THE BUSINESS ORGANIZATION

Business organizations are a major component in the economy.

Their main goal is to attract customers, and to consequently earn
profit. Businesses provide for the needs, wants and demands of the
economy. The business sector is also the largest contributor of
revenue to an economy. Businesses have an important partnership
with the government. For the economy, businesses serve as provider
of goods and services to the consumers, on one hand, and provide
investments, employment and social responsibility to the economy,
on the other hand. In return the economy provides the necessary
factors of production to businesses.
THE BUSINESS ORGANIZATION
Business and government work together for progress and
development. Businesses pay the necessary taxes to the
government, and in return, the government provides the proper
infrastructures, such as electricity, water, roads and highways,
communication, railways, etc. These factors are essential in
improving the efficiency of operations of the business sector.
FORMS OF BUSINESS ENTERPRISES
Single or Sole Proprietorship
Single or sole proprietorship is a form of business owned by a
single person, known as the proprietor. Because one person can
organize it, it is the easiest enterprise to set up. Most of the
country's businesses (including those which are not registered)
belong to single proprietorship. The bulk of self-employed
people are Single proprietors, and these include the informal or
unorganized sector.
Organizing a Sole Proprietorship
•Register the business name (Department of Trade & Industry).
• Pay the municipal licenses to the local government.
• Apply for VAT or non-VAT number
Register with the BIR the books of accounts (simplified
bookkeeping records or journals and ledger) and the business
forms to be used (sales invoices, cash sales invoices, official
receipts, etc.).
Advantages of sole proprietorship
The following are the advantages of sole proprietorship:
1. It is easy to organize
2. Its organization and operation only involves few business
requirements
3. The single proprietor is the boss. The proprietor has all the
freedom in terms of decision-making. All choices are made
by him. Because of this, conflicts and quarrels in operation
are minimized.
Advantages of sole proprietorship
4. Financial operations are not complicated. As this type of
business is small-scale, financial operations are not as
complicated as the financial operations of certain large-scale
businesses.

5. The owner acquires all the profits. It is one of the best

advantages of single proprietorship. The owner has all the
freedom to enjoy his profit, without having it divided or shared
with other stakeholders.
Disadvantages of sole proprietorship
The following are the disadvantages of sole proprietorship:
1. Limited ability to raise capital. Since single proprietor businesses are
mostly small, the limitation of its funds serves as a disadvantage,
especially so that the capital owned by the proprietor is the only fund
which he can use to operate the business.
2. The sole proprietor has unlimited liability. This means that the owner
of the business risks not only the assets of his small enterprise, but also
his other personal assets, such as his land, bank deposits and other
personal properties, which are not part of his business. In case of loss,
such assets are subject to financial claims by his creditors.
Disadvantages of sole proprietorship
The following are the disadvantages of sole proprietorship:
3. Limited ability to expand. This is due to the business' limited
capital. In most cases, operations are limited only to areas in which
the sole proprietor has expertise. Not all proprietors are flexible, this
is what is required in business expansion.
4. Business is entirely a responsibility of the owner. The owner has no
one to share the burden of decision making and losses he might incur.
Whatever happens to the business, the owner is only the person to
blame.
Partnership
Partnership is a business organization that is an association of at
least two or more persons who agree to place money, property
or industry in a common fund with the aim of sharing the
profits among themselves. In addition, a partnership agreement
can be oral or written, although Philippine law requires a
written agreement when real property is involved, or when a
limited partnership is being established.
Organizing a Partnership (Mejorada 1999)
• Register the business name (Department of Trade & Industry).
• Have the partnership agreement (Articles of Co-partnership) notarized
and registered with the SEC.
Obtain a tax identification number for the partnership from the BIR.
Obtain pertinent municipal licenses from the local government.
• Obtain the VAT or non-VAT number from the BIR.
Register books of accounts (simplified bookkeeping records or journals
and ledger) and the business forms to be used (sales invoices, cash sales
invoices, official receipts, etc.) with the BIR.
