owNERSHIP AND ORGANIZATION

Introduction
This
module provides the participants concepts of eachintype or class
of ownership and
organization an entrepreneur can choose starting up
a business.
Advantages and disadvantages of each type of ownership and
organization are discussed. Although there is no best form of ownership in
general, there may be one best form of ownership for each circumstance
based on the biases and preferences of the entrepreneur.

Objectives
increase participant's awareness of different forms of
business ownership, thereby, allowing them to choose the
right form of organization in putting up a new business
help participants analyze the advantages and
disadvantages of each form or organization
provide participants the legal requirements of each type
of ownership and organization

Things to consider in selecting the best legal form of

organization:
Ownership How many owners will there be? Will their
Ownership be equal?
Management Will the owners also manage the firm?
Financing - How much money is needed to start or purchase

the business and what sources might provide it?

Liability- Is it desirable to separate the assets ofthe business

from the personal assets of the owners?

Incentives Will the business be able to provide the incentive

necessary to attract the managerial talent needed for growth
and success?
Taxation - What legal form will minimize the total tax load
imposed on the business?
 Retention of income Which form will provide the maximum
income?
Protection Will the asset values
over time be
developed in the business
preserved if key persons become unavailaole
because of illness or death?

Sole Proprietorship
The sole proprietorship or single
proprietorship isa form of business
organization initiated, organized, owned or capitalized, and managed by
a single person.
As defined, the entrepreneur is the capitalist, the manager, and
administrator, and in the beginning of the business, he practically does
everything for the business.

Advantages
Easily created and terminated. The sole proprietorship can be
brought into existence without any formalities and is easily
terminated.
Direct, undiluted action. The ownership, control, and
management are vested in one person.
All rewards to owners. The owner works for himself or herself
and determines his or her own destiny.
Flexibility. The owner is free to adopt change readily.
Minimum regulation and taxation. A proprietorship is generaly
free from control.

Disadvantages
Unlimited liability. The owners must be prepared to satisfy
business debts with their own personal assets if the business
is unable to meet its obligations.
limitations. Equity capitalis limited to the assets of
Capital
the owner. This can be a serious restriction on growth and
expansion.
or becomes seriously ill,
Perils of individual. If the owner dies
jeopardized.
the business is immediately
of the sole owner. The skills that
Limited skills and capabilities skills and capabilities
are limited to the
can benefit the business
not be enough for the demands of
the owner, which might
the business.

Partnership or more business partners who

is association of two
A partnership
Co-own aa business
busir
an
of making a profit. rtnership,
In a partnership,
for the purpose
 of the
the co-owners (partners) share the assets, liabilities, and profits
business according to the terms of the partnership agreement.

Types of Partners
1. General partner. A general partner is one who shares
ownership and management of the business, and is liable to
the extent of his separate property after all the assets of the
partnership are exhausted.
2. Limited partners. They refer to partners with limited financial
liability and they do not take active role in the management
of the firm. A limited partner is one who is liable only to the
extent of his capital contribution.
3. Silent partners. They refer to partners who do not take active
participation in the operation of the business, but they are
generally known to be partners of the business.
4. Dominant partner. They are neither active in the partnership
nor they are generally known to be associated with the
business.
5. Capitalist partner. This is the type of partner who
contributes money or property to the common fund of the
partnership.
6. Managing partner. This is the partner who is designated to
manage the operations of the business of the partnership.
7. Industrial partner. This is the partner who contributes his
knowledge or personal services to the partnership.
8. Secret partner. This is a partner who takes active part in the
business, but is not known to be a partner by outside parties.
9. Nominal partner or partner by estoppel. This is a partner
who is actually not a partner, but is held out or represented
as a partner.

10. Liquidating partner. This is a partner who is designated to wind

up or settle the affairs of the partnership after dissolution.

