Forms of Business

Organizations
 3 Forms of Business Organization

1. Sole proprietorship – form of organization where

there is only one owner, the proprietor.
2. Partnership – is an association of two or more persons
who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
profits among themselves.
3. Corporation – 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.
 Organizing a Sole Proprietorship

1. Register the business name with the Department of

Trade and Industry
2. Pay the municipal licenses to the local government.
3. Apply for VAT or Non-Vat number.
4. Register with the BIR the books of accounts
(simplified bookkeeping records or journals and
ledger) and the business forms to be used (sales
invoices, cash sales invoices, official receipts, etc.).
 Organizing a Partnership
1. Register the business name with the Department of Trade and
Industry.
2. Have the partnership agreement (articles of co-partnership)
notarized.
3. Obtain a tax account number for the partnership from the BIR.
4. Have the partnership agreement (articles of co-partnership)
notarized and then register with the SEC.
5. Obtain the municipal licenses from the local government.
6. Obtain VAT account number or the non-VAT, as the case
maybe.
7. Register books of accounts (journals and general ledger) and
business forms to be used (sales invoice, official receipts, cash
sales invoices, etc.) with the BIR.
 Registration of Corporations
1. Verification of corporate name with SEC.
2. Drafting and execution of the articles of incorporation.
3. Deposit of cash received for subscribed shares of stocks in a
banking institution in the name of the temporary treasurer, in
trust for and to the credit of the corporation.
4. Filing of the articles of incorporation together with the ff:
-Treasurer’s affidavit
-Statement of assets and liabilities of the proposed corporation
-Authority to verify bank deposits
-Certificate of deposit of each cash paid for subscription
-Personal information sheet of the incorporation
-Commitment to change corporate name if
it is found similar to another corporate
name
 Registration of Corporations
5. Payment of filing and publication fees.
6. Issuance by SEC of the certificate of incorporation.
7. Registration of the corporate name with the
Department of Trade and Industry.
8. Obtaining municipal licenses from the local
government.
9. Obtaining the VAT or non-VAT account number from
the BIR.
10. Registration with BIR of books of accounts and
accountable forms.
 Advantages and Disadvantages of
Sole Proprietorship
Advantages Disadvantages
• It is easy to organize. • Limited ability to raise
• Decisions can be easily capital.
made. • Unlimited liability.
• Financial operations are not • Limited ability to expand.
complicated. • Business is entirely a
• The owner is entitled to all responsibility of the owner.
the profits. • Net income is subject to tax
regardless of whether it is
withdrawn or not.
 Advantages and Disadvantages of
Partnership
Advantages Disadvantages
• Easy to form. • Partners have unlimited
• Flexibility of operations. liability for partnership
• Expected to be operated debts.
more efficiently when • Limited life.
compared to sole • Limited ability to raise
proprietorship because of capital
the presence of more • Net income is subject to tax
owners. whether distributed or not.
• Partners are expected to
have great interest in the
operations because of their
unlimited liability.
 Advantages of Corporation

1. It has legal capacity to act as a legal unit.

2. It has continuity of existence.
3. Management is centralized in the board of directors or
trustees.
4. The creation, organization, management and
dissolution processes are standardized because they
are governed by one general incorporation law.
5. Shareholders have limited liability.
 Advantages of Corporation

6. Shareholders are not general agents of the corporation.

7. Shareholders can transfer their shareholdings without
consent of other shareholders.
8. It has the ability to raise more capital.
9. Its ability to more capital makes feasible gigantic
financial ventures.
10. Stockholders are taxed only on their share distributed
earnings.
 Disadvantages of Corporation

1. It is subject to greater degree of governmental control

and supervision.
2. Its cost of formation and operation is relatively high.
3. Its formation and management is relatively complicated.
4. It is subject to higher income tax rate.
5. It has limited powers.
6. It is possible for the board of directors to abuse its
powers.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
a. Governing laws a. Governing laws
-Corporation Code -Civil Code
b. Manner of creation b. Manner of creation
-It is created by law or -It can be created by mere
operation of law. agreement of the parties.
c. Number of incorporators c. Number of incorporators
-At least 5 incorporators are -It may be organized by only 2
required. persons.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
d. Commencement of juridical d. Commencement of juridical
personality personality
-It begins to have corporate -It commences to acquire
existence and juridical juridical personality from the
personality only from the moment of the execution of
date of the issuance of the the contract of partnership.
certificate of incorporation
by SEC under its official
seal.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
e. Powers e. Powers
-It can exercise only the -It may exercise any power
powers expressly granted authorized by the partners
provided it is not contrary to
by the law or implied from
law, morals, good customs,
those granted or incident to
public order or public policy.
its existence.
f. Management
f. Management
-When management is not agreed
-The power to do business and upon, every partner is an agent
manage its affairs is vested of the partnership.
in the board of directors or
trustees.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
g. Right of Succession g. Right of Succession
-It has the right of succession. -It has no right of succession.
h. Term of existence h. Term of existence
-It may be formed for a term not -It may established for any period
longer than 50 years subject to of time as stipulated by the
extension to not more than 50 partners.
years in any one instance. i. Firm name
i. Firm name -In the case of a limited
-It may adopt any name provided partnership, it is required by
it is not identical or deceptively law to add the word Limited
similar to any registered firm (Ltd.) to
name, or contrary to existing its name.
laws.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
j. Transferability of interest j. Transferability of interest
-A stockholder has the right to -A partner cannot transfer his
transfer his shares without interest in the partnership
the prior consent of the without the consent of all the
other stockholders. other existing partners.
k. Extent of liability to third k. Extent of liability to third
parties parties
-Stockholders have limited -Partners (except limited
partners) have unlimited
liability, that is, they are
liability.
liable only to the extent of
their shareholdings.
 Distinctions between a Corporation and
a Partnership
Corporations Partnership
l. Effect of mismanagement l. Effect of mismanagement
-The corporation, as a juridical -A partner can sue a co-
personality, can sue or file partner who mismanages.
a suit against a member of m. Dissolution
the board of directors or -It may only be dissolved at
trustees who mismanages. any time by the will of any
m. Dissolution or all of the partners.
-It can only be dissolved with
the consent of the state.