Contents of Articles of Co-partnership (Mejorada 1999)
The following are the contents of the Articles of Co-partnership
• Name of the partnership
• Names of the partners
• Place of business
• Effective date of the partnership
• Nature of business
• Investment of each partner and corresponding capital credit
Contents of Articles of Co-partnership (Mejorada 1999)
The following are the contents of the Articles of Co-partnership
• Duration of the contract
• Rights, powers, and duties of the partners
• Accounting period
• Manner of dividing profits and losses
• Liabilities of the partners for partnership debts
• Compensation for services offered by partners
• Treatment of partners' additional investments and withdrawals
• Procedures for settlement of partner's interest upon dissolution of partnership
• Provision for settlement of disputes
Types of Partners
Partners can be classified according to the following
1. Based on their contribution
A capitalist partner is one that provides assets, such as money and property, to
be utilized as the starting capital of the business.
An industrial partner is one that swears to give services or labor to the operation
of the business. He is usually the "hands-on" partner in the business, and he is
involved in various aspects of its operation.
A capitalist-industrial partner is one that pledges money and property as the
staring capital of the business, as well as his services. He is the one that provides
the money, and at the same time he is also "hands-on" in the operations of the
business.
Types of Partners
Partners can be classified according to the following:
2. Based on their liability for partnership debts
A general partner is one who is liable for partnership problems,
particularly the debts of the business. His liability for business
debts extends to his personal property after partnership assets are
exhausted.
A limited partner is one whose liability for partnership problems
(for instance his debts) is limited. His liability is only limited to
the extent of his capital contribution.
Advantages of a partnership:
The following are the advantages of partnership:
1. Easy to form. The requirements are technically the same with sole-
proprietorship. The only additional in the requirement is the partnership
agreement. Unlike a corporation, there are lesser requirements to
accomplish in forming and maintaining a partnership business.
2. Flexibilty of operations. There are only few owners in a partnership
business. That is why if there are certain concerns that need to be addressed,
there is no delay in decision making because it can easily be solved by the
partners. Agreements and resolutions as to business matters are immediately
decided by the partners.
Advantages of a partnership:
The following are the advantages of partnership:
3. Efficiency in operations. Simply put, two heads are better than one."
There is better management because of the presence of more participants
in the operation of business. With the presence of the partners, more
ideas will are also applied in the operation of the business.
4. Partners are expected to have great interest in the operation of the
partnership. Partners have their own areas of interest and responsibility,
which helps in the smooth operation of the business. The unlimited
liability of the partners also encourages their interest in participating in
the venture.
Advantages of a partnership:
5. Possibility of bigger resources. Financial institutions may
extend bigger loans to partnerships considering the combined
resources of the partners. Thus, more capital can be used in
production.
Disadvantages of partnership
The following are the disadvantages of partnership:
1. Partners have unlimited liability for partnership debts. This is one of
the identical disadvantages of single proprietorship and partnership.
Partners face unlimited liability for partnership debts. Partners may not
only put their combined money and property at risk, but also their
individual assets as well.
2. It has a limited life or it lacks stability. Partnership is unstable.
Being a contract between the partners, it is dissolved based on their
agreement, or upon the withdrawal, incapacity or death of a partner, or
for other causes which terminates a contract.
Disadvantages of partnership
The following are the disadvantages of partnership:
3. Limited ability to raise capital. The amount of capital depends
on how much can be contributed by the partners. Thus, there is
also limitation to raise funds for the business.
4. Conflicts and quarrels between/among partners. Conflicts or
quarrels are the main reason why partnership is unstable. Rules,
regulations, policies, number of hours in the area, responsibility,
decision making, agreements and profit distribution are just some
cause of conflicts and quarrel between the partners.
Corporation
Section 2 of the Corporation Code defines a corporation as follows:
"A corporation is an artificial being created by operation of law having
the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence" (private
corporations are governed by the Corporation Code of the Philippines,
per Batas Pambansa Blg. 68).
A corporation is a form of business organization in which the owners
(known as stockholders) have an undivided ownership share in the assets
of the corporation upon its dissolution; and a share in its profits
corresponding to the amount of shares of stock which they own.
