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1. Forms of Business Ownership
One of the most important decisions a prospective
entrepreneur has to make is in the form of ownership that
has to be adapted.
Each form has a unique character and the inherent
advantages and disadvantages of each must be taken into
consideration before the decision is made.
The choice would depend largely on the resources and
personal objectives of the prospective owner.

2. SOLE PROPRIETORSHIP
A business owned and operated by a single person.
Most popular form of business ownership
Advantages of SOLE PROPRIETORSHIP
1. EASE AND COST OF FORMATION – S.P is the easiest and least
costly to establish.
The only requirements are:
a. The owners resolution to start operating;
b. Getting the required permit and license.

3. Advantages of SOLE PROPRIETORSHIP
2. SECRECY – one way of effectively competing is to
determine the plans as well as the Strengths and
Weaknesses of his competitors.
Has the advantage of keeping his intentions secret.

4. Advantages of SOLE PROPRIETORSHIP
3. DISTRIBUTION and USE OF PROFITS – the sole proprietor
is the sole beneficiary and does not have to share the
profit with anyone.
4. CONTROL OF THE BUSINESS – the S.P has the advantage
of an instant decision
Ex. If costumer asks for a discount - the S.P can
immediately decide because he does not need to consult
anyone before approving.

5. Advantages of SOLE PROPRIETORSHIP
5. GOVERNMENT REGULATION - S.P is spared from various
government rules and submits fewer report.
S.P are also spared from charter restrictions on operations
Can change what he sells without violating any legal
restrictions.

6. Advantages of SOLE PROPRIETORSHIP
6. TAXATION – the net income of the S.P is regarded as the
personal income of the sole owner and is taxed
accordingly.
7. CLOSING THE BUSINESS – once the owner makes a
decision to cease operations, he does not need to seek
approval.

7. Disadvantages of SOLE PROPRIETORSHIP
1. THE POSSIBLITY THAT THE OWNER LACKS ABILITY AND
EXPERIENCE – the success will depend largely on the
management and entrepreneurial skill of the owner.
The owner needs to be a generalist with sufficient
exposure to various specialized functions required, like,
marketing, production, finance, accounting, personnel and
research and development.

8. Disadvantages of SOLE PROPRIETORSHIP
2. DIFFICULTY IN ATTRACTING GOOD EMPLOYEES – the
assurance that the firm will survive for a long period is not
a feature of sole proprietorships.
 As a consequence, good employees tend to join a more
stable enterprise which is most often a corporation.

9. Disadvantages of SOLE PROPRIETORSHIP
3. DIFFICULTY IN RAISING ADDITIONAL CAPITAL – the amount of
capital that could be raised will depend on the financial resources of
the sole owner.
4. LIMITED LIFE OF THE FIRM – the existence of the business depends
on the physical well-being of the owner
5. UNLIMITED LIABILITY OF THE PROPRIETOR – the greatest
disadvantage
liability incurred by the sole owner can extend to his personal asset.

10. PARTNERSHIP
This is a legal association of two or more persons as co-owners
of an unincorporated business.
Advantages of PARTNERSHIP
1. EASE OF FORMATION – are easy to form
 The only requirement before the partnership starts to operate
is for the partners to agree on the basic aspects of the business
like the nature of the business, location, capitalization and the
like.

11. Advantages of PARTNERSHIP
2. POOLING OF KNOWLEDGE & SKILLS – the combined
knowledge and skills of the partners provide the partnership
with a distinct advantage.
 One partner may be very good in marketing while the other
might be expert in research and development.
This leads to specialization which is very important
competitive tool in business.

12. Advantages of PARTNERSHIP
3. MORE SOURCES OF CAPITAL - the combined resources of
the partners provide a bigger source of funding.
4. ABILITY TO ATTRACT & RETAIN EMPLOYEES
5. TAX ADVANTAGE – any profits derived by the partners are
taxed as their individual incomes.

13. Disadvantages of Partnership
1. UNLIMITED LIABILITY
2. LIMITED LIFE – When a partner dies or withdraw from the business, the
partnership is terminated.
3. POTENTIAL CONFLICT BETWEEN PARTNERS – there are occasions when
partners disagree on certain ways of operating the business, and there are
potential areas for disagreement.
Adding new products or services
Hiring new employees
Decisions on credit extensions
The grant of additional benefits to the employees

14. Disadvantages of Partnership
4. DIFFICULTY IN DISSOLVING THE BUSINESS – it may not be
easy to divide whatever assets are left for distribution to
the partners are some of the assets may be fixed or
immovable

15. Types of Partnerships
Partnerships may be classified according to the liability of
the partners.
1. GENERAL PARTNERSHIP – is an association of two or
more persons, each with unlimited liability, and who are
actively involved in the business.
2. LIMITED PARTNERSHIP – is an arrangement in which the
liability of one or more partners are limited to the
amount of assets they invested in the business.

