Fabm1 Quarter 1 Lesson 4

FORMS OF BUSINESS
ORGANIZATION
SOLE PROPRIETORSHIP
With this type of business

organization, you are the sole
owner, and fully responsible for
all debts and obligations related
to your business. All profits are
yours to keep because you are
personally liable. A creditor can
make a claim against your
personal assets as well as your
business assets in order to
satisfy any debts.
ADVANTAGES:
• easy and inexpensive to
register
• regulatory burden is generally

light
• you have direct control of

decision
making
• minimal working capital

required for start-up
⚫ some tax advantages if your

business is not doing well (for
example, deducting your losses
from your personal income, and
a lower tax bracket when profits
are low)
• all profits go to you directly
DISADVANTAGES:
• unlimited liability (if you have

business debts, claims can be
made against your personal
assets to pay them off)
• income is taxable at your

personal rate and, if your
business is profitable, this
could put you in a higher tax
bracket
• lack of continuity for your

business if you are unavailable
can be difficult to raise capital on

your own
PARTNERSHIP
⚫a partnership is a non-
incorporated business that is
created between two or more
people.
• In a partnership, your financial

resources are combined with
those of your business
partner(s), and put into the
business.
• You and your partner(s) would

then share in the profits of the
business according to any legal
agreement you have drawn up.
In a general partnership, each
partner is jointly liable for the
debts of the partnership.
• In a limited partnership, a
person can contribute to the
business without being involved
in its operations.
• A limited liability partnership is

usually only available to a group
of professionals, such as
lawyers, accountants or doctors.
When establishing a partnership,

you should have a partnership
agreement in place.
This is important because it

establishes the terms of the
partnership and can help you
avoid disputes later on.
• Hiring a lawyer or other legal

professional
to help you draw up a
partnership agreement will save
you time and protect your
interests.
ADVANTAGES:
✔Increased potentials from two

or more different strengths
✓ Easy to form with proper

agreements on its formation
✓ Less regulations compared to

corporations
DISADVANTAGES:
✔ Unlimited liability of one or all
owners
✓ Limited life - the business

ceases to operate if one o the
partners dies,
becomes physically or mentally
incapacitated, or is imprisoned
✓ High possibility of dispute and

conflicts between partners
CORPORATION
-Composed of 5 to 15
incorporators
- 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.
PROFIT CORPORATION -
Issues to its owners
or shareholders shares of stocks

which are evidenced by stock
certificates.
NON-PROFIT CORPORATION -
It does not
issue shares of stocks and its

owners are called members.
The existence of the corporation

is evidenced by ARTICLES OF
CORPORATION AND BY-LAWS
that are duly approved by SEC. e
The articles of corporation detail

the powers and limitations
bestowed by the government.
(Name of corporation; purpose of
corporation; location; term of
existence; name, nationalities,
and addresses of incorporators;
names of BOD; authorized share
capital)
BY-LAWS contain provisions for

internal administration of the
corporation.
- It normally contain the date,
place, and manner of calling the
annual shareholders' meeting;
manner of conducting meeting;
conditions which may warrant
special meeting; manner of
voting and use of proxies;
manner of electing the BOD and
the number of directors; term of
office of the BOD; manner of
appointing officers; authority and
responsibilities of officers;
procedures to amend articles of
incorporation; and procedure to
amend by-laws.
ADVANTAGES:
More sources of funds
Easy to transfer ownership
Liability of owners is limited

Unlimited commercial life
DISADVANTAGES:
More regulations to be followed
Profit is taxed at the corporate

tax rate
Costly to incorporate
Stockholders are taxed again

when profits are distributed to
them
COOPERATIVE
It is owned by a group of
individuals who also serve as
benefactors to the business
endeavor. It requires at least 15
members to function.
A cooperative can either be
incorporated or unincorporated.
TYPES OF COOPERATIVE
Credit Cooperative
Consumer Cooperative
Producers Cooperative
Marketing Cooperative
Service Cooperative
Multi-purpose Cooperative
Advocacy Cooperative
Agrarian Reform Cooperative
Dairy Cooperative
- Education Cooperative
- Electric Cooperative
- Financial Service Cooperative
- Fisherman Cooperative
- Health Service Cooperative
Housing Cooperative
- Insurance Cooperative
- Transport Cooperative
Water Service Cooperative
Workers Cooperative
ADVANTAGES
➤Unlimited life - the change of

members does not dissolve the
business
➤Democratic organization -
social equity of members is the
most important component of
cooperatives. It ensures that it
serves its members' needs.
DISADVANTAGES
➤Obtaining capital through

investors. Cooperative has a
"one-member-one- vote"
philosophy.
➤Lack of membership and

participation.

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FORMS OF BUSINESS

With this type of business

• regulatory burden is generally

• you have direct control of

• minimal working capital

⚫ some tax advantages if your

• all profits go to you directly

• unlimited liability (if you have

• income is taxable at your

• lack of continuity for your

can be difficult to raise capital on

• In a partnership, your financial

• You and your partner(s) would

• A limited liability partnership is

When establishing a partnership,

This is important because it

• Hiring a lawyer or other legal

✔Increased potentials from two

✓ Easy to form with proper

✓ Less regulations compared to

✓ Limited life - the business

✓ High possibility of dispute and

- An artificial being created by

or shareholders shares of stocks

issue shares of stocks and its

The existence of the corporation

The articles of corporation detail

BY-LAWS contain provisions for

Easy to transfer ownership

Liability of owners is limited

More regulations to be followed

Profit is taxed at the corporate

Stockholders are taxed again

- Financial Service Cooperative

- Health Service Cooperative

➤Unlimited life - the change of

➤Obtaining capital through

➤Lack of membership and

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