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ENTREPRENEURSHIP

Organizing and Structuring Your Enterprise

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The Business Plan must be able to estimate the capital required by the enterprise. The capital required would be dictated by the investment in the assets of the enterprise. These assets are composed of the following:

  1. The current assets, which are short-lived assets. They are composed of cash, inventory, accounts receivables, and other current assets.
  2. The long-lived or fixed assets. They are composed of property, plant, and equipment.
  3. The other assets. They are composed of organizational and pre-operating expenses.

The assets of the enterprise are financed by ‘its liabilities. These liabilities are composed of: (1) current liabilities such as suppliers’ credit and other short-term credit; (2) long term debt; and (3) owner’s equity.

The way the financial package is designed is called the capital structure of the enterprise.

The simplest and easiest enterprise to organize is the sole proprietorship. In this structure, the owner or entrepreneur has sole control over the enterprise. He or she reaps all the profits and, also, all the losses. But he or she will also incur all the risks.

In sole proprietorship, there is no distinction between the owner and the enterprise. In sole proprietorship, the entrepreneur is personally answerable and obligated to fulfill all the terms and conditions of any business contract that he or she enters into.

The sole proprietorship is mandated by law to register the business with the proper authorities. All businesses, in whatever legal form, are required to secure a mayor’s permit or municipal license before they can operate in a locality.

Before getting this permit, there are clearances that must be obtained. These are the following:

    • Barangay clearance
    • Fire safety clearance
    • Certificate of electrical inspection
    • Certificate of occupancy
    • Department of Trade and Industry (DTI) certificate
    • Lease contract if space is leased
    • Locational clearance

There may be additional requirements depending on the type of business and the ordinances issued by the concerned local government.

It is likewise the responsibility of any enterprise to register its business with the Bureau of Internal Revenue (BIR) for taxation purposes. The official receipts of the enterprise must also be registered with the BIR. For a sole proprietorship, the tax identification number (TIN) of the entrepreneur serves as the enterprise TIN.

If two or more persons bind themselves into a contract to contribute money, property, and expertise in a common venture with the intention of dividing the profits among themselves, then they would have entered into a partnership.

A partnership is vested with its own legal personality quite distinct and separate from its individual members. Thus, a partnership venture can own its own assets. It can incur its own liabilities. It can sue and it can get sued.

A minimum of two persons can constitute a partnership. However, there is no limit to the number of persons in a partnership. There are two types of partnerships based on the liability of the partners: general partnership and limited partnership.

A general partnership is composed of partners who are liable individually and collectively to all those who have claims against them. Claimants can run after all the personal assets of all the partners. A limited partnership consists of partners who have limited liabilities while others in the partnership have unlimited liabilities.

A limited partnership is not personally liable for all the obligations of the partnership beyond his or her prorated capital contribution to the partnership. The law requires that there must be at least one general partner in a limited partnership to assume the unlimited liabilities. The limited partnership must add the word ‘Limited’ to its partnership name.

In a partnership, the decision of one partner is binding to all the other partners. There should be internal mechanisms and procedures followed to ensure this. When the partners enter into a contract, they need the consent and knowledge of the other partners. In order to form a partnership, a binding contract must be signed by all of the partners. They should decide on a partnership name and craft their Articles of Partnership. These Articles of Partnership must contain all the operational requirements of the partnership.

The partnership should obtain all the required government clearances, permits, and licenses. It should get:

    • a bank certificate of deposit on the money contributions of the partners; and
    • the approval for its partnership name from the Department of Trade and Industry.

Having obtained these documents, it should register and file its Articles of Partnership with the Securities and Exchange Commission (SEC). Needless to say, the partnership must also register with the SSS and the BIR, as well as other government instrumentalities that may have jurisdiction over its type of business.

The third form of business organization is the corporation. Like the partnership, the corporation also has a separate legal personality quite distinct from the investors who contributed money to the enterprise.

A corporation can be formed or incorporated by, at least five, or at most 15 natural persons. According to Philippine law, the majority of the incorporators must be residents of the Philippines. However, once the corporation is established, there is no limit to the number of natural or juridical persons who can invest in the corporation.

The corporate form of business allows various combinations of funds to be raised from financiers and investors. Thus, bigger businesses favor the corporate form of business, This is due to its limited liability and flexibility in financing terms obtained.

The start-up corporation established by the entrepreneur (and his or her family or friends) is quite a long way from the politics of large corporations. However, the more ambitious entrepreneur must plan way ahead for this type of politics.

The entrepreneur must make a decision. “Do I want absolute control or do I want to become a very wealthy person because of the high value of my shares in the stock market?” Meanwhile, at the start-up stage, who will the entrepreneur invite as co-investors in the enterprise? It begins as an issue of investor compatibility and investment flexibility, but eventually, it will become an issue of control as the enterprise grows and prospers.

A Merry Band of Men and Women

After establishing the enterprise, the entrepreneur must meticulously screen and hire men and women who foster the cause and share the commitment of the enterprise. Good character and competence must be the two major criteria for hiring people.

If the team is not fully equipped technically and managerially, the small size of the organization should allow the people to learn fast:

    • about customers
    • about operations
    • about competition
    • about financing needs
    • about teamwork
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