Chapter 7:

FORMS OF BUSINESS OWNERSHIP AND REGISTRATION

OBJECTIVES:
After this lesson, you should be able to:
1. Understand the first step in establishing business such as choosing the business name and the different factors
to be considered in putting up a business;
2. Differentiate the different forms of business ownership and their advantages and disadvantages;
3. Identify and classify the different government agencies and areas for registration;
4. Know the causes of business failures and prevent it; and
5. Realize the importance of being an entrepreneur as a source of employment in the society.

The entrepreneur, before selecting the form of ownership and registering it with the government agencies
concerned, must analyze carefully the advantages and disadvantages of the various forms of business organization. The
entrepreneur must see for himself the kind of management control and how the business will be able to generate his
projected profitable investment.
The requirement in putting up a business is to decide to have a business name. in deciding, there are several factors
needed to be considered. These are:
1. Vision and Mission of the Company.
An entrepreneur must know where the business is going after five to ten year from its existence. The
organization must have clear focus on goals and objectives. Missions are the ways to accomplish the vision of
the organization so as it must have agreement in setting it. The business name must describe the image of what
the company wants to project in the community.
2. Target Market
The product will be for the satisfaction of a group of people. It must be specific, can be identified from
the others, and can be easily recognized. An entrepreneur must conduct market research to better determine
the needs and wants of the target market. Demographic profile such as age, gender, civil status, income level,
product preference on size, color, shape, weight etc. must be included in the survey. The business name must be
catchy to the target market in getting the attention and thereby convert the attention into intention of buying
the product.
3. Benefits to the Client
The name of the product must create competitive advantage over the competitors. It must produce
curiosity to its clients so as to arouse awareness. The entrepreneur must provide positive impact in introducing
the product to the market through its name. the business name must describe the effect of the product to the
health, personality, image or status and undying advantage over the other company selling the same product.
4. Interest of the Market
The business name must develop and create interest to the market to sustain saleability and
adaptability in the community as a whole. The entrepreneur must never forget that the reason why there is a
product is because of the market to its clients or customers. Familiarity of the market desires, preferences, and
demands will be the basis in developing business name.
5. Competitor’s Name
The entrepreneur can not use the competitors name, he must be able to create a new one. To create
better awareness and curiosity, the company must study, analyze, and evaluate how the rival in the market
creates their own business name.
6. Competitive Advantage
The company must know how its product will be more saleable from the other rival company. One
entrepreneur can focus on the uniqueness that cannot be seen nor observed from the existing competitors. The
characteristics including the mixture of ingredients for non-food product, the durability, effects to the
environment, packaging, and appearance are the factors to distinguish its uniqueness from the other rival
company. If the product is food, the taste, nutritional value, appearance, and packaging must be observed in
deciding for the production.

TIPS IN CHOOSING THE BUSINESS NAME

1. Easy to Recall or Remember – The business name must be understandable so it is easily stored in the memory.
2. Pleasant Meaning Creates Pleasant Feelings – It produces positive or favorable feeling upon saying or
mentioning to the public.
3. Easy to Pronounce – The business name must be cited as freely as it can be.
4. Easy to Spell – The business name must be simple. Words that are used in everyday communication will be an
advantage.
5. Related to the Product – The business name must describe the product. It represents the features of the
product.