Advantages
Pooling of resources. The partnership is useful in bringing
together two or more persons who, as a group, have moree
business potential than as individuals. Ideas, managerial talent,
money, and fixed assets are frequently combined to produce
a successful business.
Ability to obtain capital. The combined financial resources of
all the partners stand behind the negotiations for business
borrowing.
 Simplicity and incentive.Each partner is motivated by
that the success of the
partnership
knowin
is in part due to his or her
own efforts. This
encourages the
of the business above their own partner
to place the succes
self-interest.
Limited regulation and taxation. A partnership, much like a
proprietorship, is subject to a minimum amount of regulatron,
and the partners are taxed on their own
individual incomes.
Disadvantages

Unlimited liability. All the partners are liable for the actions or
each other.
Tenuous existence. The partnership is subject to many
eventualities that may terminate or disrupt its operation. It
may be terminated by the death, insanity, or incapacity of a
partner. Furthermore, serious disagreements may be insoluble.
Independence on management harmony and coordination.
The equality of the partners is simple in theory, but sometimes
more difficult in practice. Partners may not agree on certain
matters, or division of work assignments may prove awkward.
Problems in share liquidation. A partner's share is not easily
disposed of except by agreement with the other partners.
Attempting to dispose of a share to an outsider without proper
valuation can be a problem.

Corporation
A Corporation is an artificial being, invisible, intangible,
and exists
stockholders who can
only in contemplation of law. Its owners are the the continuity of
seii their interests in the corporation without affecting
or distinct
operations because the life of the corporation is dependent
ts
rom that of the owners or stockholders.

Advantages
of a stockholder in a corporation
Limited liability. The liability
invested in the stock.
is limited to the amount
The corporation is a legal entity. It may own
Legal entity. affected by the death
or withdrawal of its
property, but is not
and equal protection
entitled to due process
stockholders, and is Constitution.
Amendment of the
under the Fourteenth
shares of stock can be
of ownership. The
Ready transferabitity
sold or transferred
at will.
with a salable
Forming a new corporation
Obtaining capital. to a variety of
opportunities
to sell stock
some stability
aea can providea corporation that has a c h i e v e d
investors. Later,
 effectively for a substantial amount
more
can usually bargain or partnership.
of capital than either a proprietorship
corporation has a better chance to
Employee benefits. The Stock ownership, bonuses,
create incentives for employees.
and other fringe benefits
pension plans, insurance programs, such programs aree
and the tax advantages that accompany
the corporate form of organization.
more easily provided by

Disadvantages
corporation may require
Legal formality and cost. Creating
a
In addition, the
considerable time, effort, and expense.
more control and more
corporation is subject to considerably
than proprietorship or
exacting compliance with regulations
partnership.
In view
Cost and time involved in the incorporation process.
of the relatively large number of persons involved in forming
a corporation, the cost involved and the time requirement for
the formation or incorporation registration process is somewhat
longer and difficult.
Taxation. The nature of a corporation is subject to certain tax
regulations, which is more costly from the viewpoint of both
national income tax and local government tax rules.

Potential loss of control by founders of the corporation. The

nature of a corporation, as well as the boundary between
the powers of the owners/founders and managers of the
business, may pose as a constraint and threat to the founders
or stockholders of the corporation.

Cooperative
Republic Act 6938, otherwise known as the Cooperative Code of
the Philippines, defined a cooperative 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 risks and benefits of the undertaking in accordance
with universally
accepted cooperative principles
Principles of Cooperative
Open and voluntary membership. Membership is open to
all individuals, regardless of their
social, political, racial, or
religious background or beliefs.
Democratic control. Affairs of the organization are administered
by personnel elected or appointed in accordance with their
approved Constitution and By-laws. Members of the primary
 cooperatives have equal voting rights irrespective of tne
number of their capital share of stock.
Limited interest on capital. Shared capital receives strictiy
limited rate of interest.
Division on net surplus. Net surplus arising out of the
of cooperative belongs to its members and shall beoperations
distributed for cooperative development common equitaoiy services,
individual reserved fund, and for limited interest on capital
or patronage refund, as specified in the
and/
Articles of Incorporation
and By-Laws.
Cooperative education. All cooperatives are mandated to
make provision for the education of their members,
officers,
employees, and of the general public based on the principles
of the cooperatives.

Cooperation among cooperatives. All cooperatives, in order

to best serve
the interest of their members and communities,
have to actively cooperate with other cooperatives at local,
national, and international levels.

