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FORMS OF OWNERSHIP
Forms of Ownership
There are four (4) basic forms of business organizations: sole proprietorship, partnership, corporation, and
cooperative.
Sole Proprietorship
This is also called as single proprietorship. The individual who owns the business runs the it on a day-to-
day basis, normally hands-on on most of its operations. He also assumes full responsibility of the business
in the eyes of the law and the public; as the owner and the business is just considered as one and the same
person.
ADVANTAGES DISADVANTAGES
1. A single person owns it. 1. The owner is personally liable for the obligation
2. It is easy to organize. of the business because the owner and the
3. It requires low capital. business itself are not regarded as separate
4. The owner has complete control of the entities.
business and may make a decision as he 2. There may be difficulty in raising funds and are
sees it fit. often limited to using funds from personal
5. It has no special legal requirement upon its account or personal loans.
formation. 3. There may be a hard time attracting high-
6. The profits go a hundred percent directly to caliber employees as most prospective
the personal account of the owner. employees are motivated to seek employment
7. The business is easy to dissolve or liquidate with large corporations.
if desired.
4. Some personal benefits of the owner are not
directly deductible from business income
unless these are related to the business itself.

Since the business and the owner are regarded as one, anything personally attached to the owner like
Social Security System (SSS), Pag-IBIG, PhilHealth, Tax Identification Number (TIN), and other personal
resources are used to represent with government agencies and other external parties who have a business
interest with the company. This is one major advantage because it will mean that the liabilities of the
company extend to the personal properties and resources of the owners.
Partnership

In a partnership set-up, two (2) or more persons share the ownership of the business. Like the sole
proprietorship, the liabilities of the business extend to the personal resources of the owners. The profits are
shared with the partners based on the partnership agreement. Contained in the partnership agreement are
the provisions on how future partners are admitted or bought out, how to dissolve the partnership, how
capital may be contributed and how services of the partners may be assigned or allocated.

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ADVANTAGES
1. It is easy to organize though it requires time
to establish it.
2. It is formed by two (2) or more individuals
called partners where the ability to raise
more funds is favorable.
3. The profits go directly to the personal
accounts of the partners.
4. Employees seeking employment may be
attracted to join the business as there are
chances to become a partner.
5. The partnership business will benefit from
partners who have complementary skills to
run the business which will not anymore
require outside parties.
DISADVANTAGES
1. It requires a larger amount of capital.
2. The partners are personally liable for the
obligations of the business.
3. There is a written agreement between the
partners on how the business affairs will be
handled; hence, the partners are jointly and
individually liable for the actions of other
partners.
4. The profits are shared by all partners.
5. Disagreements will likely occur in times of
decision making.
6. The partnership has a limited life as it may
end upon the death or withdrawal of a
partner.

Below are some types of partnership:

1. General Partnership. The partners divide the liability and responsibility of managing the business.
The profits or losses are also divided in accordance with the partnership agreement or in any cases
when there is none, equal sharing is assumed.
2. Limited Partnership. This partnership has a limited liability. It means that some of the partners
have liabilities up to the extent of their contributed capital or have limited inputs as regard to
management decisions. Forming this type of partnership is more complex than a general
partnership.
3. Joint Venture. It is similar to a general partnership, but the time is normally limited, and it entails a
single project or operation. If there is a repetition of the joint venture activity, this will be recognized
as an on-going partnership requiring to be registered as a continuing partnership wherein the
accumulated assets will be distributed upon dissolution.
The partnership bears similarities with sole proprietorship in terms of advantages and disadvantages. They
differ with regard to the capital requirements and its registration. The Securities and Exchange Commission
(SEC) which has more requirements than the Department of Trade and Industry (DTI) regulates its business
registration.
Some examples of partnership business are as follows:

Auditing firms:
Sycip Gorres Velayo and Co. (SGV & Co.)
Punongbayan & Araullo
Law firms and offices
Some merchandising companies

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Corporation
This form of business organization is larger than the partnership. It normally has a minimum of 50 years
legal business life, it has a life of its own and cannot be dissolved easily even when the ownership changes.
It is run by the Board of Directors who are appointed or selected by the shareholders.
It is considered by law to be a unique entity as it can represent itself to other personalities; it can be taxed,
it can be sued, and it can enter into contractual agreements. It has a separate personality distinct and
separate from the owners.
ADVANTAGES DISADVANTAGES
1. It is a business owned by shareholders who 1. The process of incorporation requires longer
have limited liabilities and can only be held time, money, and many requirements.
accountable up to the extent of their 2. This form of business requires a lot of reports and
investments to the corporation. paper works as it is being monitored by the state
2. It has legal personality separate and distinct and local agencies.
from the owners. 3. Incorporating may result in higher taxes. As
3. It can conduct business in its own name and dividends paid to shareholders are not
represent itself as a person. deductible from business income, this income is
4. The ownership is by means of shares of taxed twice - for a corporate tax and for a final
stocks and shareholders receive their share tax (a tax to shareholders).
of income through dividends.
5. It can raise additional funds by selling
stocks.
6. A corporation may deduct the cost of
benefits it provides to officers and
employees.

