ICT-ED INSTITUTE OF SCIENCE AND TECHNOLOGY LIPA

2/F Mercedes Bldg. P. Torres St. Lipa City, Batangas 4217

(043) 757-4445 / (043) 757-5944

COLLEGE DEPARTMENT

Learning Module
In
REGULATORY FRAMEWORK AND LEGAL ISSUES IN
BUSINESS
(SY. 2021-2022)

Prepared by:
PAULYN MARIE R. BATHAN
 ICT-ED INSTITUTE OF SCIENCE AND TECHNOLOGY LIPA
2/F Mercedes Bldg. P. Torres St. Lipa City, Batangas 4217
(043) 757-4445 / (043) 757-5944

Choices of Business Entity

1. Sole proprietorship
- Owned by a single individual who has full control and authority over the business, referred to as the
sole proprietor and exclusively owns all assets and profits of the business; he or she is also personally
liable for all the debts and losses that the business might incur.
Pros Cons
 Easy to start (no need to register your  As the only owner, you’re personally
business with the state). responsible for all of the business’s debts
 No corporate formalities or paperwork and liabilities — someone who wins a
requirements, such as meeting minutes, lawsuit against your business can take your
bylaws, etc. personal assets (your car, personal bank
 You can deduct most business losses on your accounts, even your home in some
personal tax return. situations).
 Tax filing is easy — simply fill out and  There’s no real separation between you and
attach Schedule C-Profit or Loss From the business, so it’s more difficult to get a
Business to your personal income tax return. business loan and raise money (lenders and
investors prefer LLCs or corporations).
 It’s harder to build business credit without a
registered business entity.

2. Partnership
- Partnerships share many similarities with sole proprietorships — the key difference is that the
business has two or more owners. There are two kinds of partnerships: general partnerships and
limited partnerships.
 General Partnership – a business arrangement where two or more people, usually referred to as
general partners, agree to share among themselves all assets, profits, and financial and legal
liabilities of the business; the general partners can take part in the daily management of the
partnership and each has unlimited liability for the actions of the partnership, including the
actions of other partners
 Limited Partnership – a type of partnership where the partners, usually referred to as limited
partners, are only held liable to the extent of their investment in the partnership; unlike general
partnerships, the limited partners have no management authority or input towards the operations
of the company

Pros Cons
 Easy to start (no need to register your  Each owner is personally liable for the
business with the state). business’s debts and other liabilities.
 No corporate formalities or paperwork  In some states, each partner may be
requirements, such as meeting minutes, personally liable for another partner’s
bylaws, etc. negligent actions or behavior (this is called
 ICT-ED INSTITUTE OF SCIENCE AND TECHNOLOGY LIPA
2/F Mercedes Bldg. P. Torres St. Lipa City, Batangas 4217
(043) 757-4445 / (043) 757-5944

 You don’t need to absorb all the business
losses on your own because the partners 
divide the profits and losses.
 Owners can deduct most business losses on
their personal tax returns.
joint and several liability).
Disputes among partners can unravel the
business (though drafting a solid partnership
agreement can help you avoid this).
 It’s more difficult to get a business loan, land
a big client and build business credit without
a registered business entity.

3. Cooperative
- Unlike corporations and partnerships, cooperatives have collective, democratic ownership and are
run by an electoral system where all members elect officers through a one-member-one-vote
principle
Types of Cooperatives
 Credit Cooperative – promotes and undertakes savings and lending services to create funds and
grant loans for productivity and financial assistance among its members
 Consumer Cooperative – primary purpose is to procure and distribute commodities to both
members and non-members
 Service Cooperative – engages in service-oriented activities such as medical, dental care,
hospitalization, transportation, insurance, housing, labor, electric light and power,
communication, and other such activities
 Producers Cooperative – undertakes joint production, for agricultural or industrial purposes
 Cooperative Bank – organized for the primary purpose of providing a wide range of financial
services to cooperatives and their members
 Multi-Purpose Cooperative – combines two or more of the business activities listed above

4. Corporation
- Domestic corporations are required to be formed by at least five (5) but not more than fifteen (15)
incorporators who must have individual subscriptions of at least one (1) share in the company;
incorporators are stockholders or members mentioned in the Articles of Incorporation as originally
forming and composing the corporation and are signatories thereof
- For a foreign corporation to be granted a License to Operate in the Philippines as a business entity,
it is required to appoint one (1) resident agent who shall accept all summons or legal processes
served, arising out of any business or transaction which occurred in the Philippines, to the
corporation
Types of Corporation
 Stock Corporation – a corporation with capital stock divided into shares and authorized to
distribute to the holders of such shares, dividends or allotments the profits of the business based
on equity of shares.
Domestic Corporation (organized under Philippine laws)
 100% Filipino-owned
 60% Filipino-owned and 40% Foreign-owned
 ICT-ED INSTITUTE OF SCIENCE AND TECHNOLOGY LIPA
2/F Mercedes Bldg. P. Torres St. Lipa City, Batangas 4217
(043) 757-4445 / (043) 757-5944

 40.01% to 100% Foreign-owned (subject to certain provisions under Foreign Investments Act)
Foreign Corporation (organized under the laws of the corporation’s country of origin)
 Branch Office
 Representative Office
 Regional Area Headquarters (RHQ)
 Regional Operating Headquarters (ROHQ)

 Non-Stock Corporation – a corporation that neither generates profit nor issues shares of stock to
its members, and could have any of the following purposes:
 Charitable;
 Religious;
 Educational;
 Cultural;
 Civic service; and
 Other similar purposes, such as chambers or combinations trade, industry or agriculture