FORMS OF ORGANIZATION

THE CLASSIFICATION OF BUSINESS ORGANIZATION

ACCORDING TO LEGAL FORMS

SOLE/SINGLE PROPRIETORSHIP PARTNERSHIP

CORPORATION COOPERATIVE
SOLE PROPRIETORSHIP

- Is a business concern owned by only one person/individual

- The business owner is called a “sole proprietor” and is
registered with Department of Trade of Trade and Industry"
- Is usually small in terms of business operation and resources.
- Examples:

Convenient retail stores

Barbershops
Pawnshops
Repair shops
Outlets of agricultural products
CHARACTERISTICS OF SOLE PROPRIETORSHIP:

1. Simplicity of operation

2. Ease in terms of formation and management

3. Growth is limited to the resources of the owner

4. Limited capital

5. Unlimited liability
ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIP
ADVANTAGES
 You are the boss and keep all the profits
 Decision making is simple because you have
complete control over the business
 Relatively easier and less costly to form
because there are fewer formal business
requirements
 Lower extent of government regulation and
relatively lower taxes
DISADVANTAGES
 You assume all the risk
 You take all responsibility and rely mostly on
yourself in making decisions
 It is more difficult to raise funds because you
rely mostly on your personal assets and loans
to initially finance the business
 You are personally liable for the debts and
obligations of the business
PARTNERSHIP

- Is a business entity that is owned by two or more persons.

- The owners of a partnership are called partners and is registered with

Securities and Exchange Commission (SEC).

- Partners bind themselves together through an agreement to contribute

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

- The partners, except for limited partner, are held personally liable for the
partnership’s liabilities when the partnership does not have the capacity to
settle its financial obligations.
The following causes may dissolve the life of a partnership:

1. Death of one of the partners

2. Admission of new partner in an existing partnership

3. Permanent withdrawal of the investment of a partner

ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP
ADVANTAGES
 Better business decisions can be made because "two
heads are better than one”
 You share the business risk and the responsibility of
running the business with your partner(s)
 Compared to corporations and cooperatives, a
partnership is easier to form because only a
contractual agreement between the partners is
needed
 Greater capital compared to a sole proprietorship
 Relatively lower extent of government regulation
compared to corporations
DISADVANTAGES
 Making business decisions may give rise to conflict
among the partners
 You don't keep all the profits because you need to
share them with your partner(s)
 Limited life, in the sense that a partnership can be
easily dissolved by the withdrawal, retirement, death
or insanity of one of the partners
 Lesser capital compared to a corporation
 A partnership (other than a general professional
partnership) is taxed like a corporation
 Unlimited liability. The partners can be held liable for
partnership debts up to their personal assets
CORPORATION
- Is a business entity formed by at least five (old law) but not more than fifteen
persons.

- The persons originally forming the corporation are called incorporators and is
registered with the Securities and Exchange Commission (SEC).

- The management is entrusted to the Board of Directors elected by the

stockholders themselves.

- The stockholders are not bound to pay personally the financial obligations of
the corporation, and their liabilities are limited only to the amount of
their investment (limited liability), except when the veil of corporate
fiction is pierced.

- Legal restrictions are applied strictly to corporate entities, and they are
highly
monitored by governmental bodies.
Classification of a Corporation

1. Stock Corporation- when it issues shares of stock to the owners as evidence of their
interests and ownership.

2. Nonstock Corporation- is not authorized to issue shares of stock to the owners.

3. Profit Corporation- when it returns its income in the form of dividends to the
stockholders.

4. Nonprofit Corporation- does not necessarily mean that it does not earn income.
rather, its profits are not distributed to the members.

5. Domestic Corporation- is a business entity organized under the laws of the

Philippines.

6. Foreign Corporation- is a business concern organized under the laws of foreign

countries but operating in the Philippines.
ADVANTAGES AND DISADVANTAGES OF CORPORATION

ADVANTAGES DISADVANTAGES

 A stockholder who is not a member of the

corporation's board of directors is relieved from
managerial responsibilities. Only the stockholders  Your "say" on corporate affairs depends on the
that are elected as members of the board of number of shares you own. Those who own more
directors and those they hire or appoint are tasked shares are the bosses and enjoy a larger share of the
with managerial responsibilities. This can be an corporation's profits
advantage because a regular investor does not need
 A corporation is more difficult and more costly to
to work for the corporation to earn income
form because there are more formal business
 Limited liability of the owners because stockholders requirements
are liable for corporate debts only up to the amount
 Greater extent of government regulation and higher
they have invested
taxes
 Greater capital and ease in raising additional funds
because a corporation can issue shares to a wider
extent of investors
ADVANTAGES AND DISADVANTAGES OF CORPORATION

ADVANTAGES DISADVANTAGES

 If the corporation is listed, you can easily transfer  Unlike for a sole proprietorship or a partnership
your shares to other investors by selling them in the where business profits are easily distributed to the
stock market. Many investors earn profit this way - owner(s), in a corporation, you have to wait for the
by buying shares at a cheap price, wait for prices to board of directors to declare dividends before you
go up, and then sell them. This activity is referred to can get your share in the profits
as stock trading
 Unlimited life, in the sense that the withdrawal,
retirement, death or insanity of one of the
stockholders does not dissolve the corporation
 Although a corporation has a legal life of 50 years,
this can be renewed for an indefinite number of
renewals (old law)
COOPERATIVES

• Is an association of persons with common bond and interest, and who have voluntarily
joined together to achieve a lawful common social or economic end.

