Chapter 5 : OWNERSHIP AND STRUCTURAL FORMS OF BUSINESS ENTERPRISE

EDDIE T. ABUGBSE-TLE

Chapter 5 : OWNERSHIP AND STRUCTURAL FORMS OF BUSINESS ENTERPRISE

BUSINESS MANAGEMENT

OWNERSHIP IS A LEGAL TERM = IT MEANS THE LEGAL TITLE TO A THING OR CONTROL OVER THE THING OWNED.= THE RIGHT OF THE POSSESSION (OF THE ASSETS OF THE ENTERPRISE)= THE POWER TO DETERMINE THE POLICIES OF THE OPERATION.= THE RIGHT TO RECEIVE AND DISPOSE OF THE PROCEEDS.

3 BROAD CLASSIFICATIONOF BUSINESS ENTERPRISES

(or the TYPES OF OWNERSHIP IN BUSINESS)

1) PRIVATE OWNERSHIP 2) PUBLIC OWNERSHIP 3) MIXED OWNERSHIP

1) PRIVATE OWNERSHIP

= WHEN AN ENTERPRISE IS SO ORGANIZED THAT PRIVATE INDIVIDUALS EXERCISE AND ENJOY THE RIGHTS AND PRIVILEGES OF AN OWNER IN THEIR OWN INTEREST.

2) PUBLIC OWNERSHIP= WHEN THE ORGANIZATION OF THE ENTERPRISE IS EFFECTED AND MANAGEMENT IS CONTROLLED BY POLITICAL BODIES AS A MUNICIPAL, PROVINCIAL, OR NATIONAL GOVERNMENT OR BY ANY INSTRUMENTALITY CREATED BY THEM.

3) MIXED OWNERSHIP= EXISTS WHEN THE ELEMENTS OF OWNERSHIP ARE DIVIDED SUCH THAT PRIVATE PERSONS AND PUBLIC BODIES SHARE IN THE OPERATION OF THE SAME ENTERPRISE.

5 BASIC FORMS OF PRIVATE OWNERSHIP

(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS)

1. INDIVIDUAL OR SINGLE OR SOLE PROPRIETORSHIP 2. PARTNERSHIP 3. COOPERATIVE ORGANIZATION 4. CORPORATION AND 5. CORPORATE COMBINATION

THE CHOICE DEPENDS UPON CAREFUL CONSIDERATIONOF A NUMBER OF FACTORS

A) THE NATURE AND THE SIZE OF THE BUSINESS TO BE STARTED.B) THE CAPITAL REQUIRED AND THE MEANS OF PROCURING IT.C) THE LENGTH OF TIME THE ENTERPRISE IS EXPECTED TO OPERATED.D) THE TECHNICAL CONDITIONS AFFECTING THE ENTERPRISE.E) THE TYPES OF PRODUCTS TO BE MANUFACTURED.F) THE METHOD AND VOLUME OF PRODUCTION.G) THE KIND OF MARKETS TO BE SUPPLIED AND METHODS OF MARKETING.H) THE COMPETITIVE NATURE OF THE CHOSEN INDUSTRY.

(1st) BASIC FORMS OF PRIVATE OWNERSHIP

(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS) 1. INDIVIDUAL OR SINGLE OR SOLE PROPRIETORSHIP = Ownership vested on (controlled by) one person. = Small, requires but little amount of capital. = Promotes the enterprise, gets together necessary land, buildings, machinery and labor. = Conducts the business in person. = He owns the business outright.

Many enterprise start as sole proprietorship. Later they expand into larger forms as business prospers and increased resources of the owner permit.

Many enterprise start as sole proprietorship. Later they expand into larger forms as business prospers and increased resources of the owner permit.

BASIC FORMS OF PRIVATE OWNERSHIP

(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS)

INDIVIDUAL OR SINGLE OR SOLE PROPRIETORSHIP

ADVANTAGES1. It is easy to start and to terminate. (BUSINESS ORG. &

MANAGEMENT)2. Control or management lies

entirely in the hands of the owner.

3. Only a small amount of capital is required in starting.

4. Profits belong entirely to the owner.

5. High credit standing.

DISADVANTAGES(shortcomings)

(OWNER AND STRUCTURAL FORMS OF BUSINESS)

1. Limited judgment and wisdom.

2. Limited amount of capital.3. Unlimited Liability.4. Difficulties of Management.

BUSINESS ORGANIZATION AND MANAGEMENT

BUREAU OF COMMERCE SECURITIES AND EXCHANGE COMMISSION

SOLE PROPRIETORSHIP

PARTNERSHIP CORPORATION

1953 5,958 698 586

1954 6,675

681 605

1955 4,854 505 657

1956 4,106 596 927

1957 4,161 610 913

1958 4,623 694 968

1959 5,232 734 1,086

These figures present only part of the complete story. There are thousands upon thousands of single proprietorships that never register with the Bureau of Commerce.Ex. Sidewalk vendors, Sari-sari stores, balut-vendor, halo-halo especially during summer, samalamig and many more.

