LET’S REMEMBER

•THERE ARE THREE (3) FORMS OF BUSINESS

ORGANIZATIONS:
SOLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION
SOLE PROPRIETORSHIP
•A SOLE PROPRIETORSHIP IS A BUSINESS THAT IS OWNED AND
MANAGED BY ONE PERSON.
•NORMALLY, THESE ARE THE TYPES OF BUSINESSES THAT A
STARTING ENTREPRENEUR HAS.
•OWNER OF THIS TYPE OF BUSINESS IS SIMPLY CALLED SOLE
PROPRIETOR.
ADVANTAGES OF A SOLE PROPRIETORSHIP
IT IS EASY TO SET UP AND HAS NO COMPLEX LEGAL PROCESS.
IT REQUIRES A SMALL CAPITAL ONLY.
IT IS EASY TO MANAGE AND CONTROL.
OWNER GETS ALL THE PROFIT OF THE BUSINESS.
FOR THE CREDITORS, THE UNLIMITED LIABILITY OF THE OWNER IS AN
ADVANTAGE.
DISADVANTAGES OF A SOLE PROPRIETORSHIP
IT HAS A LIMITED SOURCE OF CAPITAL.
OWNER MAY NOT BE ABLE TO HANDLE MORE COMPLEX BUSINESS OPERATIONS
IF HE IS ALONE IN MANAGING THE BUSINESS.
IN CASE OF POOR PERFORMANCE, THE OWNER WILL SOLELY ABSORB ALL
LOSSES.
IT CAN EASILY BE DISSOLVED.
FOR THE OWNER, THE UNLIMITED LIABILITY MAY BE A DISADVANTAGE.
PARTNERSHIP
•PARTNERSHIP IS A BUSINESS FORMED BY TWO OR MORE
INDIVIDUALS WHO ARE WILLING TO CONTRIBUTE MONEY,
PROPERTY, OR SERVICE TO A COMMON FUND WITH THE
AGREEMENT OF DIVIDING PROFITS AMONG THEMSELVES.
•OWNERS OF THIS TYPE OF BUSINESS ARE CALLED PARTNERS.
ADVANTAGES OF A PARTNERSHIP
IT HAS A MORE CAPITALIZATION THAN SOLE PROPRIETORSHIP.
IT HAS A MORE POOLING OF SKILLS AND EXPERTISE.
ALTHOUGH WITH BIGGER SOURCES OF CAPITAL THAN SOLE
PROPRIETORSHIP, PARTNERSHIP IS STILL EASIER TO FORM THAN
CORPORATION.
THE INTEREST OF ONE PARTNER CANNOT BE TRANSFERRED TO A NEW
PARTNER WITHOUT THE CONSENT OF OTHERS.
DISADVANTAGES OF A PARTNERSHIP
DISAGREEMENTS AMONG PARTNERS MAY CAUSE DELAY IN
DECISION-MAKING.
IT CAN BE EASILY DISSOLVED THROUGH WITHDRAWAL, INSOLVENCY OR
DEATH OF A PARTNER.
PROFIT IS NOT OWNED BY ONE PERSON ALONE.
IT HAS AN UNLIMITED LIABILITY EXCEPT FOR LIMITED PARTNERS.
CORPORATION
•AS DEFINED BY THE CORPORATION CODE OF THE PHILIPPINES,
A CORPORATION IS AN ARTIFICIAL BEING CREATED BY THE
OPERATION OF LAW, HAVING THE RIGHT OF SUCCESSION AND
THE POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE.
CORPORATION
IN SIMPLE TERMS,
•A CORPORATION IS SEPARATE AND DISTINCT FROM ITS OWNERS.
•IT HAS ITS RIGHTS, DUTIES, AND RESPONSIBILITIES AS A
JURIDICAL PERSON.
•INVESTORS OF THIS TYPE ARE CALLED SHAREHOLDERS.
CORPORATION
•UNLIKE SOLE PROPRIETORSHIP AND PARTNERSHIP WHERE THE
OWNERSHIP AND MANAGEMENT ARE VESTED ON THE OWNERS
THEMSELVES, A CORPORATION SEPARATES OWNERSHIP FROM
MANAGEMENT.
•IN A CORPORATION, SHAREHOLDERS ELECT THE BOARD OF DIRECTORS
WHO WILL MANAGE THE CORPORATION.
ADVANTAGES OF A CORPORATION
IT HAS A HUGE SOURCE OF CAPITAL.
IT HAS INCREASED CAPACITY TO HANDLE MORE COMPLEX AND WIDER
OPERATIONS.
IT HAS THE CAPACITY TO HIRE PEOPLE TO MANAGE THE COMPANY.
IT HAS AN INDEFINITE LIFE. A CORPORATION CAN OPERATE FOR FIFTY (50) YEARS
RENEWABLE FOR ANOTHER FIFTY (50) YEARS.
INVESTORS HAVE NO UNLIMITED LIABILITY (ADVANTAGE FOR THE INVESTORS).
DEATH OF ANY SHAREHOLDERS WILL NOT DISSOLVE THE CORPORATION BECAUSE OF THE
TRANSFERABILITY OF SHARES.
DISADVANTAGES OF A CORPORATION
IT HAS MORE LEGAL AND TAX REQUIREMENTS.
IT HAS MORE COMPLEX OPERATIONS.
INVESTORS HAVE NO UNLIMITED LIABILITY (DISADVANTAGE FOR
CREDITORS).
HIGHER RISK OF FRAUD DUE TO PERSONAL MOTIVES OF BOD.
STATEMENT OF CHANGES IN EQUITY