• Members of a cooperative make an equitable contribution to the capital requirements

and accordingly receive a fair share of cooperative undertakings.

• The concept of cooperatives, started in Europe and gradually gained worldwide

acceptance.

• Its common objectives is the promotion of economic and social status of the members.

• Credit cooperative, consumers cooperative, producers cooperative, marketing

cooperative, services cooperative and multi-purpose cooperative.

• Registered with the Cooperative Development Authority (CDA).

COOPERATIVE
S
ADVANTAGES AND DISADVANTAGES OF COOPERATIVE

ADVANTAGES DISADVANTAGES

 A cooperative is prone to poor management.

 Unlike in a corporation, your "say" on cooperative
Cooperatives are, more often than not, managed by
affairs is not affected by the number of shares you
members who were elected as board of directors
own. This is because, in a cooperative, each member
rather than by employed professional managers.
is entitled to only one vote regardless of his or her
Since there is a 'one- member, one-vote' policy in a
shareholdings. However, members with larger
cooperative, influential members tend to dominate
shareholdings are entitled to larger share in profit
the election process. The result is that those who get
(net surplus)
elected may not be the ones who are most qualified
 A cooperative is generally exempt from paying taxes. for the task
This is the main advantage of a cooperative and the  A cooperative is susceptible to corruption. Due to its
most common reason why cooperatives are
management structure and lack of profit motive, the
organized . Moreover, a cooperative may receive
elected officers may be inclined to act on their
assistance from the government
personal interests
ADVANTAGES AND DISADVANTAGES OF COOPERATIVE
ADVANTAGES
 Compared to a corporation, a cooperative is easier
and less costly to form because there are fewer
 The Cooperative Code places some restrictions on
formal business requirements
 Limited liability - the members are liable for
cooperative debts only up to the amount they have
invested
 Unlimited life, in the sense that the withdrawal,
retirement, death or insanity of one of the members
does not dissolve the cooperative. Although a
cooperative has a legal life of 50 years, this can be
renewed for an indefinite number of renewals
DISADVANTAGES
the distribution of a cooperative's profit to its
members. More specifically, the Code requires a
cooperative to appropriate a portion of its annual
profit to some funds. Only the remaining portion can
be distributed to the members. Furthermore, when
the cooperative is dissolved, the amount
accumulated in a fund called the "reserve fund" will
not be returned to the members, but rather donated
to another cooperative or to the community.
ADVANTAGES AND DISADVANTAGES OF COOPERATIVE

ADVANTAGES DISADVANTAGES

 Compared to a corporation, it is more difficult for a

cooperative to sustain growth. This is in part because
of the lack of profit motive and the lack of
management expertise. Moreover, a cooperative's
success strongly depends on the members’
cooperation and members are not always willing to
cooperate. The success of a business depends on
continuing effort. Sadly. many cooperatives are
zealous at the start but fail to sustain continuing
effort resulting to the warning down of their
activities. This does not mean though that all
cooperatives are small businesses. There are many
multi-billionaire cooperatives in our country. Some
might be located in your community
ADVANTAGES AND DISADVANTAGES OF COOPERATIVE

ADVANTAGES DISADVANTAGES

 Unlike in a corporation where the stockholder can

freely transfer his shares, in a cooperative, there are
Although a cooperative has a legal life of 50 years,
this can be renewed for an indefinite number of
renewals. restrictions on the transfer of a member's
shares. For example, the approval of the board of
directors must first be obtained before a member
can transfer his or her shares
NATURE OF BUSINESS ORGANIZATION
Business entities maybe classified according to nature as follows:

1. Service Concern

2. Merchandising

3. Manufacturing

4. Agriculture

5. Hybrid Business
 SERVICE CONCERN

- Sells services to customers.

- The primary source of income comes from the services rendered to customers.
A service business may offer professional skills, expertise, advice, lending
service, and similar services.

- Service concerns are classified as:

Nonprofessional service entity- laundry shops, car repair shops, beauty

parlors, and banking institutions

Professional service entity- law offices of lawyers, medical and clinics of

doctors, and auditing and consultancy offices of
accountants.
 MERCHANDISING

- Is engaged in the buying and selling of products or goods.

- This business concern does not change or alter the form of the product purchased.

- The business buys a product in a certain form and sells it in the same form. There
is no change in appearance and form of the product.

- Grocery stores, hardware, and dry goods store are common examples of
merchandising business.

- Distributors and dealers are also examples of merchandising business.

 MANUFACTURING

- Is a producer of goods or products.

- It is engaged in buying raw materials and supplies for processing into finished
products.

- The product being sold is not the same form as when it was purchased.

- Examples of manufacturing businesses are furniture shops, manufacturers of cars,

beverage companies, or producers of flour.
 AGRICULTURE

- Is engaged in the production of agricultural goods and animals.

- Some business entities engaged in agriculture are pineapple, sugar cane and coconut
plantations. Business concerns raising hogs and poultry are also considered
engaged in agriculture.
 HYBRID BUSINESS

- Possesses the nature and characteristics of more than one type of business
entities.

- Restaurant and fast-food chain are classified as hybrid businesses since their very
nature is to process (manufacturing) and sell food items, and at the same time
provide excellent service to customers (service). They also sell other items such
as sodas (merchandising).
Every business entity uses Accounting
and applies the same prescribed rules
and procedures to record
business transactions.