BUSINESS

ORGANIZATION
BASIC FINANCE

Business Organization

An entity formed for the purpose of carrying on commercial

enterprise. Such an organization is predicated on systems of
law governing contract and exchange, property rights, and
incorporation.

Is an individual or group of people that collaborate to achieve

certain commercial goals. Some business organizations are
formed to earn income for owners. Other business
organizations, called nonprofits, are formed for public purposes.

Forms of Business
Organization
1.

Sole Proprietorship

2.

Partnership

3.

Corporation

Sole Proprietorship

is a Business owned by one person, such as small service

businesses, retail stores, and professional practices.

This is the simplest type of business to start and is the least

regulated form of organization.

Sole Proprietorship
Advantages:
1.One

individual control, relatively making it easy to make decision.

No disagreements may exist between owners.
2.Easy

and inexpensive to organize and dissolve.

3.Retention

of all profits to owner, except those for government in

the form of taxes.

Sole Proprietorship
Disadvantages:
1.Unlimited

liability of the owner for all debts incurred as a result of

business operations. All obligations of business are personal
obligations of owner.
2.Size

of business is limited to the wealth of the owner and the

amount that can be borrowed.
3.Management

deficiency, since the manager is also the owner, he

performs a wide range of managerial and operational activities.
4.Lack

of long-term continuity caused by death, bankruptcy,

retirement or change in personal interest of the owner.

Partnership

Is an association of two or more persons operate a business as

co-owners by voluntary legal agreement.

General Partnership is one in w/c partners are liable for the

business debts.

Limited Partnership is composed of partners whose liability is

limited to the amount of capital contributed, provided the person
plays no active role in the business, or not participating in its
operation.

Partnership
Advantages:
1.Ease

of formation.

2.Complementary

management skills combining talents of several

individuals and prospects who can become future partners for
expansion.
3.Expanded

financial capability combining wealth of partners.

Partnership
Disadvantages:
1.Unlimited

financial liability, except for limited partnership.

2.Possibility

of disputes among partners.

3.Lack

of continuity and complexity of dissolution.

Corporation

Is a legal entity whose assets and liability are separate from those of its
owners.

As a legal person, its personality is distinct from its owner.

Forming a corporation involves preparing articles of incorporation and

set of by-laws.

Articles of Incorporation contains a number of things, including the

corporations name, its intended life, its business purpose, the number
of shares that can be issued.

By-Laws are rules describing how the corporation regulates its

existence; how directors are elected, and what are the functions of each
officer.

Corporate Ownership is represented by shares of stock in the firm.

Anyone who holds one or more shares of a corporation stock is
considered part owner of the business.

Corporation
Advantages:
1.Limited

liability of stockholders up the amount of shareholdings.

2.Unlimited

life w/c can operate through the lives of several

generations of investors.
3.Separate

legal entity, a legal person in itself w/c can buy, own, sell
property; sue and be sued; enter into a contract.
4.Specialized

management skills and financial capability.

Organizing a Sole
Proprietorship
1.

Register the business name with the Department of Trade and

Industry (DTI).

2.

Pay the city or Municipal Licenses with the local government.

3.

Apply for VAT or non-VAT number.

4.

Register with the Bureau of Internal Revenue (BIR) the books of

account and the business form to be used.

Organizing of Partnership
Provision of the Civil Code on partnership formation states that:
Article

1771 A partnership may be constituted in any form except

where immovable property or real rights are contributed thereto, in w/c
case public instrument shall be necessary
Article

1772 Every contract of partnership having a capital of three

thousand pesos or more, in money or property, shall appear in public
instrument, w/c must be recorded in the Office of the Securities and
Exchange Commission.
Article

1786 Every partner is a debtor of the partnership for

whatever he may have promised to contribute thereto.
Article

1826 A person admitted as a partner into an existing

partnership is liable for all the obligations of the partnership arising
before his admission as though he had been a partner when such
obligations were incurred, except that this liability shall be satisfied only
out of partnership properly, unless is a stipulation to the contrary.

Requirements of Organizing
Partnership:
1.

Register the business name with the Department of Trade and

Industry (DTI)

2.

Prepare the articles of co-partnership, and have notarized;

3.

