Forms of Business Organizations

FORMS OF
BUSINESS
ORGANIZATIONS
Corporation
Partnership
Sole
Proprietorship
PURPOSE OF BUSINESS
ORGANIZATIONS
Service
Companies perform services for a fee.

Law firms, accounting and audit firms, stock brokerage, beauty
salons, and recruitment agencies.
Merchandisin
g
Companies purchase goods that are ready for sale and then sell
these to customers.
Car dealers, clothing stores and supermarkets.
Manufacturing
Companies buy raw materials, convert them into products and

then sell the products to other companies or to final consumers.
Paper mills, steel mills, car manufacturers and during
manufacturers.
SOLE
PROPRIETORSHIP
SOLE PROPRIETORSHIP
A business that is owned exclusively by one person
This business organization has a single owner called the PROPRIETOR who generally is
also the manager.

Sole proprietorships tend to be small service-type business and retail establishments.
Physicians, lawyers and accountants.
ADVANTAGES OF SOLE
PROPRIETORSHIP
Easy to get established
Full control over all business decisions
Owners keep all profit
Flexibility
Tax Advantages
DISADVANTAGES OF A SOLE
PROPRIETORSHIP
o It can be difficult to raise money for the business
o Responsible for every aspect of the business
o Unlimited liability
o Limited skills and knowledge
PARTNERSHIP
PARTNERSHIP
An association of two or
more persons to carry on,
as co-owners, a business
for profit.
(Uniform
Partnership
Act,
Section 6)
Money
COMMON
FUND
Property
Industry
CHARACTERISTICS OF A
PARTNERSHIP
Mutual Contribution
Division of profits or loses
Co-ownership of Contributed Assets
Mutual Agency
Limited Life
Unlimited Liability
Income Taxes
Partners Equity Accounts
KINDS OF PARTNER
1.
General Partner
2.
Limited Partner
3.
Capitalist Partner
4.
Industrial Partner
5.
Managing Partner
6.
Liquidating Partner
7.
Dormant Partner
8.
Silent Partner
9.
Secret Partner
10. Nominal partner or partner by estoppel
ADVANTAGES AND
DISADVANTAGES
Advantages VS. Proprietorship
1.
Brings greater financial capability to the business.
2.
Combines special skills, expertise and experience of the partners.
3.
Offers relative freedom and flexibility of action in decision-making.
Advantages VS. Corporations

4.
Easier and less expensive to organize.
5.
More personal and informal.
Disadvantages
6.
Easily dissolved and thus unstable compare to corporation.
7.
Mutual agency and unlimited liability may create personal obligations to partners.
8.
Less effective than a corporation in raising large amounts of capital.
CLASSIFICATIONS OF PARTNERSHIP
1.
According to object:
A.
B.
C.
2.
According to liability:
A.
B.
3.
B.
Fixed
At will
According to purpose:
A.
B.
5.
General
Limited
According to duration:
A.
4.
Universal partnership of all present property.

Universal partnership of profits.
Particular partnership.
Commercial or trading
Professional or non-trading
According to legality of existence:

A.
B.
De jure
De facto
DISTINGUISH BETWEEN PARTNERSHIP AND

CORPORATION
PARTNERSHIP
CORPORATION
1. Manner of Creation
Mere agreement of partners
Created by operation of law
2. Number of Persons
Two or more persons
At least 5 but not exceeding

15
From execution of the

articles of partnership
Issuance of certificate of
incorporation by SEC
Every partner is an agent
Vested on the Board of

Directors
Liable to the extent of

personal assets
Stockholders are liable only

to the extent of their
interest or investment.
6. Right of Succession
NO
YES
7. Terms of Existence
Any period of time
Not exceed 50yrs w/

extension
3. Commencement of
Juridical
Personality
4. Management
5. Extent of Liability
CORPORATION
CORPORATION
Is an artificial being
created by operation of
law, having the right of
succession and the
powers, attributes and
properties expressly
authorized by law or
incident to its existence
(Corporation code of
the Philippines, Sec. 2)
ATTRIBUTES OF A
CORPORATION
Is an artificial being
It is created by operation of Law
It enjoys the right of succession
It has the powers, attributes, properties
ADVANTAGES OF A
CORPORATION
The corporation has the legal capacity to act as a legal entity
Shareholders have limited liability
It has continuity of existence
Shares of stock can be transferred without the consent of the
other shareholders.
Its management is centralized in the board of directors.

