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Business Organizations

Basic Definition

Basically, an organization in its simplest form (and not necessarily a legal entity, e.g., corporation or LLC)

is a person or group of people intentionally organized to accomplish an overall, common goal or set of

goals. Business organizations can range in size from one person to tens of thousands.

There are several important aspects to consider about the goal of the business organization.These features are explicit (deliberate and recognized) or implicit (operating unrecognized,

"behind the scenes"). Ideally, these features are carefully considered and established, usuallyduring the strategic planning process. (Later, we'll consider dimensions and concepts that are

common to organizations.)

Types of Business Organizations

6 Forms of Business for IRS Purposes

The various forms of organization are established by state law. There are a wide variety of

business organizations recognized by the states. For example, a popular form of organization isthe Limited Liability Company (LLC). The LLC is a state designation. At the federal level, anLLC is taxed as a partnership. If the LLC so chooses, it can be taxed as a corporation at the

federal level. While there are a variety of designations at the state level, forfederal tax purposesthere are only 6 forms of business organizations:

y Sole Proprietor (1040 Schedule C),

y Corporation (1120),y Partnership (1065),

y S-Corporation (1120S),y Trust (1041), and

y

Non-profit organization (990)

Sole proprietors are unincorporated businesses. They are also called independent contractors,

consultants, or freelancers. There are no forms you need to fill out to start this type of business.The only thing you need to do is report your business income and expenses on your Form 1040

Schedule C. This is the easiest form of business to set up, and the easiest to dissolve. (An LLCwith only a single shareholder, a so-called single-member LLC, is taxed as a sole proprietor on a

Schedule C.)

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Corporations are incorporated businesses. Every form of business besides the sole proprietor isconsidered a separate entity, and this often provides a measure of legal and financial protection

for the shareholders. The shareholders of corporations have limited liability protection, andcorporations have full discretion over the amount of profits they can distribute or retain.

Corporations are presumed to be for-profit entities, and as such they can have an unlimited

number of years with losses. Corporations must have at least one shareholder.

Partnerships are unincorporated businesses. Like corporations, partnerships are separate entities

from the shareholders. Unlike corporations, partnerships must have at lease one General Partnerwho assumes unlimited liability for the business. Partnerships must have at least two

shareholders. Partnerships distribute all profits and losses to their shareholders without regard forany profits retained by the business for cash flow purposes. (LLCs are taxed as partnerships,

unless they choose to be taxed as corporations.)

S-Corporations have features similar to a partnership. An S-corporation must have at least oneshareholder, and cannot have more than 100 shareholders. If any shareholder provides services to

the business, theS-

Corp must pay that shareholder a reasonable salary. This salary is a separatepayment from distributions of profits or losses.

Trusts are usually formed upon the death of an individual and are designed to provide continuityof the investments and business activities of the deceased individual. We will not discuss trusts

further.

Nonprofits are corporations formed for a charitable, civic, or artistic purpose. Nonprofits aregenerally exempt from federal and state taxation on their income, and so they are often called

"exempt organizations." Nonprofits have substantial responsibilities for reporting their activities,income, and assets to ensure that they are in compliance with federal and state laws governing

charities. For additional information on starting, managing, and developing a not-for

-profitorganization, see the About.com Guide to Nonprofits.

As mentioned above, sole proprietors, S-corporations, and partnerships are taxed at the

shareholder level. Corporations, however, are taxed at the corporate level.

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What Type of Business Organization is Best for You?

