Chapter 6: The Business Organization

Business Organization major component

in the economy and the main goal is to
attract customers, and consequently earn
profit
Business provide for needs, wants and
demands of the economy
Factors in improving the business operation
1. Businesses pay taxes to the govt
2. Government provides the proper
infrastructures
Proper Infrastructures: electricity, water,
roads, highways, communication, railways
Forms
Forms of Business Enterprises
1. Single/Sole Proprietorship
form of business owned by a single
person, known as the proprietor
easiest enterprise to set up
4 Organizing: register the business
name in DTI, pay municipal licenses to
LG, apply VAT/non-VAT number,
register w/ BIR the books of accounts
5 Advantages: easy to organize, few
business requirements, single
proprietor is the boss, all freedom in
decision-making and all choices are
made by him.
6 Disadvantages: limited liability to
raise capital, sole proprietor has
unlimited liability, limited to expand,
business is entirely responsibility of
the owner
2. Partnership
Business organization that is
association of at least 2 or more
persons who agree to place money,
property, or industry in a common
fund with the aim of sharing profits
among themselves
Partnership agreement can be oral/
written although Phil. Requires a
written agreement when real
property/limited partnership are
involved
6 Organizing: register the business
name in DTI, have partnership agreement
(articles in co-partnership) notarized and

registered w/ sec, obtain TIN for the

partnership from BIR, obtain municipal
licenses from LG, obtain VAT/non-VAT,
register books of accounts and bus. Forms
to be used
Contents of Articles of Copartnership: name of partnership and
partners, place of business, effective date
of partnership, nature of business,
investment of each partner and corr.
Capital credit, duration of contract, rights,
power and duties of partners, accounting
period, manner of P/L, liabilities of
partners from partnership debts,
compensation for services offed by
owners, treatment of partners addl
investments and withdrawals, procedures
for dissolution, provision for settlement
disputes
Types of Partners
Based on contribution
Capital partner provides assets,
such as money and property to be
utilized as the standing capital of
the business
Industrial partner swears to
give services/labor to the operation
of the business and hands-on
partner in the business
Capitalist-industrial partner
one that pledges money and
property as the staring capital of
the business, as well as his
services
Based on liability
General partner liable for
partnership problems, particularly
debts and his liability for business
debts extends to his personal
property after partnership assets
are exhausted
Limited partner whose liability
for partnership problems is limited
and his only limited is to the extent
of his capital contribution
5 Advantages
Easy to form
Flexibility of operations
Efficiency in operations

Partners are expected to have

great interest in the operation
of the partnership
Possibility of bigger resources
4 Disadvantages
Partners have unlimited liability
for partnership debts
Limited life or lacks stability
Limited ability to raise capital
Conflicts among partners
3. Corporation
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 (Corp. Code of the Phil.
Batas Blg. 68)
Corporation form of business org. in w/c
the owners (stockholder) have undivided
ownership share in assets of the corporation
upon its dissolution and share profits
corresponding to the amt. of shares of stocks
w/c they own
has specific objectives in
carrying out the business, accordance w/
charter or articles of incorporation
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: verification of corporate
naming w/ SEC, drafting and execution of
AOI, deposit of cash received for
subscribed shares of stock, filling of AOI
together with the ff: treasurers
affidavit, statement of assets &
libalities of proposed corp,
authorithy ot verify bank deposit,
certificate of deposit of cash paid,
personal info sheet of incorporators.,
payment of filling & publication fees,
issuance by SEC of the certificate of
incorporation, register corporate name in
DTI, obtaining municipal licenses,
VAT/nonVAT acct from BIR, and register
books of accounts and accountable forms
By-Laws defined as the rules of action
for the internal govt of a corporation and

