Business Organizations

Here are the structured notes on the forms of business organization based on the provided document.

Introduction to Business Organizations

  • Definition of Business: Organizations created to earn profit.

    • Can be commercial or industrial.

    • Can be for-profit or non-profit (e.g., charitable institutions, public hospitals, public schools).

  • Three Primary Forms:

    1. Sole Proprietorship

    2. Partnership

    3. Corporation

I. Sole Proprietorship

  • Definition: A business formed by a single individual. It is the simplest form of business in the Philippines.

  • Liability & Profit: The individual earns all profit but is responsible for the firm's entire debts.

  • Types:

    • Filipino-owned

    • Foreign-owned (requires minimum capital of US$ 200,000 and must not be on the Foreign Investment Negative List)

  • Advantages:

    • Ease of start-up/formation

    • Relatively few regulations

    • Owner retains all profits

    • Full control of the business

    • Easy to discontinue

    • Ability to mix personal and business assets

  • Disadvantages:

    • Unlimited personal liability

    • Difficulty raising additional capital

    • Lack of permanence

  • Government Agencies Involved: DTI (Bureau of Trade Regulation and Consumer Protection), BIR, LGUs (Barangay Hall, Mayor’s Office).

II. Partnerships

  • Definition: A business owned by two or more people who agree to share profits. Defined by Philippine Civil Code Article 1767.

  • Types:

    • General Partnership: Partners share equal responsibilities and liabilities. Most common type.

    • Limited Partnership: Includes a general partner (manages/controls) and a limited partner (investor role, no management authority).

    • Limited Liability Partnership (LLP): Protects partners from the malpractice/wrongdoing of other partners.

    • Limited Liability Company (LLC): Partnership-like, provides liability protection for its "members".

  • Advantages: Ease of start-up, shared decision making, specialization, and a larger pool of capital.

  • Disadvantages: Unlimited liability (for general partners) and potential conflict between partners.

  • Government Agencies Involved: SEC or DTI, BIR, LGUs, and if employing staff, SSS, PhilHealth, and Pag-IBIG Fund.

III. Corporations

  • Definition: A legal entity owned by a group of stockholders (or an individual in a one-person corporation).

  • Liability: Limited liability; shareholders are responsible for debts only up to their capital contribution.

  • Types:

    • Stock Corporation: Distributes profits based on equity. Includes Domestic (under PH law) and Foreign corporations.

    • Non-Stock Corporation: Does not generate profit or issue shares.

    • Closely Held: Rarely traded, often passed within families.

    • Publicly Held: Shares sold to the public via the stock market.

    • One-Person Corporation: Similar to sole proprietorship but with limited liability.

  • Advantages: Limited liability, transferable ownership rights, ability to acquire additional capital, and virtually unlimited life.

  • Disadvantages: Difficulty of start-up, double taxation, potential loss of control by founders, and heavy government regulation.

  • Government Agencies Involved: SEC or DTI, BIR, LGUs, and if employing staff, SSS, PhilHealth, and Pag-IBIG Fund.

IV. Other Organizations

  • Cooperatives: Owned and controlled by the users; operated to benefit members rather than earn investor profits. Examples include credit, consumer, and multipurpose cooperatives.

  • Conglomerates: A parent company owning diversified, independently operated, smaller companies. Often multinational and multi-industry.