Forms of Business Organizations

Forms of business organizations

Forms of business organizations1

Sole ProprietorshipPartnershipCorporationThere are three forms of business organizations. The2Purpose of business organizationsFirst we will discuss shortly the Purpose of Business OrganizationsThe forms of business organization are classified according to the ownership structure of the business entity. Entities, however, can be grouped by types of goods or services they offer. Any of these types of activities may be performed by a business organization be it a sole proprietorship, a partnership or a corporation.3Sole ProprietorshipSole proprietorshipA business that is owned exclusively by one personThis business organization has a single owner called the PROPRIETOR who generally is also the manager.Sole proprietorships tend to be small service-type business and retail establishments.

Physicians, lawyers and accountants.From the accounting point of view, the sole proprietorship is distinct from its proprietor. Thus, the accounting records of the sole proprietorship do not include the proprietors personal financial records.5Advantages of sole proprietorshipEasy to get establishedFull control over all business decisionsOwners keep all profitFlexibilityTax AdvantagesDisadvantages of a sole proprietorshipIt can be difficult to raise money for the businessResponsible for every aspect of the businessUnlimited liabilityLimited skills and knowledgepartnership

partnershipAn association of two or more persons to carry on, as co-owners, a business for profit.(Uniform Partnership Act, Section 6)Partnership resemble SOLE PROPRIETORSHIP, except that there are two or more owners of the business and they call themselves as a PARTNERIn a contract of partnership, two or more persons BIND themselves to contribute. MONEY, PROPERTY, INDUSTRY9Characteristics of a partnershipMutual ContributionDivision of profits or losesCo-ownership of Contributed AssetsMutual AgencyLimited LifeUnlimited LiabilityIncome TaxesPartners Equity AccountsThere cannot be a partnership without contributing Money, Property, IndustryThe essence of partnership is that each partner must share in the profit or lossAll assets contributed into the partnership are owned by the partnershipAny partner can bind the other partners to a contract if he is acting within his authorityMay be dissolved by admission, death, insolvency, incapacity, withdrawal of a partner or expiration of the term specifiedAll partners (except limited partners) are personally liable for all debts incurred by the partnership30% of taxable incomeEach partner has a capital account and a withdrawal account

10KINDS OF PARTNERGeneral PartnerLimited PartnerCapitalist PartnerIndustrial PartnerManaging PartnerLiquidating PartnerDormant PartnerSilent PartnerSecret PartnerNominal partner or partner by estoppelLiable to the extent of his separate propertyLiable only to the extent of contributionOne who contribute money or propertyKnowledge or serviceAppointed as managerDesignated to wind up or settle the affairs of the partnership after dissolutionOne who does not take active part in the business and not known as a partnerOne who does not take active part in the business though may be known as a partnerOne who takes active part in the business and not known as a partner by outside partiesOne who is actually not a partner but who represents himself as one

11Advantages and disadvantagesAdvantages VS. ProprietorshipBrings greater financial capability to the business.Combines special skills, expertise and experience of the partners.Offers relative freedom and flexibility of action in decision-making.Advantages VS. CorporationsEasier and less expensive to organize.More personal and informal.DisadvantagesEasily dissolved and thus unstable compare to corporation.Mutual agency and unlimited liability may create personal obligations to partners.Less effective than a corporation in raising large amounts of capital.Classifications of partnershipAccording to object:Universal partnership of all present property.Universal partnership of profits.Particular partnership.According to liability:GeneralLimitedAccording to duration:FixedAt willAccording to purpose:Commercial or tradingProfessional or non-tradingAccording to legality of existence:De jureDe facto

A. All contributions become part of the partnership fund B. All partners may acquire the assets that whatever the partners has contributed at the time of contract of the partnership C. The object of the partnership is determinate- its use or fruit, specific undertaking, or the exercise of a profession or vocation2 . A. All partners are liable to the extent of their personal/separate properties B. Liable only to the extent of their contributions. In a limited partnership, the law states that there should be at least one general partnerA. One formed for the transaction of business B. One formed for the exercise of professionA. Complete legal requirements B. Failed to complete13Distinguish between partnership and corporationPARTNERSHIPCORPORATIONManner of CreationMere agreement of partnersCreated by operation of law2. Number of PersonsTwo or more personsAt least 5 but not exceeding 153. Commencement of Juridical PersonalityFrom execution of the articles of partnershipIssuance of certificate of incorporation by SEC4. Management Every partner is an agentVested on the Board of Directors5. Extent of LiabilityLiable to the extent of personal assetsStockholders are liable only to the extent of their interest or investment.6. Right of SuccessionNOYES7. Terms of ExistenceAny period of timeNot exceed 50yrs w/ extensionCORPORATION

CorporationIs an artificial being 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 (Corporation code of the Philippines, Sec. 2)Attributes of a CorporationIs an artificial beingIt is created by operation of LawIt enjoys the right of successionIt has the powers, attributes, properties

Advantages of a CorporationThe corporation has the legal capacity to act as a legal entityShareholders have limited liabilityIt has continuity of existenceShares of stock can be transferred without the consent of the other shareholders.Its management is centralized in the board of directors.Shareholders are not general agent of the business.Greater ability to acquire funds.

Disadvantages of a corporationA corporation is relatively complicated in formation and management.There is a greater degree of government control and supervision.It requires a relatively high cost of formation and operation.It is subject to heavier taxation than other forms of business organizations.Disadvantages of a corporationMinority shareholders are subservient to the wishes of the majority.In large corporation, management and control have been separated from ownership.Transferability of shares permits the uniting of incompatible and conflicting elements in one venture.

Classes of CorporationSTOCK CORPORATION

NON-STOCK CORPORATIONOther classification of CorporationAccording to Numbers of Persons.Corporation Aggregate.Corporation Sole.According to Nationality.DomesticForeignOther classification of CorporationAccording to whether,Public corporationPrivate corporation

According to charitable or notEcclesiasticalEleemosynaryCivil corporation

Other classification of CorporationAccording to legal right to existenceDe jure CorporationDe facto corporation

Degree of Public participation with regards to share ownership.Close corporationOpen Corporation

Other classification of CorporationAccording to Relation to Another corporationParent of holding corporationSubsidiary Corporation.

Steps in the Creation of corporationPromotion

Incorporation

Formal organization and Commencement

Articles of IncorporationThe name of the corporation.The specific purpose or purposes for which the corporation is formed.The principal place of the business which must be within the Philippines.The term of existenceThe names nationalities and residences of the IncorporatorsThe number of directors or trustees which shall not less the (5) nor more than (15)The names, nationalities and residences of the persons who shall act as directors or trustees until the first directors or trustees are elected and qualified.If stock corporation : authorized share capital in pesosIf non-stock corporation: Amount of its capital Rights or ShareholdersRight to be issued certificate of stock or other evidence of share ownership and to transfer such shares.Right to attend and vote in person or by proxy at shareholders meeting.Right to elect and remove directors.Right to adopt, amend or repeal the by-laws.Rights or ShareholdersRight to purchase a portion of new shares issued to maintain the same percentage of stock ownership. This right is known as the pre-emptive rights. However, this right is not absolute and maybe be denied.Right to receive dividends when declared.Right to inspect corporate books and records, and to receive financial reports of the corporations operations.Right to participate in the distribution of corporate asset upon dissolution.

Components of a CorporationCorporatorsIncorporatorsShareholdersMembersSubscribersPromotersUnderwritersTHANK you!