ORGANIZATION AND MANAGEMENT

Module 3: Forms of Business Organization

Begin
The form of a business organization takes may depend on the purpose, nature of operations, and resources of the company.
However, a business organization’s form may change along with the changing times and the demands they present.

Target
After going through this module, you are expected to:
1. identify the forms and economic roles of business organizations

Try This

Directions: Choose the correct word from the table being described by the statement below and write your answer in the space
provided before the number.

Partnership Single Proprietorship Corporation

Joint Venture Cooperative General Partnership

_________________1. It is a type of partnership which divides responsibility for management and liability, as well as the shares of
profit of loss according to their internal agreement.
_________________2. It is an organization established for the purpose of purchasing and marketing the products of its member.
_________________3. It is a juridical entity established under the Corporation Code and registered with the SEC.
_________________4. Is the simplest form of business and the easiest to register through the Bureau of Trade Regulation and
Consumer Protection (BTRCP).
_________________5.consists of two or more persons who bind themselves to contribute money or industry to a common fund with
the intention of dividing profits among themselves.

Do This
 What is business organization?

Explore
In 5 to 8 sentences, discuss how learning this lesson can improve your relationship with the people around you, your parents,
guardians, or family. Ask an elder at home to comment on your answers.

Introduction: Forms of Business Organizations

Changing Forms of Business Organizations
- Change is constant and organizations continue to undergo various changes in form to ensure effectiveness, efficiency, and
relevance in the world of business.
- Business organizations may be traditional (simple, functional, divisional, profit, or non-profit) or open/flexible in form.
 Simple business organizations- business organizations with few departments, centralized authority with a wide span of
control, and with a few formal rules and regulations.
 Functional business organizations- business organizations that group together those with similar or related specialized
duties that introduce the concept of delegation of authority to functional managers like the personnel manager, sales
manager, or financial manager but allow CEOs to retain authority for strategic decisions.
 Divisional business organizations- business organizations made up of separate business units that are semiautonomous
or semi-independent, with a division head responsible for his or her unit’s performance.
 Profit business organizations- business organizations designed for the purpose of achieving their organization’s mission,
vision, goals, and objectives and maintaining their organizational stability through income generation and profit- making
activities.
 Non-profit organizations- business organizations designed for the purpose of achieving their organizations’ missions,
vision, goals, and objectives, providing service to clients without expecting monetary gains or financial benefits for their
endeavors.
 Open/flexible business organizations- formed to meet today’s changing work environment.

 Organization- a collection of people working together to achieve a common purpose.

 Business organization- a collection of people working together to achieve a common purpose in relation to their
organization’s mission, vision, goals, and objectives, sharing a common organizational culture.
 Organizational culture- the set of beliefs and values shared by organization members which guide them as they work
together to achieve their common purpose.

After deciding to start a business (and the business to pursue), one of the important issues is the form of business entity
that will serve as the vehicle in pursuing the business. You may say that the next important issue is the source of funding,
which is correct, but that issue will be discussed later. Right now, let’s focus on the forms of business.
The choice of the form of business or business organization depends on various factors. In certain business, like banks,
the law requires that the business entity must be a corporation. A small business, like your friendly sari-sari store, is a better
off as a sole proprietorship, although it could also be converted to another form of business if the circumstances require that
shift.

A. Sole Proprietorship
- Also referred to as “single proprietorship” a sole proprietorship is the simplest form of business and the easiest to register,
through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI).
It is owned by an individual who has full control/authority of its own and owns all the assets, as well as personally answers
all liabilities or losses. The fact that it is run by the individual means that it is highly flexible and the owner retains absolute
control over it.
Advantages of a Sole Proprietorship
 Easiest and least expensive form of ownership to organize.
 Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
 Profits from the business flow-through directly to the owner’s personal tax return.
 The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

 Sole proprietorship have unlimited liability and are legally responsible for all debts against the business. Their
business and personal assets are at risk.
 May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer
loans.
 May have a hard time attracting high- calibre employees, or those that are motivated by the opportunity to own a
part of the business.
 Some employee benefits such as medical insurance premiums are not directly deductible from business income
(only partially as an adjustment to income).

B. Partnership
- Partnership consists of two or more persons who bind themselves to contribute money or industry to a common fund, with
the intention of dividing the profits among themselves. The most common example of partnerships are professional
partnerships, like in the case of law firms and accounting firms. Just like a corporation, it is registered with the Securities and
Exchange Commission (SEC).
Advantages of a Partnership
 Partnerships are relatively easy to establish; however time should be invested in developing the partnership
agreement.
 With more than one owner, the ability to raise funds may be increased.
 The profits from the business flow directly through to the partner’s personal tax return.
 Prospective employees may be attracted to the business if given the incentive to become a partner.
 The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership
 Partners are jointly and individually liable for the actions of the other partners.
 Profits must be shared with others
 Since decisions are shared, disagreements can occur.
 Some employee benefits are not deductible from business income on tax returns.
 The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnerships that should be considered:

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 assumes 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
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.

