5th-PPTECON123

Page 1: Financing Any Enterprise

Page 2: Methods of Financing

• Funds for financing an engineering or any business enterprise are classified into:

  • Equity:

    • Owned by investors in the enterprise.

    • Investors expect to earn profit from their investment.

    • No obligation to repay if there is no profit.

  • Borrowed Funds:

    • Borrowers must pay interest and repay the principal by a specific date, regardless of profitability.

    • Loans are fixed obligations; failure to repay leads to embarrassment or foreclosure of collateral.

Page 3: Working Capital

• Working or circulating capital includes all funds required for the enterprise to function.

• Types of Working Capital:

  • Initial Working Capital:

    • Amount needed to commence operations before generating sales income.

  • Regular Working Capital:

    • Needed for ongoing operations after initial startup, typically less than initial capital.

Page 4: Types of Business Organizations

• 1. Individual Ownership

• 2. Partnership

• 3. Corporation

• 4. Cooperative

Page 5: Sole Proprietorship

• Definition:

  • An unincorporated business with one owner, also known as sole trader.

• Characteristics:

  • Easy to establish and dismantle with little government involvement; popular among small business owners.

Page 6: Advantages of Sole Proprietorship

1. Easy to organize

2. Favorable effort-reward relationship

3. Full owner control

4. Quick decision-making

5. Economical and efficient operations

6. Offers a personal touch

7. Simplicity, dynamism, and flexibility

Page 7: Disadvantages of Sole Proprietorship

1. Small size and limited growth

2. Limited lifespan

3. Lack of professional skills and talent

4. Unlimited liability for debts

5. Limited capital options

6. Risk of incorrect decisions

Page 8: Partnership

• Definition:

  • A contract between two or more persons who agree to contribute resources to a common fund with profit-sharing intention.

• Legal Basis:

  • Governed by Article 1767 of the Civil Code of the Philippines.

Page 9: Advantages of Partnership

1. Bridging gaps in expertise and knowledge

2. More capital available

3. Broader business opportunities

4. Provides moral support

5. Brings in new perspectives

Page 10: Disadvantages of Partnership

1. Loss of individual autonomy

2. Potential emotional disputes

3. Complications for future selling

4. Unlimited liability of partners

Page 11: Partnership Contract

• Essential components:

  1. Name, location, and nature of the business

  2. Names and roles of partners

  3. Capital contributions required

  4. Procedure for sharing profits/losses

  5. Withdrawal rules for partners

  6. Insurance provisions for partners

  7. Accounting periods to be used

  8. Audit provisions by CPA

  9. Dispute resolution mechanisms

  10. Dissolution terms of the partnership

Page 12: Corporation

• Definition:

  • An artificial being created by law with the right of succession and certain powers and properties defined by law.

  • Governed by the Revised Corporation Code of the Philippines.

Page 13: Advantages of Corporation

1. Limited liability for shareholders

2. Ability to raise capital

3. Ease of ownership transfer

Page 14: Disadvantages of Corporation

1. Double taxation of profits

2. Independent management may differ from owner desires

3. Cost of forming a corporation is higher

Page 15: Capitalization of Corporation

• Corporations raise capital by selling shares of stock.

  • Two types of capital stock:

    • Common Stock:

      • Represents ownership; residual claim on assets after all claims are settled.

      • No guaranteed returns on investment.

    • Preferred Stock:

      • Priority over common stock for dividends, typically guaranteed a fixed annual dividend.

Page 16: Common Stock

• Definition:

  • Ownership stake in a corporation with no guaranteed returns but residual claims on corporate assets.

Page 17: Preferred Stock

• Definition:

  • Stock that receives dividends before common stockholders and typically has fixed annual dividends.

Page 18: Cooperative

• Definition:

  • People-centered enterprises owned and controlled by members to meet common economic, social, and cultural needs.

Page 19: Advantages of Cooperative

1. Lower operational costs

2. Extended marketing reach

3. Democratic organizational structure

Page 20: Disadvantages of Cooperative

1. Big investors may be deterred

2. Potential lack of member engagement

Page 21: Types of Businesses According to Activities

1. Service

2. Merchandising

3. Manufacturing

Page 22: Detailed Types of Businesses

• Service Businesses:

  • Generate income by providing services.

• Merchandising:

  • Focus on buying and selling goods; acquire from suppliers to sell to customers.

• Manufacturing:

  • Involves purchasing raw materials, processing them into finished goods for sale.