Lesson 006 - Forms of Business Organizations
Summary
TLDRThis educational video script covers the various forms of business organizations: sole proprietorship, partnership, corporation, and cooperatives. It defines each type, detailing their advantages and disadvantages. Sole proprietorships are easy to establish with full control but have limited capital and unlimited liability. Partnerships offer shared expertise but can have decision-making conflicts. Corporations provide limited liability and access to capital through shares but face double taxation and potential agency problems. Cooperatives focus on member needs but may lack active participation. The script is designed to help viewers understand and differentiate these business structures.
Takeaways
- 📚 The script discusses four main forms of business organizations: sole proprietorship, partnership, corporation, and cooperatives.
- 👤 Sole proprietorship is an unincorporated business owned by one person, characterized by ease of establishment, personal control, and unlimited liability.
- 🤝 Partnership is a business contract between two or more people who contribute to a common fund with the intention of dividing profits, offering shared expertise but also potential for disagreements.
- 🏢 Corporations are artificial legal entities with limited liability for shareholders, offering a large source of capital but subject to double taxation and potential agency problems.
- 🤗 Cooperatives are member-owned enterprises focused on common economic, social, and cultural goals, with democratic organization but challenges in attracting big investors.
- 🚀 Advantages of sole proprietorship include ease of formation, full control, and quick decision-making, but it has limited capital and high personal risk.
- 🔄 In partnerships, the advantages are shared expertise and resources, but there can be a loss of autonomy and emotional issues among partners.
- 💰 Corporations benefit from limited liability and easy transferability of ownership, but they may face higher costs for setup and double taxation on profits.
- 👥 Cooperatives have lower setup costs and democratic decision-making, but they can struggle with a lack of member participation and unattractive investment prospects for big investors.
- 📈 The script aims to help learners define, explain, and differentiate between the four business forms, as well as identify their advantages and disadvantages.
- 🌐 The lesson is theoretical, providing a foundational understanding of business organization structures that can be applied across various industries and scenarios.
Q & A
What are the two main types of users of accounting information discussed in the lesson?
-The two main types of users of accounting information are internal users, which include owners and managers, and external users, which include investors, creditors, customers, employees, suppliers, tax authorities, government, and the general public.
What are the four forms of business organizations mentioned in the script?
-The four forms of business organizations mentioned are sole proprietorship, partnership, corporation, and cooperatives.
What is a sole proprietorship and what are its main advantages?
-A sole proprietorship is an unincorporated business owned by one person, often referred to as a sole trader. Its main advantages include ease of establishment and dismantling, full control by the owner, quick decision-making, and the ability to give a personal touch to the business.
What are some disadvantages of operating a sole proprietorship?
-Some disadvantages of a sole proprietorship include limited size and capital, limited life due to the need for more funding, limited professional skills and talent, unlimited liability, and the potential for wrong decisions due to the lack of diverse perspectives.
What is a partnership and how does it differ from a sole proprietorship?
-A partnership is a contract entered by two or more people who agree to contribute money, property, or industry to a common fund with the intention of dividing profits. It differs from a sole proprietorship in that it involves multiple owners and can offer a broader range of expertise, shared funding, and more business opportunities.
What are the potential disadvantages of a partnership business model?
-Disadvantages of a partnership include loss of autonomy due to the need for agreement among partners, potential emotional issues within the partnership, future selling complications, and unlimited liability where partners' personal assets may be used to pay for the partnership's liabilities.
What is the definition of a corporation according to the revised corporation code in the Philippines?
-A corporation is defined as an artificial being created by operation of law, having the right of succession, and possessing powers, attributes, and properties expressly authorized by law or incidental to its existence.
What are the main advantages of operating a corporation?
-The main advantages of a corporation include limited liability for shareholders, a large source of capital through share sales, easy transferability of ownership, and the potential for independent management.
What are the potential disadvantages of a corporation?
-Disadvantages of a corporation include double taxation on profits and distributions to shareholders, the potential for agency problems where management decisions differ from owner interests, higher costs due to government requirements, and the complexity of forming a corporation.
What is a cooperative and how does it differ from other business forms?
-A cooperative is a people-centered enterprise owned, controlled, and run by its members to realize their common economic, social, and cultural needs and aspirations. It differs from other business forms in that it is democratic, with one member one vote, and focuses on the common goal of its members rather than individual profit.
What are some advantages and disadvantages of a cooperative business model?
-Advantages of a cooperative include lower creation costs, broader marketing reach due to many members, and democratic organization. Disadvantages include less attractiveness to big investors due to the one member one vote rule, and a potential lack of membership and participation.
Outlines
📚 Introduction to Business Organization Forms
This paragraph introduces the topic of different forms of business organizations, focusing on the distinction between internal and external users of accounting information. It sets the stage for a discussion on sole proprietorship, partnership, corporation, and cooperatives, outlining the lesson's goal to define, explain, and differentiate these forms, as well as to identify their advantages and disadvantages.
