Business Ownership and Registration Notes

Getting Started with Business

Key Quotes

  • Peter Drucker: "Whenever you see a successful business, someone once made a courageous decision."

Objectives

  • Compare and Contrast: Different forms of organizations.
  • Identify: Types of organizations present in the locality.

Important Issues for Entrepreneurs in Choosing a Form of Ownership

  • Tax Considerations: Understanding the tax implications for each type of business.
  • Liability Exposure: Evaluating how much personal liability you are willing to accept.
  • Startup and Future Capital Requirements: Assessing the financial needs for starting and running the business.
  • Control: Determining who will control various aspects of the business.
  • Managerial Ability: Considering whether you have the skills needed to manage the business.
  • Business Goals: Setting clear goals for what you want to achieve with the business.
  • Management Succession Plans: Planning for the future management of the business.
  • Cost of Formation: Analyzing the costs associated with forming the business.

Legal Forms of Business (Types of Businesses According to Ownership)

Sole Proprietorship
  • Definition: Business owned and operated by a single person.
  • The entrepreneur acts as the initiator, administrator, capitalist, and manager, especially in the early stages.
Advantages of Sole Proprietorship
  1. Ease and Cost of Formation: Simple startup process since decisions are made by one individual.
  2. Secrecy: No legal requirement to share information.
  3. Distribution and Use of Profits: Profits belong solely to the proprietor.
  4. Control of Business: The proprietor has full control over decisions.
  5. Minimum Taxation: Taxed only once through the owner's personal income tax return.
  6. Ease of Closing: The business can be closed at the owner's discretion.
Disadvantages of Sole Proprietorship
  1. Unlimited Personal Liability: Business liabilities extend to personal assets.
  2. Limited Access to Capital: Fundraising is restricted to personal resources.
  3. Limited Availability of Skills: The proprietor may lack all necessary expertise.
  4. Limited Life of the Firm: The business may cease to exist if the proprietor passes away or retires.
Partnership
  • Definition: Legal association of two or more persons who co-own a business with the goal of making a profit.
  • Partners share assets, liabilities, and profits.
Types of Partnerships
  1. General Partnership: All partners have unlimited liability.
  2. Limited Partnership: At least one partner has limited financial liability and does not actively manage the business.
Advantages of Partnership
  • Ease of Formation: Simple to start and may require less capital than a corporation.
  • Pooling of Knowledge and Skills: Combining expertise from different partners.
  • More Sources of Capital: Ability to raise funds from multiple partners.
  • Tax Advantages: Income is taxed only once on individual partners’ tax returns.
Disadvantages of Partnership
  • Unlimited Liability of at Least One Partner: Risk of personal loss beyond investment.
  • Limited Life: Business may be terminated if a partner leaves or passes away.
  • Potential Conflict Between Partners: Disagreements can harm business operations.
  • Difficulty in Dissolving the Business: May require legal processes.
Corporation
  • Definition: An artificial entity created by law, recognized as separate from its owners (stockholders).
Characteristics of Corporation
  • Separate Legal Entity: Can sue and be sued independently.
  • Limited Liability: Owners' personal assets are protected from business debts.
  • Ease of Expansion: Corporations can issue stocks to raise capital.
Advantages of Corporation
  • Limited Liability: Protects personal assets.
  • Ease of Expansion: Can raise capital through the sale of stock.
  • Longer Life: Corporation can continue indefinitely.
  • Greater Ability to Hire Specialized Management: Attract skilled professionals more easily.
Disadvantages of Corporation
  • Costs and Complexity of Organization: More expensive and complicated to set up.
  • Double Taxation: Corporate profits taxed at both corporate and personal levels.
  • Extensive Government Regulations: More scrutiny than other business forms.
Cooperative
  • Definition: An autonomous association of individuals united voluntarily to meet common economic, social, and cultural needs.
  • Principles:
    • Voluntary and Open Membership
    • Democratic Member Control
    • Member Economic Participation
    • Autonomy and Independence
Types of Cooperatives
  1. Credit Cooperative: Provides savings and lending services.
  2. Consumers Cooperative: Procures and distributes goods to members.
  3. Producers Cooperative: Engages in the production of goods for sale.
  4. Marketing Cooperative: Assists in marketing products.
  5. Service Cooperative: Offers various services to members.
Advantages of Cooperative
  • Tax Privileges: May receive government support.
  • Direct Benefits: Provides advantages to members and the community.
Disadvantages of Cooperative
  • Inequality of Profit Distribution: Benefits are based on participation rather than investment.
  • Lesser Profit: Cooperative may not be as profit-focused as private enterprises.

Registration of Business

Tips for Choosing a Business Name
  • The name should be easy to pronounce and spell.
  • It should relate to the product or service offered.
Government Agencies for Business Registration
  • Department of Trade and Industry (DTI): For Sole Proprietorships.
  • Securities and Exchange Commission (SEC): For Corporations.
  • Cooperative Development Authority (CDA): For Cooperatives.

Conclusion

  • Understanding the forms of business ownership can help entrepreneurs make informed decisions about structuring their businesses and navigating the registration process efficiently.