Forms of Tourism and

Hospitality Business
Ownership and Franchising
Julie Mae T. Guanga 4:00-5:30PM
Introduction
• Tourism is one of the world’s fastest-growing industries that include
accommodations, transportation, entertainment, recreation, and food and
beverage services as well. Tourism is also vital for the success of many
economies around the world.
• There are many benefits of tourism such as boosting the revenue of the
economy, creates jobs for the locals, develops the infrastructures of a
country, cultural exchanges, and improves relationships between nations or
states.
• The tourism and hospitality businesses operate under one of the four broad
legal structures such as sole proprietorship, partnership, corporation, and
franchising.
A. Sole Proprietorship
• The sole proprietorship is a business owned and operated by
one person only. The business is considered an extension of
the owner and responsible for any debts or liabilities incurred
by the business. It is the simplest to operate from a tax and
accounting perspective but not a legal entity.
• A sole proprietor may use a trading name or business name
other than its legal name.
 Advantages and Disadvantages of Sole Proprietorship
ADVANTAGES DISADVANTAGES

Sole 1. Simplest to set-up 1. Demanding on owner’s time

Proprietorship 2. Least costly form to begin 2. Growth is limited by the
with owner’s financial means
3. Total decision-making 3. Unlimited personal liability
authority 4. Lack of continuity for the
4. Profit incentive business
5. No special legal restrictions 5. Limited capabilities and skills
B. Partnership
• Partnership is a union or association of two
or more persons to manage a business to earn
a profit. Each of the partners willingly agrees
to provide some amount of work, capital, and
sharing of profits.
• The best partnership are those who trust and
respect each other.
Different Kinds of Partnership

1. General Partnership
● A kind of partnership where the general partners are liable for the contracts and
obligations of the partnership pro-rata with their individual private or personal
property after exhaustion of partnership assets.
● A general partnership will never have a limited partner. Every partner’s assets can
be used to repay the liabilities of the partnership.
● This also means that each partner is responsible for every other partner’s actions.

2. Limited Partnership
● A kind of partnership that is composed of one or more general partners and one or
more limited partners.
● The limited partner is only liable to the extent of the capital contributed by him for
the contracts and obligations of the partnership.
Limited Partnership cont.….

• A limited partnership should always have one or more

general partners. Its partnership name must contain the
word “LIMITED” or “LTD”.

• As a limited partner, they are not involved in

management decisions and do not have any direct
control over the company.
Different Kinds of Partnership cont…

3. Partnership at will
● A partnership whose term of existence is indefinite. It may be
dissolved at will by any partner at any time he/she pleases and
at a moment’s notice.
4. General Professional Partnership
● A general professional partnership is a partnership formed for
the exercise of a profession, like law, accounting, engineering,
and architecture.
Advantages and Disadvantages of Partnership

Advantages Disadvantages

1. Easy to set-up 1. Unlimited liability of at least one partner

2. Partners can complement their expertise and 2. There is a possibility of conflicts and
skills in the business. disagreements between partners.
3. More financial resources are available for the 3. There is a divided authority and profits among
business than a sole proprietorship. partners in the business.
4. Partners share in the decision-making of the 4. The partnership firm suffers from uncertain
enterprise. existence because it can be dissolved if one of the
partners died.
5. The business is not subject to as many 5. There is limited capital due to a restriction on the
government regulations as companies in maximum number of partners.
corporations.
Partnership’s Registration Requirement
• Partnership are required to be registered with the Securities
and Exchange Commission (SEC) in the Philippines to be
able to start their business.

• According to the Philippine Civil Code, partnership is:

• “Article 1767. By the contract of partnership two or more

people bind themselves to contribute money or industry to a
common fund, intending to divide the profits themselves.”
⇨ The partnership is different from corporations. The first one is as to the beginning of juridical
personality. A partnership becomes a juridical person from the time the contract started. While in
a corporation, it only becomes a juridical person upon registration with a SEC.

⇨ A juridical person means it had a legal name certain rights.

⇨ Second, a partner may transfer his interest in a partnership to another when all the other partners
give their consent. While in corporations , the shares of stock are transferred to another when
that person becomes a stockholder of the corporation.