👤 Sole Proprietorship: The Basics and Characteristics
The paragraph delves into the concept of a sole proprietorship, an unincorporated business owned by a single individual. It highlights the ease of establishment and dismantling, the full control the owner has, and the personal touch that can be added to the business. Advantages include ease of formation, direct reward for effort, and quick decision-making. Disadvantages cover limited size, limited life, lack of diverse professional skills, unlimited liability, limited capital, and potential for poor decision-making.
🤝 Partnership: Sharing Resources and Profits
This section explains the nature of partnerships as defined by the Civil Code of the Philippines, emphasizing the contractual agreement between two or more persons to contribute to a common fund with the intention of sharing profits. It discusses the advantages of partnerships, such as bridging expertise, accessing more cash and property, increased business opportunities, and gaining new perspectives. Disadvantages include loss of autonomy, emotional issues, selling complications, and unlimited liability for personal assets.
🏢 Corporation: An Artificial Entity with Defined Rights
The paragraph describes a corporation as an artificial being with legal rights and attributes, including limited liability and the ability to raise capital through share sales. It outlines the benefits of limited liability, large capital sources, and transferable ownership. However, it also points out the downsides, such as double taxation, potential agency problems with management, and higher costs due to government requirements.
👥 Cooperatives: Member-Centered Enterprises
The final paragraph discusses cooperatives as people-centered enterprises owned and run by their members to meet common economic, social, and cultural needs. It outlines the advantages of lower creation costs, wider marketing reach, and democratic organization within cooperatives. However, it also notes the disadvantages, including lack of attraction for big investors, due to the one-member-one-vote principle, and a general lack of membership participation.
Mindmap
Keywords
💡Accounting Information
💡Internal Users
💡External Users
💡Sole Proprietorship
💡Partnership
💡Corporation
💡Cooperative
💡Limited Liability
💡Double Taxation
💡Agency Problem
💡Business Organization Forms
Highlights
Introduction to the lesson on different forms of business organizations.
Definition and explanation of internal and external users of accounting information.
Overview of the four main business organization forms: sole proprietorship, partnership, corporation, and cooperatives.
Description of a sole proprietorship as an unincorporated business with a single owner.
Advantages of a sole proprietorship, including ease of establishment and full control by the owner.
Disadvantages of a sole proprietorship, such as limited size and unlimited liability.
Definition of a partnership as a contract between two or more people to contribute to a common fund.
Advantages of partnerships, like bridging gaps in expertise and providing more funding opportunities.
Disadvantages of partnerships, including loss of autonomy and potential emotional issues among partners.
Explanation of a corporation as an artificial being created by law with rights of succession.
Advantages of corporations, such as limited liability and a large source of capital through share sales.
Disadvantages of corporations, including double taxation and potential agency problems.
Definition of cooperatives as people-centered enterprises owned and run by their members for common goals.
Advantages of cooperatives, such as lower creation costs and democratic organization.
Disadvantages of cooperatives, including lack of attractiveness to big investors and low member participation.
Conclusion summarizing the four business organization forms and their characteristics.
Announcement of the next lesson's focus on the activities of business organizations.
Transcripts
[Music]
hello everybody so in the last lesson we
discussed the different users of account
information and we have two users of
accounting information we have the
internal users of accounting information
and we also have external users of
accounting information so last lesson we
knew that internal users involves owners
and managers and external users of
accounting information includes
investors creditors customers employees
suppliers tax authorities government and
the general public so welcome to lesson
6 and we will be talking about the
different forms of business
organizations so at the end of the video
you should be able to define explain and
differentiate the four forms of business
organizations and identify the
advantages and disadvantages of each
form of business organizations allow me
more than a indiv of Avitus a video can
say we will be discussing a pure
theoretical lesson so given that Wonga
Paquita okay so I think we're ready to
start
so the different forms of business
organization is presented to you so we
have sole proprietorship partnership
corporation and cooperatives so those
are the four forms of business
organizations that we will be talking
about today so let's first talk about
the sole proprietorship type of business
a sole proprietorship also referred to
as a sole trader or a proprietorship is
an unincorporated business that has just
one owner okay
so in its simplest form a sole
proprietorship type of business is only
owned by one person
ISA l'homme RA na easy pan yonder Magda
unum sorry
no business and then that's it multiple
user none business and he is the only
owner of the business
okay so sole proprietorships are easy to
establish in this mantle when you say
this mantle I can establish I at
i/o so punking bug minimum a bug huh
better Pawnee could close muna young
business that's what you call this
mantle or dismantling of the business
sole proprietorships are easy to
establish and dismantle due to a lack of
government involvement making them
popular with small business owners and
contractors it's just like this when a
person has the capital to start a
business and I and he thinks that he is
ready to enter into a business then he
can put up his own business and become a
sole proprietor okay so let me discuss
with you the advantages and
disadvantages are we having a sole
proprietorship type of business or being
the only boss in the business okay so
for the advantages first is it's easy to
