chapter 9 - the organizational plan

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ChapterChapter99

The Organizational PlanThe Organizational Plan

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Organizational IssuesOrganizational Issues

Developing Management Developing Management TeamTeam

Legal Form of BusinessLegal Form of Business

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Legal FormsLegal Forms

Sole ProprietorshipSole Proprietorship

PartnershipPartnership

CorporationCorporation

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OwnershipOwnership

Sole ProprietorshipSole Proprietorship IndividualIndividual

PartnershipPartnership No Limit On Number No Limit On Number Of PartnersOf Partners

CorporationCorporation No Limit On Number No Limit On Number Of ShareholdersOf Shareholders

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Liability of OwnersLiability of Owners

Sole ProprietorshipSole ProprietorshipIndividual Liable For Individual Liable For Business LiabilitiesBusiness Liabilities

Partnership- GeneralPartnership- General

Partnership- LimitedPartnership- Limited

All Individuals Liable For All All Individuals Liable For All Business LiabilitiesBusiness Liabilities

Limited Partners Liable For Limited Partners Liable For Amount of Capital Amount of Capital

ContributionContribution

CorporationCorporationShareholders Liable For Shareholders Liable For

Amount Of Capital Amount Of Capital ContributionContribution

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Cost To StartCost To Start

Sole ProprietorshipSole Proprietorship Trade Name Filing Trade Name Filing FeesFees



Partnership Agreement, Partnership Agreement, Legal Costs, Trade Name Legal Costs, Trade Name

Filing FeesFiling Fees

More Comprehensive More Comprehensive Partnership AgreementPartnership Agreement

CorporationCorporation

Created By Statute, Articles Of Created By Statute, Articles Of Incorporation, Filing Fees, Taxes, Incorporation, Filing Fees, Taxes,

Fees for States In Which Fees for States In Which Corporation Registers To Do Corporation Registers To Do

BusinessBusiness

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Continuity Of BusinessContinuity Of Business

Sole ProprietorshipSole ProprietorshipDeath Dissolves Death Dissolves

BusinessBusiness



Death/Withdrawal Of 1 Partner Death/Withdrawal Of 1 Partner Terminates Business Unless Terminates Business Unless

Agreement Stipulates OtherwiseAgreement Stipulates Otherwise

Death/Withdrawal Has No Death/Withdrawal Has No

Effect On ContinuityEffect On Continuity

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

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Transferability Of InterestTransferability Of Interest

Sole ProprietorshipSole ProprietorshipComplete Freedom To Complete Freedom To

Sell/TransferSell/Transfer



General Partners Can Transfer General Partners Can Transfer Only with Consent Of All Other Only with Consent Of All Other

General PartnersGeneral Partners

Limited Partners Can Sell Interest Limited Partners Can Sell Interest Without Consent of General Without Consent of General

PartnersPartners

Corporation- RegularCorporation- Regular

Corporation- SCorporation- S

Shareholders Can Sell/Buy Stock Shareholders Can Sell/Buy Stock At Will. Some Transfers Might Be At Will. Some Transfers Might Be

Restricted.Restricted.

Shareholder Can Only Sell Stock Shareholder Can Only Sell Stock To An Individual.To An Individual.

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Capital RequirementsCapital Requirements

Sole ProprietorshipSole Proprietorship Raised By Loan Or Raised By Loan Or Increased Contribution By Increased Contribution By

IndividualIndividual

PartnershipPartnershipLoans/New Contributions Loans/New Contributions

Require Change In Require Change In AgreementAgreement

Corporation- RegularCorporation- Regular

Corporation- SCorporation- S

Raised By Sale of Raised By Sale of Stock/Bonds/BorrowingStock/Bonds/Borrowing

One Class Of Stock Limited One Class Of Stock Limited to 75 Stockholdersto 75 Stockholders

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Management ControlManagement Control

Sole ProprietorshipSole ProprietorshipOwner Makes All Owner Makes All

DecisionsDecisions



All Partners Have Equal All Partners Have Equal Control, Majority RulesControl, Majority Rules

Only General Partners Have Only General Partners Have Control Of BusinessControl Of Business

CorporationCorporationMajority Shareholders Have Majority Shareholders Have

Control. Day-To-Day Control. Day-To-Day Control With ManagementControl With Management

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Distribution Of ProfitsDistribution Of Profits

Sole ProprietorshipSole Proprietorship Owner Receives All Owner Receives All Profits/LossesProfits/Losses

