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TYPES OF LEGAL
STRUCTURE

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 Owned by one person and it is easy to form and offers complete

control to the owner. They also own all the assets of the business and
the profits generated by it.
 As a sole proprietor you can operate any kind of business as long as
you are the only owner. It can be full-time or part-time work. This
includes operating a:
• Shop or retail trade business
• Large company with employees
• Home-based business
• One-person consulting firm

ADVANTAGES:
 There are minimal costs and requirements in the formation.
 The owner can withdraw the assets and profits of the business anytime at his
or her own discretion.
 Decision making is solely in the hands of the owner.
 The duration of the life of business solely depends on its owner.

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DISADVANTAGES:
 Resources are limited as the capital is provided
only by the owner.
 The liability of the owner is unlimited as he or she
is accountable to all creditors of the business.
 Infusion of knowledge in the management of the
business is limited to one person only, which is
the owner.

WHERE TO REGISTER A SOLE PROPRIETOR BUSINESS?

1. Department of Trade and Industry

2. Local Government Units where your business is located:
• Barangay
• Mayor’s Office
3. Bureau of Internal Revenue
4. If you have employees, you need to register to the following:
• Social Security System
• Philippine Health Insurance Corporation
• Home Development Mutual Fund

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PARTNERSHIP

 Two or more people share ownership of a

single business. Each person contributes
money, property, labor or skill, and expects to
share in the profits and losses of the business.

 The partners should have a legal agreement

that sets forth how decisions will be made,
profits will be shared, disputes will be
resolved, how future partners will be admitted
to the partnership, how partners can be bought
out, or what steps will be taken to dissolve the
partnership when needed.

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GUIDELINES:
If you plan on going into business with a partner,
a written partnership agreement is a crucial
document to protect both of you. It's best practice
to have a partnership agreement in place. A
partnership agreement is a document that you
and your partner(s) create to clearly lay out each
partner's duties and liabilities, the percentage of
profits each is entitled to, and other aspects of
creating a business together. Without this
document, minor misunderstandings can erupt
into major disputes, which can be devastating to
your business.

TYPES OF PARTNERSHIP

1. GENERAL PARTNERSHIP
Partners divide responsibility for management and liability, as well as the
shares of profit or loss according to their internal agreement. Equal shares
are assumed unless there is a written agreement that states differently.

2. LIMITED PARTNERSHIP AND PARTNERSHIP WITH LIMITED LIABILITY

“Limited” means that most of the partners have limited liability (to the extent
of their investment) as well as limited input regarding management decision,
which generally encourages investors for short term projects, or for
investing in capital assets. This form of ownership is not often used for
operating retail or service businesses. Forming a limited partnership is
more complex and formal than that of a general partnership.

3. JOINT VENTURE
Acts like a general partnership, but is clearly for a limited period of time or a
single project. If the partners in a joint venture repeat the activity, they will
be recognized as an ongoing partnership and will have to file as such, and
distribute accumulated partnership assets upon dissolution of the entity.

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ADVANTAGES
 There are minimal costs and requirements in the formation.
 There are more funds contributed from the investment of the partners.
 There is infusion of more knowledge, experience, and skills, from two or more partners.
 There can be division of labor between or among partners.

DISADVANTAGES
 The partners are liable for actions of each partner as a result of mutual agency.
 A general partner has unlimited liability if the other partners are limited partners or are
insolvent.
 Disagreement between partners can lead to the withdrawal of one or more partners.
 The death, retirement, withdrawal, or incapacity of a partner results in the dissolution of the
partnership.
 Admission of a new partner depends upon the approval of the other partners.

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EXAMPLES
 Pottery Barn & Sherwin-Williams - the two brands created an exclusive product line of paints,
and then added a new section of Pottery Barn’s website that helped customers easily select
paint colors to complement their furniture choices.

EXAMPLES
 Bonne Belle & Dr. Pepper - Dr. Pepper-flavored lip balm. Bonne Belle forged their first flavor
partnership with the timeless Dr. Pepper brand.

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EXAMPLES
 Uber & Spotify - when riders are waiting for an Uber ride, they’re prompted to connect with
Spotify and become the DJ of their trip. Users can choose from their own playlists to
determine what they’ll listen to.

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Corporation is a business that has a life on its own

(business entity concept) which means that it can
represent itself to other personalities, can be taxed and
sued, and can enter to contractual agreements.

It is managed by a Board of Directors elected by the

shareholders among themselves which is why
corporations cannot be dissolved easily when
ownership changes.

ADVANTAGES
 The stockholders only have limited liability, as their liability extends only up to the amount of
their capital investment.
 A corporation has continuous existence as its life is indefinite.
 There is more infusion of funds from the stockholders or investors.
 Shares of stocks can be transferred without the consent of other shareholders.
 Management of the corporation is vested upon its board of directors.