for a government of its officers,

stockholders and members
*All corporations formed under the
Corporation Code of the Philippines are
require to adopt a code of by-laws w/in 1
month after its corporate charter from
SEC. It shall effective only upon the
issuance by SEC of certification that bylaws are not inconsistent w/ provision of
the Corporation Code
Rights of Stockholder
To attend and vote in person or by
proxy at stockholders meeting
To receive dividends when
declared
To inspect corporate books and
record and to receive financial
reports of corporations operations
To pre-emption in the issue of
shares
To elect and remove directors
To approve certain corporate acts
To issuance of certificate of stock
To transfer of stock on corporate
books
To adopt and amend or cancel the
by-laws
To enter voting trust agreement
7 Advantages:
1. it has a legal capacity
2. it has continued and more or less
permanent existence
3. management is centralized
4. it has the most efficient
management
5. shareholders have limited liability
6. shareholders freedom
7. ability to raise more capital
7 Disadvantages
1. Complicated to maintain & easy to
organize
2. Govt intervention
3. Subject to higher tax
4. It has limited powers
5. Abuses of corporation officials
6. Some corporation officials
7. There is a very impersonal or
formal relationship between the
officers
Classification
1. Based on nature of its capital

Stock the capital is in the form of

shares of stock
Non-Stock open to all interested
and theres no dividend among its
members and trustees
2. Based on purpose
Public owned, formed, and organized by
the govt
Private owned, formed and organized by
private owners or businesses
3. Based on relation to another corp.
Parent controlling interest on another corp.
so that it has the power either, directly or
indirectly to elect the majority of the
directors of such other corporation
Subsidiary the investor corp. in w/c the
parent corp. has the controlling interest
4. Based on situs of incorporation
Domestic created under Philippine Law
Foreign formed, organized or existing
under the laws of another country
5. Based on whether they want to
open in public or not
Close limited to selected persons or
members of a family
Open open to any person who may wish to
become a stockholder or member thereof
Voting:
Stock Corporation
Cumulative Voting the manner of
voting where a stockholder is entitled to
cast votes equal to the number of shares
he owns multiplied by no. of shares he
owns multiplied by no. of directors to be
elected
Non-stock Corporation
Every member may cast as many votes
as there are trustees to be elected but
may not cast more than 1 vote for 1
candidate, uncles cumulative voting is
authorized under AOI
Categories of Share of Stocks
1. Common Stock represents the basic
issue of shares and has all the basic
rights of stock
2. Preferred Stock having certain
preferences over common stock
3. Class A share available stocks offered
to a Filipino shareholders

4. Class B share available stocks offered

to foreign investors
5. Par Value Shares shares of capital
stock that have been a definite or fixed
value in AOI ; has a minimum
subscription or original issue price
6. No par value shares not have been
assigned a definite or fixed value
7. Founders shares may be given
certain rights and privileges not enjoyed
by other stockholders and usually given
to incorporators formators of the
corporation
Dividends called as the distributed
profits of the corporation; represents the
corporations profit
Kinds of Dividend
1. Cash paid in cash to the
stockholders
2. Property in the form of noncash assets of corporation
3. Stock dividend in the form of
stocks issuing corporation
4. Scrip dividend in the form of
promissory notes indicating the
kind of benefits the
stockholders shall be entitled to
receive in the future
5. Bond form of bonds in the
company
6. Liquidating refers to return of
capital by a corporation
4. Cooperative
Only organization composed primarily of
small producers and consumers who
voluntarily join together to form business
enterprises which they themselves own,
control and patronize
Principles
1. Open and voluntary memebership
2. Democratic control
3. Limited interest capital
4. Division of net surplus
5. Cooperative education
6. Cooperation among cooperatives
Similarities in corporation
*Factors of production are privately owned
and managed *Depend on business
efficiency to survive in competitive market

*Regulated and supervised by govt *enjoy a

reasonable degree of economic growth
Differences in corporation
Cooperative
Corporation
Primarily organized Purpose is mainly
for service
for profit
Membership is open Restricted
and voluntary
One man-one vote
One share, one
with no proxy
vote, and more

voting

Savings or net
profits are refunded
to the members

share more votes,

and can be by
proxy
Profits are
distributed to
stockholders on the
basis of no. of
shares