C. Sole Corporation
- A mixture of the features of a sole proprietorship and a corporation is found in a new entity authorized under the Revised
Corporation Code- the one person Corporation. An OPC is registered in the same manner as other corporations with the SEC,
except that it is composed of only one person, just like a sole proprietorship. [See One Person Corporations under the revised
Corporation Code].

D. Corporation
- A corporation is a juridical entity established under the Corporation Code and registered with the SEC. It must be created by
or composed of at least 5 natural persons up to a maximum of 15, technically called “incorporators” (the 5-person minimum
has been removed under the Revised Corporation Code). Juridical persons, like other corporations or partnerships, cannot be
incorporators, although they may subsequently purchase shares and become corporate shareholders/stockholders.
 Advantages of a Corporation
 Shareholders have limited liability for the corporation’s debts or judgments against the corporation.
 Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however,
that officers can held personally liable for their actions, such as the failure to withhold and pay employment taxes.
 Corporations can raise additional funds through the sale of stock.
 A corporation may deduct the cost of benefits it provides to officers and employees.
 Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a
partnership.
Disadvantages of a Corporation
 The process of incorporation requires more time and money than other forms of organization.
 Corporations are monitored by federal, state and some local agencies, and as a result may have more
 Paperwork to comply with regulations.
 Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business
income; thus this income can be taxed twice.

E. Cooperative
- A cooperative is an organization established for the purpose of purchasing and marketing the products of its members, i.e.,
shareholders, and/or procuring supplies for resale to the members, whose profits are distributed to the members (in the form
of patronage dividends), not on the basis of the members’ equity
According to REPUBLIC ACT 9520 also known as “Philippine Cooperative Code of 2008”
The primary objective of every cooperative is to help improve the quality of life of its members. Toward this end,
the cooperative shall aim to:
a. Provide goods and services to its members to enable them to attain increased income, savings, investment,
productivity, and purchasing power, and promote among themselves equitable distributions of net surplus
through maximum utilization of economies of scale, cost-sharing and risk-sharing.;
b. Provide optimum social and economic benefits to its members;
c. Teach them efficient ways of doing things in a cooperative manner;
d. Propagate cooperative practices and new ideas in business and management;
e. Allow the lower income and less privileged groups to increase their ownership in the wealth of the nation; and
f. Cooperate with the government, other cooperatives and people-oriented organizations to further the attainment
of any foregoing objectives.

Apply what you have learned

If you will have a sari-sari store, what are the possible things you will consider in terms of business registration to respond to
the COVID-19 pandemic? Cite at least two and explain. Write your answer on the space provided.

Reflect
Congratulations on finishing the supplementary learning module! You have just had an amazing learning journey and for
sure, you will also do the same in the succeeding modules.
For the last time, share to the class your final insights by completing the following sentence prompts.

I have learned that

_______________________________________________________________________________

I wish to ask my teacher about

_______________________________________________________________________________

Assess what you have learned

ACTIVITY:

IDENTIFICATION
Directions: Identify the following statements below. Write your answer in the space provided before the number.
_________________1. A collection of people working together to achieve a common purpose.
_________________2. Formed to meet today’s changing work environment.
_________________3. Acts like a general partnership but is clearly for a limited period of time or a single project.
_________________4. It is the simplest form of business and the easiest to register.
_________________5.Philippine Cooperative Code of 2008 is under what Republic Act?
_________________6. Business organizations with few departments, centralized authority with a wide span of control, and few
formal rules and regulations.
_________________7. Consists of two or more persons who bind themselves to contribute money or industry to a common fund, with
the intention of dividing the profits among themselves.
_________________8. The set of beliefs and values shared by organization members which guide them as they work together to
achieve their common purpose.
_________________9. Business organizations made up of separate business units that are semiautonomous or semi-independent, with
a division head responsible for his or her unit’s performance.
_________________10. Is a juridical entity established under the Corporation Code and registered with the SEC.

Reference:
Cabrera, H.M , Altarejos, A. , Benjamin R. (2016). Nature and Concept of Management, Organization and Management. Vibal
Group Inc., Quezon City

Smyth, D. (2019). The role of Business Organizations in Economic Development. Retrieved

From:https://bizfluent.com/info-7745795-roles-business-organizations-economic-development.html
https://www.managementstudyhq.com/functions-of-management.html
Module 1
Answer Key:
1. Business prediction
2. Organization
3. Stakeholders
4. Customers
5. Organizational culture
6. Environmental scanning
7. Investor’s or owners
8. Power distance
9. Team structure
10. Pressure groups