Corporation
A corporation has specific objectives in carrying out the
business, in accordance with a charter or articles of
incorporation. This charter is a written document containing the
names of the original incorporators, their initial share in
stockownership, and the objectives and activities of the
corporation.
Organizing a Corporation (Mejorada 1999)
• Verification of corporate name with SEC.
• Drafting and execution of the Articles of Incorporation
• Deposit of cash received for subscribed shares of stocks in a
banking institution in the name of the temporary treasurer, in
trust for and to the credit of the corporation.
Organizing a Corporation (Mejorada 1999)
• Filing of the Articles of Incorporation together with the following:
• Treasurer's affidavit
• Statement of assets and liabilities of the proposed corporation.
• Authority to verify bank deposits
• Certificate of deposit of cash paid for subscription
• Personal information sheet of the incorporators
• Commitment to change corporate name if it is found similar to
another corporate name
Organizing a Corporation (Mejorada 1999)
• Payment of filing and publication fees
• Issuance by SEC of the certificate of incorporation
• Registration of the corporate name with the DTI.
• Obtaining municipal licenses from the local government
• Obtaining the VAT or Non-VAT account number from the BIR
•Registration with BIR of books of accounts and accountable
forms.
Contents of Articles of Incorporation (Section 14 of the
corporation Code)
The following are the contents of Articles of Incorporation as
provided under Section 14 of the Corporation Code:
• Name of the corporation
• The specific purpose or purposes for which the corporation is being
incorporated.
• The place where the principal office of the corporation is to be
located.
• The term for which the corporation is to exist
Contents of Articles of Incorporation (Section 14 of the
corporation Code)
The following are the contents of Articles of Incorporation as
provided under Section 14 of the Corporation Code:
• The names, nationalities and residences of the incorporators.
• The number of directors or trustees, which shall not be less than
five
(5) nor more than fifteen (15).
The names, nationalities and residences of the directors or trustees.
Contents of Articles of Incorporation (Section 14 of the
corporation Code)
The following are the contents of Articles of Incorporation as
provided under Section 14 of the Corporation Code:
•If it is a stock corporation, the amount of its authorized capital
stock in lawful money of the Philippines, the number of shares
into which it is divided. Together with its values on par.
• If it is a non-stock corporation, the amount of its capital, the
names, nationalities and residences of the contributors and the
amount contributed by each.
By-Laws
It may be defined as the rules of action for the internal
government of a corporation and for the government of its
officers, stockholders and members. All corporations formed
under the Corporation Code of the Philippines are required to
adopt a code of by-laws within one month after its corporate
charter from the Securities and Exchange Commission (SEC).
By-laws shall be effective only upon issuance by the SEC of a
certification that the by-laws are not inconsistent with the
provisions of the Corporation Code.
By-Laws
• The time, place and manner of calling and conducting regular or spe. cial
meetings of the directors or trustees.
• The time and manner of calling and conducting regular or special meet.
ings of the stockholders or members.
• The required quorum in meetings of stockholders or members and the
manner of voting therein.
• The form of proxies of stockholders and members and the manner of
voting therein.
• The qualification, duties and compensation of directors or trustees and
officers.
By-Laws
• The time for holding the annual election of directors or trustees
and the mode or manner of giving notice thereof.
• The manner of election or appointment and the term of office of
all officers other than directors or trustees.
In the case of stock corporations, the manner of issuing certificates.
The penalties for violation of the by-laws.
• Other matters that may be necessary for the proper and
convenient transaction of its corporate business and affairs.
Rights of Stockholders
Stockholders of corporations have the following rights:
• Right to attend and vote in person or by proxy at stockholder's
meet-ings. (Sec.50)
• Right to receive dividends when declared. (Sec.43)
• Right to inspect corporate books and records and to receive
financial report of the corporation's operations. (Secs. 74 and
75)
Rights of Stockholders
Stockholders of corporations have the following rights:
• Right to pre-emption in the issue of shares. (Sec.39)
• Right to elect and remove directors. (Secs 24 and 28)
• Right to approve certain corporate acts. (Secs. 49-53)
• • Right to issuance of certificate of stock or other evidence of
stock ownership and be registered as shareholders. (Secs 63)
• • Right to transfer of stock on the corporate books. (Secs 63)
Rights of Stockholders
Stockholders of corporations have the following rights:
• Right to participate in the distribution of corporate assets upon dissolu-
tion. (Secs 118-119)
Right to adopt and amend or cancel the by-laws or adopt new by-aws.
