ABM 213 – Introduction to Entrepreneurship

Module 5

Chapter 5
Implementing an Enterprise
About Chapter 5

This chapter will guide students on how they begin to set-up

an enterprise. It will highlight sources of possible financing for
the business and identify the requirements needed to be satisfied
before operating a business.

Intended Learning Outcomes:

At the end of the Chapter, the student should be able to:

1. Determine the organizational requirements when setting up an

enterprise;
2. Identify different fund sources for implementing the
enterprise.
3. Compare the different legal forms; and
4. Identify procedures and requirements for business
registration.

Learning Content/Topics:

1. Different Fund Sources for Establishing an Enterprise

2. Organizing the Enterprise
3. Registering the business and applying for necessary permits
and licenses
4. Choosing the Appropriate Business Model

Learning Activities:

1. Identify the different sources of fund;

2. Identify the requirements for registration of the business
they have prepared business plan for; and
3. Explain the importance of business registration.

Topic 1: Sourcing of Funds

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Cash management and financial budgeting is very important in

a business. It is important on to understand how funds normally
flow in a business. There are various funds available for a
business. Either the entrepreneur can fund all initial capital
requirements or borrow a portion of it from other sources.

There are typically three sources of funds – internal,

external and other sources. Internal sources of funds include
owner’s equity (entrepreneur’s own money or capital), which is the
most common source of starting capital for a small business. The
initial funds can come from personal savings, loans from family
members, relatives and friends, and similar sources. The advantage
with using own money is that the entrepreneur does not have to pay
interest. Another internal source of funds is partners’
capital/stockholders’ equity, or the money that comes from other
persons putting their money into the business, of which the start-
up funds are called partners’ capital. If the business is
incorporated, there are funds coming from the stockholders
comprise what is known as stockholders’ Equity. Shares of stock
are issued to stockholders by the corporation representing their
stake in the business.

External sources of funds are funds borrowed which are called

liabilities. Liabilities that are to be paid within a year or less
is called short-term liabilities while those paid for more than a
year are called long-term liabilities. One type of external source
of funds is bank loans. Bank is the second common source of
capital. The amount of loan borrowed is based on the bank’s
appraisal of the maximum value of the collateral being offered.
Another external source of fund are venture capitalists, or
individuals or firms that provide financing in exchange for
ownership stake in the business.

Other sources of funds for the business are those from

government agencies and non-government organization (NGOs) that
provide start-up funds for micro, small and medium scale
enterprises at low interest rates. The Department of Trade and
Industry is one such agency that has set-up programs that provide
starting capital to sound business ventures.
Topic 2: Organizing the Enterprise
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Choosing Your Own Role in the Business

Choosing your own responsibilities and tasks in your business
organization, consider the following factors:
1. Your education and training
2. Your experience
3. Your interest and aptitude
4. Your time
5. The advantage of having broad view

Choosing People to Work with You

In choosing people, you must look for those with skills,
attitudes and personality traits necessary to do the job well. You
must choose employees who are willing to work hard and well. You
must choose people who are willing to be trained and to go on
working for you after being trained.
How do you determine your employee requirements? The
following guidelines may be useful.
1. List down the different tasks that have to be done in the
business. Some preliminary questions to ask are:
o Marketing - Who will sell the products? Who will deliver
the products to the buyers? to the distributors? Who
will handle promotion and advertising? Who will take
care of the customers after the products have been sold?
o Production - Who will make the products or deliver the
service? Who will operate the equipment? Who will
maintain them? Who will take charge of inspection and
quality control? Who will keep track of raw material
stocks and finished product inventory?
o Finance - Who will keep the records? Who will do the
accounts? Who will prepare the weekly payroll? Who will
collect the receivables and settle the payables? Who
will hold the cash?
o Administration - Who will take care of ordering
supplies, preparing sales contracts and renewing
business permits? Who will handle personnel records? who
will handle communications, inquiries and other
administrative matters?

