The document discusses developing a management team and choosing a business structure. It emphasizes that the management team should operate the business full-time and not draw a large salary initially, to demonstrate commitment. It also describes the main legal structures - proprietorship, partnership, C-corporation - and newer forms like LLCs and S-corporations. S-corporations allow profits to pass through to owners and be taxed as personal income, while LLCs are taxed as partnerships. The document advises entrepreneurs to carefully design the organization, including structure, goals, rewards and training, to build a successful management team and culture.

2. Developing the Management Team
 Investors demand that the management
team not operate the business as a part time venture.
 It is assumed that the management team is prepared to
operate the business full time and at a modest salary.
 An attempt to draw a large salary out of the new venture
may be perceived as a lack of commitment to the
business.

3. Legal Forms of Business
Three basic legal forms of business:
 Proprietorship - Single owner, unlimited liability, controls all
decisions, and receives all profits.
 Partnership - Two or more individuals having unlimited liability
who have pooled resources to own a business.
 Corporation (C corporation) - Most common form of
corporation; regulated by statute; treated as a separate legal
entity for liability and tax purposes.
 New forms of business formations:
a. Limited liability company (LLC).
b. Limited liability partnership (LLP).
c. S corporation.

4. The Limited Liability Company
Versus S Corporation
Venture capitalists prefer LLCs as a form of business entity.
 A new regulation allows LLCs to be taxed as a partnership.
 The S corporation was the most popular choice of
organization structure by new ventures and small
businesses.
 Growth rate of S corporations has leveled off mainly
because of the wide acceptance of LLCs.

5. S Corporation
 A special type of corporation where profits are distributed to stockholders
and taxed as
personal income.
 The Small Business Protection Act of 1996 reduced some restrictions.
 In 2004, Congress responded to criticisms of the restrictions on S
corporations as compared to LLCs
 Intent was to make the S corporation as advantageous as the LLC.
 Status of the S corporation must be monitored and maintained.
Advantages of an S Corporation
 Capital gains or losses are treated as personal income or losses.
 Limited liability protection.
 Not subject to a minimum tax.
 Transfer of stock to low-income-bracket family members.

6. S Corporation
Disadvantages of an S Corporation
 Some restrictions for qualification.
 Potential tax disadvantages.
 Most fringe benefits not deductible for shareholders.
 Must have a calendar year for tax purposes.
 Only one class of stock is permitted.
 Net loss is limited to shareholder’s stock plus loans to
business.
 No more than 100 shareholders.

7. The Limited Liability Company
 A partnership/corporation hybrid.
 Laws governing its formation differ from state to state.
 LLC has members.
 No shares issued; each member owns an interest as
designated by the articles of organization.
 Liability does not extend beyond member’s capital
contribution.
 Transfer of interest requires unanimous consent.
 It is taxed as a partnership.
 Standard acceptable term is 30 years; continuity restricted.

8. Designing the Organization
This is the entrepreneur’s formal and explicit indication to
the members of the organization as to what is expected
of
them; expectations can be grouped into:
 Organization structure.
 Planning, measurement, and evaluation schemes.
 Rewards.
 Selection criteria.
 Training.

9. Building the Management Team and a
Successful Organization Culture
A management team must be able to accomplish three
functions:
 Execute the business plan.
 Identify fundamental changes in the business as they
occur.
 Make adjustments to the plan based on changes in the
environment and market that will maintain profitability.

10. The Role of a Board of Directors
Functions of the board of directors:
 Reviewing operating and capital budgets.
 Developing longer-term strategic plans for growth and
expansion.
 Supporting day-to-day activities.
 Resolving conflicts among owners or shareholders.
 Ensuring the proper use of assets.
 Developing a network of information sources for the
entrepreneurs.

11. END