Forms of Business Organization
Sole Proprietorship
➢ sole proprietorships are businesses formed by a single individual ➢ do not have separate legal
existence from the owner.
➢ The law does not recognize a sole proprietorship as a separate juridical entity distinct from the
owner
➢ the owner usually transacts with other parties under his or her own name.
Advantages of a Sole Proprietorship
● Easy formation
● The owner has full control of the business
● Owners can mix personal and business assets
● Owners have all the profits for themselves
● Simple taxation
Disadvantages of a Sole Proprietorship
● Unlimited liability
● Difficulty of raising additional capital
● Owner’s bias
Partnership
➢ a contract whereby two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves
➢ Two or more persons may also form a partnership for the exercise of a profession.
➢ The law does not recognize a sole proprietorship as a separate juridical entity distinct from the
owner
➢ the owner usually transacts with other parties under his or her own name.
General Features of a Partnership
Separate legal existence
- Partnerships having jurisdical personalities separate and distinct from their owners
Mutual Agency
- The acts of a partner are binding on a partnership even though he/she has no authority to do so as
long as the act concerns the normal business operations of the partnership
Unlimited Liability
Limited Life
- The life of a partnership can be easily ended through partnership dissolution or liquidation.
Partnership dissolution occurs when one of the partners withdraws from partnership or if new partner
is admitted. Dissolution occurs when there is a change in the relationship among partners.
Partnership liquidation ends the partnership
Co-ownership of partnership property
- The contributed money and property belong to the partnership and the partners only have a
proportionate share of partnership assets.
Partnership Agreement
- Contracts refers through oral and written agreement
Advantages of a Partnership
● Easier to create than a corporation
● Better ability to acquire additional capital than sole proprietorship
● Large pool of human capital than sole proprietorship
Disadvantages of a Partnership
● Unlimited liability
● Mutual agency
● Limited life
Other Forms of a Partnership
Limited Partnership
- In a limited partnership, at least one partner has unlimited liability and at least one partner has
limited liability. Partners having unlimited liability are called general partners while partners having
limited liability are called limited partners. Limited partners are exposed to a lower level of risk.
Limited Liability Partnership
- It is a type of partnership that aims to protect innocent partners from the malpractice and
wrongdoings of the partners. This kind of partnership possesses multiple insurance claims to protect
the partners from such wrongful acts of other partners. The limited liability partnership is mostly used
by individuals forming a partnership for the practice of a profession (e.g., lawyers, accountants,
medical professionals, auditors)
Limited Liability Company
- It is another form of organization having partnership characteristics. Limited liability companies have
features of both a corporation and a partnership. The owners are called members and they enjoy
limited liability. Unlike the limited partners in a limited partnership, members of a limited liability
company can participate in management without losing the limited liability protection. (Weygandtet
al.2008)
Corporation
➢ An artificial being created by operation law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence.
General Features of a Corporation
Separate legal existence
- Corporation is treated by law as an artificial being separate and distinct from its owners.
Limited Liability
- The personal assets of the stockholders of a corporation are protected from the claims of creditors
and other outside parties. Thus, the maximum loss that a stockholder can bear equals his/her
investment.
Transferable ownership rights
- Ownership rights in a corporation are represented as stocks. A stock is an intangible (ie no physical
form) asset evidencing a proportionate share in the properties of the corporation.
Virtually unlimited life
- A corporation shall exist for a period not existing to 50 years from the date of its formation.
Government Regulation
- Corporation is subject to stricter government regulation than the other two.
Double Taxation
- The income of a corporation is taxed on the corporate level and the individual level.
Dividends
- Stockholders are entitled to received a share of the income (cash, stock or property) once the board
of directors approves the distribution
Advantages of a Corporation
● Ability to acquire additional capital
● Transferable ownership rights
● Limited liability of stockholders
● Virtually unlimited life
● Large pool of human capital
Disadvantages of a Corporation
● Heavily regulated by the government
● Double taxation
● Not easy to form
● More expensive to form than sole proprietorships and partnerships
Cooperatives
➢ According to the Cooperative Code of the Philippines, a “cooperative is a duly registered
association of persons, with a common bond of interest, who are 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.”
➢ The primary objective of a cooperative is to provide goods and services to its members and enable
them to attain increased income and savings
Cooperative’s Objectives
A cooperative may be formed by at least 15 persons for any of the following purposes:
1. To encourage thrift and savings mobilization among the members.
2. To generate funds and extend credit to the members for productive and provident purposes.
3. To encourage among members systematic production and marketing.
4. To provide goods and services and other requirements to the members.
5. To develop expertise and skills among its members.
6. To acquire lands and provide housing benefits for the members.
7. To insure against losses of the member.
8. To promote and advance the economic, social, and educational status of the members.
Cooperative’s Characteristics
1. It can sue and be sued under its own name.
2. It has the right of succession
3. Members of a cooperative are subject to limited liability
4. It shall exist for a period not exceeding 50 years from the date of formation. The cooperative term
may be extended for periods not exceeding 50 years.
5. A cooperative has its set of board of directors.
6. Income of a cooperative (called net surplus) belongs to its members.