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2. From this list of tasks, cross out the tasks that you are
taking for yourself. The tasks that remain in the list are
those for which you will hire other people. Translate the
tasks into job designations or titles. Then determine how
many employees you will need for each job title. Remember
that some of the tasks may be combined and assigned to only
one position. Below is a sample list of positions with number
of people required.
o Sales manager (1)
o Sales assistants (2)
o Cutter/designer (1)
o Sewers (4)
o Inspector/stock clerk (1)
o Bookkeeper/secretary (1)
o Driver/messenger (1)
3. List all the qualifications required in terms of skill,
education and training, experiences and personal
characteristics. Include age, gender and other requirements
which you feel important for a certain job to be performed
well.
For example, for a bookkeeper-secretary, the
requirements might be:
 Female, single, l18-30 years old
 Commerce/business administration graduate
 Must know how to use fax machine, photocopying machine
and Microsoft Office computer software (Excel and Word)
 Must know how to compose business letters
 Preferably with six months experience in bookkeeping
and/or secretarial work
 With pleasant personality

For sewers, your qualification requirements might be:

 Female, 18-40, years old
 High school graduate
 Must know how to operate high-speed sewing machines
 With at least one-year experience in a garment factory
 Physically fit, with good eyesight
 wiling to work overtime
 Wiling to work on any shift, if there are two or three
shifts

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4. It is also advisable at this point to determine salaries and

wages to be paid for every position you have. Applicants need
to know how much you are willing to pay them. Determining
your employee’s compensation rates is a critical decision to
make because:
o On one hand, labor costs affect the profits of a
business (thus, theoretically, you can reduce labor
costs by paying low wages).
o On the other hand, the wages you will pay will be one of
the most important factors that will motivate your
employees to stay long in your company (thus, it is
possible that low-paid employees may not work as hard
and as long as highly-paid workers do).

5. Once you have done Nos. I to 4 above, you can begin the
process of recruiting, screening and selecting the people to
work with you in your new business.

Choosing the Legal Form of Your Business

Sole proprietorship. It is business owned by only one person.
It is the simplest organization to form. Most businesses,
including large ones, started as a sole proprietorship.
In a sole proprietorship, you and your business are one. Your
income and the business income are one. In other words, your
business income is taxed as personal income. Decision-making is
centralized on the owner or proprietor who assumes total
responsibility for all decisions. If the business succeeds, she
reaps all the profits. If it fails, she suffers all the losses,
including the obligation to pay the debts. When the sole
proprietor dies, the life of the business also ends.
Partnership. It is formed when two or more partners come
together to be joint owners of a business. A partnership allows
the pooling of resources (money and other business assets) and
talents (skills, experience, management knowhow). All the partners
share profits equally unless otherwise stated in the Partnership
Agreement.
A partnership is similar to a sole proprietorship. As in a
sole proprietorship, the profits of a partnership are the income
of the partners and are taxed as personal income. Partnership has
unlimited liability, meaning that if the business goes into debt,
the partners are personally liable to settle these debts if the
resources of the business are not enough to pay for them. Again,
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like a sole proprietorship, the life of a partnership ends with

the death of a partner, or with the mutual consent of all the
partners.
Corporation. It involves five or more persons owning the
business. A corporation is a “legal person” in the eyes of the
law. It is called a legal person because the law allows it to do
most business acts that a natural person can do. Of course, it is
different from a natural person who breathes, walks and talks. But
as legal person, the corporation:
 Has legal rights and responsibilities;
 Can sue and be sued in court;
 Can own and dispose of property; and
 Can enter into contracts.
The ownership of a corporation is divided into units known as
shares of stocks. The buyers of these stocks, called stockholders,
also become part-owners of the business. Management of a
corporation is vested on a board of directors elected by the
stockholders on a regular basis.
A corporation runs 1ts affairs on the basis of terms and
prescriptions specified in its By-Laws and Articles of
Incorporation.
Unlike the first two legal forms, the life of a corporation
does not end with the death of a stockholder or by the
stockholder's disposal of his stocks.
Cooperative. A cooperative is a group enterprise. It is made
up of a number of producers, traders or consumers who want to
produce or trade as a group so that they may avail themselves of
economies of scale which individually they will not be able to
obtain.
Among the very first cooperatives are the consumers
cooperatives. These were formed by individuals or families who
want to supply themselves with goods or services at cheaper costs
than if they had bought these from a retailer or a middle man.
Cooperatives then were established not primarily for the purpose
of making a profit. However, any surplus that results from the
operation of the cooperative is shared among the members.
Cooperatives are registered with the Cooperative Development
Authority (CDA). Cooperatives may apply for tax-exemption.
However, its members, to whom the profits of the cooperative
ultimately go, have to pay income taxes.

