Forms of Business Organization

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Forms of Business Organization. Arnel Doctolero. Cooperatives. Sole Proprietorships. Business owned (and usually operated) by one person Simplest form of business ownership Most popular form of business organization – 87.2% of all Most common in: Retailing Service Agriculture.
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Forms of Business Organization ArnelDoctolero Cooperatives Sole Proprietorships
  • Business owned (and usually operated) by one person
  • Simplest form of business ownership
  • Most popular form of business organization – 87.2% of all
  • Most common in:
  • Retailing
  • Service
  • Agriculture
  • Sole Proprietorship -- Advantages
  • Ease of Startup
  • Little legal documentation
  • No co-owners to consult
  • Least expensive to start
  • Pride of Ownership
  • Retention of profits
  • Flexibility
  • No Business Income Tax
  • Sole Proprietorship -- Disadvantages
  • Unlimited Liability
  • Limited Life – Business ends when owner leaves the business
  • Limited Access to Start-up Capital
  • Limited Access to Credit
  • Limited Management Expertise
  • Difficulty in Hiring Employees
  • Proprietor not considered an employee
  • Partnerships
  • Two or more owners
  • Least numerous form – 7.7% of all businesses
  • Partnership Agreement
  • Specifies rights and obligations of partners
  • If written, called the Articles of Partnership (Articles of Co-partnership)
  • Partnership -- Advantages
  • Greater Access to Capital
  • Greater Access to Credit
  • Retention of Profits
  • More Management Expertise
  • No Business Income Tax
  • Partnership -- Disadvantages
  • Shared Profits
  • Unlimited Liability for “General Partners”
  • Each partner has “Agency” power
  • Limited Life
  • Business ends when any partner withdraws
  • Management Disagreements
  • Frozen Investment
  • Types of Partners
  • General Partner
  • Unlimited Liability
  • Assumes Management Role
  • Limited Partner
  • Liability limited to Investment
  • May not take active managerial role
  • Every partnership must have at least one general partner
  • Types of Partners
  • General Partnership
  • All partners are general partners
  • Limited Partnership
  • One or more limited partners
  • Master Limited Partnership
  • Owned & managed like a corporation
  • Taxed like a partnership
  • Shares may be sold
  • Corporations
  • Generally larger than other forms
  • 32.8 % along the entire business company
  • Account for 57.2% of all Business Income
  • Considered a separate legal entity
  • Owners called “Stockholders” or Shareholders”
  • Ownership evidenced by “Stock Certificate”
  • Governed by “Board of Directors”
  • Corporations -- Advantages
  • Limited Liability
  • Ease of Ownership Transfer
  • Unlimited Life
  • Greater Access to Capital
  • Specialized Management Expertise
  • Corporations -- Disadvantages
  • More difficult & costly to form
  • Requires a “Corporate Charter”
  • Subject to greater governmental scrutiny
  • Diluted earnings
  • Double taxation
  • Corporations vs. Sole Proprietorships SPCorp Income 1,000,000 1,000,000 Expenses 500,000500,000 EBT 500,000 500,000 (Assume Business Tax Rate = 50%) Business Tax 0250,000 Net Profit 500,000 250,000 (Assume a 30% Personal Tax Rate) Personal Tax 150,000 75,000 to Owners 350,000 175,000 Corporate Charter
  • Legal Permission to Operate as a Corporation
  • Issued by state
  • May not conduct business as a corporation without a charter
  • Contents of a Corporate Charter
  • Company Name & Address
  • Names & addresses of Incorporators
  • Purpose of the Corporation
  • Maximum amount of stock & Classes of Stock to be issued
  • Rights & Privileges of stockholders
  • Length of time the corporation is to exist
  • Stockholder Rights
  • Common Stock
  • Votes in corporate matters
  • One vote per share owned
  • Preferred Stock
  • No voting rights
  • Dividend claims are paid 1st
  • Dividend
  • Distribution of earnings to the stockholders of a corporation
  • Organizational Chart Types of Corporations
  • Government-Owned Corporation
  • aka “Public Corporation”
  • Owned & operated by government
  • Post office, PNOC, PAGCOR
