Chapter 1:

Principles of Finance
Kent Bryan Martin, MBA
Chapter Objectives
✓ Understand the importance of finance in your personal and professional
lives and identify the three primary business decisions that financial
managers make.

✓ Identify the key differences among the three major legal forms of
business.

✓ Understand the role of the financial manager within the firm and the goal
for making financial choices.

✓ Explain the five principles of finance that form the basis of financial
management for both businesses and individuals.

Source: Titman, Keown, & Martin. (2018). Financial Management: Principles and Applications. Pearson.
Why do I have to go to school
and finish College?
Chapter 1: Part 1 Topics

✓ What Is Finance?

✓ Why Study Finance?

✓ Three Types of Business Organizations

✓ Characteristics of Different Forms of Business

 INVESTMENT?
An investment is an item acquired with the goal of generating returns
1.1 What Is Finance?

Finance is the study of how people and businesses evaluate investments and
raise money to fund them.

Individual Corporations
1.1 What Is Finance?

Why Study Finance?

✓ Those interested to become sports manager will need to study topics such as
strategic planning, personnel, organizational behavior, and human relations, all
of which involve spending money today in the hope of generating more money
in the future.

✓ For the student with entrepreneurial aspirations, an understanding of finance is

essential—after all, if you can’t manage your finances, you won’t be in business
very long.

✓ An understanding of finance is important to you as an individual. The logic and

many of the tools in finance will also apply to decisions you will be making in
your personal life.
1.2 Three Types of Business Organizations

Sole Proprietorship

Partnership

Corporation
1.2 Three Types of Business Organizations

Sole Proprietorship:

Is a business owned by a single individual who is entitled to all of the firm’s

profits and who is also responsible for all of the firm’s debt.

Partnership:

A general partnership is an association of two or more persons who come

together as co-owners for the purpose of operating a business for profit.

In a limited partnership, there are two classes of partners: general and

limited. The general partner actually runs the business and faces unlimited
liability for the firm’s debts, whereas the limited partner is liable only up to the
amount the limited partner invested.
1.2 Three Types of Business Organizations

Corporation:

If very large sums of money are needed to build a business, then the typical
organizational form chosen is the corporation.

The corporation legally functions separately and apart from its owners (the
shareholders, also referred to as the stockholders). As such, the corporation can
individually sue and be sued and can purchase, sell, or own property, and its
personnel are subject to criminal punishment for crimes committed in the name
of the corporation.
 1.3 Three Types of Business Organizations
Characteristics of Different Forms of Business
Business Form No. of Are owners liable Do owners manage Access Taxation
Owners for the firm’s the firm? to
debts? capital
Sole Proprietorship Yes Very
One Yes Personal Taxes
limited
Very
Yes; each partner has Personal Taxes
General Partnership Unlimited Yes limited
unlimited liability

Limited Partnership
(with General At least one GP, GP – manage the firm Personal Taxes
GP – unlimited Limited
Partners and but no limit on LP – no role in
LP – limited liability
Limited Partners) LPs management

Double Taxation:
Yes Very easy Earnings taxed at
Corporation Unlimited No
access corporate level.
Dividends taxed at
personal level
Basic Requirements and Procedure in Registering a Sole Proprietor Business
Benefits of a Sole Proprietor Business
• Easier to set up and register
• Requires minimal amount of capital
• Lower cost in registering for government
permits and licenses
• Minimal regulations and monitoring
requirements
• You can register and run your business on
your own
• You can enjoy the profits on your own
Source: MPM.ph
Disadvantages of a Sole Proprietor Business
• Risk and liability are shouldered by the
owner (you) alone
• The loss is solely suffered by the owner
(you)
• You manage and operate the business on
your own which sometimes leads to
exhaustion
• Shareholders, such as creditors or
government agencies, can run after your
own personal assets since the business is
you.
Basic Requirements and Procedure in Registering a Sole Proprietor Business

Where to Register a Sole Proprietor Business?

1. Department of Trade and Industry

Local Government Units where your business is located:

2. Barangay
3. Mayor’s Office

4. Bureau of Internal Revenue

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

1. Register a business name at Department of Trade and Industry:

https://www.dti.gov.ph/
a. Come-up with three (3) business names such as
• XYZ Trading
• XYZ Retail and Trading
• XYZ Trading Enterprises
b. Search in the DTI’s website if there’s an existing name similar to yours
c. If your business name is available, fill-up Business Name (BN) Application
Form.
d. Submit your completed BN application form to DTI’s offices/branch
e. Wait for your DTI Certificate of Registration

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

2. Registration with Barangay

a. Go to the barangay where your business is located to secure and fill-up application form
b. Submit your completed application form together with the following:
• Certificate of Business Registration from DTI
• Two (2) valid IDs
• Proof of Address such as Contract of Lease (if rented) or Certificate of Land Title
(if owned)
c. Claim your Barangay Certificate of Business Registration

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

3. Register your business in the Mayor’s Office

a. Go to the municipal office where your business is located to secure and fill-up
application form
b. Submit your completed application form together with the following:
• Certificate of Business Registration from DTI
• Barangay Clearance Certificate
• Two (2) valid IDs
• Proof of Address such as Contract of Lease (if rented) or Certificate of
Land Title (if owned)
c. Claim you Mayor’s Business Permit and Licenses

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business
Basic Requirements and Procedure in Registering a Sole Proprietor Business

How to register your business in many different government agencies?

4. Register your business in the Bureau of Internal Revenue (BIR)

a. Go to the Regional District Office (RDO) where your business is located

b. Fill-up the BIR Form 1901 – Application for Registration (for Sole Proprietor)
c. Submit completed registration form together with the following:
• Certificate of Registration form DTI
• Barangay Clearance
• Mayor’s Business Permit
• Proof of Address such as Contract of Lease (if rented) or Certificate of Land
Title (if owned)
• Valid IDs, if applicable.
d. Pay the Registration Form (BIR Form 0605)
e. Register your book of accounts and receipts/invoices.
f. Claim your Certificate of Registration (BIR Form 2303)

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business

Source: MPM.ph
Basic Requirements and Procedure in Registering a Sole Proprietor Business
Basic Requirements and Procedure in Registering a Sole Proprietor Business
Chapter 1: Part 1 Key Takeaways

1. An investment is an item acquired with the goal of generating returns.

2. Finance is the study of how people and businesses evaluate investments and raise
capital to fund them.

3. Three types of business organizations are:

• Sole Proprietorship,
• Partnership,
• Corporations.

4. Basic Requirements and Procedure in Registering a Sole Proprietor Business:

• Department of Trade and Industry
• Local Government Units where your business is located:
o Barangay
o Mayor’s Office
• Bureau of Internal Revenue
Questions?
Reminder from last Monday Asynchronous:

Instruction:
1. Watch The 4 Rules Of Being Financially Literate. This can be located in
the Lecture Videos section > Lecture Video 1 folder.

2. Answer the Financial Education Video Reflection Question. Deadline:

Saturday, February 6, 2021