Chapter 2

Forms of Business Organizations and

Capitalization
Forms of Business Organizations
Existing under the Philippines Law

1. Single or Sole proprietorship
2. Partnership
3. Cooperative
4. Corporation
Forms of Business Organizations
1. Single or Sole proprietorship
Has simple features as business compared to
partnership and a corporation with financial
structure
It requires small organizational expenses and no
formal requirement for publicity
Because of its small capitalization it is involved in a
minimum legal restrictions

Forms of Business Organizations
1. Single or Sole proprietorship
The business of its small capitalization of the
proprietor or the owner and is thus; an individual
accountability
Whatever gain the business may have is also the gain
of the owner
The business can be terminated anytime
Government control is very minimal

Forms of Business Organizations
1. Single or Sole proprietorship
It is the form of business that is highly
individualized and personalized.
The investor has unlimited liability

Forms of Business Organizations
2. The Partnership
Business form whereby 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
May or may not have substantial capitalization
It has a limited term of existence as may be
stipulated in the articles of partnership because it is
contractual in nature
Forms of Business Organizations
Classification of Partnership
As to objects
As to liability
As to term of Existence

Forms of Business Organizations
As to Objects
Particular Partnership. It objects determinate things,
their use or fruits or a specific undertaking or the
exercise of a profession or vocation
Universal Partnership of all Properties. The partners
contribute all to the properties which actually belong
to them as a common fund, and has the intention of
dividing the same among themselves as well as all
the profits which may be acquired therewith

Forms of Business Organizations
As to Liability
Limited partnership. There is at least one general
partner and at least one limited partner not
being liable for partnership debts except to the
extent of his contribution to the partnership
General Partnership. All the partners are general
partners who are all liable for partnership debts

Forms of Business Organizations
As to Term of Existence
Partnership at Will. Existence or life depends upon the will of the
partners. It could be terminated anytime at will by the partners.
Withdrawal or the will to terminate by only one partner will do
Partnership with fixed terms. The partnerships life is stipulated in an
exact numbers of years and is stated and shown in the Articles of
Partnership. The partners may decide to renew by means of another
contract among them
Specific undertaking. The partnership is established by two or more
persons or companies a specific venture either for profit or not
without any actual designation as partnership or corporation. Upon
the completion of the specific venture, the partnership will cease to
exist. Ex. Joint venture

Forms of Business Organizations
Kinds of Partners
A General Partner. Member of either general or limited
partnership. He is liable to third person with his separate property
or properties for his pro-rata share of the partnership obligations
after the partnerships assets are all exhausted
A Limited Partner. Member of limited partnership who is not liable
to third persons with his separate property or properties for the
partnerships obligations upon the exhaustion of the assets of the
partnership
A Capitalist. Could be either general or limited partner who
contributes money or property to the common funds of the
partnership


Forms of Business Organizations
Kinds of Partners
An Industrial Partner. General partner in either a limited or general
partnership who contributes hi industry or services to the common
funds of partnership
A Managing partner. General partner in either a limited or general
partnership who manages or administers the partnership or the
properties either due to a stipulated agreement or pursuant to existing
laws
A Winding Up Partner. Is the entrusted with the winding up of the affairs
or business upon the dissolution of the partnership.
Secret partners. The members of the partnership who are not known to
the public as such.


Forms of Business Organizations
Limited Existence of partnership
A partnership can be dissolved under any of the following
conditions:
A Partner withdraws from the partnership
A partner becomes bankrupt
A partner becomes incapacitated
A partner dies
A partner retires from the activities of the business
A new partner is admitted; in which case a new association
must be formed


Forms of Business Organizations
Partnership Taxation
Now, Partnerships that are organized by an individuals
not in the exercise of their profession, referred to as
non professional partnerships are subject to taxation
similar to what is imposed to corporation which is
35% of its net income.
Partnership organized by individual with the purpose
of exercising their profession are not subject to tax


Forms of Business Organizations
Cooperative
The word cooperative comes from the French word
cooperari with two parts as co and oparari. The
word co means with, while operari is to work.
When coined together the word signifies working
together.
Its social concept is the process of working for the
achievement and enjoyment of the best in life


Forms of Business Organizations
Cooperative
A voluntary organization composed of small
producers and of consumers who voluntarily join
together to form a business enterprises which they
themselves own, control, and patronize.
It is granted powers to exercise the same rights and
privileges granted to a person, a partnership or
corporation by the existing law of the country.