(2nd) BASIC FORMS OF PRIVATE OWNERSHIP 2. PARTNERSHIP As business expands and develops the inherent limitations and disadvantages of a single proprietorship, lead to development of other forms of ownership. The Partnership organization is formed.

ARTICLE 1967 of the CIVIL CODE Defines a PARTNERSHIP as an organization where “two or more person bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. CLASSIFIED INTO 21. AS TO OBJECT 2. AS TO LIABILITY 2 FORMS 2 FORMS a. Universal=contribute all property a. General Partn.= (old) b. Particular=acquire thru industry = contractual relationship

or effort b. Limited or Special Partn.

AGREEMENT AND CONTROL OF PARTNERSHIP

* Formed by oral or written agreement (shares and profits) * (written) Reliable attorney officiate the signing * (law) real property and capital above P.3,000.00 should have a public document as evidence of the partnership contract.* Equal control of the business held jointly by the partners. PROFITS AND LOSSES SHARING (IN WRITING) RATIO 2:1 1Partner rcvd. 2/3(profit) shoulder 2/3(losses)

(w/o writing aggreement) Losses shared equally.

PARTNERSHIP

ADVANTAGES

1. IT COULD BE AS EASILY FORMED AS THE SINGLE PROPRIETORSHIP. (IN WRITING/ORAL)2. THERE ARE MORE PERSONS TO CONDUCT

THE BUSINESS AND TO HANDLE ITS PROBLEMS.

(CAN BE OPERATED ON LARGER SCALE)3. A PARTNERSHIP HAS ACCESS TO GREATER

CREDIT FACILITIES. (BANKS/CREDIT INST. WILLING TO LEND. RAW MATERIALS AND SUPPLIES “CREDIT)4. THE COMBINED ABILITITY AND

RESOURCES OF PARTNERS ARE A SOURCE OF STRENGTH.

(COMBINED EFFORTS)5. RETENTION OF VALUABLE EMPLOYEES. ( AS PARTNERS ALSO)

DISADVANTAGES

1. UNLIMITED LIABILITY OF PARTNERS. (LAW- PARTNERS ARE LIABLE FOR ALL DEBTS)2. DISAGREEMENT BETWEEN PARTNERS

OFTEN LEAD TO DELAY AND DIFFICULTIES WHICH COULD ENDANGER THE ENTERPRISE.

3. EASY DISSOLUTION. (DEATH, INSANITY AND INSOVENCY OF A

PARTNER AUTOMATICALLY DISSOLVES THE PARTNERSHIP)

4. FROZEN INVESTMENT. (EASY TO INVEST BUT DIFFUCULT TO WITHDRAW

THE FUNDS)

THE LIMITED PARTNERSHIP TO AVOID THE UNLIMITED LIABILITY OF ALL THE GENERAL PARTNERS

IN A GENERAL PARTNERSHIP, THE LIMITED PARTNERSHIP WAS EVOLVED.

2 KINDS OF PARTNERS 1. GENERAL PARTNERS = 1 OR MORE PARTNERS IN A LIMITED PARTNERSHIP MUST BE GENERAL PARTNERS, WHO HAVE UNLIMITED LIABILITY.)2. THE SPECIAL PARTNERS OF LIMITED PARTNERS = WITH A LIMITED LIABILITY UP TO THE EXTENT OF THEIR INVESTMENT. = THEY TAKE NO ACTIVE PART IN THE MANAGEMENT. = THEY CONTRIBUTE CAPITAL BUT THEIR NAME DOES NOT APPEAR.

THE LIMITED PARTNERSHIP

ADVANTAGES

1. THERE IS A SINGLE DIRECTION OF MANAGEMENT,

THUS THERE IS UNITY AND PROMPT ACTION.

2. THE LIMITED LIABILITY OF SPECIAL OR LIMITED PARTNERS,

SERVES AS GOOD INDUCEMENT

DISADVANTAGES

1. The unlimited power given to general partners may result in abuse.The special partners could not interfere in the management of the partnership even if there is inefficiency in management.Only when FRAUD exits or when there are clear violations of the partnership agreement.

