 THE BUSINESS ORGANIZATION

 Lesson 6

 OBJECTIVES

I. Identify the forms of business organization,

II. Enumerate the types of business organized under foreign laws, and

III. Discuss the types of business.

 FORMS OF BUSINESS ORGANIZATIONS

 Three forms of business organization based on ownership structure:

 Sole Proprietorship

 Partnership

 Corporation

 SOLE PROPRIETORSHIP

 Are companies owned by one person who is usually hands-on in managing the day-to-day
activities. Sole proprietorship own the entire business, including all assets and profits. Since they
own all the assets, they are also responsible for all liabilities of the business.

 Assets are resources with economic value that are owned and controlled by the business
owners.

 Liabilities are debts or obligations which arise in the course of the business operations.

 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. Proprietorship 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.

 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.

 KNOW YOUR JARGON

  Affiliate – a company associate that holds a minority stake in the ownership of the parent
company

 Liabilities – debts and obligations owed by a company to creditors

 Retail Price – the selling price of goods to the consumers

 Securities and Exchange Commission (SEC) – the government agency tasked with regulating
and monitoring business organizations and corporations

 Subsidiary – a company owned by another company or a parent company

 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.

Under the Civil Code of the Philippines, a partnership is considered a

juridical person or the entity having a separate legal personality from the
partners. A partnership can either be a general partnership or a limited
partnership.

 TWO TYPES OF 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.

 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 disadvantages 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.

 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.

 A corporation is owned and established under the Corporation Code and regulated by the SEC.
Corporations are subject to tax, which is separate from the individual taxes of its 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.

 TWO TYPES OF CORPORATION

 Stock Corporation has capital stock divided into shares and dividends. Surplus profits are given
to shareholders depending on the number of shares held.

 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.