Internal users of Accounting Information
distribute, and market goods and services.
 Includes board of directors, chief executive officers,
chief financial officers, vice president, business unit
managers, plant managers, and the supervisors –
financial information helps in designing information
system that primarily helps in planning and control
decision.
 Management – for planning and controlling the
operation of the business.
 Owner/s of the firm – need to know if the business is
operating at a profit or loss.
 Employees- are interested in the information
regarding the profitability and stability of an
enterprise so they can assess their employment
status, and whether the company has the ability to
provide better remuneration and additional benefits
External users of Accounting Information
 Creditors and suppliers – in order to evaluate a
borrower’s ability to pay and in deciding whether to
extend credit to a debtor.
 Investors / potential investors – to determine if their
investment is profitable and safe and in deciding
whether to invest in the business or not. Also
whether they should buy, hold or sell their shares of
stock.
 Customers – need accounting information as basis for
evaluating the possibility of price changes and
identifying other sources of cheaper services and
commodities.
 Government and their agencies – to regulate the
activities of the enterprise, determine taxation
policies and as basis for national income statistics.
BIR, SEC, DTI
 Financial analyst and advisors – use financial
information as basis in evaluating the position of the
business in the industry and render an opinion on the
business’ potentials regarding profitability, risk and
opportunities
 Trade associations – use financial data to report
industry statistics; industry comparison and analysis in
order that firms belonging to the same industry can
make relevant economic decision.
 Public- financial information provides the public about
the current trends and recent developments in the
prosperity of the enterprise and the range of its
activities.
 Banks and other financial institution
Financing-financial resources from financial market
Investing activity-use of capital from financing activity to
acquire other resources use in the transformation
process; includes acquiring, disposal and replacement of
long-term resources.
Operating activities-use of resources to design, produce,
Types of business according to ownership.
SOLE PROPRIETORSHIP
- Owned by one individual
- For the practice of trade or profession
- Simplest and least costly
Advantages:
 Full control of ownership
 Easy to start, easy to dissolve
 All profits go directly to the owner
 Less government regulation
 The government taxes the owner and not the
business (subject to income taxation)
Disadvantages
 Unlimited liability
 Limited life
 Difficulty in raising capital
Business Requirement
 Register business name with DTI
(renewal every 5 yrs)
 Barangay clearance (renewal every year)
 Municipal Business Permit (yearly)
 BIR – yearly registration fee
 SSS, Philhealth, HDMF
PARTNERSHIP
 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.
Advantages:
 Increased potential
 Easy to form
 Less government regulations
 Professional partnership is tax exempt
 Disadvantages
 Unlimited liability of partners
 Limited life
 High possibility of dispute among partners
Business Requirement
 Verify business name with SEC
 File articles of incorporation with SEC
 Register business name with DTI (renewal every
5 yrs)
  Barangay clearance (renewal every year)
 Municipal Business Permit (yearly)
 BIR – yearly registration fee
 SSS, Philhealth, HDMF
CORPORATION
 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.
Organized under Foreign Laws
The following are types of business forms in the
Philippines which are organized under Foreign Laws
(source: Department of Industry)
1. Branch Office
– is a foreign corporation organized and existing under
foreign laws that carries out business activities of the
head office and derives income from the host country. It
is required to put up a minimum paid up capital of
US$200,000, which can be reduced to US$100,000 if
activity involves advanced technology, or company
employs at least 50 direct employees. Registration with
the SEC is mandatory.
2. Representative Office
– is a foreign corporation organized and existing under
foreign laws. It does not derive income from the host
country and is fully subsidized by its head office. It deals
directly with clients of the parent company as it
undertakes such activities as information dissemination,
acts as a communication center, and promotes
company products, as well as quality control of products
for export. It is required to have an initial minimum
inward remittance in the amount of US$30,000 to cover
its operating expenses and must be registered with the
SEC. Under Republic Act (RA) 8756, any multinational
company may establish a Regional Headquarter (RHQ)
or Regional Operating Head Quarter (ROHQ) as long as
they are existing under laws other than the Philippines,
with branches, affiliates, and subsidiaries in the Asia
Pacific Region and other foreign markets.
3. Regional Headquarters (RHQs)
– An RHQ undertakes activities that shall be limited to
acting as supervisory, communication, and coordinating
center for its subsidiaries, affiliates, and branches in the
Asia-Pacific region. It acts as an administrative branch of
a multinational company engaged in international trade.
It does not derive income from sources within the
Philippines and does not participate in any manner in
the management of any subsidiary or branch office it
might have in the Philippines. Required capital is
US$50,000 annually to cover operating expenses.
4. Regional Operating Headquarters (ROHQs)
– An ROHQ performs the following qualifying services
to its affiliates, subsidiaries, and branches in the
Philippines.
 General administration and planning
 Business planning and coordination
 Sourcing/procurement of raw materials
components Corporate finance advisory
services
 Marketing control and sales promotion
 Training and personnel management
 Logistic services
 Research and development (R&D) services and
product development
 Technical support and communications
 Business development
 Derives income in the Philippines
 Required capital: US$200,000 – one time
remittance
Advantages:
 More source of fund
 Easy to transfer ownership
 Limited liability
 Unlimited commercial life
Disadvantages:
 More government regulations
 Costly to incorporate
 Subject
Business Requirements:
 Verify business name with SEC
 Draft articles of incorporation by incorporators
 Deposited paid-up capital collected
 File articles of incorporation with SEC
 Register the Bus. Name with DTI
 Barangay clearance
 Business permit with the municipality
 Registration with BIR, Philhealth, HDMF
Partnership distinguish from corporation:
o Manner of creation – mere agreement / created
by operation of law
o Number of persons – two or more persons / at
least 5 not exceeding 15 incorporators
o Commencement or juridical personality – from
the execution of articles of partnership / from
the issuance of the certificate of incorporation by
SEC
 o Management – every partner is an agent /
management is vested on the BOD

