forms +-of business

organization (CHAPTER 4)
Objectives:
 Understand the different forms of business organization and its
functions
 Identify the Importance of Accounting in Business and how it applies.
 Define what are the characteristics of business?
 Analyze the different kinds of business according to ownership and operation and how
the decision making varies depending on their natures.
 To know the meaning of accountings, its nature, aspects and function in business
BUSINESS DEFINED:

•According to well-known professors William Pride,

Robert Hughes, and Jack Kapoor, business is 'the
organized effort of individuals to produce and sell, for
a profit, the goods and services that satisfy society's
needs.'
•
•In a more brief definition, according to Urwick and
Hunt, “Business is any enterprise which makes,
distributes or provides any service which other
members of the community need and are willing to
pay for it”.
•
 Five Characteristics of a Business

1.Production or Acquisition of Goods

2.Profit – The basic motive of business
3.Risk – Uncertainty of future
4.Dealing in Goods and Services
5.Regular Dealings
Kinds of Business According to Ownership:

1.Sole of Single Proprietorship

2.Partnership (Civil Code Art 1767)
3.Corporation (RA 11232, amending
Corporation Code of the
Philippines)
4.Cooperative (RA 11354, amending
Philippine Cooperative Code of
2008)
1.Sole of Single Proprietorship

Is a business owned and managed by only one persons

Advantages:
a. There are minimal costs and requirements in the formation.
b. The owner can withdraw the assets and profits of the business
Disadvantages:
anytime at his or her own discretion.
a. Resources are limited as the capital is
c. Decisions making is solely in the hands of the owner.
provided only by the owner.
d. The duration of the life of the business solely depends on the
b. The liability of the owner is unlimited as
owner.
he or she is accountable to all creditors of
the business.
c. Infusion of knowledge in the
management of the business is limited to
one person only, which is the owner.
2. PARTNERSHIP
is a business organization owned and managed by two or more people who agree to
contribute money, property, or industry to a common fund for the purpose of earning a
profit.

Advantages:
Disadvantages:
a. These are minimum costs and requirements in the formation.
b. There are more funds contributed from the investment of the
partners.
a. The partners are liable for the actions of
c. There is infusion of more knowledge, experience, and skills from
each partner as a result of mutual agency.
two or more partners.
b. A general partner has unlimited liability
d. There can be division of labor between or among partners,
if the other partners are limited partners or
are insolvent.
c. The death, retirement, withdrawal, or
incapacity of a partner results in the
dissolution of the partnership.
d. Admission of a new partner depends
upon the approval of other partners.
3. CORPORATION
Is a form of business organization managed by an elected board of directors. The investors
are called stockholders and the unit of ownership is called share of stock.

Disadvantages:
Advantages:
a. The stockholders only have limited liability, as their liability a. A corporation entails many requirements
extends only up to the amount of their capital investment. and is more costly than a partnership.
b. A corporation has continuous existence as its life is indefinite. b. The government exercise strict control
c. There is more infusion of funds from the stockholders or over corporations and imposes high taxes.
investors c. Shareholders have little or no
d. Management of the corporation is vested upon its board of participation in the management of the
directors. corporation.
d. Distribution of net income depends upon
the declaration of dividends by the board of
directors.
e. In large corporations, there is formal or
impersonal relationship between employees
and management due to the big number of
employees.
4. COOPERATIVE
is a duly registered association of persons, with a common bond of interest, who have
voluntarily joined together to achieve a lawful common social or economic end, making
equitable contributions to the capital required and accepting a fair share of the risks and
benefits of the undertaking in accordance with universally accepted cooperative principles.

Advantages:
a. . The prices of products offered to consumers are lower due to Disadvantages:
direct purchases of cooperatives members from producers or
manufacturers. a. there is limited capital due to under
b. Cooperatives are managed by the members themselves; thus, priviledged members.
saving on management costs which leads to lower prices of b. The cooperative is strictly for members
products inuring to the benefit of the consumers. only and shares cannot be transferred to
non-members.
c. Lack of efficient management as it
managed only by its members
 Distinction - SOLE PARTNERSHIP CORPORATION
PROPRIETORSHIP
As to governing Civil code of Corporation Code
law. the of the
Philippines (Civil Philippines or Batas
Code Pambansa
Art 1767) Blg. 68 as amended
by (RA
11232
As to Registration Department of Securities and Securities and
Trade and Industry Exchange Exchange
Commission Commission
 Distinction - SOLE PARTNERSHIP CORPORATION
PROPRIETORSHIP
As to Owner/s One Person/owner Two or more persons Not more than 15 incorporators.

As to liability The owner is personally liable for all the In a General partnership, the partners Liability of the owners is limited to their
obligations of the sole proprietorship. are liable to extent of their personal share in the capital. If a corporation
properties. In a limited partnership, the becomes insolvent, the shareholders
limited partners are liable to the extent are not liable to pay for the corporation’s
of their investments but the general outstanding debts.
partners are liable up to their personal
properties.
As to manner of taxation Subject to graduated income tax table Generally, fixed at 30% of net income. Generally, fixed at 30% of net income.
from 0 to 35%.
As to control and management The owner has full control of the Partners are all managers unless The Corporation is controlled by its
business. specified in the articles of partnership. Board of Directors. Members of the
Board of Directors are elected by the
shareholders.
As to raising of Capital Limited by the credit- In a partnership, the partners jointly Corporations have various options in
worthiness of the owner. raise capital for the business and agree raising capital such as equity financing,
on contribution and sharing. Debts may debt financing, stock-option plan, debt-
be incurred by the partnership and the to-equity conversion, etc. Investors are
partnership leverages the collective aware that their personal assets are
creditworthiness of all partners. insulated from creditors in case of the
corporation’s insolvency.