Week 8


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Week 8

  1. 1. Management Teams and Location March 4, 2004
  2. 2. Agenda <ul><li>Management teams & Organizational Forms </li></ul><ul><li>Intellectual Property Rights and Patents </li></ul><ul><li>Location </li></ul>
  3. 3. “ The avoidance of taxes is the only intellectual pursuit that carries any reward.” -- John Maynard Keynes
  4. 4. The Management Team <ul><li>Management team: </li></ul><ul><ul><li>Consists of managers and other key persons who give a company its general direction </li></ul></ul><ul><li>Characteristics of a Strong Management Team </li></ul><ul><ul><li>Capable of securing the resources needed to make business a success </li></ul></ul><ul><ul><li>Reassures investors about the their investment and the continuity of business </li></ul></ul><ul><ul><li>Diversity of talent makes the team stronger than an individual entrepreneur </li></ul></ul>
  5. 5. Forms of Legal Organization Common Forms of Legal Organization Federal Corporation Sole Proprietorship Partnership Corporation Provincial Corporation Limited Partnership General Partnership
  6. 6. Legal Forms of Organization <ul><li>Sole Proprietorship </li></ul><ul><ul><li>A business owned by one person </li></ul></ul><ul><li>Advantages </li></ul><ul><ul><li>Receives all of the firm’s profits. </li></ul></ul><ul><ul><li>Holds title to all of the firm’s assets </li></ul></ul><ul><ul><li>Can easily sell or transfer ownership of the company name and assets. </li></ul></ul><ul><ul><li>Requires no registration or filing fee. </li></ul></ul><ul><ul><li>Has absolute freedom from interference by other stakeholders. </li></ul></ul>
  7. 7. The Sole Proprietorship Option <ul><li>Disadvantages </li></ul><ul><ul><li>Bears all business risk. </li></ul></ul><ul><ul><li>Is subject to all claims of creditors. </li></ul></ul><ul><ul><li>Has unlimited personal liability for business </li></ul></ul><ul><ul><li>Receives no tax free benefits as an employee </li></ul></ul><ul><ul><li>Death/incapacity of owner terminates business </li></ul></ul><ul><ul><li>Is limited to the proprietor’s personal capital. </li></ul></ul><ul><ul><li>is taxed on business income as personal income . </li></ul></ul>
  8. 8. The Partnership Option Sharing Workload Sharing Financial Burden Sharing Emotional Burden Procuring Executive Talent Companionship Interpersonal Conflicts Dilution of Equity Dissatisfaction with Partner Absence of One Clear Leader Frustration of Not Calling Own Shots Advantages Disadvantages
  9. 9. The Corporation Option <ul><li>Canada Corporation Act </li></ul><ul><ul><li>An “artificial being” that can engage in all forms of business activities. </li></ul></ul><ul><li>Legal Entity </li></ul><ul><ul><li>A business organization that is recognized by the law as having a separate legal existence can be sued, hold property, incur debt and provides limited liability for its owners. </li></ul></ul>
  10. 10. The Board of Directors <ul><li>Boards of Directors </li></ul><ul><ul><li>The governing body of a corporation, elected by the stockholders </li></ul></ul><ul><ul><li>Inside or Outside directors </li></ul></ul><ul><li>Duties </li></ul><ul><ul><li>Elect the firm’s officers (top management) </li></ul></ul><ul><ul><li>Approve management’s plans and policies </li></ul></ul><ul><ul><li>Review performance and declare dividends </li></ul></ul><ul><ul><li>Bring knowledge and experience </li></ul></ul><ul><li>Alternative: Advisory Council </li></ul><ul><ul><li>Provides advice but does not have the fiduciary responsibility for the direction of the firm. </li></ul></ul>
  11. 11. Federal Income Taxes and the Form of Organization <ul><li>Sole Proprietorship </li></ul><ul><ul><li>Self-employed persons are taxed on their business incomes at tax rates set for individuals. </li></ul></ul><ul><li>Partnership </li></ul><ul><ul><li>The partnership does not pay taxes; allocated shares of income from partnership are taxed as personal income for each of the partners. </li></ul></ul><ul><li>Corporation </li></ul><ul><ul><li>As a separate legal entity, it reports its income and pays any taxes related to these profits. </li></ul></ul>
  12. 12. Choosing an Organizational Form Minimum requirements; generally no registration or filing fee Minimum requirements; generally no registration or filing fee; written partnership agreement not legally required but strongly suggested Most expensive and greatest requirements; filing fees; compliance with state regulations for corporations Proprietorship or general partnership Unlimited liability Unlimited liability Liability limited to investment in company Corporation Limited to proprietor’s personal capital Limited to partner’s ability and desire to contribute capital Usually the most attractive form for raising capital Corporation Form of Organization Initial Organizational Requirements and Costs Liability of Owners Attractiveness for Raising Capital Sole proprietorship General partnership Corporation Form of organization preferred
  13. 13. Intellectual Property Rights <ul><li>Trade Secrets </li></ul><ul><ul><li>Private information about specific technical procedures i.e. Coke formula; Colonel Sanders’ secret blend of 11 herbs & spices </li></ul></ul><ul><li>Copyrights </li></ul><ul><ul><li>Protects the authorship of published works from unauthorized use (50/70 years from author’s death) </li></ul></ul><ul><li>Trademarks </li></ul><ul><ul><li>Any word, phrase, symbol, design, sound, smell, color, product configuration, group of letters or numbers, or combination of these, adopted and used by a company to identify its products or services </li></ul></ul><ul><ul><li>10 year terms renewable indefinitely </li></ul></ul>
  14. 14. Patents <ul><li>Legal document giving the holder exclusive rights to implement the described invention commercially (20 years from application date) </li></ul><ul><li>Product (substances, devices…), process or use patents </li></ul><ul><li>Patenting criteria for inventions: </li></ul><ul><ul><li>Useful </li></ul></ul><ul><ul><ul><li>Must have a practical application; be beneficial to society; but not necessarily have a commercial value </li></ul></ul></ul><ul><ul><li>Novel </li></ul></ul><ul><ul><ul><li>No prior publication or disclosure </li></ul></ul></ul><ul><ul><li>Non-obvious (in view of prior art) </li></ul></ul><ul><ul><ul><li>Not merely unknown or logical extrapolation of prior art; must contain an inventive step and not be obvious to a person with ordinary skill in the art of invention at the time. </li></ul></ul></ul>
  15. 15. 5 Key Location Criteria Environmental Business Conditions Customer Accessibility Resource Availability Entrepreneur's Personal Preference Site Availability and Costs Optimum Location
  16. 16. The Location Decision <ul><li>Customer accessibility </li></ul><ul><ul><li>Target market; customer convenience </li></ul></ul><ul><ul><li>As a necessity to avoid shipping costs </li></ul></ul><ul><li>Environmental Conditions </li></ul><ul><ul><li>Business environment factors </li></ul></ul><ul><ul><ul><li>Competitors, legal requirements, and tax structure </li></ul></ul></ul><ul><ul><li>Weather, lifestyle, community </li></ul></ul><ul><li>Resource Availability </li></ul><ul><ul><li>Raw materials, labor supply, transportation </li></ul></ul><ul><li>Personal Preference of the Entrepreneur </li></ul><ul><ul><li>Familiarity with home community </li></ul></ul><ul><li>Site Availability and Costs </li></ul>