o Extent of liability – liable up to the extent of

personal assets except for limited partner /
stockholders are liable only up to the extent of
their interest or investment

o Right of succession - no right of succession /

continued existence

o Terms of existence – any period of time stipulated

by the partners / no to exceed 50 years but
subject to extension.

COOPERATIVE

 Owned by group of individuals who also serve

as benefactors to the business endeavour.

 At least 15 members to function

 BOD and Officers are elected by the GA to

manage the business

 Have set of law or articles of cooperation

Types of cooperative
 Credit coop
 Consumer coop
 Producers coop
 Marketing coop
 Service coop
 Multi-purpose coop
 Advocacy coop
 Agrarian reform coop
 Coop bank
 Dairy coop
 Educational coop
 Electric coop
 Financial service coop
 Fishermen coop
 Health service coop
 Housing coop
 Insurance coop
 Transport coop
 Water service coop
 Workers coop

Advantage
 Unlimited life
 Democratic organization
 Social equality of members
 Income is exempted from tax under special law.
Disadvantages
 One member – one vote policy
 Lack of membership and participation
Business requirements
 General statement / purpose of coop
 Draft of coop by-laws
 Draft of articles of coop
 Bond for accountable officers
 Register with Coop Development Authority
(CDA)

FABM – Supplemental reading


Types of business according to ownership structures
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.
Starting a business in the Philippines can be a bit
confusing because of the many legal requirements
necessary before a business can operate. This article
summarizes the essential legal requirements that are
necessary for starting a business.
A. Register the Business Organization
The first step is to register the business with the
appropriate government agency depending on the type
of business organization one wants to establish.
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).
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.
The partnership has an existence separate from that of
each of the partners.
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.
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.
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 non-
stock 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. Non-
stock corporations do not have capital stock divided
into shares of stock and are not allowed to distribute
dividends to the members.
A stock corporation is the appropriate type of
corporation for the purpose of operating a business.
B. Obtain a Mayor’s or Business Permit
All businesses are required to secure a mayor’s permit
or business permit from the local government of the
city or municipality where the business is located.
Different cities and municipalities have different
registration procedures and requirements. The
following are the general requirements for securing a
permit for a new business:
Application forms
 DTI registration or SEC registration, whichever is
applicable
 Lease contract or title covering the property where
the business is located, whichever is applicable
 Locational or zoning clearance
 Building permit and occupancy permit
 Public liability insurance
 Barangay clearance
 Fire safety certificate
 Other requirements specific to the type of business
to be carried out
For the specific requirements, one needs to visit the city
or municipal hall of the city or municipality where the
business will be established.
C. Register with the Bureau of Internal Revenue (BIR)
All businesses have to register with the BIR before the
commencement of operation for taxation purposes.
The registration process involves obtaining and
registering a tax identification number (TIN), obtaining
BIR-registered official receipts and invoices, registering
the business’s books of accounts, and paying the
applicable fees.
The registration must be done at the Revenue District
Office (RDO) of the BIR, which covers the registered
address of the business.
For the specific requirements for BIR registration, one
needs to visit the RDO that covers the registered
address of the business.
D. Register with the Social Security System (SSS)
