Types of Business Organizations in the Philippines

In this post, we'll delve more into legalities and talk about the most common types of business organizations in the Philippines, some examples, and the pros and cons of each. 

Being familiar with the different types of business organizations could help you in creating your own and making sure it is properly accounted for. 

There are two main reasons why it is important to know about business organizations: safety and profitability. 

As a person engaging in business, you would want your assets to be safe from outsiders. 

You would also want to have greater profits, as much as possible. 

In the Philippines, the most common type of business organization is the sole proprietorship, followed by partnerships, cooperatives, and corporations. 

What is a Business Organization?

Simply put, business organization is how your business is structured. It has four distinct types: sole proprietorship, partnership, corporations, and cooperatives. 

Those four types vary from the number of owners, to their profit-sharing agreement, to articles protecting their assets. 

What is a Sole Proprietorship?

A sole proprietorship is the simplest form of business organization, where all the puhunan (capital) is provided by one person called the "proprietor". 

One such probable example is your local sari-sari (convenience) store. 

The owner would be that one person who oversees, manages, finances, and takes care of the business. 

In this setting, the owner has sole rights to the (kita) profit and to the debts (utang) that the business might incur. 

Sole Proprietorship Pros:

• It is easy to set up.
• The owner has full control of his money and assets.
• There is no one else to answer to.
• The owner has all the rights to the income.

Sole Proprietorship Cons:

• In case the business doesn't do well, the owner is responsible for paying all business obligations.
• The capacity for growth is very limited. 
• The profitability is less compared with the other types of business organizations.
• This model often requires the owner to know all aspects of the business.

What is a Partnership?

A partnership is made up of two or more people who agree to pool their resources together to start a business and share the profit among themselves. 

An example of this would be your local law and accounting practitioners. 

They are usually called general practice partnerships. 

In partnerships, all of the partners must agree on how they will split the profits among themselves, who would get what in case of business liquidation, what are the roles of each one of them, who will be the manager of the business, and other important points.

All of which will be written down in a paper called the Articles of Partnership.

Partnership Pros:

• It is easy to set up.
• The business would have greater capital. 
• Since there are more than one owner, each can contribute his own skill and set of knowledge to help push the business. 
• Profitability and growth is greater than sole proprietorship. 

Partnership Cons:

• In case of withdrawal, retirement, or death of a partner, the partnership is dissolved.
• Conflicts would often arise and would need to be solved or else the partnership will end.
• The profitability is less compared with corporations.
• In case of a general partnership, one or more person is personally liable for all partnership debts.

What is a Corporation?

A corporation is the biggest and most complicated form of business organization. 

Your favorite bee, your go-to grocery, your favorite shopping malls, all of them are owned by giant corporations.

This is organized by not less than five, but not more than fifteen people called "incorporators". 

For Corporations, it is important to have Articles of Incorporation which states the names and details of the incorporators, how much is the subscribed and paid for share capital, and other relevant information.

Corporation Pros:

• The capacity for profitability is great.
• Corporations are usually organized and competent people are in charge, usually called the Board of Directors. 
• The stock holders (people who own a share of the corporation) are not personally liable for the corporation's debt.
• When public, there can be a greater supply of capital. 

Corporation Cons:

• Incredibly complex to organize and set up. 
• Higher Tax rate compared to Sole Proprietorships

What is a Cooperative?

A cooperative operates similarly to a corporation. It has its own Board of Directors who are selected from among its members.

Cooperatives are mainly non-profit and are organized to help all of its members. 

Some cooperatives that you might be familiar with are your local Help and Insurance Cooperatives that help its members out financially. 

With the above details, I hope this post gave you some insight on the different types of business organizations and what are the good sides and bad sides of each :)