Lesson 7: Legal Form of Business Organization

• Legal Form

  • The form of ownership of a business that pulls together the components into a manageable unit such as a firm, or a conglomerate, or a joint venture.
  • Legal identity or legal status of a business.
• Four legal forms of business organization

  1. sole proprietorship
  2. Partnership
  3. Corporation
  4. Cooperative
• Why must business adopt legal forms

  • Define the rights and liabilities of each participants in the business ownership.
  • To understand how to control and manage the business such as life span and financial structure.
  • It determines company’s and owners' legal liabilities.
• Sole Proprietorship


  This form of business is owned by one individual who makes all the business decisions, receives the maximum profits and bears the financial responsibility of losses.
• Sole Proprietorship


  the owner and the business are one. The personal income of the entrepreneur and the business income are one, thus, the business income as taxed as personal income. The owner assumes full responsibility for decision making. Hence, if the business succeeds, he reaps all the profits. If it fails he bears all the losses, including paying the debts or obligations of the business. Moreover, when the owner dies, the life of the business also ends.
• Sole Proprietorship


  must be registered to the Department of Trade and Industry. It must obtain business clearance/permit from the local government unit the business will be operating. The entrepreneur must get a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR).
• Partnership


  It is a business enterprise that is owned by two or more people (called partners) who consult one another for the business decisions, share profits of the business and divide the financial responsibility for any losses.
• Partnership


  By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. (Article 1767, The New Civil Code of the Philippines) Each partner is liable for the act of another on behalf of the partnership.
• Partnership


  formed when two or more individuals come together to become joint owners of a business. With partnership, owners pool their resources (money and other business assets) and talents (skills, experience, management know - how). The partners share the responsibility of decision making for the business and profits are equally divided unless otherwise stipulated in the Partnership Agreement. (Asor 2013)
• Partnership


  form of business must be registered with Securities and Exchange Commission (SEC). Other important document such as business permit and TIN must also be obtained from concerned government units .
• Corporation


  A form of business enterprise that is owned by a large number of shareholders which has the legal status of a fictional individual and is authorized by law to act as a single person and being managed by elected Board of Directors .
• Corporation


  An artificial being created by law, having the right of succession and the power, attributes and properties expressly authorized by law or incident to its existence. (Section 2, The Corporation Code of the Philippines)
• Corporation


  a legally chartered organization composed of five or more persons (usually in odd number). It is considered as “legal person” in the eyes of the law because it has legal right to conduct a business, to own and sell property, borrow money, and to sue and sued. (Medina 2014)
• Corporation



  The ownership corporation is divided into units known as “shares of stocks” The buyers of these stocks are called stockholders, also become part - owners of the business. Management of the corporation is vested on board of directors who are elected by the stockholders annually. (Asor 2013) .
• Cooperative


  an enterprise created by a group of individuals . It is composed of producers, traders or consumers who want to produce or sell as a group so they can avail bigger profit .
• Cooperative


  neither affected by the death of any of its members no by a member’s discount of share of his capital stock. However, it can be dissolved by a majority vote of the board of directors and a resolution signed by at least two thirds of the general membership. (Asor 2013).
• Cooperative


  are registered with the Cooperative Development Authority (CDA). It is led by a set of officers collectively known as the board of directors.