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DISADVANTAGES
 A corporation entails many requirements and is more costly than a partnership.
 The government exercises strict control over corporations and imposes high taxes.
 Shareholders have little or no participation in the management of the corporation.
 Distribution of net income depends upon the declaration of dividends by the board of directors.
 In large corporations, there is formal or impersonal relationship between employees and
management due to the big number of employees. Hence, chances of creating a personal and
friendly atmosphere in the corporate setting are minimal.

EXAMPLES
 SM Investments Corporation - also known as SM Group, is a Philippine conglomerate with
interests in shopping mall development and management, retail, real estate development,
banking, and tourism.

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EXAMPLES
 San Miguel Corporation - It is the Philippines' largest corporation in terms of revenue, with
over 24,000 employees in over 100 major facilities throughout the Asia-Pacific region through
its highly integrated operations in food and beverages, packaging, fuel and oil, power, and
infrastructure.

EXAMPLES
 Ayala Corporation - is a holding company that is mainly in the businesses of real estate
development, banking and financial services, telecommunications, electronics and information
technology, water infrastructure development and management, and business process
outsourcing, and new investments in power, renewable energy, and transportation
infrastructure.

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HOW TO REGISTER CORPORATION?

 Reserve and register business name in SEC (Security and Exchange
Commission) - complete and sign all required documents: Articles of
Incorporation, By-Laws, Treasurer’s Affidavit, Joint Affidavit of Two
Incorporators. All documents need to be notarized.
 Acquire Barangay Clearance - Submit the following together with your
Barangay clearance: Certificate of Business Registration from SEC, Two Valid
IDs, Proof of Address
 Acquire Business Permit from Mayor’s Office – Submit the same
requirements in acquiring barangay clearance to the municipal office where
the business is located.
 Register with BIR (Bureau of Internal Revenue) - Request for a copy of BIR
Form 1903 (Application for Registration of Partnership or Corporation).
Submit the following together with your completed business permit,
barangay clearance, business permit from mayor’s office. Pay all applicable
fees and register your book of accounts and receipts. Claim your Certificate
of Registration.

COOPERATIVES

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According to the International Co-Operative

Alliance (ICA), cooperative or co-op is an
autonomous association united to reach their
common economic, social and cultural
necessities and aspirations through a jointly-
owned and democratically controlled
enterprise.

HOW IT WORKS:
 Members are the workers
 Members are the consumers
 Sometimes Services is only limited to its members
 Could also be open to all, however, members have special incentives
 Community focus & values:
1. Democracy 4. Self-help
2. Self-responsibility 5. Equity
3. Equality 6. Solidarity

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CO-OP
OWNESHIP &
CONTROL
 Those who benefit from products or services of a co-op business owns the
cooperative business.
 The member-owners of a co-op have a say in how it would run. Equity and
equality are among the founding principles of a co-operative, each member-
owner of a co-op gets one vote.
 Cooperatives often elect a board of directors. The responsibilities of this includes
ensuring that the co-op is working towards achieving its mission, setting up
operational policies and hiring any outside managers or employees.
 The members of the board are members of the co-op itself. They are elected by
member votes.

7 COOPERATIVE PRINCIPLES:
 International Co-Operative Alliance in 1995
 Based on Rochdale principles

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5 TYPES OF COOPERATIVE
 Worker co-ops: These are owned by the people who work for the company. They contribute by labor and working
for the organization.
 Producer co-ops: Owned by producers of goods who have joined together to sell their products more effectively
and to make the production process much efficient. Blue Diamond or Land O'Lakes are examples of this.
 Consumer co-ops: Owned by the customers who also purchase goods and services from the cooperative.
 Purchasing co-ops: Made up of small businesses that have merged to improve their purchase power, to get better
discounts and offers on products and services.
 Hybrid co-ops: Combination of any of the four stated types of co-op.

WHAT IS THE PURPOSE OF A CO-OP?

 The purpose of a cooperative is to realize the economic, cultural and social needs of the
organization’s members and its surrounding community.

CO-OPS ARE MOST LIKELY SEEN IN THE FOLLOWING AREAS:

Agriculture Education
Insurance Healthcare
Financial services Housing
Grocery Utilities

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IMPORTANCE
 The structure of a co-op means that its shares can be transferred from
one owner to another.
 From a social justice and democratic point-of-view, cooperatives matter
today because they help to rebalance power and dilute the concentration
of wealth.
 “one member, one vote”

 Access

 Business sustainability.

 Equality, diversity and inclusion.

 Financial security and advancement for workers.

 Democratic governance and empowerment.

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DISADVANTAGES
 Limited Capital
 Inefficient Management.
 Absence of Motivation
 Differences and Factionalism among Members
 Rigid Rules and Regulations

LIMITED LIABILITY
COMPANY

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Owners of an LLC are called members.

Taxation
 considered a "pass through entity" for tax purposes
 report their share of profits or losses on their individual income tax returns.