(Secs. 46 and 48)
• Right to compel the calling of meeting of stockholders when for any cause
there is no person authorized to call a meeting. (Sec.50)
• Right to enter into a voting trust agreement. (Sec.59)
• Right to recover stock unlawfully sold for delinquency. (Sec. 69)
Rights of Stockholders
Stockholders of corporations have the following rights:
•Right to bring individual and representative or derivative suits.
•Right to demand payment of the value of his shares and
withdraw from the corporation in certain cases. (Secs. 41 and
81)
Right to have the corporation voluntarily dissolved. (Secs. 118-
119)
Advantages of corporation:
The following are the advantages of a corporation:
1. It has a legal capacity. The presence of articles of
incorporation granting the corporation a separate juridical
personality.
2. It has continued and more or less permanent existence. The life
span of a corporation is 50 years, and subject to renewal for
another 50 years. The death or withdrawal of some officers,
stockholders or members does not affect the life of the
corporation.
Advantages of corporation:
The following are the advantages of a corporation:
3. Management is centralized. The corporation's management is central-
ized, and lodged with the board of directors or trustees. The board is the
decision-making body of the corporation. It is also centralized because the
corporation is always guided by the provisions contained in the articles of
incorporation.
4. It has the most efficient management. The creation, organization,
management and dissolution processes of a corporation are standardized, in
spite of its huge resources and large-scale operation. All these are primarily
governed by the Corporation Code of the Philippines, and secondarily
provided for under the articles of incorporation.
Advantages of corporation:
The following are the advantages of a corporation:
5. Shareholders have limited liability. In case the corporation
becomes bankrupt, only capital contribution of the
shareholders/members are affected. The personal properties of
the stockholders of a corporation are excluded from financial
claims of creditors of the corporation.
6. Shareholders' freedom. Shareholders are not general agents of
the corporation and can transfer their shareholdings without the
consent of other shareholders.
Advantages of corporation:
The following are the advantages of a corporation:
7. Ability to raise more capital. Corporation has the ability to
raise more capital, allowing it to undertake more expansive
financial ventures. It has the most effective means of raising
money capital for its opera-tions- selling stocks and bonds.
Stocks are certificates of ownership while bonds are certificates
of indebtedness.
Disadvantages of corporation
The following are the disadvantages of a corporation:
1. Complicated to maintain and not easy to organize. Aside from
complying with capital requirements, there are many paper works
involved in securing a charter. It also takes a longer time to have
an approval from the SEC.
2. Governmental intervention. It is subject to a greater degree of
governmental control and supervision. The government is keen in all
the operations of a corporation like tax dues, creation of commodities
and employment. It is also subject to annual and/or quarterly
reportorial re-quirements.
Disadvantages of corporation
The following are the disadvantages of a corporation:
3. Subject to higher tax. It is subject to higher income tax rate.
Corporate income tax is fixed at 30%, whereas for individuals,
the rates range from 0% to 32%. With the progressive tax system
by the government, given the huge revenue of the corporation,
they are required to pay higher percentage of tax.
4. It has limited powers. A corporation is guided by the articles of
incorpo-ration. Thus, its operations can only revolve within the
activities expressly or impliedly allowed by its articles.
Disadvantages of corporation
The following are the disadvantages of a corporation:
5. Abuses of corporation officials. Corporate directors and officials
may abuse their powers, especially because of the minimum
supervision of stockholders.
6. Some corporation are engaged in questionable activities. Some
corporations engaged in questionable activities just only to pursue
their own interest which is to earn profit, regardless of hurting others
in the pro-cess. For example, they sell worthless securities, sell
substandard goods or pollute the environment. In short, they do not
comply with their social responsibility.
