FORMS OF

BUSINESS
ORGANIZATIONS

Forms of Business Organizations

Business sector is a major sector of the

economy.
Also known as enterprises
They produce and sell goods and
services to consumers via output market
The major forms of business
organization are:
SOLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION

Sole Proprietorship

Also known as the sole trader or simply

a proprietorship.
Smallest and simplest form of business
organization.
The demand for specialization is less
The management style is more personal
The proprietor provides the site and the
capital.
Sole proprietorships is not legal person
Under a sole proprietorship, there is no
legal difference between the owner and
the business.

Sole Proprietorship

COMMON EXAMPLES OF SOLE

PROPRIETORSHIP:
Sari-sari stores
Beauty Parlors
Market stalls
Backyard motor shops
Tailor shop
Eateries
Barber shops
Convenience store

Advantages

It is easy to organize.
Doesnt need a big investment capital.
Anyone can put up a sole proprietorship.
It is easy to manage.
The owner decides alone.
The owner gets all the profit of the business.
A sole proprietorship does not pay business
income tax.
Psychological satisfaction.
Getting out of the business is easy in sole
proprietorship.

Disadvantages

Proprietors unlimited liability.

Sole proprietorship is relative instability
Sole proprietorship has limited capacity to grow
and operate at maximum efficiency.
Most sole proprietorships are not dynamic.
Proprietors lack of managerial skill.
Sole proprietorship are vulnerable to
bankruptcy.
Multitasking.
Sole proprietorship ha limited life.

Significance

Sole proprietorship are the most common form

of business organization in the Philippines.
Some OFW invest their earnings in these
business.
Sole proprietorships are alternative sources of
livelihood for the unemployed.
Sole proprietorship could also be a source of
income for full-time housewives.
Could be an ideal business for retirees.

Key Attributes

Creation-No Formalities for creating a sole

proprietorship.
Profit/Losses/Distributions-Owner may use all
profits and losses business.
LiabilityOwner faces unlimited personal liability.
Capital/Financing-All capital obtained from owner
or though loans based on owners
creditworthiness.
Management and control-Owner manages and
controls the business.
Taxation-The business does not file or pay taxes

Partnership

A business that is owned by two or more

individuals.
Articles 1767 to 1867 the Civil Code of the
Philippines(1950) governs the partnership in
the Philippines.
It binds partners to contribute money , property
or industry to a common fund.
Stipulates how the partners will divide the profit.
Partners are responsible for the success and
failure of the business.
Partnership are forged by individuals only.

Types of Partnership

General Partnership

Partners are
responsible for the
management and
financial obligations
of the firm.

Limited Partnership

- Rights and liabilities

of the partners are
commensurate to
the amount they
contribute to the
partnership.

Advantages

A partnership is easy to put up

A partnership has more potential for growth
than a sole proprietorship.
Partnerships in the Philippines are legal
persons.
A partnership can reach production efficiency.
Partnership can generate financial capital
more easily than sole proprietorship.
Partnerships can attract thee best laborers
from the job market.

Disadvantages

Partners could have unlimited liability.

Partners sometimes develop conflicts

The life of partnership could be short.

Significance

Partnership is ideal for people who lack capital

but wish to put up a business.
Through partnership , they can pool their
money and skills and run a successful
business.
Partnership could be a good first step on
organizing a corporation
Partnership may eventually transform their
business into a corporation.

Corporation

Biggest business organization

Corporation Code of the Philippines classifies

corporation into STOCK and NONSTOCK

Stock corporation- a business organization whose

owners , called STOCKHOLDERS or
SHAREHOLDERS.

Nonstock corporation-are nonprofit corporation

corporators in nonstock corporations are called
MEMBERS.

Characteristics

A business owned by many persons.

Has a legal personality separate and distinct
from stockholders.
Has the capacity to enter contracts.
Incorporation-the process by which a new
company is formed and is given the status of a
legal entity.
The word Corporation or Incorporation
attached to their names shows that they
already went through the process of
incorporation

Investors join corporations by buying stocks.

Stocks-are shares of ownership of the
corporation.
Dividend-a check issued by the firm to a
stockholder.
It represents the earning of the money a
stockholder invested in the corporation.
Corporations have a clear organizational
structure.

Two Types Of Stocks Held By

Stockholder
Common Stocks
The ordinary stocks
of a corporation
- Entitled to prorata
dividends.
Elect the board of
directors of the
company.
Have greater voting
power and influence
in the company.

Preferred Stocks
Nonparticipating
stocks
Receive fixed
dividends.
Have no power to
influence the
corporations policy
decisions.

Advantages

Its biggest advantage is the ease of raising

capital
Ease of attracting investors.
Corporations is unlimited growth.
Corporations has the capacity to assemble
the best management and workforce.
Corporations is unlimited life.
Ownership of a corporation is easily
transferable.

Disadvantages

Corporations are hard to establish

Corporations has the limited participation of most

stockholders in the management of the business.

Corporations is double taxation

Corporations need to abide by complicated government

regulations.

Corporation cannot just sell stocks to the market

without following certain procedures imposed by the
government.

Significance

Corporations play a significant role in the

Philippine economy.
They provide jobs to millions of Filipino.
Countless investment opportunities to many
businesses.
They have opened business opportunities.
Corporations also contribute significantly to the
national income.
Corporations are a channel for foreign direct and
portfolio investments.
Investors funnel foreign exchange and new
technology into the national economy.