4 FORMS OF BUSINESS ORGANIZATION

1. SOLE OR SINGLE PROPRIETORSHIP
It is a form of business organization that is owned and usually managed by one person. It is the oldest and the
simplest form of business ownership. It is also easiest to start and manage. The owner is also the general
manager of the company.
The advantages are:
a. Low Cost of Formation and Dissolution
 It is easy and cheap to start and it is also easy and cheap to dissolve. It requires small capital and there
are less legal paper needed. A license from the Department of Trade and Industry and a business permit
from the city or municipal government are required.
b. Independence and Flexibility
The owner is usually the boss also. He makes his own decisions and implements them in accordance
with his will or wish. There is a freedom in decision making in the area of marketing, production and
finance. There is no other person involved in managing the business.
c. Tax Advantage and Less Government Regulation
The owner does not pay several kinds of taxes. The earning is taxed as personal income tax because
the government has very minimal regulation and supervision over a single proprietorship. The business
will not be taxed only the owner or the manager of the entity.
The disadvantages are:
a. Unlimited Liability
If in case the business fails, the owner will be liable to all financial obligations. The creditors can get all
his personal properties, including saving and personal belongings.
b. Limited Financial Resources
Banks and other financial institutions are usually not willing to lend large amounts of money to single
proprietorships. The manager’s asset only will be the source of expansion and improvement of the
business.
c. Limited Business Skill and Knowledge
“Two heads are better than one” wants to emphasize that the manager must be willing to extend or
empower his skills and knowledge to capture the large market considering that only few people are gifted
to so much talents.
2. PARTNERSHIP
Is an association of two or more person who act as co-owner of a business. Each partner contributes money,
property or service and profession to their organization. There are two types of partner: general partner and
limited partners.
The liability of a general partner extends up to his personal properties while a limited partner is only liable to
the extent of his contribution to business. The capitalist partner contributes money, property and belongings. The
industrial partner provides service, management or even his profession.
The advantages are:
a. Easy to Organize
A partnership is relatively easy to form, much easier than corporation. The legal requirement include
articles and by-laws of partnership to be submitted to the security and exchange commission, verification
of business name with SEC, registration of business name with the Department of Trade and Industry,
registration with the Bureau of Internal Revenue for a TIN (Tax Identification Number), business permit
from the city or municipal hall, and registration of employees with Social Security System.
b. Availability of More Capital and Credit
Partners can easily combine their resources: properties, equipment, and others – and can also use
these for security in obtaining bank loans. Suppliers are willing to extend more credit to a partnership than
to use a single proprietorship. It lessens the risk of the limitation in funds.
c. Retention of Profits
Each partner gets all the profits of his business. This stimulates the partners to improve their
operation. If the partner is a limited partner, the security of maintaining the personal properties is strong
than paying all the obligations.
d. Better Business Skills and Knowledge
Each partner contributes his skills and knowledge to the organization. Such combination provides
better management in terms of planning, decision making and implementation, compared with a single
proprietorship.
The disadvantages are:
a. Unlimited Liability
Each general partner is personally responsible for all the debts of the business. Even the personal
property of a general partner can be taken to pay creditors. However, in the case of a limited partner, only
his investment is subject to risk.
b. Lack of Stability
A partnership is terminated in case of the death, withdrawal of legally declared insanity of any one of
the general partners. A partner may withdraw his capital any time that he wishes not to participate in the
partnership.
c. Management Disagreement
It is true that two or more heads are better than one. But if they do not work in unity, chaos will be
the result. Suspension of distrust and misunderstanding may crop up among the partners.
3. CORPORATION
Is an artificial being created by operation of law, having the right of succession, and the powers, attributes and
properties expressed authorized by law or incident to its expressed authorized by law or incident to its existence.
United States Chief Justice John Marshall defined corporation in his famous 1819 decision as “ an artificial being
invisible, tangible, and existing only in contemplation of the law.”
Stocks are the shares or certificate of ownership of a corporation. The owners of stocks are called stockholders
or shareholders.
There are two types of corporations: private or close corporation and open corporation:
1. Private or Close Corporation – It is owned by a few individuals, usually relatives and friends. They limit
ownership to the public and maintained common interest to the corporation so as to avoid outside
opinions and suggestions.
 2. The Open Corporation – It is owned by any individual who buys shares of stock which are openly traded in
the stock markets. They invite outsiders and open ownership to the public to attract more funds as
investments.
The advantages are:
a. Limited Liability
The liability of a stockholder is only up to his shares of stock. In case the corporation becomes a
failure, creditors can only lay their claims on the assets of the corporation, not on the personal assets of
the stockholders. The personal assets will be protected against the creditors.
b. Ease in Raising Capital
Aside from bank loans, a corporation can sell shares of stock to the public for additional funds.
Individuals are more willing to invest in a corporation due to limited liability, and they can sell their shares
of stock. It is more advantageous than selling or borrowing funds from the other party in the business
industry.
c. Stability of Existence
The life of a corporation does not end with withdrawal or death of the key owners. It can exist for 50
years and is subject to renewal. The ownership can be sold or transferred in discretion of the stockholders.
d. Specialized Management
The corporation can hire an expert or a specialist in the management of the business. Departmental
activities are carried by people with proper training and experience.
The disadvantages are:
a. Difficult to Organize
It is difficult and quite expensive to organize a corporation. It requires the services of a lawyer and
accountant to prepare the legal forms and financial documents to show evidences of its existence in order
to operate.
b. Strictly Regulated and Supervised by the Government
Corporations have to comply with government laws, policies, and regulations. They have to submit
their financial reports every year to concerned government agencies. The corporation mush show
evidences of its existence to justify the business operations.
c. Formal and Impersonal Employer-Employee Relationship
A corporation has several layers of management. The president and board directors seldom or don not
associate with the workers or clerks of the corporation.
4. COOPERATIVE
Is a duly registered association of persons, with a common bond of interest, who have voluntary joined
together to achieve a lawful common social or economic end, making equitable contributions to the capital
required taking in accordance with the university principles of cooperation, which include the following:
a. Open Voluntary Membership – Cooperative is not limited to a certain group of people but rather to other
group of individuals who are willing to be a part of the organization.
b. Democratic Control – One member can vote once same with the other members in the organization. A
member can express the opinion freely having the same number of shares.
c. Limited Interest on Capital – When the cooperative earns, there is an equal distribution of interest on the
investment so as limitation in getting higher interest from the other member is practice in the
organization.
d. Division of Net Surplus – Each member will receive a computed surplus to be distributed to the group. It is
divided to be enjoyed by the group as the financial statement as a proof and evidence.
e. Cooperative Education – The organization will help educate each members through regular meetings and
seminar to help update the group in some changes and ask suggestions if needed.
f. Cooperation with other Cooperatives – Being registered under the Cooperative Development Authority,
the organization will be a member of the umbrella group.