  • Quasi-Government Corporation
  • Aka “Quasi-Public Corporation”
  • Privately owned, government controlled monopoly
  • Public utilities, Fannie Mae, Freddie Mac, Sallie Mae
  • Private Corporation
  • Owned by individuals or other companies
  • Types of Corporations
  • Not-For-Profit Corporation
  • Organized to provide a social, educational, religious, or other service
  • Habitat for Humanity, Red Cross
  • For-Profit Corporation
  • Closed Corporation
  • Stock owned by relatively few people
  • Stock not sold to general public
  • Open Corporation
  • Stock is bought and sold on security exchanges
  • Can be purchased by any individual
  • Types of Corporations
  • S-Corporation (Subchapter-S Corporation)
  • Corporate structure designed for small business
  • Taxed as a partnership if there are 75 or fewer stockholders
  • No non-resident alien stockholders
  • Only one class of stock
  • Limited-Liability Company (LLC)
  • Combines the benefits of a corporation & partnership
  • Not limited to 75 stockholders
  • Mergers & Acquisitions
  • Hostile takeover
  • Types of mergers
  • Horizontal: Similar products / services
  • Vertical: Different but related firms
  • Conglomerate: Completely different industries
  • Merger Trends
  • Divestiture
  • Leveraged Buyout (LBO)
  • Franchising
  • Franchise
  • License to operate an individually owned business as though it were part of a chain of outlets or stores
  • The business itself
  • Franchising
  • Actual granting of a franchise
  • Franchising
  • Franchisor
  • Supplies a known & advertised business name
  • Supplies management skills
  • Supplies training & materials
  • Supplies method of doing business
  • Franchisee:
  • Supplies labor & capital
  • Operates the franchised business
  • Agrees to abide by the franchise agreement
  • Franchising Advantages
  • Franchisor
  • Fast, Selective Distribution
  • Motivated Franchisee
  • Franchisee
  • Opportunity to start a business
  • Business Experience of others
  • Nationally recognized name
  • National promotional campaigns
  • Franchising Disadvantages
  • Mainly from Franchisee’s Viewpoint:
  • Franchisor’s contract can dictate every aspect of the business
  • Pay for security
  • Long hours
  • Competition from same company
  • The Philippine Cooperative Movement: Problems and Prospects (1986 – present) People Empowerment and Cooperative Movement
  • People empowerment is the correct path in solving the problems of poverty and income inequity.
  • It is the process of transferring economic and social power from one center to another and/or the creation of a new center complementary to or in competition with the traditional center (H. Morales).
  • Cooperatives and other labor enterprises are among the major pillars of the people empowerment movement (Sibal, 1991).
  • This movement aspires for a strong pro-people mixed economic society where the state, private and civil society sectors are harnessed in the development efforts of the society.
  • Brief History of the Philippine Cooperative Movement pillars of the people empowerment movement (Sibal, 1991). The first stage (1896 to 1941)-
  • Pre-formation- germination of coops by revolutionary illustrados
  • Formation- Raiffeisen-type agri-based coops introduced by U.S. missionaries and teachers and western-educated Filipinos
  • State-initiated farmers coops by the American colonial administrators.
  • Second stage (1941 to 1986), pillars of the people empowerment movement (Sibal, 1991). 5 phases
  • 1st phase (Japanese occupation)- rapid increase in cooperatives as a result of food shortages
  • 2nd phase- Rehabilitation period after WW II
  • 3rd phase- Resurgence of the state-initiated coops)
  • 4th phase- Introduction and rise of the non-agricultural coops
  • 5th phase- Martial law period and the “politization” of the coop movement.
  • 3 pillars of the people empowerment movement (Sibal, 1991). rd stage of the Philippine coop movement (1986 to present)
  • Emerged as a potent political force
  • 1998 party list elections, elected 3 sectoral representatives
  • 2010, 5 Party list representatives in the Philippine Congress
  • Various cooperative laws were codified under RA 6938 in 1990 and amended by RA 9520 in 2009.