Whether you are going it alone or with another person, it is best to consult a lawyer todetermine which form of business organization will be best for you. Your choices and the

benefits of each form are essentially as follows:

y Sole Proprietorship: A sole proprietorship is one person alone. He or she will haveunlimited liability for all debts of the business, and the income or loss from the business

will be reported on his or her personal income tax return along with all other income andexpense he or she normally reports (although it will be on a separate schedule). Although

proprietorship avoids the expense of forming a partnership or corporation, many startbusinesses this way because they are unfamiliar with the other forms of organizations.

y General Partnership: In a general partnership, each of the two or more partners willhave unlimited liability for the debts of the business. The income and expense is reported

on a separate return for tax purposes, but each partner then reports his or her pro-ratashare of the profit or loss from the business as one line on his personal tax return.

y

L

imited Partnership: With a limited partnership, each of the general partners hasunlimited liability for the debts of the partnership, but the limited partner's exposure to

the debts of the partnership is limited to the contribution each has made to thepartnership. With certain minor exceptions, the reporting for tax purposes is the same as

for a general partnership.

y Corporation: A corporation provides limited liability for the investors. Except as

indicated below, none of the shareholders in a corporation is obligated for the debts of thecorporation; creditors can look only to the corporation's assets for payment. The

corporation files its own tax return and pays taxes on its income. If the corporationdistributes some of its earnings in the form of dividends, it does not deduct the dividend

in computing its taxes, but the shareholder recipients must pay taxes on those dividendseven though the corporation has paid taxes on its earnings. A corporation has some tax

benefits such as deductibility of health insurance premiums.y "S"Corporation: A corporation that has made an election to be an "S" Corporation for

federal income tax purposes is treated as a partnership for tax purposes, although it istreated as a regular corporation for other purposes.

y Limited Liability: A limited liability company provides limited liability for all of itsmembers, but typically can be treated as a partnership for federal income tax purposes.

State laws may differ as to whether it is treated as a partnership or a corporation for stateincome tax purposes. It can be managed by all of the members or can have centralized

management in one or more of the members. For details on all options available forfederal income tax purposes, please visit the I.R.S. Web site page:

www.irs.gov/businesses/small/article/0,,id=137016,00.html.

Obviously there are variations in these rules, and you should consult with your attorney and/oraccountant in each specific case to determine what form of organization best fits your needs.

One of the things to consider in making the final decision is, although a corporation has limitedliability for its shareholders, if the corporation does not have sufficient assets various creditors

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may insist on personal guarantees from the shareholders. Examples are your landlord, somesuppliers, and by law, liability for certain payroll taxes and liabilities to employees.

How Can Your Professionals Help You?

Your AttorneyIn addition to the above items, your attorney should draw your partnership agreement or form

your corporation, including the issuance of stock and appropriate filings with the Secretary ofState and the Department of Corporations. He or she will help advise on the best form of

ownership, assist in negotiations to buy an existing business and review documents if you arebuying a franchise. He or she will also advise on buy-sell agreements and draft appropriate

documents.

If your business will require renting an office, store or factory, your attorney should review andapprove your lease document. A lease obligation can become your biggest liability, and your

attorney can help negotiate fair and protective terms. For example, if you anticipate growth, yourlease should include a provision for how expansion requirements will be handled.

Your new business may require specialized legal advice to establish and protect your intellectualproperty rights. Intellectual property includes your ownership rights to your business name,

trademarks, copyrights and patents. Intellectual property law is a specialized field, and you mayneed an attorney who specializes in these matters.

Your AccountantYour accountant can be an important advisor in start-up decisions, such as

y Deciding the appropriate division of the capital you contribute to a corporation betweenstock and loans.

y Determining the best form of ownership.y Helping set up the books and records of the business.

y Advising computer needs for accounting purposes.y Filing tax returns, advising on compensation of owners, preparing financial statements,

helping forecast cash needs, including whether to expand, addition of employees anddetermining profitability.

He or she will have a continuing role in filing tax returns, advising on compensation of owners,preparing financial statements, helping forecast cash needs, including whether to expand,

addition of employees, and whether you are really making money in this venture.

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Read TranscriptYour Payroll Service Provider

All entrepreneurs face the dreaded question, "How am I ever going to handle my payroll, payroll

taxes and comply with ever-changing state and federal laws?"

Thanks to efficiencies achieved through computer technologies, a huge industry has emerged totake over increasingly complex payroll issues. "Payroll Service Providers" now permit smallbusinesses to outsource these functions at very low costs. Now the start-up entrepreneur, even

with a payroll of one person, can "outsource" his or her Human Resources department.

