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1. Organizational Plan
 Legal Forms of Business
 The three basic legal forms are
 (1) proprietorship,
 (2) partnership
 (3) corporation.
 There can be limited liability partnership or unlimited liability partnership.In
case of corporations it can be private ltd company or public ltd company.
 These three basic legal forms are compared with regard to ownership, liability,
start-up costs, continuity, transferability of interest, capital requirements,
management control, distribution of profits, and attractiveness for raising
capital.

2. Ownership
 In case of Proprietorship the proprietor is the single owner of business.
 In case of partnership there can be minimum 2 partners and maximum 50
partners
 In case of company no limit on number of shareholders

3. Liability
 In case of proprietorship the business is owned by an individual so his liability
is unlimited.
 In case of partnership the liability partners is unlimited. However in case of
partnership registered as LLP the liability of each partner will be according
to his share in the business.
 In case of PVT Ltd company or Limited company the liability of directors is as
per their shareholding.

4. Cost of starting business
 The proprietor has to spend some money for filing the trade name.
 In case of Partnership a partnership agreement will have to be prepared so
there will be some legal expenses and also the expenses for filing the trade
name.
 In case of corporation it is created only by statute. Articles of incorporation,
filing fees,taxes, and fees for states in which corporation registers to do
business.

5. Continuity of business
 In case of proprietorship death will dissolve the business.
 In case of Partnership death of one partner may or may not dissolve the
business.
 In case of corporation death of a shareholder will not have any effect on the
continuity of business

6. Transeferablity of Interest
 In case of proprietorship firm there is complete freedom to the owner to sell or
transfer any part of business.
 General partner can transfer his/her interest only with consent of all other
general partners. Limited partner can sell interest without consent of general
partners. No transfer of interest in an LLP.
 Stockholders can sell or buy stock at will

7. Capital Requirement
 Capital raised only by loan or increased contribution by proprietor.
 Loans or new contributions by partners require a change in partnership
agreement. In LLP partnership, entity raises money.
 New capital can be raised by sale of stock or bonds or by borrowing.

8. Management Control
 Proprietor makes all decisions and can act immediately.
 All general partners have equal control, and majority rules. Limited partners
have limited control.
 Majority stockholder(s) have most control from legal point of view. Day-to-day
control in hands of management, who may or may not be major stockholders.

9. Distribution of profits and losses
 Proprietor responsible and receives all profits and losses.
 Depends on partnership agreement and investment by partners.
 Shareholders can share in profits by receipt of dividends.

10. Attractiveness to raise capital
 In case of proprietorship firm it will depend on capability of proprietor and
success of business.
 In case of partnership firm it will depend on capability of partners and success
of business.
 The corporation, because of its advantages regarding personal liability, is the
most attractive form of business for raising capital. Shares of stock, bonds,
and/or debt are allopportunities for raising capital with limited liability. The more
attractive the corporation, the easier it will be to raise capital.


11. TAX ATTRIBUTES OF FORMS OF
BUSINESS

The tax advantages and disadvantages of each of the forms of business differ
significantly.
 For the proprietorship, the Income tax Dept. treats the business as the individual
owner. All income appears on the owner’s return as personal income. Thus, the
proprietorship is not regarded by the Income tax Dept.as a separate tax entity.
 The proprietorship has some tax advantages when compared with the corporation.
There is no double tax when profits are distributed to the owner. Another advantage
is that there is no capital stock tax or penalty for retained earnings in the business.
 The partnership’s tax advantages and disadvantages are similar to those of the
proprietorship, especially regarding income distributions, dividends, and capital
gains and losses. Limited partners in a traditional general partnership have the
advantage of limited liability (they are liable only for the amount of their investment),
but they can share in the profits at a percentage stipulated in the partnership
agreement.

12.  Since the Income tax Dept. recognizes the corporation as a separate tax entity,
it has the advantage of being able to take many deductions and expenses.
 The disadvantage is that the distribution of dividends is taxed twice, as income
of the corporation and as income of the stockholder. This double taxation can
be avoided if the income is distributed to the entrepreneur(s) in the form of
salary. Bonuses, incentives, profit sharing, and so on are thus allowable ways
to distribute income of the corporation as long as the compensation is
reasonable in amount and payment was for services rendered.

13. Designing the organization
 The entrepreneur sometimes thinks that he or she can do everything and is
unwilling to give up responsibility to others or even include others in the
management team. In case this occurs, the entrepreneur will have difficulty
making the transition from a start-up to a growing, well-managed business that
maintains its success over a long period of time. Even if more then 1
individuals are involved in the start-up, as the workload increases, the
organizational structure will need to expand to include additional employees
with defined roles in the organization.
 Effective interviewing and hiring procedures will need to be implemented to
ensure that new employees will effectively grow and mature with the new
venture.

14.  The design of the organization will be the entrepreneur’s formal and explicit
indication
 to the members of the organization as to what is expected of them.
 Organization structure. This defines members’ jobs and the communication
and relationship these jobs have with each other. These relationships are
depicted in an organization chart.
 • Selection criteria. The entrepreneur will need to determine a set of guidelines
for selecting individuals for each position.
 • Training. Training, on or off the job, must be specified. This training may be in
the form of formal education or learning skills.
 • Planning, measurement, and evaluation schemes. All organization
activities should reflect the goals and objectives of the enterprise. The
entrepreneur must specify how goals will be achieved (plans), how they will be
measured, and how they will be evaluated.
 • Rewards. Members of an organization will require rewards in the form of
promotions, bonuses, praise, and so on. The entrepreneur or other key
managers will need to be responsible for these rewards.

15. Duties of Board of Directors
 The board of directors may serve a number of functions:
 (1) reviewing operating and capital budgets,
 (2) developing longer-term strategic plans for growth and expansion,
 (3) supporting day-to-day activities,
 (4) resolving conflicts among owners or shareholders,
 (5) ensuring the proper use of assets, or
 (6) developing a network of information sources for the entrepreneurs.

16.  Board of director performance needs to be regularly evaluated by the
entrepreneurs. It is the chair’s responsibility to provide an appraisal of each
board member. To provide this appraisal, the chairperson (and/or founders)
should have a written description of the responsibilities and expectations of
each member.
 Compensation for board members can be shares of stock, stock options.

17. Board of Advisors
 Compared to a board of directors, a board of advisors would be more loosely
tied to the organization and would serve the venture only in an advisory
capacity for some of the functions or activities mentioned before. It has no legal
status, unlike the board of directors, and hence is not subject to the regulations
stipulated .
 The selection process for advisors can be similar to the process for selecting a
board of directors, including determining desired skills and interviewing
potential candidates. Advisors may be compensated on a per meeting basis or
with stock or stock options.
 The entrepreneur will usually use outside advisors such as accountants,
bankers, lawyers, advertising agencies, and market researchers on an as-
needed basis.
 Entrepreneurs should ask these advisors about fees, credentials, references,
and so on, before hiring them.