Engineering Management Chapter 4

Degree of control by stockholders

no stock dividends may be issued without the prior approval of stockholders representing at least 2/3 of outstanding capital

1.) money 2.) labour 3.) property 4.) skills to the partnership

partner contributes

Shareholders/Stockholders

refers to the owner of shares in a company, which means that they are part-owners of a business.

Administration

the corporation is administered by the BOD.

Taxation

35% is imposed upon the taxable income during each taxable year from all sources within and outside of the Philippines

Perpetual Existence

A cooperative society has a separate legal entity. Hence, the death, insolvency, retirement, lunacy, etc., of the members do not affect the perpetual existence of a cooperative society.

Lack of Secrecy

A cooperative society has to submit its annual reports and accounts with the Registrar of Cooperative Societies.

1. Owners have limited liability 2. Easier to raise capital 3. Easy to transfer ownership 4. Corporations have perpetual lifetimes 5. Certain expenses are tax deductible

Advantages of Corporations

1. Easy Formation 2. Limited Liability 3. Perpetual Existence 4. Social Service 5. Open Membership 6. Tax Advantage 7. State Assistance 8. Democratic Management

Advantages of Universal Cooperative Principles

• Businesses as partnerships do not have to pay income tax; each partner files the profits or losses of the business on his or her own personal income tax return. This way the business does not get taxed separately. • Easy to establish. • There is an increased ability to raise funds when there is more than one owner • Wider pool of knowledge, skills, and contacts. • Improved management with more than one owner.

Advantages of a General Partnership

Dissolution

a corporation shall exist for a period of fifty years unless sooner dissolved or unless the life is extended; but the extension should not exceed fifty years

• Being a limited partner puts a limitation on liability with respect both to potential lawsuits and money; the limited partner is only going to be liable for the amount of capital it contributed to the business; a business creditor cannot come after the limited partner's personal assets. • Easier to attract investors because limited partners have limited liability to the business debts. • Profits and losses pass through the business to the partners, who are taxed on their own personal income tax returns. • Limited partners get to share in the profits and losses without having to participate in the business itself.

Advantages of a Limited Partnership

• Owner receives all profits. • Easier to start up and lower cost because there are no required filing fees. • Few documents are required at start up. • Owner is free to make own decisions concerning the business operations. • Owner pays only personal income taxes on the profits.

Advantages of a Sole Proprietorship

Cooperative Education

All cooperatives shall make provision for the education of their members, officers and employees and of the general public based on the principles of cooperation.

Cooperation Among Cooperatives

All cooperatives, in order to best serve the interest of their members and communities, shall actively cooperate with other cooperatives at local, national, and international levels.

2.) Partnership

An association or relationship between two or more individuals, corporations, trusts, or partnerships that join together to carry on a trade or business.

1. Formation or creation 2. Dissolution 3. Degree of control by stockholders 4. Profit distribution 5. Degree of formality 6. Transfer of ownership 7. Taxation 8. Administration

Aspects of the corporate form that have implications on management functions

Forming a corporation costs more

Attorneys charge more to form a corporation.

3.) Sole Proprietorship

may be one of the simplest ways to start a business. Essentially, the owner is the business.

Easy Formation

Compared to the formation of a company, formation of a cooperative society is easy.

Democratic Control

Cooperatives are democratic organizations. Their affairs shall be administered by persons elected or appointed in a manner agreed upon by the members.

1. Double taxation of corporation profits 2. Forming a corporation costs more 3. States have higher fees 4. More state and federal regulations and oversight

Disadvantages of Corporations

1. Lack of Secrecy 2. Lack of Business Acumen 3. Lack of Interest 4. Corruption 5. Lack of Mutual Interest

Disadvantages of Universal Cooperative Principles

• Partners are jointly and severally liable for the actions of other partnership obligations including contracts, torts, and breaches of trust. • Each partner is individually liable for the debts and obligations of the business; if the business does not have enough assets to pay back business debts, creditors can take the personal assets of the partners. • A partner cannot transfer interest in the business without the unanimous consent of the partners. • Partnerships can potentially be unstable because of the danger of dissolution if one partner wants to withdrawal from the business or dies.

Disadvantages of a General Partnership

• If the limited partner becomes active in the business he or she may have general-partner personal liability. • General partner is personally fully liable for the debts of the business. • Certificate of Limited Partnership must be filed with the state before the partnership comes into existence, which includes state filing fees.

Disadvantages of a Limited Partnership

• Owner alone is responsible for all liabilities incurred by the business; if the business does not have enough assets to pay back business debts, creditors can take the personal assets of the owner. • Owner's ability to raise capital is limited to personal funds and the funds from people who are willing to give the owner loans, which can limit the size of the business. • The business may come to an end at the owner's death, it does not continue unless transferred to heirs, but when it is transferred to family or heirs a new sole proprietorship is created.

