Chapter III.

THE ORGANIZATION AND ITS ENVIRONMENT

Learning Objectives:
a. To understand the three options-sole proprietorship, partnership
and corporation – under which an entrepreneur could organize and
their impact to his/her business
b. To appreciate the importance of organization analysis and design
in determining the appropriate hierarchical structure of the
company
c. To be aware of the stages of development of organizations
d. To know the government-required steps in starting a business

3.1 Nature of Organizations

Let us assume now that Mr. Chua's grocery business has grown by leaps
and bounds. He's planning to open up a branch in a more strategic place
near busy Cubao. This will be handled by his son whom he has already
trained in running his grocery business.
Mr. Chua has reached the crossroad of his business. Like any
entrepreneur who started small but suddenly saw the growth of his
business, he began to wonder how he should get organized to face the
challenges of the future. Shall he remain as a single proprietor-owner or
dilute his ownership by asking some of his trusted relatives and friends
to be part owners and contribute more money for his expansion plans?
To put up a branch, Mr. Chua needs more capital to buy a
commercial lot and to construct a building for his second grocery. He has
to improve his credit standing by buying grocery goods payable in 60
days or more. To get a loan from a bank, his present assets are not
enough to serve as guaranty. So, he needs associates in his expanding
business. What's the best approach in organizing and what are the
advantages? He consulted a lawyer-friend and he was given three
options.
First option is to remain as single proprietor. In this form, Mr. Chua
as a single person holds the entire operation as his personal property,
managing it on a day-to-day basis. Most businesses are of this type.
Based from the text, Steps in Starting up a Business, sole
proprietorships are attractive to small investors because they are
relatively easy to start up. Also, the owner is entitled to all the profits
that the sole proprietorship collects. On the other hand, sole
proprietorships can be risky because there is no separation between the
owner and the business. Here are some more of the advantages:
1. Formation: less complicated in preparation of documents and
cheaper compared to starting a formal corporation. The
proprietorship can be named after the owner, or a fictitious name can
be used to enhance the business.
2. Tax benefits: no requirement to file a separate business report. One
will list the business information and figures within his/her individual
tax return. The business will be taxed at the rates applied to personal
income, not corporate taxes.
3. Decision making: Business decision remains the responsibility of the
owner. The owner can also fully transfer the sole proprietorship at any
time as he/she deems necessary.
Disadvantages:
1. Liability. The business owner will be held directly responsible for any
loses, debit or violations coming from the business. For example, if the
business must pay debts, these will be satisfied from the owner's own
personal funds. could be sued for any unlawful acts committed by
him/her or the employees.
2. Taxes: While there are many tax benefits to sole proprietorships, a
main is that the owner must pay self-employment taxes.
3. Lack of "continuity": The business may discontinue if the owner
deceased or incapacitated. Since the business and the owner are to
one and the same, upon the owner's death, the business maybe liquid
becomes part of the owner's personal estate, to be distributed to
bene However, this can result in heavy tax consequences on
beneficiaries due to inheritance taxes and estate taxes
4. Difficulty in raising capital: Generating the capital or the initial funds
is provided by the owner. Sole proprietorships do not issue stocks or
other money-generating investments unlike corporations.

Second option: Partnership

A partnership is a single business with two or more people sharing
its ownership. Fan partner contributes to all aspects of the business,
including money property, labor or skill in return, each partner shares in
the profits and losses of the business.
 Since partnership is a type of business that requires more than one
person in the decision-making process, it's important that potential
business partners discuss a wide variety of issues up front and develop a
legal partnership agreement. This agreement should document how
future business decisions will be made such as how the business partners
will divide profits, resolve differences in decision-making, change of
ownership (bring in new partners or buy out current partners), and how
to dissolve the partnership.
Advantages:
1. Easy and Inexpensive: Partnerships are generally an inexpensive and
easily formed type of business structure. The majority of time spent
starting a partnership often focuses on developing the partnership
agreement between or among few people and its shared ownership
will expresses.
2. Shared Financial Commitment: Each business partner has equally
invested in the success of the business. Partnerships have the
advantage of pooling resources to obtain significant capital. This could
be beneficial in terms of securing credit, or by simply doubling your
initial money or capital in the business.
3. Complementary Skills: A good partnership should be able to utilize
the strengths, resources, and expertise of each partner
4. Partnership Incentives for Employees: Partnerships have an
employment advantage over other entities if they offer employees
the opportunity to become a partner. Partnership incentives often
attract highly motivated and qualified employees.
Partnership arrangements are mostly formed in law, auditing, and
some consultancy firms.
Disadvantages:
1. Joint and Individual Liability: Similar to sole proprietorships,
partnerships retain full, shared liability among the owners. Partners
are not only liable for their own actions, but also for the business
debts and decisions made by other partners. In addition, the personal
assets of all partners can be used to satisfy the partnership's debt.
2. Disagreements Among Partners: With multiple partners, in the
business, there can disagreements like management styles, salary
schemes, etc. That is why it is important to consult each other on all
decision making having to compromise and resolve disputes.
3. Shared Profits: Because partnerships are jointly owned, each partner
must share the successes and profits of their business with the other
 partners. An unequal contribution of time, effort, or resources can
cause dispute among partners.