CAUSES OF BUSINESS FAILURE

The success of the entrepreneur can be viewed from several situations merely:
1. Business profitability is to provide high benefits to the employees such as profit sharing.
2. Survival from an economic crisis is ability to stay in the industry amidst financial difficulties that causes closure
and bankruptcy of other establishments most particularly the competitors.
3. Incremental sales and share of the market is the introduction of new product lines and design that expands
market share and attract new market segment.
4. Expansion of market area and product lines such as opening of new outlets, branches and attracting new dealers
by offering new product designs and images.
5. Acquisition and ownership of plant machinery and premises in buying or acquiring new plants, factory and other
fixed assets shows success in the industry.
6. Getting a long-term business contract with the government or a big business entity.

Success is having avoided the causes of failure which the entrepreneur is supposed to avoid. These causes are
avoidable but they must be known and made clear to the entrepreneur. They are as follows:
1. Undercapitalization – The entrepreneur must make sure that before the business started, there must be a
contingency fund if in case the expected ROI (Return of Investment) did not operational. The capitalist,
investors, and fund managers neglected a conservative forecasting so as predicted an exaggerated, over
estimation and unrealistic prediction on the business operations. The organization must consider peak and lean
season to avoid this problem and anticipate the future potential problem that might occur if unrealized
expectations will not be considered.
 2. Poor Business Location – The location must be strategic enough to the suppliers of the raw materials, accessible
to the customer, convenience to the future market. The demographic profile of the target market which
includes the age, gender, income level and civil status are the main variables for market research to determine
product desire and acceptability. The ambiance of the business will set the market patronage and loyalty.
3. Negligence to Public Policy – “Ignorance of the law is not an excuse” emphasize that the business organization
must be aware of the existing and proposed law that can affect the operation of the entity. Public policy
contains rules and regulations that sometimes helps or hinder the organization to expand and limits the market
share. The makers of plastic bags and non-biodegradable materials affected by the law on prohibiting the usage
of public bags and the like in one locality can cause business failure.
4. Unprepared to Risk – The entrepreneur may not be able to control the market situation but there is surely a way
to manage the risk in business that arises form fortuitous events like fire, flood, or theft. Risks of this nature are
insurable so that the burden of loss or damage is shifted from the insured to the insurer under a non-life
insurance policy. The value of insurance coverage usually gets appreciated by the entrepreneur only after the
fortuitous event has occurred. To avoid risk and even failure, the business organization must be insured under a
non-life insurance policy.
5. No New Product or Service – The entrepreneur must be creative and innovative to promote new product design
and image. Product or service of one organization will establish popularity to the owners or the top
management team. Obsolescence will result business failure because customer wants new product and they
need changes in product design and features.
6. Unsatisfactorily Performance of Relatives – Blood is thicker than water when workers consider their
employment by relatives (even family members) is a matter of privilege rather than a duty to be sincere and
productive. The unsatisfactorily performance of relatives working for the entrepreneur slowly erodes the
business and eventually fails. Sometimes the commitment in the company that should be rendered by the
worker if they are relatives becomes a problem.
7. Irregular Attendance – The absentee entrepreneur will not be there to make the critical decision. The presence
of the owner can guarantee commitment from the subordinates. Whenever problems arise, the immediate
decision coming from the owners needed to continue the operation of the business. During the earlier stage of
the business proper monitoring and follow-ups to the design business will be observed.

