MODULE 5

SMALL, MICRO AND MEDIUM ENTERPRISES

Learning Objectives:
 Discuss and understand the concepts of SMSEs
 Identify the roles of entrepreneurs in the business
 Recognize the different forms of business ownership
 Understand how and where to register your business

SMALL BUSINESS ENTERPRISE

According to Stanley and Morse, a small enterprise is sometimes defined as “a manufacturing or service
enterprise wherein the owner-manager is not actively involved in production but performs the varied
range of tasks involved in guidance and leadership without the help of specialized staff.

Implied in this definition is the pivotal or central role of the owner-manager in the business. Indeed,
many small enterprises begin with the owner-manager taking up most of the management functions. In
other words, the owner-manager starts by being his own production, marketing, finance, and personnel
manager.

What then is a small business? There are two kinds of small business. The small business, where the
owner is the principal worker and he employs one or more assistant, which is also called the Micro
business, while the other one is the bigger small business, where the owner mainly directs the work of
the employees. These are not the only definition of small business. There are many others. However,
these are the common characteristics of a small business:

1. It is privately-owned
2. It has few or no layers of management; and
3. Generally, it has insufficient resources to dominate its field of business.

FEATURES OF SMALL BUSINESS ENTERPRISE

1. It is low in capital, but high in labor intensity, and has insufficient financial resources. They
cannot purchase big machines or modern equipment. These are usually in retailing services.
2. It is efficient in specialized skill and service. It can produce goods or services designed to
particular needs of clients like repair works on cars and appliances. Also, tailors, bakers, real
state agents, and other specialized knowledge for specific needs.
3. They succeed in small isolated or overlooked markets in rural communities with few residents.
Small business is viable like sari-sari stores, tailoring, and small restaurants. Corporations cannot
survive in a community where demand is limited.
4. Feasibility study may not be required. They can easily respond to changing economic condition
without suffering from huge losses.
5. They conduct their operation right inside the market place, closer to the buyer with first and
information about their taste and preferences. They respond quickly to the needs of the
customer to satisfy their demands.
6. Generally, in a small enterprise, the owner-manager employs his wife and children. If business
grows, the owner hires more employees, usually relatives and townmates.
 7. Capital is usually financed by the family through its own savings and/or loans. If ever business
is fund by a small group, it comes from relative and close friends.
8. The area of operation is small. It is community-based. The owner and employees live in the
community where the enterprise is located.
9. The size of enterprise is small in relation to the industry. Example the shoe industry Is large
one. Clearly, one shoe store cannot dominate the market for shoe.

CHOOSING YOUR OWN ROLE IN THE BUSINESS

In choosing your own responsibilities and tasks in your business organization, consider the following
factors:

1. Your education and training. Entrepreneurs with engineering and technical education naturally
want to be on top of their production operations. Those who took up accounting, banking, and
other related courses will see themselves as effective financial managers.
2. Your experience. You should consider your own experiences. Which of these experiences might
have prepared you to do certain management and technical responsibilities? Were you a skilled
worker or production supervisor? Then handle production. Did you do well in sales some years
ago? Then, manage marketing. If you are an accountant or had some experience handling books
and accounts, then, by all means, be your own controller or financial manager.
3. Your interest and aptitude. You may have neither the experience nor the training for a certain
management job, but you might have the interest and aptitude for it. For example, if you are
outgoing and cheerful, if you are naturally persuasive and persistent, and if you genuinely like
people, you will do well in sales, even if you had neither formal experience nor training in it. If
you have a knack for tinkering around, doing your own carpentry, or making your own gadgets,
you just might be a “natural” as a production manager.
4. Your time. Do you think you will have the time to devote to all the management responsibilities
you want to take? Remember that there are only 24 hours in a day. Remember, too, that you
have other roles to play in life.
5. The advantage of having a broad view. On the other hand, entrepreneurs who choose to
concentrate on only one or a few management functions face the risk of being “nearsighted.”
Nearsighted people see only the things that are close to them. Here is an example, suppose you
put most of your time and attention on production. As you concentrate on producing better,
faster, and cheaper products, you neglect sales and you might wake up one day with huge
inventories of products that your customers no longer want. In other word, you see your
production as the whole business; while in fact the whole business is production, marketing,
finance, and people combined. Neglect one and you neglect the rest.

