Types of Business Organization

Based on Ownership

Sole or single proprietorship- this is a type of business which is owned and managed by only
one person.

Advantages:
Easy of formation
Owner has full control over the management of the business
Owner receives all the net income of the business
Less government control
Easy to change ownership structure if circumstances change
Disadvantages:
Limited amount of capital
Owner assumes all the risks including net loss of the business
Difficult to attract and retain talented employees
Expertise limitation
The owner is taxed as a single person

Partnership- This is an association of two or more persons who bind themselves together to do
business, The persons owning this form of business are called partners.

Advantages:

1.It is easy and inexpensive to form and dissolve

2. A greater amount of capital may be raised compared to a sole proprietorship
3. There is relative freedom and flexibility in decision- making compared to corporation
4. Less government compared to corporation
5. There are better management results from the combined experience and ability of several
individuals.

Disadvantages:

Lack of business continuity because it can be easily dissolved.

There is a limited amount of capital that may be raised.
Partners may be subjected to a personal liability for erroneous management decisions made by
his associates.
There is likelihood of disagreement when each partner has the same authority in the
management firm
There is difficulty in transferring ownership interest because ownership cannot be transferred
without the consent of all partners.
Corporation- This is formed and authorized by the law to act as a single person although
constituted by one or more persons and legally endowed with various rights and duties. The
persons who put in capital in a corporation are called stockholders.

Advantages:

The corporation’s power of succession enables it to enjoy a continuous existence.

Bigger source of capital may be raised
There is ease in the transfer of ownership which means shares of stocks may be transferred
without the consent of the other stockholders
The corporation has the capacity to act as a legal entity.
Disadvantages:
It is difficult to form because of complicated legal requirements and high costs in organization
It is subject to more government control
A corporation’s activities are limited by the articles of incorporation
It is subject to more taxes

Cooperative - is a business that is owned by a group of individuals who also serve as

benefactors to the business endeavor. A cooperative usually requires at least 15 members to
function.. Members can be part of a cooperative by purchasing shares. It is similar to
corporations who have set off by laws and articles of incorporation. Examples are credit
cooperative, consumer cooperative, producers cooperative, marketing cooperative , education
cooperative electric cooperative, multi purpose cooperative, housing, insurance cooperative,
etc.

Based on Operations or Activity

Service Concern- These are business engaged in rendering of services to others for a fee like
beauty parlor, dental/medical clinics, law firms

Merchandising or trading concern- Business that are into the buying and selling goods or
commodities fall under this type like grocery stores, drug stores, department stores

Manufacturing concern- these are businesses that are engaged in the processing of products
or the conversion of raw materials into finished goods that are then sold.

2+1+4+1+2=10 100000/10=10,000
2x10,000=20,000
1x10000=10000
4x10,000=40,000