Disadvantages of a Sole Proprietorship

Universal Cooperative Principles

Every cooperative shall conduct its affairs in accordance with Filipino culture and experience

Degree of formality

Existence of formal records such as Articles of Incorporation, by-laws, minutes of regular/special meetings of shareholders, minutes of Board meetings, stocks and transfer book.

(a) "Credit Cooperative" (b) "Consumers Cooperative" (c) "Producers Cooperative" (d) "Marketing Cooperative" (e) "Service Cooperative" (f) "Multipurpose Cooperative"

Forms of Cooperative

1.) Corporation 2.) Partnership 3.) Sole proprietorship 4.) Cooperatives

Four forms of business organization in the Philippines

State Assistance

Government has adopted cooperatives as an effective instrument of socio-economic change.

Corruption

In a way, lack of profit motive breeds fraud and corruption in management.

1.) Corporation

It is an artificial being created by operation of law. As an artificial; being, its powers, attribute's and properties are limited to those expressly authorized by law or incident to its existence.

Easier to raise capital

It is easier to attract capital with the sale of stocks and bonds. A corporation can have an unlimited number of investors

Limited Liability

Like company form of ownership, the liability of members is limited to the extent of their capital in the cooperative societies.

Open and Voluntary Membership

Membership in a cooperative shall be voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.

Division of Net Surplus

Net surplus arising out of the operations of a cooperative belongs to its members and shall be equitably distributed for cooperative development common services, indivisible reserve fund, and for limited interest on capital and/or patronage refund in the manner provided in this Code and in the articles of cooperation and by-laws.

Industrial Partner

One who contributes services only.

Managing Partner

One who manages the affairs of the partnership.

General Partner

One whose liability extends to his separate property.

Limited Partner

One whose liability is limited to his capital contribution.

Certain expenses are tax deductible

Owners can receive tax-free benefits such as deductions for retirement plans and insurance.

Limited Interest in Capital

Share capital shall receive a strictly limited rate of interest.

Easy to transfer ownership

Shares of stock can be sold.

Transfer of ownership

Shares of stocks represented by certificates may be transferred by delivery of the certificate endorsed by the owner or his Attorney-In-Fact.

States have higher fees

States charge annual franchise fees for corporations.

More state and federal regulations and oversight

Tax filings are more complicated for corporations.

Social Service

The basic philosophy of cooperatives is self-help and mutual help. Thus, cooperatives foster fellow feeling among their members and inculcate moral va lues in them for a better living.

Double taxation of corporation profits

The corporation pays federal and state taxes on its profits. When dividends are paid to shareholders, they are treated as income and taxed again.

Corporations have perpetual lifetimes

The entity continues to exist beyond the deaths of the owners.

Democratic Management

The management of cooperative society is entrusted to the managing committee duly elected by the members on the basis of 'one-member one -vote' irrespective of the number of shares held by them.

Lack of Business Acumen

The member of cooperative societies generally lack business acumen. When such members become the members of the Board of Directors, the affairs of the society are expectedly not conducted efficiently.

Open Membership

The membership of cooperative societies is open to all irrespective of Taste, colour, creed and economic status. There is no limit on maximum members.

Owners have limited liability

The owners' assets are protected from the debts and liabilities of the corporation. Shareholders are not held liable for business losses.

Lack of Interest

The paid office-bearers of cooperative societies do not take interest in the functioning of societies due to the absence of profit motive.

Lack of Mutual Interest

The success of a cooperative society depends upon its members' utmost trust to each other.

(1) "Open and Voluntary Membership" (2) "Democratic Control": (3) "Limited Interest in Capital" (4) "Division of Net Surplus" (5) "Cooperative Education" (6) "Cooperation Among Cooperatives"

The universally accepted principles of cooperation

1. General Partner - one whose liability extends to his separate property. 2. Limited Partner - one whose liability is limited to his capital contribution. 3. Managing Partner - one who manages the affairs of the partnership. 4. Industrial Partner - one who contributes services only

Types of partnerships form of business organization:

Tax Advantage

Unlike other three forms of business ownership, a cooperative society is exempted from incometax and surcharge on its earnings up to a certain limit. Besides, it is also exempted from stamp duty and registration fee.

Formation or creation

a corporation may be formed by not less than 5 nor more than 15 natural persons.

4.) Cooperative

an association of persons who have voluntarily joined together to achieve a common end through the formation of a democratically controlled organization, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in which the members actively participate

Profit distribution

cash dividend is declared by the Board of Directors representing majority of quorum. The amounts received by stockholders depend on the number of shares owned.

Producers Cooperative

is one that undertakes joint product whether agricultural or industrial

Consumers Cooperative

is one the primary purpose of which is to procure and distribute commodities to members and non-members

Multipurpose Cooperative

is one which combines (2) or more of the business activities of these different types of cooperatives.

Service Cooperative

is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services

Marketing Cooperative

is one which engages in the supply of production inputs to members and markets their products

Credit Cooperative

is one which promotes thrift among its members and creates funds in order to grant loan for productive and provident purposes