Business Organizations
Learning Objectives
- Understand the types of business organizations in civil engineering practice.
- Differentiate between Sole Proprietorships, Partnerships, and Corporations.
- Explain the concept and purpose of Joint Ventures in Construction.
- Identify the key provisions of the Revised Corporation Code.
Introduction
Civil engineers often establish their own firms. The legal structure chosen dictates liability, taxation, and management.
Forms of Business
Sole Proprietorship
A business owned and run by one individual. There is no legal distinction between the owner and the business.
Interactive Simulation
Interact with the 08 Business Organizations simulation below to explore the concepts dynamically.
Business Organizations
Compare legal structures for engineering firms.
Comparing: Sole Proprietorship
Sole Proprietorship Characteristics
- Advantages: Easiest and cheapest to set up, owner has complete control, owner receives all profits.
- Disadvantages: Unlimited liability (the owner's personal assets are at risk if the business is sued or fails), difficult to raise capital, business terminates upon the owner's death.
- Registration: Department of Trade and Industry (DTI).
Partnership
A contract where 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.
Partnership Characteristics
- General Partnership: All partners share in the management and have unlimited liability for the partnership's debts.
- Limited Partnership: Has at least one general partner (unlimited liability) and one or more limited partners (liability is limited to their investment, but they cannot participate in management).
- Advantages: Easier to raise capital than a sole proprietorship, shared management and expertise.
- Disadvantages: General partners have unlimited liability, potential for conflict among partners, partnership dissolves if a partner dies or withdraws.
- Registration: Securities and Exchange Commission (SEC).
Corporation
An artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.
Corporation Characteristics
- Advantages: Limited liability (shareholders are only liable up to the amount of their investment), easier to raise massive capital (through selling stock), continuous existence (not affected by the death of a shareholder), professional management.
- Disadvantages: Most complex and expensive to set up and maintain, subject to heavy regulation and taxation (potential double taxation on profits and dividends), owners (shareholders) have less direct control over daily operations.
- Registration: Securities and Exchange Commission (SEC).
Joint Ventures in Construction
Joint Venture (JV)
A strategic alliance where two or more independent firms pool their resources (capital, expertise, equipment) to undertake a specific, usually large-scale, project that neither could handle alone.
Joint Venture Characteristics
- Purpose: To share the immense risks of mega-projects, combine specialized technical skills, or meet local participation requirements in foreign countries.
- Duration: It is a temporary partnership formed for a single, distinct project. Once the project is complete, the JV dissolves.
- PCAB License: A Joint Venture must secure a special JV license from the Philippine Contractors Accreditation Board (PCAB) before participating in government bidding.
The Revised Corporation Code of the Philippines (RA 11232)
Enacted to improve ease of doing business, the Revised Corporation Code introduced significant changes relevant to engineers forming companies.
Key Provisions
- One Person Corporation (OPC): A corporation with a single stockholder, allowing individuals (like a solo practicing engineer) to enjoy limited liability without needing the traditional minimum of five incorporators.
- Perpetual Existence: Corporations now have perpetual existence unless their articles of incorporation provide otherwise.
- Minimum Capital Stock: The requirement for a minimum authorized capital stock was generally removed (unless specifically required by other special laws, like for PCAB licensing).
- Sole Proprietorships and General Partnerships have unlimited liability.
- Corporations offer limited liability and continuous existence but are highly regulated.
- Joint Ventures are temporary alliances formed to pool resources and share risks for a specific project, requiring a special PCAB license.
- The Revised Corporation Code (RA 11232) modernized Philippine corporate law.
- It introduced the One Person Corporation (OPC), allowing solo practitioners to form a corporation with limited liability.
- Corporations now generally enjoy perpetual existence.