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Questions and Answers
What type of business entity is personally liable for all obligations of the business?
What type of business entity is personally liable for all obligations of the business?
- Sole Proprietorship (correct)
- Partnership
- Joint Venture
- Corporation
Which business entity offers limited liability to its owners?
Which business entity offers limited liability to its owners?
- Sole Proprietorship
- General Partnership
- Partnership
- Corporation (correct)
What is the typical tax treatment for corporations in the Philippines?
What is the typical tax treatment for corporations in the Philippines?
- Fixed at 30% of net income (correct)
- Taxed as individuals at 5%-32%
- Taxed based on capital contributions
- Taxed at 20% of gross revenue
What is necessary for registering a Sole Proprietorship in the Philippines?
What is necessary for registering a Sole Proprietorship in the Philippines?
How are partnerships in the Philippines typically registered?
How are partnerships in the Philippines typically registered?
Which business structure provides the easiest establishment process?
Which business structure provides the easiest establishment process?
In a partnership, what does personal liability mean for the partners?
In a partnership, what does personal liability mean for the partners?
What is a key advantage of establishing a corporation compared to a partnership?
What is a key advantage of establishing a corporation compared to a partnership?
What is the main advantage of a corporation in relation to investor assets?
What is the main advantage of a corporation in relation to investor assets?
Which type of business structure requires the least formal registration process?
Which type of business structure requires the least formal registration process?
What is required of partnerships when establishing their business?
What is required of partnerships when establishing their business?
In terms of personal liability, how do partnerships differ from sole proprietorships?
In terms of personal liability, how do partnerships differ from sole proprietorships?
Which of the following statements is true regarding joint ventures?
Which of the following statements is true regarding joint ventures?
What is a key requirement for all business types in terms of regulatory compliance?
What is a key requirement for all business types in terms of regulatory compliance?
What document is NOT necessary for establishing a sole proprietorship?
What document is NOT necessary for establishing a sole proprietorship?
In which type of business structure are owners' liabilities limited to their capital share?
In which type of business structure are owners' liabilities limited to their capital share?
What is a key advantage of corporations in terms of raising capital?
What is a key advantage of corporations in terms of raising capital?
Which type of business structure requires only registration with the DTI?
Which type of business structure requires only registration with the DTI?
How are corporations managed?
How are corporations managed?
What is the typical tax treatment for corporations in terms of income tax rate?
What is the typical tax treatment for corporations in terms of income tax rate?
Which of the following requires the registration of a partnership?
Which of the following requires the registration of a partnership?
What is a disadvantage of a sole proprietorship when compared to corporations?
What is a disadvantage of a sole proprietorship when compared to corporations?
What legal requirements must a business owner in the Philippines follow to ensure compliance?
What legal requirements must a business owner in the Philippines follow to ensure compliance?
What happens to shareholders' liability in the case of corporate insolvency?
What happens to shareholders' liability in the case of corporate insolvency?
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Study Notes
Types of Business Entities in the Philippines
-
Sole Proprietorship
- Easiest to establish; only requires registration with DTI.
- Owner is personally liable for all obligations and debts of the business.
- Taxed as an individual, ranging from 5%-32%, generally fixed at 30% of net income.
-
Partnership
- Requires registration with the SEC, BIR registration, and local business permits.
- Partners are jointly liable for the partnership's obligations; personal assets can be pursued by creditors in case of bankruptcy.
- Capital is raised collectively by partners who agree on contributions and sharing of profits.
-
Joint Venture
- Not required to be registered; formal agreement between parties suffices.
- Similar liability and tax implications as partnerships.
-
Corporation
- Requires registration with the SEC, as well as BIR registration and local business permits.
- Shareholders have limited liability; they are not personally liable for corporate debts.
- Managed by a Board of Directors elected by shareholders.
- Taxed at a fixed rate of 30% of net income, with various capital-raising options including equity financing and debt financing.
Control and Management
- Sole proprietors maintain full control over their business operations.
- Partnerships are managed based on majority ownership among partners.
- Corporations are governed by a Board of Directors, establishing a clear separation between ownership and management.
Raising Capital
- Sole proprietorships face limitations based on the owner's creditworthiness.
- Partnerships leverage collective creditworthiness to incur debts.
- Corporations can explore multiple avenues to raise capital, insulated from creditors in cases of insolvency, reassuring potential investors.
Legal and Regulatory Compliance
- Proper registration and following regulations are crucial to protect business owners legally.
- Ensures compliance with local laws, preventing potential shutdowns for operating illegally and building reputational credibility.
- Annual reporting is required for corporations and partnerships, including General Information Sheets and Financial Statements.
Insolvency Implications
- In cases of insolvency:
- Shareholders of a corporation are not personally liable for the company's debts.
- Personal assets of partners may be at risk in a partnership bankruptcy.
- Sole proprietors bear full financial responsibility for business debts.
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