ORGANIZING A BUSINESS

 Many individuals would want to go into

business on their own but are hesitant to
do so. Oftentimes, they start small and
gradually improve operations and
consequently, their financial position.
However, the longer one engages in
business, the more he realizes that there
are greater opportunities for growth and
profit. They may be beyond his limitations
so that he opts to modify the type of his
organization.
 In starting up a business, you must choose the type of
entity through which your business will run. There are
many things to consider such as ease of maintenance, tax
treatment, personal liability for debts, ease in raising
capital and others. You should review the following to
determine which organizational structure works best for
you.
 There are different types of business organizations in the
Philippines. The more common types are sole
proprietorships, partnerships, cooperatives and
corporations.
ENTREPRENEURSHIP

 Refers to individual’s undertaking

whereby he invests his money in a
business he manages. He must have
sufficient knowledge of management
organization, finance and the related fields
of study.
FORMS OF BUSINESS ORGANIZATIONS

 SOLE PROPRIETORSHIP – is a form of organization

where there is only one owner, the proprietor.
 PARTNERSHIP – an association of two or more
persons who bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing profits among themselves.
 CORPORATION – 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.
SOLE PROPRIETORSHIP

 Also referred to as “single proprietorship,” a sole

proprietorship is the simplest form of business and the
easiest to register, through the Bureau of Trade
Regulation and Consumer Protection (BTRCP) of the
Department of Trade and Industry (DTI). It is owned by
an individual who has full control/authority of its own
and owns all the assets, as well as personally answers all
liabilities or losses. The fact that it is run by the
individual means that it is highly flexible and the owner
retains absolute control over it.
SOLE PROPRIETORSHIP

 The problem, however, is that a sole proprietor has

unlimited liability. Creditors may proceed not only
against the assets and property of the business, but also
after the personal properties of the owner. In other
words, the law basically treats the business and the
owner as one and the same. This uniform treatment also
has important tax implications. Partnerships and
corporations may lessen their tax liability through a
myriad of business expenses and other tax avoidance
techniques. These tax deductions may not be applicable
to a sole proprietorship. Also, the potential growth and
reach of a sole proprietorship pale in comparison with
that of a corporation.
REQUIREMENTS IN ORGANIZING SOLE
PROPRIETORSHIP
 Register the business name with the
Department of Trade and Industry.
 Pay the city or municipal licenses with the
local government.
 Apply for VAT or non-VAT number.
 Register with the Bureau of Internal
Revenue the books of accounts (journals
and ledgers), and the business forms to be
used (official receipts, sales invoices).
SOLE PROPRIETORSHIP
Advantages Disadvantages

 It is easy to organize.  Limited ability to raise

 Decisions can easily be capital.
made.  Sole proprietor has

 Financial operations are unlimited liability.

not complicated.  Limited ability to expand.

 The owner is entitled to  Business is entirely a

all the profits of his responsibility of the
business owner.
PARTNERSHIP
 Partnerships are governed by the provisions of
the Civil Code, art. 1767-1867.
It is an association of two or more persons
who bind themselves to contribute money,
property, or industry to a common fund with
the intention of dividing the profits among
themselves. It begins to exist from the
moment of the execution of the partnership
contract, unless it is otherwise stipulated.
 A partnership consists of two or more persons
who bind themselves to contribute money or
industry to a common fund, with the intention of
dividing the profits among themselves. The most
common example of partnership is professional
partnerships, like in the case of law firms and
accounting firms. Just like a corporation, it is
registered with the Securities and Exchange
Commission (SEC).
 A partnership, just like a corporation, is a juridical entity,
which means that it has a personality distinct and separate from
that of its members. A partnership may be general or limited. In
a general partnership, the partners have unlimited liability for
the debts and obligation of the partnership, pretty much like a
sole proprietorship. In a limited partnership, one or more
general partners have unlimited liability and the limited
partners have liability only up to the amount of their capital
contributions. Unlike a corporation, which survives even when
a member/stockholder dies or gets out, a partnership is
dissolved upon the death of a partner or whenever a partner
bolts out.
REQUIREMENTS IN ORGANIZING
PARTNERSHIP
Register the business name with the
Securities and Exchange Commission
(SEC).
Prepare articles of co-partnership, and
have it notarized.
Secure a tax account number for the
partnership from the BIR.
 Register the notarized articles of co-
partnership with the Securities and Exchange
Commission.
 Secure the municipal of city licenses from the
local government.
 Apply for VAT or non-VAT number, as the
case maybe.
 Register with the Bureau of Internal Revenue
the books of accounts (journals and ledgers),
and the business forms to be used (official
receipts, sales invoices).
SOLE CORPORATION
 A mixture of the features of a sole proprietorship and a
corporation is found in a new entity authorized under the
Revised Corporation Code — the One Person
Corporation. An OPC is registered in the same manner as
other corporations with the SEC, except that it is
composed of only one person, just like a sole
proprietorship.
CORPORATION
 A corporation is a juridical entity established
under the Corporation Code and registered with
the SEC. It must be created by or composed of
at least 5 natural persons up to a maximum of
15, technically called “incorporators” (the 5-
person minimum has been removed under the
Revised Corporation Code).
 Juridical persons, like other corporations or
partnerships, cannot be incorporators, although
they may subsequently purchase shares and
become corporate shareholders/stockholders.
 The liability of the shareholders of a corporation is
limited to the amount of their capital contribution. In
other words, personal assets of stockholders cannot
generally be attached to satisfy the corporation’s
liabilities, although the responsible members may be
held personally liable in certain cases.
 The biggest businesses take the form of corporations,
a testament to the effectiveness of this business
organization. A corporation, however, is relatively
more difficult to create, organize and manage. There
are more reportorial requirements with the SEC.
CORPORATION
Advantages Disadvantages

 Has legal capacity to act as  Subject to greater degree

a legal unit. of governmental control
 Continuity of existence.  Cost of formation and
 Management is centralized. operation is relatively
 Standardized because they high.
are governed by one  Formation and
general incorporation law. management are
 Limited Liability relatively complicated.
 Has the ability to raise  Limited powers.
capital.
TYPES OF BUSINESS ACTIVITIES
 Service Business
 A service business is one that offers services as its main
product rather than physical goods. A service business may
offer professional skills, expertise, advice, lending service,
and similar services.
 Merchandising (Trading)
 A merchandising business (or trading business) is one that
buys and sells goods without changing their physical form.
 Manufacturing
 A manufacturing business is one that buys raw materials and
processes them into final products. Unlike a merchandising
business, a manufacturing business changes the physical form
of the goods it has purchased in a production process.