Disadvantages of corporation
The following are the disadvantages of a corporation:
7. There is a very impersonal or formal relationship between the
officers and employees of a corporation. In sole proprietorship
and partnership, everybody knows everybody; while in a
corporation, it is possible that stockholders, as well as officers
and directors, are not familiar with each other.
. Classification of Corporations
1. Based on nature of its capital
A stock corporation is one wherein the capital is in the form of
shares of stock. You need to buy the shares to be part of the
corporation. At the end, the corporation earns profits and
distributes it to the shareholders in the nature of dividends.
A non-stock corporation is a corporation which is open to all
interested.
There is no dividend distributed among members, trustees or
heads.
Classification of Corporations
2. Based on purpose
A public corporation is owned, formed, and organized by the government. A
private corporation is owned, formed and organized by private owners or
businesses.

3. Based on relation to another corporation

A parent corporation is one which has a controlling interest (more than 50%
on another corporation so that it has the power either, directly or indirectly, to
elect the majority of the directors of such other corpora-
tion.
Classification of Corporations
2. Based on purpose
A public corporation is owned, formed, and organized by the government. A private
corporation is owned, formed and organized by private owners or businesses.

3. Based on relation to another corporation

A parent corporation is one which has a controlling interest (more than 50% on
another corporation so that it has the power either, directly or indirectly, to elect the
majority of the directors of such other corpora-
tion. A subsidiary corporation is the investor corporation in which the parent
corporation has controlling interest.
Classification of Corporations
4. Based on situs of incorporation
A domestic corporation is a corporation created under Philippine
Law.
A foreign corporation is one that is formed, organized or existing
under the laws of another country.
5. Based on whether they want to open in public or not
A close corporation is limited to selected persons or members of a
family.
Voting in a Corporation
In a stock corporation, the manner of voting is called
cumulative voting- -where a stockholder is entitled to cast votes
equal to the number of shares he owns multiplied by the
number of directors or trustees to be elected.
In a non-stock corporation, every member may cast as many
votes as there are trustees to be elected but may not cast more
than one vote for one candidate, unless cumulative voting is
authorized under the articles of incorporation.
Categories of Shares of Stocks
1. Common stock
Common stock represents the basic issue of shares, and has all the basic
rights of a share of stock so that it is often referred to as the basic
ownership in a corporation.
2. Preferred stock
Preferred stock is a type of stock having certain preferences over common
stock. These preferences may be in the distribution of dividends and/or
corporate assets, upon dissolution of the corporation. If dividends have
been declared by the company, the preferred stockholders are prioritized
to receive it first.
Categories of Shares of Stocks
3. Class A shares
These are the available stocks offered to Filipino shareholders.
4. Class B shares
These are the available stocks offered to foreign investors.
5. Par Value shares
This refers to shares of capital stock that have been assigned a
definite or fixed value in the articles of incorporation, so as to fix
its minimum subscription or original issue price.
Categories of Shares of Stocks
6. No par value shares
No par values are shares which have not been assigned a
definite or fixed value.
7. Founders' shares
Founder's shares are those classified, as such in the articles of
incorporation and may be given certain rights and privileges not
enjoyed by other stockholders. It is usually given to
incorporators- the formators of the corporation.
Dividends
It is also called as the distributed profits of the corporation. It
represents the corporation's profit, which are distributed to
stockholders according to the proportionate interest of their
shareholding.
Kinds of Dividends
1. Cash
This is paid in cash to the stockholders.
2. Property
This is in the form of non-cash assets of corporation.
Kinds of Dividends
3. Stock
This is the dividend in the form of stocks of the issuing
corporation.
4. Scrip
The dividend in the from of promissory notes indicating the
kind of benefits the stockholders shall be entitled to receive in
the future (cash, non cash, stock or some other form of
dividend).
Kinds of Dividends
5. Bond
This is in the form of bonds of the company.
6. Liquidating
This refers to the return of capital by a corporation.