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Classifying Businesses

Module 02 - Classifying businesses 1


Classifying businesses according
to size (Magna Carta for Small Enterprises)
Size Capital/Assets(P) Manpower
Micro I less than P10,000 family
Micro II P10,000 - P99,999 1 - 10
Micro III P100,000 - P500,000 11 - 20
Small P500,001- P5 million 21 - 99
Medium > P5 M to P20 M 100 - 199
Large > P20 M 200 and above

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Classifying businesses
according to form of ownership
 Sole proprietorship
 Partnership
 Corporation
 Cooperative

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Single proprietorship
Owned by a single person
who solely benefits from
the profits...

... or suffers the losses

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Partnership
Agreement of two (2)
or more persons who
bind themselves to
contribute money,
property or industry
to a common fund...

... with the intention of


dividing profits among
themselves
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Corporation
 Artificial being created
by operation of law
 Has the right of
succession and the
powers, attributes and
properties expressly
authorized by law of
incident to its existence.

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Characteristics of a corporation
 It is a legal personality distinct from the
incorporators and shareholders
 Ownership is held by various natural or
juridical persons through the purchase of
shares of capital stock
 Stockholders elect directors who formulate
general plans and policies and appoint the
officers

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Characteristics of a corporation
 The principal administrative officers of a
corporation are the president, one or more
VPs, a corporate secretary, and a treasurer
 The officers are responsible for the active
management of the corporation and have
the right to engage the necessary personnel
for operations

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Cooperative

Non-profit enterprise, owned and


democratically controlled on a mutual
basis by its members who participate in
the patronage of its operation (e.g.
savings, credit)
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Sole proprietorship (advantages)
 Control of the
business
 Ease in forming,
expanding,
reorganizing, selling,
or dissolving
 Reliance on own
resources
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Sole proprietorship (advantages)
 Personal satisfaction
from being an
independent worker
 Profits are kept by
owner

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Sole proprietorship (disadvantages)
 Lack of all-around business ability
 Limited capital and credit accommodation
 Risk of financial loss is shouldered by
owner alone
 Unlimited liability
 Long and irregular working hours
 Limited output
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Partnership (advantages)
 Relatively easy to
organize compared to
corporation
 More personal talents
become available
 More capital and
better credit facilities

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Partnership (advantages)
 Each partner may have
a large personal
following which s/he
can bring to the
business
 Partners take greater
interest in the business
than do employees

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Partnership (disadvantages)
 Unlimited liability for
general partners
 Possible disagreement
among partners
 Possible problems with the
assignment of managerial
responsibilities
 Lack of stability

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Corporation (advantages)
 Generally, stockholders
are not liable for
liabilities beyond their
investment
 Greater stability of
existence and continuity
of operations

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Corporation (advantages)
 Accumulation of more
capital possible
 Easier liquidation of
investment

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Corporation (disadvantages)
 Limitations on corporate
activities
 Higher rate of taxes applied
 Required submission of
several reports
 Increased clerical work if the
number of stockholders is large
 Control may be exercised by only a
small group of stockholders
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