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Lesson 1 The Nature and Forms of Business Organizations

There are three main forms of business organizations: sole proprietorships, partnerships, and corporations. A sole proprietorship is owned by one individual who has total control but unlimited liability. A partnership is owned by 2-4 partners who share control but have unlimited or limited liability depending on the type of partnership. A corporation is owned by 5-15 individuals and has a separate legal identity from its owners, with owners having limited liability and transferable shares. It is also subject to more regulations than other forms.

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360 views

Lesson 1 The Nature and Forms of Business Organizations

There are three main forms of business organizations: sole proprietorships, partnerships, and corporations. A sole proprietorship is owned by one individual who has total control but unlimited liability. A partnership is owned by 2-4 partners who share control but have unlimited or limited liability depending on the type of partnership. A corporation is owned by 5-15 individuals and has a separate legal identity from its owners, with owners having limited liability and transferable shares. It is also subject to more regulations than other forms.

Uploaded by

Yanko Yap Bondoc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Lesson 1: The Nature and Forms of Business Organizations

Sole Proprietorship
A business that is owned by an individual
Advantage: Total undivided authority; FULL control over the business.
Low organizational cost and license fees (tax savings);
No restrictions on the type of business (as long as it is legal)
DISADVATAGE: UNLIMITED liability
Limitation on size (and thus on fund raising power).

PARTNERSHIP
Owned by 2-4 individuals (partners).

“A partnership is a juridical person which has a separate legal personality form that of its
members.”
– Article 1768
Control is shared by the partners.
Legal and Tax requirements are more complicated than sole proprietorship (but reasonable)
Easier to attract investors.

TYPES OF PARTNERSHIPS
General Partnership – is the partnership wherein the partners have unlimited liability for
the debts and obligations of the partnership.
Limited Partnership – is the partnership wherein one or more general partners have
unlimited liability and the limited partners have liability that is only up to the amount equal
to their capital contributions.

CORPORATION
Owned by 5-15 juridical persons
 The corporation has separate legal existence from its owners.
 The stockholders have limited liability.
 Transferable ownership rights (shares of stock).
 Ability to obtain capital.
 The corporation has a continuous life.
 Subject to NUMEROUS government regulations.
 Must pay income tax on its earnings, and stockholders are required to pay taxes on the
dividends they receive. (Double taxation of distributed earnings.)
 The management structure is at the discretion of the board of directors.

TYPES OF CORPORATIONS
STOCK CORPORATION – has capital stock divided into shared and dividends. Surplus profits
are given to shareholders depending on the number of shared held.
NON-STOCK CORPORATION – does not issue shares of stock and is established primarily for
public interest (foundation, charity, education, culture, etc.)

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