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A cooperative is led by a set of officers collectively known

as the board of directors, in addition, several working committees
are set up – e.g. election committee, membership recruitment
committee, credit committee, etc. - headed by a chairman. However,
a number of people who will run the co-op office on a day-to-day
basis usually have to be hired. These include a manager and a
bookkeeper.
Like a corporation, the life of a cooperative is neither
affected by the death of any of its members nor by a member’s
share of her share of capital stock. However, it can be dissolved
by a majority vote of the board or directors and a resolution
signed by at least two-thirds of the general membership.
The Pros and Cons of Each Legal Form
The table below will present to you the advantages and
disadvantages of each form of business organization and allow you
to compare all four.

Legal Form Advantages Disadvantages

Sole  Allows you to be  Makes you liable to
Proprietorship your own boss; all the risks and
 Easy to start; losses;
 Allows you to keep all  Has limited access
profits; and to capital and other
 Gives you complete resources;
control.  Demands long hours
of hard work on your
part;
 Does not allow
sharing of
responsibility
Partnership  More money available;  Control of business
 More heads contribute is shared and is
to the success of the thus limited;
business;  Profits are shared
 Losses are shared among and are thus
the partners; reduced;
 Risks are also shared;  Consequences of a
and poor decision made
 Planning and problem- by a partner affect
solving are other partners;
participatory.  Decision made by a
partner is binding
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Legal Form Advantages Disadvantages

to other partners;
 Liability for debts
is unlimited
 Property invested
becomes the joint
property of all.
Corporation  Capital is easily  Major decisions
raised; can't be done by
 Liability for debts of the owners without
the business is limited approval of the
to your share of board of directors;
capital; and  Corporate and
 Tasks need not be done individual profits,
by the owners but by in the form of
hired employees. dividends, are
taxed separately
(double taxation);
 More expenses are
involved; and
 More rules and
regulations to
comply with.
Cooperative  Capital is easily  Control of the
raised; business is shared;
 Liability is limited;  Ideas and decisions
 More people benefit made by board have
from profits earned; to be accepted by
 Owners (members) may the general
employ managers with membership.
their relevant
qualifications; and
 May be tax-exempt.

Topic 3. Business Registration and Necessary Permits and Licenses

How to Register Your Business

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Where to register your business depends on the legal form

you’ve chosen for your business.
If you have chosen Sole Proprietorship, you are required to:
1. Register your business name with the Department of Trade and
Industry. Registration maybe done through online or walk-in.
2. Obtain a business clearance from the barangay captain of your
place of business.
3. Obtain a permit to do business from the local government unit
(your city or municipal government's business licensing
office)
4. Get a Tax Identification Number (TIN) from the Bureau of
Internal Revenue (the branch nearest to you).
5. Register your business and employees with the Social Security
System (SSS), PhilHealth, and Pag-ibig for social benefits.
Register with the Department of Labor and Employment (DOLE)
office nearest to you, if you have five or more employees.
If you have chosen Partnership or Corporation, you are
required to register first with the Securities and Exchange
Corporation (SEC), after which you have to go through all the
registration described above for a sole proprietorship.
If you have formed a cooperative, you are required to:

1. Register with the Cooperative Development Authority (CDA)

office nearest you.
2. Register the name of your cooperative with the Department of
Trade and Industry (DTI) office nearest you.
3. Obtain a permit to operate the cooperative from the local
government unit.
4. Get a Tax Identification Number (TIN) from the Bureau of
Internal Revenue.
5. You may also register the employees of your cooperative with
the SSS, Philhealth, and Pag-ibig and the DOLE.
The following are general guidelines and requirements in
registering with the DTI, the local government unit, the BIR, and
the SSS.
Registering with the DTI
Register your business name with the DTI Office in the city
or province where your business is located. You will be asked to
till up an application form. A registration fee is charged. Be
prepared with at least three alternative business names, it is

