Legal Forms of Business Organizations

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Arnel Doctolero
Legal Forms of
Business
Sole Proprietorships
Partnerships
Corporations
Cooperati
ves
General Partnership
Regular Corporation
Limited Partnership
Subchapter S
Corporation
(S-Corporation)
Master Limited
Partnership
 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
 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
 Unlimited Liability
 Limited Life – Business ends when owner leaves the




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business
Limited Access to Start-up Capital
Limited Access to Credit
Limited Management Expertise
Difficulty in Hiring Employees
Proprietor not considered an employee
 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)
 Greater Access to Capital
 Greater Access to Credit
 Retention of Profits
 More Management Expertise
 No Business Income Tax
 Shared Profits
 Unlimited Liability for “General Partners”
 Each partner has “Agency” power
 Limited Life
 Business ends when any partner withdraws
 Management Disagreements
 Frozen Investment
 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
 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
 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”
 Limited Liability
 Ease of Ownership Transfer
 Unlimited Life
 Greater Access to Capital
 Specialized Management Expertise
 More difficult & costly to form
 Requires a “Corporate Charter”
 Subject to greater governmental scrutiny
 Diluted earnings
 Double taxation
SP
Corp
Income
1,000,000
1,000,000
Expenses
500,000
500,000
EBT
500,000
500,000 (Assume
Business Tax Rate = 50%)
Business Tax
0
250,000
Net Profit
500,000
250,000
(Assume a 30% Personal Tax Rate)
Personal Tax 150,000
75,000
to Owners 350,000
175,000
 Legal Permission to Operate as a Corporation
 Issued by state
 May not conduct business as a corporation without a
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
 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
Owners/
Stockholders/
Shareholders
Chief Executive
Officer (CEO)
Board of Directors
President
Senior
Vice President
Vice President
Finance
Vice President
Production
Vice President
Marketing
Vice President
Human Resources
 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
 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
 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
 Hostile takeover
 Types of mergers
 Horizontal: Similar products / services
 Vertical: Different but related firms
 Conglomerate: Completely different industries
 Merger Trends
 Divestiture
 Leveraged Buyout (LBO)
 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
 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
 Franchisor
 Fast, Selective Distribution
 Motivated Franchisee
 Franchisee
 Opportunity to start a business
 Business Experience of others
 Nationally recognized name
 National promotional campaigns
 Mainly from Franchisee’s Viewpoint:
 Franchisor’s contract can dictate every aspect of the
business
 Pay for security
 Long hours
 Competition from same company
 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.
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.
 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 nonagricultural coops
 5th phase- Martial law period and the
“politization” of the coop movement.
 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.
 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 multipurpose 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.
 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.
1939
1969
1977
1980
1985
1993
2009
Number
570
1,530
1,897
2,941 3,350 25,125
78,611
No.
(Confirmed)
--
--
--
--
23,836
Membership
(000s)
105
Year
Assets (million)
Capital
(million)
3.4
n.a.
1,142
4,494
555
460
223
30
129
280 1,503 118,400 176,020
129
194
n.a.
Sources: 1939-1985- Gray Wine Think Tank, 1993- CDA, 2009- CDA & DOF
*1993 (Braid) & 2009 membership covers only confirmed coops
337 3,200
627 --
5,856*
--
200000
150000
Number
No. Confirmed
100000
Members (000)
50000
Assets (Million)
0
1939
1969
1977
1985
1993
2009
 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).
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.
 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.
 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.
 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.
Category of
Coop
Micro (up to
P3 Million)
Small (P3 to
P15 Million)
Medium (P15
to P100
Million)
Large (Over
P100 Million)
Totals
Source: CDA and DOF
No. of % to
Coops Total
No. of
Coops
19,961 83.7%
Assets
P 7.88 Billion
% to
Total
Assets
4.5%
2,594
10.9%
P 17.59 Billion 10.0%
1,015
4.4%
P 37.83 Billion 21.5%
230
1.0%
P112.71 Billion 64.0%
23,836 100.0%
P176.02 Billion 100.0%
 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.
 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.
 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.
 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.
 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).
 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.
Source: CDA and DOF
* Population of 19 years old and above
Member-ship
Membership/
Coop
(Ave.)
% of Coop
Membership vs
Population
Rank –
Highest/
(lowest)
1,201,830
523
54.5%
1
IX- Zamboanga
321,917
321
20.6%
2
II- Cagayan
245,640
283
14.64%
3
CAR
124,130
166
14.61%
4
NCR
780,555
297
13.95%
5
V- Bicol
145,440
195
5.55%
VII- Western Visayas
238,770
124
6.37%
IV- Southern Tagalog
497,085
234
6.80%
5,856,074
246
13.04%
Region
Top 5
XI- Davao
Lowest 3
Philippines
(1)
Region
Percent contribution to
regional GDP
Rank
XII- Socsargen
11.91%
1
VI- Western Visayas
11.49%
2
XI- Davao
9.07%
3
X- Northern Mindanao
8.89%
4
CARAGA
7.45%
5
V- Bicol
1.43%
1
IV- Southern Tagalog
1.55%
2
Cordillera Administrative Region (CAR)
1.84%
3
Philippines
5.14%
Top 5 Regions
Lowest 3 Regions
Source: CDA and DOF
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).






