LEGAL FORMS &

CHARACTERISTICS OF
BUSINESS ORGANIZATION

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A. LEGAL FORMS OF BUSINESS
ORGANIZATIONS
 Sole Proprietorship
 Is a one-person business that is perhaps the
easiest and simplest business enterprise to
organize in the Philippines. Legally, a sole
proprietorship is inseparable from its owner as
one and the same.

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 SOLE PROPRIETORSHIP
ADVANTAGES
Relatively low start-up costs
Greatest freedom from
government regulation
Owner is in direct control of
Decision making in the
enterprise
Minimal working
Capital requierd
Tax advantagaes to owner
All profits go to the owner
DISADVANTAGAES
Unlimited liability
Lack of continuity in business
organiztation in the absence
owner
Highest mortality rate among
the various forms of busines
organization
Difficulty in raising capital
Relative difficulty to compete
with bigger business
All losses borne by the owner
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PARTNERSHIP

 A partnership is simply a business owned by two or more

people work haven’t filed papers to become a corporation.
No paperwork needs to be filed to consummate partnership
– the arrangement begins as soon as one starts a business
with another person.

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Limited Partnerships

 are costly and complicated to set ip and

run, and are not recommended for the
average small business owner. One person
usually creates limited partnership – the
general partner, and solicit investments
from other – the limited partners.

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General Partner

 In the absence of a formal agreement, acts as the

general manager of the business and controls the
limited partnership’s day-to-day operations.
Limited Partners

 have minimal control over daily business

decisions or operations and, in return, are
not personally liable for business debts or
claims.

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General Partnership

 are those wherein all partners contribute

resources to the business and are usually
jointly and solidarily liable for the
obligations of the business enterprise.

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 PARTNERSHIP
ADVANTAGES
Ease of formation compared to
coporations
Relatively low start-up costs
Additional sources of investment
capital
Possible tax advantages
Limited regulation
Broader managment base
Usually better managed than sole
proprietorship
DISADVANTAGES
Unlimited liability
Lack of continuity in case a partner
withdraws or dies
Dividend authority among partners
Difficulty raising additional capital due
to needed consent of all partners
Hard-to-find suitable partners
Possible developmet of conflict
between partners
Action of one partner is understood to
be the action all partners 9
Corporations

 A corporation, unlike a sole proprietorship

and partnership, acquires a juridical
personality upon formal registration and
recognition with SEC. This means that a
corporation is treated as a person, separate
and distinct from its owner. Owners are
generally called incorporation and
stockholders.

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 CORPORATION
ADVANTAGES
Limited liability
Specialized management due to the
presence of corpoate officers
Ownership is transferable due to shares of Corporate charter restictios
stock
Continuous existence of the business
even after withdrawal or death of an
owner
Separate legal entity from the owners
Possible tax advantages and other
incentives (e.g. Economic zones)
Easier to raise capital
DISADVANTAGES
Closely regulated and monitored by the
Securities and exchange commission
Most expensive form of business
organization to organize
Extensive record keeping neccessary
Double taxation of dividends
(corporation and stockholders)
Possible development of conflict between
shareholders and executives
Limited range of business, dependent 11
on
Corporate Charter
Cooperative

 Some people dream of forming a business

organization that advocates equality of
rights and privilege among all owners. This
entity, according to them, should be owned
and operated democratically its by
members. These grassroots business
organizers often refer to their business as a
“group,” “collective” or “co-op”; thus the
term cooperative 12
 COOPERATIVE
ADVANTAGES DISADVANTAGES
Owned and controlled by members Possible development of conflict
between members
Democratic control Numerous members tend to diminish
(i.e., one member, one vote) one’s share in total dividends

Limited liatbility Longer decision making process than

coporations due to more votes to count

Profit distribution (surplus earning) to Requires member to participate for

members in the form of dividends success

Dividends are in proportion to a Extensive record keeping neccessary

member’s use of cooperative services

Highly encourged by government due to Less incentives for members to invest

the benefits received by a greater number additional capital
of people 13
 CHARACTERISTICS OF BUSINESS
ORGANIZATIONS
Type of Business Number of people Main Variety Business
organization required to be Government that may be
registered Agency Involved Engaged In
Sole preprietorship One DTI Broad, any legal
business
Partnerships More the one SEC Broad, any legal
business as long as
partners allow
Corporation At least 5 SEC Limited wto what
Articles of
ncorporation states

Cooperative At least 5 CDA Primary limited to

what Articles of
Incorporation state.
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 DISTINCT CHARACTERISTICS OF
BUSINESS ORGANIZTIONS
T Control of Distinction of Profit and Lifespan of Implicati-ons
Y Ownership the business owners’ and loss (P/L) the busines or Remarks
P Business’ distribution
E Assets
S Easiest to
O organize:
L Broad
E business
transaction;
P Most
R One Full control No distinction All profits Busines numerous;
O Person of the owner Losses goes ‘dies with Smallest size;
P to the the owner or high mortality
R owners if not rate;
I renewed Tendency for
E unprofessional
T management
O
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R
 DISTINCT CHARACTERISTICS OF
BUSINESS ORGANIZTIONS
T Control of Distinction Profit and Lifespan of Implicati-ons
Y Ownership the business of owners’ loss (P/L) the busines or Remarks
P and distributio
E Business’ n
Assets
P Relatively easy
A to organize;
R Profit and Business Generates more
T loss dependent investment
N Two or Limited No distribution on the (cash, property,
E more control of distinction is willingness etc.)
R person partners dependent and/or life of Easily
S on the the partners dissolved;
H formal Usually better
I agreement management
P in Article of than sole
S Partnership proprietorship
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 DISTINCT CHARACTERISTICS OF
BUSINESS ORGANIZATIONS
T Distinction Profit and Lifespan of Implicati-ons
Y Ownership Control of of owners’ loss (P/L) the busines or Remarks
P the business and distribution
E Business’
Assets
Harder to
C Generally. Profits 50 years by organize;
O Assets of distributed in law subject Requiers leagal
R Atleast five Control and the proportion to to renewal; procedure;
P incoporators; Voting corporation ownership of Tends to have
O power is separate shares of Ownership biggest
R dependent and distinct stock, subject is investments;
A Indefinite on shares of from those to several transferable Relatively
T number of stock of the consideration via trading more stable;
I owners or owners of share of Limited profit
O stock - holders stocks sharing;
N Easiest to
S Management - Chapter 6 generate more
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investments;
Professional
 DISTINCT CHARACTERISTICS OF
BUSINESS ORGANIZATIONS
T Distinction Profit and Lifespan Implicati-ons or
Y Ownership Control of of owners’ loss (P/L) of the Remarks
P the business and distribution busines
E Business’
Assets
C Easier to
O Generally. Dividends are 50 years by organize than
O Assets of given law subject corporation;
P Atleast fifteen; Democratic the dependent on to renewal; Greater benefits
E control; cooperative various to member-
R Indefinite One is separate consideration Life is owners but
A number of member one and distinct (e.g. Usage of disticnt and limited profit
T memnbers vote policy from those share capital) separate sharing;
I of the from Easily grows in
V owners members assets and
E membership;
S Trends towards
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professional
management