The Pros and Cons of Each Legal Form of Business

The legal Forms of Business Organization

A Comparison

Legal Form Advantages Disadvantages

Sole Proprietorship ❖ Allows you to be ❖ Makes you liable to
your own boss all the risk and losses
❖ Easy to start ❖ Has limited access to
❖ Allows you to keep capital and other
all profits resources
❖ Gives you complete ❖ Demands long hours
control of hard work on your
part
❖ Does not allow
sharing or
responsibility
Partnership ❖ More money ❖ Control of business is
available shared and is thus
❖ More “heads” limited
contribute to the ❖ Profits are shared
success of the and are thus
business reduced
❖ Losses are shared ❖ Consequences of a
among the partners poor decision made
❖ Risk are also shared by a partner
❖ Planning and ❖ Decision made by a
problem-solving are partner is binding to
participatory other partners
❖ Liability for debts is
unlimited
❖ Property invested
becomes the joint
property of all
Cooperation ❖ Capital is easily ❖ Major decision
raised cannot be done by
the owners without
approval of the
Board of Directors
❖ Corporate and
individual profits, in
the form of
dividends, are taxed
separately (double
taxation)
❖ More expensed are
involved
 ❖ More rules and
regulations to
comply with
Cooperative ❖ Capital is easily ❖ Control of the
raised business is shared
❖ Liability is limited ❖ Ideas and decision
❖ More people benefit made by the board
from profits earned have to be
❖ Owners (members) accepted by the
may employ general membership
managers with
relevant
qualifications
❖ May be tax-
exempted

The option Not to Register

With all of this talk about different legal forms of business, it's safe to assume that
you want to register your company. But, in reality, do you? This question implies that you
can choose whether or not to register your company.

You've probably heard of the "underground economy." Businesses that are

"informal" or unregistered make up the underground economy. Some informal
businesses remain that way; others "surface" and become legitimate.

Staying "underground" has its perks. Unregistered businesses do not have to pay
taxes. It can also pay salaries that are lower than the legal minimum. In addition, an
informal firm is not required to provide sick and vacation leave, as well as other fringe
benefits, or to pay SSS contributions.

In some ways, an unregistered businessman may be regarded unaffected by

government regulation. In another sense, however, he is vulnerable to police
harassment. Sidewalk merchants who play "hide and seek" with cops are a popular
example. Unlicensed stores and shops, for example, pay "protection money" to
government officials who may otherwise harass them or shut down their business.

How to register your business

Since the law treats the owner and the business as the same, the sole proprietor only
needs to register his or her name with the Department of Trade and Industry (DTI) and
secure local licenses and permits to commence business operations.
Here’s a step-by-step process for registering a sole proprietorship in the Philippines:

1. Register a business name with DTI to acquire a DTI Certificate of Registration;

2. Register with the Barangay Office where the business is going to be located to
acquire a Barangay Certificate of Business Registration;
 3. Register with the Mayor’s Office to acquire a Mayor’s Permit; and
4. Register with the Bureau of Internal Revenue (BIR) to acquire a Certificate of
Registration.
5. Register your business and employees with the Social Security System for social
benefits
6. Register with the Department of Labor and Employment (DOLE) office nearest
you, if you have Five or more employees.

How to Register a Partnership or Corporation?

Firm registration is a key step while setting up a business. The entire registration process
might be swift and straightforward or long and tedious, depending on the size of your
firm. The procedure of forming a company in the Philippines is not difficult provided the
investor is informed of the numerous requirements that apply. Here's a guide on
registering your partnership firm in the Philippines that will walk you through the
procedure step-by-step.

1. Register Your Business Name at the Securities and Exchange Commission (SEC)

You must register your company name with the SEC if you are forming a corporation
or a partnership organization. It is the Philippine government agency in charge of
enforcing securities laws and regulating the securities industry. After registering, you
must get a Certificate of Registration from the Securities and Exchange Commission
in order to obtain a business license.

2. Obtain a Barangay Clearance

All enterprises in the Philippines must acquire a Barangay Clearance from the
local Barangay office where they are located. A clearance will assure that your
business is a community friendly establishment and corresponds to the criteria of
the Barangay.

3. Register with the Social Security System (SSS)

Companies who hire employees must register their business and employees with the
SSS. Registering your employee with the SSS assures that, as an employer, you are
lawfully remitting your employer’s payment to the agency for the benefits of your
employees. Not registering your personnel with the SSS is viewed as breaking the
Social Security Law.

4. Obtain Permit from the Mayor’s Office

After obtaining a Certificate of Registration, a Certificate of Barangay Clearance,

and SSS registration, the next step is to register with the local municipality and
acquire a permission. The permit certifies that your business complies with the
 municipality's or city's rules and standards, including sanitary, fire, and safety
requirements, as well as other approvals.

5. Register Your Business with the Bureau of Internal Revenue (BIR)

Prior to the issue of the BIR Certificate of Registration, a Certificate of Mayor's Permit
must be provided. By registering with the BIR, you will be able to print official
receipts, keep track of your finances, and acquire a separate Tax Identification
Number (for partnerships and corporations). The annual BIR registration charge is 500
pesos.

