The organizational plan

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Learning Goals
* To Understand the importance of the management team
in launching a new venture.
* To understand the advantages and disadvantages of the
alternative legal forms for organizing a new venture.
* To explain and compare S corporation and limited liability
company as alternative forms of incorporation.
* To learn the importance of both formal and informal
organization.
* To illustrate how the board of directors or board of
advisors can be used to support the management of a
new venture.
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LEGAL FORMS OF BUSINESS

AND OWNERSHIP
*Sole Proprietorship
*Partnership
>General Partnership
>Limited Partnership
*Corporation
S Corporations
Limited liability companies

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Sole Proprietorship

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Partnerships
Disadvantages

Advantages

easy and
inexpensive to form
diverse skills and
expertise
flexibility
relative freedom
from government
regulations
no special taxation

potential conflicts
between partners
unlimited liability &
potential loss
sharing profits
hard to leave or end
partnership

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Corporations
Advantages

Disadvantages

limited liability
easy to get financing

easy to transfer
ownership

unlimited life-span
tax deductions

double taxation of
profits
costly & complex to
form
government
restrictions

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Steps of Forming a Corporation

1. Select companys name
2. Write and file Articles of
Incorporation paperwork
3. Pay fees and taxes
4. Hold organizational meeting
5. Adopt bylaws, elect directors,
pass operating resolutions
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Organizational Structure of
Corporations
Stockholders

elect

Directors

elect

Officers (Top
Management)
President

Vice Treasurer Secretary

President

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Types of Hybrid Corporations

1. S corporations
organized like a corporation, but avoids
double taxation of profits by routing income
and losses through stockholders

2. Limited liability companies (LLC)

offers same limited liability as a corporation,
but may be taxed as either a partnership or
corporation

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Some Pros and Cons of LLCs

Pros
Protection of
personal assets
Avoid doubletaxation of profits
Flexible
management &
organization
Good for foreign
investors

Cons
Often required to
have a limited life
(< 30 years)
Not corporations,
so can not issue
stock
Source: The Company Corporation,
www.incorporate.com

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Specialized Forms
of Business Organization

1. Cooperatives
2. Joint ventures
3. Franchises

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Cooperatives

Formed by people with similar interests,

such as customers and suppliers
lower costs
increased economic power
share in profits

Members/owners pay annual fees

Common in:

agriculture
hardware/lumber
grocery
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Joint Venture:
2 or more companies form an
alliance to pursue a specific
project, usually for a specific
time period

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Learning Goal 6

Why is franchising growing in importance?

Business owner does not have to start from
scratch
Buys a business concept with a proven product
and operating methods
Franchisor provides:

Management training and assistance

Use of a recognized brand name, product, and
operating concept
Financial assistance
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Franchising:
business organization in which
a franchisor supplies the
product concept to the
franchisee, who sells the goods
or services
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Franchises
Disadvantages

Advantages

increased opportunity to
expand (franchisor)
recognized name,
product, and operating
concept (franchisee)
management training
and assistance
(franchisee)
financial assistance
(franchisee)

loss of control
(franchisor)
costs of franchising
restricted operating
freedom (franchisee)

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Factors

Proprietorship

Partnership

Corporation

Ownership

Individual

Liability of owners

Individual liable for

buisness liabilities

No limitation on numbers
of stockholders
Amount of capital
contribution is limit of
shareholder liability

Costs of starting
buisness

None, other than filling

fees for trade name

No limitation on number
of partners
In general partner ship
all individual liable for
liabilities, limited partner
are liable for amount of
capital.
Partnership agreement,
legal costs, and minor
filling fees for trade
name.

Continuity of buisness

Death dissolve the

buisness

Death or withdrawl of one

partner terminates
partnership unless
partnership agreement
stipulates otherwise,
death or withdrawl of
one of limited partner has
no effect on continiuty

Transferability of
interest

Complete freedom to sell

or transfer any part of
buisness

General partner can

transfer his interest only
with consent of all other
general partners.

Capital requirment

Capital raised only by

loan or increased
contribution by
proprietror
Proprietror makes all
decision and act
immediately
Responsible and recice all
profits and losses

Loan or new contribution

by partner require a
change in agreement.

Management control

Distribution of profit
and losses

All general partners have

equal control
Depend on partnership
agreement and
investment by partners

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Created only by
statue.articles of
incorporation,filing fees,
taxes and fees for
statesin which corporation
register to do buisness.
Greatest form of
continuty. Death or
withdrawl will not effect.

Most flexible. Stockholder

can sell or stock at will.
Some stock tranfers may
be restricted by
agreement. In s cop may
be transferred.
New capital raised by sale
of stocks or bonds or by
borrowing in name of
corporation.
Majority stockholders
have most controls from
legal point of view.
Shareholder can share

Presentation on
Designing the Organization

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Expected Functions of Formal

Organization

organization structure
Planning, Measurement and
evolution Scheme
Rewards
Selection criteria
Training

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Stages in Organization Design

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Primary concern of entrepreneur is to

change the environment and seek
new ideas.
Another role for entrepreneur is that of
allocation of resources .

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Buliding the management Team and

Successful Organization Culture
There are some issues to address before
assembling and building the management
team. A team must be able to accomplish
three functions
Execute the business plans
Identify functional changes in the business
as the occurs
Make adjustments to the plans based on
changes in the environment in the market
that will maintain profitability.
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Enterpnuere will also need to consider

the personality and character of each
individuales to creat a successful
orangization culture .
Organiztion will be a blend of
attitudes, behaviours, dress,
comuunications style that make one
business different from others.
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Successful Organization culture

Desired culture must match the business

strategies outline in the business plans
Leader must create a workplace where
employees are rewarded for good works.
Entrepreneur should be flexible enough to
try different things
It is necessary to spend extra time to
hiring process
The entrepreneur needs to understand
significance of the leadership in the
organization. Provide the appropriate tools
to the employees
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Roles of Boards of Directors

The purpose of Boards of Directors is to
provide important leadership and direction
for the new venture. The function of the
Boards of Directors
Functions :
Reviewing operating and capital budgets
Developing long term strategies plans for
growth and expansion
Supporting day-to-day activities
Ensure the proper use of assets
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Criteria to chose the Boards of

directors

Select individuals who can work with a

diverse group and will commit to the ventures
mission
Select candidates who understand the market
environment or can contribute important skills
to achieve planning goals
Select candidates who will show good
judgments in business decision making
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Boards of Advisor
A board of advisor would be more
loosely tied to the organization and
would serve the venture only an
advisory capacity for some of the
function.
It has no legal status
Effect in family business

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Organization and use of Advisor

Entrepreneur will use outside advisors such
as accountant, bankers, lawyers, advertising
agencies

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Thanks.

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