LESSON 2:

Entrepreneurship:
Distinguish the legal form of
Business Ownership
Business Ownership

• Business Ownership is the type of ownership that

someone chooses to formulate and to start each
business. Anyone who would like to venture business
must be wise in choosing the right business ownership.
• It is when the owner or the proprietor or the individual or
group of people owns the business legally. That includes
all the assets and liabilities of the business as well as the
profits earned by the business.
WORDS TO STUDy

Legal forms to refer to the documents of

ownership of a business.
Business is a legally recognized
organization designed to
provide goods and services
Enterprise is a business undertaking

Proprietorship is the state or right of a

proprietor or owner
 Liability refers to the amount that is
owed.

Transaction is a business deal or

agreement

Income is the gain or recurrent

benefit usually measured
in money that derives
from capital or labor
Deciding the business ownership
• A business first exists in your mind is an idea. When this idea
is developed and put into writing, it becomes a plan. As you
gather your resources you are making your plan into a reality.
And when you register it, it becomes a legal entity, with
appropriate rights and responsibilities.
• The term legal form refers to the form of ownership of a
business. You may decide to share ownership with other
people if you are not the only source of project ideas or if you
do not have enough capital and experience to start the
business on your own.
•

•
FORMS OF BUSINESS
OWNERSHIP
Sole
proprietorship
A sole proprietorship is a
business unit owned and managed
by only one person. It is the
simplest and most common form.
 Advantages of a Sole Disadvantages of a Sole
Proprietorship Proprietorship

• Relatively low start-up costs • Unlimited liability

• Greatest freedom from regulation • Lack of continuity in business
• Owner in direct control of decision- • organization
making • Difficulty in raising capital
• Minimal working capital required • All the risks are of the owner
• Tax advantages to owner • Owner shoulders any liability
• Owner is the boss incurred in the business
• All profits to owner
• In cases of death, the business may
be passed on to another by virtue
of a will.
Partnership
Two or more persons are owners of
the business. The owners define their
rights and duties as partners in the
business through a partnership
agreement.
 Advantages of a Disadvantages of a
Partnership Partnership

● The partners decide as to who shall ● Joint liability

be responsible for paying debts in Any action of one partner within the
case the business is unable to pay scope of business binds the other
its liabilities later. partner as well. Thus, if one partner
● They agree as to how much will be commits a mistake, the other must
the share of each one in the profits suffer the consequences as well.
of the business and what business ● Decision-making process
responsibilities will be assigned to Partners must consult and reach a
each. consensus on important business
● The partners agree as to when the decisions, which can take more time
partnership ends compared to a sole proprietorship
● No income tax is levied on the where the owner has sole decision-
partnership itself but on the owners making power.
Corporati
on
This business form is initiated by
individuals called incorporators.
This legal entity consists of
individuals, shareholders, and
stockholders.
 Advantages of a Disadvantages of a
Corporation Corporation

• Ability to raise capital: • Government control:

Corporations can raise funds by Corporations are subject to more
selling shares of stock to interested government regulations and
parties called stockholders. oversight.
• Shared ownership: Each • Complexity and cost:
stockholder shares ownership in the Corporations have a more complex
company along with the structure and management, and the
incorporators. process of formation and operation
• Voting rights: Stockholders have can be costly.
the right to vote on matters • Limited liability and credit: The
affecting the corporation limited liability of stockholders can
weaken the creditworthiness of the
corporation
• Dividends: The share of each • Taxation: Corporations may face
stockholder in the profits of the heavier taxation compared to
corporation, known as dividends, is other business forms.
determined based on the number of • Limited stockholder influence:
shares they own. In larger corporations,
• Continuity of existence: The stockholders may have limited
business is not dependent on the influence in the conduct of the
stockholders. It can continue to exist business, and voting rights may
even if there are changes in stock be diluted due to the use of
ownership or the death of a proxies.
stockholder.
• Limited liability: Stockholders are
generally not personally liable for the
debts. Their liability is limited to the
amount of their investment.
• Asset settlement for liabilities: In
case of losses, the corporation can
settle its liabilities through the sale of
its assets.
Cooperativ
A cooperative is owned by twenty-
e
five or more individuals who, like in
a corporation buy shares in the
business. Unlike a corporation, each
member is entitled to one vote
regardless of the number of shares
they own. Sharing equal responsibility,
members are also equally liable for
losses and liabilities.
THE END.