ACTIVITY 1. TERMS AND CONCEPTS FOR STUDY.

Write it in your notebook.
A. Discuss the following terms (in your own words). 3 pts. each
1. Business ownership
2. Competitive advantages
3. Stocks
4. Business failure
5. Expansion
6. Democratic control
7. Vision and Mission

B.
1. What are the factors needed to be considered?
2. Give the different tips in putting up a business.
3. Differentiate Sole Proprietorship, Partnership, Corporation and Cooperatives in business registration.
4. Discuss the causes of business failure.
5. Prepare a strategy to avoid business failure.

ACTIVITY 2. TERMS AND CONCEPTS FOR STUDY.

Test I – Write TRUE if the statement is correct and FALSE if the statement is wrong.
_______1. The company must know how their product will be saleable from the other rival company means
competitive advantage.
_______2. Pleasant meaning creates pleasant feelings that produces positive or favorable feeling upon saying or
mentioning to the public.
_______3. Department of Labor and Industry will issue a certificate of registration of business name.
_______4. Single Proprietorship is a form of business organization that is owned and usually managed by one or
tow persons.
_______5. Partnership is an association of two or more person who act as co-owner of a business. Each partner
contributes money, property or service and profession to their organization.
_______6. Corporation is an artificial being created by operation of law, having the right of succession, and the
powers, attributes and properties expressed authorized by law or incident to its existence.
_______7. Cooperative is a duly registered association of person, with a common bond of interest, who have
involuntary joined together to achieve a lawful common social or economic end, making equitable
contributions to the capital required taking in accordance with the economic accepted principles of
cooperation.
_______8. The entrepreneur must be creative and innovative to promote new product design and image.
Acquisition and ownership of plant machinery and premises in buying or acquiring new plants factory
and other fixed assets shows success in the industry.
_______9. The entrepreneur must determine the vision and mission of the company to determine where the
company is going five to ten years from now.
ACTIVITY 3. IDENTIFICATION
_____1. Owned by a few individuals, usually relatives and friends. They limit ownership to the public and
maintained common interest to the corporation so as to avoid outside opinions and suggestions.
_____2. Each member will receive a computed surplus to be distributed to the group. It is divided to be enjoyed by
the group as the financial statement as a proof and evidence.
_____3. Government agency for business registration.
_____4. Government agency for Tax Account Number.
_____5. Owned by any individual who buys shares of stock which are openly traded in the stock markets. They
invite outsiders and open ownership to the public to attract more funds as investments.
_____6. Government agency for Cooperatives.
_____7. Government agency for the recruitment or placement agency for foreign employment.
_____8. Government agency for the registration of Partnership and Corporation.
_____9. Cooperative is not limited to a certain group of people but rather to other group of individuals who are
willing to be a part of the organization.
_____10. Government agency for the registration of Single Proprietorship.

a. Open Corporation f. Phil. Overseas Employment Admin.

b. Cooperatives Development Authority g. Bureau of Internal Revenue
c. Open Voluntary membership h. Division of net surplus
d. Department of Trade and Industry i. Municipal or City Hall
e. Private Corporation j. Securities and Exchange Commission
ACTIVITY 4. DISCUSSION
1. As a new entrepreneur, how can you anticipate, prevent, or avoid business failures? (5 points).
2. How does the business name affect the market interest in the situation of its previously non-existence? (5 pts.)
3. Give the difference between the advantages and disadvantages of Sole Proprietorship, Partnership, Corporation,
and Cooperatives. (10 pts.)