Sole Proprietorship Basics
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What are the key features of a sole proprietorship in the Philippines? (Select all that apply)

  • Limited Liability
  • Single Ownership (correct)
  • Unlimited Personal Liability (correct)
  • Legal Personality Separate from the Owner
  • Ease of Formation (correct)

    • Which of the following statements about a corporation's legal personality is true?

  • A corporation's legal personality is only recognized after it has generated a significant amount of profit.
  • A corporation's assets and liabilities are directly tied to the owner's personal assets.
  • A corporation's legal personality is dependent on the number of shareholders it has.
  • A corporation is considered a separate legal entity from its owners, with distinct assets and liabilities. (correct)

    • What is the main difference between a general partnership and a limited partnership?

  • General partners have unlimited liability, while limited partners have limited liability. (correct)
  • General partners have unlimited liability, while limited partners have no liability.
  • General partners are exempt from paying taxes, while limited partners are taxed.
  • General partners have limited liability, while limited partners have unlimited liability.
  • General partners are responsible for all business decisions, while limited partners have no say in the business.

    • Match the following types of corporate shares with their corresponding characteristics:

    <p>Common stock = Provides basic ownership rights, including voting rights and dividends. Preferred stock = Entitled to priority in dividends and liquidation, but typically do not have voting rights. Founders' shares = May carry exclusive rights, often for a limited time, such as voting rights. Redeemable shares = The corporation can buy back these shares under certain conditions, as outlined in the Articles of Incorporation. Treasury shares = Previously issued shares that have been reacquired by the corporation.</p> Signup and view all the answers

    Which of these options are considered to be advantages of a sole proprietorship? (Select all that apply)

    <p>No double taxation</p> Signup and view all the answers

    What is the primary difference between a sole proprietorship and a corporation in terms of legal personality?

    <p>A sole proprietorship does not have a separate legal personality, meaning the owner and the business are considered one entity. In contrast, a corporation has separate legal personality, meaning it exists as a distinct entity separate from its owners.</p> Signup and view all the answers

    In a sole proprietorship, the owner is personally liable for all debts and obligations of the business.

    <p>True</p> Signup and view all the answers

    What government agency is responsible for registering a business name in the Philippines?

    <p>Department of Trade and Industry (DTI)</p> Signup and view all the answers

    A partnership requires a notarized written agreement if the capital exceeds PHP 3,000 or if immovable property is contributed.

    <p>True</p> Signup and view all the answers

    Which of the following is NOT an accurate characteristic of a partnership? (Select only one)

    <p>Partnerships must be registered with the Securities and Exchange Commission (SEC) to be considered legally valid.</p> Signup and view all the answers

    What does the term "Delectus Personae" refer to in the context of partnerships?

    <p>The principle of Delectus Personae implies that partners are chosen based on trust, and generally, all partners must consent to new partners being added to the partnership.</p> Signup and view all the answers

    What is the primary purpose of the Trust Fund Doctrine in corporate law?

    <p>The Trust Fund Doctrine ensures that a corporation's assets are treated as a &quot;trust fund&quot; for its creditors, protecting their financial interests in case of the corporation's inability to pay its debts.</p> Signup and view all the answers

    Which of these is NOT considered a type of corporate share? (Select only one)

    <p>Venture Capital Shares</p> Signup and view all the answers

    What is the main purpose of the Business Judgment Rule in corporate law?

    <p>The Business Judgment Rule protects corporate directors and officers from personal liability for business decisions made in good faith, with due diligence, and within their authority. The Rule assumes that directors have the best interests of the corporation at heart.</p> Signup and view all the answers

    Which of the following would NOT be considered a limitation on the powers of the board of directors in a corporation? (Select only one)

    <p>The board can unilaterally make fundamental changes to the corporation, such as amending the Articles of Incorporation.</p> Signup and view all the answers

    A corporation formed to operate a restaurant can legally decide to engage in unrelated activities like mining, without any amendments to its Articles of Incorporation.

