Business organization

Applied Economics
GROUP 1

START
What is business organization?
 It is an entity formed for the purpose
on carrying commercial enterprises.
Such an organization is predicted on
systems of law governing contract and
exchange, property rights, and
incorporation.
 Forms of business enterprises

Single or
Sole Partnership Corporation Coopera
Proprietor tives
ship
 Single or Sole Proprietorship

A sole proprietorship is an unincorporated

business that one person owns and manages. As
the business and the owner are not legally
separate, it is the simplest form of business
structure. Its is also known as individual
entrepreneurship, sole tender, or simply
proprietorship.
The business owner, also known as a
proprietor or a trader, conducts business using
their legal name. They may also choose to do
business using another name by registering a
 Advantages of Sole Proprietorship

 THE EASIEST AND CHEAPEST WAY TO START A

BUSINESS
Though the process varies depending on the
jurisdiction, establishing a sole proprietorship is generally
an easy and inexpensive process, unlike forming a
partnership or a corporation.
 FEW GOVERNMENT RULES AND LAWS
There are very few government rules and
regulations that are specific to proprietors. Sole
proprietors must keep proper records, files, and pay
taxes on the business income other personal income
sources
 Advantages of Sole Proprietorship

Record keeping and tax filing obligations are generally

no more complicated than maintaining records for individual
tax filings. Due to the time and the effort, proprietors may
wish to pay for specialized software and advisors to
streamline the time spent on administration.

 FULL MANAGEMENT CONTROL

Proprietor’s control all aspects of their business,
including production, sales, finance, personnel, etc. This
degree of freedom is attractive to many entrepreneurs, as
the venture’s success also means personal success.
 Advantages of Sole Proprietorship

 FLOW-THROUGH OF BUSINESS PROFIT

There is no legal separation between the owner and
the business, so the owner gets 100% of the profits. Although
all profits go to the owner, taxes are paid once, and
proprietor’s pay taxes individually.
Proprietors must pay individual taxes on the income
periodically, for example, as part of the annual individual tax
filing. Tax payments may me more frequent, for example,
quarterly, depending on local tax rules.
 Disadvantages of Sole Proprietorship
 UNLIMITED LEGAL WANTS
There is no legal separation between the owner and
the business. Similar to how all profits flow to the owner, all
debts and obligations rest with the proprietor. If the business
cannot satisfy its obligations, creditors may pursue the
proprietor’s personal assets in order to be repaid.

 LIMIT TO AVAILABLE CAPITAL

Owners put their own resources to bear when going
into business for themselves. There are limits to their
financial resources and the amount of credit they get when
they seek out lending relationships. Proprietors cannot sell
shares, or interest, in their business to raise money.
 Disadvantages of Sole Proprietorship

Putting ideas into reality is risky and can be costly.

Keeping a business going can be capital intensive. Some
expenses must be incurred before revenue is generated. Any
sales on credit, and any cash paid towards expenses, must
be finances by working capital. Equipment and other long-
use resources required for the business must be rented or
financed.

 BACKUP AND SUCCESSION

If the owner cannot get or does not want to operate the
business, it stops. An owner may have a family member in
the case of illness or any temporary and unforeseen reason.
Business interruption insurance may cover expenses for long-
 Disadvantages of Sole Proprietorship

 SKILLS AND EXPERIENCE

The proprietor must make “good enough” decisions in
all business areas. If an owner does not have enough
knowledge or skills, their decisions may be flawed. There is a
finite amount of time to do things correctly or learn to do
everything adequately. It can be difficult for individuals to
manage all aspects of their business properly. The owner can
hire employees, outside help, or get professional advice on
parts of the business process.
What is a
Partnership
Partnership?
A partnership is a
formal arrangement by
two or more parties to
manage and operate a
business and share its
profits.
 3 Categories of Partnership

General Partnership

Limited Partnership

Limited Liability Partnership

General Partnership
All parties share legal and financial
liability equally. The individuals are
personally responsible for the debts the
partnership takes on. Profits are also shared
equally. The specifics of profit sharing will
almost certainly be laid out in writing in a
partnership agreement.
Limited Partnership
A limited partnership is required to have
both general partners and limited partners.
General partners have unlimited liability and
have full management control of the business.
Limited partners have little to no involvement in
management, but also have liability that's
limited to their investment amount in the LP.
Limited Liability Partnership
Limited liability partnerships (LLPs) are a
flexible legal and tax entity that allows partners to
benefit from economies by scale by working together
while also reducing their liability for the actions of
other partners. As with any legal entity, it is important
that you check the laws in your nation (and your state)
before getting too excited. In short, check with a
lawyer first. The chances are good that they have
firsthand experience with an LLP.
General Partnership vs Limited
Partnership: Difference and Similarities

