ORGANIZATION AND MANAGEMENT
QUARTER 3 LECTURE
LESSON 4: FORMS OF BUSINESS ORGANIZATION
INTRODUCTION
The form of a business organization may
depend on its purpose, nature of operations, and
resources. However, a business organization’s form may
change with the changing times and the demands they
present.
Changing Forms of Business Organizations
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
Change is constant and organizations continue
to undergo various changes to ensure effectiveness,
efficiency, and relevance in the world of business.
Business organizations may be traditional
(simple, functional, divisional, profit, or nonprofit) or
open/flexible in form according to Robbins and Coulter
(2009).
Simple business organizations – these refer to
business organizations with few departments,
centralized authority with a wide span of control, and
with few formal rules and regulations. These are easy to
manage because of their simple form. However, change
of form follows as the company expands its operations.
Functional business organizations – these
pertain to 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 – these are
business organizations made up of separate business
units that are semi-autonomous or semi-independent,
with a division head responsible for his or her unit’s
performance.
In other words, each division has its own
functional organization and its own general manager;
however, the central headquarters management
maintains responsibility for the delineation of
organizational goals of the individual divisions.
Profit business organizations – these are
business organizations designed for the purpose of
achieving their organizations’ mission, vision, goals, and
objectives and maintaining their organizational stability
through income generation and profit-making activities.
Immediate revenues or cost factors account for their
success or failure.
Nonprofit organizations – these are business
organizations designed for the purpose of achieving
their organizations’ mission, vision, goals, and
objectives, providing service to clients without
expecting monetary gains or financial benefits for their
endeavors. Their success or failure may be measured by
the high or low evaluation scores they obtain.
Open/flexible business organizations – these
are formed to meet today’s changing work
environment.
Business organizations affect and are affected
by the environment; therefore, change becomes
inevitable. Other forms of business organizations:
1. Team structures – where the organization as a
whole is made up of work teams (small, but
focused) that work together to achieve the
organization’s purpose; popular in collectivist
culture.
2. Matrix business organizations – those which
assign experts or specialists belonging to
different functional departments to work
together on one or more projects; exhibit dual
reporting relationships in which managers’
report to two superiors—the functional
manager and the divisional manager.
3. Project business structure – a business
organizational form with a flexible design,
where the employees continuously work on
projects assigned to them; projects may be
short-term or long-term and members disband
when the project is completed.
 4. Boundaryless business organization – a business
organization whose design eliminates vertical,
horizontal, or external boundaries, and is
described to be flexible and unstructured; there
are no barriers to information flow and,
therefore, completion of work is fast.
5. Virtual business organization – made up of a
small group of full-time workers and outside
experts who are hired on a temporary basis to
work on assigned projects; members usually
communicate online.
Other basic forms of business that are legal in the
Philippines are: single proprietorship, partnership,
corporation, and cooperative.
Different organizations have different preferences
as to the business form that is appropriate for their
needs and the purpose of their existence. Managers,
therefore, must be creative in finding ways to structure
or design and organize work in their respective firms.
Legal Forms of Business Organizations in the
Philippines
A. SINGLE PROPRIETORSHIP is the most basic and legal
form of business. It has only ONE OWNER who owns
and manages the business and responsible for all
business transactions. Its advantages and disadvantages
are as follows:
Advantages:
1) Total undivided authority.
2) Low organizational cost and license fees
3) Tax savings
4) No restrictions on type of business (as long as it is
legal)
Disadvantages:
1) Unlimited liability
2) Limitation on size
3) Limited by management’s ability to be jack-of-all
trades.
B. PARTNERSHIP is a duly registered association of two
or more persons who bind themselves to contribute
money, property or industry to a common fund. Its
characteristics are as follows:
1) Association of individuals – based on as simple an act
as a handshake.
2) Mutual agency – act of any partner is binding on all
other partners.
3) Limited life – Dissolution occurs when a partner
withdraws or a new partner is admitted.
4) Unlimited Liability – each partner is individually liable
for all partnership liabilities.
5) Co-ownership of property – partnership assets and
personal resources of any 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
assumed 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 limited 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. CORPORATION is an entity created by operation of
law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incident to its existence. Its characteristics are as
follows:
1) Has separate legal existence from its owners
2) The stockholders, as the owners, have limited liability

3) Transferable ownership rights

4) Ability to obtain capital

5) Can have a continuous life

6) Subject to numerous government regulations

7) Double taxation of distributed earnings

8) An artificial/juridical “person”. The management

structure is at the discretion of board of directors

D. 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. 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;

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.

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