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commitment to the new venture are important factors to the potential investors.
The management team is asked to:
Fully engaged in the business operations on full time
organization, and what factors should a companys owners consider when selecting a form?
evaluating:
Ownership Owners liability for firms debts Costs of starting a business Continuity of Business Transferability of Interest Capital Requirements / The ability to raise
Factors Ownership
Proprietorship Individual
Partnership
Corporation No limitation on numbers of stockholders Amount of capital contribution is limit of shareholder liability
Liability of owners
No limitation on number of partners Individual liable In general for business partner ship all liabilities individual liable for liabilities, limited partner are liable for amount of capital. None, other than Partnership filling fees for agreement, legal trade name costs, and minor filling fees for trade name.
BZUPAGES.COM
Created only by statue. articles of incorporation, filing fees, taxes and fees for states in which corporation register to do business.
Proprietorship
Partnership
Transferability of interest
Death dissolve the Death or business withdrawal of one partner terminates partnership unless partnership agreement stipulates otherwise, death or withdrawal of one of limited partner has no effect on continuity Complete freedom General partner to sell or transfer can transfer his any part of interest only with business consent of all BZUPAGES.COM other general
Most flexible. Stockholder can sell or stock at will. Some stock transfers may be
Proprietorship Capital raised only by loan or increased contribution by proprietor Proprietror makes all decision and act immediately
Partnership
Corporation
Loan or new New capital contribution by raised by sale of partner require a stocks or bonds change in or by borrowing agreement. in name of corporation. All general partners have equal control Majority stockholders have most controls from legal point of view. Shareholder can share
Management control
Proprietorship The ability to raise funds depends on the success of the business and the personal capability of the entrepreneur.
Partnership The ability to raise funds depends on the success of the business and the personal capability of the entrepreneur
Corporation Is the most attractive form of raising capital because of its advantage regarding personal liability.
individual owner and all incomes on the owners returns as personal income and has tax advantages in comparison to corporation.
income distributions, dividends and capital gains and losses. And in limited partnership there is advantage of limited liability. Both proprietorship and partnership have nontaxable conduits of income and deductions.
separate tax entity and has the advantage to take many deductions
and expenses; not available to first two forms of business. Corporate rate may be lower than individual rate.
Disadvantages
Unlimited liability of the
formation Owners rights to all profits Owners control of the business Relative freedom from government regulation Absence of special taxes Ease of dissolution
owner for debts Difficulty in raising capital Limited managerial expertise Large personal time commitment Unstable business life Difficulty in attracting qualified employees Owners personal absorption of all losses
Why would a new business venture choose to operate as a partnership, and what downside would the partners face?
General Partnerships
Partners co-own
Limited Partnerships Controlled by one or
assets and share profits Each partner is individually liable for all debts and contracts of the partnership
more general partners who have unlimited liability Partners liability is limited to their investment Do not participate in the firms operations
Why would a new business venture choose to operate as a partnership, and what downside would the partners face?
Advantages of Disadvantages of
Partnerships Ease of formation Availability of capital Diversity of managerial expertise Flexibility to respond to changing business conditions Relative freedom from government control
Partnerships Unlimited liability for general partners Potential for conflict between partners Limited life Sharing of profits Difficulty in leaving a partnership
Partnerships
Advantages
Easy And Inexpensive
Disadvantages
Potential Conflicts
To Form Diverse Skills And Expertise Flexibility Relative Freedom From Government Regulations No Special Taxation
Between Partners Unlimited Liability & Potential Loss Sharing Profits Hard To Leave Or End Partnership
Purpose & duration of partnership Roles, responsibilities, compensation Contributions Procedures for adding/removing partners Buy-out procedures Dispute resolution Financial arrangements Dissolving the partnership Valuation
Source: American Express Small Business Exchange, home3.americanexpress.com/smallbusiness
Why does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?
Advantages of
Disadvantages of
Corporations Limited liability Ease of transferring ownership Stable business life Ability to attract financing
How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?
Stockholders Own the corporation Can sell or transfer shares at any time Entitled to receive profits in the form of
dividends Board of Directors Elected by stockholders Govern the firm Officers Carry out the goals and policies set by the board C Corporations, S Corporations & Limited Liability Companies Major types of corporations
Corporations
Advantages
limited liability
Disadvantages
double taxation of profits
Directors elect
1. S corporations
organized like a corporation, but avoids double taxation of profits by routing income and losses through stockholders
Cons Often required to have a limited life (< 30 years) Not corporations, so can not issue stock
Source: The Company Corporation, www.incorporate.com
Does a company have any business organization options besides sole proprietorship, partnership, and corporation?
Limited Liability Company Provides limited liability for its owners Taxes like a partnership Cooperatives Collectively owned by individuals or businesses with
similar interests Combine to achieve more economic power Joint venture An alliance of two or more companies Formed to undertake a special project Franchises Business arrangement between a franchisor and franchisee Franchisee uses business name and logo of
1. Cooperatives
2. Joint ventures 3. Franchises
Cooperatives
Formed by people with similar interests, such as
Joint Venture:
2 or more companies form an alliance to pursue a
Franchising:
Business organization in which a franchisor
supplies the product concept to the franchisee, who sells the goods or services.
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,
Franchises
Advantages
increased opportunity to
Disadvantages
loss of control
expand (franchisor) recognized name, product, and operating concept (franchisee) management training and assistance (franchisee) financial assistance (franchisee)
Organization structure
Training
President
Production
Marketing/Sales
Administration
President Production Manager Quality Control Assembly Marketing Manager Sales Administratio n Manager Finance Accounting Purchasing Shipping/ Receiving
Promotion Advertising
Primary concern of entrepreneur is to change the environment and seek new ideas. Another role for entrepreneur is that of allocation of resources .
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.
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.
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
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
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
organization and would serve the venture only an advisory capacity for some of the function. It has no legal status. Effect in family business.
Entrepreneur will use outside advisors such as accountant, bankers, lawyers, advertising agencies.