All businesses that have employees must be registered
with the SSS. The registered employer will be assigned
an employer number, which will be used as reference
for the remittance of monthly contributions, composed
of the employee’s contribution and the employer’s
share.
SSS coverage is compulsory for all employees not over
sixty years of age and their employers.
An employer is any person who carries on in the
Philippines any trade, business, industry, undertaking,
or activity of any kind and uses the services of another
person who is under his or its orders as regards the
employment. Meanwhile, an employee is any person
who performs services for an employer in which either
mental or physical efforts or both are used and who
receives compensation for such services, where there is
an employer‐employee relationship.
It is very important to secure these essential legal
requirements. The consequences of operating a
business without the said legal requirements range
from the closure of business, to the imposition of
monetary fines, and finally, to imprisonment.
Local government units in different cities and
municipalities have different penalties for businesses
operating without the required mayor’s or business
permit, such as surcharge and interest on the amount of
fees due. However, one common penalty that may be
imposed is the closure of the business. Confiscation of
the business property and assets may also be done.
As for failing to register a business with the BIR, the said
violation is penalized by a fine ranging from P5,000 to
P20,000, imprisonment of six months to two years.
There is also a compromise penalty of P2,000 to
P20,000, depending on whether the business is located
in a city or in a municipality.
For failing or refusing to register the employees or to
deduct contributions from the employees’
compensation and remit the same to the SSS, the
penalty is either a fine (ranging from P5,000 to P20,000)
or imprisonment for six years to twelve years.

The SSS provides replacement income for employees in

times of disability, sickness, maternity, and old age. It
also provides assistance during death and for funeral
expenses.
E. Register with the Philippine Health Insurance
Corporation (PhilHealth)
All employers are required to register themselves and
their employees with PhilHealth, the government
health-care system. Upon registration, an employer
shall be issued an employer number.
Under the PhilHealth system, the monthly contribution
is divided equally between the employer and the
employee. It is deducted and withheld automatically by
the employer from the employee’s salary then remitted
to PhilHealth.
Any employer who fails or refuses to register employees
with PhilHealth or to deduct contributions from the
employees’ compensation or remit that same amount
to PhilHealth is penalized with a fine of P5,000,
multiplied by the total number of employees of the
business.
On the other hand, any employer who fails or refuses to
register employees with the Pag-IBIG Fund or to collect
or remit the required contributions is penalized either
with a fine of not less than but not more than twice the
amount involved, or imprisonment of not more than six
years. The employer may be both fined and imprisoned,
depending on the discretion of the court.

F. Register with the Home Development Mutual Fund

(Pag-IBIG Fund)
All employees who are or ought to be covered by the
SSS are also covered by mandatory membership in the
Pag-IBIG Fund.10 The Pag-IBIG Fund provides various
types of housing loans to employees.

Members make their contributions to the Pag-IBIG Fund

through salary deduction. The employer has the
responsibility to deduct the contribution from the
employee’s salary. Together with the employer’s share
of the contribution, the employee contribution is
remitted to the Pag-IBIG Fund on a monthly basis.

G. Importance of Securing the Legal Requirements

The above legal requirements are only the essential
requirements for starting a business in the Philippines.
There may be other special permits, clearances, or
registrations from or with other government agencies
that may be necessary, depending on the kind of
business and projects a business owner plans to engage
in.