The Organizational Plan

Legal Forms of Business Sole Proprietorship Sole Proprietorship Partnership Partnership Corporation Corporation S Corporation S Corporation Limited Liability Company Limited Liability Company

Characteristics of Business Forms Image Image Which is form is preferable? Which is form is preferable? Ownership Ownership Who is responsible? Who is responsible? Liability of Owners Liability of Owners What if something goes wring? What if something goes wring? Costs Costs Set-up costs Set-up costs

Characteristics of Business Forms Continuity of Business Continuity of Business How long will the business last if something happens to an owner? How long will the business last if something happens to an owner? Transferability Transferability Is interest transferable? Is interest transferable? Transferability v. Control Transferability v. Control

Characteristics of Business Forms Capital Requirements Capital Requirements What are the sources of funds? What are the sources of funds? Management Control Management Control Who is in charge? Who is in charge? Distribution of Profits/Losses Distribution of Profits/Losses Risks v. Rewards Risks v. Rewards Attractiveness of Raising Capital Attractiveness of Raising Capital Who will get start-up funds from investors? Who will get start-up funds from investors?

Characteristics of Business Forms Tax Attributes Tax Attributes Sole Proprietorship Sole Proprietorship Profits taxed as owner’s Profits taxed as owner’s Partnership Partnership Income is divided between partners Income is divided between partners Corporation Corporation Double taxation Double taxation Extra expenses can be claimed Extra expenses can be claimed Corporate tax rate Corporate tax rate

S-Corporation Advantages Advantages Corporation not taxed Corporation not taxed Shareholders have limited liability Shareholders have limited liability Not subject to minimum tax Not subject to minimum tax Stock can be transferred to low-income bracket family members Stock can be transferred to low-income bracket family members Voting/Nonvoting stock Voting/Nonvoting stock Cash method of accounting Cash method of accounting L-T capital gains are deductible L-T capital gains are deductible

S-Corporation Disadvantages Disadvantages Tax rate may be higher Tax rate may be higher May not deduct fringe benefits May not deduct fringe benefits Adopt a calendar year for taxes Adopt a calendar year for taxes Only common stock Only common stock Net loss can only be shareholder’s stock and loans Net loss can only be shareholder’s stock and loans Cannot have more than 75 shareholders Cannot have more than 75 shareholders

Limited Liability Company Advantages Advantages Limited liability Limited liability No double taxation No double taxation Various ownership types Various ownership types Members can share profits, income, and expenses among themselves Members can share profits, income, and expenses among themselves Acceptable term of 30 years Acceptable term of 30 years

Designing the Organization Key Concern Key Concern Growing organizational structure Growing organizational structure Entrepreneurial Responsibilities Entrepreneurial Responsibilities Organizational structure Organizational structure Planning, measurement, & evaluation Planning, measurement, & evaluation Rewards Rewards Selection criteria Selection criteria Training Training

Designing the Organization 3 “Steps” 3 “Steps” Roles of an Entrepreneurial Roles of an Entrepreneurial Adaptor Adaptor Allocator of resources Allocator of resources Negotiator Negotiator Building MGT Team Building MGT Team Three functions Three functions

Designing the Organization Forming Company Culture Forming Company Culture What is culture? What is culture? How is it formed? How is it formed? How can entrepreneur create a positive culture? How can entrepreneur create a positive culture? Culture should match business strategy and plan Culture should match business strategy and plan Leaders should be role models Leaders should be role models Leaders should be flexible and try new things Leaders should be flexible and try new things Spend extra time in hiring process to get the right people Spend extra time in hiring process to get the right people Remember it is easier to change behaviors than attitudes Remember it is easier to change behaviors than attitudes

Board of Directors Functions Functions Review operating and capital budgets Review operating and capital budgets Develop L-T strategies for growth and expansion Develop L-T strategies for growth and expansion Support day-to-day activities Support day-to-day activities Resolve conflicts between shareholders and owners Resolve conflicts between shareholders and owners Ensure proper use of assets Ensure proper use of assets Develop a network of information sources for entrepreneurs Develop a network of information sources for entrepreneurs

Board of Directors SOX 404 SOX 404 What did it do? What did it do? Privately-held companies and Board of Directors Privately-held companies and Board of Directors Characteristics of good members Characteristics of good members 7-12 people 7-12 people Evaluation of contributions Evaluation of contributions Compensation Compensation

Board of Advisors Loosely tied to Organization Loosely tied to Organization Family Businesses Family Businesses Compensation Compensation Selection of Members Selection of Members Types of Advisors Types of Advisors