Third Option: Corporation

Often times, business owners opt to form corporations to protect
themselves against financial and legal liabilities. A corporation is a type
of business that keeps the dealings, assets, and bank accounts separate
from his/her personal assets.
This is especially true if a business owner, like Mr. Chua, needs
more money to fund his business expansion. He wants to take a bank
loan but his assets are not enough to mortgage. Besides, if qualified to
get a loan, he may not be able to pay the loan and he will lose his
mortgaged properties if they are foreclosed. In short, he wants to protect
his own personal wealth. So, he may decide to look for investors.
The investors are only shareholders of the corporation. However,
investors will elect a set of board of directors responsible for the
different policies and vision for the corporation. The board of directors
will also appoint corporate officers for day-to-day operations of the
corporation. Usually a corporation has the following key personnel: a
president, a secretary, and a treasurer, although there can be other
officers, such as vice presidents.
Advantages:
1. Separate legal personality: A corporation, once registered with the
Securities and Exchange Commission and is issued a certificate, has
acquired a legal personality separate and distinct from its
stockholders. It can sue and be sued. Shareholders of a corporation
are not liable to obligations the corporations contracts into like debts,
negligence or wrongful acts of the corporation. The maximum lost of
money a shareholder can incur is just the amount of his/her
investment in the corporation--the value of his/her stock.
2. Ease of raising funds: In a corporation, it is easy to raise additional
funds since it has the option to sell shares of the corporation.
3. Continuity: It can have a perpetual existence, which means it can
outlive its owner because it is a separate person in the eyes of the
law. This means investors don't have to worry about the untimely
demise of the owners. It also allows the corporation to plan for the
long term.
4. Ease of transfer of ownership: It's easy to transfer ownership
interests in a corporation. The board of directors can authorize the
issue of shares of stock in exchange for investors' capital infusion into
the company.
5. Credibility: A business with an Incorporation or 'Inc sign after its name
often Credibility: A business with an sounds more credible in the
business context. One most likely attracts more partners, customers,
and attention from the community.
Disadvantages:
1. More time and money spent in organizing: In a corporation, it will
require more time and money than forming other sole and
partnership business type.
2. More paperwork: Several documentations and paper works
required by governmental agencies monitor corporations. The
state also requires the filing of annual reports. And they have to file
corporate income tax returns as well.
3. Higher tax: Corporate profits may be subject to higher overall taxes
since the government imposes taxes on profits at the corporate
level and again at the individual level, if such profits are distributed
to the shareholders.
4. More costly: There are required number of board meetings and
annual shareholder meetings/sessions. All of these
meetings/sessions will incur expenses. Most corporations will
retain the services of an attorney and accountant to help them with
drafting legal documents and corporation filings and maintaining
compliance with complex corporation law and regulations.