There are many payroll service providers listed in the Yellow Pages and on the Internet (go to"payroll service providers" on search engines.) In recent years, payroll service providers have

expanded their services to handle other personnel issues as well, such as managing retirementplans, workers compensation insurance and pre-employment verification. Many payroll service

providers incorporate services such as

401K andS

imple IRA Business Tax Protection & Payment Health Insurance

Human Resources Help Desk Human Resources Software

New Hire Reporting Pay-by-Pay Workers Compensation

Insurance

Payroll Tax Calculation, Deposit and Filing Pre-Employment Screening/Background

Checks Reporting Solutions

State Unemployment Insurance Management Time and Attendance Solutions

Your Pension Plan ManagerAs a business owner, you can participate in the benefits of tax-deferred pension plans for

yourself and your employees. Good pension planning will help you attract and keep goodemployees. Some payroll service providers now handle pension plan management.

Your professionals can also be of significant assistance in helping formulate your business plan

by advising on

y The appropriate form of organization.

y Roles of each partner, such as the control of each party.y The areas in which each will have primary responsibility and the ownership of each

party.

In connection with the acquisition of an existing business, they should advise on good and badterms of the proposed deal and help negotiate with the seller and his or her attorney.

Finally, they should advise on your need for capital, both at the inception of the business and

what additional capital will be needed if the business is successful and you decide to expand.

Your Pre-employment Screening ServicePre-employment screening is especially important when you are starting because you don't have

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ongoing revenues to offset mistakes. Many start-ups skip screening because they're unfamiliarwith it or don't know how to have it done at a reasonable cost. Unfortunately, this can open them

up to resume fraud among other undesirable possibilities. A good example of a reputable andinexpensive source for conducting background checks is Washington Research Associates at

www.e-employmentscreening.net. Also, many tips on how to go about the hiring process can be

found through search engines by entering "hiring tips."

Where do you begin?

First of all, thinking and rethinking your business organization structure is just as important for

existing businesses as it is for new ones. Even if you already have a business with a working

structure, there is always room to review and refine.

To create an effective business organization structure, you need to consider...

1. Your Competitors

Though you may not have direct access to your competitors' plans and strategies, you can make

an educated guess about their structure. Look at their reporting line structures, and procurement,production, marketing, and management systems.

If you have the financial capability, consider commissioning a market research agency to study

the business organization structure of your main competitors. You can also visit your

competitors' websites to see if they have published their structures.

2. Your Industry

What is the standard in your industry, if any? Some types of businesses lend to certain business

organization structures, while other types can be set up with more flexibility. For example,automobile manufacturers usually set up regionally. Their head office will have the

responsibility of setting global goals and standards, but each regional unit operates as anindependent entity. On the other hand, a department store or supermarket chain may also set up

regionally, but they might also set up by department or by product.

3. Compliance or Legal Requirements

Some industries are regulated, and as such require certain elements to be incorporated into their

business organization structure. In fact, even industries which aren't regulated may need to

comply if they employ a certain number of employees. And of course, every business needs toensure salaries, wages and benefits are paid, and all remittances are made, such as withholding

taxes, social insurance and 401K.

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4. Your Goals

What goals do you have for your business, and what kind of leader do you intend to be? Your

organization structure should enable you to achieve your business goals, and how each personwithin your structure plays an important role. In this respect, you should also make clear the

reporting lines between each level.

5. Investors and Lending Sources

Having a business organization structure lets potential investors and funding institutions know

how you will organize your business operations. But it also lets them know what obligations you,

your shareholders or partners have and how each of you will interact.

An organizational structure also lets investors and lenders know what kind of talent you need to

employ to effectively manage and operate the business, how soon you need them, and how youwill find and attract them.

Your business plan should outline the key positions in your organization and detail the

responsibilities and experience required for each. If you have already have prospects or havemade commitments for any of these positions, you should also provide a brief profile for each.