2. There is the possibility of collusion among the general partners to defraud the creditors and the limited or special partners.

KINDS OF PARTNERS

1. GENERAL PARTNER (DEFINED)

2. LIMITED PARTNER (DEFINED)

3. CAPITALIST PARTNER = CONTRIBUTES Money or Property.

4. INDUSTRIAL PARTNER = Services, Talents, Skills, and Abilities but not property.

5. MANAGING PARTNER =ADMINISTERS the operations. MANAGES business directly.

6. LIQUIDATING PARTNER =HANDLES the affairs of the dissolution of the business.

7. OSTENSIBLE PARTNER =Publicly makes known his connections with a partnership.

8. SECRET PARTNER =Not Publicly made known.

9. SILENT PARTNER =Is Not Given a Voice in the Management.

10. DORMANT PARTNER =Secret and Silent.

11. NOMINAL PARTNER =For Prestige Purpose Only.

A PARTNERSHIP IS DISSOLVED BY : 1. DEATH OR INSOLVENCY OR INSANITY. 2. EXPULSION IN GOOD FAITH. 3. INABILITY

PARTNER : SENIOR JUNIOR

* A general partner who has a substantial investment in the firm. * Receives a relatively larger percentage of the profits. * By virtue of age and years of association with the firm, assumes a major role in the management .

(Opposite of a Senior Partner)

*A young man*Recently Admitted*Small Investment*Minor share-profit*Minor Decision Making

(3rd)BASIC FORMS OF PRIVATE OWNERSHIP

(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS)

3. COOPERATIVE ORGANIZATION A Cooperative association has some elements of a large partnership and also many features of a corporation.

Principal Theory: Elimination of profit as the controlling motivation and reduction of certain economic evils.

Under the Cooperative System, enterprises are formed: To provide goods and service, to the members at cost.

From a point of view of ownership A Cooperative is a business org. w/c is owned by the people it serves. Owners are also customers

A simple asso./ chartered org. Members buy shares. (amt. limited in the by-laws)

Operated/Conducted; Same was an ordinary profit-making company operates.

Profits accrue; Returned to the members not on the basis of ownership but of participation.

KINDS OF COOPERATIVE ORGANIZATION( 4 GENERAL CLASSIFICATION)

1. THE CONSUMER’S COOPERATIVE Members = from gen’l.public. Retail Trade Operation = grocery, cloth store, gasoline station *Barber shop coop. *restaurant coop. *transport. Coop. 2. THE PRODUCERS’ COOPERATIVE

Members = producers of grains and other farm products. livestock, fruits and dairy products. Wholesale = eliminates middleman’s profit.3. THE MARKETING COOPERATIVE

Closely related to producers’ coop. (eliminates middle man)Ex. Batangas Citrus Growers & FACOMAS(farmer) have coop to sell.

4. THE FINANCING COOPERATIVETHE CREDIT UNION often called the “poor man’s bank” small means, low interest

*Building & Loan Asso. *Savings and Loans Asso. *Credit Unions(Fraternal Benefit Asso & INSURANCE=fire,health,life,autos’ employs coop.principle but not all)

PRIVILEGES OF COOPERATIVES(SECTION 5) Cooperatives shall enjoy;(a) Exemption from income taxes and sales taxes net income returned to members.

(b) areas-cooperative, right to supply rice, corn, grains etc., concerned to State Agencies administering price stabilization programmed.

(c) Exemption from the application of the Minimum Wage Law upon the recommendation of the Bureau of Coops.Devt. subject to the approval of the Secretary of Labor.

BASIC FORMS OF PRIVATE OWNERSHIP(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS)

4th BASIC FORMS OF PRIVATE OWNERSHIP(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS)

4. CORPORATIONS 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.

In advanced countries (USA)Corporate form of business ownership dominates the mfg. And

commercial fields

The Trend Towards Corporate Organization (Philippines)More and more individual proprietorships and partnerships are

turning to incorporation as a preferable form of conducting business.

NATURE AND CHARACTERISTICS OF A CORPORATION

1. It is an artificial business unit,and its creation is through the process of law. (legal existence)

2. The basic structure of a corporation is simple. (operates thru delegated authority and responsibility)

3. The corporation organization is of wide scope. (stands for group activity and combined investment of the members)

4. The existence of a corporation is practically permanent by operation of law (term of life limited-to a period of years subject to renewal/ terminated-misuse,nonuse, nonperformance obligations to the state

5. The function of a corporation is public.• (The existence is for the benefits of the public or society. While the• ownership and purpose may be for private profit.)

..