Secure tax account number for the partnership from Bureau of

Internal Revenue (BIR)

4.

Register the notarized articles of co-partnership with the

Securities and Exchange Commission;

5.

Secure the city or Municipal Licenses with the local government

6.

Apply for VAT or non-VAT number; as the case maybe

7.

Register with the BIR the books of account and the business
form to be used

Articles of Co-Partnership

Classification of Partnership
1.

2.

Based on objects of contribution or subject matter:

Universal partnership refers to the contribution by partner of all
present property or of all profits
Particular partnership is formed to do particular business for a
particular period
Based on liability of partners for obligations:
General partnership refers to partner who are all liable for the
debts of the business, including their personal property after the
partnership assets have been exhausted
Limited partnership consists of one of the general partners and
one more limited partners who are liable for business debts only to
the extent of their capital contributions.

Classification of Partnership
3.

Based on contribution:

Capital partner contributes money or property to

the funds of partnership

Industrial partner shares work, labor industry to

the business

Capitalist-industrial partner contributes money

or property as well as work industry to the capital of
the partnership

Organizing a Corporation
Corporation code of the Philippines govern private
corporation, per Batas Pambansa Blg. 68
Section

2 states that: A corporation is an artificial being

created by the operation of law having the right of succession
and the powers, attributes and properties expressly
authorized by law or incident to its existence.
Section 10 of Corporation Code state: Any number of
natural persona not less than five but not more than fifteen,
all of legal age and majority of whom are residents of the
Philippines, may form a private corporation for any lawful
purpose or purposes. Each of the incorporators of a stock
corporation must own or be a subscriber to at least one share
of the capital stock of the corporation

Organizing a Corporation
Board of Directors or trustee The
governing body of a corporation, has the one
sole authority to determine policy and conduct
the ordinary business of the corporation.

Classification of Corporation
Based on the source of capital:

1. Corporation
2. Non-stock Corporation

Classification of Corporation
Based on the type of ownership:

1. Public Corporation
2. Private Corporation

Classification of Corporation
Based on their relation to other
corporation:

1. Parent Corporation
2. Subsidiary Corporation

Classification of Corporation
Based on their country of origin:

1. Domestic Corporation
2. Foreign Corporation

Classification of Corporation
Based on acceptable stockholders:
1. Close Corporation
2. Open Corporation

Registration of Corporation

Steps in the registration of a corporation:

- Verification of corporate name with SEC
- Drafting the articles of incorporation;
- Deposit of cash with the subscribed shares of stocks
in a banking institution.

- Filing of the articles of incorporation, with the following:

a. Treasurers affidavit
b. Statement of assets and liabilities of the proposed
corporation
c. Authority to verify bank deposits
d. Certificate of deposit of cash paid for subscription
e. Personal information sheets of the incorporators
f. Commitment to change corporate name if found similar
to another existing corporation or partnership

- Payment of filing and publication fees

- Issuance by SEC of the certificate of incorporation
- Registration of the corporate name with the Department of Trade
and Industry
- Secure municipal or city licenses with the local government
- Obtain VAT or non-VAY account number from the Bureau of Internal
Revenue
- Registration with BIR of book of accounts and accountable forms

Section 14.Contents of the articles of incorporation.All corporations organized under this code shall file with the
Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed
and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise
prescribed by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is
being incorporated. Where a corporation has more than one
stated purpose, the articles of incorporation shall state which
is the primary purpose and which is/are the secondary
purpose or purposes: Provided, That a non-stock corporation
may not include a purpose which would change or contradict
its nature as such;
3. The place where the principal office of the corporation is to be
located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful
money of the Philippines, the number of shares into which it is divided, and in case
the share are par value shares, the par value of each, the names, nationalities and
residences of the original subscribers, and the amount subscribed and paid by
each on his subscription, and if some or all of the shares are without par value,
such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities
and residences of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators
may deem necessary and convenient.

Rights of Stockholders

Right to attend and vote in person or by proxy at stockholders

meetings.

Right to receive dividends when declared.

Right to inspect corporate books and records and to receive

financial report of the corporations operations.

Right to pre-emption in the issue of shares.

Right to elect and remove directors.

Right to approve corporate actions.

Right to issuance of certificate of stock or other evidences of

stock ownership and be registered as shareholder.

