ORGANIZATION & MANAGEMENT

FORMS OF
BUSINESS
ORGANIZATIONS
At the end of the discussion, the students will
be able to:
Analyze the forms and economic roles of business organizations.
Specifically:
1. Classify the two aspects of businesses: According to nature or
activity and according to ownership.
2. Identify the businesses according to nature or activity.
3.. Understand the three options- sole proprietorship, partnership and
corporation-under which an entrepreneur could organize and their
impact to his/ her business.
Businesses may be
classified
according to two
aspects:
1. According to nature or activity
2. According to ownership
 Businesses
According to
nature or activity
1. Service-type businesses
2. Merchandising businesses
3. Manufacturing businesses
 1. Service-type
businesses
Service-type businesses offer services, including not only
personal services but also those which are essential to
other business activities, to clients, or to customers in
exchange for a fee. Examples of these are salons,
accounting firms, telecommunications companies, business
process outsourcing companies, and the like.
 2. Merchandising
businesses
Merchandising businesses engage in the buy and sell of
commodities without altering their form. Examples of
these are sari-sari stores, grocery stores, department stores,
hardware stores, general merchandise, and the like.
 3. Manufacturing
businesses
Manufacturing businesses convert raw materials into
finished goods through various production processes,
thereby altering their form and transforming ingredients to
finished products.
Let us assume now that Mr. Tee’s grocery business has grown by
leaps and bounds. He's planning to open up a branch in a more
strategic place near market site Zone 4. This will be handled by his
son whom he has already trained in running his grocery business. Mr.
Tee has reached the crossroad of his business. Like any entrepreneur
who started small but suddenly saw the growth of his business, he
began to wonder how he should get organized to face the challenges
of the future. Shall he remain as a single proprietor-owner or dilute
his ownership by asking some of his trusted relatives and friends to
be part owners and contribute more money for his expansion plans?
To put up a branch, Mr. Tee needs more capital to buy a commercial
lot and to construct a building for his second grocery. He has to
improve his credit standing by buying grocery goods payable in 60
days or more. To get a loan from a bank, his present assets are not
enough to serve as guaranty. So, he needs associates in his expanding
business. What's the best approach in organizing and what are the
advantages? He consulted a lawyer-friend and he was given three
options.
Businesses According to Ownership

Sole Proprietorship Partnership

sinesses According to Ownersh

Sole Proprietorship Partnership Corporation

sinesses According to Ownersh

Partnership Corporation
 Businesses According to Ownership

Corporation
Sole Proprietorship
 A sole proprietorship, also known
as a "one-man business," is a
business entity that is conceived,
established, owned, and managed
by one individual. The owner of the
business, the sole proprietor,
assumes all the risks and obtains all
the returns of the business.
 Sole Proprietorship

ADVANTAGES: DISADVANTAGES:
1. The sole proprietor can make decisions 1. There is limited source of capital.
without any delay or interference.
2. The owner assumes a heavy risk by himself.
2. When the business succeeds, the sole 3. A sole proprietorship oftentimes lacks
proprietor is entitled to all the profits.
stability.
3. There is a personal feeling of camaraderie 4. The sole proprietor assumes all the losses
between the proprietor and his employees. should the business fail.
4. The management of the enterprise is quite
flexible.
5. A sole proprietorship is easy to organize.
6. The sole proprietorship does not entail
complicated financial operations
Partnership
 When two or more persons are
willing to try their luck and ability
in a business undertaking, they may
form a partnership. A partnership,
by legal definition, is a "contract in
which two or more persons bind
themselves to contribute money,
property, or industry to a common
fund, with the intention of dividing
the profits among themselves."
The following are the essential elements of a
partnership:

1. There must be a valid contract.

2. There must be two or more persons with the
legal capacity to enter into a contract.
3. Partners must mutually contribute money,
property, or industry to a common fund.
4. There must be intent to engage in lawful
business, trade, or profession.
5. The purpose is to obtain profits and to
divide the same among partners.
6. The objective must be lawful.
Corporation
The corporate form of organization is by far the
most predominant in terms of discussions in the
study of business and management. As
compared with sole proprietorships and
partnerships, a corporation is the largest source
of capital and is authorized by statutory
legislation for either a perpetual existence or a
definite and considerable span of years.

By legal definition, a corporation is "an

artificial being created by the operation of law,
having the right of succession, and the powers,
attributes, and parties expressly authorized by
law or incident to its existence."
Five to fifteen persons may form a corporation
and be recognized as incorporators. The owners
of the corporation are the stockholders who are
considered investors in the corporation through
the purchase of shares of stock issued by the
corporation. The stockholders in turn elect
among themselves the members of the Board of
Directors who shall oversee into the affairs and
policies of the corporation. The management of
the corporation, on the other hand, is in charge
of the day-to-day operations of the business of
the corporation. They report to the Board of
Directors and stockholders as to their
stewardship function of the resources of the
corporation.