    <p>False</p> Signup and view all the answers

    In the context of a corporation, which of the following is NOT a fiduciary duty of directors? (Select only one)

    <p>Duty to maximize shareholder profits</p> Signup and view all the answers

    A corporation with public interest must have independent directors comprising at least 20% of their board.

    <p>True</p> Signup and view all the answers

    What are the two ways that the Securities and Exchange Commission (SEC) can remove directors or trustees from a corporation?

    <p>The SEC can remove directors or trustees either through Motu Proprio, acting on its own initiative, or based on a verified complaint filed against the director or trustee.</p> Signup and view all the answers

    Stockholders can remove directors through a vote with a simple majority.

    <p>False</p> Signup and view all the answers

    What is the primary purpose of the underlying principle of the "gratuitously" provided services by directors?

    <p>This principle ensures that directors prioritize their long-term interest in the corporation's success, rather than seeking personal gain from their positions. The expectation that their returns on their shares will be sufficient motivation encourages directors to act in the company's best interests.</p> Signup and view all the answers

    Which of these situations would NOT result in a director being held liable for damages in a corporation? (Select only one)

    <p>A director makes a decision that is within their authority and in good faith, but the project ultimately fails.</p> Signup and view all the answers

    A director can be held liable for all damages suffered by the corporation, stockholders, or other affected parties, if they are found guilty of willingly participating in unlawful acts.

    <p>True</p> Signup and view all the answers

    What is the main distinction between a de jure corporation and a de facto corporation?

    <p>A de jure corporation is legally valid and recognized as a corporation under the law, having fully complied with all applicable requirements. A de facto corporation, on the other hand, operates as though it were legally incorporated, but may not have met all the formal requirements. It is generally considered valid in dealings with third parties, but its existence can be challenged in court.</p> Signup and view all the answers

    A One Person Corporation (OPC) in the Philippines requires a minimum capital stock.

    <p>False</p> Signup and view all the answers

    Which of these is NOT a key characteristic of a One Person Corporation (OPC)? (Select only one)

    <p>It requires a minimum capital stock.</p> Signup and view all the answers

    Study Notes

    Sole Proprietorship

    • A sole proprietorship is the simplest form of business organization in the Philippines
    • Owned and managed by one person, called the sole proprietor
    • The business and the owner are considered the same legal entity
    • The owner's personal assets and business assets are not separate
    • The owner is personally liable for all debts and obligations of the business
    • Simple to establish and requires minimal documentation
    • The sole proprietor has complete control over the business operations
    • No separate legal personality
    • Unlimited personal liability

    Key Difference from a Corporation

    • Sole Proprietorship: No separate legal personality, owner and business are one
    • Corporation: Separate legal personality; liability is limited to corporate assets
    • Sole Proprietorship: Unlimited personal liability
    • Corporation: Limited liability

    Advantages of Sole Proprietorship

    • Simple creation
    • Efficient decision-making
    • Less paperwork
    • No double taxation
    • Ease of dissolution

    Disadvantages of Sole Proprietorship

    • Personal liability
    • No asset separation
    • Business ends with death
    • No possibility of ownership sharing

    Registering a Sole Proprietorship

    • Register business name with the Department of Trade and Industry (DTI)
    • Choose a unique business name and verify its availability
    • Register the name online or in person
    • Upon approval, receive a DTI Certificate of Registration
    • Obtain Barangay Clearance (from the Barangay Hall)
    • Provide DTI Certificate, proof of address, IDs, and required documents
    • Secure a Mayor's Permit from the Local Government Unit (LGU)
    • Provide Barangay Clearance, DTI Certificate, lease contract, proof of address, and other pertinent business documents
    • Register with the Bureau of Internal Revenue (BIR)
    • Fill out BIR Form 1901 (Application for Registration)
    • Present relevant documents such as Mayor's Permit, DTI Certificate, valid IDs, and proof of address
    • Pay the applicable fees
    • Receive a Certificate of Registration (BIR Form 2303)