Right to transfer of stock on the corporate books.

Rights of Stockholders

Right to participate in the distribution of corporate assets upon

dissolution.

Right to adopt and amend or repeal the by-laws or adopt by-laws.

Right to compel the calling of meeting of stockholders when for

any cause there is no person authorized to call a meeting.

Right to enter into a voting trust agreement.

Right to recover stock unlawfully sold for delinquency.

Right to bring individual and representative or derivative suits.

Right to demand payment of the value of his shares and

withdraw from the corporation in certain cases.

Right to have the corporation voluntarily dissolved.

Rights of Stockholders
The Pre-emptive Right refers to his right to
subscribe to all issues of shares in any class, in
proportion to his shareholdings subject to certain
exceptions under Corporation Code. This is intended to
promote fairness in the issuance of shares and to avoid
manipulation in the voting power of some stockholders.

Example: Ruth April owns 2,000 shares of the 20,000 outstanding

shares of capital stock of Alpha Bravo Corporation. The company is
issuing additional 10,000 shares to raise additional capital. If Ruth
April will not be allowed to subscribe to the new issue, in proportion
to her shares, her proportionate interest would go down from 10%
to 7%, computed as follows.
Proportionate interest present: 2,000 shares owned
/

20,000 shares outstanding

= 10% (0.1)
Proportionate interest after:
the new issuance

2,000 shares owned

/

30,000 shares outstanding

= 7% (0.6666)

The effect on the proportionate interest of Ruth April will be

compounded if the additional shares were to be issued at a price
lower than the current book value per share.
Example: Assume that the current book value per share is
Php200.00 and the new issue is at Php150.00 per share. The current
book value of Ruth April shareholdings of 2,000 shares would go
down to Php183.33 or book value per share would go down from
Php400,000 to Php366,666.67.

Computations are as follows;

Total Stockholders equity at present:
(20,000 shares outstanding x Php200.00
book value per share)

Php4,000,000

Add: New issue of 10,000 shares @Php100

1,000,000

Total stockholders equity after issue

5,000,000

Divide by 30,000 share outstanding

Book value per share after new issue

30,000
Php

166.67

Book value of Ruth Aprils shares

= 2,000 x Php166.67

333,340

Decrease in book value of Ruth April

shares =2,000 x Php200

-Php

400,000
66,660

Classes of Shares of Stocks

A.

Common Stock represents the basic issue of shares and has

all the basic rights of a share.

Features:
1.

1. Voting Right the conceptual structure of the corporation

assumes that shareholders elect directors who, in turn, hire
management to carry out their directives.

Cumulative voting is a procedure in which a shareholder may

cast all votes for one member of the board of directors.

Straight voting is a procedure in which a shareholder may cast

all votes for each member of the board of directors.

Classes of Shares of Stocks

2.

Proxy Voting a grant of authority by a shareholder allowing

another individual to vote his shares.

3.

Right to share proportionally in dividends paid.

4.

Right to share proportionally in assets remaining after liabilities

have been paid in a liquidation.

5.

Right to vote on stockholders matters of great importance, such

as merger.

6.

Right to share proportionally in any new stock sold, before

offering it to the general public, called the preemptive right.

Classes of Shares of Stocks

B.

Preferred Stock is a class of stock with preferences over

common shares, including distribution of dividends and
corporate assets upon dissolution of the corporation.

Features:
1.

Stated Value it has a stated liquidating value per share.

2.

Dividends type given are either cumulative or non-cumulative.

Classes of Shares of Stocks

Class A shares are for Filipino stockholders.
Class B shares are for foreign stockholders.
Filipinos are also given the privilege to own Class B shares.
Founders shares are those classified as such in the articles of
incorporation and may be given certain rights and privileges not enjoyed by
other stockholders.
Par Value shares refers to share of capital stock that have been assigned a
definite or fixed value in the articles of incorporation so as to fix the
minimum subscription or original issue price.
No Par Value shares are those that have not been assigned a definite or
fixed value. They may be assigned a stated value to serve as the minimum
issue price.

GROUP 1 REPORTERS:
Belen, Jeric
Bernil, Emerson
Naz, Rollie
Sype, Michael
Vega, April Aizza Mae