Economics IV

1. The Business
Organizations
ECONOMICS IV
By MLJT

2. WHAT IS BUSINESS/ BUSINESS
ORGANIZATION?
• Are a major component in the economy
• Their main goal is to attract customers, and to consequently earn profit
• Provide needs, wants and demands of the economy
• It is also the largest contributor of revenue to an economy

3. BUSINESSES…
• Have important partnership with the government
• Serve as provider of goods and services to the consumers and provide
investments, employment and social responsibility to the economy (for the
economy)

4. Forms of Business Enterprises
• Single or Sole/Individual Proprietorship
• Owned by a single person known as proprietor
• Easiest enterprise to set up

5. Organizing a Sole Proprietorship
• Register the business name with the Department of Trade and Industry
• Pay the municipal licenses to the local government
• Apply for VAT or non-Vat number with the Bureau of Internal Revenue
(BIR)
• Register with the BIR the books of accounts (simplified bookkeeping
records or journals and ledger) and the business forms to be used (sales
invoices, cash sales invoices, official receipts, etc.)

6. Advantages
• Once the business starts, it no longer requires many contracts, documents or
agreements.
• The owner can decide on his own what the best course for the firm is.

7. Disadvantages
• The sole owner will bear all of the debt burden and the losses
• The death of the owner means the end of the business.
• Limited financial capital
• The success of the business is very dependent on the ability and judgment
of a single person.

8. Forms of Business Enterprises
• Partnership
• Is a business organization that is an association of at least two
or more persons who agree to place money, property or
industry in a common fund with the aim of sharing the profits
among themselves

9. Organizing a Partnership
• Register the business name with the Department of Trade and Industry
• Have the partnership agreement (Articles of Co-partnership) notarized and
registered with the Securities and Exchange Commission (SEC)
• Obtain a tax identification number for the partnership from BIR
• Obtain pertinent municipal licenses from the local government
• Obtain the VAT or non-Vat number from the BIR
• Register books of accounts and the business forms to be used with the BIR

10. Types of Partners
• Based on their contribution
• A CAPITALIST PARTNER – one that provides assests, such as money and property,
to be utilized as the starting capital of the business
• An INDUSTRIAL PARTNER – one that swears to give services or labor to the
operation of the business. He is usually the “hands-on” partner in the business
• A CAPITALIST-INDUSTRIAL PARTNER – one that pledges money and property as
the starting capital as well as services

11. Types of Partners
• Based on their liability for partnership debts
• A GENERAL PARTNER – one who is liable for partnership
problems, particularly debts of the business
• A LIMITED PARTNER – is one whose liability for partnership
problems is limited. His liability is only limited to the extent of his
capital contribution

12. Advantages
• Easy to establish
• All profits go directly to the owners
• Each partner has his own strengths and weaknesses, and the
partners can support each other.

13. Disadvantages
• The death or departure of an important partner could mean the
end of the business.
• Disagreements and misunderstanding
• Partnership agreements are not flexible.

14. Forms of Business Enterprises
• Corporation
• “ is 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”
• Is a form of business organization in which the owners (known as stakeholders)
have an undivided ownership share in the assets of the corporation upon its
dissolution; share in its profits corresponding to the amount of shares of stock
which they own
• It has specific objectives in carrying out the business, in accordance with a charter
or articles of incorporation

15. Organizing a Corporation
• Verification of corporate name with SEC
• Drafting and execution of the Articles of Incorporation
• Deposit of cash received for subscribed shares of stocks in a banking
institutions in the name of the temporary treasurer, in trust for and to the
credit of the corporation
• Filing of the Articles of Incorporation together with the:
• Treasurer’s Affidavit

16. Advantages
• Limited liability
• Shareholders can resell their shares for cash
• Can raise a large amount of money by selling more certificates.
• The death or departure of an owner would not mean end of the business.

17. Disadvantages
• Requires substantial amount of money needed for registration, licenses, etc.
• Government regulation of business is focused on corporations
• Corporate income is taxed twice
• The management has to provide both the government and the shareholders
a report on its operations and performance.

18. Dividends
• Distributed profits of the corporation
• Represents the corporation’s profits which are distributed to
stockholders according to the proportionate interest of their
shareholding

19. Kinds of Dividends
• Cash – paid in cash to the stockholder
• Property – in the form of non-cash assets of corporation
• Stock – the dividend in the form of stocks of issuing corporation
• Scrip – dividend in the form of promissory notes indicating the benefits
• Bond – in the form of bonds of the company
• Liquidating – refers to return of capital by a corporation

20. Forms of Business Enterprises
• Cooperatives
• “only organizations composed primarily of small producers and consumers who
voluntarily join together to form business enterprises which they themselves own,
control and patronize”
• Providing benefits to members is given more importance than earning profit.

21. Advantages
• Member will be interested to take part in the activities of the
cooperative
• Profits are shared equally among the members.
• All members have equal voting power

22. Disadvantages
• The profit share of each member is not substantial.
• Only government agencies are interested in assisting cooperatives.

23. Similarities bet. Cooperative and Corporation
• Privately owned and managed
• Both depend on business efficiency to survive in a competitive market
• Regulated and supervised by the government
• Both enjoy a reasonable degree of economic freedom

24. Differences
• Cooperative
• Primarily organized for service
• Open and voluntary ……while CORPORATION is mainly for profit, restricted