Business Organization Structure Examples

The following examples are basic structures. Ultimately, you will need to choose and tailor a

structure that best fits your business goals and needs - either adopting a basic model orcombining different models.

Functional Organization Structure

Functional organizations are structured around job functions. This type of business structure issuitable for small to medium-sized businesses that do not have a wide range of products or

production requirements.

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Product Organization Structure

Product organization structures lend well to organizations such as department stores andsupermarkets. When these organizations operate in multiple regions, a hybrid between

geographical and product organization structures is suitable.

Matrix Organization Structure

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Geographical structures are organized, as the name implies, by geographic area or region. Eachregion is its own complete entity; its goals tied to the overall goals of the business. There is

usually a regional manager overseeing the entire operation, who will report to head office, butwill otherwise have complete responsibility for the regional unit. The above chart gives an

example of a North American geographical structure. The same can be applied internationally,

where regions are split up by continents or subcontinents. Automobile manufacturers andmultinational fast-food chains often follow this business organization structure. In some cases,products will remain the same across all regions, while in other cases, a product may be slightly

modified or a new product introduced to meet local needs.

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The Business Organization Chart

Jul 15, 2010Maureen Cutajar

Business Organization Chart Sample - Ivan Walsh

The aim of a business organization chart is to provide a snapshot of the organization at a given point in

time.

There are four different types of business organization charts which provide different views ofhow an organization is perceived. These are the following:

y The traditional organization chart (organigram) is a vertical chart showing a hierarchical view of

the organization.

y The horizontal chartis a slight variation of the traditional organigram showing the functions of

the organization in a horizontal layout.

y The matrix organizationalchart provides a snapshot of the individuals responsibilities within an

organization.

y The concentric circle chartprovides an alternative to the hierarchical approach which provides a

view from the hub of an organization outwards.

TheTraditional Organization Chart

A traditional organization chart presents one node or rectangle at the top which is broken down

into further levels showing the hierarchical structure of the organization. This provides a simplelayout for showing each functional area of the organization together with the individual who

supports or manages the function.

Each node usually shows the individual function within an organization that can also be

identified by job title and the person responsible. The nodes are linked with straight lines that

depict the authority and responsibility of each function depicted in the organization chart.

The benefits of the traditional organization chart include a simplified structure that allows groups

of individuals to be grouped together based on their responsibilities and expertise. In addition,this type of organization chart depicts a clear path for possible promotions within the

organization.

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The Horizontal Chart

The horizontal chart is quite similar to the traditional chart. The only difference is that the

horizontal chart displays the nodes from right to left rather than from top to bottom.

The Matrix Organizational Chart

The matrix chart provides another method to evaluate the functions within an organization. In a

matrix chart, staff functions are displayed at the top of the chart whereas the line functions are

shown on the side. Interaction between line managers and staff occurs where the functions crosson the matrix chart.

Read on

y Management Theories Provide Specific Insights

y How to Draw a Company Org Chart

y PerformanceManagement

The matrix chart provides a clear and accurate picture of who does what in an organization. It

also has the potential to delineate an individual who can be working on two simultaneousprojects and reporting to two managers at the same time. The matrix organization charts are

usually used by those businesses which manage large and complex projects such as theconstruction industry.

Concentric Circle Chart

The concentric circle chart moves away from the traditional organization chart by opting to show

the setup of an organization with the chief decision-makers in the centre rather than on the top ina hierarchical fashion. In the concentric circle chart the managing directors are shown at the hub

while the functions of the organization move outwards in a descending order of authority.

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ORGANIZATION

Ownership and structural forms of business organization, applicable laws, requirements for theirformations, and advantages and disadvantages

Type of Ownership

1. Single orSole Proprietorship. It is a form of business organization which is owned by oneperson. The owner personally manages his business. Most of businesses in the

Philippines (including those which are not registered) belong to single proprietorship.Examples are retailers, market vendors, barbers, tailors, and so forth.

a) Advantages ofSingle orSole Proprietorship

1) It is easy to organize. Financial capital is small, and registration requirements are not

difficult to comply with. In fact, in the remote rural areas small businesses do not even bother to

apply for license.