16. Partnership Agreements
 Disagreement oftentimes negatively affects the
employees morale and work attitude.
Is a document designed to prevent or at least minimize
disagreements between partners

17. Partnership Agreements
1. The purpose of the business
2. The terms of the partnership
3. The goals of the partners and partnerships
4. The financial contribution made by each partner at the beginning
and during the lifetime of the business
5. The distribution of profits and losses
6. The withdrawal of contributed assets or capital by a partner
7. The management powers and work responsibilities of each
partner

18. Partnership Agreements
8. The provisions for admitting new partners
9. The provisions for expelling a partner
10.The provisions for continuing the business in the events of a
partner’s death, illness, disability or withdrawal
11.The provisions for determining the value of a departing partner’s
interest and method of payment of that interest
12.The methods of settling disputes through mediation or arbitration
13.The duration of the agreement and the terms of dissolution of the
business.

19. CORPORATION
 A legally chartered enterprise with most of the legal rights
of a person, including the right to conduct a business, to
own and sell property, to borrow money, and to sue and be
sued.
Are owned by stockholders.
STOCKS – are certificates of ownership

20. Advantages of CORPORATION
1. LIMITED LIABILITY – the liability of a stockholder is limited to his
shareholdings.
He may lose the entire value of his stocks in the event of a
bankruptcy.
2. EASE OF EXPANSION – the authority granted to a corporation to sell
its own share of stock provides a means to pool large amounts of
funds.
The price of stocks can be made low enough to attract even the
smallest investors.
This feature motivates further the prospective investor to buy shares.

21. Advantages of CORPORATION
3. RELATIVELY LONG LIFE – are established to have a life of
up to 50 years and extensible for longer periods.
 Because ownership is readily transferable, the death or
withdrawal of any or all stockholders do not terminate the
corporation.
The most stable among the three forms of ownership

22. Advantages of CORPORATION
4. GREATER ABILITY TO HIRE SPECIALIZED MANAGEMENT –
the corporation can make it possible to subdivide the
overall tasks into smaller specialized positions.
The demand for management expertise will be a little
more exacting than those for sole proprietorships and
partnerships.
The corporations hire fully trained management experts.
With specialized management, the corporation is provided
with an opportunity to grow and develop more vigorously.

23. Disadvantages of CORPORATION
1. MORE EXPENSIVE & COMPLICATED TO ORGANIZE - it
requires more time and money to organize.
 A corporation may start operations only after receiving
from the Securities and Exchange Commission (SEC) a
certificate of incorporation.
The SEC will only issue the certificate of incorporation
after reviewing the articles of incorporation previously
submitted by the initial set of corporate officers.

24. Disadvantages of CORPORATION
The articles of incorporation contains the following:
1. The name of the corporation
2. Specific purpose/s
3. Principal office of the corporation
4. Term existence of the corporation
5. Names, nationalities and residences of incorporators
6. Number of directors
7. Amount of authorized capital stock
8. Other matters

25. Disadvantages of CORPORATION
2. DOUBLE TAXATION – the profits derived by stockholders
are taxed twice by the government
First, when the corporation realizes profits
Second, when individual stockholders declare as part of
their personal income the dividends they receive from the
corporation.

26. Disadvantages of CORPORATION
3. MORE EXTENSIVE GOVERNMENT RESTRICTIONS AND
REPORTING REQUIREMENTS – corporations are subject to
stringent government restrictions and are required to submit
various reports on a periodic basis.
Ex: The prohibition on certain actions without the approval of
the SEC.
Corporations cannot distribute stock dividends without prior
approval of the SEC.
The submission of financial statements is an example of annual
reports required by the SEC.

27. Disadvantages of CORPORATION
4. EMPLOYEES LACK PERSONAL IDENTIFICATION AND
COMMITMENT – the relationship between the
corporation and the employees are too impersonal.
Employees do not feel identified with the corporation and
therefore, lack commitment to their work.