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Forms of Business

Organization

Sole Proprietorship

Sole Proprietorship

Its owner operates it for his or her own profit


Must apply for a Business Name and be
registered with the Department of Trade and
Industry (DTI)

Characteristics

Single Ownership
No Separation of Ownership and Management
Less Legal Formalities
No Separate Entity
No Sharing of Profit and Loss
Unlimited Liabilities
One-man Control

Strengths

Owner receives all profits


Low organizational costs
Income included and taxed on proprietors
personal tax return
Independence
Ease of Dissolution

Weaknesses

Owner has unlimited liability


Limited fund-raising power tends to inhibit
growth
Proprietor must be a jack-of-all-trades
Difficult to give employees long-run career
opportunities
Lack of continuity when proprietor dies

Partnership

Partnership

Under the Civil Code of the Philippines, by the


contract of partnership, two or more person
bind themselves to contribute money, property
or industry to a common fun, with the intention
of dividing the profits among themselves
A contract of partnership having a capital of
three thousand pesos (Php 3,000.00) or more,
in money or property, must register with the
Securities and Exchange Commission (SEC)

Characteristics

Two or More Persons


Contractual Relationship
Sharing of profits of business
Existence of Lawful Business
Participant Agent Relationship
Unlimited Liabilities

Strengths

Can raise more funds than sole proprietorship


Borrowing power enhanced by more owners
More available brain power and managerial
skill
Income included and taxed on partners tax
return

Weaknesses

Owners have unlimited liabilities


Partnership is dissolved when a partner dies
Difficult to liquidate or transfer partnership

Kinds of Partners

Capitalist Partner
Industrial Partner
General Partner
Limited Partner
Managing Partner
Liquidating Partner
Partners by Estoppel

Continuing Partner
Surviving Partner
Sub partner
Ostensible Partner
Secret Partner
Silent Partner
Dormant Partner

Kinds of
Partnership

Partnership at will
Indefinite Period
Existence after Completion of Venture
Existence after Expiry Period

Particular Partnership
Limited Partnership

Causes of
Dissolution

Without violating the agreement


Violation of the agreement
Loss
Death of any partners
Insolvency of any partner or of the partnership
Civil Interdiction of any partner
By the decree of court under Art. 1831, NCC

Effects of
Dissolution

Partnership is not terminated


Partnership continues for a limited purposes
Transaction of a new business is prohibited

Termination of
Partnership

Time of Termination
No part of any business, financial operation
or venture is carried on by the partners in a
partnership, or
Within 12 months period, there are sales or
exchange of 50 percent or more of the total
interest in both capital and profits

Winding Up the
Business

If the business requires winding up, the


partnership does not terminate when it
dissolves. It continues until the liquidation is
completed and he proceeds are distributed.
The partnership become a sole proprietorship
when a partner buys out all the interests of
the other partners, the partnership terminates
at the time of the transactions.

Termination of
Partnership

Sale or Exchange of a 50 Percent Interest Terminates


the Partnership
A partnership terminates if there is a sale or exchange of at
least a 50 percent interest in the partnership over a 12month period.
Example: A-B-C and its partners report on a calendar year
basis. On November 30, A sells a 25 percent interest to D. On
the following March 1, B sells a 25 percent interest to E. The
partnership terminates on the sale to E. However, if D would
have resold his interest to E, the partnership would not have
terminated because only a 25 percent interest was sold.

Termination of
Partnership

Death of a Partner
The general rule is that the death of a partner causes
dissolution of the partnership. However, the partners can
expressly agree that the partnership business will be
continued in the event that one or more of the partners
die. This agreement is usually contained in the
partnership agreement.
Although death dissolves the partnership, a ''community
of interest'' still exists until a winding up of the affairs of
the partnership takes place. This community of interest
exists only for the limited purpose of winding up affairs.

Winding Up the
Business

After dissolution, Each partner has an equal right to


possess the firm assets, to participate in winding up
process, and dispose of the firm assets for the
purpose of liquidating and winding up the firm affairs.
If dissolution occurs because of the death of one
partner, the surviving partners ordinarily have full
power to control and dispose of the assets in order to
terminate partnership business. The partners may,
however, agree among themselves that one or more
of them shall have exclusive authority to possess,
control and dispose of the assets.