form like what I've told you earlier
when a sole proprietor or a potential
owner of a business things that he is
ready to enter into a business or he
already has the necessary capital in
order for him to open the business then
he can open the business easily okay
effort reward your relationship is when
the efforts of a sole proprietor is
given to the business he will receive
and enjoy the reward for that effort
that he gave okay so F fourtner Perry on
rewards non chambray the Shillong you
may add in business he will really enjoy
the rewards of what he did okay and then
he has a full control he since he is the
only boss and he is the owner of that so
proprietorship type of business then he
has full control of the whole entity and
then the sessions are also quick because
since the owner is the sole owner of the
business he doesn't need anyone to
advise him of what to do so the
decisions will
be quick and then operations are also
economical inefficient it's it's just
like because the things are easy and
your business is a bit small actually
then your operations are efficient but
not necessarily effective so we need to
check on that but basically when it's
efficient you manage your resources
accordingly and now you're you are
actually able to do it well and then
personal touch because you are the sole
owner of your business you can give a
personal touch to what your what you
really want to do okay so let's say for
example you put up a milk tea shop in
your sole proprietorship because of the
personal touch power that you have you
can do any theme that you have in your
milk tea shop and then keep the business
simple dynamic and flexible because the
owner will be able to enjoy the personal
touch and full control of the business
the business itself is dynamic and
flexible however we have the following
disadvantages number one its small in
size usually sole proprietorships don't
really go that big because they're the
they have limited capital limited life
in a sense that sole proprietorships
tend to stop as a sole proprietor
because they need more funding they
enter into partnerships our corporation
so as a sole proprietor it stops so that
that's what we mean by a limited life
and then lapse professional skills and
talent because you don't have any
partners with you or any managers with
you and being the sole owner of the
business we are the only brain working
in the business so you lack the
professional skills and talents that
might be available into other forms of
this's organization
one thing of a disadvantage also in sole
proprietorship type of business is the
liability is unlimited in any case the
makanda automaton young business more
NACO but the personal assets more haha
boolean nama creditors
wrote prospects we have actually a
problem with a growth of a business and
it's all proprietorship type of business
and then that's what I've told you
earlier capital is very limited in this
type of business and you might be at
risk of doing wrong decisions okay so
that is a sole proprietorship type of
business now let's make it a bit bigger
let's go to the partnership type of
business so according to article one
seven six seven of the Civil Code of the
Philippines by the contract of
partnership two or more persons bind
themselves to contribute money property
or industry to a common fund with the
intention of dividing the profits among
themselves and two or more persons may
also form a partnership for the exercise
of a profession so let's look at the
definition so that we can understand
partnership very well first of all a
partnership is a contract that is
entered by two or more people remember
that because if there's no contract
there's no partnership okay
and then they bind themselves to
contribute money property or industry
what will they contribute they can
contribute money to start the business
operating that's the starting capital or
the partners can contribute property so
if you cannot contribute money then
maybe you can contribute the office
space or the selling space of the
company or maybe you don't have the
money or you don't have any property to
contribute but you have the skills or
the talents industry let's say for
example that local Makaha begun you want
to put up a bakery
one of you is ma para a deep reading
show you will contribute non money one
of you has already an available selling
space
he can contribute the property for that
specific partnership now one of your
friends doesn't have really that money
our property to contribute in the
business but he is good in baking so he
can contribute the industry that he has
now that money property our industry
will be distributed into a common fund
and the common fund is the partnership
itself the business itself and the
intention of the partners in entering
through the partnership divide the
profits among themselves and always
remember that two or more persons can
also form a partnership then in a way
that they can exercise their profession
the best example is our profession
accounting firms accounting firms is not
if not sole proprietors they are
partnerships
Navaro ampere in company East lolly
Paulo in company CCF Gura's vallejo in
company as you can see those are
surnames of different CPAs who has
partnered together in order to form a
partnership business of exercising a
profession another example are law firms
lawyers who create their own partnership
business and exercise and give surveys
of legal services so that's a
partnership now let me discuss with you
also the advantages and disadvantages of
a partnership business a partnership
bridges the gap in expertise and
knowledge if you're not really
knowledgeable with this then maybe your
partner is knowledgeable with that kind
of thing like my example canina
you might be having the money or you
contributed the property but you don't
have the skill of baking your bakery
will not pursue but because you have a
partner who is good and baking then the
bakery can continue more cash and
property so unlike a sole proprietor
which is limited in funding in
partnership you have more funding
opportunities because you can partner
with people and then more business
opportunities you are all
representatives of the business itself
and you can advertise your business to
others which gives more business
opportunities because the number of
partners you have is the number of
chances that you can explore outside not
to mention you have moral support of
your friends in the partnership and then
