

Corporation BASIS
Creation By contract or by mere agreement
of the parties.
Juridical Personality Has separate and distinct juridical
personality from that of each
partner.
Purpose Realization of profits.
Duration/ Term of No limitation.
Existence
Number of incorporators Minimum of 2 persons.
Commencement of From the moment of execution of
Juridical Personality the contract of partnership.
Disposal/ Transferability Partner may not dispose of his
of Interest individual interest unless agreed
upon by all partners.
Power to Act with 3rd In the absence of stipulation to
Persons contrary, a partner may bind
partnership – each partner is
agent of partnership.
NOTE: Except as provided by Art.
1825, persons who are not
partners as to each other are not
partners as to third persons (NCC,
Art. 1769(1); Albano, 2013).
Effect of Death Death of a partner results in
dissolution of partnership.
Dissolution May be dissolved at any time by
the will of any or all of the
partners.
Liability In case of a general partner, his
separate and personal property
shall also be liable if the assets of
the partnership is not sufficient to
satisfy the obligation to third
persons.
By law.
Has separate and distinct juridical
personality from that of each
corporator.
Depends in the Articles of
Incorporation (AOI).
50 years maximum, extendible for
not more than 50 years in any one
instance.
GR: Minimum of 5 persons
XPN: Corporation sole, merger of
banks.
From the date of issuance of the
certificate of incorporation.
Stockholder has a right to transfer
shares without prior consent of
other stockholders.
Management is vested with the
BOD.
Death of stockholder does not
dissolve the corporation.
Can only be dissolved with the
consent of the State.
GR: The obligation to third
persons is limited to the assets of
the corporation.
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1. Proprietorship – is a business that is owned by a single individual who has full control and
authority in running this kind of business. The owner, called proprietor, owns all the assets and is
solely responsible for all the liabilities of the company. He or she enjoys all the profits but also
suffers all losses of this business. The proprietor and his proprietorship business/businesses is
considered as one taxpayer, sharing a single TIN (Taxpayer Identification Number) for tax purposes.
A sole proprietorship must apply for a business trade name and be registered with the Department of
Trade and Industry.

2. Partnership – is a business that is owned by two or more individuals or partners. Under the Civil
Code of the Philippines, a partnership is considered as juridical person, having a separate legal
personality from that of its owners (partners). Partnerships may either be general partnerships,
where the partners have unlimited liability for the debts and obligation of the partnership, or limited
partnerships, where one or more general partners have unlimited liability and the limited partners
have liability only up to the amount of their capital contributions. A partnership with more than three
thousand pesos (P3,000.00) capital must register with Securities and Exchange Commission (SEC).
Partnerships are generally treated like corporations for income tax computation purposes.

3. Corporation – is a business that is owned by its shareholders (natural or juridical persons). A

corporation is composed of juridical persons established under the Corporation Code and regulated
by the SEC with a personality separate and distinct from that of its stockholders. The liability of the
shareholders of a corporation is limited only to the amount of their share capital. It consists of at
least five to 15 incorporators, each of whom must hold at least one share and must be registered
with the SEC. Minimum paid up capital is P5,000. A corporation in the Philippines can either be
stock or non-stock company regardless of nationality.

a. Stock Corporation – This is a corporation with capital stock divided into shares and authorized to
distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of
the shares held.

b. Non-stock Corporation. This is a corporation organized principally for public purposes such as
foundations, charitable, educational, cultural, or similar purposes and does not issue shares of stock
to its members.

Sole proprietorship

Also referred to as “single proprietorship,” a sole proprietorship is the most

simple form of business and the easiest to register, through the Bureau of Trade
Regulation and Consumer Protection (BTRCP) of the Department of Trade and
Industry (DTI). It is owned by an individual who has full control/authority of its
own and owns all the assets, as well as personally answers all liabilities or
losses. The fact that it is run by the individual means that it is highly flexible and
the owner retains absolute control over it.

