The Business

OrganizationsECONOMICS IV

By MLJT

WHAT IS BUSINESS/ BUSINESS

ORGANIZATION?

• Are a major component in the economy

• Their main goal is to attract customers, and to consequently earn profit

• Provide needs, wants and demands of the economy

• It is also the largest contributor of revenue to an economy

BUSINESSES…

• Have important partnership with the government

• Serve as provider of goods and services to the consumers and provide

investments, employment and social responsibility to the economy (for the

economy)

Forms of Business Enterprises

• Single or Sole/Individual Proprietorship

• Owned by a single person known as proprietor

• Easiest enterprise to set up

Organizing a Sole Proprietorship

• Register the business name with the Department of Trade and Industry

• Pay the municipal licenses to the local government

• Apply for VAT or non-Vat number with the Bureau of Internal Revenue

(BIR)

• Register with the BIR the books of accounts (simplified bookkeeping

records or journals and ledger) and the business forms to be used (sales

invoices, cash sales invoices, official receipts, etc.)

Advantages

• Once the business starts, it no longer requires many contracts, documents or

agreements.

• The owner can decide on his own what the best course for the firm is.

Disadvantages

• The sole owner will bear all of the debt burden and the losses

• The death of the owner means the end of the business.

• Limited financial capital

• The success of the business is very dependent on the ability and judgment

of a single person.

Forms of Business Enterprises

• Partnership

• Is a business organization that is an association of at least two

or more persons who agree to place money, property or

industry in a common fund with the aim of sharing the profits

among themselves

Organizing a Partnership

• Register the business name with the Department of Trade and Industry

• Have the partnership agreement (Articles of Co-partnership) notarized and registered with the Securities and Exchange Commission (SEC)

• Obtain a tax identification number for the partnership from BIR

• Obtain pertinent municipal licenses from the local government

• Obtain the VAT or non-Vat number from the BIR

• Register books of accounts and the business forms to be used with the BIR

Types of Partners

• Based on their contribution

• A CAPITALIST PARTNER – one that provides assests, such as money and property,

to be utilized as the starting capital of the business

• An INDUSTRIAL PARTNER – one that swears to give services or labor to the

operation of the business. He is usually the “hands-on” partner in the business

• A CAPITALIST-INDUSTRIAL PARTNER – one that pledges money and property as

the starting capital as well as services

Types of Partners

• Based on their liability for partnership debts

• A GENERAL PARTNER – one who is liable for partnership

problems, particularly debts of the business

• A LIMITED PARTNER – is one whose liability for partnership

problems is limited. His liability is only limited to the extent of his

capital contribution

Advantages

• Easy to establish

• All profits go directly to the owners

• Each partner has his own strengths and weaknesses, and the

partners can support each other.

Disadvantages

• The death or departure of an important partner could mean the

end of the business.

• Disagreements and misunderstanding

• Partnership agreements are not flexible.

Forms of Business Enterprises

• 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”

• Is a form of business organization in which the owners (known as stakeholders) have an undivided ownership share in the assets of the corporation upon its dissolution; share in its profits corresponding to the amount of shares of stock which they own

• It has specific objectives in carrying out the business, in accordance with a charter or articles of incorporation

Organizing a Corporation

• Verification of corporate name with SEC

• Drafting and execution of the Articles of Incorporation

• Deposit of cash received for subscribed shares of stocks in a banking

institutions in the name of the temporary treasurer, in trust for and to the

credit of the corporation

• Filing of the Articles of Incorporation together with the:

• Treasurer’s Affidavit

Advantages

• Limited liability

• Shareholders can resell their shares for cash

• Can raise a large amount of money by selling more certificates.

• The death or departure of an owner would not mean end of the business.

Disadvantages

• Requires substantial amount of money needed for registration, licenses, etc.

• Government regulation of business is focused on corporations

• Corporate income is taxed twice

• The management has to provide both the government and the shareholders

a report on its operations and performance.

Dividends

• Distributed profits of the corporation

• Represents the corporation’s profits which are distributed to

stockholders according to the proportionate interest of their

shareholding

Kinds of Dividends

• Cash – paid in cash to the stockholder

• Property – in the form of non-cash assets of corporation

• Stock – the dividend in the form of stocks of issuing corporation

• Scrip – dividend in the form of promissory notes indicating the benefits

• Bond – in the form of bonds of the company

• Liquidating – refers to return of capital by a corporation

Forms of Business Enterprises

• Cooperatives

• “only organizations composed primarily of small producers and consumers who

voluntarily join together to form business enterprises which they themselves own,

control and patronize”

• Providing benefits to members is given more importance than earning profit.

Advantages

• Member will be interested to take part in the activities of the

cooperative

• Profits are shared equally among the members.

• All members have equal voting power

Disadvantages

• The profit share of each member is not substantial.

• Only government agencies are interested in assisting cooperatives.

Similarities bet. Cooperative and Corporation

• Privately owned and managed

• Both depend on business efficiency to survive in a competitive market

• Regulated and supervised by the government

• Both enjoy a reasonable degree of economic freedom

Differences

• Cooperative

• Primarily organized for service

• Open and voluntary ……while CORPORATION is mainly for profit, restricted