ORGANIZING A COOPERATIVE

Fifteen (15) or more natural persons who are Filipino citizens, of legal age, having a
common bond of interest and are actually residing or working in the intended area of
operation, may organize a primary cooperative. A prospective member of a primary
cooperative must have completed a Pre-Membership Education Seminar (PMES).

ARTICLES OF COOPERATION

Corporations which seek to register must file its Articles of Incorporation, while
cooperatives file its Articles of Cooperation, which must be signed by each of the
organizers and acknowledged before a notary public.

TREASURER CERTIFICATION

Certification under oath by the treasurer, showing that at least 25% of the authorized
share capital must be subscribed, and at least 25% of the total subscription has been
paid.

OFFICERS’ BOND

The Articles of Cooperation must be accompanied with the bonds of the accountable
officers.

GENERAL STATEMENT

An applicant must prepare and submit a general statement describing, among others
the structure and purposes of the proposed cooperative. The structure and actual
staffing pattern of the cooperative shall include a bookkeeper. The applicant shall not
be allowed to operate without the necessary personnel and shall also submit an
economic survey, indicating therein the area of operation, the size of membership, and
other pertinent data in a format provided by the CDA.

FILING WITH THE CDA

Prospective cooperatives must submit their application to the CDA Extension Office
where the principal office of the cooperative is located.

All applications for registration shall processed within 60 days from filing. The application
is deemed approved in case the CDA fails to act within the 60-day period. In case of
denial of the application, an appeal may be filed with the Office of the President within
90 days from receipt of notice of such denial. If the President fails to act within 90 days,
the application is deemed approved.

CERTIFICATE OF REGISTRATION

A cooperative acquires juridical personality from the date the CDA issues a Certificate
of Registration.

ACTIVITY!!! (2pts Each)

Identify the different agencies where some specific types of business needs to
register. For example:

• For firms manufacturing drugs, cosmetics, and food products. – Food and Drug
Administration (FDA)
1. For business engaged in processing and trading of fiber and other fiber
products. __________
2. For traders and processor of rice, corn, and flour. __________
3. For land transport services (jeepney lines, taxicab, and bus operation. ______
4. For see transport services. ______
5. For firms engaged in recruitment of workers for employment abroad. _____
6. For owners of schools, universities, and other educational institutions. _________
7. For hotels and other lodging facilities for tourists. ________
8. For construction contractors. _____________--
9. For exporters in general. ____
10. For exporters of Drugs, cosmetics, and food products. ____--
11. For exporters of Coconut and coconut by- product.
12. For exporters of garments and textile. ___________
13. For exporters of fish and fish products. _____________-
14. For exporters of animals and animal product and by- products.
15. For exporters of plants and plant product. ________
16. For exporters of Forest Department. ____________
OWNERSHIP AND ORGANIZATION

Objective:

• Increase student awareness of various forms of business ownership, allowing

them to select the appropriate organizational structure when starting a new
business.
• assist learners in analyzing the benefits and drawbacks of each type of
organization
• the participants.

Things to consider in selecting the best legal form of organization:

• Ownership
• Management
• Financing
• Liability
• Incentives
• Taxation
• Retention of Income
• Protection

SOLE PROPRIETORSHIP

A sole proprietorship, also known as a single proprietorship, is a type of business

administration in which a single person initiates, organizes, owns or capitalizes, and
manages the business.

Advantages

1. Easily created and terminated

2. Direct undiluted action
3. All rewards to owners
4. Flexibility
5. Minimum regulation and taxation.

Disadvantage

1. Unlimited liability
2. Capital Limitations
 3. Perils of Individual.
4. Limited Skills and capabilities of the sole owner.

PARTNERSHIP

A partnership is a group of two or more business partners who own and operate a firm
together in order to make a profit. In a partnership, the co-owners (partners) share the
business's assets, liabilities, and earnings according to the partnership agreement's
conditions.

ACTIVITY!!! (50 pts)

List down at least ten (10) types of partnership. Define them shortly and site an
example or a situation.

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Advantages

• Pooling of Resources
• Ability to Obtain Capital
• Simplicity and Incentive
• Limited regulation and taxation.

Disadvantages

• Unlimited liability
• Tenuous existence
• Independence on management harmony and coordination.
• Problems in share lliquidation

COOPERATIVE

A cooperative is defined by Republic Act 6938, also known as the Philippine

cooperative code, as a duly registered association of persons with a common bond of
interest who have voluntarily joined together to achieve a lawful common social or
economic end, making equitable contributions to the capital required, and accepting
a fair share of the risk and rewards of the undertaking in accordance with universally
accepted cooperative principles.

Principles of cooperative

1. Open and voluntary membership

2. Democratic Control
3. Limited interest on capital
4. Division on net surplus
5. Cooperative Education
6. Cooperatives among cooperatives

Advantages and Disadvantages of Cooperative

• Tax Privileges
• Ability to provide direct benefits
• Inequality of profit distribution
• The pro-masses or pro-poor
Test your knowledge (10 pts Each)

1. https://philippinesbusinessregistration.com/company-registration/sole-
Differentiate the four (4) business forms discussed.
proprietorship/
2. Why is cooperative advantageous over a corporation
3. https://pnl-law.com/blog/how-to-register-a-cooperative-in-the-philippines/
Discuss the advantage of a corporation in terms of capital generation

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