MGNT 18
Chapter 6
Ownership and Organization
Aizell A. Bernal
BSBA 3
Mr. R. Poblete

Outline
I. The Organizational Vehicle
II. The Sole Proprietorship
i. Advantages
ii. Disadvantages
III. Partnership
i. Types of Partnership
ii. Advantages
iii. Disadvantages
IV. The Corporation
i. Advantages
ii. Disadvantages
V. The Cooperative
i. Advantages
ii. Disadvantages
iii. Types and Categories of Cooperatives
VI. Legal Considerations in Choice of Organization
VII. General requirements and procedures for registration
i. Registering a Single Proprietorship
ii. Registering a Partnership
iii. Registering a Corporation
iv. Registering a Cooperative
VIII. The best form of ownership

I. The Organizational Vehicle
Before a business can open its doors to the buying public, there has to be
a vehicle by which products and services can be bought or availed of from
the entrepreneur.
Such vehicle or organization has to be registered, authorized or licensed
to transact business with the buying public.
The entrepreneur has the choice as to which organizational vehicle he or
she would like to establish or organize to be able to pursue his business.
II. The Sole Proprietorship
The sole proprietorship or single proprietorship is a form of business
organization initiated, organized, owned or capitalized and managed by a
single person. The entrepreneur id the capitalist, the manager,
administrator and in the beginning of the business, he does everything for
the business.
Advantages of Sole Proprietorship
1. Simple to organize – A decision of the entrepreneur or business
owner can lead to a quick organization or registration of the business.
2. Low start-up capital – There is no law that sets a minimum level of
capital requirement to put up or establish a single proprietorship
business.
3. Owner owns all profits – All the profits accrues to the
owner/entrepreneur as he or she is not bound by any rule or
government regulation to share his profits to anybody.
4. Total decision making authority – A single proprietorship business is
run by its owner as his own, hence, the decision making function totally
rests upon the hands of the owner/entrepreneur.
5. Easy to discontinue – A proprietorship is easy to dissolve or
discontinue the business. It is purely a prerogative of its owner.
6. Good tax privileges – Tax matters and other regulatory requirements
favor the sole proprietorship over other forms of business organization.
Disadvantages of Sole Proprietorship
1. Unlimited personal liability – The context of unlimited personal
liability is probably the single greatest disadvantage of a sole
proprietorship; that is, the sole proprietor is personally liable for all the
debts of the business.
2. Limited skills and capabilities of the sole owner – The skills that
can benefit the business is limited to the skills and capabilities of the
owner which might not be enough or sufficient for the demands or
needs of the business.
3. Limited access to capital – A single proprietorship has a limited
access to capital as compared with partnership or corporation.

4. Lack of continuity for the business – The death of the owner of a
single proprietorship technically means the death of the business also.
III. Partnership
A partnership is an association of two or more business partners who co-
own a business for the purpose of making a profit. In a partnership, the co-
owners share the assets, liabilities, and profits of the business according
to the terms of the partnership agreement.
Types of Partners
1. General Partner – A general partner is one who shares ownership and
management of the business and is liable to the extent of his separate
property after all the assets of the partnership are exhausted.
2. Limited Partner – They refer to partners with limited financial liability
and they do not take active role in the management of the firm.
3. Silent Partner – Silent partners are those not taking active role in the
operation of the business but are generally known to be partners of the
business.
4. Dominant Partner – They are neither active in the partnership not
they are generally known to be associated with the business.
5. Capitalist Partner – A partner who contributes money or property to
the common fund of the partnership.
6. Managing Partner – The partner who is designated to manage the
operations of the business of the partnership.
7. Industrial Partner – The partner who contributes his knowledge of
personal services to the partnership.
8. Secret Partner – A partner who takes active part in the business but is
not known to be a partner by outside parties.
9. Nominal Partner or Partner by Estoppel – A partner who is actually
not a partner but is held out or represented as a partner.
10. Liquidating Partner – A partner who is designated to wind up or settle
the affairs of the partnership after dissolution.
Advantages of Partnership
1. Easy to establish – Because only two or more can form a partnership,
it can be said that relative to a corporation, a partnership is easy to
organized or established.
2. Complementary skills of partners – Like the corporation, the skills of
the partners can be exploited to the fullest to the benefit of the
partnership.
3. Division of profits – There are no restrictions on how profits will be
distributed as long as they are consistent with the provisions of the
partnership agreement.
4. Large pool of capital – The capital base of the partner can be availed
of thus a form of advantage compared to proprietorship.

