Business Ownership and Organization Notes
Business Ownership and Organization
Learning Objectives
Define business ownership and organization.
Identify and explain different types of business ownership.
Evaluate the advantages and disadvantages of each type.
Understand basic registration procedures and legal requirements.
Jumbled Words
The presentation includes jumbled words that need to be unscrambled to reveal key terms related to business ownership and organization.
Key Terms (Unscrambled)
Business
Organization
Corporation
Sole Proprietorship
Partnership
Cooperative
Definition of Business Organization
A business organization refers to the legal and operational structure through which business activities are conducted.
It determines ownership, control, liability, and how profits are distributed.
Types of Business Ownership
Sole Proprietorship
Owned and run by one individual.
The owner has full control and receives all profits.
Partnership
Owned by two or more individuals.
Profits and responsibilities are shared.
Corporation
A legal entity separate from its owners.
Owners are shareholders.
Cooperative
Owned and operated by a group of individuals for mutual benefit.
Profits are distributed among members.
Composition of Business Organizations
Sole Proprietorship
Management Hierarchy: Only the owner has all the privileges; makes all the decisions; the owner is reliable for all profits and losses.
Legal Structure: The business is not separate from the owner; the owner is responsible.
Partnership
Management Hierarchy: The partners have all the privileges; rights are split between partners based on their agreement.
Legal Structure: The business is not separate from the owner; all partners are responsible.
Corporation
Management Hierarchy: The shareholders hold all the power; shareholders elect the Board of Directors to manage the company; shareholders' rights are not equal; capital driven.
Legal Structure: The business is separate from owners; the company itself is responsible.
Cooperative
Management Hierarchy: Members hold all the power; members are equal in terms of rights; democratic.
Legal Structure: The business is separate from owners; the company itself is responsible.
Sole Proprietorship: Advantages and Disadvantages
Advantages
Easy to Form
Small Size
Effort-Reward Relationship
Full Control
Quick Decisions
Economical and Efficient Operations
Personal Touch
Keep the Business Simple, Dynamic, and Flexible
Disadvantages
Limited Life
Lacks Professional Skills and Talent
Unlimited Liability
Growth Prospects
Limitation of Capital
Risk of Wrong Decisions
Partnership: Advantages and Disadvantages
Advantages
Bridging the Gap in Expertise and knowledge
More Cash (and properties!)
More Business Opportunities
Moral Support
New Perspective
Disadvantages
Loss of Autonomy
Emotional Issues
Future Selling Complications
Unlimited liability
Corporation: Advantages and Disadvantages
Advantages
Limited liability.
Source of capital.
Ownership transfers.
Independent management.
Disadvantages
Double taxation.
Forming a corporation costs more.
Cooperative: Advantages and Disadvantages
Advantages
Lower Costs
Further Marketing Reach
Democratic organization
Disadvantages
Big investors don't get much attracted
Lack of membership and participation
General Requirements and Procedures for Registration
Department of Trade and Industry (DTI)
It is the government agency responsible for promoting trade, industry, and investment in the Philippines.
Business Name Registration
Legitimacy and Legal Identity
Access to Government Services
Consumer trade
Business Growth Support
Why is “DTI” important?
Legal identity for your business
Protection of business name
Required for permits & taxes
Access to support programs
Consequences of Not Registering with DTI
Others can legally register and use your business name.
Your business may be considered informal or unauthorized.
You cannot get a Mayor’s Permit, BIR TIN, or open a business bank account.
You may face legal consequences for operating without proper registration.
LGU’s (Local Government Unit)
LGU stands for Local Government Unit. It refers to the local government authorities at different levels:
Barangay
Municipality/City
Province
Barangay Clearance
Purpose:
Proof of community approval.
Confirms that the barangay has no objection to your business operating in their jurisdiction.
Part of the business registration process.
Needed before applying for a Mayor’s Permit and sometimes for BIR registration.
Ensures your business follows local rules (e.g., zoning, cleanliness, noise control).
Mayor’s Permit
Purpose:
Legitimizes your business.
Authorizes you to operate legally within the city/municipality.
Ensures public safety and welfare.
The LGU checks if your business meets health, fire, zoning, and building code standards.
Required for tax and regulatory purposes.
You need this to register with the Bureau of Internal Revenue (BIR) and open a business bank account.
Summary of Documents
DOCUMENT | PURPOSE | WHO ISSUES IT |
|---|---|---|
BARANGAY CLEARANCE | Proves community approval & compliance | Barangay Hall |
MAYOR’S PERMIT | Official license to operate within a city/municipality | City/Municipal Hall (Mayor’s Office) |
BIR Registration
BIR registration under business ownership and organization involves registering your business for taxes with the Bureau of Internal Revenue (BIR) in the Philippines.
Every small and medium-size enterprise (SME) business begins with a business idea; however, it comes with the same requirement of telling the authorities so they follow the regulations set and pay the taxes, therefore completing BIR registration.