HOW AND WHERE TO REGISTER YOUR BUSINESS

Where to register your business depends on the legal form you have chosen to your business.

If you are to go into SOLE PROPRIETORSHIP, you are required to:

 Register your business name with the Bureau of Domestic Trade and the Department of Trade
and Industry (BDT-DTI)
 Obtain a business clearance from the Barangay captain of your place of your business.
 Obtain a permit to do business from the local government unit (your city or municipal
government’s business licensing office.)
  Get a Tax Identification Number (TIN) from the Bureau of Internal Revenue (the branch nearest
you).
 Register your business and employees with the Social Security System for social benefits.
 Register with the department of Labor and Employment (DOLE) office nearest you, if you have
five or more employees.
 If you will go into PARTNERSHIP or CORPORATION, you are required to register first with the
Securities and Exchange Commission (SEC), after which you have to go through all the
registration described above for sole proprietorship.

If you have formed a COOPERATIVE, you are required to:

 Register with the cooperative development Authority (CDA) office nearest you.
 Register the name of your cooperative with the department of Trade and Industry (DTI) office
nearest you.
 Obtain a permit to operate the cooperative from the local government unit.
 Get a Tax Identification Number (TIN) from the Bureau of Internal Revenue
 You may also register the employees of your cooperative with the Social Security System and
the department of Labor and Employment.

The following are general guidelines and requirements in registering with the DTI, the local government
unit, the BIR, and the SSS.

Register with the DTI

Register your business name with the DTI Office in the city or province where your business is located.
You will be asked to fill up an application form in five copies. A registration fee is charged. Be prepared
with at least three alternative business names; it is possible that some of your choices have already been
taken by previous registrants.

The following are the requirements in registering with DTI:

For Sole Proprietorships For partnership and For Cooperatives

- Applicant must be 18 years -
old or more
- Two recent passport-size
photos of applicant
- Proof of Filipino citizenship,
if applicant acquired this by
naturalization, election or -
other means provided by
law
- Proof of Filipino citizenship
(e.g. birth certificate,
voter’s ID)
- In case there is an increase
Corporations
Certified true or - Certified true or
photocopies of articles of photocopies of articles of
incorporation or cooperation, by-laws, and
partnership, by-laws, and CDA registration
registration certificate certification
approved by the SEC - Certificate issued by CDA, in
If foreigners own 40% or case of increase of
more of the capital, the SEC capitalization
certificate must specify that
this is in accordance with
the Foreign Investment Act
of 1991
in capital, a certificate
issued by the SEC
Registering with the Mayor’s Office (Local Government Unit)

The office of the city or municipal mayor is where you go to in order to get a permit or license to go into
business. The section to approach is the business licensing section or unit. Prior to this, however, be sure
you have secured a clearance from your local barangay. The barangay office charges a small fee (Fifty
Pesos, 1997 rates) for this clearance, which you have to present to the Mayor’s Office.

Be sure to bring some cash when you register with the local government unit. Aside from the mayor’s
permit fee, you will be charged other fees, including sanitary, garbage, building inspection, electrical
inspection, plumbing inspection, mechanical inspection, fire inspection, and working permit fees.
Altogether, these fees may amount to around One Thousand Pesos (1997 rates).

You need a number of documents to obtain a license or permit from the Mayor’s Office. These are:

For Sole Proprietorships For Partnership and For Cooperatives

- DTI registration certificate
of business name
- Location map of business
establishment
- Barangay clearance
- Community tax certificate
of proprietor
Plus, depending on type of
business, any of the following:
- Building occupancy permit
- Mechanical inspection
- Electrical inspection
- Pollution clearance
- Sanitary/health certificate
- Police clearance
Corporations
- Location map of business
establishment
- Barangay clearance
- SEC registration certificate
- Articles of partnership of
incorporation
- Current Class “C” certificate
- Community Tax Certificate
of the partners
Plus, depending on type of
business, any of the
following:
- Building occupancy permit
- Mechanical inspection
- Electrical inspection
- Pollution clearance
- Location clearance
- Sanitary/health certificate
- Police clearance
- Location map of business
establishment
- Barangay clearance
- CDA registration certificate
Plus, depending on type of
business, any of the following:
- Building occupancy permit
- Mechanical inspection
- Electrical inspection
- Pollution clearance
- Sanitary/health certificate
- Police clearance

Registering with the BIR

You need to go to the Bureau of Internal Revenue (BIR) to get a Tax Identification Number (TIN), for
taxation purposes. A BIR registration is also a pre-requisite for you to get official receipt and invoices
printed. Your book of accounts also need to be stamped by the BIR-accredited printing press, which will
take care of having these form officially stamped.