Forms of Business Organizations
Cooperative
Operates as business for service.
A cooperative is a service oriented form of business
enterprise.
It is simply speaking, bayanihan
The use of the word cooperative is only for duly
registered cooperatives pursuant to the provisions of
Presidential Decree No. 175 and it is equivalent to
vernacular


Forms of Business Organizations
3. Cooperation
An artificial being created by operation of law,
having the right of succession and the power,
attributes and properties expressly authorized
by law or incidents to its existence
The organization of corporation has more
advantageous features than a single
proprietorship and partnership.


Forms of Business Organizations
3. Cooperation
With many investors/owners, it has a broader base for investment, risk
responsibilities and talent than the other form of business
Because it is an artificial being, the law gives rights, powers, and liabilities similar
to a natural person
Unlike a business partnership it cannot rise by voluntary agreement of the
partners
Created by the Operation of Law which means the corporation came into being
by authority of state
Right of succession allows the continuance of a corporation regardless of the
death, insolvency, incapacity, of any of its directors, officers, or employees, and
regardless of any stockholders intention of transferring hi shares from one
person to another


Forms of Business Organizations
3. Cooperation
A corporation is vested with the right to continue up to
the period of time stated in the articles of incorporation
Powers, attributes, and properties expressly authored by
law refer to the powers that are expressed or implied in
the charter or Acts of Incorporation
Expressed powers are those stated specifically in the
articles of incorporation
Implied Powers are those powers necessary to carry out
the expressed powers


Forms of Business Organizations
3. Corporate Composition
Non-stock corporation. The corporators are called members composing
the corporation; the incorporators are called members but are the
members stated in the articles of incorporation as the original members
forming and composing the non-stock corporation. They are the
signatories to the articles of incorporation filed with the Securities and
Exchange Commission
There are no stockholders but rather members who are the corporators
The original members mentioned in the articles of incorporation which
should not be less than 5 but no more than 15.
Since there are no shares of stock, the individual memebers can
contribute any amount they wish to capital of the corporation



Forms of Business Organizations
3. Corporate Composition
Stock corporation. Composed of corporators who are the
stockholders and include incorporators.
The incorporators are the stockholders stated in the articles as the
stockholders forming and composing the corporation and the
signatories to the articles of incorporation filed in SEC
The incorporators should not less than 5 but not more than 10
members, each member that should be subscriber to atleast one
share.
The stockholders or shareholders are the owners of the total
shares of stocks in corporation referred to as the capital stock.


Forms of Business Organizations
3. Corporate Composition
The capital stock of stock corporation may
consist of both common and preferred stocks or
only one kind of stock issued .
The corporate entity is known as a common
stock corporation


Forms of Business Organizations
Capital Stocks
Share of stock- the smallest unit of ownership in a corporation
Capital stocks- the aggregate shares of ownership
Stock certificate- the evidence of the ownership in a corporation
Authorized capital stock- the maximum number of shares a
corporation may sell or issue according to its charter
Issued stocks- those shares of stock that have been sold to the
stockholders including those reacquired by the corporation for
some reason and these are being held by the treasurer


Forms of Business Organizations
Capital Stocks
Outstanding stock- refer to the shares actually bought by the
stockholders whether they are full or partially paid
Unissued stocks- those that are with the corporation and were not
yet subscribed or sold
Treasury stocks- those stocks already issued but were acquired by
the corporation by buying them back or were receive as donation
Watered stocks- refers to the shares of stocks issued and fully paid
for with the amount agreed and concurred by the directors of a
corporation for an amount less than its par value


Forms of Business Organizations
Capital Stocks
Redeemable shares- are the shares also known as callable
shares which are usually preferred stock. They are issued subject
to redemption at the option of either parties to the stocks, either
the corporation or stockholders or both, at a definite price above
the amount originally paid by the stockholders
Founder shares- the stocks given to the founders or promoters of
corporation as repayment for money spent or services rendered in
the promotion of the enterprise. The holder of the share is
privileged to vote or be voted for in the election of a director.
Generally, founders shares are among the common stocks



Forms of Business Organizations
Classes and Features of Capital Stocks
Common stock. This is the stock that is the basic issue and
known as the residual equity.
It means that all creditors and preferred stockholders
claims to the companys assets rank ahead of the common
stockholders claims in case of liquidation and payment of
dividends
Common stock may either be par-value stock or no-par-
value common stock
No-par-value common stock does not have a face value on the
stock certificate



