Chapter 9


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Chapter 9

  1. 2. Chapter 9 The Organizational Plan
  2. 3. Organizational Issues <ul><li>Developing Management Team </li></ul><ul><li>Legal Form of Business </li></ul>
  3. 4. Legal Forms <ul><li>Sole Proprietorship </li></ul><ul><li>Partnership </li></ul><ul><li>Corporation </li></ul>
  4. 5. Ownership No Limit On Number Of Shareholders Corporation No Limit On Number Of Partners Partnership Individual Sole Proprietorship
  5. 6. Liability of Owners Shareholders Liable For Amount Of Capital Contribution Corporation All Individuals Liable For All Business Liabilities Limited Partners Liable For Amount of Capital Contribution Partnership- General Partnership- Limited Individual Liable For Business Liabilities Sole Proprietorship
  6. 7. Cost To Start Created By Statute, Articles Of Incorporation, Filing Fees, Taxes, Fees for States In Which Corporation Registers To Do Business Corporation Partnership Agreement, Legal Costs, Trade Name Filing Fees More Comprehensive Partnership Agreement Partnership- General Partnership- Limited Trade Name Filing Fees Sole Proprietorship
  7. 8. Continuity Of Business Death/Withdrawal Of Owner Has No Effect On Continuity Corporation Death/Withdrawal Of 1 Partner Terminates Business Unless Agreement Stipulates Otherwise Death/Withdrawal Has No Effect On Continuity Partnership- General Partnership- Limited Death Dissolves Business Sole Proprietorship
  8. 9. Transferability Of Interest Shareholders Can Sell/Buy Stock At Will. Some Transfers Might Be Restricted. Shareholder Can Only Sell Stock To An Individual. Corporation- Regular Corporation- S General Partners Can Transfer Only with Consent Of All Other General Partners Limited Partners Can Sell Interest Without Consent of General Partners Partnership- General Partnership- Limited Complete Freedom To Sell/Transfer Sole Proprietorship
  9. 10. Capital Requirements Raised By Sale of Stock/Bonds/Borrowing One Class Of Stock Limited to 75 Stockholders Corporation- Regular Corporation- S Loans/New Contributions Require Change In Agreement Partnership Raised By Loan Or Increased Contribution By Individual Sole Proprietorship
  10. 11. Management Control Majority Shareholders Have Control. Day-To-Day Control With Management Corporation All Partners Have Equal Control, Majority Rules Only General Partners Have Control Of Business Partnership- General Partnership- Limited Owner Makes All Decisions Sole Proprietorship
  11. 12. Distribution Of Profits Shareholders Received Profits Through Dividends Corporation Distributed According To Agreement & Capital Contribution Partnership Owner Receives All Profits/Losses Sole Proprietorship
  12. 13. Ability To Raise Capital Limited Owner Liability Is Attractive To Investors Corporation Depends On Capability of Partners & Success Of Business Partnership Limited to Capability Of Owner & Success Of Business Sole Proprietorship
  13. 14. Tax Attributes Of Legal Form <ul><li>Sole Proprietorship = Owner </li></ul><ul><ul><li>No Double Tax </li></ul></ul><ul><ul><li>No Capital Stock/Retained Earnings Penalty </li></ul></ul><ul><li>Partnership </li></ul><ul><ul><li>Limited Partners = Share Of Profits But No Liability </li></ul></ul><ul><ul><li>Income Distributed Based On Agreement </li></ul></ul><ul><li>Corporation = Separate Entity </li></ul><ul><ul><li>More Deductions/Expenses Available </li></ul></ul><ul><ul><li>Double Taxation Of Dividends </li></ul></ul>
  14. 15. S Corporation- Advantages <ul><li>Gains/Losses = Personal Income/Loss </li></ul><ul><li>Limited Liability Protection </li></ul><ul><li>No Minimum Tax </li></ul><ul><li>Stock Transferable </li></ul><ul><li>Stock = Voting Or Non-Voting </li></ul><ul><li>Cash Method Of Accounting </li></ul><ul><li>Long-Term Capital Gains/Losses Deductible To Shareholders </li></ul>
  15. 16. S Corporation- Disadvantages <ul><li>Some Restrictions For Qualification </li></ul><ul><li>Potential Tax Disadvantages </li></ul><ul><li>Most Fringe Benefits Not Deductible For Shareholders </li></ul><ul><li>Must Have Calendar Tax Year </li></ul><ul><li>1 Class Of Stock </li></ul><ul><li>Net Loss Limited to Shareholder’s Stock Plus Loans To Business </li></ul><ul><li>No More Than 75 Shareholders </li></ul>
  16. 17. Limited Liability Company <ul><li>Partnership/Corporation Hybrid, Laws Differ From State To State </li></ul><ul><li>Has Members </li></ul><ul><li>No Shares Issued, Each Member Owns According to Articles of Incorporation </li></ul><ul><li>Liability = Member’s Capital Contribution </li></ul><ul><li>Transfer Requires Unanimous Consent </li></ul><ul><li>Taxed As Partnership </li></ul><ul><li>Standard Term = 30 Years, Continuity Restricted </li></ul>
  17. 18. Advantages of LLC <ul><li>LLC Liabilities Added To Partnership Interest </li></ul><ul><li>Most States Do Not Tax LLCs </li></ul><ul><li>Ownership Not Limited To Individuals </li></ul><ul><li>Members Share Income, Profit, Expense, Etc., Among Themselves </li></ul>
  18. 19. Organizational Design <ul><li>Structure </li></ul><ul><li>Planning, Measurement, Evaluation Schemes </li></ul><ul><li>Rewards </li></ul><ul><li>Selection Criteria </li></ul><ul><li>Training </li></ul><ul><li>Management Team </li></ul><ul><li>Board Of Directors </li></ul><ul><li>Board Of Advisors </li></ul>
  19. 20. Effective Team <ul><li>Clear Purpose </li></ul><ul><li>Informal </li></ul><ul><li>Participation </li></ul><ul><li>Listen </li></ul><ul><li>Civilized Disagreement </li></ul><ul><li>Consensus Decisions </li></ul><ul><li>Open Communication </li></ul><ul><li>Clear Roles/Work Assignments </li></ul><ul><li>Shared Leadership </li></ul><ul><li>External Relations </li></ul><ul><li>Style Diversity </li></ul><ul><li>Self-Assessment </li></ul>