FORMS OF BUSINESS

ORGANIZATION
 BUSINESS ORGANIZATION

Business organization is an act of

grouping activities into effective
cooperation for definite objective.
 SOLE PROPRIETORSHIP
A business with a single natural owner who
manage the business on his own or employs
employees. It is the simplest and the most
common way to set up a business.
 SOLE PROPRIETORSHIP
A sole proprietor is completely accountable for all
debts and obligations connected to his/her business.
Whether business or personal, a creditor with a claim
against a sole proprietor has a right against all of his
assets known as unlimited liability. Self contractor is
one example of a sole proprietorship.
 SOLE PROPRIETORSHIP
ADVANTAGES
Simplicity of starting and ending the business - The individual may just buy
or
lease the needed equipment and announce one is in business. In order to get
out of the business, one has to simply stop.
Being your personal boss - The owner is making all the decisions and
controlling the whole operations.
Delight of ownership - All profit and recognition flows directly to the owner
who is proud of his/her achievement.
 SOLE PROPRIETORSHIP
ADVANTAGES
Leaving an inheritance - Owners can leave an enduring business for
upcoming generation.
It is subject to less regulations - Limited documents and rules are to be
followed when operating the business establishment.
No exceptional taxes - The income declared by the owner is his own
personal income tax return.
 SOLE PROPRIETORSHIP
DISADVANTAGES
Indefinite liability-The owner is responsible for all the obligations of the
business.
Restricted financial resources It is difficult to raise capital so the owner
can only use his/her personal saving and consumer loans.
Management difficulties-Owner finds it hard to hire expert employees to
be part of the business, because he/she cannot compete with the salary
and benefits offered by larger companies.
 SOLE PROPRIETORSHIP
DISADVANTAGES
Great time commitment-No one shares the burden of managing his/her business so
lots of time must be devoted at the expense of his personal life
Few fringe benefits-As the boss, he loses the fringe benefits that are given when an
individual works for others.
Limited growth-Expansion is quite slow because the owner relies only on how
creativity, business knowledge and money.
Limited life span-In case of death, incapacitated or retirement of the owner, the
business will no longer continue unless it is taken over by his heirs.
 PARTNERSHIP
A legal form of business with two or more individuals
who combine their resources and manages the business.
Partners divide the unlimited liabilities of the business
and control the business together.
 PARTNERSHIP
ADVANTAGES
Greater Financial Resources- easier to raise capital as there is more than one
investor.
Joint Management and pooled skills and knowledge- With carefully selected
partners having different expertise, it is much easier to manage the daily operations
of the business.
Longer Survival-As each partner tries to observe what the other partner is doing,
discipline is maintained creating extended and harmonious relationship.
No special taxes- Any income is declared as the partner’s personal income tax
returns, therefore there are no corporate income taxes.
 PARTNERSHIP
DISADVANTAGES
Unlimited Liability- Partners are jointly responsible for all the
obligations of the business.
Disagreements among partners- Partners must formulate decisions
collectively therefore disputes or conflicts may occur which may
ultimately direct disbanding the partnership.
Distribution of profits - There is no standard set for division of profits
which can cause conflicts.
Complexity in termination - It is not easy to quit in a partnership once
you become committed to it.
 CORPORATION
A corporation is a legal entity doing business owned by
multiple shareholders and is overseen by a board of directors
elected by the shareholders. It is separated in terms of
personality from its owners and can borrow money, enter into
contracts, pay taxes and be sued. No shareholder of a
corporation is personally liable for the debts, obligations or
acts of the corporation. The shareholders gain from the profit
through dividend or appreciation of the stocks but are not
responsible for the company’s debts. A corporation is
identified by the terms "Limited, "Ltd., Incorporated", "Inc.",
"Corporation", or "Corp.
 CORPORATION
ADVANTAGES
Ability to put up money for investment - It can increase extra funds
through the trade of stock.

No difficulty of ownership change- Shareholders can simply reassign

the ownership by selling their stock.

Limited liability- Individual owner liability is only up to the worth of

stock held in the corporation.

Continuous life- Since the corporation is a separate entity from its

owners death of one or more of them does not terminate the corporation.
 CORPORATION
ADVANTAGES
No difficulty in attracting proficient employees- Through
offering benefits like stock options, a corporation can easily
magnetize skilled employees.

Ownership separate from management- Stockholders/owners

who contribute money to the corporation do not get involved
themselves in the administration of the company.
 CORPORATION
DISADVANTAGES
High initial costs- It is controlled by added regulations and
more strictly checked by governmental bureaus which make it
costly to incorporate than other forms of the organizations.