5. Ability to attract limited partners – Depending on the provisions of
the partnership can attract as many partners as possible for the benefit
of the partnership.
6. Little governmental regulation – Like the sole proprietorship, the
partnership form of business operations is not burned with red tape or
subject of stringent regulations unlike the corporation.
7. Flexibility – Although not as flexible as the sole proprietorship, the
partnership can generally react quickly to changing.
Disadvantage of Partnership
1. Unlimited liability of at least one partner – At least one of every
partnership must be a general partner and he/she has unlimited
personal liability, even though he or she often is the partner with least
resources.
2. Difficulty in disposing of partnership interest without dissolving
the partnership - To be able to justly and fairly distribute the assets of
the partnership, any of the partners has to sell his interest to remaining
partners which might be disadvantageous to him.
3. Lack of continuity – Complication arise when one of the partner dies.
Partnership interest is often in transferable through inheritance
because the remaining partners may not wish to be in association or
partnership with the person who inherits the interests of the deceased
partner.
4. Potential for personality and authority conflict – Friction may arise
among partners is inevitable and difficult to control. Disagreement as to
what should be done or what was done has been the reasons for the
dissolution of many partnerships.
IV. The Corporation
A corporation is an artificial being, invisible, intangible, and existing only in
contemplation of law.
Compared to sole proprietorship or partnership, a corporation is more
complex of the three major forms of business ownership.
Corporations are not only for big organizations but also for small business
as well.
Advantages of Corporation
1. Limited liability of the stockholders – The liability of the
stockholders or owners of the corporation is limited to the assets of the
corporation.
2. Ability to attract capital – As a prospective borrower from the bank or
other financial institutions, a corporation is more welcomed or preferred
as compared to single proprietorship or partnership.
3. Transferable ownership – Stock owners or stockholders of the
corporation can easily affect transfer of ownership without affecting the
operations of the business.

4. Larger pool of skills, expertise, and knowledge – Stockholders
particularly those forming part of the Board of Directors or in the
management team are rich sources of skills and expertise which can
be tapped by the corporation to achieve its corporate agenda.
Disadvantages of Corporation
1. Cost and time involved in the incorporation process – In view of
the relatively large number of persons involved in forming a
corporation, the cost involved and the time requirement for the
formation or incorporation registration process is somewhat longer and
difficult.
2. Taxation – The nature of corporation is subject to certain tax
regulations, which is more costly from the viewpoint of both national
income tax and local government tax rules.
3. Legal restrictions and regulatory red tape – The administrative and
legal processes that a corporation goes through in the conduct of its
business pose as burdensome and source of irritation to small-scale
corporations.
4. Potential loss of control by founders of the corporation – The
nature of a corporation as well as the boundary between the powers of
the owners/founders and managers of the business may pose as
constraint and threat to the founders, or stockholders of the
corporation.
V. The Cooperative
Republic Act 6938, known as the Cooperative Code of the Philippines
defined a cooperative as a duly registered association of persons, with a
common bond of interest, who have voluntarily joined together to achieve
a lawful common social or economic end, making equitable contributions
to the capital required and accepting a fair share of the risks and benefits
of the undertaking in accordance with universally accepted cooperative
principles.
Fabian Abella, one of the pioneering authors on cooperatives, identified
the set of universally accepted principles of cooperatives includes as
follows:
1. Open and voluntary membership – Membership in cooperative is a
voluntary and available to all individuals regardless of their social,
political, racial or religious background or beliefs.
2. Democratic control – Cooperatives are democratic organizations
wherein their affairs are administered by personnel elected or
appointed in accordance with their approved Constitution and By-laws.
3. Limited interest on capital – Share capital received strictly limited
rate of interest.
4. Division on net surplus – Net surplus arising out of the operations of
cooperative belongs to its members and shall be equitably distributed
for cooperative development common services, individual reserved