PartnershipPartnershipDistributed According Distributed According

To Agreement & Capital To Agreement & Capital ContributionContribution

CorporationCorporationShareholders Received Shareholders Received

Profits Through Profits Through DividendsDividends

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Ability To Raise CapitalAbility To Raise Capital

Sole ProprietorshipSole ProprietorshipLimited to Capability Of Limited to Capability Of

Owner & Success Of Owner & Success Of BusinessBusiness

PartnershipPartnershipDepends On Capability Depends On Capability of Partners & Success of Partners & Success

Of BusinessOf Business

CorporationCorporationLimited Owner Liability Limited Owner Liability

Is Attractive To Is Attractive To InvestorsInvestors

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Tax Attributes Of Legal FormTax Attributes Of Legal Form

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

PenaltyPenaltyPartnershipPartnership

Limited Partners = Share Of Profits But No Limited Partners = Share Of Profits But No LiabilityLiability

Income Distributed Based On AgreementIncome Distributed Based On AgreementCorporation = Separate EntityCorporation = Separate Entity

More Deductions/Expenses AvailableMore Deductions/Expenses Available Double Taxation Of DividendsDouble Taxation Of Dividends

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S Corporation- AdvantagesS Corporation- Advantages

Gains/Losses = Personal Income/LossGains/Losses = Personal Income/LossLimited Liability ProtectionLimited Liability ProtectionNo Minimum TaxNo Minimum TaxStock TransferableStock TransferableStock = Voting Or Non-VotingStock = Voting Or Non-VotingCash Method Of AccountingCash Method Of AccountingLong-Term Capital Gains/Losses Long-Term Capital Gains/Losses

Deductible To ShareholdersDeductible To Shareholders

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S Corporation- DisadvantagesS Corporation- Disadvantages

Some Restrictions For QualificationSome Restrictions For QualificationPotential Tax DisadvantagesPotential Tax DisadvantagesMost Fringe Benefits Not Deductible For Most Fringe Benefits Not Deductible For

ShareholdersShareholdersMust Have Calendar Tax YearMust Have Calendar Tax Year1 Class Of Stock1 Class Of StockNet Loss Limited to Shareholder’s Stock Net Loss Limited to Shareholder’s Stock

Plus Loans To BusinessPlus Loans To BusinessNo More Than 75 ShareholdersNo More Than 75 Shareholders

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Limited Liability CompanyLimited Liability Company

Partnership/Corporation Hybrid, Laws Partnership/Corporation Hybrid, Laws Differ From State To StateDiffer From State To State

Has MembersHas MembersNo Shares Issued, Each Member Owns No Shares Issued, Each Member Owns

According to Articles of IncorporationAccording to Articles of IncorporationLiability = Member’s Capital ContributionLiability = Member’s Capital ContributionTransfer Requires Unanimous ConsentTransfer Requires Unanimous ConsentTaxed As PartnershipTaxed As PartnershipStandard Term = 30 Years, Continuity Standard Term = 30 Years, Continuity

RestrictedRestricted

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Advantages of LLCAdvantages of LLC

LLC Liabilities Added To LLC Liabilities Added To Partnership InterestPartnership Interest

Most States Do Not Tax LLCsMost States Do Not Tax LLCsOwnership Not Limited To Ownership Not Limited To IndividualsIndividuals

Members Share Income, Profit, Members Share Income, Profit, Expense, Etc., Among Expense, Etc., Among ThemselvesThemselves

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Organizational DesignOrganizational Design

StructureStructurePlanning, Measurement, Planning, Measurement, Evaluation SchemesEvaluation Schemes

RewardsRewardsSelection CriteriaSelection CriteriaTrainingTrainingManagement TeamManagement TeamBoard Of DirectorsBoard Of DirectorsBoard Of AdvisorsBoard Of Advisors

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Effective TeamEffective Team1)1) Clear PurposeClear Purpose

2)2) InformalInformal

3)3) ParticipationParticipation

4)4) ListenListen

5)5) Civilized Civilized DisagreementDisagreement

6)6) Consensus Consensus DecisionsDecisions

7)7) Open Open CommunicationCommunication

8)8) Clear Roles/Work Clear Roles/Work AssignmentsAssignments

9)9) Shared Shared LeadershipLeadership

10)10)External External RelationsRelations

11)11)Style DiversityStyle Diversity12)12)Self-AssessmentSelf-Assessment

chapter 9 - the organizational plan

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