Making The Right Shift. Partnership or Corporation?

Gutierrez Furnitures of Pampanga has been in existence for the past three decades as one of the best
furniture of their town. The elder Gutierrez, who is already nearing the golden age of 70, is planning to
finally retire and leave the family business to his five sons namely, Lino, Toto, Buboy, Alex and Peter.
Lino, as the eldest among the brothers, wants to preserve, expand, and further continue their father’s
legacy. In order for his goals to be achieved, he is contemplating on changing the business model of their
existing company which currently constituted as a sole proprietorship business. As an Accountancy major
equipped with knowledge in various business organizations, he approaches you for advice as to what
form should the business evolve to – a partnership business with the brothers as partners or as a family
owned corporation?

Required:

1. Provide the advantages and disadvantages of putting up a partnership or a corporation?

2. Based on the advantages and disadvantages you have discussed, what type of business
organization would you suggest to Lino?
 Just and Equitable. Accounting for Share in Profits or Loss.

Pauline Fulgencio is an existing accounting professor in San Beda College. To augment her income, she
also practices public accounting. Unfortunately, with prices rising every now and then and cost of other
living expenses also increasing daily, she thought of putting up a tutorial services catered to BSA majors
who are in need of tutelage.

Initially, she was able to juggle her time as a professor, accounting practitioner and as a tutor. However,
as the number of her clients, from both accounting practice and tutorial services began to increase, she
decided to call on her colleagues in San Beda College, Jayson Chio and George Ong, to help her in her
tutorial services and establish a partnership among themselves.

As per agreement among the three, Mrs. Fulgencio would be investing her existing business, the tutorial
services, Mr. Chio would be investing P25,000 and would render limited hours of tutorial time and Mr.
George Ong, being the most senior and notable among the three, would be contributing his name and
service to the business.

Presented below is the statement of financial position of Mrs. Fulgencio’s tutorial services.

Cash P 35,000 Fulgencio, capital P60,000

Furniture 10,000
Equipment 15,000
Total P 60,000

Required:

1. Provide at least two profit sharing agreement that would be realistic and fair based on the
information given.
2. Which among the two profit sharing agreement would you recommend be placed in the articles of
co-partnership? Why this arrangement?