While general partnerships and limited

partnerships share a number of core similarities
namely, the fact that they are partnerships they are
distinct in just as many important ways, particularly
when it comes to liability protection and partners’
roles.
Corporation

A corporation is a legal entity that is separate and

distinct from its owners. Under the law, corporations
possess many of the same rights and responsibilities as
individuals. They can enter contracts, loan and borrow
money, sue and be sued, hire employees, own assets, and
pay taxes.
Corporation

 A corporation is legally a separate and distinct entity

from its owners. Corporations possess many of the same
legal rights and responsibilities as individuals.
 An important element of a corporation is limited liability,
which means that its shareholders are not personally
responsible for the company's debts.
 A corporation may be created by an individual or a group
of people with a shared goal. That does not always
involve making a profit.
 understanding Corporation
Almost all large businesses are corporations, including
Microsoft Corp., the Coca-Cola Co., and Toyota Motor Corp. Some
corporations do business under their names and also under separate
business names, such as Alphabet Inc., which famously does
business as Google.

The precise legal definition of a Corporation differs from

jurisdiction to jurisdiction, but the corporation's most important
characteristic is always limited liability. This means
that shareholders may take part in the profits through dividends and
stock appreciation but are not personally liable for the company's
 HOW do corporation works?
A Corporation is required to name a Board of Directors before
it can commence operations, and the members of the board of
directors are elected by shareholders during the annual general
meeting. Each shareholder is entitled to one vote per share, and they
are not required to take part in the day-to-day running of the
corporation. However, shareholders are eligible to be elected as
members of the board of directors or executive officers of the
corporation.
The Board of Directors comprises a group of individuals who
are elected to represent shareholders. They are tasked with making
decisions on major issues affecting the shareholders, and they also
create policies to guide the management and daily operations of the
corporation.
3 main types of business
incorporation

C Corporation

C Corporation is the most common form of

incorporation among businesses and contains almost
all of the attributes of a corporation. Owners receive
profits and are taxed at the individual level, while
the corporation itself is taxed as a business entity.
3 main types of business
incorporation

S Corporation

S Corporation is created in the same way as

a C Corporation but is different in owner limitation
and tax purposes. An S Corporation consists of up to
100 shareholders and is not taxed as separate –
instead, the profits/losses are shouldered by the
shareholders on their personal income tax returns.
3 main types of business
incorporation

