Saint Anthony Academy

Batuan, Bohol, Philippines

Member: Bohol Association of Catholic Schools ( BACS)
Catholic Education Association of the Philippines (CEAP)
ORGANIZATION AND MANAGEMENT 12
ACTIVITY NO. 6
(Week 6)
Topic: The Business Organization
Competency: Differentiate the various forms of business organizations
Objectives: *Identify the forms of business organization.
*Enumerate the types of business organized under foreign laws.
*Discuss the types of businesses.
Concept Notes:
FORMS OF BUSINESS ORGANIZATION
There are three forms of business organizations based on ownership structure. These e sole
proprietorship, partnership, and corporation. A wise manager should consider the characteristics of the business
organization that he or she wishes to establish in making the business plan as each presents unique advantages,
opportunities, and challenges.
SOLE PROPRIETORSHIP
Sole proprietorships are companies owned by one person who is usually hands-on managing the day-to-
day activities. Many small businesses start in this type of business ownership. Sole proprietors own the entire
business, including all assets and profits. Since they own all the assets, sole proprietors are also responsible for all
liabilities of the business. Assets the sets are resources with economic value that are owned and controlled by the
business owners. Examples of assets are facilities, equipment, machinery, cash, office supplies, and raw materials.
Liabilities are debts or obligations which arise in the course of the operations.
Sole proprietors are also considered single taxpayers and are assigned a single Identification Number
(TIN). Owners also apply for a business trade name and register business with the Department of Trade and
Industry.
Advantages and Disadvantages of a Sole Proprietorship
The main advantage of a sole proprietorship is that it is the most manageable and least expensive form of
ownership. Proprietors have complete control over the business and can make decisions based on their own
judgment. Thus, it is easy to implement changes in the business setup. Furthermore, if desired by the owner, the
business can also be easily dissolved.
However, the disadvantage is that sole proprietors have unlimited liability since they assume all the debts
of the business. This may put personal assets at risk when the business experiences losses. Obtaining additional
capital is also difficult because of a low guarantee of profitable' returns to lenders. There is also a possibility that
highly skilled employees will not be attracted to work in the business because of the low chance to advance in
their careers and to get attractive compensation packages.

PARTNERSHIP
Partnership is a form of business organization where ownership of the business is shared by two or more
members. The partners mutually agree as to how decisions will be made and how the profits and losses will be
shared. They also agree on how future partners will be admitted and how disputes will be resolved legally. The
amount of contribution, the type of work to be inputted, and the time to be devoted by each partner is also
outlined to ensure a clear distinction of responsibilities.
Under the Civil Code of the Philippines, a partnership is considered a juridical person or an entity having
a separate legal personality from the partners. A partnership can either be a general partnership or a limited
partnership.
General partnership is a form of partnership wherein the partners have unlimited liability for the debts
and obligations of the partnership.
Limited partnership is a form of partnership wherein one or more general partners have unlimited
liability and the limited partners have liability that is only up to the amount equal to their capital contributions.
partnerships with a capital of more than three thousand pesos (€3 000.00) should register with the SEC. Income
tax computations for partnerships are the same with corporations.
Advantages and Disadvantages of a Partnership
One of the advantages of a partnership is its wider capital base. Having more partners involved in the
business allows for diversification of the contributed monetary funds, skills, and resources. Expansion is also
easier since there are more people who will manage the different branches of the business, In addition, those who
would like to be employed in the partnership may be attracted by the incentive of becoming a partner later on.
One disadvantage of a partnership is that partners are jointly liable for all the obligations and effects
stemming from the decisions of the other partners. Unless the individual responsibilities and liabilities are clearly
delineated, this may cause disagreement among the partners. Partnerships have a limited life because of its
general instability. This instability is not referring to business unprofitability but rather to several internal factors
which make the partnership vulnerable to dissolution. These internal factors include the death, withdrawal, or
insolvency of a partner.
CORPORATION
The third form of business organization is the corporation. A corporation has a distinct personality
separate from its owners. This means that it is treated like an individual person with benefits from certain rights as
well as obligations and responsibilities. A corporation can enter into contracts, secure loans, sue and be sued, hire
employees, and pay taxes. A Corporation has a minimum of five and a maximum of fifteen owners who are called
shareholders. Each shareholder owns a part of the company and has some authority over its direction.
Shareholders elect a board of directors who oversee the major policies and decisions of the corporation.
A Corporation is owned and established under the Corporation Code and dated by tba SEC' The
shareholders of a corporation are also registered with the SEC are assigned least one share of the company stock.
The total shares of the company stock that Shareholders may acquire will depend on the capital they have
invested into the company. Their liability is only up to the of their share capital. The paid-up corporations in the
Philippines is P5,000.
Corporations are subject to tax, which is separate from the individual taxes of shareholders. Corporate
taxes are not deductible from the individual taxes of shareholders. This is because the corporation is a separate
entity distinct from its shareholders.
There are two types of corporation. These are as follows:
A stock corporation has capital stock divided into shares and dividends. Surplus profits are given to
shareholders depending on the number of shares held.
A non-stock corporation does not issue shares of stock and is established primarily for public interests
such as a foundation for charitable, educational, social, cultural, and other similar purposes.
Advantages and Disadvantages of a Corporation
One of the advantages of a corporation is its limited liability to its shareholders. They can only be held
accountable for their individual investment of shares in the corporation. Another advantage is that a corporation
can deduct the benefits it provides to its employees and consider them as expenses. It also has a general stability
since the death or withdrawal of one shareholder does not result in its dissolution.
The process of forming the corporation or incorporation is more complicated than forming a sole
proprietorship and partnership. A corporation is closely monitored by the government and other local agencies
like the SEC. Thus, more paperwork is required of a corporation to comply with permits and other legal
requirements.

