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FORMS OF BUSINESS

OWNERSHIP
There are three major types of business
ownership: sole proprietorship, partnership and
corperation. The minor types consist of the joint
stock company, the joint venture, and the business
trust.
SOLE
PROPRIETORSHIP
• The sole proprietorship is a type of business entity owned
and operated by a single person.
ADVANTAGES OF SOLE
PROPRIETOSHIP
• 1. EASE AND COST OF FORMATION
• Among the three ownership forms, the sole
proprietorship is the easiest and least costly to
organize. The only requisites for its legal existence
are the following:
a. the sole owner's resolve to start operating; and
b. getting the required pemits and license.
• 2. SECRECY
• The sole proprietor has the advantage of keeping his
intentions secret. As he does not have, and is not
required by law, to share information with anyone, he
can proceed with his activities in secrecy.
• 3. DISTRIBUTION AND USE OF PROFITS
• If because of his efforts, the business made some
profits, the sole proprietor is the sole beneficiary.

• 4. CONTROL OF THE BUSINESS


• The owner is also vested with the power to solely
control the business and sole authority is very
important especially under critical competitive
situations.
• 5. GOVERNMENT REGULATION
• The sole proprietorship is spared from various govenment
rules, which apply to partnerships and corporations.

• 6. TAXATION
• The net income of the sole proprietorship is treated as the
personal income of the sole owner and is taxed accordingly.
• 7. CLOSING THE BUSINESS
• Sole proprietorships can be dissolved by the
owners at will. If business conditions had
become unprofitable, the sole proprietor has
the advantage of immediate cessation of
operations.
DISADVANTAGES OF SOLE
PROPRIETORSHIP
• 1. OWNER'S LACK OF ABILITY AND EXPERIENCE
• The success of the sole proprietorship will depend largely on
the management skills of the owner.

• 2. DIFFICULTY IN ATTRACTING GOOD EMPLOYEES


• Sole proprietorships are known for surviving long periods.
The existence of a sole proprietorship is co-terminus with the
life of its owner. As a consequence, good employees tend to
get employment in a more stable enterprise, which is most
often a corporation.
• 3. DIFFICULTY IN RAISING CAPITAL
• In sole proprietorships, raising capital will depend on the
financial resources of the sole owner.

• 4. LIMITED LIFE OF THE FIRM


• The existence of the sole proprietorship depends on the
physical well-being of the owner. When he is ill, business
operations may be affected. Prolonged illness may make the
firm go bankrupt. HIs death will mean liquidation of the firm.
• 5. UNLIMITED LIABILITY OF THE PROPRIETOR
• Any liability incurred by the sole proprietorship
extends to the owner's personal assets. Unlimited
liability is the greatest disadvantage of the sole
proprietorship.
PARTNERSHIP
• A partnership is a legal association of
two or more persons as co-owners of
an unincorporated business.
ADVANTAGES OF
PARTNERSHIPS
• 1. EASE OF FORMATION
• Partnerships are easy to form. The only requirement before
the partnership commences operations is for the partners to
agree on basic aspects of the usiness like nature of the
business, location, capitalization, and so on. A written
agreement called the contract of partnership is drawn to
formalize what has been agreed upon.
• 2. POOLING OF KNOWLEDGE AND SKILLS
• The combined knowledge and skills of the partners provide
the partnership with a distinct advantage.

• 3. MORE FUNDS AVAILABLE


• The combined resources of the partners provide a bigger
source of fuds. The condition leads to a higher credit rating
for the partnerships.
• 4. ABILITY TO ATTRACT AND RETAIN EMPLOYEES
• Partnerships have the ability to overcome sole
proprietorships difficulty by offering partner status to valuable
employees. This advantage also minimizes the potential
harm that may be done by a key employee moving over to a
competitor.

• 5. TAX ADVANTAGE
• The income of the partnership is not taxed separately from
the partners' incomes. Any profits derived by the partners are
treated and taxed as their individual incomes.
DISADVANTAGES OF
PARTNERSHIPS
• 1. UNLIMITED LIABILITY
• Although one or two partners may opt to have limited
liability, the remaining partner or partners carry the
burden of unlimited liability

• 2. LIMITED LIFE
• When a partner dies or withdraws from the business,
the partnership is terminated.
• 3. POTENTIAL CONFLICT BETWEEN PARTNERS
• There are occasions when partners diasgree on certain ways
of operating the business; and there are many potential
areas for disagreement.