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possible that some of your choices have already been taken by

previous registrants.
Requirements:
For Sole For Partnerships and For
Proprietorships Corporations Cooperatives
1. Applicant must be 1. Certified true or 1. Certified
18 years or more photocopies of articles true or
2. Two recent of incorporation or photocopies
passport size partnership, by-laws of articles,
photos of and registration by-laws and
applicant certificate approved by CDA
3. Proof of Filipino the SEC registration
citizenship, if 2. If foreigners own 40% certificate
applicant acquired or more of the capital, 2. Certificate
this by the SEC certificate issued by
naturalization, must specify that this CDA, in case
election or other is in accordance with of increase
means provided by the Foreign Investment of
law Act of 1991 capitalizati
4. Proof of Filipino 3. In case there is an on.
citizenship (birth increase in capital, a
certificate, certificate issued by
voter’s I.D) if the SEC.
applicant’s name
is suggestive of
foreign
nationality

Registering with the Mayor's Office (the Local Government Unit)

The office of the city or municipal mayor is where you go to
in order to get a permit or license to go into business. The
section to approach is the business licensing section or unit.
Prior to this, however, be sure you have secured a clearance from
your local barangay. The Barangay office charges a small fee for
this clearance which you have to present to the Mayor's Office.
Be sure to bring some cash when you register with the local
government unit. Aside from the Mayor's permit fee, you will be
charged other fees, including sanitary, garbage, building
inspection, electrical inspection, plumbing inspection, mechanical
inspection, fire inspection and working permit fees.

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You need a number of documents to obtain a license or permit

from the Mayor's Office. These are:
For Sole For Partnerships and For Cooperatives
Proprietorships Corporations
1. DTI registration 1. Location map of 1. Location map
of business name business establishment of business
2. Location map of 2. Brgy. Clearance establishment
business 3. SEC registration 2. Brgy.
establishment certificate Clearance
3. Brgy. Clearance 4. Articles of 3. CDA
4. Community Tax partnership or registration
Certificate of corporation certificate
proprietor 5. Current class “C”
certificate Plus, depending
Plus, depending on 6. Community Tax on the type of
the type of Certificate of business, any of
business, any of proprietor the ff.:
the ff.:  Bldg.
 Bldg. occupancy Plus, depending on the occupancy
permit type of business, any of permit
 Mechanical the ff.:  Mechanical
permit  Bldg. occupancy permit permit
 Electrical  Mechanical permit  Electrical
inspection  Electrical inspection inspection
 Pollution  Pollution clearance  Pollution
clearance  Location clearance clearance
 Location  Sanitary/health  Location
clearance certificate clearance
 Sanitary/health  Police clearance  Sanitary/
certificate health
 Police clearance certificate
 Police
clearance

Registering with the BIR

You need to go the Bureau of Internal Revenue (BIR) to get
Identification Number (TIN), for taxation purposes. A BIR
registration is a pre-requisite for you to get official receipts
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and invoices printed. Your book of accounts also needs to be

stamped by the BIR. It is useful to have your official receipts
and invoices printed by BIR-accredited printing press which will
take care of having these forms officially stamped.
The BIR also charges a fee from VAT-covered enterprises. VAT-
exempt businesses, however, are not charged any fee.
Here are the requirements or registering with the BIR.

For Sole For Partnerships and For Cooperatives

Proprietorships Corporations
1. Photocopy of DTI 1. Photocopy of DTI 1. Photocopy of
registration registration CDA
2. Photocopy of 2. Photocopy of Mayor’s registration
Mayor’s permit permit or business
permit

Cooperatives who want to apply for tax exemption are required

to fill up BIR Form 1702A-1 in lieu of income tax forms.

Registering with the SSS

You are required to get additional registration with the
Social Security System (SSS), especially if you have employees. If
you have none, you may still register as a sell-employed
individual. The SSs provides sickness, retirement, loan and other
social benefits to employees of private businesses. The funds for
Such benefits come from contributions from the government (SSS)
and from you, the employer.
Here are the requirements for registering with the SSS:
For Sole For Partnerships and For Cooperatives
Proprietorships Corporations
1. Photocopy of 1. Photocopy of articles (Cooperatives,
mayor's permit of partnership or as a rule, do
2. Employer’s data corporation not have to
record 2. Employer’s data record register with
3. Initial or 3. Initial or subsequent the SSS, but
subsequent list list of employees their employees
of employees do.)
(The last 2 requirements
should be signed by the
managing partner of a

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For Sole For Partnerships and For Cooperatives

Proprietorships Corporations
partnership or the
highest-ranking officer
of a corporation).