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.
A large number of cooperatives remain unviable.
Only 23,836 or 30 percent of the 78,611 registered
coops in 2009 are reporting/operating.
1.

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.
 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 ReOrientation; Strategic Planning; and Labor and Other
Related Laws.
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.
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.
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).
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.
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 jobs and spread wealth”. The coop
movement can capitalize on the current boom in the
microfinancing business.

DSWD Secretary Dinky Soliman is on top of the anti-poverty
program of the government.
2. Operating coops increased 4 times from 1985 -1993
and 53 times from 1993-2009. Coops engaged in
high value operations increased higher than credit
coops.
 Multi-purpose coops increased by 8 folds, service
coops by 4.5 folds, and coop federation by 4 folds.
Marketing coops increased by 3 folds and producers
coops by 2 folds.
3. The total assets of the coop movement increased by 78
times in 9 years from P1 Billion in 1985 to P118 Billion
in 1993, and 117 times in 2009 at P176 Billion.
 Researches and documentation of the good
cooperative practices should be intensified and
disseminated to other coops.
4. Coop membership increased by almost 10 times
from1985-1993 and 17 times to 5.8 million in 2007.
The family beneficiaries are around 19.2 million in
1993.
 In Davao region, coop members account for more
than half (54.5%) of the region’s population of 19
years and older and contributed 9% to the region’s
contribution to the regional GDP.
 Socsargen and Western Visayas contributed to their
respective regional GDP at 12% and 11.5%
respectively.
6. “Big brother, small brother” cooperation among
cooperatives will further the growth of the coop
sector. This means more intensive Federation and
union work and advocacy that will not compete
but will strengthen the operations of the primary
coops.

Big coop primaries and federations need to merge or
consolidate like the NATCCO-MASS-SPECC
consolidation plan in 2012.

The big coops should harness the capabilities of micro
and small coops through technology transfers and
joint business ventures like the MICOOP program of
the NATCCO.
7. The coop group within the party list bloc in
Congress should play its cards well. Although in
the minority bloc, the coop legislators are
actually representatives of the marginalized
sectors of society which comprise the majority
of the country’s population.
 The coop representatives in Congress, aside from
their legislative work, should also be active in further
uniting and consolidating the coop movement. They
should lead the coop movement nationwide
together with other coop legislator-advocates:
 Strengthen all LGU Development
Councils and exhort strong coop
participation;
 Work for the creation of Cooperative
Development Offices in all LGUs that
have not yet created said office and the
corresponding appointments of the LGU
Cooperative Development Officers
ideally coming from the coop sector;
 Strengthen the Cooperative Development
Councils at the national, regional, provincial,
municipal and barangay levels;
 Participate in LGU affairs through involvement
in the LGU Pre-Bids and Awards Committees
(PBAC), the Local Health and School Boards, to
participate in future elections of sectoral
representatives for workers, women and other
sectors in the LGU councils, and to lobby for the
creation of committees on cooperatives in said
councils if not yet created.
 Strengthen the Cooperative Development
Councils at the national, regional, provincial,
municipal and barangay levels;
 Participate in LGU affairs through involvement
in the LGU Pre-Bids and Awards Committees
(PBAC), the Local Health and School Boards, to
participate in future elections of sectoral
representatives for workers, women and other
sectors in the LGU councils, and to lobby for the
creation of committees on cooperatives in said
councils if not yet created.
 Remo, Amy, 2011, “NEA, DBP to finance co-ops’ fund requirements”, Philippine Daily

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Inquirer, July 11, 2011.
Rola, Leandro, 1989 “Cooperative Education and Training Issues/Problems and
Recommendations”, The State of Cooperative Development in the Philippines, QC:
Cooperative Foundation of the Philippines, Inc.
Santiaguel, Mannie, 2011, “The Role of Cooperative in Poverty Reduction”,
cooperativeunionofcavite.com/.../The%20Role%20of%20Cooperatives%20In%20G
lobal%20Poverty... (opned Aug. 201)
Scott, William, 1992, The Union Obrera Democratica: The First Filipino Labor
Union, QC: New Day Publishers.
Sibal, Jorge, 1991, “The Self-managed Enterprises and the Vision of a Mixed
Economy”, paper read at the PEDF Seminar-Workshop on Issues in Community
Enterprise Management, August 16-18, 1991, Pansol, Laguna sponsored by People’s
Enterprise Development Council.
Sibal, Jorge, 2001, “A Century of the Philippine Cooperative Movement”, Co-op News
from UWCC, University of Wisconsin Center for Cooperatives, August 2001,
http://www.wisc.edu/uwcc
Wikipedia, 2011, “Fiscal Policy in the Philippines”,
http://en.wikipedia.org/wiki/Fiscal_policy_of_the_Philippines (Opened Aug. 2011)
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