FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

MODULE 2 TYPES OF BUSINESS ORGANIZATIONS

In this module, you will learn about the different types of business organizations and the
advantages and
disadvantages of each type over the others. By becoming aware of the types of business
organizations, you will be able to determine what business organization is appropriate for a
particular business or for a particular phase of business development.

Content Course Competencies

The learners demonstrate an understanding of the various forms of business organization, as
follows: Sole proprietorship, Partnership, Corporation, Cooperatives

The learners demonstrate an understanding of the various forms of business organization

according to activities, particularly service, merchandising and manufacturing business.

Performance Standards:
The learners shall be able to differentiate the types of business according to ownership and
according to activities and make a list of businesses in their community according to their
activities.
MODULE 2 TYPES OF BUSINESS ORGANIZATIONS
UNIT 1: BUSINESS ORGANIZATIONS ACCORDING TO OWNERSHIP

Valuing Outcomes:
Applying the concept of business especially with the current situation faced by the Louisian
community and other stakeholders. Finding alternatives for people specifically students in
creating solutions to budget problems that are actually beneficial also to their parents.

Specific Learning Objectives: At the end of this lesson, the learners will be able to:
1. differentiate the forms of business organization
2. identify the advantages and disadvantages of each form

Below are examples of logo of certain business. Can you guess what company or business are
these?
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

Both business that owns the business logo above are examples of a corporation.

Types of business according to ownership

Jose Mercado established JM Photocopying Center, a business engaged in rendering
photocopying services, using his personal savings and the money he borrowed from his father.
He rented a commercial space near the school gate and hired staff to operate the business.
What do you think is JM Photocopying Center’s type of business according to ownership?

SOLE PROPRIETORSHIP
 A business that is owned by only one individual for the practice of trade or profession.
 It is the simplest and least costly form of ownership among other forms of business.
Advantages Disadvantages

 Full control of operations  Unlimited liability-the owner is

 Easy to start, easy to dissolve legally obliged to pay all business
 All profits go directly to the owner debts
 Less regulations
 Limited life—the business ceases
 The government taxes the owner to operate if the owner dies,
not the business. becomes physically or mentally
incapacitated or is imprisoned
 Difficulty in raising capital

Steps Used in Registering Sole Proprietorship

 Register the preferred business name with the Department of Trade and Industry (DTI).
The approved registration should be renewed every five years.
 Secure a barangay permit in the barangay where the business will be located. This
permit should be renewed every year.
 Apply for a business permit in the municipality where the business is situated. This
permit is renewable every year.
 Register the business with the Bureau of Internal revenue (BIR). BIR requires a sole
proprietorship business to pay its registration fee every year.
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

 Register the business with Social Security System (SSS), Philippine Health Insurance
Corporation (PhilHealth) and Home Development Mutual Fund (HDMF) or Pag-ibig.

PARTNERSHIP
A partnership is a business that is owned by two or more individuals pooling their
resources together as common fund. The partners are normally involved in the
management and operation of the business. The profit of the business is divided among
the partners as per partners’ agreement. The written agreement between or among
partners is called articles of co-partnership.

The are two main types of partnership. The first type is a general partnership
where each partner is a general partner with unlimited liability. The second type is a
limited partnership with limited partners and at least one general partner. The general
partner has unlimited liability while the limited partners enjoy limited liability to the extent
only of their capital contribution.

Advantages Disadvantages

 Increased potentials from two or  Unlimited liability of one or all

more different strengths owners
 Easy to form with proper  Limited life – the business ceases
agreements on its formation to operate if one of the partners
dies, becomes physically or
mentally incapacitated, or is
imprisoned
 Less regulations compared to  High possibility of dispute and
corporations conflicts between partners

Steps Used in Registering Partnership

 Verify business name with the Securities and Exchange Commission (SEC)
 File articles of co-partnership with SEC
 Register the business name with DTI (optional)
 Secure a barangay permit in the place where the business is located
(renewable every year)
 Apply business permit in the municipality where the business is located
(renewable every year)
 Register the business with the BIR (BIR requires an annual registration fee)
 Register the business with the SSS, PhilHealth, and HDMF

CORPORATION
A corporation is a business required to have five to fifteen incorporators. Incorporators
refer to those who originally formed the corporation. Section 2 of the Corporation Code
of the Philippines defines corporation as “an artificial being created by operation of law,
having the right succession and the powers, attributes and properties expressly
authorized by law or incident to its existence”.
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

Advantages Disadvantages

 More sources of funds  More regulation to be followed

 Easy to transfer ownership  Profit is taxed at the corporate tax
rate
 Liability of owners is limited  Costly to incorporate
 Unlimited commercial life  Stockholders are taxed again
when profits are distributed to
them

Steps used in Registering Corporation

 Verify business name with SEC

 Draft and execute the articles of incorporation and by-laws by corporators
 Deposit the cash collected from subscription
 File articles of incorporation and by-laws with SEC
 Register the business name with DTI (optional)
 Secure a barangay permit in the municipality where business is located
(renewable every year)
 Apply business permit in the municipality where the business is located
(renewable every year)
 Register the business with the BIR (BIR requires an annual registration fee)
 Register the business with the SSS, PhilHealth, and HDMF

COOPERATIVE
A cooperative is a business owned by a group of individuals who also serve as
benefactors to the business endeavor. A cooperative usually requires at least fifteen
members to function. Usually, a board of directors and officers are elected to manage
the business operation. Members can become part of the cooperative by purchasing
shares. A cooperative can either be incorporated or unincorporated.