FOREIGN BUSINESS ORGANIZATIONS

In the Philippines, the government recognizes four forms of foreign business organizations. These
businesses are incorporated based on foreign laws and considered representatives of foreign corporations. They
are regulated by the government.
The branch office is organized to do the activities of the head office from the host country. The minimum
paid-up capital of a branch office is This can be lowered to USS 1 if advanced technology is involved or at least
50 employees are directly employed. It is required to register with the SEC.
The representative office is fully supported by the head office and does not obtain funds from its main
office overseas. It deals directly with the clients of the parent company and engages in business activities such as
communication, promotion of products, and quality control of products for export. The initial minimum inward
remittance is US$30,000 for operating expenses. It should be registered with the SEC.
The regional headquarter only performs activities that primarily involve supervision, communication, and
coordination. It serves as a coordinating center to its subsidiaries, affiliates, and branches in the region and acts as
an administrative branch of a multinational company. It does not derive income within the Philippines and does
not participate in managing a branch in the Philippines. A capital of USS50,ooo is required as annual operating
expenses.
The regional operating headquarter performs the following services to its affiliates, subsidiaries, and branches
in the Philippines: (1) administration and planning, (2) acquisition of raw materials, (3) marketing, (4) technical
support and communications, and (5) research and development. It derives its income from its activities in the
country. The required capital is USS200,000 as one-time payment.

CLASSIFICATION OF BUSINESSES
Business can also be classified based on the type of products or services rendered.
1. Service business is a type of business that provides labor and other services to the customers. Examples are
transportation companies like airlines and shipping lines; professional services like accounting, legal, engineering,
and costumer service; entertainment like amusement parks and movie houses; hotels and restaurants; apartments;
banks and lending companies; event planners; telecommunication services; medical services; media; and many
others.
2. Merchandising business is a type of business that purchases products from other businesses like
manufacturers and sells them to costumers at a higher retail price. Examples are grocery stores, supermarkets, car
dealers, real estate dealers, and electronic stores.
3. Manufacturing business is a type of business where raw materials are transformed into finished goods through
product-processing, labor, and other manufacturing processes. Examples include manufacturers of soap and
detergent, canned goods, automobiles, and medical drugs.
There are other businesses that cannot be classified into any of the three types like agriculture, aquaculture, and
mining companies.
 ORGANIZATION AND MANAGEMENT 12

Name:___________________________ Year & Section:___________________________

Date:______________________________ Score: __________________
Teacher: Ms. Anabel A. Bahinting, LPT
ACTIVITY NO. 6

Exercises
A. Direction: Answer the following questions.
1. Enumerate the forms of business organization based on ownership structure. What are their respective
advantages and disadvantages? (15 pts)
2. Why do you think should foreign companies register with and be regulated by the SEC? (5 pts)
3. Compare the service, merchandising, and manufacturing business in terms of their products and services.
Which among these businesses do you often encounter in real life? (20 pts)