⇨ Third, as to liability to the third party, partners may be held liable with their private and personal
property while in corporations, the stockholders are generally liable only to the extent of their
subscribed capital stock.

⇨ Lastly, a partnership can be dissolved due to insolvency, death, insanity, or retirement of any of
the partners while such grounds do not dissolve a corporation.
The Articles of Partnership
• It is an instrument in writing by which the parties enter into a contract or agreement
of partnership. The principal parts of the articles of partnership are as follows:

a. Partnership name under which the company shall transact business.

b. Names, nationalities, and residences of the partners. If it is a limited partnership,
the kind of partner is whether general or limited.
c. Principal office of the partnership
d. Purpose or purposes of the partnership
e. Duration or term of existence of the partnership
f. Capital of the partnership
g. Transfer clause
h. Undertaking to change partnership name
i. Other provisions, conditions, terms, and stipulations
j. Signatures of the partners
k. Notarial page
C. Corporation
• A corporation is a legal entity that is separated and distinct from its owner. A juridical
person is created by operation of law and registered with SEC. It can enter into
contracts, bank loans, hire employees, pay taxes, etc.
• The ownership of a corporation is divided into shares of stock. A corporation issues
the stock to individuals or other businesses, who then become owners or stockholders
of the corporation.
• Republic Act 11232, or the Act Providing for the Revised Corporation Code of the
Philippines, was signed into law by President Rodrigo R. Duterte in February 2019.
• The law introduces fresh and progressive concepts aimed at improving the ease of
doing business in the country, promoting good corporate governance, and provide
protection to corporations, investors, and consumers alike, amid a fast-evolving
business landscape.
Here are some of the key provisions of the new Code.

1. Perpetual Term
2. One-person corporation
3. No minimum amount of capital stocks
4. Participation via remote communications, in absentia
5. Emergency board
6. Electronic filing and monitoring system
Other Corporation types include:
• C Corporation: this is the most common form of incorporation. The corporation is
taxed as a business entity and owners receive profits that are also taxed
individually. “C Corporation” is a business entity that can have an unlimited number
of shareholders , which may include shareholders who are foreign citizens.

• S Corporation: this is like a C corporation but may only consists of up to 100

shareholders. S corporations are pass-through entities like partnerships, so profits
are not taxed twice. “S Corporation” must not have more than 100 shareholders and
must have only one class of stock. Spouses are automatically treated as a single
shareholder.

• Shareholders must be bona fide citizens or residents and must be natural persons,
so corporate shareholders and partnerships are generally excluded.
Other Corporation types include:
• Non-Profit Corporation: A nonprofit organization is one that qualifies for tax-
exempt status by the IRS because its mission and purpose are to further a social
cause and provide a public benefit. Nonprofit organizations include hospitals,
universities, national charities and foundations.

• Limited Liability Company (LLC): unlike a corporation, an LLC is a pass-through

type of business. Pass-through businesses are those in which the profits and losses
of the business pass through to the owners. In other words, the business income is
considered as the owner’s income, and the owner pays the tax on his or her
personal tax return.

• Professional Corporation: it is a corporation consisting of professionals who are

licensed to practice a particular profession such as accountants, lawyers, and
doctors.
Advantages and Disadvantages of a Corporation
Advantages Disadvantages

Corporation 1. Limited liability of owners or 1. Cost and time involved in

stockholders the incorporation process
2. Attracts capitalization (organizing expenses)
3. Ability to continue indefinitely 2. Double Taxation/Higher
4. Transferable ownership tax Rates
5. Increased ability and expertise 3. Mandated by
6. Management or decision governmental
making is shared by the board requirements and law
of directors, not the sole 4. Potential loss of control
individual. by founders
5. Lack of representation
Articles of Incorporation
• Is a document that is needed to form a corporation in the Philippines and must be registered
with SEC.