Non-Profit Corporation

Commonly used by charitable, educational,

and religious organizations to operate without
generating profits. A non-profit is exempt from
taxation. Any contributions, donations, or revenue
received are retained in the entity to spend on
operations, expansion, or future plans.
Advantages of incorporation
1.Separate legal entity – Independent from its owners
and considered a legal entity that may conduct business,
own properties, enter into binding contracts, borrow
money, sue and be sued, and pay taxes.
2.Unlimited life – Stockholders, shareholders, or
members are the owners of a corporation, and it is
managed by a board of directors. Their death or inability
to perform their duties does not affect the continuity of
this legal entity; only changes in the company’s charter
will enable it to either be extended or liquidated.
Advantages of incorporation
3.Limited liability – Company owners are only liable for
the amount they invested. Creditors and lenders have no
claim to the owners’ personal assets for payments owed by
the shareholders.
4.Easy transfer of ownership shares – Publicly held
corporations do not require approval from other
stockholders to sell the stocks or shares of individual
owners. Stocks or shares can be easily traded in the
market, regardless of their volume.
Advantages of incorporation
5.Competent management – Investors or owners may
not directly handle day-to-day business operations. They
vote for the board of directors who eventually hire a
professional management team.
6.Source of capital – Corporations can source funds from
selling stocks and issuing bonds.
disAdvantages of incorporation
1. Incorporation costs – It is costlier to go through the
process of incorporation than to form a sole
proprietorship or partnership.
2. Double taxation – Two taxes are remitted, from the
corporate earnings and from payments of dividends to
shareholders.
3. Documentation – Aside from incorporation
documents, companies must file annual reports and tax
returns, as well as maintain accounting records,
licenses, and other important documents.
dividend
What is Dividend?
A dividend is the distribution of a company's
earnings to its shareholders and is determined by
the company's board of directors. Dividends are
often distributed quarterly and may be paid out as
cash or in the form of reinvestment in additional
stock.
Understanding dividend
Dividends must be approved by the
shareholders by voting rights. Although cash
dividends are common, dividends can also be issued
as shares of stock. Various mutual funds and
exchange-traded funds (ETFs) also pay dividends.
A dividend is a reward paid to the shareholders
for their investment in a company’s equity, and it
usually originates from the company's net profits.
Understanding dividend
Though profits can be kept within the company
as retained earnings to be used for the company’s
ongoing and future business activities, a remainder
can be allocated to the shareholders as a dividend.
Companies may still make dividend payments
even when they don’t make suitable profits to
maintain their established track record of
distributions.
Cooperatives
Cooperatives are businesses owned by “member-
owners”. Co-ops are democratically controlled by their
member-owners, and unlike a traditional business each
member gets a voice in how the business is run.
Services or goods provided by the co-op benefit and
serve the member owners. Contrary to popular belief
coops are not non-profits, and do aim earn profits.
Earnings generated by the cooperative benefit the
member-owners.
Principles of Cooperative
 Voluntary and open Membership
The members are the most important part of a
cooperative. Without dedicated and participating
members, no co-op can succeed.
 Democratic Member Control
Cooperatives are founded on the ideals of
democracy. Every member plays an integral role in making
decisions that affect the organization as a whole. The
cooperative makes crucial choices, adds or reforms
policies and elects new representatives as a group.
 Principles of Cooperative
 Members’ Economic Participation
To maintain fairness in all areas of the cooperative,
members need to contribute equitably to its economy. They
should also maintain democratic control over the collected
capital. A portion of the capital is considered the property of
the group.
 Autonomy and Independence
While each member has their own freedoms within the
cooperative, the organization itself is also an autonomous and
independent entity. The members of the co-op determine
everything it does, which allows the co-op to function
independently.
 Principles of Cooperative
 Education, Training and Information
To run a co-op successfully, promoting and spreading
education is a necessity. Every individual involved with a
cooperative needs to be well informed about the way they
operate, their purposes and the responsibilities of each
person.
Cooperation Among Cooperatives
While co-ops are independent of one another and run by
autonomous individuals, they also need to work together harmoniously.
Creating a larger network of cooperatives locally, regionally, nationally
or even internationally allows independent organizations to better serve
their members.
Principles of Cooperative
 Concern for Community
All cooperatives focus on their internal
communities, but they are also concerned with their local
communities outside of the organization. Co-ops source
materials from and invest in local suppliers to contribute
to the community’s sustainability. While the group works
as a unit, each member should also take it upon
themselves to contribute to the community in some way.
Objectives of Cooperative
 Cooperatives are legal persons governed by private
law that carry on any economic activity without profit
as the ultimate purpose and mainly in the interest of
their members, as consumers, providers or workers of
the cooperative enterprise.
 Profit as the ultimate purpose’ means making profits
mainly for the payment of interest, dividends or
bonuses on money invested or deposited with, or lent
to, the cooperative or any other person.
Objectives of Cooperative
 For the purpose in paragraph (1),‘cooperative
enterprise’ may include an enterprise carried out by a
subsidiary if this is necessary to satisfy the interests of
the members and the members of the cooperative
maintain the ultimate control of the subsidiary.
 Cooperatives may also be established to carry on an
economic activity mainly in the general interest of the
community (‘general interest cooperatives’).
Objectives of Cooperative
 Cooperatives shall include in their registered name the
word ‘cooperative’,‘coop’, or similar may not be
included in the name of entities not formed and
managed as cooperatives in accordance with
cooperative law and universally recognized
cooperative values and principles.
 Cooperatives vs corporations
Although a co-op might seem a totally distinct entity from other types of
corporations, there are actually quite a few similarities between the two. One of the
most notable similarities between a cooperative corporation and other types of
corporations is the fact that owners of both co-ops and other corporations have limited
liability.
Limited liability means that owners of a corporation or members of a
cooperative are not personally responsible for the debts the company incurs. It also
means that if the company should do something that’s against the law, the owners or
members can’t be held personally responsible. Although corporations offer limited
liability to their owners/members, it’s important to note that those who invest in them
aren’t wholly separate from the company. They are still responsible for the amount they
have contributed to the entity. If a person contributes Php500 to become a member of a
cooperative, then the Php500 membership fee is the total amount they are liable for.
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