Introduction to Industrial Finance

Primary Goal of a business

To earn profit.

Organizing a Sole Proprietorship

To increase its own value as an

economic entity

Department

To improve the quality of life in

a community

1. DTI (Department of Trade Industry)

Stability:

Refers to the ability of the

weather the ups and down in
the economy or ability to
continue operations despite
anticipated risk

Owners equity:

Is the difference bet total assets

and total liabilities of an entity
so that it is also called net
assets

Improving the Quality of life in

the community:

A business entity provides

employment opportunities not
only to its own organization but
also in other entities that are
directly or indirectly affected by
the business

Forms of Business Organization

A business organization may be in the
form of:

Sole proprietorship

Partnership

Corporation

Sole Proprietorship -is a type

of business entity that is owned
and run by one individual, the
proprietor

2. Barangay
3. Mayor's Office
4 BIR (Bureau of Internal Revenue)
5.1 SSS (Social Security System)

5.2 PHIC (Philippine Health Insurance Corporat

5.3 Home Development Mutual Fund

Advantages of a Sole
Proprietorship
Control. The owner has complete
control over the business.
Simplicity. A sole proprietorship is
easy to start and operate.
Inexpensive. Startup organization
expenses are minimal since few, if
any, legal documents need to be
created to begin the enterprise.
No double taxation. The business is
not treated as a separate taxable
entity. The business income is
reported on the owner's individual tax
return and is therefore only taxed
once.

Capital Due to the nature of the

business, the partners will fund the
business with start up capital.
Flexibility A partnership is generally
easier to form, manage and run.
Disadvantages of a Sole
Proprietorship
Liability. The owner is personally
liable for any obligations of the
business.
Limited ownership. A sole
proprietorship by definition is limited
to one person. Thus, if the owner
wants to admit another owner, such as
a spouse, family member, or friend,
the sole proprietorship would have to
end. A new business arrangement,
such as a partnership, would be
created either by default or by intent.

Partnership
Association of two or more person who
bind themselves to contribute money,
property, or industry common fund
with the intention of dividing the profit
among themselves
Classification Partnership
Based on liability of partners
obligation
1. General Partnership
2. Limited Partnership
Based on contribution:
1. Capitalist partner
2. Industrial partner
3. Capitalist-industrial partner
Advantages of Partnership

Shared Responsibility Partners

can share the responsibility of the
running of the business. This will allow
them to make the most of their
abilities.
Decision Making Partners share the
decision making and can help each
other out when they need to. More
partners means more brains that can
be picked for business ideas and for
the solving of problems that the
business encounters.
Disadvantages of Partnership
Disagreements One of the most
obvious disadvantages of partnership
is the danger of disagreements
between the partners
Agreement Because the
partnership is jointly run, it is
necessary that all the partners agree
with things that are being done.
Liability Ordinary Partnerships are
subject to unlimited liability, which
means that each of the partners
shares the liability and financial risks
of the business.
Taxation One of the major
disadvantages of partnership, taxation
laws mean that partners must pay tax
in the same way as sole traders, each
submitting a Self Assessment tax
return each year.
Profit Sharing Partners share the
profits equally. This can lead to
inconsistency where one or more
partners arent putting a fair share of

effort into the running or management

of the business, but still reaping the
rewards.
Corporations
A corporation is an artificial body
created by operation of law having the
right of succession and powers,
attributes and properties expressly
authorized by law or incident to its
existence.
Its juridical personality begin to exist
from the date of issuance of Certificate
of Incorporation by the SEC under its
official seal

The Right of Succession

A corporation has the right to
continuous existence irrespective of
the death, withdrawal, insolvency, or
incapacity of the individual members
or stockholders and regardless of the
transfer of their interest or shares of
stock

5. As to whether they are open to the

public or not
a. Close corporation
b. Open corporation

Components of Corporation
Corporators
-This term refers to all the persons
composing a corporation whether they
are stockholders or members
Incorporators
-refers to corporators mentioned in the
articles of incorporation as originally
forming and composing the
corporation and who executed and
signed the articles of incorporation as
such

Member
-They are the corporators in a nonstock corp.
Shareholders
-natural or juridical person owning at
least one share capital of a
corporation

Classification of Corporations

By Laws

1. Based on nature of its capital

a. Stock corporation
b. Non-stock corporation
2. Based on whether they are for
public or private purpose
a. Public corporation
b. Private corporation
3. As to their relation to another
corporation
a. Parent corporation
b. Subsidiary corporation
4. As to the state or country under
whose laws they have been created
a. Domestic corporation
b. Foreign corporation

Defined as the rules of action for the

internal government of a corporation
and for the government of its officers
and stockholders or members.
Pre-emptive Right of Stockholders
Refers to his right to subscribe to all
issues or disposition of shares of any
class, in proportion to his
shareholdings.
Voting in a Stock Corporation
The manner of voting in a stock
corporation is called cumulative

voting. A stockholder is entitled to cast

votes equal to the number of shares
he owns multiplied by the number of
directors.
Number of shares to ensure
Election to the Board of Directors
No. of shares to ensure election:

Cum-dividend stocks command higher prices

as compared to ex-dividend stocks
Cut-off date
-refers to the actual date up to which
stockholders are entitled to dividends after
providing for the time lag required by stock
and transfer offices

Date of payment
- refers to the date the stockholders are paid
the dividends
Voting in a non-stock corp
Every member of a non-stock corp may cast
votes as there are trustees to be elected but
may not cast more than one vote for one
candidate unless cumulative voting is
authorize in articles of incorporation

Example:
On April 1993, the board of directors declared
a 10% cash dividend on its capital stock (par
value 100pesos) to stockholders on records
as of May 1, 1993 payable on June 5 1993.
The stock and transfer office requires seven

Classes of Shares

days as allowance for the updating of its

1. Common Stock and Preferred Stock

record so the the real cut-off date has been

2. Class A and Class B Shares

set at April 24

3. Founders share
Dividends, Cum-Dividend and ExDividend Stocks

Summary:
April 1 is the date of declaration
May 1 date of record

Date of record

April 24 cut-off date

- refers to the date as which, stockholders

June 5 date of payment

who appear on record are entitled of dividend.

From the date of declaration to the date of
record , the stock are called cum-dividend.
After this date, they are called ex-dividend.

Summary:
April 1 is the date of declaration
May 1 date of record
April 24 cut-off date

June 5 date of payment

called cum dividend. Thereafter, it is called

ex-dividend

From April 1 to April 23, 1992, the stock is