Forms of Business Organizations
Classes and Features of Capital Stocks
Preferred stock. This share of stock has preferential
claims to dividends and corporate assets over the
common stockholders in the event of liquidation.
This means that the corporation pays dividends first
to preferred stockholders before it pays the
common stocks




Forms of Business Organizations
Types of preferred stock
Cumulative preferred stock. The type of stock that
is entitled to a dividend in those years that dividend
were declared preferred stockholders were not yet
paid.
The accumulated dividends are first paid to
preferred stockholders before any dividends are
paid to common stockholders




Forms of Business Organizations
Types of preferred stock
Participating preferred stock. Entitled to share in
the profit of the corporation beyond a minimum
fixed dividend rate. The non-participating stock is
no longer entitled beyond the minimum fixed
dividends rate




Forms of Business Organizations
Class A and Class B shares of stocks

A corporation may issue two classes of common shares
to allow foreigners to subscribe.
Class A shares are the common stocks which may be
owned by Filipino citizens only
Class B share are common stocks which may be
owned by, transferred to, or subscribed for by Filipinos
or any person or entity of any nationality or citizenship




Forms of Business Organizations
Books and Records of Corporations
Every corporate entity is required to keep books at
its principal office which must be carefully
preserved. They are the following:
Book for all the record of all business transactions
Minutes of the meeting of all stockholders or members of
the board of directors or trustees
Stocks and transfer books
Arbitrary records and supplementary books




Forms of Business Organizations
Vital Dividend dates
Date of declaration. The board of directors either in regular
or special meeting, takes action in the form that dividends
should be paid
Date of record. The established date by the board of
directors for determining the stockholders who are entitled
to participate in the payment of dividends. It also includes:
The pre-emptive rights issued and declared
The vote at a stockholders meeting announced
Date of Payment. This is the date when the dividends are
actually ready for payment to the rightful stockholders




Forms of Business Organizations
The Ex-Dividends and Cum-Dividends
Cum-dividends. Any investor who buys the stock on
or before the record date. Meaning with the
dividends
Ex-dividend. When bought after the record date it
was acquired. Meaning without the dividend




Forms of Business Organizations
Classes of dividends
Cash dividend. The kind of dividend is payable by cash
Stock dividend. This dividend is payable by stock issued
by the corporation instead of cash or money
Property dividend. These dividends are distributed to
the stockholders in the form of non-cash assets of the
declaring corporation. May be in the form of bonds and
properties, such as trust and warehouse receipts or
shares of stocks of subsidiary corporation





Forms of Business Organizations
Classes of dividends
Scrip dividend. This form of dividend is issued in the form of
formal writing entitling the stockholder payment of money
at some future time in as much as the corporation at the
time of declaring the dividends does not have profit yet in
the form of cash
Liquidating dividend. A dividend distributed in the form of
assets of the corporation to its stockholders upon dissolution
or discontinuance of the business of the corporation. This
type is given when the corporation is really winding up its
business or recapitalizing or narrowing its activities that is a
part of complete liquidating dividend may be deemed
proper to declare





Forms of Business Organizations
Manners of Subscription
Subscription is a contract for the acquisition of
unissued stock in an existing corporation still to be
formed. However, to the parties concerned, it is a
purchased of stock or some other form of contract





Forms of Business Organizations
Different Manners of Subscription
Pre-incorporation. The subscription is agreed upon before the
incorporation of the proposed corporate entity
Post-incorporation. The subscription is entered into after the
incorporation or formation of the corporate entity
Absolute subscription. The subscription is made not subject to any
condition or happening of any unknown events
Conditional subscription. This manner of subscribing depends on
the occurrence of uncertain events or contingencies for its
fulfillment.
Under special term subscription. The corporation is to do a certain
thing or things but not as condition to the accrual of liability of
subscriber or the acquisition of rights of a stockholder






Forms of Business Organizations
Corporate Board and Membership
Corporate board. The incorporators or the elected
members that the charter allows to promulgate
major policies to be undertaken by the corporation
Board of directors in a profit oriented corporation
Board of Trustees in most private educational institutions
Board of regents in government educational institutions
Monetary board. The policy making body of the Banko
Sentral






Forms of Business Organizations
Stock corporation
Membership in the board is a minimum of 5 but
not more than 11

Non- Stock corporation
Minimum membership is not less than 5 but
should no more than 15 members as the
maximum