FORMS OF ORGANIZATION.docx
- 1. TOPIC : FORMS OF ORGANIZATION SUBTOPICS : 1. Proprietorship 2. Partnership 3. Corporation 4. Hybrid type of Organization WHAT IS AN ORGANIZATION? Organization → represents a group of people who work together for the achievement of common objective. COMMON FORMS OF BUSINESS ORGANIZATIONS SOLE PROPRIETORSHIP The simplest and most common form of business ownership, sole proprietorship is a business owned and run by someone for their own benefit. The business’ existence is entirely dependent on the owner’s decisions, so when the owner dies, so does the business. ADVANTAGES OF SOLE PROPRIETORSHIP Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control,and withinthe parameters of the law, may make decisions as they see fit. Profits from the business flow-through directly to the owner’s personal tax return. The business is easy to dissolve, if desired. DISADVANTAGES OF SOLE PROPRIETORSHIP Owner is 100% liable for business debts Equity is limited to the owner’s personal resources Ownership of proprietorship is difficult to transfer No distinction between personal and business income The law does not afford protection to the personal assets of the entrepreneur from claims against his business. Short Term EXAMPLES OF SOLE PROPRIETORSHIP: Private Tutors, Farms, Small Shops, Barber Shops, Sari-Sari Stores, Auto-Repair Shops, Youtubers etc. PARTNERSHIP Two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed. Figure 1. Sole Proprietorship Organizational Structure. You as the owner have all the responsibilities for your business operations.
- 2. TYPES OF PARTNERSHIPS 1. General Partnership. Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently. Example: Let's say that Dottie and Dave decide to open a clothing store. They decide to name the store D.D.'s Duds. Dottie and Dave don't need to do anything special in order to form a general partnership. Once Dottie and Dave agree to form the business, it's automatically considered to be a general partnership. 2. Limited Partnership and Partnership with Limited Liability . A limited partnership is a business partnership where at least one owner is a general partner and at least one owner is a limited partner. The general partners make everyday business decisions and are personally liable for business debts. However, the limited partners simply invest in the business and have little control over business operations. Example: Ben, Brandi and Bob are partners in owning and running a bookstore. They own The Book Nook. Per their partnership agreement, Ben and Brandi are limited partners. They are investors in the store. They each gave P50,000 to establish the store. Bob is a book expert, so he runs the store. Bob is a general partner. Note that all the partners will be considered general partners unless there's a written agreement between the partners stating otherwise. 3. Joint Venture. Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity. Example: The joint venture partnership between an event organizer and catering, and lightings services providers for a single event like a wedding for a one day. ADVANTAGES OF PARTNERSHIP Shared resources provide more capital for the business Each partner shares the total profits of the company Similar flexibility and simple design of a proprietorship Inexpensive to establisha business partnership, formal or informal DISADVANTAGES OF PARTNERSHIP Each partner is 100% responsible for debts and losses Selling the business is difficult—requires finding new partner Partnership ends when any partner decides to end it. Quarrels between partners may occur Unlimited Liabilities Short term Figure 2. Partnership Organizational Structure.
- 3. EXAMPLES OF PARTNERSHIP: Legal Services Providers, CPA Services, Doctors’ Offices, Small Shops with 2 or more owners in partnership agreement CORPORATION A corporation is owned by several people, called shareholders, and has a personality separate and distinct from them. Shareholders are responsible for the debts of the corporation only up to the extent of their capital contribution. Corporations can either be stock or non-stock and are controlled by the Board of Directors or Trustees. Registration of corporations is with the SEC. Corporations are, for tax purposes, separate entities and are considered a legal person. This means, among other things, that the profits generated by a corporation are taxed as the “personal income” of the company. Then, any income distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners. A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties axpressly authorized by law or incident to its exixtence. -The Corporation Code of the Philippines As a rule, corporations cannot enter into partnerships with one another but they are allowed to enter into joint ventures. Corporate structure refers to how a business is organized to accomplish its objectives. The corporate structure of a business is important because it determinesthe ownership, control, and authority of the organization. In a corporation, these characteristics are represented by three groups: shareholders,directors, and officers. Ownershipbelongs to the shareholders. Control isexercised by the board of directorson behalf of the shareholders, while authority over the day-to-day operations is vested in the officers. ROLES AND RESPONSIBILITIES OF SHAREHOLDERS, DIRECTORS AND OFFICERS SHAREHOLDERS In a corporation, a group of shareholders have shared ownership, represented by holding shares of common stock. Most business corporations are established with the goal of providing a return for its shareholdersin the form of profits. Shareholders have the right to share in the profits of the business but are not personally liable for the company's debts. This concept is known Figure 3. Corporation Organizational Structure.
- 4. as limited liability and is one of the main advantages of the corporation as a form of doing business. BOARD OF DIRECTORS The board of directors is responsible for overseeing and directing the businessof the corporation in the best interest of the shareholders. The key point here is oversight; the board is not expected to actually operate the business. Rather, its purpose is to oversee operations, approve major plans, and monitor financial performance.The chairmanof the board is technically the leader of the corporation, responsible for running the board effectively. The chairman is usually elected from the board of directors. The chairman's duties include maintaining strong relationships and open communication with the chief executive officer and other executives, formulating business strategy, and representing the company's management and board to the general public and shareholders. CEO, CFO AND COO The CEO makes all the major decisionsfor the company and also functions as the company representative for the media and public. At some companies, depending on the size and structure, the CEO also holds the title of president, or founder, and might also be the chairperson of the board of directors. The CFO, or Chief Financial Officer, only oversees the financial operations of a company and reports to the CEO. The COO, or Chief Operations Officer, oversees the day-to-day administrative and operational functions of a company and also reports to the CEO. ADVANTAGES OF CORPORATION Shareholders have limited liability for the corporation’s debts or judgments against the corporation. Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however,that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes. Corporations can raise additional funds through the sale of stock. A Corporation may deduct the cost of benefits it provides to officersand employees. Long term DISADVANTAGES OF CORPORATION The process of incorporation requires more time and money than other forms of organization. Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus this income can be taxed twice. EXAMPLES OF CORPORATION: PepsiCo, Microsoft, IKEA, FedEx, eBay, Jollibee Food Corporations, Universal Robina Corporations, Nestle Corporations etc.
- 5. HYBRID ORGANIZATION Hybrid organization is one that mixes elements, value systems and action logics (e.g. social impact and profit generation) of various sectors of society,i.e.the public sector, the private sector and the voluntary sector. A more general notion of hybridity can be found in Hybrid institutions and governance. According to previous research organizations under hybrid between public and private spheresconsist of following features: 1. Shared ownership 2. Goal incongruence and different institutional logics in the same organization 3. Variety in the sourcesof financing 4. Differentiated forms of economic and social control A hybrid organizational structure is a framework that employs multiple reporting structures in the organization. A hybrid form of organization,for example,is created by combining functional and product structures. Employees are required to work on many projects and report to multiple managers under a hybrid organizational structure. Example A: An engineer working on a project should, in an ideal world, report to his project manager. In the hybrid management structure, however, the engineer may be invited to work on another project for a limited time if a need develops, resulting in a situation in which he reports to both project managers. Example B: Starbucks is an example of a hybrid organizational structure. Starbucks implements a mix of three organizational structures: functional structure, geographical structure and product-based structure. Starbucks has functional departments such as finance, marketing and human resources. Other examples of Hybrid Organizations: Figure 5. Hybrid Organization Structure