    Partnership

    • A partnership is a contractual arrangement where two or more persons agree to contribute money, property, or expertise to a common fund, with the goal of sharing profits.
    • Partners are chosen based on trust
    • Each partner is an agent of the partnership, binding it through actions within the scope of its business.
    • Corporations can participate as partners under the Revised Corporation Code

    Entity Taxation

    • Partnerships are taxed at the "entity level"
    • Income is first taxed as a partnership, then partners are individually taxed on their shares.
    • The partnership is a distinct legal entity, capable of owning property, suing, and being sued independently of the partners.
    • Non-registration does not invalidate the partnership; failure to meet formalities may void the partnership for immovable property contributions.
    • A notarized written agreement required if capital exceeds 3,000 or if immovable property is contributed
    • Partnership's assets are first used to pay debt, followed by personal assets

    Corporation

    • A corporation is an artificial being
    • Governed by Republic Act No. 11232 (Revised Corporation Code of the Philippines)
    • It has separate juridical personality distinct from its owners
    • Owns its own properties
    • Owners' personal properties cannot be used for corporate liabilities (vice versa)
    • Strong legal personality
    • Perpetual existence, regardless of ownership changes
    • Perpetual succession, continuity despite changes in ownership
    • Shares are transferable without affecting operations
    • Liability limited to contributions, shareholders not personally liable for corporate debts
    • Centralized management, specialized directors manage corporation
    • Corporations derive existence after SEC approval and issuance of Certificate of Registration.

    Disadvantages of Corporations

    • Complex formation
    • Requires stringent reporting requirements
    • Double taxation (taxes on corporate profits and dividends to shareholders)
    • Possible conflicts of interest among shareholders

    Types of Shares

    • Common stock: Basic ownership shares with voting rights and rights to dividends
    • Preferred stock: Shares having priority in dividends and liquidation
    • Founders' shares: Shares with exclusive rights (e.g., specific voting rights) for a limited period
    • Redeemable shares: Shares that the company may repurchase
    • Treasury shares: Previously issued and fully paid shares reacquired by the corporation

    Capital

    • Capital refers to the total value of the property or assets of a corporation.
    • Subscribed capital is the total amount shareholders have agreed to contribute
    • Paid-up capital is the portion of subscribed capital fully paid

    Trust Fund Doctrine

    • The corporation's assets are considered a trust fund for the benefit of creditors
    • The protection of creditors' rights is paramount
    • Distributions to shareholders are limited if it harms creditors' ability to recover debts
    • No distribution of assets (e.g., dividends, stock buybacks) unless all corporate debts and obligations are satisfied

    Powers and Attributes of Corporations

    • Express Powers: Sue, be sued, amend articles, make donations
    • Implied Powers: Necessary for stated corporate purpose
    • Ultra Vires Acts: Actions outside corporate purpose (not valid)

    Business Judgment Rule

    • Applies to directors and officers in good faith
    • Protects directors from personal liability for their corporate decisions

    Limitations on the Powers of the Board of Directors

    • Must comply with laws, regulations, and corporate documents
    • Cannot unilaterally make fundamental changes that require stockholder approval
    • Cannot exercise powers beyond those of the corporation
    • Must act collectively in meetings

    Fiduciary Duty of Directors

    • Duty of Good Faith: Directors must act in the best interest of the corporation
    • Duty of Care: Directors must exercise diligence, prudence, and skill in managing corporate affairs
    • Liability for Breach: Personal liability for damages if they commit acts of gross negligence or bad faith or have conflicts of interest

    One Person Corporation (OPC)

    • Formed by a single stockholder
    • The stockholder acts as the sole director and president
    • Has separate legal personality from the stockholder
    • Simpler setup and less bureaucratic than traditional corporations

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    Sole Proprietorship in the Philippines PDF

    Description

    This quiz covers the key features, differences, and advantages of sole proprietorships as a business organization in the Philippines. Understand how sole proprietorship functions compared to corporations and the implications of personal liability. Test your knowledge on this fundamental business structure.

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