Shareholders are not general agent of the business.
Greater ability to acquire funds.
DISADVANTAGES OF A
CORPORATION
A corporation is relatively complicated in formation and
management.
There is a greater degree of government control and
supervision.
It requires a relatively high cost of formation and operation.

It is subject to heavier taxation than other forms of business
organizations.
DISADVANTAGES OF A
CORPORATION
Minority shareholders are subservient to the wishes of the
majority.
In large corporation, management and control have been
separated from ownership.
Transferability of shares permits the uniting of incompatible
and conflicting elements in one venture.
CLASSES OF CORPORATION
STOCK CORPORATION
NON-STOCK CORPORATION
OTHER CLASSIFICATION OF
CORPORATION
According to Numbers of Persons.
a) Corporation Aggregate.
b) Corporation Sole.
According to Nationality.
a) Domestic
b) Foreign
CORPORATION
According to whether,
a) Public corporation
b) Private corporation
According to charitable or not
a) Ecclesiastical
b) Eleemosynary
c) Civil corporation
CORPORATION
According to legal right to existence
a) De jure Corporation
b) De facto corporation
) Degree of Public participation with regards to share
ownership.
Close corporation
Open Corporation
CORPORATION
According to Relation to Another corporation
a) Parent of holding corporation
b) Subsidiary Corporation.
STEPS IN THE CREATION OF

CORPORATION
Promotion
Incorporation
Formal organization and Commencement
ARTICLES OF INCORPORATION
The name of the corporation.
The specific purpose or purposes for which the corporation is formed.
The principal place of the business which must be within the
Philippines.
The term of existence

The names nationalities and residences of the Incorporators
The number of directors or trustees which shall not less the (5) nor
more than (15)
The names, nationalities and residences of the persons who shall act
as directors or trustees until the first directors or trustees are elected

and qualified.
If stock corporation : authorized share capital in pesos
RIGHTS OR SHAREHOLDERS
Right to be issued certificate of stock or other evidence of share
ownership and to transfer such shares.
Right to attend and vote in person or by proxy at shareholders
meeting.
Right to elect and remove directors.

Right to adopt, amend or repeal the by-laws.
RIGHTS OR SHAREHOLDERS
Right to purchase a portion of new shares issued to maintain the
same percentage of stock ownership. This right is known as the

pre-emptive rights. However, this right is not absolute and maybe
be denied.
Right to receive dividends when declared.

Right to inspect corporate books and records, and to receive
financial reports of the corporations operations.
Right to participate in the distribution of corporate asset upon
dissolution.
COMPONENTS OF A
CORPORATION
Corporators
Incorporators
Shareholders
Members
Subscribers
Promoters
Underwriters
THANK YOU!

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FORMS OF

Companies perform services for a fee.

Companies buy raw materials, convert them into products and

A business that is owned exclusively by one person

also the manager.

Physicians, lawyers and accountants.

10. Nominal partner or partner by estoppel

Brings greater financial capability to the business.

Combines special skills, expertise and experience of the partners.

Offers relative freedom and flexibility of action in decision-making.

Advantages VS. Corporations

Easier and less expensive to organize.

More personal and informal.

Easily dissolved and thus unstable compare to corporation.

Less effective than a corporation in raising large amounts of capital.

Universal partnership of all present property.

According to legality of existence:

DISTINGUISH BETWEEN PARTNERSHIP AND

Mere agreement of partners

Created by operation of law

Two or more persons

At least 5 but not exceeding

From execution of the

Every partner is an agent

Vested on the Board of

Liable to the extent of

Stockholders are liable only

Any period of time

Not exceed 50yrs w/

the Philippines, Sec. 2)

Its management is centralized in the board of directors.

There is a greater degree of government control and

It requires a relatively high cost of formation and operation.

In large corporation, management and control have been

separated from ownership.

Transferability of shares permits the uniting of incompatible

and conflicting elements in one venture.

STEPS IN THE CREATION OF

The term of existence

more than (15)

as directors or trustees until the first directors or trustees are elected

If stock corporation : authorized share capital in pesos

ownership and to transfer such shares.

Right to attend and vote in person or by proxy at shareholders

Right to elect and remove directors.

same percentage of stock ownership. This right is known as the

Right to receive dividends when declared.

financial reports of the corporations operations.

Right to participate in the distribution of corporate asset upon

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