Nature and Role of the Firm

responsible for recruitment
A. Human Resource Management: Human Resource Management is the
entire spectrum of management of people that serves to maximize
their performance in order to meet the organization's strategic
objectives. It covers, among others, the major functions of
recruitment, selection and placement, training and development,
employee relations, and compensation and benefits administration.
B. Marketing Management: According to Business Case Studies,
"Marketing is the management process responsible for identifying,
anticipating, and satisfying consumer requirements profitably." pagbebenta ng
goods
C. Operations Management: "Operations management involves
overseeing, designing, controlling the process of production, and
 redesigning business operations in the production of good and
services" (Source: eNotes). In a manufacturing setting, the company
has to ensure the design of effective and efficient production process,
timely acquisition of raw materials needed for production,
deployment or adequate number of trained workers, and the proper
maintenance of equipment and other resources required. In a service-
oriented setting, on the other hand, the company has to ensure the
availability of trained and customer-oriented personnel presence of
customer service locations, and excellent provisions of customer
services. namamahala ng finance
D. Financial Management: "The goal of any finance function is to achieve
three benefits: business support service, lowest costs, and effective
control of the environment." Toward the end, the firm has to ensure
that it sets up effective and efficient internal process designed to
achieve all these, while maintaining the values of being vision
oriented, growth-focused, intuitive, and risk-taking (Source: Role of
Finance in a Business, by Dana Griffin, Demand Media). nabili ng mga produkto
E. Material and Procurement Management: it is the responsibility of the
firm to ensure that it manages the procurement process and the
supply base effectively and efficiently. This includes buying high
quality products and services at the right price from the right, reliable
source, based on the right specifications, in the right quality for
delivery, at the right time to the right customers
F. Office Management: According to Business Dictionary.com Office
management involves the design, implementation, evaluation, and
maintenance of the process of work within an organization, in order
to maintain and improve efficiency and productivity." It is the
responsibility of the firm to monitor and review systems that would
yield expected outcomes like improved turnover, output, sales, etc. It
is like the backroom support that will ensure the effective discharge
of functions of revenue generating units of the organization.
G. Information and Communication Technology Management: This
includes a related form of communication or application that
encompasses radio, television, cellular phones, computer and
network hardware and software, satellite system, and so on, as well
as the various services and applications associated with them such as
videoconferencing and distance learning (Source: Margaret Rouse,
Whatls.com). It is the responsibility of the firm to provide the
necessary information and communication facilities to all its business
units in order to ensure that they are able to perform their functions
more effectively and efficiently.
 3.2 Types of Organization Structure
There are different types of organizational set-up or structure.
These set-up or structure are designed to accomplish different goals. The
structure of an organization is a crucial part in the progress of an
organization since it can help or hinder the organization in the
movement toward accomplishing these goals. Organizations, large and
small in scale, can achieve higher sales and other profits by properly
matching their needs with the structure they use to operate.
They come in different shapes and sizes. They can be "tall," those
that have many tiers between the common worker and the owner of the
company, or they can be "flat," meaning there are very few levels
between the common worker and the owner.
A basic organization framework is called the line structure. A line
structure organization has only direct, vertical relationships between
different levels in the firm. Take note that there are line departments
inside a line structure. Line departments are directly involved in
accomplishing the primary goals of the organization. For example, in a
typical firm, line departments include production and marketing. In a line
organization authority follows the chain of command. Chart 1 shows a
single line organizational structure.

Chart 1. Sample of Line Structure

CEO

Manager Manager
(Production) (Marketing)

Foreman Foreman Sales Officer Sales Officer

(Fabrication) (Assembly) (A) (B)

Workers Workers Salespersons Salespersons

Advantages:
1. Tends to simplify and clarify authority
2. Promotes responsibility and accountability relationships
3. Promotes fast decision-making
4. Precise and simple to understand
Disadvantages:
1. Neglects specialists in planning
2. Overloads tasks on key personnel
3. It becomes more ineffective as the organization becomes bigger.
4. Managers become experts in too many fields or area.
5. Tendency to become overly dependent on the few key people who
are performing numerous jobs

Before we proceed further, we should distinguish between line and

staff functions. A line function, as discussed, is a position that has a direct
chain of command that is responsible for the achievement of an
organization's goals.
A staff function, on the other hand, is intended to provide expertise,
advice, and support for the line positions. An example of staff functions
are HR, Quality Assurance, and Corporate Planning.
There are, however, several variations of organizational structures.
The three common types are: functional, divisional, and matrix
structure.

Functional
It is a set up wherein each department of the organization is
grouped according to its function or purpose. For example, there may be
a marketing department, a sales department and a production
department. (See Chart 2) The functional structure works very well for
small businesses in which each department can support itself by relying
on the talent and knowledge of its workers. However, one of the
drawbacks in a functional structure is the restriction in coordination and
communication between and among other departments by the
boundaries of the organization in which having the various departments
working separately and independently,
 Chart 2. Sample of Functional Chart

President
/CEO

Marketing Sales Production

Department Department Department

Divisional
Divisional structure is another type of organization structure. This
is typically used in larger companies or organizations with several
branches or outlets that operate in a wide geographic area or that have
separate smaller organizations within the umbrella group to cover
different types of products or market areas. Study Chart 3.
This type of structure provides significant benefit which addresses needs
more rapidly and more specifically; however, communication is inhibited
because employees in different divisions are not working together.
Divisional structure could also be costly because of its size and scope.

