CHAPTER 2 : Organizing A Business
The government requirements
ENTREPRENEURSHIP
individual’s undertaking whereby, he invest his
money in a business.
PROMOTION
activities involved in making a business ready to
operate. Individual who undertakes the activities and
organize call promoters.
DISCOVERY
business opportunity and conducting investigation to
determine whether it should be undertaken or not.
FINANCING
this stage process of the initial capital that the
proposed business requires.
ASSEMBLING
process of putting together or combining various
component or parts to create a final product.
PROJECT FEASIBILITY STUDIES
A feasibility study is an assessment of the
practicality of a project or system. A feasibility study
aims to objectively and rationally uncover the
strengths and weaknesses of an existing business
or proposed venture.
PART OF FEASIBILITY STUDY
a. Marketing d. Organization and management
b. Technical e. Taxation
c. Legal f. Financial
g. social and economic benefits
FINANCIAL PROJECTION
a set of financial statements are made to provide
answers to question such as the following:
1.) How profitable can the project be?
2.) How much investment would be required to
sustain operation of the company?
3.) What way you can promote your business to
market?
it is therefore imperative the following:
Cost of Capital, Capital requirements, expected Sales
estimate, Breakeven point
FORMS OF BUSINESS ORGANIZATIONS
SOLE PROPRIETORSHIP
individual who is going into business for the first
time, to do it on his own first while learning the trade.
After operating for some time, he invites or gets
invited to form a part a partnership or a corporation.
Advantages
1. It is easy to organize.
for sole proprietorship are minimal
2. Decision can easily be made, as they are made by
the owner himself,.
3. Financial operation is not complicated, at this type
of organizations is generally for small scale business.
4. The owner is entitled to all the profits his business
realizes.
Disadvantage
1. Limited ability to rase capital. The business depends
only on the financial resources that can be procured
by the sole owner.
2. The sole proprietor gas unlimited liability. Business
creditors can go after his personal assets to satisfy
their claims.
3. Limited ability to expand. This is due to its limited
capital and in most cases, operation are limited only
to areas in which sole proprietor has expertise.
4. Business ais entirely a responsibility of owner. The
owner has nobody to share with burden of decision
making.
PARTNERSHIP
are governed by the provision of the civil code,
articles 1767 to 1867. A partnership is defined as
association of two or more person who bind
themselves to contribute money, property, or industry
to a common fund and equal. With the intention of
dividing the profits among themselves.
PROVISIONS OF THE CIVIL CODE on a Partnership
Formation
Article 1771: a partnership maybe constituted in any
form except where immovable property or real rights
are contributed.
Article 1772: every contract of partnership having a
capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which
must be recorded in the Office of the securities and
Exchange Commission
PARTNERSHIP CONTRACT
1. Name of partnership
2. Names of the partners
3. Place of business
4. Effective date of partnerships
5. Nature of business
6. Investment of each partner.
8. Rights, powers and duties of the partners
Classes of Partners.
based on their contribution:
a. Capitalist Partner he is a partner who contributes
money or property to the capital of the partnership.
b. Industrial Partner he is partner who contributes his
work, labor or industry to the partnership.
c. capitalist- industrial partner. He is one who
contributes money or property as well as his work or
industry to the capital of the partnership
Based on their liability for the partnership debts:
a. General partner he is one who liable for
partnership debts to the extent of his personal
property after partnership assets are exhausted.
b. Limited Partner he is one whose liability for
partnerships debts is limited to the capital
contribution
Advantage And Disadvantage of Partnership
Advantages
1. It is easily to form.
2. Flexibility of operation.
3. Partners are expected to have great interest in the
operation of the partnership.
Disadvantages
1. Partners have a limited liability for partners debts.
2. It has limited because it can easily be dissolved.
3. Limited ability to raise capital.
4. Net income is subject to tax whether distributed or
not.
CORPORATION
A corporation is an organization—usually a group of
people or a company—authorized by the state to act as a
single entity and recognized as such in law for certain
purposes. Early incorporated entities were established by
charter. Most jurisdictions now allow the creation of new
corporations through registration.