2) The single proprietor is the boss. He makes the decisions and enjoys substantial freedomof action. Possibilities of conflicts or quarrels are minimized.

3) The owner acquires all the profits from his business. This gives him more incentives to

make his business grow.

b) Disadvantages ofSingle orSole Proprietorship

1) In general the financial resources of a single proprietorship are not enough to transform

the business into a large scale enterprise. Considering its small assets and high mortality rate,banks are reluctant to grant big loans to single proprietorship type of business organizations.

2) Benefits of specialization in business management are not present in small scale

proprietorship. There is only one manager. In not a few cases, the owner is the only employee.

3) The owner has unlimited liability. This means that the owner of the business risks not onlythe assets of his small enterprise, but also his other personal assets like his piece of land, bank

deposits, and other personal properties which are not part of his business. In case of loss, suchassets are subject to financial claims by creditors.

c) Requirements for formation

Since it is the simplest form of business it is the easiest to register. It is registered through theBureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and

Industry (DTI).

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d) Applicable Laws

Republic Act No. 9178 Barangay Micro Business Enterprises (BMBEs) Act of 2002

1. Partnership. It is a form of business organization in which two or more persons agree to

own and operate a business. The partners agree to combine their resources (money,materials, and management). They also share their profits and losses. However, there aresilent partners. They only provide the financial capital but they do not participate in the

management. There is also the industrial partner. He does not contribute money to thebusiness organization but he is responsible for its management.

a) Advantages of Partnership

1) It is also easy to organize like single proprietorship. Legal red tape in connection with itsregistration is not much.

2) Better management because of the presence or more participants in the operations of thebusiness.

3) Possibility of bigger resources than in the single proprietorship exists. Financial

institutions may extend bigger loans to such business organization considering the combinedresources of the partners.

b) Disadvantages of Partnership

1) Conflicts or quarrels between or among the partners regarding the management or policies

of the business are likely to crop up. In fact, under Filipino style, some partners cheat their other

partners in matters of profits or expenses.

2) It lacks stability. The death or withdrawal of one partner dissolves the partnership. Tocontinue its operation, a complete reorganization is needed.

3) Like the single proprietor, the partners are also subject to unlimited liability, except the

limited partners. Such partners, liabilities are only confined to their share of capital contributionsin the form of cash or property.

c) Requirements for formation

A partnership consists of two or more persons who bind themselves to contribute money orindustry to a common fund, with the intention of dividing the profits among themselves. The

most common example of partnerships are professional partnerships, like in the case of law firmsand accounting firms. Just like a corporation, it is registered with the Securities and Exchange

Commission (SEC).

A partnership, just like a corporation, is a juridical entity, which means that it has a personalitydistinct and separate from that of its members. A partnership may be general or limited. In a

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general partnership, the partners have unlimited liability for the debts and obligation of thepartnership, pretty much like a sole proprietorship. In a limited partnership, one or more general

partners have unlimited liability and the limited partners have liability only up to the amount oftheir capital contributions. Unlike a corporation, which survives even when a

member/stockholder dies or gets out, a partnership is dissolved upon the death of a partner or

whenever a partner bolts out.

d) Applicable Laws

Unlike corporations whose governing law is a special law - the Corporation Code of the

Philippines, partnerships in the Philippines are governed by and covered under Articles 1767 to1867 of the Civil Code of the Philippines [circa 1950]. These are the provisions of law which

govern all aspects of partnerships - from their creation, formation, existence, operation andmanagement to their dissolution and liquidation, including the obligations of the partners to one

another, to the public or third persons and to the government.

1. Cooperative. It is an organization composed primarily of small producers and consumerswho voluntarily join together to form business enterprises which they themselves own,control and patronize.