Winding Up the
Business

Even after Dissolution, no one is entitled to exclusive


possession for his own use of specific partnership
property until:

The partnership has been liquidated


An Accounting has been made
The property has been applied to the payments of debts

Some partners do not have the authority to wind up the


partnership, including:

Bankrupt or insolvent partners


Partners who have wrongfully dissolved the partnership

Corporation

Corporation

A corporation is an artificial being created by


operation of law, having the right of succession
and the powers, attributes, and properties
expressly authorized by law or incident to its
existence.
Sec. 2, Title I of Batas Pambansa Blg. 68

Characteristics

It is an artificial being
It is created by operation of law
It has the right of succession
It has only the powers, attributes, and
properties expressly authorized by law or
incident to its existence

Strengths

Legal capacity to act and contract as a distinct


unit
Continuity of existence
Its credit is strengthened by such
Centralized management
Creation,
organization,
management,
and
dissolution are standardized under one general
law
Makes feasible gigantic financial undertakings
Shareholders have limited liability

Weaknesses

Relatively complicated
Entails relatively high cost of formation and
operations
Greater degree of governmental control and
supervision
In large corporations, management and
control are separated from ownership
Stockholders have little voice in the conduct of
the business

Classes of
Corporations

Stock corporation
Created and operated for the purpose of
making a profit which may be distributed in
the form of dividends to stockholders
Non-stock corporation
Created not for profit but for the public good
and welfare (e.g. charitable, religious, social,
civic, political organizations)

Classes of
Corporations

Public corporation
Formed for the government of a portion of the
State for the general good and welfare
Private corporation
Formed for some private purpose, benefit, or
end

Classes of
Corporations

Private corporations also include:


Government-owned or controlled corporations
(GOCCs)
Quasi-public corporations

Corporators and
Incorporators

Corporators those who compose a


corporation, whether as stockholders or
members
Incorporators stockholders or members
mentioned in the articles of incorporation as
originally
forming
and
composing
the
corporation and who are signatories thereof

Number and
Qualifications of
Incorporators

5-15 natural persons


Of legal age
Majority should be residents of the Philippines
Must own or be a subscriber to at least 1 share

Steps in Incorporation

Drafting and execution of articles of


incorporation
Filing with the Securities and Exchange
Commission
(SEC)
of
the
articles
of
incorporation along with the treasurers
affidavit
Payment of the filing and publication fees
Issuance by SEC of certificate of incorporate

(Share of) Stock

Stock one of the units into which the capital


stock is divided
(Authorized) capital stock amount fixed
in the articles of incorporation, to be
subscribed and paid in or agreed to be paid in
by the stockholders of a corporation

Par v. No Par Value

Par value share


One with a specific money value fixed in the
articles of incorporation
No par value share
Does not state how much money it represents

General Classes of
Shares

Common shares
Its holders stand upon an equal footing,
without extraordinary rights or privileges
Preferred shares
One with a stated par value which entitles the
holder thereof to certain preferences over the
holders of common stock

General Classes of
Shares

Founders shares
Issued to the originators of a firm, these shares
are entitled to all of the remaining (after tax)
profits, no matter how much
Redeemable shares
These are shares, usually preferred, which by
their terms are redeemable at a fixed date or at
the option of either the issuing corporation or the
stockholder or both at a certain redemption price

General Classes of
Shares

Treasury shares
Shares which are lawfully issued by the
corporation and fully paid for and later
reacquired by it either by purchase,
redemption, donation, forfeiture or other
lawful means.

Dissolution

It involves two legal steps:


Termination of the corporate existence at least
as far as the right to go on doing ordinary
business is concerned; and
The winding up of its affairs, the payment of
its debts, and the distribution of its assets
among the shareholders or members and
other persons interested.

Dissolution

Voluntary
By vote of the board of directors/trustees and
the stockholders/members where no creditors
are affected
By judgment of the SEC after due process
where creditors are affected
Amendment of articles of incorporation
By submitting to the SEC a verified declaration
of dissolution for approval

Dissolution

Involuntary
By expiration of the term provided for in the
original articles of incorporation
By legislative enactment
By failure to formally organize and commence
the transaction of its business within 2 years
from date of incorporation
By order of the SEC

Corporation v.
Partnership

Manner of creation
Number of incorporators
Commencement of juridical personality
Powers
Management
Effect of mismanagement
Right of succession
Term of existence
Firm name
Dissolution
Governing laws

Conclusion

It is important to know what structure one will


select for his or her business, as this will not
only have an impact on how much you pay in
taxes, but will also affect the amount of
paperwork you are required to do, as well as
the liability you face and your ability to raise
money.