Registering with the PhilHealth

All government and private sector employers are required to

register with PhilHealth to enable them to provide social health
insurance coverage to their employees. Employees from the public
and private sectors, including job-order and project-based
contractors, as well as owners of MSMEs.
For sole proprietorship, partners and corporations as well as
cooperatives, the business owner or representative of cooperatives
should register through the Philippine Business Registry (PBR) and
submit duly accomplished PhilHealth Member Registration Form
(PMRF) of owner and employees. However, if the employer fails to
register through the PBR, the following shall be submitted:
For Sole For Partnerships and For Cooperatives
Proprietorship Corporations
s
 Department  Securities and  Cooperative
of Trade and Exchange Commission Development
Industry (SEC) Certificate of Authority
(DTI) Partnership/Incorporat (CDA)
Certificate ion Certificate
of
Registration

Registering with the Pag-ibig Fund

The Pag-ibig Fund is a national savings program that was

created to provide affordable home loans for Filipinos. This
program is also known as The Home Development Mutual Fund
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(abbreviated as HDMF), which is a government-owned and controlled

corporation under the Housing and Urban Development Coordinating
Council.

In 2009, under RA 9679, PAG-IBIG membership is mandatory to

all employees that are covered by the Social Security System (SSS)
and Government Service Insurance System (GSIS).

A Pag-ibig number is provided to an individual after his or

her membership registration. Traditionally, registration is done
in a Pag-IBIG branch office. Today, Pag-IBIG has set up an online
system for all transactions concerning their services including
registration.

Business owners should submit the with the Fund thru any of the
following modes:

a. Register thru the Philippine Business Registry

(PBR)/Integrated Business Registration (IBR) Facility.
b. Submit duly accomplished Employer’s Data Form (EDF, HQP-
PFF-002) and required supporting documents to Members
Services Office (MSO)/Members Services Branch
(MSB)servicing counter

For Sole For Partnerships and For Cooperatives

Proprietorships Corporations
1. Duly 1. Duly accomplished 1. Duly
accomplished Employer’s Data Form accomplished
Employer’s (EDF, HQP-PFF-002(if Employer’s Data
Data Form applicable) Form (EDF, HQP-
(EDF, HQP- 2. Specimen Signature Form PFF-002(if
PFF-002(if (SSF, HQP-PFF-003) applicable)
applicable) 3. Present the following 2. Specimen
2. Specimen as proof of business Signature Form
Signature existence: (SSF, HQP-PFF-
Form (SSF,  Securities and 003)
HQP-PFF-003) Exchange Commission 3. Present the
3. Present the (SEC) Certificate of following as
following as Partnership/Incorporat proof of
proof of ion business
business  Approved Articles of existence:
existence: Partnership/Incorporat  Cooperative
 SSS ion and By-Laws Development
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For Sole For Partnerships and For Cooperatives

Proprietorships Corporations
Certificatio Authority
n (if (CDA)
already Certificate
registered  Approved
with SSS) Articles of
 Business Cooperation
Permit/Mayor
’s Permit
 For Sole
Proprietorsh
ip
 Department
of Trade and
Industry
(DTI)
Certificate
of
Registration

Registering with the SEC (only for corporations and partnerships)

When your business grows and you want to organize a

corporation or partnership in place of the single proprietorship
you originally set up, you need go to the Securities and Exchange
Commission (SEC).