Similar to a corporation, a cooperative usually has a set of by-laws and articles of

cooperation. The by-laws contain rules and regulations governing the operation of
cooperative. The articles of cooperation provide the details about the following: name of
the cooperative; purpose of the cooperative; term of existence of the cooperative;
amount of share capital; names and residences of its contributors; and types of
cooperative.

Advantages Disadvantages

 Unlimited life. The change of  Obtaining capital through

members does not dissolve the investors. Cooperative has a ‘one-
business. member-one-vote” philosophy. Big
investors may choose to invest
their money to other firms where
their voting power is equal to their
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

ownership interest.
 Democratic organization social  Lack of membership and
equality of the members is the participation. The cooperative may
most important component of not fully function if members do
cooperatives. It ensures that it not involve themselves in the
serves its members’ needs. routine business operation.

.
Performance Check 1: After learning the types of business organizations and its
contributions, it is time for you to share your ideas through a reflection.

Analyze and understand the question on the saved file with title module 2_PT.
Attached also is the rubric for rating your work.

Enjoy!

Quiz 2: Using the concepts and lessons discussed in this

unit, answer the questions on a separate file
module2_quiz2. Read each instructions first before you
answer.
God Bless and Enjoy!!!

MODULE 2 TYPES OF BUSINESS ORGANIZATION

UNIT 2: BUSINESS ORGANIZATIONS ACCORDING TO ACTIVITIES

Specific Learning Objectives: At the end of this lesson, the learners will be able to:
1. Compare and contrast the types of business according to activities
2. Identify the advantages, disadvantages, and business requirements of each type
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

Below are lists of business organizations, identify the type of operation of each business. Use
codes below:
Type of Activity
Servicing (SB)
Merchandising (ME)
Manufacturing (MG)

Business Organization Type of Business Activity

1. Laser Marketing
2. David’s Salon
3. Bialno Accounting Firm
4. Julies Bakeshop
5. Holsim Cement
6. Bank of the Philippine
Island
7. Puregold
Supermarket
8. Green Smoothie
9. Roel’s Frozen Goods
10. Beauche Beauty
Supply

Jose Mercado established JM Photocopying Center, a business engaged in rendering

photocopying services, using his personal savings and the money he borrowed from his father.
He rented a commercial space near the school gate and hired staff to operate the business.

What is JM Photocopying Center’s type of business according to activity?

____________________________________________________________________________
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

TYPES OF BUSINESS ACCORDING TO ACTIVITIES

There are different types of business according to activities. Three major types are services
provider., merchandising and manufacturing business.

Service Business
Service businesses focus on providing intangible products, such as offering professional skills,
proposals, and expertise.
Examples of service businesses are accounting firms, law firms, schools, medical clinic, banks,
hair salons and spas, and repair shops.

A. Call Center B. Construction Company

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Advantages Disadvantages
 No need for inventory.  Services are harder to value.
 Skills can be improved and can  Less demand during economic
produce better service. downturns.

Merchandising Business
This type of business is commonly known as the “buy and sell” business. Products are
bought from manufacturers or other merchandisers and are sold as is at an amount
higher than the purchase price. Examples of merchandising business are grocery stores,
hardware, department stores, and drug stores.
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

A. Supermarket B. Sari-sari Store

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Advantages Disadvantages
 Good merchandising attracts more  Profits are highly dependent on
customers. prices set by merchandise
supplies.
 It is flexible to changes.  Merchandise inventory maybe
perishable.

Manufacturing Business
This is the type of business wherein materials are bought to create a new product.
Examples of manufacturing businesses are food factories, garment factories, and car
manufacturing companies.
A. Car Manufacturing Company B. Garment Factory

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https://en.wikipedia.org/wiki/Automotive_industry
Advantages Disadvantages
 There is a continuous demand on  Because of the scope of activities
manufactured goods. manufacturing firms are often
more labor and capital intensive.
 The creation of a manufactured  The cost of the manufactured
product leads to higher job products highly depends on the
satisfaction knowing that their price and availability of the raw
finished product is something that materials.
people need and use.
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

List names of businesses operating in your community and classify it according to the following:
(write at least three each)
Servicing Merchandising Manufacturing

Quiz 2: Using the concepts and lessons discussed in this

unit, answer the questions on a separate file
module2_quiz2. Read each instructions first before you
answer.
God Bless and Enjoy!!!