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Unit 4
Forms of Business Organizations

Forms of Business Organizations:

A. Concept of sole/single proprietorship.

“Suppose you want to open your own sari-sari store that will need PHP10,000 to start and
you used your PHP10,000 savings to start the said business. You are the sole owner of the
said sari-sari store. This type of business is called sole/single proprietorship.”

Sole/single proprietorship. It is the simplest form of business organization, owned by one person
known as the proprietor or entrepreneur.

• A form of business is owned by one person; the simplest, and the most common
form of business organization
• It is not separate from the owner. The business and the owner are inseparable

The advantages of sole/single proprietorship.

• The owner keeps all the profits.

• The owner makes all the decisions.
• It is easy to form and operate. Only minimal requirement set by the government.
• The owner, not the business, is taxed.
• Easy to dissolve.

The disadvantages of sole/single proprietorship.

• The life of the business is limited to the life of the owner. Once the owner dies, the

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business will cease to operate under the name of the proprietor.

• The amount of capital is limited only by the wealth of the proprietor.
• Unlimited liability.
• Loss are solely shouldered by the owner.

B. Concept of partnership:

“What if the needed amount to start your dream sari-sari store is PHP50,000 and you only
have PHP25,000 cash savings. You ask Juan, your friend if he is willing to invest his
PHP25,000 and become part owner of the sari-sari store. Assuming he agrees, what form
of business organization was created?”

Partnerships. It is defined as an association of two or more persons who bind themselves to

contribute money, property, or industry to a common fund with the intention of dividing the profits
among themselves.

• A form of business owned by two or more persons. The details of the arrangement
between the partners are outlined in a written document called articles of partnership.
• Profits are divided among partners based on their agreed sharing.
• The owner is called a partner.

The advantages of a partnership

• Easy to form; mere agreement unless stipulated can organize and form one partnership.
• Higher capital because two or more persons will contribute to the common fund (capital, skill and
industry)
• Lesser government requirement and supervision
• Tax-exempt if professional partnership but taxed as corporation if commercial corporation

The disadvantages of a partnership

• The profits are divided among the partners.

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• A partner can be held liable for the acts of the other partners (Agent of partnership)
• Unlimited liability
• In a lawsuit, the personal properties of the partners can be held beyond their contributions and
may be used to answer for any liability of the partnership.
• Limited life
• Restricted transfer of ownership. Requires the consent of all partners before transfer of interest
be enforceable

C. The concept of a corporation:

“Assuming your dream is to open a grocery store and not just a sari-sari store but you will
need PHP1,000,000 to start the said business. You have only PHP25,000, your friend Juan
has PHP25,000, and your mother is willing to invest her PHP50,000, but still these are not
enough to start your dream grocery store. Where will you get the money to raise the PHP1
million? You may consider setting up a corporation?”

Corporations

• A corporation is a business organized as a separate legal entity (artificial person) under

the corporation law with ownership divided into transferable shares of stocks
• Corporation Code of the Philippines creates a corporation.
• The corporation begins its existence from the date the Articles of Incorporation is
approved by the Securities and Exchange Commission (SEC).
• The SEC (Securities and Exchange Commission) is the government agency primarily
tasked to regulate private corporations in the Philippines.
• The owners are called stockholders or shareholders.
• The word ‘Corporation/Incorporation/Corp./Inc.’ appears in the name of the entity.
• The voting rights of a shareholder is generally based on the percentage of ownership.
• The management of the business is delegated by the shareholders to the Board of
Directors
• The ownership is divided into shares and the value of one share may be denominated
at a smaller amount, for example at PHP10 per share.

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• The proof of ownership is evidenced by a stock certificate.

The advantages of a corporation

• Can easily raise additional funds by selling shares of stocks to the public.
• Shareholders are not personally liable for the debts of the corporation.
• Power of succession – unlike the other types of business organization, corporation can still exist
and continue in spite of incapacity of one shareholder.
• Ease of transfer of interest in case of incapacity of one shareholder.
• Limited liability – shareholders are not legally liable for the corporate unpaid outside and within
liabilities
• The extent of their liability is limited to their equity (ownership) in the corporation.
• Unlimited life – may renew its life every 50 years.

The disadvantages of a corporation

• It is relatively complicated to set up. Most costly and difficult to organize (higher cost of
incorporation)
• Subject to several legal restrictions as listed in the Corporation Code of the Philippines
• Taxed at flat 30%.

D. The nature of cooperatives:

“Assuming all the mothers in your barangay decided to open a sari-sari store where all the
members can buy in cash or in credit. Some mothers were also taught how to sew dresses
and bags as part of the project of the group. These bags are then sold to a certain company.

Aside from that, the organization provides seminars to the members on various topics
involving mothers and their roles. At the end of the year, the profits are distributed among
the members based on their capital contribution.

