FIN Chapter 5 (WIP)

Classifications of businesses as to ownership

Sole or single proprietorship, Partnership, Corporation, and Cooperative

Means that a business is treated as a unit that is separate and distinct from its owners.

The business entity concept in accounting

Is a business unit owned and controlled by a single individual

Sole or single proprietorship

Is the simplest business entity and the easiest to form or put up. The owner usually manages the business and makes all decisions

Sole or single proprietorship

Advantages of single or sole proprietorship

Ease of information, needs only a minimum capitalization, sole decision maker, and easy to terminate

Disadvantages of sole or single proprietorship

Unlimited liability

Limited access to capital

Limited skills, talents, and capabilities

Inability to attract or retain good employees

Limited term of existence

Difficulty in measuring success

Personal problems may hinder operation/success

Is an association of two or more persons who have agreed to contribute money, property, or industry to a common fund within intention of dividing profit among themselves

Partnership

When two or more persons form partnerships for the exercise of a profession

General Professional Partnerships

5 essential requisites of partnership

A contract of partnership which may be written or oral, expressed or implied, subject to the rules contained in articles 1771 to 1773 to the new civil code

Two or more persons who have the legal capacity to enter into the contract of partnership

Value contribution to a common fund which may consist of money, property, or industry

An intention to divide the profits between among the partners

Lawful purpose

Basic characteristics of a partnership

Mutual agency, voluntary association, based on contract, limited life, unlimited liability, division of profit, and co-ownership of contributed assets

Advantages of partnership

Ease of formation, Allows pooling of financial resources, Allows pooling of skills expertise and experience of partners, less government control supervision and intervention

Disadvantages of partnership

Limited life leading to dissolution, unlimited liability, and mutual agency