The BIR also charges a fee from VAT-covered enterprises. VAT-exempted businesses, however, are not
charged any fee.
Here are the requirements for registering with the BIR:
For Sole Proprietorships For Partnership and For Cooperatives
Corporations
- Photocopy of DTI - Photocopy of SEC - Photocopy of CDA
registration registration registration or business
- Photocopy, of mayor’s - Mayor’s permit permit
permit

Cooperatives who want to apply for tax exemption are required to fill up BIR Form 1702A-1 (“Annual
information/income tax return of exempt organization”) in lieu of income tax forms.

Registering with the SSS

You are required to get additional registration with the Social Security System (SSS), especially if you
have employees. If you have none, you may still register as a self- employed individual. The SSS provides
sickness, retirement, loan, and other social services to employees of private businesses. The funds for
such benefit come from contribution from the government (SSS) and from you, the employer.

Here are the requirements for registering with the SSS:

For Sole Proprietorships For Partnership and For Cooperatives

- Photocopy of mayor’s
permit
- Employer’s date of record
- Initial or subsequent list of
employees
Corporations
- Photocopy of articles of (Cooperatives, as a rule, do not
partnership or have to register with the SSS,
incorporation but their employees do.)
- Employer’s data record
- Initial or subsequent list of
employees (the last two
requirements should be
signed by the managing
partner of a partnership or
the highest ranking officer
of a corporation.)

Registering with the SEC (only for Corporations and Partnerships)

When your business grows and you want to organize a corporation or partnership, or partnership in
place of the single proprietorship you originally set up, you need to go to the Securities and Exchange
Commission (SEC). Of course, you may want to start as a corporation right away. The decision is up to
you.

The requirements for SEC registration are:

 Verification of proposed name of your firm. If it has been registered by any other name, you
have to change your proposed name and repeat the process.
 Six copies of the following (for stock corporations):
 Articles of incorporation
  By-Laws
 Undertaking to change corporate name
 Treasurer’s affidavit
 Bank certificate of deposit
 Authority to verify bank accounts
 Registration data sheet/subscribes information sheet
 Statement of assets and liabilities, if subscription is paid in property

Needless to say, you must be ready to pay filing and miscellaneous fees.

If you want to speed up the process of registering your corporation, SEC has express forms available at
its offices. A separate set of forms is also available for partnerships.

Other Registering Agencies

 Food and Drug Administration, for firms manufacturing drugs cosmetics, and food products
 Fiber development Authority, for businesses engaged in processing and trading of fiber and
fiber products
 National Food Authority, for traders and processors of rice, corn and flour
 Land Transport Franchise and Regulatory Board, for land transport services (jeepney lines,
taxicab, and bus operation)
 Maritime Industry Authority, for sea transport services
 Philippines Overseas Employment Administration, for firms engaged in recruitment of workers
for employment abroad
 Department of Education, Culture, and Sport, for owners of schools, universities, and other
educational institutions
 Department of Tourism, for hotels and other lodging facilities for tourists
 Philippine Contractors Accreditation Board, for construction contractors
 Bangko Sentral ng Pilipinas, for exporters in general
 Bureau of Food and Drugs, for exporters of drugs, cosmetics, and food products
 Philippine Coconut Authority, for exporters of coconut and coconut by-products
 Garments Trade Export Board, for exporters of garments and textile
 Bureau of Fisheries and Aquatic Resources, for exporters of fish and fish products
 Bureau of Animal Industry, for exporters of animals and animal product and by-products
 Bureau of Plant Industry, for exporters of plants and plant products
 Bureau of Forest Development, for exporters of forest product