Ownership and Structural Forms of Business Enterprise

Chapter 5

Ownership
It

means the legal title to a thing or control over the thing owned, the right possession and disposal. Title to and possession of the assets of the enterprise , the power to determine the policies of the operation and the right to receive and dispose of the proceeds.

Types of business ownership

Private Ownership When an enterprise is

so organized that private individuals exercise and enjoy the rights and privileges of an owner in their own interest.

Types of business ownership

Public Ownership Controlled by political

bodies as a municipal , provincial or national government or by any instrumentality created by them

Types of business ownership

Mixed Ownership It exists when the elements

of ownership are divided such that private persons and public bodies share in the operation of the same enterprise

Forms of private ownership

Individual

or single or sole proprietorship Partnership Cooperative Organization Corporation Corporate combination

Factors involved in business forms

The

nature and size of the business The capital required and the means of procuring it The length of time the enterprise is expected to operate The technical conditions affecting the enterprise

 The

types of products to be manufactured The method and volume of production The kind of markets to be supplied and methods of marketing The competitive nature of the chosen industry.

1. Single Proprietorship
The

ownership is vested in one person. This form of ownership is small, requires but little amount of capital and is readily established under the control of one man.

Advantages of single proprietorship

It

is easy to start and to terminate Control and management lies entirely in the hands of the owner Only a small amount of capital is required in starting Profits belong entirely to the owner

 High

Credit Standing

Disadvantages of single proprietorship

Limited

judgment and wisdom. Limited amount of capital Unlimited liability Difficulties of Management

2. Partnership
The

business partnership is a business relationship between two or more persons competent to make contracts for the purpose of engaging in a business activity.

Advantages of partnership
It

could be as easily formed as the single proprietorship. There are more persons to conduct the business and to handle its problems. A partnership has access to greater or better credit facilities The combined ability and resources of partners are a source of strength.

 Retention Unlimited

of Valuable Employees

Disadvantages of partnership
liability of partners Disagreement between partners often lead to delay and difficulties which could endanger the enterprise. Easy dissolution Frozen Investment

Limited partnership
One

or more of the partners in a limited partnership must be general partners, who have unlimited liability. The limited or special partners have only limited liability, which is up to the extent of their investment.

Advantages of limited partnership

There

is a single direction of management , thus there is unity and prompt action The limited liability of special or limited partners , serves as good inducement of investments.

Disadvantages of limited partnership

The

unlimited power given to general partners may result in abuse. Possibility of collusion among partners to defraud the creditors.

Kinds of partners
General

Partner Limited Partner Capitalist partner Industrial Partner Managing Partner Liquidating Partner Ostensible Partner Secret Partner Silent Partner Dormant Partner Nominal Partner

Cooperative organization
A

cooperative association has some elements of a large partnership and also many features of a corporation , although it is distinct from both .

Kinds of cooperative
The Consumers Cooperative It draws its members from the general

public. This cooperative carries on retail trade operations.

The Producers Cooperative It draws its membership from the

producers of grains and other farm products

Kinds of cooperative
The Marketing Cooperative Closely related to the producers

The Financing Cooperative It makes possible for people of

cooperative and often merged with it into one organization . small means to acquire a home and to borrow money for other purposes at relatively low rates of interest.

Principles of cooperative
Open

Membership Democratic Control Limited interest to capital Patronage refund

Power of cooperatives
To

exercise the same rights and privileges given to persons, partnerships and corporation provided under existing laws. To establish and operate business enterprises of all kinds as their needs dictates and their capabilities allow subject to the provisions of existing laws. To establish rural banks under the Rural Bank Act To enjoy all the privileges and incentives granted by the NACIDA act

Power of cooperatives
To

petition the government to expropriate idle urban or rural lands for agricultural production , cottage industry , business or housing purposes. To own and dispose property , to enter into contract , to sue or be sued

and to do and perform such other acts as may be necessary in the pursuit of its objectives.

Privileges of cooperatives
Exemption

from income taxes and

sales taxes The preferential right to supply rice, corn and other grains , fish and other marine products. Exemption from the application of the Minimum Wage Law.

Corporation
It

is an artificial being created by operation of law having the right of succession and the powers , attributes and properties, expressly authorized by law or incident to its existence.

Nature and characteristics of a corporation

It

is an artificial business unit and its creation is through the process of law. The basic structure of a corporation

 The

corporation organization is of wide scope The existence of a corporation is practically permanent by operation of law The function of a corporation is public

Kinds of private corporation

Stock Corporation
One

Non-stock corporation
One

in which the capital stock is divided into shares or allot the surplus profit on the basis of the share in which the capital stock is not so divided. It issues certificates of stock which in reality are merely certificates of membership

Classes of capital stock

Common Stock
The

right of ownership and active control is vested in the owners of the common stock. The ordinary stock representing the basic ownership.

 The

ownership interest is divided into shares which may or may not have par value. Par value is the amount printed on the stock certificate.
Preferred Stock
Gives

the owners special protection or advantages over the common stock holders. It carries preference as to priority in the payment of dividends over the common stock

Classifications of preferred stock

Preferred

as to dividend Preferred as to asset Preferred as to both dividends and asset Cumulative preferred Callable Convertible

Advantages of corporation

 Ease

of acquiring large amount of capital Flexible ownership Limited liability of stockholders More or less permanent existence Legal entity

The operational advantages

The

corporation offers an excellent mechanism for mobilizing the large capital needed for modern industrial operations. It permits extended specialization in management , plant and equipment , factory organization, labor and marketing

Disadvantages of corporate ownership

Organizational

expense Government restrictions and reports Lack of Personal Interest Lack of Secrecy

Corporate combinations
Merger
The

Trust
A

union affected by the absorbing of one or more existing corporations by another which survives and continues the combined business form of business organization had its origin in a principle of law originally developed for safe guarding the property of minors and other persons not able or willing to administer their own affairs. Pura, Garcia 1994. Business Orgainzation and Management. 6th Edition. R.M. Garcia Pubishing House. Quezon City

Reference
Gutierrez,