WEEK # 4: ACCOUNTING 1

Forms of Business Organizations

Business organization is the single-most important choice you’ll make regarding your
company. What form your business adopts will affect a multitude of factors, many of which
will decide your company’s future. Aligning your goals to your business organization type
is an important step, so understanding the pros and cons of each type is crucial.

1. Sole/Single Proprietorship.
“Suppose you want to open your own sari-sari store that will need PHP10,000 to start
and you used your PHP10,000 savings to start the said business. You are the sole
owner of the said sari-sari store. This type of business is called sole/single
proprietorship.”
• A form of business is owned by one person; the simplest, and the most
common form of business organization
• It is not separate from the owner. The business and the owner are
inseparable

The Advantages of Sole/Single Proprietorship

• The owner keeps all the profits.
• The owner makes all the decisions.
• It is easy to form and operate.

The Disadvantages of Sole/Single Proprietorship

• The life of the business is limited to the life of the owner. Once the owner
dies, the business will cease to operate under the name of the proprietor.
• The amount of capital is limited only by the wealth of the proprietor.

2. Partnership
“What if the needed amount to start your dream sari-sari store is PHP50,000 and you
only have PHP25,000 cash savings. You ask Juan, your friend if he is willing to invest
his PHP25,000 and become part owner of the sari-sari store. Assuming he agrees,
what form of business organization was created?”

• A form of business owned by two or more persons. The details of the

arrangement between the partners are outlined in a written document
called articles of partnership.
• Profits are divided among partners based on their agreed sharing.
• The owner is called a partner.

The Advantages of a Partnership

• Higher capital because two or more persons will contribute to the common fund.
• It is easy to operate like a sole/single proprietorship

The Disadvantages of a Partnership

• The profits are divided among the partners.
• A partner can be held liable for the acts of the other partners.
• In a lawsuit, the personal properties of the partners can be held beyond their
contributions and may be used to answer for any liability of the partnership.
3. Corporation
“Assuming your dream is to open a grocery store and not just a sari-sari store but you will
need PHP1,000,000 to start the said business. You have only PHP25,000, your friend
Juan has PHP25,000, and your mother is willing to invest her PHP50,000, but still these
are not enough to start your dream grocery store. Where will you get the money to raise
the PHP1 million? You may consider setting up a corporation?”
• A corporation is a business organized as a separate legal entity (artificial
person) under the corporation law with ownership divided into transferable
shares of stocks
• Emphasize that it is the law (Corporation Code of the Philippines) that creates a
corporation.
• The corporation begins its existence from the date the Articles of Incorporation
is approved by the Securities and Exchange Commission (SEC).
• The SEC (Securities and Exchange Commission) is the government agency
primarily tasked to regulate private corporations in the Philippines.
• The owners are called stockholders or shareholders.
• The word ‘Corporation/Incorporation/Corp./Inc.’ appears in the name of the
entity.
• The voting rights of a shareholder is generally based on the percentage of
ownership.
• The management of the business is delegated by the shareholders to the Board
of Directors
• The ownership is divided into shares and the value of one share may be
denominated at a smaller amount, for example at PHP10 per share.
• The proof of ownership is evidenced by a stock certificate.

The Advantages of a Corporation

• Can easily raise additional funds by selling shares of stocks to the public.
• Shareholders are not personally liable for the debts of the corporation. The
extent of their liability is limited to their equity (ownership) in the corporation.

The Disadvantages of a Corporation

• It is relatively complicated to set up.
• Subject to several legal restrictions as listed in the Corporation Code of the
Philippines

4. Cooperatives
“Assuming all the mothers in your barangay decided to open a sari-sari store where all
the members can buy in cash or in credit. Some mothers were also taught how to sew
dresses and bags as part of the project of the group. These bags are then sold to a
certain company. Aside from that, the organization provides seminars to the members on
various topics involving mothers and their roles. At the end of the year, the profits are
distributed among the members based on their capital contribution. The amount of their
purchases in the sari-sari store during the year is also computed and they receive
something out of the profit/surplus based on their purchases. This form of business
organization is called a cooperative.

• A cooperative is a duly registered association of persons with a common bond of

interest, voluntarily joining together to achieve their social, economic and cultural
needs.
• The owners are called members who contribute equitably to the capital of the
cooperative.
 • The members are expected to patronize their products and services.
• The word ‘cooperative’ appears in the name of the entity.
• This form of business organization is regulated by the Cooperative Development
Authority (CDA).

The Advantages of a Cooperative

• Enjoys certain tax exemption privilege
• Promotes the concept of sharing resources

The Disadvantages of a Cooperative

• Limited distribution of surplus
• Requires continuous education programs for members.
• The members have active and direct participation in the business of the cooperative.
ACTIVITY 1.4

NAME: SCORE:
COURSE: DATE:

Directions: Fill-out the blank matrix

ITEM SOLE PARTNERSHIP CORPRATIONS COOPERATIVES

PROPRIETORSHIP
1. Number of possible
Owners

2. Management (who
manages a business)

3. Termination of the
Business

4. Government agency
assigned primarily to
regulate
5. Transfer of
Ownership

6. Liability of Owners
ASSESSMENT TASK 1.4

NAME: SCORE:
COURSE: DATE:

Direction: Answer the following questions honestly.

1. Enumerate all the forms of business organizations by nature of ownership.

2. Differentiate a corporation from a partnership according to number of owners and their
liabilities.
3. Differentiate a corporation from cooperative.
4. Give two example of corporations in the Philippines.
5. Give two examples of cooperatives in the Philippines.

Answers here:
ASSIGNMENT

Research Work:
A: What business you want to put up and why?
B: How much is your daily allowance? How it will be useful for your dream
business?