KINDS OF PRIVATE CORPORATION

1. STOCK CORPORATION = Is one which the capital stock is divided into shares,

authorized to distribute dividends to the holders of the shares, or allot the surplus profit on the basis of the shares.

2. NON-STOCK CORPORATION = Is one in which the capital stock is not so divided

It issues certificates of stock which in reality are merely certificates of memberships.

*

These certificates cannot be transferred except to members and only upon the members’ death.

Stockholders of a stock corporation are issued certificates of stock which are written acknowledgements by the corporation of the stockholders’ interest in the corporation and its property.

The stock itself, however, is the proportionate unit of the capital stock and represents the interest of the owner in the management, surplus, profits, and in the property and assets after dissolution and payment of liabilities.

ARTICLES OF INCORPORATION (approved by the SEC) = The authorized capital stock of a corporation (STOCK) “SUBSCRIBED” = When stockholders agree to take some of the capital stock and to pay for it. “PAID-UP CAPITAL” = Once it is paid for.

CLASSES OF CAPITAL STOCK

1.THE COMMON STOCK 2. THE PREFERRED STOCK

THE COMMON STOCK

*P5, P10 being common values(par values) impt. In determining-dividends *does not represent its true market value. (par v.=P.10,000) (property P.7,000 only) *CORP.20years in business (par value=P.100) = (sell for = P.1,000 each in market)

NO PAR STOCK *In the case of non-par stock, the corporation is not compelled to sell the stock at any particular price, for instance no-par stock may have sold for P.60.00*Since money is needed the company can sell at P. 40.00

*Is the ordinary stock representing the basic ownershipPAR VALUE=is the amount printed on the stock certificate. *A corporation may elect to issue common stock with an assigned face value(par) of w/o an assigned face value(no par) stock.

THE PREFERRED STOCK=As its name implies, gives the owners special protection or advantages over the common stock holders.

CLASSIFICATION OF PREFERRED STOCK1. PREFFERED AS TO DIVIDENDS (certain agreed dividend)

2. PREFERRED AS TO ASSETS (in case of dissolution)3. PREFERRED AS TO BOTH DIVIDENDS AND ASSETS4. CUMULATIVE PREFERRED (preferred dividends for the past year will-paid 1st. )

5. CALLABLE (retired any time or at a specific time in the certificate then it is)

6. CONVERTIBLE (converts the callable pref.stock to common stock)

FINANCING INSTITUTION (GSIS,SSS) = insist the right to vote for their preferred shares and also ask to have a

representative sit on the corporation board of directors.

THE USUAL LEGAL STATUS OF PREFERRED STOCKIs that it is cumulative as to dividends, non-participating and possesses voting power.

CORPORATE OWNERSHIP AND CONTROL*THE ULTIMATE CONTROL OF THE CORPORATION RESTS IN THE HANDS OF THE STOCKHOLDERS.

ADVANTAGES OF THE CORPORATION1. EASE OF ACQUIRING

LARGE AMOUNT OF CAPITAL

2. FLEXIBLE OWNERSHIP3. LIMITED LIABILITY OF

STOCKHOLDERS4. MORE OR LESS

PERMANENT EXISTENCE5. LEGAL ENTITY

DISADVANTAGES OF CORPORATE OWNERSHIP

1. ORGNIZATIONAL EXPENSES

2. GOV’T. RESTRICTIONS AND REPORTS

3. LACK OF PERSONAL INTEREST

4. LACK OF SECRECY

4th BASIC FORMS OF PRIVATE OWNERSHIP(OWNERSHIP & STRUCTURAL FORMS OF BUSINESS)

5. THE CORPORATE COMBINATION =THE COMBINING OF TWO OR MORE CORPORATIONS. =UNDER THE CONTROL OF ONE OWNERSHIP INTEREST.

AMONG THE

CORPORATE COMBINATIONSTHAT MAY BE MENTIONED

ARE THE MERGER,

AND THE TRUST.

THE MERGER

THE

TRUST

=SOMETIMESCALLED

“INTEGRATION”.=THE UNION

EFFECTED BYTHE ABSORBING OF ONE OR MORE EXISTING

CORPORATIONSBY ANOTHER

BY WHICHSURVIVES AND

CONTINUES THE COMBINED

BUSINESS.

=HAD ITS ORIGININ A PRINCIPLE

OF LAWORIGINALLYDEVELOPED

FOR SAFEGUARDINGTHE PROPERTY

OF MINORSAND OTHER

PERSONSNOT ABLE

OR WILLINGTO ADMINISTER

THEIR OWNAFFAIRS.

BSE-TLE

THANKYOU