The amount of their purchases in the sari-sari store during the year is also computed and
they receive something out of the profit/surplus based on their purchases. This form of
business organization is called a cooperative.

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a. Cooperatives

• A cooperative is a duly registered association of persons with a common bond of

interest, voluntarily joining together to achieve their social, economic and cultural needs.
• The owners are called members who contribute equitably to the capital of the
cooperative.
• The members are expected to patronize their products and services.
• The word ‘cooperative’ appears in the name of the entity.
• This form of business organization is regulated by the Cooperative Development
Authority (CDA).

Role of CDA as a government agency regulating the cooperatives.

WHAT IS COOPERATIVE?

A cooperative is an autonomous and duly registered association of persons, with a common

bond of interest, who have voluntarily joined together to achieve their social, economic and
cultural needs and aspirations by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share of risks and benefits of
the undertaking in accordance with the universally accepted cooperative principles.

What are the objectives and goals of a cooperatives?

The primary objective of every cooperative is to help improve the quality of life of its
members. Towards this end, the cooperative shall aim to:

(a) Provide goods and services to its members to enable them to attain increased income,
savings, investments, productivity, and purchasing power, and promote among themselves
equitable distribution 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;

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(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 of the foregoing objectives.

WHAT ARE THE TYPES OF COOPERATIVES?

Cooperatives may fall under any of the following types:

(a) Credit Cooperative : is one that promotes and undertakes savings and lending services
among its members. It generates a common pool of funds in order to provide financial
assistance and other related financial services to its members for productive and provident
purposes;

(b) Consumer Cooperative : is one the primary purpose of which is to procure and distribute
commodities to members and non-members;

(c) Producers Cooperative : is one that undertakes joint production whether agricultural or
industrial. It is formed and operated by its members to undertake the production and
processing of raw materials or goods produced by its members into finished or processed
products for sale by the cooperative to its members and non- members. Any end product or
its derivative arising from the raw materials produced by its members, sold in the name of
and for the account of the cooperative, shall be deemed a product of the cooperative and
its members;

(d) Marketing Cooperative : is one which engages in the supply of production inputs to
members and markets their products;

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(e) Service Cooperative : is one which engages in medical and dental care, hospitalization,
transportation, insurance, housing, labor, electric light and power, communication,
professional and other services;

(f) Multi-Purpose Cooperative : combines two (2) or more of the business activities of these
different types of cooperatives;

(g) Advocacy Cooperative : is a primary cooperative which promotes and advocates

cooperativism among its members and the public through socially- oriented projects,
education and training, research and communication, and other similar activities to reach
out to its intended beneficiaries;
(h) Agrarian Reform Cooperative : is one organized by marginal farmers majority of which
are agrarian reform beneficiaries for the purpose of developing an appropriate system of
land tenure, land development, land consolidation or land management in areas covered
by agrarian reform;

(i) Cooperative Bank : is one organized for the primary purpose of providing a wide range of
financial services to cooperatives and their members;

(J) Dairy Cooperative : is one whose members are engaged in the production of fresh milk
which may be processed and/or marketed as dairy products;

(k) Education Cooperative : is one organized for the primary purpose of owning and
operating licensed educational institutions, notwithstanding the provisions of Republic Act
No.9155, otherwise known as the Governance of Basic Education Act of 2001;

(l) Electric Cooperative : is one organized for the primary purpose of undertaking power
generation, utilizing renewable sources, including hybrid systems, acquisition and operation
of sub transmission or distribution to its household members;

(m) Financial Service Cooperative : is one organized for the primary purpose of engaging
in savings and credit services and other financial services;

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(n) Fishermen Cooperative : is one organized by marginalized fishermen in localities whose

products are marketed either as fresh or processed products;

(o) Health Services Cooperative : is one organized for the primary purpose of providing
medical, dental, and other health services;

(p) Housing Cooperative : is one organized to assist or provide access to housing for the
benefit of its regular members who actively participate in the savings program for housing.
It is co-owned and controlled by its members;

(q) Insurance Cooperative : is one engaged in the business of insuring life and property of
cooperatives and their members;

(r) Transport Cooperative : is one which includes land and sea transportation, limited to
small vessels, as defined or classified under the Philippine maritime laws, organized under
the provisions of RA 9520;

(s) Water Service Cooperative : is one organized to own, operate and manage waters
systems for the provision and distribution of potable water for its members and their
households;
(t) Workers Cooperative : is one organized by workers, including the self- employed, who
are at the same time the members and owners of the enterprise. Its principal purpose is to
provide employment and business opportunities to its members and manage it in
accordance with cooperative principles; and

(u) Other types of Cooperatives : as may be determined by the Authority.