Advantages and Disadvantages of Cooperatives

Tax privileges. In some government-sponsored projects,
the cooperative usually receives subsidy and other forms of
privileges directed at its members.
Ability to provide direct benefits to its members and the entire
community it serves in the form of relatively cheaper products
and services consistent with its mission of providing services,
rather than existence for purely profit motives.
Inequality of profit distribution. Profits are distributed according
to the number of stocks. The enterprising or entrepreneurial
member of the cooperative who spent much effort will in turn
receive relatively lesser rewards as compared to the rest.
The pro-masses or pro-poor bias of the cooperatives appears
diametrically opposed to the entrepreneurs idea of servicing
a market niche that is well-off enough to address its dream of
profit.

eneral requirement and procedures for registration

Prospective entrepreneur must check with the government agencies
and
for updated or revised administrative
niCerned rules as well
Cent legislative enactment that may have to be complied with.
policies,

Registering a single proprietorship

the Department of Trade and
Register the business name with
Domestic Trade.
Industry under the Bureau of
 2 pcs. 2x2 picture
registration
fee of P1 10.00
Application fee or

Registering a partnership
Prepare partnership agreement
with the SEC
File the partnership agreement

Pay fling fee

by the lawyer and staff of
Evaluation of the application
Corporate and Legal Department
Release of the approved registration is within 15 -30 days

Registering a corporation
Prepare Articles of Incorporation and By-laws, bank certification
File Articles of Incorporation and By-laws with the SEC

Pay registration fee

Evaluation of application by lawyer and staff of Corporate and
Legal Department
Release of approved registration is within 15-30 days

Registering a cooperative
The following documents shall be forwarded to CDA:
1. Four (4) copies of the economic survey with a
genera
statement describing briefly the structure, purpose, eco-
nomic feasibility, area of operation, size of membership,
and other pertinent data
2. Four (4) copies of Articles of
Incorporation
the bond of accountable officers together with
3. Four (4) copies of By-laws
4. Registration fee as prescribed by CDA
Dealing with local government units
The papers ordocuments issued by DTI,
approval of the SEC, and CDA upon
registration are instruments which are national in
character. After complying with the national
LOcal Government Code which empowers the agencies, there is the
to take full administrative control of
local government unis
their respective
make legislation, as well as ordinances jurisdiction an
(including
best fitting to the needs of the locality. And this tax/fees impositions)
registrants is affected. is where the business
 To be able to finally operate the business and open the 0oo
with all the permits
to the pubic, the entrepreneurs have to comply the
clearances units. These are
imposed by the local government
and
following
1. Mayor's permit
2. Building permit
3. Sanitary permit
4. Cigar and liquor permit
5. NBI clearance
6. Barangay clearance

Dealing with other government and private bodies

for their
Agencies like DENR and DepEd may have to be consulted
own
requirements to the registering organization. The entrepreneur's
business proposition within the
neighborhood may likewise oppose a
village or subdivision.

How much money is needed?

There is no specific or mandatory provision in law in putting up
a sole proprietorship business. Unlike in partnership and corporation,
Securities and Exchange Commission requires a bank certification
attesting to the fact that indeed, the paid up capital requirement
as
indicated in the incorporation papers is deposited in the bank. Under the
iaw, the minimum authorized capital requirement for the corporation is
one hundred thousand pesos, and 25% of this must be subscribed, and
at least 25% of the subscribed capital must be paid up.

The best form of ownership

The summary of the pros and cons of various forms of business
organization is shown below. It would give the entrepreneur the chance
to evaluate his options.

PROPRIETORSHIIP PARTNERSHIP CORPORATION

Advantages: Ease of 1. Limited liability of

Simplicity in
creation establishment stockholders
2. Low cost to Division of profits 2 . Ability to attract
establish based on partnership larger anmount of
agreement capital
3. Owner receives all 3 Larger pool of 3. Ability to have
profits capital than perpetual life
proprietorship
 Larger pool 4. Ease of transfer oe
4. Owner retains all 4.
of talent than ownership
decision-making
proprietorship
authority
5. Ability to attract 5. Larger pool of
5. No special legal skills, talents, and
limited partners
restrictions
knowledge
6. Little government 6. Potential for econo-
regulations mies of scale opera.
tion

Disadvantages:
1. Unlimited liability 1. Cost and
1. Unlimited personal
of general partners time involved
liability
incorporation
process

2. Limited skills and 2. Limited capability 2. Subject to

capabilities for capital corporate taxes
accumulation

3. Limited access to 3. Difficulty in dispos- 3. Potential for dimin-

capital ing of partnershipp ished managerial
interests without incentives
dissolving partner
ship
4. Lack of continuity 4. Lack of continuity 4. Legal restriction
of the business and regulatory red
tape
5. Potential for 5. Potential loss
personal and of control by
authority conflicts founder(s)
6. Partners are bound
by law of agency