La Salette of Roxas College Inc.

Magsaysay St. Vira (Pob), Roxas, Isabela

S.Y 2021-2022

Principles Organization and Management

Forms of Business Ownership
3rd handout

The form of business ownership that will have to be adapted is a strategic decision that must be considered at
the inception of the business. The decision may later prove to be supportive of the objectives of the owners, or may
have turned out to be the biggest obstacle.
Careful thinking must be considered in determining the ownership form as each of the various types has its own
unique features as well as advantages and disadvantages.
There are three major types of business ownership:
1) Sole Proprietorship- The sole proprietorship is that type of business entity owned and operated by a single
person.
Advantages:
a) Ease and cost of formation
b) Secrecy
c) Distribution and use of profits
d) Control of the business
e) Government regulation
f) Taxation
g) Closing the business
Disadvantage:
a) The owner’s possible lack of ability and experience
b) The difficulty of attracting and keeping quality employee
c) The difficulty of raising capital
d) The limited life of the firm
e) The unlimited liability of the proprietor
2) Partnership- is a legal association of two or more persons as co- owners of an unincorporated business.
Partnerships have the distinction of eliminating some of the disadvantages of sole proprietorships while
retaining some of their advantages.
Advantages:
a) Ease of formation
b) Pooling of knowledge and skills
c) Availability of more funds
d) Ability to attract and retain employees
e) Tax advantage
Disadvantages:
a) Unlimited liability
b) Limited life
c) Potential conflict between partners
 Adding new lines
 Hiring new employees
 Decisions on credit extensions
 Granting employees welfare benefits
d) Difficulty in dissolving the business
Types of Partnership
 General Partnership- is an association of two or more persons, each with unlimited liability, who are
actively involved in the business.
 Limited Partnership- is an arrangement in which the liability of one or more partners is limited to the
amount of assets they have invested in the business.
3) Corporation- is an enterprise chartered by law, with most of 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 to be sued.
STOCKHOLDERS- are the owners of corporation.
STOCKS- are the issued certificates of ownership
Advantages:
a) Limited liability
b) Ease of expansion
c) Ease of transferring ownership
d) Relatively long life
 e) Ability to hire specialized management
Disadvantages:
a) More expensive and complicated to organize
SEC (Securities and Exchange Commission) governed
 The name of the corporations
 Specific purpose or purposes
 Principal office of the corporation
 Term of existence of the corporation
 Names, nationalities and residences of incorporators
 Number of directors or trustees
 Names, nationalities and residences of directors
 Amount of authorized capital stocks
 Other matters
b) Double taxation
c) More extensive government restriction and reporting requirements
d) Employees lack personal identification with and commitment to corporate goals than those
employed by sole proprietorships and partnerships.
Modifications of the Corporate Form of Ownership
1. Cooperatives
2. Mutual Companies

a. Cooperatives- is an organization composed of individuals or businesses that have banded together to

reap the benefits of belonging to a large organization. Cooperatives are not organized for profit but to
make its members individually profitable or save money.
TYPES OF COOPERATIVES
1. Credit union- it accepts deposits from the members and lends money to its members at a very reasonable interest
rate.
2. Producer’s cooperative- its purpose is to actually assist one another in the procurement of raw materials,
machinery, equipment, and other time- saving devices.
3. Marketing cooperative- its purpose it to assist members in the marketing of their produce.
4. Consumer’s cooperative- its purpose is to assist members is to provide quality goods and services at reasonable
prices.
5. Service cooperative- its purpose is to make services readily available and at a lower price.

b. 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- it is owned by depositors and specializes in savings and mortgage loans. The profits of the
company are credited to the account of the depositors.
2. Mutual insurance company- it is a cooperative corporation organized and owned by its policy holders. Voting
control is in the hands of those insured. Profits earned by the company can be used to pay policy dividends to
policy holders, and to strengthen the insurer by building its surplus.

Other Forms of Business Organization

1. Joint stock Company- is 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.
Advantage: Fewer taxes, greater ease of formation, mobility and freedom from government regulation.
Disadvantage: they lack the legal personality to enter into contracts and hold title to real property,
unlimited liability of the stockholders make it less popular as a form of business organization.
2. The joint venture- is best regarded as a particular partnership established for a specific undertaking. 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.
Example: for the purpose of producing movie or a concert, engaging in oil or mining exploration,
constructing major projects like airport and dam, etc.
3. The business trust- is a legal form of organization in which a trustee is appointed to manage the business
and its operations through a trust relationship. Under the trust agreement, the owners of property,
securities, or other assets convey these to a trustee in exchange for transferable trust certificates. The
certificates entitle the owners to participate in the profits of the operation. The liability is transferred to
the trustees, however.

Summary of the Positive and Negative Features of the forms of Business Ownership
Area of concern Sole Proprietorship Partnership Corporation
1. Liability of Ownership unlimited Limited/ unlimited Limited
2. Ease of expansion Not easy Not easy Easy
3. life of a firm Dependent on the owner Dependent on the partners Independent of the owners
4. decision making Can be made quickly Tends to be slower Tends to be the slowest
5. taxation of income once once Twice
6. ease of formation easiest easy Not easy

Prepared By:

Iwaly Belle C. Cabanizas

Subject Teacher
 La Salette of Roxas College Inc.
Magsaysay St. Vira (Pob), Roxas, Isabela
S.Y 2021-2022

Principle of Organization and management

Activities

Name: ___________________________________________________

1. What are sole proprietorships? What advantages do they offer? What disadvantages are inherent to sole
proprioterships?
2. What is a partnership? What are the type of partnerships?
3. What is meant by “limited liability”
4. What is a corporation? What are its advantages?
5. Why is it easy to pool large amounts of capital in corporation?
6. “Double taxation” is a disadvantage of corporations. Explain briefly.
7. In what way is the cooperative different from corporation?
8. What is mutual company?
9. What are the minor forms of business organization?
10. In hat circumstances are business trusts appropriate as a form of business organization?

For Research
A. Collect data on the number of business operating in the Philippines classified according to ownership.
B. Write your comments on why one form is bigger in total percentage compared to the others.