WHAT ARE THE CATEGORIES OF COOPERATIVES?

Cooperative shall be categorized according to membership and territorial consideration. In

terms of membership, cooperatives shall be categorized into:

Primary-the members of which are natural persons.

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Secondary-the members of which are primaries.

Tertiary-the members of which are secondary cooperatives.

Thus, those with cooperative memberships are considered federations or unions as the
case may be. In terms of territory, cooperatives shall be categorized according to areas of
operation which may or may not coincide with the political subdivisions of the country.
Those organized by minors shall be considered a laboratory cooperative and must be
affiliated with a registered cooperative. It is governed by special guidelines promulgated by
the CDA.

WHO CAN BE MEMBERS OF A COOPERATIVE?

A cooperative has two kinds of members: regular members and associate members.

A regular member is one who has complied with all the membership requirements and
entitled to all the rights and privileges of membership as stated in the Cooperative Code
and the cooperative by laws.

An associate member has no right to vote and be voted upon and is entitled only to such
rights and privileges provided by the cooperative's by laws.

WHAT ARE THE PRIVILEGES OF A COOPERATIVE?

Cooperative registered under R.A. 9520 can enjoy the following privileges:

(1) Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or
containers, documents or any valuable papers in the safes of the municipal or city treasurers
and other government offices free of charge, and the custodian of such articles shall issue
a receipt acknowledging the articles received duly witnessed by another person;

(2) Cooperatives organized among government employees, notwithstanding any law or

regulation to the contrary, shall enjoy the free use of any available space in their agency,
whether owned or rented by the Government;

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(3) Cooperatives rendering special types of services and facilities such as cold storage, ice
plant, electricity, transportation, and similar services and facilities shall secure a franchise
therefor, and such cooperatives shall open their membership to all persons qualified in their
areas of operation;

(4) In areas where appropriate cooperatives exist the preferential right to supply
government institutions and agencies rice, corn and other grains, fish and other marine
products meat, eggs, milk, vegetables, tobacco and other agricultural commodities
produced by their members shall be granted to the cooperatives concerned;

(5) Preferential treatment in the allocation of fertilizers and in rice distribution shall be
granted to cooperatives by the appropriate government agencies;

(6) Preferential and equitable treatment in the allocation or control of bottomries of

commercial shipping vessels in connection with the shipment of goods and products of
cooperatives;

(7) Cooperatives and their federations, such as market vendor cooperatives, shall have preferential
rights in management of public markets and/or lease of public market facilities, stall or spaces ;

(8) Credit cooperatives and/or federations shall be entitled to loans, credit lines,
rediscounting of their loan notes, and other eligible papers with the Development Bank of
the Philippines, the Philippine National Bank, the Land Bank of the Philippines and other
financial institutions except the Central Bank of the Philippines;

(9) Cooperatives transacting business with the Government of the Philippines or any of its
political subdivisions or any of its agencies or instrumentalities, including government-
owned and controlled corporations shall be exempt from pre- qualification bidding
requirements; and

(10) Cooperatives shall enjoy the privilege of being represented by the provincial or city
fiscal or the Office of the Solicitor General, free of charge, except when the adverse party

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is the Republic of the Philippines.

(11) Cooperatives shall enjoy the privilege of being represented by the provincial or city
fiscal or the Office of the Solicitor General, free of charge, except when the adverse party
is the Republic of the Philippines;

(12) shall have the preferential right in the management of the canteen and other services
related to the operation of the educational institution where they are employed:
Cooperatives organized by faculty members and employees of educational institutions
Provided, That such services are operated within the premises of the said educational
institution; and

(13) The appropriate housing agencies and government financial institutions shall create a
special window for financing housing projects undertaken by cooperatives, with interest
rates and terms equal to, or better than those given for socialized housing projects. This
financing shall be in the form of blanket loans to qualified cooperatives, without need for
individual processing.

HOW TO ORGANIZE A COOPERATIVE?

Organizing a cooperative can be complex and simple. It requires an understanding of the

basic needs of the prospective cooperative members. It demands patience from the
organizer who must make the cooperative's long-term goals and objectives, and its visions
a real part of the members' lives.

But it can be too easy because the Cooperative Code of the Philippines (RA 6938) has
devised very clear-cut steps for the cooperative organizer and members. The following are
the basic information that the prospective members should understand before organizing a
cooperative.

There are nine (9) steps suggested in setting up a cooperative.

FIRST. Get organized. You must have at least 15 members to do that. At once determine

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the common problems you would want solved and the basic needs you would want provided
for through a cooperative. You may want to include increasing your production, marketing
your produce, credit assistance, power generation, banking or insurance and other similar
needs. Determining your problems and needs will also help you classify the kind of
cooperative you will be organizing. Even before a cooperative is set up, a dedicated core
group people who will do all the organizational and paper works is a must. From this core
group, working communities may be formed to set things moving. These committees may
include membership, finance, executive, secretariat to name a few.