The problem, however, is that a sole proprietor has unlimited liability. Creditors
may proceed not only against the assets and property of the business, but also
after the personal properties of the owner. In other words, the law basically
treats the business and the owner as one and the same. This uniform treatment
also has important tax implications. Partnerships and corporations may lessen
their tax liability through a myriad of business expenses and other tax avoidance
techniques. These tax deductions may not be applicable to a sole proprietorship.
Also, the potential growth and reach of a sole proprietorship pale in comparison
with that of a corporation.

Partnership
A partnership consists of two or more persons who bind themselves to
contribute money or industry to a common fund, with the intention of dividing the
profits among themselves. The most common example of partnerships are
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professional partnerships, like in the case of law firms and accounting firms.
Just like a corporation, it is registered with the Securities and Exchange
Commission (SEC).

A partnership, just like a corporation, is a juridical entity, which means that it

has a personality distinct and separate from that of its members. A partnership
may be general or limited. In a general partnership, the partners have unlimited
liability for the debts and obligation of the partnership, pretty much like a sole
proprietorship. In a limited partnership, one or more general partners have
unlimited liability and the limited partners have liability only up to the amount of
their capital contributions. Unlike a corporation, which survives even when a
member/stockholder dies or gets out, a partnership is dissolved upon the death
of a partner or whenever a partner bolts out.

Corporation
A corporation is a juridical entity established under the Corporation
Code and registered with the SEC. It must be created by or composed of at
least 5 natural persons (up to a maximum of 15), technically called
“incorporators.” Juridical persons, like other corporations or partnerships,
cannot be incorporators, although they may subsequenly purchase shares and
become corporate shareholders/stockholders.
The liability of the shareholders of a corporation is limited to the amount of their
capital contribution. In other words, personal assets of stockholders cannot
generally be attached to satisfy the corporation’s liabilities, although the
responsible members may be held personally liable in certain cases. For
instance, the incorporators may be held liable when the doctrine of piercing the
corporate veil is applied. The responsible officers may also be held soliarily
liable with the corporation in certain labor cases, particularly in cases of illegal
dismissal.

The biggest businesses take the form of corporations, a testament to the

effectiveness of this business organization. A corporation, however, is relatively
more difficult to create, organize and manage. There are more reportorial
requirements with the SEC. Unless you own sufficient number of shares to
control the corporation, you’ll most likely be left with no participation in the
management. The impact of these concerns, however, is minimized by the army
of lawyers, accountants and consultants that assist the corporation’s
management.

1. Sole proprietorship—register with the Department of Trade (DTI).

A sole proprietorship is the simplest type of business organization that may be

established by a person, called the sole proprietor. Unlike a partnership or
corporation, which is a business organization that has a separate existence from
the partners in a partnership or stockholders in a corporation, the sole
proprietorship does not have a separate existence from the business owner.

In a sole proprietorship, the business is an extension of the business owner.

Thus, the assets and liabilities of the sole proprietorship are considered the
assets and liabilities of the business owner.

2. Partnership—register with the Securities and Exchange Commission (SEC).

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A partnership is a business organization whereby two or more persons agree 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 a profession.1

The partnership has an existence separate from that of each of the partners. 2

Unlike a corporation, a partnership does not have shares of stock, which are the
basis for the distribution of the profits (i.e., dividends) among the stockholders.
Instead, in a partnership, the losses and profits are distributed in accordance
with the agreement of the partners. If only the share of each partner in the
profits has been agreed upon, the share of each in the losses shall be in the
same proportion. In the absence of an agreement, the share of each partner in
the profits and losses shall be in proportion to what he has contributed to the
partnership, but the industrial partner shall not be liable for the losses. 3

As for the profits, the industrial partner shall receive such profits as may be just
and equitable under the circumstances. If the industrial partner contributed
capital, he shall also receive a share in the profits in proportion to his capital. 4

3. Corporation—register with the SEC.

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.”5

The corporation has an existence separate from that of its stockholders.

Corporations may be classified as either stock or nonstock corporations. Stock

corporations have capital stock divided into shares of stock, which may be
issued to the stockholders. Stock corporations are allowed to distribute
dividends to the stockholders on the basis of the number of shares of stock
owned by them. Nonstock corporations do not have capital stock divided into
shares of stock and are not allowed to distribute dividends to the members. 6

A stock corporation is the appropriate type of corporation for the purpose of

operating a business.