ORGANIZATION AND MANAGEMENT

Quarter 1 Week 4

LESSON TITLE: THE FIRM AND ITS ENVIRONMENT

MELC: Analyze the forms and economic roles of business organizations.
(ABM_AOM11- Ia-b-3)
Ia-b-3
DISCUSSION

After deciding to start a business (and the business to pursue), one of the important
issues is the form of business entity that will serve as the vehicle in pursuing the
business. You may say that the next important issue is the source of funding, which is
correct, but that issue will be discussed later. Right now, let’s focus on the forms of
business.
The choice of the form of business or business organization depends on various
factors. In certain business, like banks, the law requires that the business entity must be
a corporation. A small business, like your friendly sari-sari store, is better off as a sole
proprietorship, although it could also be converted to another form of business if the
circumstances require that shift.
A. Partnership

Partnership consists of two or more persons who bind themselves to contribute

money or industry to a common fund, with the intention of dividing the profits among
themselves. The most common example of partnerships are professional partnerships,
like in the case of law firms and accounting firms. Just like a corporation, it is registered
with the Securities and Exchange Commission (SEC).
Advantages of a Partnership
✓ Partnerships are relatively easy to establish; however, time should be invested
in developing the partnership agreement.
✓ With more than one owner, the ability to raise funds may be increased.
✓ The profits from the business flow directly through to the partners’ personal tax
return.
✓ Prospective employees may be attracted to the business if given the incentive
to become a partner.
✓ The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
✓ Partners are jointly and individually liable for the actions of the other partners.
✓ Profits must be shared with others.
✓ Since decisions are shared, disagreements can occur.
✓ Some employee benefits are not deductible from business income on tax
returns.
✓ The partnership may have a limited life; it may end upon the withdrawal or
death of a partner
Types of Partnerships that should be considered:
1. General Partnership
Partners divide responsibility for management and liability, as well as the shares
of profit or loss according to their internal agreement. Equal shares are assumed
unless there is a written agreement that states differently.

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2. Limited Partnership and Partnership with limited liability
“Limited” means that most of the partners have limited liability (to the extent of
their investment) as well as limited input regarding management decision, which
generally encourages investors for short term projects, or for investing in capital
assets. This form of ownership is not often used for operating retail or service
businesses. Forming a limited partnership is more complex and formal than that of a
general partnership.
3. Joint Venture
Acts like a general partnership but is clearly for a limited period of time or a
single project. If the partners in a joint venture repeat the activity, they will be
recognized as an ongoing partnership and will have to file as such and distribute
accumulated partnership assets upon dissolution of the entity.

B. Sole proprietorship
Also referred to as “single proprietorship,” a sole proprietorship is the simplest
form of business and the easiest to register, through the Bureau of Trade Regulation
and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI). It
is owned by an individual who has full control/authority of its own and owns all the
assets, as well as personally answers all liabilities or losses. The fact that it is run by
the individual means that it is highly flexible and the owner retains absolute control
over it.
Advantages of a Sole Proprietorship
✓ Easiest and least expensive form of ownership to organize.
✓ Sole proprietors are in complete control, and within the parameters of the
law, may make decisions as they see fit.
✓ Profits from the business flow-through directly to the owner’s personal tax
return.
✓ The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
✓ Sole proprietors have unlimited liability and are legally responsible for all
debts against the business. Their business and personal assets are at risk.
✓ May be at a disadvantage in raising funds and are often limited to using funds
from personal savings or consumer loans.
✓ May have a hard time attracting high-calibre employees, or those that are
motivated by the opportunity to own a part of the business.
✓ Some employee benefits such as medical insurance premiums are not
directly deductible from business income (only partially as an adjustment to
income).

C. Sole Corporation
A mixture of the features of a sole proprietorship and a corporation is found in
a new entity authorized under the Revised Corporation Code — the One Person
Corporation. An OPC is registered in the same manner as other corporations with the

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SEC, except that it is composed of only one person, just like a sole proprietorship.
[See One Person Corporations under the Revised Corporation Code]

D. Corporation
A corporation is a juridical entity established under the Corporation Code and
registered with the SEC. It must be created by or composed of at least 5 natural
persons up to a maximum of 15, technically called “incorporators” (the 5-person
minimum has been removed under the Revised Corporation Code). Juridical persons,
like other corporations or partnerships, cannot be incorporators, although they may
subsequently purchase shares and become corporate shareholders/stockholders. .
Advantages of a Corporation
✓ Shareholders have limited liability for the corporation’s debts or judgments against
the corporation.
✓ Generally, shareholders can only be held accountable for their investment in stock
of the company. (Note however, that officers can be held personally liable for their
actions, such as the failure to withhold and pay employment taxes.
✓ Corporations can raise additional funds through the sale of stock.
✓ A Corporation may deduct the cost of benefits it provides to officers and
employees.
✓ Can elect S Corporation status if certain requirements are met. This election
enables company to be taxed similar to a partnership.