  • 3 pillars of the people empowerment movement (Sibal, 1991). rd stage of coop movement (1986 to present)- Highlights
  • The coop movement’s involvement in parliamentary struggle avoided “politization” and too much state intervention under the principle of subsidiarity.
  • Operating coops increased by 393 percent from 1983 to 1993, and by 540 percent from 1993 to 2009.
  • The coops’ businesses shifted to higher value added multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009.
  • The movement’s contribution to the country’s GDP has reached 5.14 percent in 2007.
  • Pres. multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009Pnoy’s Path of Inclusive Growth
  • The focus of President PNoy Aquino’s Philippine Development Plan is an “inclusive growth” strategy.
  • It means active participation of the citizenry in the country’s growth and a major beneficiary at the same time (ILO, 2010).
  • It is focused in maximizing job creation in reducing poverty. Hence, the role of the cooperative sector is a vital component in this national endeavor.
  • Table 1. Philippine Cooperatives, 1939-2009 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009 Sources: 1939-1985- Gray Wine Think Tank, 1993- CDA, 2009- CDA & DOF *1993 (Braid) & 2009 membership covers only confirmed coops Chart 1- Phil. Cooperatives-1939-2009 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009(Number, No. Confirmed, Members and Assets) 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • The total registered cooperatives increased dramatically by 7.5 times from 1985 to 1993 compared to an increase of only a little over 3 times from 1993 to 2009 (Table 1 & Chart 1).
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights The performance of operating cooperatives increased by 3.9 times from 1985 to 1993, and 5.3 times from 1993 to 2009.
  • This means that more cooperatives are becoming viable after they are registered in 1993-2009 compared to those registered in 1985-1993.
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • The increases in the number of operating cooperatives were bigger in multipurpose cooperatives at 790 percent in 2009, followed by services at 448 percent, producers at 316 percent and marketing at 235 percent. Credit was steady at 157 percent in 2009 (Table 1).
  • Cooperatives now engage in higher value processes compared to lower value processes involved in credit and consumer store operations.
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • Compared to the first and second stages of the coop movement where the government initiated and organized coops for political and anti-insurgency purposes, the third stage of the coop movement avoided these past mistakes with the government supporting the movement with emphasis on the principle of subsidiarity or non-interference on internal coop affairs.
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • Cooperatives during the third stage of the coop movement became more viable and productive. There were lesser coop failures. The operating coops grew rapidly since the total assets of the coop movement leaped from a measly P1.05 Billion in 1985 to P118.4 Billion in 1995, and to P176 Billion in 2009.
  • Table 4. Total Assets of Operating Cooperatives (2009) multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009 Source: CDA and DOF 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • Micro coops dominate the coop sector at 84 percent. If combined with small coops, their numbers reach up to 95 percent. Their assets however total only 14.5 percent compared to the large coops which number only 1 percent but own 64 percent of the total assets.
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • The good thing about this is that micro coops, even with small capitalization, are able to provide more jobs to the poor. Large coops, on the other hand are able to engage in higher value production processes as shown in Tables 3 and 4.
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • The concept of “big brother, small brother” cooperation among cooperatives is necessary.
  • Federation and union work has now become very crucial in furthering the growth of the coop movement.
  • Big coop primaries and federations need to merge or consolidate like the NATCCO-MASS-SPECC consolidation plan in 2012.
  • 3 multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009rd stage of coop movement (1986 to present)- Highlights
  • The big coops, acting as big brothers, need to harness the capabilities of micro and small coops by technology transfers and joint cooperative business ventures like the MICOOP program of the NATCCO.
  • Other new trends in coop business ventures include branding of coop products and services, franchising or networking arrangements, or even outsourcing.
  • Performance of coops in the regions multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009
  • Davao (Region XI) highlights the coop movement’s successes in the regions.
  • leads in coop membership at 54.4% of the population of 19 years old and above.
