Chapter 2

• Purpose of Business Organization

  People work together to achieve goals that are too big, complex, or expensive for one person
• Forms of Business Organization

  • Sole Proprietorship
  • Partnership
  • Corporation
• Sole Proprietorship


  • Owned and controlled by one person
  • Sole proprietor is personally liable for business debts
  • Not a separate legal entity from the owner
  • Simple to form and operate
  • Provides self-employment opportunities
  • Secrecy in business affairs is possible
• Limitations of Sole Proprietorship

  • Limited access to capital
  • Lack of business continuity
  • Limited business size
  • Owner may lack management expertise
• Partnership


  • Formed through an agreement
  • Engages in a lawful business
  • Governed by contractual relations
  • Shared management among partners
  • Number of partners: max 20 for other businesses, max 10 for banking
• Limitations of Partnership


  • Unlimited Liability
  • Uncertain Life
  • Limited Capital
  • Non-transferable Shares
• Types of Partnership


  • General Partnership
  • Limited Partnership
  • Limited Liability Partnership
• Obligations of Partners


  • Contribution of Money or Property
  • Contribution of Industry (Services)
  • Obligation of the Capitalist Partner
  • Responsibility Between Partnership and Partner
  • Sharing of Profit and Loss
  • Property Rights of a Partner
  • Liability of Individual Partners to Third Persons
  • Liability of the Limited Partner
• Corporation


  A legal entity with rights, responsibilities, and privileges, similar to a person
• Batas Pambansa Blg. 68, known as the Corporation Code of the Philippines - The law which governs the creation of private corporations in the Philippines
• Partnerships are liable for

  • Contracts entered into for the partnership by authorized persons
  • Partnership debts if partnership assets are exhausted
• Partners are jointly liable for

  • Wrongful acts causing loss to a non-partner
  • Misappropriation of funds received from a non-partner in the course of business
• Limited partner becomes generally liable if

  • Their surname appears in the partnership name
  • They participate in business control
• Corporation


  • A legal entity with rights, responsibilities, and privileges, similar to a person
  • Considered an "artificial being" created by law, not a natural person
  • Has the right of succession: continues to exist even if members (stockholders) change
  • Powers are limited to those authorized by law or its charter (document outlining purpose and powers)
• Batas Pambansa Blg. 68


  The law which governs the creation of private corporations in the Philippines
• Kinds of Corporation


  • Stock Corporation
  • Non-Stock Corporation
  • De Jure Corporation
  • De Facto Corporation
  • Public Corporation
  • Private Corporation
  • Corporation Sole
  • Eleemosynary Corporation
  • Foreign Corporation
• Stock Corporation


  • Has capital stock divided into shares
  • Distributes profits (dividends) to shareholders based on their shares
  • Organized for profit
  • Governed by a Board of Directors
• Non-Stock Corporation


  • No capital stock or dividends distributed to members
  • Not organized for profit
  • Governed by a Board of Trustees
• De Jure Corporation


  Formed following all legal requirements
• De Facto Corporation


  Formed with a flaw in its incorporation process
• Public Corporation


  • Formed by the government to govern a specific area
  • Created by charter for public functions (e.g., barangay, city, municipality)
• Private Corporation


  • Formed for a private purpose
  • Created under general corporation law
  • Includes government-owned/controlled corporations and private corporations performing public functions
• Corporation Sole


  • One incorporator
  • Manages religious affairs and property as a trustee
• Eleemosynary Corporation


  Organized for charitable purposes
• Foreign Corporation


  Formed under laws outside the Philippines, allowing Filipinos to do business in their country
• Advantages of a Corporation

  • Strong separate legal identity (separate juridical personality)
  • Limited liability for investors (investors only lose their investment)
  • Easy transfer of ownership (shares can be freely transferred)
  • Centralized management through a Board of Directors
  • Professional management structure
  • Easier access to capital by selling small stock amounts
• Disadvantages of a Corporation

  • Extensive government regulations
  • Double taxation (on corporate profits and dividends)
  • Activities limited by its charter and various laws
• Government Agencies for Startup Business Registration

  • Department of Trade and Industry (DTI)
  • Securities and Exchange Commission (SEC)
  • Cooperative Development Authority (CDA)
  • Local Government Unit (LGU)
  • Barangay Hall
  • Bureau of Internal Revenue (BIR)
  • Social Security System (SSS)
  • Department of Labor and Employment (DOLE)
  • Home Development Mutual Fund (HDMF)
  • Philippine Health Insurance Corp. (PhilHealth)