Disadvantages of a Corporation
✓ The process of incorporation requires more time and money than other forms of
organization.
✓ Corporations are monitored by federal, state and some local agencies, and as a
result may have more p
✓ Paperwork to comply with regulations.
✓ Incorporating may result in higher overall taxes. Dividends paid to shareholders
are not deductible from business income; thus this income can be taxed twice.

E. Cooperative
A cooperative is an organization established for the purpose of purchasing and
marketing the products of its members, i.e., shareholders, and/or procuring supplies
for resale to the members, whose profits are distributed to the members (in the form
of patronage dividends), not on the basis of the members' equity
According to REPUBLIC ACT 9520 also known as "Philippine Cooperative
Code of 2008".
The primary objective of every cooperative is to help improve the quality of life
of its members. Towards this end, the cooperative shall aim to:
a. Provide goods and services to its members to enable them to attain increased
income, savings, investments, productivity, and purchasing power, and promote
among themselves equitable distribution of net surplus through maximum
utilization of economies of scale, cost-sharing and risk-sharing;

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b. Provide optimum social and economic benefits to its members;
c. Teach them efficient ways of doing things in a cooperative manner;
d. Propagate cooperative practices and new ideas in business and management;
e. Allow the lower income and less privileged groups to increase their ownership
in the wealth of the nation; and
f. Cooperate with the government, other cooperatives and people-oriented
organizations to further the attainment of any of the foregoing objectives.

CHECK YOUR UNDERSTANDING

Multiple Choice
Directions: Read the questions carefully and select the letter of the correct answer.
Write your answer in a paper.
1. Which of the following is a form of business which has unlimited liability.
Creditors may proceed not only against the assets and property of the business,
but also after the personal properties of the owner.
a. Corporation b, Sole Corporation
c. Partnership d. Sole proprietorship
2. Philippine Cooperative Code of 2008 is under of what Republic Act?
a. RA 9521 b. RA 9520
c. RA 9522 d. RA 9250
3. When the preconditions for take-off are met, a society can take off.
a. Drive to Maturity b. Take-off
c. Traditional Society d. None of the above
4. It acts as a general partnership but is clearly for a limited period or a single
project. Which of the following is CORRECT answer?
a. General Partnership b. Limited Partnership
c. Joint Venture d. None of the above
5. In which a type of partnership that divides responsibility for management and
liability, as well as the shares of profit or loss according to their internal
agreement.
a. General Partnership b. Limited Partnership
c. Joint Venture d. None of the above

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POST-TEST

MULTIPLE CHOICE: Choose the letter of the correct answer. Write your answer in a
paper.
____1. The followings are the disadvantages of Corporation except ONE.
a. Incorporation requires more time and money that other forms of organization.
b. Monitored by federal, state and some local agencies.
c. May result in higher overall taxes.
d. May deduct the cost of benefits it provides to offices and employees.
____2. Which of the following is advantage of Corporation?
a. Can raise additional funds through the sale of stock.
b. Requires more time and money than other forms of organization.
c. Processes of paperwork to comply with the regulation.
d. All of the above
____3. Which of the following is CORRECT about Sole Proprietorship?
a. Not easiest and highly expensive form of ownership to organize.
b. The business is easy to dissolve, if desired.
c. Cannot control within the parameters of the law.
d. Profits from the business are divided into the employees.
____4. The following are the advantages of partnership except ONE.
a. The Business usually will benefit from partners who have complementary skills.
b. With more than one owner, the ability to raise funds may be increased.
c. Partners are jointly and individually liable for the actions of the other partners.
d. Prospective employees may be attracted to the business if given the incentive to
become partner.
____5. It means that most of the partners have limited liability, as well as limited input
regarding management decision.
a. Abundant
b. Unlimited
c. Single
d. Limited
____6. Which of the following are disadvantages of Sole Proprietorship?
a. Have limited liability and are legally responsible for all debts against the
business.
b. Some employees benefits such as owner’s medical insurance premiums are not
directly deductible from business income
c. Have a hard time attracting high-caliber employees
d. All of the above

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____7. It is registered in the same manner as other corporations with the SEC, except
that it is composed of only one person, just like a sole proprietorship.
a. One Person Corporation
b. Partnership
c. Double Person Corporation
d. Cooperative
____8. Republic Act 9520 also known as:
a. Philippine Cooperative Code of 2008
b. Philippine Cooperative Code of 2009
c. Philippine Corporation Code of 2008
d. Philippine Corporation Code of 2009
____9. The following are the objectives and Goals of a Cooperative except ONE.
a. Provide good and services to its members to enable them to attain increase
income, savings, investments and purchasing power.
b. Allow the higher income and higher privileged group to increase their ownership
in the wealth of the nations.
c. Teach them efficient ways of doing things in a cooperative manner.
d. Provide optimum social and economic benefits to its members.
____10. SEC stands for:
a. Securities and Exchange Corporation
b. Security and Exchange Commission
c. Securities and Exchange Commission
d. Security and Exchange Corporation

REFLECTIVE LEARNING SHEETS

Reflective Question: If you have an existing sari-sari store, what are the possible
things you will consider in terms of business registration based on the topic discussed
to respond to the COVID-19 pandemic? Cite at least two and explain. Write your
answer in the space provided. (50-100 WORDS)
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