BL2 Module 1

BUSINESS ORGANIZATIONS

A. BASIC TYPES OF BUSINESS ORGANIZATIONS

(1) Sole Proprietorship; 4) Business Trust;

(2) Partnership; (5) Joint Venture;

(3) Joint Account or Cuentas en (6) Cooperative;

Participacion
(7) Corporation.

1. INDIVIDUALS AND SOLE PROPRIETORSHIP

A person personally conducts business under his name or a business name called proprietor
himself. It has no personality separate and distinct from the proprietor.

BUSINESS NAME (Act No. 3883)

a) Definition of Business Name - any name that is different from the true name of an individual
which is used or signed in connection with her/his business on any written or printed
documents, taxes, and withdrawal or delivery receipts, billboard or exhibit announcing her/his
business.

b) A proprietor is required to register his business name other than his true name with the
Bureau of Trade Regulation and Consumer Protection of the Department of Trade and Industry

c) Juridical persons need not register the names that are registered with the Securities and
Exchange Commission. However, if they are using different names for their business, they
must register the same.

d) Prohibited Names

1) The name in itself is illegal, offensive, scandalous, or improper

2) Names identical or resemble a BN already registered with the DTI, SEC, Cooperative
Development Authority, Intellectual Property office, Food and Drug Administration, DOLE or
any other government office.

Purpose: To avoid confusion or mistake in the minds of the general public, considering:

(i) nature of the business (v) use of descriptive words;

(ii) product/service handled; (vi) spelling, sound and/or
(iii) location/place of business; meaning;
(iv) dominant word;

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 3) Names composed of purely generic or geographic words;
4) Names which by law or regulation cannot be appropriated;
5) Names, or terms to designate or suggest any class of goods, articles, merchandise, or
service;
6) The names or abbreviation of names used by the government in its governmental
functions;
7) The names or abbreviation of names of any nation, inter-governmental or international
organization; and
8) Names which are deceptive, misleading or which misrepresent the nature of the business
(DTI Amended Department Order No. 10-01)).

Note: There must be separate registration of a BN for a branch or satellite office using the
same BN of head office.

MERCHANTS (CODE OF COMMERCE)

Private individuals or single proprietors may also be considered merchants under the Code of
Commerce. Although the concept of merchants is now rendered obsolete but are still in force.

a) MERCHANTS – as to individuals, Corporations and partnerships, they are those who having
capacity to engage in commerce habitually devote themselves to it (Art. 1, Code of Commerce,
SEC)

b) QUALIFICATIONS OF MERCHANTS:
1) at least 18 years;
2) must have free disposition of his property;
3) must habitually involve themselves in commerce.

2. PARTNERSHIP

2.01. PARTNERSHIP – two or more persons bind themselves to contribute money, property, or
industry to a common fund with intention of dividing the profits among themselves (Art. 1767, CC).

2.02. REGISTRATION – Registration with the SEC is necessary where the capital of the partnership is
P3, 000.00 or more (Art. 1772, CC).

Note: Registration with the SEC is not necessary for a partnership to acquire juridical
personality. Even an unregistered partnership has a personality separate and distinct from its
partners.

3. JOINT ACCOUNTS (CUENTAS EN PARTICIPACION)

An arrangement whereby merchants may interest themselves in the transaction of other
merchants, contributing thereto the amount of capital they may agree upon, and participating in the
favorable and unfavorable results thereof in the proportion they may determine (Art. 239, Code of
Commerce).
Joint account is commonly called an accidental partnership; and there is no indication to the
public that there is an existing arrangement because only the ostensible partner is conducting the
business.

JOINT ACCOUNT DISTINGUISHED FROM PARTNERSHIP

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 a) As to juridical personality. A joint account has no juridical personality while a partnership
has a personality separate and distinct from the partners.

b) As to business name. No commercial name common to all participants in joint accounts. A

partnership can adopt a partnership name.
c) As to management. The general partners are all managers in the partnership while only the
ostensible partner manages and transacts business in his own name and individual liability).

d) As to parties in cases. Only the ostensible partner – the person carrying on the joint
business – can be sued by and is liable to persons transacting with the former. In partnership,
all general partners may be liable to the extent of personal properties and may be sued by
third persons.

4. BUSINESS TRUSTS
It is a legal relation whereby one person, called the trustor, conveys a property to another for the
benefit of a person called the beneficiary. The person in whom confidence is reposed as regards the
property is called the trustee (Art. 1440, CC).

5. JOINT VENTURE
An association of persons or companies jointly undertaking some commercial enterprise;
generally all contribute assets and share risks. It requires a community interest in the performance of
the subject, a right to direct and govern the policy connected therewith, and duty, which may be altered
by agreement to share both in profit and losses (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994])

Notes:
a) A joint venture is actually a form of partnership and should thus be governed by the laws of
partnership (Aurbach case 1989]).
b) Joint ventures may be an 0n-going business for a specific project or undertaking only.
c) Corporations can enter into joint venture agreements
d) Joint Ventures may result in a formation of joint venture corporation. (JG Summit case 2000).

6. COOPERATIVES

A cooperative is an autonomous and duly registered association of persons with a common

bond of interest, who have voluntarily together to achieve their social, economic, and cultural needs
and aspirations by making equitable contributions to the capital required, patronizing their products and
services and accepting a fair share of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles (Art. 3, R.A. No. 9520).

7. 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. A
corporation has a legal personality distinct from its owners – the stockholders (for stock corporations) or
members (for non-stock corp.)

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 One Person Corporation is allowed by law to be created. But the name of the corp should
indicate OPC after its registered business name.

Reference: Partnership and Corporation by Hector Deleon