Double taxation- Profit of the business is taxed by the

corporate tax rate. Dividends paid to shareholders are not
deductible from corporate income, so this part of income is
taxed two times as the shareholders who must affirm dividends
as their personal income and pay also personal income taxes.
 CORPORATION
DISADVANTAGES
So much paperwork- During the process of creating a
corporation, there are numerous detailed documents that are
needed for submission including financial records and minutes
of meetings.

Size-A large corporation may become inflexible to result to red

tape which may affect profitability.
 CORPORATION
DISADVANTAGES
Difficulty in termination-It is hard to end a corporation as
soon as it has stared because it is registered for 50 years and
renewable.

Probable conflict of stockholders with board of directors-An

elected board of directors may at times disagree with
management operations which could create clash.
 TYPES OF CORPORATION
1. Business Corporation- It is a corporation created to do
commercial activity for a profit. It is also known as a
"for-profit" corporation.

2. Close Corporation-It is any corporation with stock freely

traded and owned by only some shareholders who usually
belong to the same family.
 TYPES OF CORPORATION
3. Controlled Corporation It is a corporation in which the
majority of stock is owned by a single individual or firm.

4. Cooperative Corporation It is a corporation chiefly structured

to provide services and profits to its members rather than for a
corporate profit. The most familiar type is one created to buy
real property like an apartment building, so that its
shareholders may rent the apartments.
 TYPES OF CORPORATION
5. Controlled Corporation It is a corporation in which the
majority of stock is owned by a single individual or firm.

6. Non-Profit Corporation - It is a corporation planned for some

intention besides producing a profit which is normally given
special tax treatment.
 TYPES OF CORPORATION
7. Professional Corporation - It is a corporation that gives
services that requires a professional license like architects,
accountants, lawyers, physicians, veterinarians, etc.

8. Public Corporation - It is a corporation whose shares are sold

to and among the general public. These are typically
government-owned and controlled corporations (GOCCs) that
hold activities tor the benefit of the general public, while
remaining financially autonomous.
 TYPES OF CORPORATION
9. S Corporation- It is a corporation with income that is taxed
through its shareholders rather than the corporation itself.
Only corporations with a limited number of shareholders can
elect S-corporation tax status under the Internal Revenue
Code.
 COOPERATIVES
• A cooperative is an autonomous association of persons,
organized and controlled by its members, who voluntarily
pool resources to provide themselves and their patrons with
goods, services, or other benefits. A cooperative business
formation provide:
• 1. Democratic control based on one member one vote
• 2.Open and voluntary membership
• 3. Patronage dividends
 COOPERATIVE
ADVANTAGES
Economical to form - It is usually inexpensive to register a
cooperative.

Active members- All members and shareholders must be

actively participating in the cooperative.

Equal voting right- Shareholders have an identical vote at

general meetings despite of their shareholding or contribution
in the cooperative.
 COORPERATIVE
ADVANTAGES
Members can be below 18- Members, other than directors, can be under
18, however these members cannot stand for office and do not have
voting right.

No accountability on debts by members-Shareholders, directors,

managers and employees have no liability for debts of the cooperative
except if those debts are caused recklessly, negligently or fraudulently.

Controlled by members - A cooperative is owned and controlled by its

members rather than its investors.
 COORPERATIVE
DISADVANTAGES
Only service provision – As cooperatives are created to offer a
service to their members rather than a profit, it may be hard to draw
prospective members/ shareholders whose main intention is a
financial return.

Minimum membership – There must be at least five members.

Limited distribution of surplus- There is typically a restricted

distribution or at times prohibition of surplus (profits) distribution to
members/shareholders of cooperatives.
 COORPERATIVE
DISADVANTAGES
One vote per member- Even if some shareholders may have a
larger participation investment than others; they will still get
only one vote.

Involvement is required-Active and direct participation of

members/shareholders in the cooperative.

Continues education- It is a requirement to have continuous

cooperative education programs for all members.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

1. It is the simplest and the most common way to set up the

business.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

2. Shareholders can simply reassign the ownership by selling

their stock.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

3. It is usually inexpensive to register this organization.

 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

4. It is owned and controlled by its members, rather than its

investors.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

5. It is hard to end this organization as soon as it has started,

because it is registered for 50 years and renewable.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

6. All members and shareholders must be actively particiapatin

in the organization.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

7. The owner is making all the decisions and controlling the

whole operations.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

8. Shareholders have an identical vote for at general meetings

despite of their shareholding or contribution in the
organization.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

9. Death of one or more owners does not terminate the

company.
 IDENTIFICATION
Direction: Identify the following statements. Write S if the statement is Sole Proprietorship,
Partnership, Corporation or Cooperative.

10. The income declared by the owner is his own personal

income tax return.