CLASSIFICATION OF CORPORATION
1. Stock corporation capital stock divided into shares
and are authorized to distribute to the holders of such
shares, dividends, or allotments of the surplus profits
on the basis of the shares held.
2. Non-stock corporation A non-stock corporation is
formed or organized for charitable, religious,
educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes like
trade industry.
COMPONENTS OF A CORPORATION
CORPORTATORS- to all person composing a
corporation whether they are stockholders or
members.
Incorporators-
STOCKHOLDERS- refers to natural or juridical persons
who own at least one share of the capital stock of
corporation.
Member- they are the corporators in a non- stock
corporation.
Board of Directors or Trustees- the governing body in
a corporation.
SEC Express Registration Services
- Provides express incorporation services
whereby for a fee.
Rights of Stockholders
- Right to attend and vote in person or by proxy
at stockholder’s meeting. ( Sec. 50)
- Right to receive dividends when declared.
( Sec. 43)
- Right to participate in the distribution of
corporate assets upon dissolution. ( Secs. 118-
119)
- Right to enter into a voting trust agreement.
( Sec. 59.)
Pre-emptive Right of Stockholders
- Refer to his right to subscribe to all issues or
disposition of shares of any class, in proportion
to his shareholdings subject to certain
exception per Sec. 39 of the Corporation Code.
Watered Stock
- Stocks issued for a consideration less than par
or issued value.
Voting in a Stock Corporation
Cumulative Voting – The manner of voting in a
stockholder.
Voting in a Non-Stock Corporation- every member of a
non-stock corporation may cast as many votes as there
are trustees to be elected but may not cast more than
one vote for one candidate unless cumulative voting is
authorized in the article of incorporation.
Classes of Shares of Stock
  Common Stock – represents the basic issue of
shares and has all the basic rights of a share of
stock.
 Preferred Stock – a class of stock having
preferences over common stock.
Class “A” and Class “B” Shares
- Class “A” shares are for Pilipino shareholders
- Class “B” shares are for foreign investors.
Par Value and No-Par Value Shares
- Par Value shares refers to share of capital
stock that have been assigned a definite or
fixed value in the articles of incorporation
- No-Par Value shares are those that have not
been assigned a definite or fixed value.
Founders’ Shares – are those classified as such in the
articles of incorporation and may be given certain
rights and privileges not enjoyed by other
stockholders.
Corporate Officers - refers to the people in a
corporation that run the company's daily operations.
Distinctions between a Corporation and a Partnership
Corporation
 Number of incorporators
 Powers
 Management
 Right of Succession
 Term of Existence
 Firm name
Partnership
 Organize by only 2 persons.
 May Exercise any power authorized by the
partners provided.
 No right of succession
 May be established for any period of time.
 Required by law to add the word Limited (Ltd.)
to its name
Similarities between a Corporation and a Partnership
 They can be organized only when there is a
law authorizing their organization.
 They can act only through agents.
 They are composed of an aggregate of
individuals.
 They distribute their profits to those who
contribute capital
 Both of them are subject to corporate income
tax
Classification of Dividends
 Cash Dividend- Paid in cash to the
stockholders.
 Property Dividend- form of noncash assets of
a corporation.
 Stock Dividend- form of stocks of the issuing
corporation.
 Scrip Dividend- form of promissory notes
indicating the kind of benefits the stockholders
shall be entitled to receive in the future.
 Bond Dividend- form of bonds of the
company.
 Liquidating Dividend- refers to return of
capital by a corporation.
Advantages and Disadvantages of a Corporation
Advantages
 It has a legal capacity to act as a legal unit.
 It has continuity of existence.
 Shareholders have limited liability.
 Stockholders are taxed only on their shares of
distributed earnings.
Disadvantages
 It is subject to greater degree of governmental
control and supervision.
 Its cost of formation and operation is relatively
high.
 Its formation and management are relatively
complicated.
 It has limited powers