TYPES

OF BUSINESS ORGANIZATIONS

I. Different vehicles for doing business:

A. 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. Corporations formed or organized may be stock or non-stock corporations.
Corporations which have 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 are stock corporations. All other corporations are non-stock corporations. (Sections
2 and 3 of the Corporation Code) Corporations are generally under the supervision of the
Securities and Exchange Commission.

B. Sole Proprietorship: Sole proprietorships are less saddled with the many requirements and
regulations which corporations are often subjected to by the law. The owner is in command of
his whole business and the stands to lose as much as he puts in and even more to the extent of
all his personal holdings. Consequently, sole proprietorships work well for carrying on simple
or small business endeavors, and do not function well in cases of large enterprises which
require huge capital investments and specialized management skills. Business names of sole
proprietorships are registered through the Department of Trade and Industry.

C. Partnership: By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves. Two or more persons may also form a partnership for the exercise of a profession
(Article 1767 of the Civil Code). Registered partnerships are under the supervision of the
Securities and Exchange Commission.

D. Business Trusts: A deed of trust which is easier and less expensive to constitute for its is not
bound by any legal requirements. It does not have a separate juridical personality and is mainly
governed by contractual doctrines and the common law principles on trust. Trust relationship is
centered upon properties, and which places naked title in the trustor, and beneficial title in the
beneficiary

E. Joint Ventures: It is a form of partnership and should thus be governed by the law of
partnerships, which includes the features of separate juridical personality, mutual agency
among the co-ventures, and unlimited liability.

F. Cooperatives: A duly registered association of persons, with a common bond of interest, who
have voluntarily joined together to achieve lawful common social or economic end, making
equitable contributions to the capital required and accepting a fair share of the risks and
benefits of the undertaking in accordance with universally accepted cooperative principles. A
cooperative, like an ordinary corporation, has a juridical personality separate and distinct from
its members, and has limited liability feature. Registered cooperatives are under the
supervision of the Cooperative Development Authority.

II. Corporation

A. Advantages:
1. Strong legal personality: Separate personality from its stockholders.
2. Limited liability to investors: Liability of stockholder is limited to the extent of their investment
in the corporation.
3. Free transferability of units of investment
4. Centralized management

1
 5. Advantages over unregistered associations: (a) Perpetual succession; (b) capacity to take and
grant property, and contractual obligations; (c) can sue and be sued; (d)capacity to receive and
enjoy common grants of privileges and immunities; stockholders generally have no personal
liability beyond the value of their shares.

B. Disadvantages:
1. Complicated and costly formation and maintenance
2. Lack of personal element
3. Abuse of corporate management
4. Limited liability hits innocent victims
5. Double taxation: Profits of the corporation which are already subjected to corporate income tax
when declared and distributed as dividends to stockholders are again subjected to further
income tax.

III. Sole proprietorship

A. Advantages
1. Easier to establish
2. Less capital and cost
3. Subject to less requirements and regulations
4. Owner is in command of the business and stands to reap the profits of the business

B. Disadvantages
1. Owner takes on all the risk, liability and losses of the business
2. Creditors can run after the personal assets of the owner

IV. Partnership

A. Advantages
1. Synergy. There is clear potential for the enhancement of value resulting from two or more
individuals combining strengths.
2. Partnerships are relatively easy to form, however, considerable thought should be put into
developing a partnership agreement at the point of formation.
3. Partnerships may be subject to fewer regulations than corporations.
4. There is stronger potential of access to greater amounts of capital.

B. Disadvantages
1. Unlimited liability. General partners are individually responsible for the obligations of the
business, creating personal risk.
2. Limited life. A partnership may end upon the withdrawal or death of a partner.
3. There is a real possibility of disputes or conflicts between partners which could lead to
dissolving the partnership. This scenario enforces the need of a partnership agreement.


Reference materials:
Philippine Corporate Law by Cesar Villanueva
http://www.studyfinance.com/lessons/busorg/
BIR website