A cooperative is also defined as a duly registered association of persons, with a common bond of

interest and have voluntarily joined together to achieve a lawful common social oreconomicend, and making equitable contributions to the capital required and accepting a fair share of the

risks and benefits of the undertaking in accordance with universally accepted cooperativeprinciples.

a) Advantages of a Cooperative

The advantageous factors of the cooperative type of organization are given below: -

1. Elimination of middlemen. The management of the consumer cooperative society directlypurchases the finished goods from the manufacturer and producer. Producer cooperative society

procures the raw material from the producer. Thus they try to free themselves from the grip ofthe middlemen and make the goods available to consumers at lower prices.

2. Saving in management expenses. Cooperative society enjoys some economies in the field of

management due to voluntary services performed by the members themselves. Thus, it ispossible to minimize the expenses of management and supervision.

3. Minimum stock. Society purchases the same goods which are actually demanded by itsmembers. Thus there is need to have minimum stock at hand due to constant and regular

demands.

4. Economy in distribution and production expenditure. Society is saved from any distributionand production expenses. It has got its regular customers; therefore society has not to face any

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trouble formarketing its goods. Thus is has not to incur any expenditure for publicity andadvertisement, which is a big item in the budget of the capitalist producer.

5. Integration. Under this type of organization, complete integration between producers,

wholesalers and retailers is always possible. This is thus a clear advantage over capitalist

economy.

b) Disadvantages of a Cooperative

The following are the reasons of failure or defects and disadvantages of cooperativeorganization.

1. Lack of capital.

a) Its members are generally related to the poor group of the society and they are not in a

position to invest a large amount.

b) External financial resources of the society are limited.

c) It cannot borrow money from non-members.

d) It cannot issue any kind of debentures.

e) It share cannot be transferred to nonmembers.

1. It thus suffers shortage of capital for the operation of business.2. Limited scale. Due to the various hindrances behind the growth of capital, it is not

possible for the cooperative society to start its business at a large scale; it therefore, keepsits business limited in the narrow field of cooperation.

3. Inefficient management. Expert and efficient management is important factor for runningthe business successfully. But a society cannot afford to hire the services of superior

abilities due to its limited resources. Therefore its business cannot be carried onsmoothly.

4. Lack of prompt decision. As all the matters are decided by the management committeeand complied by another authority, it cannot act with promptness, if a chance comes to

make a timely purchase or sale, they have to wait to get others consent.

c) Requirements for their formation

Organizing a cooperative can be complex and simple. It requires an understanding of the basic

needs of the prospective cooperative members. It demands patience from the organizer who mustmake the cooperatives long-term goals and objectives, and its visions a real part of the

members lives.

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But it can be too easy because the Cooperative Code of the Philippines (RA 6938) has devisedvery clear-cut steps for the cooperative organizer and members. The following are the basic

information that the prospective members should understand before organizing a cooperative.

There are six steps suggested in setting up a cooperative.

FIRST. Get organized. You must have at least 15 members to do that. At once determine thecommon problems you would want solved and the basic needs you would want provided for

through a cooperative. You may want to include increasing your production, marketing yourproduce, credit assistance, power generation, banking or insurance and other similar needs.

Determining your problems and needs will also help you classify the kind of cooperative youwill be organizing. Even before a cooperative is set up, a dedicated core group people who will

do all the organizational and paper works is a must. From this core group, working communitiesmay be formed to set things moving. These committees may include membership, finance,

executive, secretariat to name a few.

SEC

OND. Prepare a general statement called an economic survey. This statement will help youmeasure your cooperatives chances of success.

THIRD. Draft the cooperatives by-laws. The by-laws contain the rules and regulationsgoverning the operation of the cooperative.

FOURTH. Draft the articles of cooperation. Mandatory contents of the articles of cooperation

are the following: (a) the name of the cooperative, which must include the word cooperative;(b) the purpose or purposes and scope of business of the cooperative; (c) the term of existence of

cooperative;(d) the area of operation and the postal addresses of the registrant-cooperators; (e)the common bond of membership; (f) the names of the directors who shall manage the

cooperative; (g) the amount of share capital; (h) the names and residences of its contributors, and(i)the type of cooperative, whether it is primary, secondary or tertiary.