Chart 2. Sample of Divisional Chart

ZYZ
Company

Luzon Visayas Mindanao

Division Division Division
 Matrix Structure
A matrix structure is a hybrid of two structures namely, divisional
and functional structure. Typically used in large multinational
companies, the matrix structure allows for the benefits of functional and
divisional structures to exist in one organization. However, this can
create power struggles because most areas of the company will have a
dual management-a functional manager and a product or divisional
manager working at the same level and covering some of the same
managerial territory. Study Chart 4 as indicated.
Unlike the other structures, it does not follow the traditional
hierarchical model. Instead, all employees (represented by the green
boxes) have dual reporting relationships. Typically, there is a functional
reporting line (shown in blue) as well as a product-based reporting line
(shown in yellow).
When studying a matrix structure organization chart, the solid lines
represent strong and direct reporting relationships; on the contrary,
dotted lines indicate that the relationship is secondary or not as strong
as that on the solid lines.

Chart 4. Sample of Matrix Division

CEO

Marketing Sales Services

Electronics
Division

Home Good
Division

Yummy Snacks
Division
 One advantage point of the matrix structure is the flexibility and
the making (as there are two chains of command instead of just one).
However, its disadvantage would be complexity which can lead
employees. The conflicting orders from multiple sources may lead to
confusion and increase effectiveness and conflict. Some staff specialists
or personnel may exert authority direct over the line personnel, rather
than exert advice authority.

Informal Organizational Structure

Before we leave this topic on organizational structure, one must
bear in mind that two broader organizational structure identified as: the
formal and the informal organization.
The formal organization, as discussed and illustrated earlier, are
usually represented with organizational charts and with position
descriptions. There is a clear reporting relationship that the manager is
aware of. On the other hand, the informal organization is a set of
evolving relationships and patterns of human interaction within an
organization actually do exist but are not officially prescribed. Alongside
with this informal organization are the informal leaders who sometimes
exert influence to organizational behavior
3.3 Organization Design Principles
Now that we have given you the different types of organization
charts, showing the advantages and disadvantages of each, let's take a
look at some Organization Design Principles.
Firstly, let us be realistic to recognize that there is never a single
best structure for any company or function. Any structure is no silver
bullet. There will never be a perfect structure. All structures carry
significant strengths and weaknesses, advantages and disadvantages,
and all companies have different capabilities and strategic positions.
Organizational design is the process of aligning an organization's
structure based on its vision and mission. It is a careful study at the
complex relationship between tasks, workflows, responsibilities and
authorities, and making sure these all support the objectives of the
organizational strategy and mandate.
Good organizational design helps communications smoothly
transition from one department to another. It creates an environment
where people can work effectively and efficiently. It fosters productivity
leading to innovation. It is tailored to deliver the company's competitive
strategy. The design can be evaluated by specific criteria, such as
technology, corporate culture, etc.
Beyond solid and broken lines, shifting lines and boxes in an
organization chart, one has to consider the company's fundamental
building blocks, namely:
• Recognize how people in the company make decisions
• Determine how people adopt new behaviors
• Create how people are rewarded based on performance
• Agree on what are the commitments
• Manage information and utilize effectively
• Sense of responsibility is allocated and connected with one another.
Under these considerations, therefore, the structure tan ever be
permanent. It is subject to review and change, if necessary. Changes may
be triggered by heightened competition, changes in customer behavior,
people movements, restructuring, reengineering, streamlining,
reorganization, and other reasons.

Organization Analysis and Design (OAD)

Organization analysis and design includes careful examination of
detail staffing levels and hierarchy, spans of control, and repetitions of
roles in the context of the businesses strategy. This implies that all work
is not created equal-there are some tasks that are more strategically
important to a company than others.
It is important to understand that even if a company creates an
elegant and elaborate organization design but fails to recruit the right
composition of talent and skill, it would be meaningless. In an
organizational diagnostic study, its states on the focus on the ability of
the current talent to do the critical work and the effect of the current
structure (job design) on engaging that talent.
An organization is a dynamic and constantly changing force; hence,
organization structure should be flexible and ready to adapt and respond
to new and emerging needs and to the requirements of the present as
well as to the future conditions and demands of business.
According to the "The Organization of the Future," a book by the
Drucker Foundation of New York, claims that, "Redesigns have a poor
track record. Many of the companies that restructure will restructure
again a few years later. Some of these repeated redesigns are the result
of external change; the first restructuring loses its relevance and power"
Organization Analysis and Design (OAD) is undertaken in the
context of changing situations and conditions. Each study is done with
specific objectives such as:
• To develop a structure by which the objectives and policies of the
company can best be realized and the supporting plans
implemented;
• To develop a structure that is responsive to environmental
conditions (competition, regulations, and technology);
• To develop a structure that clearly delineates duties,
responsibilities, and working relationships of people.
We study organization structure for the main reason that it is innate
to an organization as skeleton is to the human body. If the structure is
weak, disjointed, and poorly developed, then no amount of planning will
change the qualitative to quantitative." All the planning for development
will be in vain, for the plans will remain just as they are - mere plans.
In a "Professional Practice Manual on Organization Studies" authored
by Zorilla, he defined the scope, approach and methodology involved in
the conduct of an OAD.