it gives a new perspective of things
maybe partner a has a decision which
partner B has a new perspective of
things they can guide each other and
make better decisions with each other
however the disadvantages of a
partnership type of business s there is
a loss of autonomy so unlike in sole
proprietorship type of business where
there is really autonomy with the owner
there is lots of autonomy so basically
the decision of partner a might not be
agreed by partner B and so on there
might also be some emotional issues that
you need to consider in a partnership
most especially with your relationships
with your partners and then future
selling complications like partner a the
say wants to enter into this contract
then partner B does not K and then
unlimited liability actually
partnerships can become limited
liability but the general point here is
that like sole proprietorships the
partners can also can also use their
personal assets to pay for the
liabilities of the partnership in any
case makanda automaton didn't sell as a
duo so that is in partnership type of
business let's move on to the
corporation type of business according
to the revised corporation code in the
Philippines a corporation is an
artificial being created by operation of
law having the right of succession in
the powers attributes and properties
Express the authorized by law or
incidental to X existence so again the
definition of a corporation might be 2d
for you so let's
have it one by one remember that the
corporation is an artificial da but
technology our being there are also a
being if people like us are natural
beings a corporation is an artificial
being in short pardon Santa every
civilian da hell Tasha kahit artificial
Pradesh on kazoo Han a spread the
Kareena Kapoor had casa para sham oh
okay it works like a person but it's not
a natural person okay remember also that
it is created by operation of law
so without the approval of it any legal
perspective here then the corporation
will not proceed
a corporation has the right of
succession so in any case that the
owners would change the corporation is
to continue there is a succession and
then the powers attributes and
properties are expressly authorized by
law or incidental to its existence let
me show you the different advantages and
disadvantages of a corporation one
advantage of a corporation is it enjoys
limited liability
you cannot go after the personal assets
of the shareholders to answer the
liabilities of the corporation there is
really a gap between the owners and the
corporation itself and then you have a
big source of capital once you sell
shares you get money but the downside of
it is that you have owners that you
might not know because of that shares
and then the ownership transfers if I do
not want to become a shareholder anymore
I can sell my shares to others I can
transfer it because that's my shares I
can just sell it ok we can easily do
that in a corporation however a
corporation has double taxation double
taxation in a sin
that the profits of a corporation is
being taxed already
however when those profits are already
distributed to the shareholders of a
corporation it will also be taxed and
that's what you've all the final tax so
there is double taxation and profit it
was already taxed the time it was
enjoyed by the corporation and the time
it's distributed to the shareholders
it's also taxed and then we also have
independent management remember that the
owners of a corporation will create a
management that will really look unto
the operations of a company and
sometimes the decisions of those
management people is different from the
decisions of the owners and that's what
that's what we call an agency problem
why the management is the agent that
works for the principal and the
principal people of the business are the
owners of the corporation and then
lastly form a corporation costs more
because you will be dealing with many
government requirements in order for you
to set up a corporation and lastly we
have cooperatives cooperatives are
people centered enterprises owned
controlled and run by and for their
members to realize their common economic
social and cultural needs and
aspirations
remember that cooperatives are being
built because there is only a common
goal for example a credit cooperative
may benefit their members and then as
part of their funding they can create a
mini store and the proceeds of the store
can be enjoyed by the members of the
co-operative either by loan
by having it okay it's like that the
members of a cooperatives are enjoying
the benefits of the cooperatives only
because of the common goal that they
have okay so let me show you also the
advantages and disadvantages of a
cooperative creation of a cooperative
has lower cost and then you can also
have further marketing reach for that
because you have many members of the
co-operative you can work for you and
then it is a democratic organization
because the goal of a cooperative is let
the members of that co-operative enjoy
the benefits of the co-operative however
big investors do not get much attractive
with the co-operative because in a
cooperative one member one vote only
unlike any corporation that the number
of votes that you can give in a
shareholders meeting is equal to the
number of shares that you bought in the
corporation so usually big investors
don't really like investing in a
cooperative because it's only one is to
one and lastly there is a lack of
membership and participation so
basically people are not attracted in
entering a cooperative and there is also
a lack of participation even though they
are a member so sometimes those things
have been in a cooperative okay so those
are the four forms of business
organization so when only one person
owns the business it's a sole
proprietorship type of business but when
a group of people already pulls their
own money property or industry with the
intention of dividing profits among
themselves that is a partnership but
when the ownership is already divided
into shares of stock then that is a
corporation but when the members of the
firm only has a one economic or cultural
goal then that is a cooperative thank
you very much for listening and our next
lesson would be the activities of the
business organizations which includes
service industries merchandising
industries and manufacturing industries
thank you and have a great day
[Music]
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