Chapter 6

Ownership and

OrganizationAizell A. Bernal MGNT 18BSBA 3 Mr. R. Poblete

OutlineI. The Organizational Vehicle

II. The Sole Proprietorship1. Advantages2. Disadvantages

III.Partnership1. Types of Partnership2. Advantages3. Disadvantages

IV. The Corporation1. Advantages2. Disadvantages

OutlineV. The Cooperative

1. Advantages2. Disadvantages3. Types and categories of Cooperative

VI.Legal Considerations in Choice of Organization

VII.General Requirements and Procedures for Registration1. Registering a Single Proprietorship2. Registering a Partnership3. Registering a Corporation4. Registering a Cooperative

VIII.The best Form of Ownership

• 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.

I. The Organizational Vehicle

• The sole proprietorship or single proprietorship is a form of business organization initiated, organized, owned or capitalized and managed by a single person.

II.The Sole Proprietorship

Advantages of Sole Proprietorship1.Simple to organize 2.Low start-up capital3.Owner owns all profits 4.Total decision making

authority5.Easy to discontinue6.Good tax privileges

Disadvantages of Sole Proprietorship1.Unlimited personal liability 2.Limited skills and

capabilities of the sole owner

3.Limited access to capital 4.Lack of continuity for the

business

•A partnership is an association of two or more business partners who co-own a business for the purpose of making a profit.

III.Partnership

Types of Partners1. General partner – one who shares ownership and

management of the business and liable to the extent of his separate property after all the assets of the partnership are exhausted.

2. Limited partners – partners with limited financial liability and they do not take active role in the management of the firm.

3. 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 partners – they are neither active in the partnership nor they are generally known to be associated with the business.

5. Capitalist partner – who contributes money or property to the common fund of the partnership.

Types of Partners6. Managing partner – who is designed

to manage the operations of the business of the partnership.

7. Industrial partner – who contributes his knowledge or personal services to the partnership

8. Secret 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 – who is actually not a partner but is held out or represented as a partner.

10.Liquidating partner – who is designated to wind up or settle the affairs of the partnership after dissolution.

Advantages of Partnership1.Easy to establish2.Complementary skills of

partners3.Division of profits4.Large pool of capital5.Ability to attract limited

partners6.Little governmental

regulation7.Flexibility

Disadvantages of Partnership

1.Unlimited liability of at least one partner

2.Difficulty in disposing of partnership interest without dissolving the partnership

3.Lack of continuity4.Potential for personality and

authority conflict

• 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 businesses as well.

IV.The Corporation

Advantages of Corporation1.Limited liability of the

stockholders2.Ability to attract capital3.Transferable ownership4.Large pool of skills,

expertise, and knowledge

Disadvantages of Corporation1.Cost and time involved in

the incorporation process2.Taxation3.Legal restrictions and

regulatory red tape4.Potential loss of control by

founders of the corporation

• 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.

V. The Cooperative

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 membership2. Democratic control3. Limited interest on capital4. Division on net surplus5. Cooperative education6. Cooperative among cooperatives

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 among cooperative organizations. The cooperative can also source its stocks or inventories from suppliers who offer concessionary terms to cooperatives. The ability to provide direct benefits to its members and the entire community.

• The disadvantage of the cooperative as an organizational vehicle is its inequality of profit distribution with the same returns to all the members including those who did not spent much efforts for it.

Types and Categories of Cooperatives

1. Credit cooperative – promotes thrift and savings among its members in order to grant loans for production and provident purposes.

2. Consumers cooperative – is for the primary purpose of procuring commodities in bulk and retail the same to the members and non-members.

3. Producers cooperative – is organized to undertake a production-oriented concern may it be agricultural or industrial in nature.

Types and Categories of Cooperatives

4. Service cooperative – 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 the non-members in the community.

5. Marketing cooperative – engages in the supply of production inputs to members and market their products.

6. Multi-purpose 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

1. Initial capital2.Taxation and government

regulations3.Exploitation4.Growth, expansion, merger

and sale

VII.General requirements and procedures for registration 1.Registering a single

proprietorship2.Registering a partnership3.Registering a corporation4.Registering a cooperative

• 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 ownership, a question as to what form of business organization is the best to adapt.

XI.The Best Format of Ownership

Thank You!