FIFTH. Secure bond for accountable officer(s). The officers normally accountable are theTreasurer and the Manager. The amount of the bond is to be decided upon by the Board of

Directors, based on the initial net worth of the cooperative which includes the paid-up capital,membership fees and other assets of the cooperative at the time of registration.

SIXTH. Register your cooperative with the Cooperative Development Authority (CDA).

Submit the following required documents:

v Four (4) copies each of the Economic Survey, Articles of Cooperation and By-Laws dulynotarized;

v Bonds of accountable officer(s) (any directors, officers and employees) handling funds,

securities, of properties in behalf of the cooperative;

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v Sworn statement of the treasurer duly notarized showing that at least 25% of the authorizedshare capital has been subscribed, and at least 25% of the total subscription has been paid. The

paid-up capital must not be less than Php 2,000.00.

Note: It must be noted that no member may own more than 20% of the subscribed share capital

and each share must not be less than Php 1.00

d) Applicable Laws

Presidential Decree 175 An Act Strengthening the Cooperative Movement

Republic Act 6938 The Cooperative Code of the Philippines (as amended)

1. Corporations. It is a company recognized by law as a single body with its own powersand liabilities, separate from those of the individual members. Corporations perform

many of the functions of private business, governments, educational bodies, and the

professions.

a) Advantages of a Corporation

1) A member has unlimited liability. In case the corporation becomes bankrupt, only thecapital contributions of the members are affected. The other personal properties of the

stockholders of a corporation are excluded from financial claims of creditors of the corporation.

2) It has the most effective means of raising money capital for its operations, by sellingstocks and bonds. Stocks are certificates of ownership while bonds are certificates of

indebtedness. These are financial institutions which specialize in helping a corporation sell its

securities (stocks and bonds).

3) It has permanent existence. The life-span of a corporation is 50 years, and subject torenewal for another 50 years. The death withdrawal of some officers and members does not

affect the existence of the corporation. The corporation can easily get officers or managers frominside or outside the organization. Transfer of corporate ownership may take place any time

through a sale of stocks, but this does not disrupt the continuity of a corporation. As a legalentity, the life of a corporation is independent from its owners and officials.

4) It is capable of getting the most efficient management considering its huge resources and

large scale-corporations.

b) Disadvantages of a Corporation

1) It is not easy to organize a corporation. Aside from complying with capital requirements,

there is much paperwork involved in securing a charter. A charter is a written document whichcontains the objectives and activities of the corporation, among other things. It takes a longer

time to secure the approval of the Securities and Exchange Commission regarding theorganization and operation of a corporation.

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2) Abuses of corporation officials are likely to emerge in situations where many stockholdersdo not participate actively in the affairs of their corporation. Not a few stockholders do not

exercise their voting rights during important meetings. Either, they are absent or they let otherscast their votes (proxy voting). Examples of abuses of corporate officials are large salaries and

fat allowances for them.

3) Some corporations are engaged in questionable activities. For instance, they sell worthlesssecurities; they pollute the environment; or sell substandard goods. In short, they do not comply

with their social responsibility.

4) There is a very impersonal or formal relationship between the officers and employees of acorporation. In the case of single proprietorship and partnership, constant and close contact

between owners and employees create a very personal and friendly atmosphere. Everybodyknows everybody. In a giant corporation, it is not possible for the president or the board

chairman to meet personally all his employees in a year. His very valuable time is devoted toplanning and decision making.

c) Requirements for their formation

A corporation is a juridical entity established under the Corporation Code and registered with theSEC. It must be created by or composed of at least 5 natural persons (up to a maximum of 15),

technically called incorporators. Juridical persons, like other corporations or partnerships,cannot be incorporators, although they may subsequenly purchase shares and become corporate

shareholders/stockholders.

d) Applicable Laws

Batas Pambansa Blg. 68 The Corporation Code of the Philippines

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BUSINESS ORGANISATION

SUBMITTED TO SUBMITTED BY

Mr. GANESH JEEVANANTHAM.P

Ist B.COM

Sub date : 4/08/10

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