Nature and Scope of Organization Analysis and Design (OAD)

Organization analysis generally involves the design of an
organization structure including the delineation of the levels of authority
and responsibility and the definition of the functions and
interrelationships of organizational units and/or positions. Organization
structure is usually graphically presented in a basic organization chart, a
functional chart, and a detailed position chart. The recommended
organization is based on sound concepts and principles relevant to the
unit under study.
In order to design a structure that is highly adaptive and flexible to the
demands of a dynamic organization, the design must consider a number
of factors:
• Internal company factors such as corporate objectives, philosophy,
strategy, policies, and procedures;
• Leadership style, individual goals and objectives of top management
and;
• External factors such as developments in the industry, government
policies, and laws regulating company operations, foreign markets,
and relationships with other entities.

3.4 Stages of Development of Organizations

Organizations, like human beings, pass through several stages of de
human being's life cycle comprises of four stages of development:
childhood, adolescence, maturity, and old age. Similarly, an organization
passes through several stages. best managed companies pass through
stages of organizational develop periods of chaos. Chaos in this context
is absolutely necessary for the growth and survival of a company.
Otherwise, the alternative could be stagnation.
Author Renee O'Farrel identifies three stages:
• Chaos
The chaos stage of organizational development has rightly been called
the "firefighting" stage because everyone always seems to be putting
out fires. Operations tend to be extremely problem-focused; people
react to situations rather than enact them, an issue that keeps focus in
the short term. Typically good intentions float around but not enough
commitment, follow-through or know-how for staff to unite and take
action. There tend to be informal routines and processes; procedures
and accountability may not always be clear.
• Stability
As the firm stabilizes its operations, goals and direction become more
consistent. Policies and procedures become more defined and a
structure starts to emerge. This stage of organizational development is
all about predictability and control. Compliance is king. Innovation may
be stifled at this stage, but the staff start to buy in to the company more
and slowly become more unified. Employee satisfaction tends to
increase as expectations and procedures are clarified and streamlined.
• High Performance
Once things start moving smoothly, employees take ownership for their
successes and failures, and performance is consistent. This focus shifts
from stability to performance. Instead of constantly solving problems or
policing procedures, staff can focus more on the mission of the company,
with an eye on innovation and increasing efficiency. The goals of the
company begin to take on a longer-term outlook. Instead of focusing on
this month's sales, the focus widens to take in the quarter the year and,
eventually, several years out.
Dr. Roger K Allen, an author and educator, in an article in Center
for Organization Design explains the three stages of organizational
development by his diagram.

From Stability
to High
Performance

From Chaos
to Stability

Stage III: High Performance (Outstanding, Sustainable Results)

• Clear statement of mission that creates a sense of esprit de corp
• Well-defined values which result in distinctive culture. Respect for
people that is deeply ingrained is part of the culture.
• Good communication
• High and active involvement and empowerment of people. Design
(work flow, structure, systems) supports mission and values.
Stage II: Stability (Back to the Basics)
• Clarity of goals and direction
• Consistency in priorities
• Well-defined policies and responsibilities (technical and personnel)
• Agreement on roles and responsibilities
• Basic management processes rewarded and practiced (goal-setting,
performance reviews, etc.)
Stage I: Chaos (Fire Fighting Mentality)
• Crisis/Short-term focus
• Lack of clear direction and goals
• Shifting priorities
• Unclear policies and procedures
• "Us" vs. "them" attitude
• Blame and lack of ownership
• Alienated workforce
Summary
Every business organization goes through the stage of chaos. In the
case of Mr. Chua's grocery business, it's natural if it goes through a stage
of chaos it’s natural in its initial stage. The trick is to provide an
environment out of chaos that favors stability. But given his patience and
dogged determination, his business will go up to the second stage of stan
high performance.
There is no simple formula. Real organizational development
requires commitment and hard work. Also, initiatives to eliminate waste,
improve quality, provide better customer service, people
empowerment, continued improvement, can lead to a foundation of
organizational stability and eventually high performance.

