GRADE 11 School Angelita V.

Del Mundo Foundation (AVM Grade & ABM11a

LEARNING Foundation) Inc. Section
MODULES Teacher Learning Area Fundamentals of Accountancy,
Subject Code Business and Management 1
Misss Sweetzel A. Precinio (ABM1)
Teaching Dates WEEK 25 : February 1 - 5 , 2021 Quarter 3rd

A. MOST ESSENTIAL At the end of this module, you will be able to:
LEARNING 1. Differentiate the forms of business organization.
COMPETENCIES or 2. Identify the advantages and disadvantages of each form.
OBJECTIVES - MELCs
B. CONTENT Forms of Business Organizations
C. LEARNING Teacher’s Guide (TG) , CBLM – Bookkeeping NC III
RESOURCES

LESSON 4

FORMS OF BUSINESS ORGANIZATION

There are four major legal forms of business entity: the single proprietorship, partnership, corporation and cooperative.
While the accounting process for all these types of business entity is generally the same, differences in their structures and in the
laws that apply to these structures require some differences in the way certain aspect of their financial affairs are recorded. These
specific differences in accounting procedures are presented in detail in advanced accounting subjects. However, for now you
should understand the basic differences in the four types of business entities.

Single or Sole Proprietorship. The business organization has a single owner called the proprietor who generally is also the
manager. Single proprietorship tends to be small service – type (e.g. physicians, lawyers and accountants) businesses and retail
establishments. The owner may operate alone or may employ others.

The owner receives all profits, absorbs all losses and is solely responsible for all debts of business. From the accounting
viewpoint, the single proprietorship is distinct from its proprietor. Thus, the accounting records of the single proprietorship do not
include the proprietor’s personal financial records.

Partnership. A partnership is a business owned and operated by 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 partnership is a form of
business in which two or more people operate for the common goal of making profit. They may receive different shares of the
profits, depending on their investment or contribution. Accounting considers the partnership as a separate organization, distinct
from the personal affairs of each partner.

Corporation. A corporation is a business owned by its stockholders. It is an artificial being created by operation of law, having
the rights of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. The
stockholders are not personally liable for the corporation’s debts. The corporation is a separate legal entity.

Cooperative. A cooperative is a form of business organization in which the business is owned and controlled by those who use its
services. A cooperative may be organized as a legal entity or it may be an unincorporated association. Cooperatives have several
features that distinguish them from for-profit business corporations. These include control of the cooperative by user-owners,
services provided at cost, and limited return on equity capital.

Cooperatives are required to file a periodic registration in every odd-numbered year. Failure to file this registration will result in
dissolution.

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 FORMS OF BUSINESS ADVANTAGES DISADVANTAGES

 The owner keeps all the profits.
 The owner makes all the
Single or Sole Proprietorship decisions.
 It is easy to form and operate.
 Higher capital because two or
more persons will contribute to the
common fund.
 It is easy to operate like a
Partnership sole/single proprietorship
 Can easily raise additional funds
by selling shares of stocks to the
Corporation public.
 Shareholders are not personally
liable for the debts of the
corporation. The extent of their
liability is limited to their equity
(ownership) in the corporation
 Enjoys certain tax exemption
privilege
Cooperative  Promotes the concept of sharing
resources
 The life of the business is limited to
the life of the owner. Once the owner
dies, the business will cease to
operate under the name of the
proprietor.
 The amount of capital is limited only
by the wealth of the proprietor
 The profits are divided among the
partners.
 A partner can be held liable for the
acts of the other partners.
 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.
 It is relatively complicated to set up.
 Subject to several legal restrictions as
listed in the Corporation Code of the
Philippines
 Limited distribution of surplus
 Requires continuous education
programs for members
 The members have active and direct
participation in the business of the
cooperative.

LESSON 5

TYPES OF BUSINESS ACTIVITIES

The forms of business organization above are classified according to the ownership structure of the business entity.
Entities, however, can also be group by the type of business activities they perform. Any of these types of activities may
be performed by a business organization be it a sole or single proprietorship, a partnership or a corporation.

1. Service. Service businesses offer intangible goods or services and typically generate a profit by charging for their labor.
Income is produced by the rendering of personal service. Service businesses can include home repair, education,
dentistry, accounting, and plumbing businesses.

2. Merchandising/ Trading or Retailing. Retailers and distributors act as middlemen in making goods produced by
manufacturers available to the intended consumer, generating a profit as a result of providing sales or distribution
services. Or these companies purchase goods that are ready for sale and then sell these to customers. Most consumer-
oriented stores, including chain stores, department stores, as well as mail-order businesses are distributors or
merchandising concern.

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 3. Manufacturing. Manufacturers produce products, from raw materials or component parts, which they then sell at a profit.
Companies that make physical goods, such as cars, computers, or clothing, are considered manufacturers or businesses
engaged in manufacturing.

REFERENCES

CBLM in Bookkeeping NC III developed by Ms. Sweetzel A. Precinio

For more information’s and explanations you can watch the following videos from the link:
Forms of Business Organization
https://www.youtube.com/watch?v=bC_m2hlKA7I&t=70s
Types of Business According to Activities
https://www.youtube.com/watch?v=m6pPrT2wO2Y&t=2s
By: Sir Chua’s Accounting Lessons PH