Liability
 limited liability

Formation
 filing fee worth $100-$800
 articles of the organization
 has operating agreements
• ownership interest for each member
• member rights and responsibilities
• member voting power

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Advantages
 limited liability

 loss of company will only be passed on to a member and taxed at individual level

 unlimited number or members

Disadvantages

 Often subject to additional taxes at the state level.

 Each member’s share of profit represents taxable income, even if
the profit wasn’t distributed.
 Limited life

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1. Business Structure
It is an important decision to choose the right
business structure in starting up a business for this
will affect your level of personal liability, the
amount of tax you pay, your control over the
operations of the business, and your growth
potential. Bearing in mind there are advantages
and disadvantages to each structure, the most
common legal structures for business are:
Sole Proprietorship, Partnership, Corporation
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2. Trademark
Selecting the business’ official name is important
for this will be the identity of the business to the
industry which includes customers, investors,
suppliers, and other businesses. Before finalizing
the business name, make sure that there is no other
business existing that has the same name as what
you have chosen. After finalizing your business
name, consider registering your trading name and
logo as a trademark to prevent others from having
the same name as yours.
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3. Licenses
To completely start your business, it is a must that a business comply to the required several types of
licenses or permit. These required licenses and permits will depend on the kind of establishment you
want it to be. At the very least, you will need a business license, trading license, and sales tax permit. If
you plan to open a restaurant, pub, or catering company, you will have to register with the local
governing body for food standards and health and safety oversight.
4. Employees
As an employer, there is a lot of obligations to your employees such as paying them the right amount of
wages, ensuring their safety in the working environment, giving all the employees a fair treatment, not
acting in a way that may damage an employee’s reputation and mental distress or humiliation, not acting
in a way that damages the trust necessary for an employee relationship, ensure that the employees have
workers compensation insurance.

5. Zoning laws
If you are still looking for a good location for your shop, establishment or office, you have to make sure that
the area you are eyeing is properly zoned for the type of business you plan to operate. Again, do some
research or ask local government bodies to be certain that you can open your business in that area.

6. Confidentiality and Non-Disclosure Agreements

Lastly, if you will be working with a bank or other partners for business financing or entering into contracts
with suppliers, make sure you have the right confidentiality and non-disclosure agreements.

These parties will have access to business information that you may want to keep private and, as such, you
should consider preparing these contracts. Make sure your partners and suppliers sign them as well.

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1. Not Registering Your Name

Whether you intend to be a sole proprietor or a corporation, you should make sure that
no one else is using the name you have selected for your company. If you register a
limited liability company (LLC) or a corporation, a name check is required, but be
certain the name is available before you design a website, have a logo made, or print
business cards.

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2. Not Choosing a Business Structure

While you're dreaming up the concept for your startup business, you're probably not focused
on how you should structure your business. Setting your business up as an LLC or a
corporation from the start can save you money on taxes and also help to clarify your
ownership structure.

Take some time to consider your options, which include sole proprietorship, partnership, LLC,
and corporations (both S and C corporations) and choose the option that makes the most
sense for your business startup. Keep in mind that you are planning for your startup to grow,
so you will want to put a structure in place that can accommodate your big plans. When
starting an LLC or partnership, be sure to have member or partner agreements in place as
well, so everyone's role and share is clearly designated.

3. Not Having a Standard Contract

When you start a business you likely don't have a lot of customers, but since you
intend to see a lot of growth, you should develop a standard contract to use with
all of your customers. This will streamline things and ensure that you protect
yourself. Take a look at contracts your competitors are using. Draft a contract that
is easy to understand and not overly long. Talk with an attorney to ensure you
create a contract that is favorable for your business and fair to your customers.

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4. Not Having a Nondisclosure Agreement

When you are exploring how to start a startup, you will likely be talking to a lot
of people and sharing a lot of information about your business idea as you try
to get advice, hire people, get estimates, and retain professionals. A
nondisclosure agreement, or NDA, will help ensure that the information you
share with others remains private.

REFERENCES:
 Grit PH (2020). How to Register and Form a Corporation in the Philippines. Retrieved from https://grit.ph/register-corporation/
 Tomacruz, S. (2017). 8 Philippine companies among world's largest listed firms. Retrieved from
https://www.rappler.com/business/philippine-companies-forbes-list-world-largest-listed-firms
 Cruz-Manuel, Z,V., Financial Accounting & Reporting for Services & Merchandisers, 26th ed., San Andres Manila: Cruz Manuel,
2020, 6-7 pp.
 Ong, F. L. (2016). Fundamentals of Accountancy, Business, and Management 1. Quezon City, Philippines: C & E Publishing Inc.,
13-15 pp.
 Sember, B. (2019). Top 8 Legal Mistakes Made by Startups. Retrieve from https://www.legalzoom.com/articles/top-8-legal-
mistakes-made-by-startups

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