9-1

Chapter

The Organizational Plan

9-2

Organizational Issues
Developing Management Team

Legal Form of Business

9-3

Legal Forms
Sole Proprietorship

Partnership

Corporation
9-4

Ownership
Sole Proprietorship Partnership Corporation Individual No Limit On Number Of Partners No Limit On Number Of Shareholders

9-5

Liability of Owners
Sole Proprietorship PartnershipPartnership- General PartnershipPartnership- Limited Corporation
Individual Liable For Business Liabilities
All Individuals Liable For All Business Liabilities Limited Partners Liable For Amount of Capital Contribution Shareholders Liable For Amount Of Capital Contribution
9-6

Cost To Start
Sole Proprietorship PartnershipPartnership- General PartnershipPartnership- Limited Corporation Trade Name Filing Fees
Partnership Agreement, Legal Costs, Trade Name Filing Fees More Comprehensive Partnership Agreement
Created By Statute, Articles Of Incorporation, Filing Fees, Taxes, Fees for States In Which Corporation Registers To Do Business
9-7

Continuity Of Business
Sole Proprietorship PartnershipPartnership- General PartnershipPartnership- Limited Corporation
Death Dissolves Business
Death/Withdrawal Of 1 Partner Terminates Business Unless Agreement Stipulates Otherwise

Death/Withdrawal Has No Effect On Continuity Death/Withdrawal Of Owner Has No Effect On Continuity

9-8

Transferability Of Interest
Sole Proprietorship PartnershipPartnership- General PartnershipPartnership- Limited CorporationCorporation- Regular CorporationCorporation- S
Complete Freedom To Sell/Transfer
General Partners Can Transfer Only with Consent Of All Other General Partners Limited Partners Can Sell Interest Without Consent of General Partners Shareholders Can Sell/Buy Stock At Will. Some Transfers Might Be Restricted. Shareholder Can Only Sell Stock 9-9 To An Individual.

Capital Requirements
Sole Proprietorship Partnership CorporationCorporation- Regular CorporationCorporation- S
Raised By Loan Or Increased Contribution By Individual Loans/New Contributions Require Change In Agreement Raised By Sale of Stock/Bonds/Borrowing One Class Of Stock Limited to 75 Stockholders
9-10

Management Control
Sole Proprietorship PartnershipPartnership- General PartnershipPartnership- Limited Corporation
Owner Makes All Decisions
All Partners Have Equal Control, Majority Rules Only General Partners Have Control Of Business Majority Shareholders Have Control. Day-To-Day Day-ToControl With Management
9-11

Distribution Of Profits
Sole Proprietorship Partnership Corporation Owner Receives All Profits/Losses
Distributed According To Agreement & Capital Contribution Shareholders Received Profits Through Dividends
9-12

Ability To Raise Capital

Sole Proprietorship Partnership Corporation
Limited to Capability Of Owner & Success Of Business Depends On Capability of Partners & Success Of Business Limited Owner Liability Is Attractive To Investors
9-13

Tax Attributes Of Legal Form

Sole Proprietorship = Owner
No Double Tax No Capital Stock/Retained Earnings Penalty

Partnership
Limited Partners = Share Of Profits But No Liability Income Distributed Based On Agreement

Corporation = Separate Entity

More Deductions/Expenses Available Double Taxation Of Dividends
9-14

S Corporation- Advantages CorporationGains/Losses = Personal Income/Loss Limited Liability Protection No Minimum Tax Stock Transferable Stock = Voting Or Non-Voting NonCash Method Of Accounting LongLong-Term Capital Gains/Losses Deductible To Shareholders
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S Corporation- Disadvantages CorporationSome Restrictions For Qualification Potential Tax Disadvantages Most Fringe Benefits Not Deductible For Shareholders Must Have Calendar Tax Year 1 Class Of Stock Net Loss Limited to Shareholders Stock Plus Loans To Business No More Than 75 Shareholders
9-16

Limited Liability Company

Partnership/Corporation Hybrid, Laws Differ From State To State Has Members No Shares Issued, Each Member Owns According to Articles of Incorporation Liability = Members Capital Contribution Transfer Requires Unanimous Consent Taxed As Partnership Standard Term = 30 Years, Continuity Restricted
9-17

Advantages of LLC
LLC Liabilities Added To Partnership Interest Most States Do Not Tax LLCs Ownership Not Limited To Individuals Members Share Income, Profit, Expense, Etc., Among Themselves
9-18

Organizational Design
Structure Planning, Measurement, Evaluation Schemes Rewards Selection Criteria Training Management Team Board Of Directors Board Of Advisors
9-19

Effective Team
1) 2) 3) 4) 5) Clear Purpose Informal Participation Listen Civilized Disagreement 6) Consensus Decisions 7) Open Communication 8) Clear Roles/Work Assignments 9) Shared Leadership 10)External 10) External Relations 11)Style 11) Style Diversity 12)Self12) Self-Assessment
9-20