Forms of

Business Organizations
Forms of Business Organizations

• Sole Proprietorship
• Partnership
• Corporation
Sole Proprietorship
• Business that is owned and managed by one person
• Type of business that a starting entrepreneur has
• Owner of this type of business is called owner or
proprietor
• E.g., sari-sari store, bakery, salon, carenderia
Advantages (Sole Proprietorship)
• Easy to set up and has no complex legal process
• Requires a small amount of capital only
• Easy to manage and control
• Owner gets all profit of the business

Note: For the creditor, the unlimited liability of the

owner is an advantage.
Disadvantages (Sole Proprietorship)
• Limited source of capital
• Owner may not be able to handle more complex business
operations if he is alone in managing the business
• In case of poor business performance, the owner will solely
absorb losses
• Easy dissolution
• For the owner, the unlimited liability may be a disadvantage
Partnership
• Business formed by two or more individuals who are
willing to contribute:
• Money
• Property
• Talent
into a common fund with the agreement of dividing
profits among themselves
• Owners are called partners
Advantages (Partnership)
• More capitalization compared to sole proprietorship
• More pooling of skills and expertise
• Although with bigger sources of capital compared to
sole proprietorship, partnership is still easier to form
than a corporation
Disadvantages (Partnership)
• Disagreement among partners may cause delay in
decision-making
• Taxable at 30%
• Easy dissolution through withdrawal, insolvency or
death of a partner
• Profit is not owned by one person alone
• Unlimited liability of partners
Corporation
• 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 (Corporation Code of the Philippines)
• Corporation is separate and distinct from its persons
• It has rights, and duties, and responsibilities as a
juridical person
• Investors of this type of business are called
shareholders
Advantages (Corporation)
• Huge source of capital
• Increased capacity to handle more complex and wider
operations
• Capacity to hire expert people to manage the company
• Indefinite life. Corporations can operate for 50 years
renewable for another 50 years.

Note: For the investor, having no unlimited liability is an

advantage.
Disadvantages (Corporation)
• More legal and tax requirements
• More complex operations
• Higher risk for fraud due to personal motives of Board
of Directors (BOD)

Note: For the creditor, investors which have no

unlimited liability is a disadvantage.