fund, and for limited interest on capital and/or patronage refund as
specified in the articles of incorporation and by-laws.
5. Cooperative education – All cooperatives are mandated to make
provision for the education of their members, officers, employees and
of the general public based on the principles of the cooperatives.
6. Cooperation among cooperatives – All cooperatives, in order to best
serve the interest of their members and communities, have to actively
cooperate with other cooperatives at local, national and international
levels.
Advantages and Disadvantages of Cooperatives
 The advantage of the cooperative as the entrepreneur’s
organizational vehicle is the tax privileges that the government
usually provides amongst cooperative organizations. The cooperative
usually receives some kind of subsidy and other forms of privileges
directed at its members. The cooperative can also source its stocks
or inventories from suppliers who offer concessionary terms to
cooperatives. The greatest advantage of a cooperative as a business
is the ability to provide direct benefits to its members and the entire
community it serves in the form relatively cheaper products and
services consistent with its mission of providing services rather than
existence for a purely profit motives.
 The disadvantage in using cooperative as an organizational vehicle is
its inequality of profit distribution with the same returns to all
members including those who did not spent much efforts for it.
Types and categories of Cooperatives
1. Credit cooperative – This form of cooperative promotes thrift and
savings among its members in order to grant loans for production and
provident purposes.
2. Consumer’s cooperative – This type of cooperative is for the primary
purpose of procuring commodities in bulk and retail the same to the
members and non-members.
3. Producers cooperative – This type of cooperative is organized to
undertake a production-oriented concern may it be agricultural or
industrial in nature.
4. Service cooperative – As the name implies, this is a service-oriented
cooperative which engages in such areas as medical and dental care,
hospitalization, insurance, printing, housing, labor, electric light and
power, communications and other services needed by the members
and non-members in the community.
5. Marketing cooperative – This type of cooperative engages in the
supply of production inputs to members and market their products.
6. Multi-purpose cooperative – This form of cooperative combines the
concept of two or more of the business activities of the different types
of cooperatives.

VI. Legal consideration in choice of organization
In deciding what type of business organization to register, certain factors
have to be considered. The vital factors that need to be seriously taken in
account are as follows:
1. Initial capital – New business venture within the ability of the entrepreneur to
capitalize can be a major influence as the entrepreneur may opt for the bias
of doing it by himself to rake all the benefits of the venture.
2. Taxation and government regulations – The initial choice of legal form may
not be influenced greatly by problems include under this category. Taxation
and regulations become more important. A factor that may even force its
owners to consider shifting or changing to other legal forms.
3. Exploitation – People, time, money and products can all be exploited under
the right circumstances, and a variation in legal form may be useful for this
purpose.
4. Growth, expansion, merger and sale – Any of these factors may demand a
shift to another legal form. In fact, a change is often mandatory to achieve the
full value of the proposed course of action.
VII. General requirements and procedures for registration
The general procedures and requirements for the registration of business
organizations covering single proprietorship, partnership, corporations, and
cooperatives must be emphasized that prospective entrepreneurs must check
with the government agencies concerned for updated or revised administrative
rules and policies as well as recent legislative enactments that may have to be
complied with.
Registering a single proprietorship
Registering a partnership
Registering a corporation
Registering a cooperative
VIII. The best format of ownership
The summary of the pros and cons of various forms of business
organization should give the prospective entrepreneur the chance to evaluate his
options. After reading and carefully analyzing the pros and cons of the various
forms of business organization as to what ownership, a question as to what form
of business organization is the best to adapt. In choosing a form of ownership,
entrepreneurs must remember that there is no single “best” form of business
organization as to ownership.