The requirements for SEC registration are:

1. Verification of proposed name of your firm. If it has been

registered by any other name, you have to change your proposed
name and repeat the process.
2. Six copies of the following (for stock corporations):
 Articles of incorporation
 By-laws
 Undertaking to change corporate name
 Treasurer' s affidavit
 Bank certificate of deposit
 Authority to verify bank accounts
 Registration data sheet/subscriber’s information sheet
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 Statement of assets and liabilities, if subscription is

paid in property

Other Registering Agencies

In addition, some specific types of business need to register
with specialized agencies of government. These agencies generally
exercise regulatory and control functions over industry sectors
under their jurisdiction. Some of these agencies extend incentives
and assistance to the firms.
Here is a partial list of these specialized agencies:
1. Food and Drug Administration, for firms manufacturing drugs,
cosmetics and food products.
2. Fiber Development Authority, for businesses engaged in
processing and trading of fiber and fiber products.
3. National Food Authority, for traders and processors of rice,
corn and flour.
4. Land Transport Franchise and Regulatory Board, for land
transport services (jeepney lines, taxicab and bus operation).
5. Maritime Industry Authority, for sea transport services.
6. Philippine Overseas Employment Administration, for firms
engaged in recruitment of workers for employment abroad.
7. Department of Education, Culture and Sports, for owners of
schools, universities and other educational institutions.
8. Department of Tourism, for hotels and other lodging facilities
for tourists.
9. Philippine Contractors Accreditation Board, for construction
Contractors.
10. Bangko Sentral ng Pilipinas, for exporters in general.
11. Bureau of Food and Drugs, for exporters of drugs, cosmetics
and food products.
12. Philippine Coconut Authority, for exporters of coconut and
coconut by-products.
13. Garments Trade Export Board, for exporters of garments and
textile.
14. Bureau of Fisheries and Aquatic Resources, for exporters of
fish and fish products.
15. Bureau of Animal Industry, for exporters of animals and animal
products and by-products.
16. Bureau of Plant Industry, for exporters of plants and plant
products.

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17. Bureau of Forest Development, for exporters of forest

products.

Activity No. 3: APPLICATION

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Consider the business you’ve planned for in activity No. 3.

1. Identify which agencies must you go for the registration of
the business.
2. Identify the requirements that must be prepared in the
registration for each agency.
3. What is the importance of registering a business?

Topic 4. Emerging Business Models

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Seasonal Bazaars
Seasonal bazaars are intentionally arranged during the
shopping months of November and December as well as during other
special themed months like February (Valentine’s) or May
(fiestas). Travel expositions, bridal exhibits, building and
furniture displays, food sales, agriculture and trade shows,
regional bazaars, weekend markets and so on, are featured in
various industry events. Weekend markets and bazaar have rental
fees and usually have screening procedures. Such models are cost-
effective because room or store leasing costs are not set.

Online Selling
Online selling and meet-ups are becoming popular. It is a
dynamic and growing trend among youth entrepreneurs. It has
evolved beyond taking orders and delivery. There is an exchange of
value which is done through meet ups in public places. However,
careful organization, planning, and execution are necessary for
this. Its sales tax consequences and the safety and security of
meet-ups are areas to consider.

Business Incubation Facilities

A business incubator is a business that promotes the growth
of new and start-up companies by offering services such as
management training or office space. support the development of
start-ups by providing them with advisory and administrative
support services. This is also a facility set up to cultivate
young (start-up) companies during their early months or years.
These facilities can provide (i) a space for business research,
development and prototyping; (ii) office and equipment for
business transactions, as well as internet access; and (iii)
meeting or conference rooms for consultations, mentoring, and
video conferencing. Business incubation facilities also provide
technical support to address the entrepreneurs’ technological,
operations, marketing, networking, financial, and legal needs.

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Several business incubators also help entrepreneurs raise capital

through linking them to sources of funds and help them apply for
loans. They also connect companies to investors through referrals.
Moreover, they help entrepreneurs plan pitches for venture
investors.

Activity No. 4: APPLICATION

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1. List possible funding sources for your proposed business.

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2. Check your selected business plans and identify which among

the legal forms of business ownership do you think to
implement. Explain why you are choosing such form of
business.

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3. Discuss the pros and cons of your selected business model/s.

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PROS CONS

References

Small Enterprises Research and Development Foundation (SERDEF).

(2013). Windows to Entrepreneurship: A Teaching Guide. Quezon
City: Small Enterprises Research and Development Foundation.

Small Enterprises Research and Development Foundation (SERDEF) &

U.P Institute for Small-Scale Industries (ISSI). (2007).
Introduction to Entrepreneurship. Quezon City: Small
Enterprises Research and Development Foundation.

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