• 4. DIFFICULTY IN DISSOLVING THE BUSINESS


• Partnerships are not easy to dissolve. In partnership
dissolution, it may not be easy to divide whatever assets are
left for distribution to the partners
TYPES OF PARTNERSHIPS
• 1. GENERAL PARTNERSHIP
• is an association of two or more persons, each with unlimited
liability, who are actively involved in the business.

• 2. LIMITED PARTNERSHIP
• is an arrangement in which the liability of one or more
partners is limited to the amount of asstes they have
invested in the business.
CORPORATION
• A corporation is an enterprise charterd by law,
with most pf the legal rights of a person,
including the right to conduct a business, to
own and sell property, to borrow money, and
to sue or be sued.
ADVANTAGES OF
CORPORATIONS
• 1. LIMITED LIABILITY
• The liability of stockholders is limited to the amount of their
shareholdings.

• 2. EASE OF EXPANSION
• The authority granted to corporations to sell its own shares of
stockprovides a means to pool large amount of funds.
• 3. EASE OF TRANSFERRING OWNERSHIP
• If a stockholder loses interest in the corporation he partly
owns, he may disassociate himself from it by selling or
donating his shares to another person.

• 4. RELATIVELY LONG LIFE


• Corporations may be established to have lives up to 50 years
and may be extended indefinitely through renewals of
documents.
• 5. GREATER ABILITY TO HIRE SPECIALIZED
MANAGEMENT
• The expanded operations if corporations make it
possible to divide the overall job into smaller
specialized positions. With speacialized
management, the corporation is provided with the
opportunity to grow and develop more vigorously.
DISADVANTAGES OF
CORPORATION
• 1. MORE EXPENSIVE AND COMPLICATED TO
ORGANIZE
• More time and money are required to organize a corporation.
It may start operations only after receiving a certificate of
incorporation from the Securities and Exchange Commission
(SEC). The SEC will only issue the certificate if it finds that
the articles of incorporation are fully compliant with the
requirement.
• The articles of incorporation containd the ff. :
a. the name of the corporation
b. specific purpose/s
c. principal office of the corporation
d. term of existence of the corporation
e. names, nationalities, and residences of incorporators.
f. number of directors or trustees
g. names, nationalities, and residences of directors
h. amount of authorized capital stock; and
i. other matters.
• 2. DOUBLE TAXATION
• The profits derived by the stockholders are taxed
twice by the government. First when the corporation
realizes profits and second, when individual
stockholders declare the dividends they receive from
the corporation as part of their personal income.
• 3. MORE EXTENSIVE GOVERNMENT RESTRICTIONS
AND REPORTING REQUIREMENTS
• Corporations are subject to stringent government restrictions
and are required to submit various reports on a periodic
basis.

• 4. EMPLOYEES LACK PERSONAL IDENTIFICATION


WITH AND COMMITMENT TO CORPORATE GOALS
• The relationship between the corporation and employees is
too impersonal. Employees do not feel deep, attachment to
the corporatn, resulting in less commitment to his work.
COOPERATIVES
• It is defined as “an organization
composed of individuals or small
businesses that have banded together to
reap the benefits of a larger organization.”
TYPES OF COOPERATIVES

• 1. CREDIT UNION
• 2. PRODUCERS COOPERATIVE
• 3. MARKETING COOPERATIVE
• 4. COSUMERS COOPERATIVE
• 5. SERVICE COOPERATIVE
MUTUAL COMPANIES
• is a financial-service firm( such as an insurance company or a
savings and loan association) owned by its policy holders or
depositors.

• TYPES OF MUTUAL COMPANIES


• 1. MUTUAL SAVINGS BANK
– are owned by depostors and specialize in savings and mortgage
loans.

• 2. MUTUAL INSURANCE COMPANY


– organized and owned by its policyholders
OTHER FORMS OF BUSINESS
ORGANIZATION
• JOINT-STOCK COMPANY
• “a form of business enterprise in which the capital is
divided into small units permitting a number of
investors to contribute varying amounts to the total,
profits being divided between stockholders in
proportion to the number of shares they own.”
• JOINT VENTURE
• This type of organization is created for the purpose of
bringing together several partners to engage in a business
activity,which is normally very specialized and which exists
for a limited, specific purpose.

• BUSINESS TRUST
• it is a legal form of organization in which a trustee is
appointed to manage the business and its opertations
through a trust relationship.