  • with 1.2 million members, it has an average coop membership of 523 per cooperative
  • contributed nine percent to the region’s GDP, following Socsargen (Region XII) at 12% contribution to the regional GDP and Western Visayas (Region VI) at 4.5% contribution to the regional GDP (Tables 5 and 6).
  • Performance of coops in the regions multi-purpose coops and its total assets leaped from a measly P1.05 Billion in 1985 to P176 Billion in 2009
  • Bicol (Region V) and Southern Tagalog (Region IV) are the least performers in coop membership and in regional contribution to GDP.
  • Region IV is a fast growing region in manufacturing and services, hence coops cannot compare with the output of big manufacturing enterprises.
  • Bicol region, being a depressed region in terms of manufacturing, needs more intense coop development to help empower the poor.
  • Table 5- Membership of Operating Cooperatives by Region, 2009 (Top 5 and Bottom 3) Source: CDA and DOF * Population of 19 years old and above Table 6- Cooperative Contribution to the GDP, 2007 using the income approach Source: CDA and DOF Problems of the Coop Movement income approach 1. Lack of education and training[1] 2. Lack of capital 3. Inadequate volume of business 4. Lack of loyal membership support 5. Vested interest and graft and corruption among coop leaders 6. Weak leadership and mismanagement 7. Lack of government support *From more than 80 researches which assessed the growth and development of coops which included the studies of Emmanuel Velasco, the Cooperative Foundation of the Philippines, Inc. (CFPI) and Leandro Rola (1989). Challenges for the coop movement (NATCCO) income approach
  • Quality growth
  • Consolidation
  • Differentiation
  • Social relevance
  • National, market presence
  • Poor image- The image of coops is small, inefficient, individual performers with low standard of service, or an image of a jeepney.
  • Problems of the cooperative movement income approach
  • A large number of cooperatives remain unviable. Only 23,836 or 30 percent of the 78,611 registered coops in 2009 are reporting/operating.
  • There is a need to further strengthen coop education and training through the coop federations, councils and unions, NGO training centers, state colleges and universities, etc.
  • Problems of the cooperative movement income approach
  • Under RA 9520, all officers (including directors) are required to undergo training conducted by cooperatives, federations and/or other trainers or training institutions duly accredited by CDA.
  • The training modules/curricula prescribed by CDA are: Basic Cooperative Course; Cooperative Management and Governance; Policy Development; Financial Management; Parliamentary Procedure; Leadership and Values Re-Orientation; Strategic Planning; and Labor and Other Related Laws.
  • Problems of the cooperative movement income approach 2. With globalization, small, medium and big coops are exposed to strong competition.
  • Electric coops are threatened by private electric utility distributors for possible buy-ins. Coop rural banks have not grown, some are in difficult situation and have not coped up with the trends in the banking industry. Consumers’ coops (mostly university and institution-based) are caught in a competitive squeeze.
  • Problems of the cooperative movement income approach 3. Unionization in some medium and big size coops continues. This implies that the coop management practices in some cooperatives are still very reactive and less participative.
  • This has affected some electric coops and large producer coops in Batangas. RA 9520 mandates additional committees of Mediation and Conciliation, and Ethics.
  • Problems of the cooperative movement income approach 4. Agri-based cooperatives like those in the agrarian reform communities and plantations are not showing improvement in productivity.
  • Some are mismanagement. Strong support services are needed in order to preserve the gains of the coop movement under the Comprehensive Agrarian Reform Law (CARL).
  • Problems of the cooperative movement income approach 5. The mentality of relying state protectionism, parochialism and close-doorism still prevails among many cooperatives.
  • The present policies of the state have changed and subsidies are being done away with especially during these times of fiscal deficits and global financial crisis. Those that will be affected are the electric, transport, water and irrigation coops.
  • Prospects of the cooperative movement income approach 1. President PNoy Aquino is cooperative friendly. Some key players in the administration are advocates of cooperativism. President PNoy pledged to “continue the revolution that my mother (President Cory) and others started in making entrepreneurship among the poor a strategy for poverty alleviation".
  • Planning Secretary Cayetano Paderanga- “Cooperative development would create
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