FDNACCT UNIT 1 Part 4 - Forms of Business Organization

Part IV - Forms of Business Organization

Service

Provides labor or service

Merchandising/Trading

Buys and Sells goods

Manufacturing

Converts Raw Materials to Finished Goods

Sole or Single Proprietorship

A business Entity owned by an individual trading alone in their own name, or under a recognized business name, who solely takes all business profits and assumes all business losses. Most businesses are sole proprietorships.

1 - ONE

Number of owners in a Sole Proprietorship

Sole Prop. - Business Life

Ends when the owner… 

1. Passes away

2. Is unable to carry on business operations

3. Decides to close the business

Sole Prop - Responsibility for business debts

The owner solely takes all business profits and assumes all business losses (UNLIMITED LIABILITY)

Partnership

A business entity is owned by two or more individuals, called partners, who enter into a contract called the partnership agreement*, to conduct business (or practice a profession) and divide profits among themselves. 

Partnership # of owners

2 or More

Partnership Business Life

Ends by…

1. The termination of the definite term or particular undertaking of the partnership.

2. The express will of any partner, acting in good faith

3. The death, insolvency, or civil interdiction of any partner

4. Decree of court 

Partnership Responsibility for business debts

Partners are responsible individually and jointly for the business debts. 

The partners __________ legally _____ that the richest partner be excluded from profit sharing as long as that partner agrees to such arrangement.

Partnership Agreement: 

1. Capital Invested

2. Profit and Loss sharing

3. Interest on Capital: an agreed rate of interest given to a partner for capital invested. 

4. Interest on drawings: an agreed rate of interest charged to a partner for drawings made. 

5. Salary and bonus for partners working in the partnership

6. Interest given to a partner who extends loan to the partnership. 

7. Responsibilities of the partners in managing the business. 

Corporation

A separate legal entity that has a legal right to own property and conduct business on its own name. 

Corporation # of owners

1 or More

Corporation Business Life

Perpetual existence, can continue indefinitely and ends only when…

1. The business goes bankrupt

2. When the stockholders vote to liquidate

Corporation Responsibility for business debts

Stockholders' liability is limited to their investment. (LIMITED LIABILITY) 

Stockholders (Shareholders)

Owners are called __________

A number of stocks (shares)

Ownership is divided into _________________ and is evidenced by holding a stock certificate. 

Stock certificate. 

Ownership is divided into a number of stocks (shares) and is evidenced by holding a __________.

Directors’ remuneration. 

Stockholders may be directors so they will receive __________.

Private Corporation

Close corporation/Family corporation

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Shares are held by a select few individuals who are usually closely associated with the business

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The corporation shall not list in any stock exchange or make and public offering of any of its stock of any class (Revised Corporation Code of the Philippines)

Public Corporation

1. Publicly traded company

2. Ownership is distributed among the general public shareholders via the free trade of shares of stock on exchanges. 

3. IPO Initial Public Offering via PSE Philippine Stock Exchange. 

Separate Legal Entity

Means that: 

1. The business can sue and be sued in itself. 

2. The business can carry out transactions in the business name. 

3. The business needs to pay company tax (corporate tax)

Because of the “separate LEGAL entity” of corporations.

Some businesses can only be registered as a partnership (REGULATED PROFESSIONS). Why?