Topic 6

Forms of Business
Dennis B. de Jesus
Instructor
There are only 3 traditional sectors,
public, social, and private.
Inception
of the
venture

Legal
Concepts
Growth
and The
Continuity ongoing
of the venture
Venture
 Primary Legal Forms of Organization

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 Primary Legal Forms of Organization
A. SOLE PROPRIETORSHIP
Owned, registered and controlled by one person
The 5 characteristics :
Sole owner of the business.
Sole decision maker.
Can wrap up the business anytime.
Unlimited liability.
No legal entity.
When a business has no legal entity, the owners may face more
personal risk, as their personal assets are not protected from
business liabilities. Additionally, the business cannot own property,
enter contracts, or take legal actions in its own name.

(i.e. the business owner is personally liable for all the debts
and losses of the sole proprietorship)
PARTNERSHIPS

A formal agreement made by persons to jointly

manage and operate a company.
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 B. PARTNERSHIP

GENERAL PARTNERSHIP
a business arrangement by which two or more individuals agree to share
responsibilities, assets, profit of a jointly-owned business.

Each individual partner assumes full responsibility for all the business's
debts and obligations. (financial and legal liabilities)

This is sometimes called unlimited liability. This means a business

owner's personal assets can be used to settle business debts.
LIMITED PARTNERSHIP
A partnership with two different types of business owners.
These types include a general partner and the limited partner.

Limited partners invest money but have limited power over the business.

The general partner retains the right to control the business while
The limited partner(s) do not take part in management decisions.
Both general and limited partners enjoy business profits

A limited partnership allows each partner to restrict their liability, which

depends on the amount of their initial business investment.
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LP vs GP
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LIMITED LIABILITY PARTNERSHIP
(LLPs) are like limited partnerships, but they give some
liability protection to all partners. LLPs keep the tax advantages
of the general partnership form. At the same time, they offer
some personal liability protection to the participants.

In an LLP, business owners have protection against business debts.

Individual partners in an LLP are not personally responsible for the

wrongful acts of other partners.

They are also not responsible for the debts or obligations of the business.
Most LLPs are created and managed by a group of professionals who
have a lot of experience and clients among them.
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C. CORPORATION
 Corporations are a type of business entity that offers liability
protection to its owners. This means that personal assets, like
houses and cars, are separate from the business's debts.

 It offers more liability protection than sole proprietorships and

partnerships.

 Corporations are relatively limited liability partnerships.

 Owners of the corporation are called

SHAREHOLDERS/STOCKHOLDERS
Who operates a Corporation?

How to be a
part of a
corporation

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C. CORPORATION
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 A co-op is a business or organisation that’s
owned and controlled by its members, to meet
their shared needs and economic interests.
The members can be its customers, employees,
residents of local communities or suppliers, who
have a say in how the co-op is run.

Co-ops are owned by the people closest to the

business, not distant investors only interested in
a financial return. This means co-ops focus not
just on making a profit, but how they made it and
what they do with it to bring value to their
members and community.

Co-ops across the world are based on

shared values and principles.
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Common types of cooperatives include producer/marketing, retail supply, utilities,

cable television, agricultural services, fish marketing, childcare, farmers' markets and
community service.
 BUSINESS REGISTRATION
•It is essential for a Partnership or a Corporation to
register with the SEC in order for them to be treated as
a legal or judicial entity. All cooperatives are required
to register with the CDA as per Republic Act 6938/6939.

•SEC – Securities and Exchange Commission

•CDA – Cooperative Development Authority

•For Sole Proprietorships,

•DTI – Department of Trade and Industry

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Sole Proprietorship
The easiest type of business to establish or take apart. Ex: SSS
-due to a lack of government regulation, lesser investment and other requirements

SARI SARI STORE

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 Corporation Buy stock options
s
Many entrepreneurs choose this It offers more liability
structure over others because of protection than sole
the benefits it offers. proprietorships and
partnerships.

Corporations are separate and distinct from their owners. In a corporate

business structure, shareholders have the right to earn profits, but they
are not held personally or financially liable for the company's debts.
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Methods to Initiate Ventures
The Pathways to New Ventures for
Entrepreneurs
Creating the
new venture

Pathways
to New
Ventures
Obtaining a
Acquiring
Franchise Existing
Venture
 Niche
A specific part
of a target
market
 Preferences in choosing a venture
Personal Preferences
Recognize certain personal factors and to limit their
choices of ventures accordingly

An entrepreneur’s background, skills, interests

and experience are all important factors in
selecting the type of business to start
 Examining the Financial Picture
Upside gain and downside loss expectations
 This term refers to the profits the business can make
and the losses it can suffer.
How much money will the enterprise take in if
everything goes well?
How much will it gross if operations run as
expected?
How much will it lose if operations do not work out
The owner has to keep in mind that the upside gain may
well?
be minimal, whereas the downside loss may be great.
 Examining the Financial Picture

Risk vs. Reward Analysis

 Examine the overall gains and losses.
Points out the importance of getting an
adequate return on the amount of money
risked
The entrepreneur must be flexible. If something does not
work out, a contingency must be significant
Examining the Opportunities in buying an
existing venture

Reduced time and

effort

Less fear
about
successful Advantage Purchasing at
future of a good Price
operation acquiring
an
ongoing
venture
 Asking Key Questions

Why is the business being sold?

What is the physical condition of the business?
What is the condition of the inventory?
What is the state of the firm’s other assets?
How many employees will remain?
What type of competition does the business face?
What does the firm’s financial picture look like?
 Examining the Opportunities
Business brokers: Professionals specializing in
business opportunities can often provide leads and
assistance in finding a venture for sale.
Trade sources: Suppliers, distributors, manufacturers,
trade publications, trade associations and trade schools
may have information about businesses for sale.
Professional sources: Professionals such as
management consultants, solicitors and accountants
often know of businesses available for purchase.
 Negotiating the Deal

This negotiation process, however, involves several

factors.
Four critical elements should be recognized:
1. Information: can empower negotiators to make
informed decisions
2. Time: Often a limited resource in negotiations.
3. Pressure: External and Internal
4. Alternatives.
 Negotiating the Deal - BATNA
4.Alternatives
Understanding the other party's
BATNA can also be valuable, as
it provides insight into their
willingness to make concessions
or walk away from the
negotiation.

‘The 1st offer is always

not the best offer”
 Franchising a Way into Entrepreneurship
Franchise
A right to sell a company's products/services in a particular area using the
company's name and business model:
Franchisee
A purchaser of a franchise
Franchisor
The seller of the franchise
Franchise fee
 a one-time payment as license to own and operate the franchise.
Franchise Agreement
• a legally binding contract. It sets out the rules of the franchising relationship
that both the franchisor and franchisee have agreed to.
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 Can we be partners
and buy a
franchise?

Which is better? Which is more achievable?

Become a Franchisor or a Franchisee?
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Do you see a significant disadvantage of being a
franchisor?
Basic requirements 250M net worth
End of
lesson

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