Importance:
It helps your business to become registered legally in the state as an operating entity.
You will get enrolled into the system and will receive a unique tax ID or more commonly known as Tax Identification Number (TIN).
You can legally issue business documents for all transactions conducted, like official receipts.
You have the eligibility to pay taxes and not face any such issues with authority bodily or intentionally as an individual who can pay taxes properly.
BIR Registration - Basic Steps:
Start with the submission of the application online and visit the BIR office after filling all mandatory fields on the website.
Pick your credentials pertaining to your business.
Prepare a folder with all pertinent papers/APIV papers like your DTI and SEC registration, also diagrams marking your business mayor's permit and additional.
Notify the registration fee section of the office.
Claim your free of charge certification that you have already taken from the venture known Resto or one of the developer sample Corp Certificate of Registration (COR).
This very important process must be completed by all business operators regardless of scale, whether small scale such as managing a sari-sari premise or large scale as branch some established firm are valid options.
Registration Steps by Business Type
Sole proprietorships
Register business name with DTI (Department of Trade and Industry)
Barangay Clearance
Mayor’s Permit from LGU
BIR Registration (form 1901)
Register books of accounts and receipts/invoices
Partnerships
Draft and notarize Articles of Partnership
Register with SEC (Securities and Exchange Commission)
Secure Barangay Clearance and Mayor’s Permit
Register with BIR
Corporations
Reserve and register name with SEC
Prepare Articles of Incorporation and By-laws
Deposit minimum paid-up capital in bank
Secure SEC Certificate of Incorporation
Register with LGU and BIR
Cooperative
Minimum 15 members
Draft Articles of Cooperation and By-laws
Register with CDA (Cooperative Development Authority)
Obtain LGU and BIR permits
Other Government and Private Bodies Involved
SSS, PhilHealth, Pag-IBIG: For employee benefits
Banks: For opening business accounts and loans
Social Security System (SSS)
Provided under Republic Act No. 8282, all employees hired by private companies are required to apply for membership with the Social Security System (SSS).
This system provides private employees and their families protection against disability, sickness, old age, death, or other such instances that could make them incapable of continuing their employment.
The Government Service Insurance System (GSIS) is its equivalent system for public employees in the Philippines.
Both employer and employee are required to remit monthly contributions to SSS.
The contribution amount is determined by the employee’s actual monthly salary wherein the employer is required to contribute 70% of the required amount while the remaining 30% is deducted from the employee’s monthly salary.
SSS Procedures
For new employees without SSS number:
Employers must require a new employee to register in the SSS office where the company is registered and the employee must provide his/her number to the employer after the SSS number is issued to them.
For new employees with existing SSS number:
Those who are already members of the SSS must submit their existing number to their employers.
Employers are required to fill-up the SSS form R1A – which contains the list of new employees alongside their respective SSS numbers.
The SSS form R1A can be submitted online or to the SSS office where your company is registered.
PhilHealth
All employees, both public and private, are mandated under Republic Act No. 7875 to apply for membership and remit monthly contributions to the medical insurance company in the Philippines – the Philippine Health Insurance Corporation (PHIC), or more commonly known as PhilHealth.
PhilHealth provides health and hospitalization subsidies to its members should they or their dependent/s be hospitalized.
It provides employees with a practical means of paying for adequate medical care in the Philippines.
The monthly contributions are deducted from the employee’s actual monthly salary where they are required to contribute 50% of the amount and the remaining 50% should be paid by the employer.
PhilHealth Procedures
For Employees:
Each new employee needs to fill-up and sign a PhilHealth Member Registration Form (PMRF) regardless if he/she is already a PhilHealth member or not.
Existing members are required to submit their PhilHealth ID number.
An accomplished PMRF form should be submitted to the PhilHealth office where your business is registered.
For Employers:
Employers are required to submit a PhilHealth form ER2.
This form should contain the list of new employees and be submitted to the PhilHealth office where the company is registered.
PAG-IBIG
Republic Act 7835 mandates employers to contribute to the Home Development Mutual Fund (HDMF), otherwise known as the PAG-IBIG Fund.
It is a provident savings system that supplies housing loans to public and private employees, as well as to self-employed persons who apply for membership.
It provides housing and land acquisition loans to its members with the lowest interest rate and are payable for up to thirty (30) years.
PAG-IBIG Procedures
For Employees:
New employees are required to undergo the HDMF online membership registration to become members of the PAG-IBIG Fund.
Please note that employees must be registered with the SSS first before they can register with the PAG-IBIG Fund.
For Employers:
Employers can submit the list of their new employees by filling up the Member’s Contribution Remittance Form (MCRF) and marking the new employees as NH (Newly Hire) when manually filling the monthly PAG-IBIG Fund contributions or accomplishing it online through the Fund’s online web portal.