•THE STATEMENT OF CHANGES IN EQUITY IS A

FINANCIAL STATEMENT THAT SHOWS THE
MOVEMENT IN THE EQUITY OR CAPITAL.
STATEMENT OF CHANGES IN EQUITY
•ACCORDING TO THE INTERNATIONAL ACCOUNTING STANDARDS,
THE STATEMENT MUST INCLUDE THE:
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
EFFECTS OF ANY RETROSPECTIVE APPLICATION OF
ACCOUNTING POLICIES OR RESTATEMENTS MADE.
STATEMENT OF CHANGES IN EQUITY
• ACCORDING TO THE INTERNATIONAL ACCOUNTING STANDARDS, THE STATEMENT MUST
INCLUDE THE:
RECONCILIATIONS BETWEEN THE CARRYING AMOUNTS AT THE BEGINNING AND THE END
OF THE PERIOD SEPARATELY DISCUSSING:
PROFIT OR LOSS
OTHER COMPREHENSIVE INCOME
TRANSACTIONS WITH OWNERS, SHOWING CONTRIBUTIONS BY AND
DISTRIBUTIONS TO OWNERS SEPARATELY.
STATEMENT OF CHANGES IN EQUITY

•IN OTHER WORDS, THE STATEMENT OF CHANGES IN

EQUITY FOR A SOLE PROPRIETORSHIP PRESENTS IN
DETAIL THE MOVEMENT OF THE CAPITAL ACCOUNT FOR
THE PERIOD.
SAMPLE PROBLEM
•ASSUMING THE FOLLOWING BALANCES FROM CHANCE
COMPANY FOR THE YEAR ENDED DECEMBER 31, 2017:
BEGINNING CAPITAL P 900,000
ADDITIONAL INVESTMENTS FROM OWNER 200,000
CASH WITHDRAWAL FROM OWNER 50,000
NET INCOME FOR THE PERIOD 300,000
SAMPLE PROBLEM

•Q: HOW MUCH IS THE ENDING CAPITAL?

SAMPLE PROBLEM
CHANCE COMPANY
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER, 31, 2017

BEGINNING CAPITAL P 900,000

ADDITIONAL INVESTMENTS FROM OWNER 200,000
NET INCOME FOR THE PERIOD 300,000
CASH WITHDRAWAL FROM OWNER (50,000)
ENDING CAPITAL P 1,350,000
OTHERS
•EQUITY OR CAPITAL CAN ALSO BE COMPUTED AS:

EQUITY OR CAPITAL = ASSETS - LIABILITIES