SECOND. Reserved your proposed cooperative name. Secure and fill up Cooperative
Name Reservation Request Form (CNRRF). This must be submitted to CDA Central Office
or any of its Extension Office. A reservation fee shall apply. Please click Name Reservation
button.

THIRD. Prepare a general statement called an economic survey. Economic Survey is a

general statement describing, among others, the structure and purposes of the proposed
cooperative. The structure and actual staffing pattern shall include a bookkeeper. This
should indicate the area of operation, the size of membership and other pertinent data in a
format provided by the Authority.
FOURTH. Prepare the cooperative's by-laws. The by-laws contain the rules and regulations
governing the operation of the cooperative.

FIFTH. Prepare the articles of cooperation. Mandatory contents of the articles of

cooperation are the following:

(a) the name of the cooperative, which must include the word "cooperative";

(b) the purpose or purposes and scope of business for which the cooperative is to be
registered;

(c) the term of existence of cooperative;

(d) the area of operation and the postal address of its principal office;

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(e) the names, nationality and the postal addresses of the registrants;

(f) the common bond of membership;

(g) The list of names of the directors who shall manage the cooperative; and

(h) The amount of its share capital, the names and residences of its contributors, and a statement
of whether the cooperative is primary, secondary or tertiary. The articles of cooperation shall be
signed by each of the organizers and acknowledged by them if natural persons, and by the
chairpersons or secretaries, if juridical persons, before a notary public .

SIXTH. Secure bond of accountable officer(s). A surety bond should be secured from a duly
registered insurance or bonding company. Every director, officer and employee handling
funds, securities or property on behalf of the cooperative shall be covered by this. The
board of directors shall determine the adequacy of such bonds.

SEVENTH. Execute Treasurers Affidavit. A sworn statement of the treasurer elected by the
subscribers showing that at least twenty-five per centum (25%) of the authorized share
capital has been subscribed, and at least twenty-five per centum (25%) of the total
subscription has been paid should be executed and to be attached to the articles of
cooperation. The paid-up share capital shall not be less than Fifteen thousand pesos
(P15,000.00)..

EIGHTH. Complete the Pre-Membership Education Seminar (PMES). A prospective

member of a primary cooperative must have completed a Pre- Membership Education
Seminar (PMES). You may contact the Regional or Extension Office which has jurisdiction
over your proposed cooperative for technical assistance.
NINTH. Register your cooperative with the Cooperative Development Authority (CDA)..
Submit the following required documents in four (4) copies:

Four (4) copies each of the Economic Survey, Articles of Cooperation and By-Laws duly
notarized;

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1. Economic Survey;
2. Articles of Cooperation and By-Laws;
3. Surety bond of acountable officers;
4. Treasurer's Affidavit;
5. Approved Cooperative Name Reservation Slip;
6. Certificate of PMES;

WHERE DO WE REGISTER COOPERATIVE, AND HOW MUCH SHOULD BE PAID FOR

THE REGISTRATION OF COOPERATIVE?

The Cooperative Development Authority (CDA) is the sole government agency mandated
to register all types of cooperatives. Its main office is located at 827 Aurora Blvd.,
Immaculate Conception, Quezon City. For registration of primary cooperatives, this power
has been delegated to the Regional or Extension Offices.

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

b. The advantages of a cooperative

• Enjoys certain tax exemption privilege

• Promotes the concept of sharing resources

c. The disadvantages of a Cooperative

• Limited distribution of surplus

• Requires continuous education programs for members.
• The members have active and direct participation in the business of the
cooperative.

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Distinctions:

Item Sole Partnership Corporations Cooperatives

Proprietorship
1.Numbers of possible 1 2 or more At least 5 15 or more
owners
2. Management (who Owner (but he Partners (or Board of Directors Board of
manages the business) may hire they may hire and operating directors and
somebody) managers) management operating
management
3. Termination of the Death of the Death of any As stated in the As stated in the
business owner partner or Articles of Article of
withdrawal of a incorporation, not Cooperation, not
partner to exceed 50 to exceed 50
years years
4. Government agency In limited capacity, In limited SEC CDA
assigned primarily to DTI capacity, DTI
regulate
5. Transfer of ownership Sell the business Sell the Sell stocks Cannot transfer
(it’s a new entity business or nor sell his
under a new interest of a membership
owner) partner
(consent of
other partners
is necessary)
6. Liability of owners Unlimited: other Generally Limited to the Limited to the
properties not unlimited; the stock investment capital
used in the other of the shareholder contribution of
business may be properties of the member
held liable for the the partners
obligation of the may be held
business liable for the
obligations of
the partnership

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