• The contents of the Articles of Incorporations are the following:

1. The name of the corporation

2. The specific purpose or purposes for which the corporation is being incorporated.
3. The place where the principal office of the corporation is to be located, which must be within
the Philippines.
4. The term of which the corporation is to exist
5. The names, nationalities, and residences of the incorporators
6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen
(15)
7. The names, nationalities, and residences of persons who shall act as directors or trustees until
the first regular directors or trustee are duly elected and qualified.
Articles of Incorporation
• If it is a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and incase the share is par value
shares, the par value of each, the names, nationalities, and residences of the original
subscribers, and the amount subscribed and paid by each on his subscription, and if some or all
the shares are without par value, such fact must be stated

• If it is a non-stock corporation, the amount of its capital, the names, nationalities of the
contributors, and the amount contributed by each

• The name of the treasurer-in-trust

• Transfer clause

• Other matters that are not inconsistent with law and which the incorporators\ may deem
necessary and convenient
There are different classes of corporations that exist and generally classified on
several factors according to the revised Corporation Code of the Philippines
such as:
A. Corporations as to organizers, functions, and governing law:

• public- a corporation by the state only and governed by special laws and local
government code.
• private- a corporation by private persons alone or with the state usually for-profit-making
functions that are governed by the law on private corporations.

B. As to legal status:

• de jure corporation-a bona fide corporation that has fulfilled all requirements and granted
limited liability protection under the law.

• de facto corporation-a corporation that is basically with a good faith attempt to become a
corporation but technically does not fulfill every requirement needed.

• corporation by estoppel-a corporation which has a group of people that assumes to act
as a corporation, even while knowing that it is without authority to do so.
C. As to the existence of stocks:

• stock corporation-a corporation that has capital stock divided into shares and authorized to
distribute to holders of such shares, dividends, or allotments of the profits depending on their
shares held.

• non-stock corporation-a corporation which does not issue stocks nor distribute dividends to
their members.

D.As to laws of incorporation;

• domestic corporation- a corporation created, organized, or existing under Philippine laws.

• foreign corporation-a corporation created, organized, or existing under any laws other than
those of the Philippines and whose laws allow Filipino citizens and corporation to do business
in their own country or state.

E. As to whether they are open to the public or not:

• open -a corporation that is open to any person who may wish to become a stockholder or
member.
• close- a corporation whose shares of stock are held by the limited number of persons like the
family or other closely-knit group.
F.As to the relationship of management and control:

• holding corporation-a corporation that controls another corporation or several other

corporations known as a subsidiary by the power to elect management for purposes of control.
• subsidiary corporation - a corporation that is owned either partially or completely by another
company.
• affiliate-a corporation that possesses a minority stake in the ownership.

G. As to the number of persons who compose them:

• aggregate corporation - a corporation consisting of more than one person or a member vested
with corporation power.
• corporation sole - a corporation consisting of only one person or member.

H. As to whether they are for religious purposes or not:

• ecclesiastical corporation-a corporation organized for religious purposes.
• lay corporation-a corporation organized for a purpose other than for religion.

I. As to whether they are for charitable purposes or not:

• eleemosynary corporation-a corporation created for charitable purposes.
• civil corporation-a corporation established for business.
Franchising

• Franchising is another form of business that exists in the tourism and

hospitality sector. Franchising enables to grow quickly into several
geographic markets at once with a proven and tested strategy.

• To differentiate:
• A franchisor (entrepreneur/developer) is the owner of the business that
provides the product or service.
• The franchisee (business person) is the one who receives the rights to
use the franchisor’s business name.
Types of Franchising
According to Allen (2013,p.404)

a. Dealership
b. Service franchises
c. Product franchises

According to Scarborough (2011)

d. Trade Name
e. Product Distribution
f. Pure (business format)
Benefits of Franchising
1. Capital
2. Motivated and effective management
3. Fewer Employees
4. Speed of Growth
5. Reduced involvement in day-to-day operations
6. Limited risks and liability
7. Increasing brand equity
8. Advertising and promotion
9. Customer Loyalty
10. International Expansion
Drawbacks of
Franchising
The following are the drawbacks or disadvantages of franchising:

• Developing a franchise network can be expensive, in terms of

management time and initial capital outlay.

• Your investment cannot be recovered until franchisees are

appointed and you start to receive fees from them.

• As your franchisees are independent business people, they

might sometimes disregard their obligations related to the
franchise system.
Thank You for listening 