Organizing a corporation is more advantageous than organizing a sole proprietorship and partnership. In
many aspects of its personality, the corporation can act on its own, represent itself to internal and external
parties and have a minimum life of 50 years.
Having its own juridical personality, it is strictly registered and regulated by the Securities and Exchange
Commission (SEC) and subject to the standards of accounting. But unlike the first two forms of organization,
the ownership is by shares of stocks, wherein the control of the business is through the ownership of
majority of the shares of stocks and the distribution of income is through dividends.
Some examples of corporation business are as follows:

Colgate Palmolive Phils. Philippine Steel Corporation

Toyota Motors Phils. Bank of the Philippine Islands
SM Group of Companies GMA Network Inc.
United Laboratories Phils. Makati Medical Center
VY Domingo Jewelers Philex Mining Corporation

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Cooperative
A cooperative is an autonomous and duly registered association of persons, with a common bond of
interest, who have voluntarily joined together to achieve their social, economic and cultural needs and
aspirations by making equitable contributions to the capital required, patronizing their products and services
and accepting a fair share of risks and benefits of the undertaking in accordance with the universally
accepted cooperative principles.
Sometimes, groups of sole proprietorships or partnerships agree to work together for their common benefit
through a jointly owned and controlled enterprise. Cooperative combines the freedom of sole
proprietorships with the financial power of corporations. They give members greater production power,
greater marketing power, or both. On the other hand, they are limited to serving the specific needs of their
members.
The following are the objectives and goals of cooperatives according to the Cooperative Development
Authority:
a) Provide goods and services to its members to enable them to attain increased income, savings,
investments, productivity, and purchasing power, and promote among themselves equitable
distribution of net surplus through maximum utilization of economies of scale, cost-sharing and risk-
sharing;
b) Provide optimum social and economic benefits to its members;
c) Teach them efficient ways of doing things in a cooperative manner;
d) Propagate cooperative practices and new ideas in business and management;
e) Allow the lower income and less privileged groups to increase their ownership in the wealth of the
nation; and
f) Cooperate with the government, other cooperatives, and people-oriented organizations to further the
attainment of any of the foregoing objectives.
ADVANTAGES DISADVANTAGES
1. Members make equitable contributions to 1. Its competitors share the same pricing and
the capital. products.
2. By pooling resources at purchasing time, 2. Cooperatives may lose control of its unique
the cooperative can receive volume branding. If the marketing purchases
discounts. include advertising for all members of the
3. Cooperatives share a marketing budget cooperative, the business may get lumped
that is attractive to advertising seller. in with competitors.

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Basic Considerations in Organization

In choosing for the right type of business organization, the following may be considered:
a. The size and nature of the business that you want to structure;
b. The extent of ownership control;
c. The business risks and exposures;
d. The taxes to be paid up;
e. The economic conditions that suit the type of business that you will build up;
f. The return of your investments; and
g. The availability of resources.

Principles of Organization

Increase production by dividing work so that each worker completes

Division of work
smaller tasks or job elements.
A manager’s authority, which is the “right to give orders”, should be
commensurate with the manager’s responsibility. However,
Authority and responsibility
organizations should enact controls to prevent managers from abusing
their authority.
Clearly defined rules and procedures are needed at all organizational
Discipline
levels to ensure order and proper behavior.
To avoid confusion and conflict, each employee should report to and
Unity of command
receive orders from just one boss.
One (1) person and one (1) plan should be used in deciding the
Unity of direction
activities to be carried out to accomplish each organizational objective.
Subordination of individual
Employees must put the organization’s interests and goals before their
interests to the general
own.
interests
Compensation should be fair and satisfactory to both the employees
Remuneration
and the organization; that is, don’t overpay or underpay employees.
Avoid too much centralization or decentralization. Strike a balance
Centralization
depending on the circumstances and employees involved.
From the top to the bottom of an organization, each position is part of
a vertical chain of authority in which each worker reports to just one
Scalar chain boss. For the sake of simplicity, communication outside normal
workgroups or departments should follow the vertical chain of
authority.
To avoid confusion and conflict, order can be obtained by having a
Order place for everyone and having everyone in his or her place; in other
words, there should be no overlapping responsibilities.

Kind, fair, and just treatment for all will develop devotion and loyalty.
Equity This does not exclude discipline, if warranted, and consideration of the
broader general interests of the organization.

Low turnover, meaning a stable workforce with high tenure, benefits

Stability of tenure of
an organization by improving performance, lowering costs, and giving
personnel
employees, especially managers, time to learn their jobs.

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Because it is a “great source of strength for business,” managers

Initiative should encourage the development of initiative, or the ability to
develop and implement a plan, in others.
Develop a strong sense of morale and unit among workers that
Esprit de corps
encourages coordination of efforts.

REFERENCES:
Abarquez, B. & Agustin-Acierto, M. (2017) Fundamentals of accounting, business and management 1.
Manila: Unlimited Books Library Services & Publishing Inc.

CDA. (n.d.). Home. Retrieved from http://www.cda.gov.ph/frequently-asks-questions-faqs

Principles of organization. (2018). Retrieved from Tyrocity: https://notes.tyrocity.com/chapter-4-

principles-of-organization-business-studies-xii

Williams, C. (2017). Principles of management. Boston: Cengage Learning.

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