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Our Lady of Fatima University

LESSON 4:
FORMS OF BUSINESS
ORGANIZATION
Learning Outcomes:

Differentiate the forms of business


organization according to
ownership.
Enumerate the advantages of each
form of business organization.
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C4

Forms of Business Entities


Sole Partnership Corporation
Proprietorship
Sole proprietorship
• Simplest form of business organization, owned by
one person known as the proprietor or
entrepreneur.
• Decision can easily be made in as much as they are
made by the owner himself, and do not require any
consent from other persons, and profits from
operations are not shared with anybody but belong
only to the owner.
• Operation is not complicated because this type of
organization is generally for small scale businesses.
• Limited with the ability to raise capital.

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Partnership
• Governed by the provisions of the Civil Code,
articles 1767 to 1867.
• Defined as and association of two or more persons
who bind themselves to contribute money,
property, or industry to a common fund with the
intention of dividing the profits among themselves.
• Easily dissolve by mere disagreement among the
partners, or in case like, withdrawal of a partners,
retirement, or death of any partners.
• Grounded on common trust, and confidence, thus
if the original relationships of the partner is
changed, the partnership is dissolved.

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Corporation
• The corporation is an entity held by five or more
individuals whose ownership is evidenced by shares of
stocks.
• Enjoys the benefit of accumulating big amount of
capital contributed by millions of owners called
stockholders.
• Difficult to organize as compared with the other with the
other two types of organizations.
• Corporations require compliance with different
government requirements such as registration to the
Securities and Exchange Commission, National Internal
Revenue, and oftentimes to the Bangko Sentral ng
Pilipinas.

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“ Section 2 of the Corporation
Code defines corporation as an
artificial being created by the
operation of la w having the rights
of succession and the powers,
attributes and properties expressly
authorized by law or incident to its
existence (BP no. 68, section 2)”
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Advantages and
Disadvantages of each form
of business Organization

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Sole proprietorship
Advantages Disadvantages
• Easiest to start and set up; only • Unlimited liability
minimal requirement set by the
government.
• Only one (owner) decides for • Limited Capital or Source of
business. Capital
• All profits are for the owner. • Loss are solely shouldered by the
owner
• The business is not taxed. • Limited life
• Easy to dissolved

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Partnership
Advantages Disadvantages
• Easy to form; mere agreement • Unlimited liability
unless stipulated can organize and
form one partnership
• Combined resources of partners ( • All partners may be held liable for
capital, skill, and industry) the action of one partner ( Agent of
partnership)
• Lesser government requirement • Restricted transfer of ownership.
and supervision Requires the consent of all partners
before transfer of interest be
enforceable.
• Tax – exempt as corporation if • Limited Life
commercial corporation.

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Corporation
Advantages Disadvantages
• Limited liability – Shareholders are • Most costly and difficult to
not legally liable for the corporate organize (higher cost of
unpaid outside and within incorporation)
liabilities.
• Ease of transfer of interest in case of • More Government requirement and
incapacity of one shareholder. regulations of supervision to
follow.
• Power of succession – unlike the • Taxed at flat 30%
other types of business
organization, corporation can still
exist and continue in spite of
incapacity of one shareholder.
• Greater source of resources
• Unlimited Life – may renew its life
every 50 years.
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Activity
assessment
Activity 4.1: Classify each item as to ownership

a. Sole Proprietorship b. Partnership c. Corporation


1. An artificial being C
2. Simple and easy to organize A
3. Unlimited liability A
4. Enjoys the profit alone A
5. Life span is limited to 50 years subject for renewal of incorporation C
6. Composed of two or more individuals. B
7. Owners are called members. B
8. May contribute money, property, or industry. b
9. Owners may understood and disagreed with each other can cause the
dissolution of the business. B
10. Has the right of succession. C
11. A business owned by its stockholders. C
12. The owners are personally liable for any losses incurred by the business. A
13. The personal liability of the investor is limited only to its investment. C
14. Owned by two or more investors. B
15. Owned by only one person. A
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Types of
Business
according to
activities
Lesson 5
Service Business
• To earn Revenue, this business renders services to
clients in exchange for a fee. The primary means it
offers its client is intangible one – “service”.

Type Activity Structure Examples


Services Selling People’s Hiring Skilled and Software
Time selling their time Development,
Accounting,
Barber Shop,
Travel Agency

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Merchandising Business
• This business engages in “Buying” and “Selling” of
goods. This type of business buys goods and sells it
at its present condition not subject to any
conversion. The primary means it offers its client is
tangible one – “Product”

Type Activity Structure Examples


Trader Buying and Buying a range of raw Wholesaler,
Selling materials and Retailer
Product manufactured goods
and consolidating them,
making them available
for sale in locations near
to their customers or
online for delivery.
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Manufacturing Business
• This business type converts raw materials into
finished goods before be offered to certain
customers. This type of business activities incurred
certain cost of primary (cost of materials and labor)
and conversion cost (cost of labor and factory
overhead). The primary means it offers its client is
tangible one – “Product”

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Manufacturing Business
Type Activity Structure Examples
Manufacture Designing Taking raw Vehicle assembly,
Products, materials and Construction,
aggregating using equipment Engineering,
components and and staff to Electricity, Food
assembling convert them into and drink,
finished products finished goods Chemicals, media,
Pharmaceuticals,
Water

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Definition of terms:
• Merchandise Inventory – are goods held for sale by
a merchandising business.
• Revenue – or sometimes called “Income” is the flow
of resources towards the business for the
performance of services.
• Raw materials – are converted into finished
products in a manufacturing business.
• Finished Products – are the products sold by a
manufacturing concern.

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Activity
assessment
Activity 5.1: Classify each item as to the activities done in a business organization

a. Service business b. Merchandising c. Manufacturing d. a and b


1. Converts raw materials into a new product C
2. Buy and sell
3. Trading business
4. San Miguel Corporation
5. Mang Nando’s Fihball stall
6. SPA and Beauty Salon
7. Jollibee Food Corporation
8. Cooperative
9. Aling Nina’s Karenderia
10.SM Hypermarket
11.Mercury Drugs
12.Shoe Factory in Marikina
13.Sajor and Sajor Law Office
14.Joey and Sons Ltd
15.Vulcanizing Shop

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