3.5 Starting a Business

This Chapter will not be complete without giving the reader the
basic processor Starting a business. Almost all big businesses start small.
SM, the shopping mall giant began with a Shoe store in Carriedo Street,
Quiapo, Manila. About 99.58 percent of the business in the Philippines
that contributes 32% of the country's Gross Domestic Product (GDP) and
accounts for 61 percent of the local workforce belong to the Micro,
Small, Medium-size Enterprises (MSMEs).
So, how does a young entrepreneur start a business? R.A. 9178,
otherwise known as the Barangay Micro Business Enterprises (BMBEs)
Act of 2002 or BMBE Law encourages everyone to put up a business.
Hereunder is the Process Flow that serves as a guide to registering
a business.
In case the flow chart is not readable to some, we are repeating
hereunder in clearer form the steps to be taken by anyone who wants
to start a business.
Step 1
• For single proprietorship, register with the Department of Trade and
Industry (DTI) for business name
• For Partnership or Corporation, register with the Securities and
Exchange Commission (SEC) for Certificate of Partnership or
Corporation
• For cooperatives, register with the Cooperative Development
Authority (CDA)
Step 2
• Apply for business permit and license from the city/municipality
where the business is to be located
Get sector specific clearances. For example
- Travel Agency
-
- Department of Tourism
- Food and Cosmetics - Food and Drug Administration (FDA)
- Pawnshop - Bangko Sentral ng Pilipinas (BSP)
- Learning Centers - Department of Education (DepEd)
- Wood crafts/furniture - Department of Environment and Natural
Resources (DENR)
Step 3
• Register with the Bureau of Internal Revenue (BIR) District Office
where the business is to be located for Authority to Print Invoice
and Book of Journal.
Step 4
Other registration requirements
Register your business with the following offices for compliance to
good employeremployee relationships, incentives and benefits, and
social, community, and environmental responsibilities
- Social Security System (SSS)
- Department of Labor and Employment (DOLE)
- PhilHealth
- Pag-Ibig
- Department of Environment and Natural Resources (DENR)
Step 5
Start the business
The BMBE Law exempts MSMEs from income tax for income
arising from operations of the enterprise. The Local Government Units
(LGUS) are also encouraged either to reduce the amount of local taxes,
fees, and charges for MSMEs or exempt them from these taxes, fees,
and charges.
Furthermore, MSMEs are exempted from the coverage of the
Minimum Wage Law although their employees are covered by the
Social Security Law and the health care benefits of PhilHealth.
Government financial institutions such as Land Bank of the
Philippines (LDBP), Development Bank of the Philippines (DBP), the
Small Business Guarantee Corporation (SBGFC), and the People's Credit
and Finance Corporation (PCFC) shall set up a special credit window
that will service the financing law.
The Government Service Insurance System Service Insurance
System (GSIS) and Social Security System (SSS) shall likewise set up a
special credit window that respective members who wish to establish a
small business.
Short Case for Discussion
Mr. Chua in his plan for expansion by putting up a branch of his
grocery near Cubao, has decided to take the third option: incorporating
under the business name, "Chua Groceries, Inc." He figures that he
needs a subscribed and paid up capital of P100 million to be submitted
to the Securities and Exchange Commission (SEC). He has only P50
million cash in the bank. He invited two close friends to chip in the
balance of P50 million to make up for the balance. Mr. Chua wants to
be elected as president and his wife as treasurer of the company. His
two friends would be elected vice-president and corporate secretary,
respectively
While Mr. Chua, his wife and son, the manager of the planned
branch of the grocery store, would control the day to day operations of
the company, he does not feel comfortable with the 50-50 sharing of
the capital. What if relations with his two friends turn sour in the
future? Aggressive and ambitious that Mr. Chua is, what worries him is
if he further expands the grocery business in the future and the two
friends do not agree, there would be a deadlock in the voting. His two
friends could be a bar to his future expansion plans. Mr. Chua decided
to go on a 51-49 percent sharing in the stockholdings of the planned
company. 51 percent is to be owned and controlled by him. He needs
therefore P2 million more for his paid up capital to assure control of the
company. His problem is, where would he get that much money fast?
Which sources of funds could Mr. Chua avail of on credit?