GENERAL OVERVIEW AND LEGAL STRUCTURE

Entrp 1. Lecture 3

General Overview

A Business Plan usually has the following parts (refer to: http://entrp1.weebly.com/uploads/1/3/2/7/13275528/grading_matrix-business_plan.pdf

The Executive Summary A condensed version of the complete plan Single most important part of a plan “ ties with financials” Used by interested parties to quickly assess the business

idea and weed out plans Keep it short (one to three pages) Use clear and concise language and action words Create last after plan details are developed

General Overview

Overview of the Business Concept Why the business is being started?

What needs does it satisfy?

What do you expect it to become in the next 5 years?

What are some the of risks associated with this venture?

Explains how your e-business idea, goals, and strategies translate into profits

Objective of the New Business

Your business objective can eitherBe Very Specific

Create a job searching portal where job seekers will pay not Job creator e.g. http://www.theladders.com/

Create a professional network site eg. LinkedinOr Very Generic

Improve customer response time Advanced packaging techniques

State your Objective in specific terms. For Example Capture 50% of the market in 5 years Reach 500 franchise in 10 years Sell all the patents and IP to a fortune 10 IT firm

Objective of the New Business

State your objective in specific terms. For example Capture 50% of the market in 5 years Reach 500 franchise in 10 years Sell all the patents and IP to a fortune 10 IT firm

Legal Structure

Sole ProprietorshipPartnershipCorporation

The sole Proprietorship

An individual who runs an unincorporated business on his or her own. Sometimes otherwise known as a "sole proprietor" or (in the case of professional services) a"sole practitioner".

The sole trader structure is the most straight-forward option.

The individual is taxed under the Inland Revenue's Self-Assessment system, with income tax calculated after deduction for legitimate business expenses and personal allowances.

A sole trader is personally liable for the debts of the business, but also owns all the profits.

The sole Proprietorship

Advantages Disadvantages

• You're the boss.    

• It's easy to get started.  •   • You keep all profits.   

• Income from business is taxed as personal income. 

• You can discontinue your business at will.  

• You assume unlimited liability.

• The amount of investment capital you can raise is limited. 

• You need to be a generalist.

• Retaining high-caliber employees is difficult. 

• The life of the business is dependent on the owner's.

Partnership

A partnership is an association of two or more people formed for the purpose of carrying on a business. Partnerships are governed by the Partnership Act (1890).

Unlike an incorporated company, a partnership does not have a

"legal personality" of its own. Therefore the Partners are liable for any debts of the business.

Partner liability can take several forms. General Partners (the usual situation) are fully liable for business debts. Limited Partners are limited to the amount of investment they have made in

the Partnership. Nominal Partners also sometimes exist. These are people who allow their

names top be used for the benefit of the partnership, usually for remuneration, but they do not get a share of the partnership profits.

Partnership

The operation of a partnership is usually governed by a "Partnership Agreement". The specific terms of this agreement are determined by the partners themselves, covering issues such as: Profit-sharing - normally, partners share equally in the

profits Entitlement to receive salaries and other benefits in

kind (e.g. cars, health insurance) Interest on capital (the amount invested in the

partnership) Arrangements for the introduction of new partners Arrangements for retiring partners What happens when the partnership is dissolved?

Partnership

Advantages Disadvantages

• Two heads are better than one.   

• It's easy to get started. 

• More investment capital is available. 

• Partners pay only personal income tax. 

• High-caliber employees can be made partners. 

• Partners have unlimited liability. 

• Partners must share all profits. 

• The partners may disagree.

• The life of the business is limited.

Incorporated Company/Corporations

Incorporating business activities into a company confers life on the business as a "separate legal person".

Profits and losses are the company's and it has its own debts and obligations.

The company continues despite the resignation, death or bankruptcy of management or shareholders.

A company also offers the best vehicle for expansion and the provision of outside investors.

Incorporated Company/Corporations

The corporation is the most common form of business entity among larger companies. Unlike sole proprietorships and partnerships, corporations are separate and distinct from their owners in the eyes of the law.

Corporations have several distinguishing characteristics including limited liability, easy transferability of shares, and perpetual existence.

Have centralized management who may be different persons from the actual owners.

In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock.

Generally takes the same deductions as a sole proprietorship to figure its taxable income.

Can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity.

Conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

There are C corporations and S corporations

Incorporated Company/Corporations

C-Corporation C corporation refers to any corporation that, under United States

federal income tax law, is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies (and many smaller companies) are treated as C corporations for U.S. federal income tax purposes

http://www.irs.gov/businesses/small/article/0,,id=98240,00.html S-Corporation

In general, S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

http://www.irs.gov/businesses/small/article/0,,id=98263,00.html

Incorporated Company/Corporations

There are four main types of company: (1) Private company limited by shares - members' liability is

limited to the amount unpaid on shares they hold

(2) Private company limited by guarantee - members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up.

(3) Private unlimited company - there is no limit to the members' liability

(4) Public limited company (PLC) - the company's shares may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them.

Incorporated Company/Corporations

Advantages Disadvantages

• Stockholders have limited liability. 

• Corporations can raise the most investment capital.

• Corporations have unlimited life. 

• Ownership is easily transferable.   

• • Corporations utilize

specialists.  

• Corporations are taxed twice.

• Corporations must pay capital stock tax. 

• Starting a corporation is expensive. 

• Corporations are closely regulated by government agencies.  

Profile of Management Team and organizational Chart

Business succeed because they are run by people whose decisions are better than their competitors’.

Name all the key people in the firm alongside: What positions need to be filled Who will be in each position How many people will be employed in the first few years of operations Salaries of key persons Job Descriptions

Who are some of the mentorsWho are consultantsHave s strong advisory board with important names

Attracts more funds Ensures trust

Descriptions of Markets to be served and locations of Business

Market Place Analysis Information about the specific industry of which

business is a part Description of targeted customers Description of major competitors Overview of marketing and sales strategies Will you operate under more than one location? Will you franchise?

Descriptions of Markets to be served and locations of Business

Operational Plan

Operational Plan

Describes a business’s physical location and equipment

Notes the manufacturing or service actions needed to get products/services to market

Summarizes Web site operations

Basis of Financing

Basis of Financing is dependent on type of legal structure

Financial Statements Pro forma balance

sheet Projected income

statement Planned cash flow

statement

Basis of Financing

Risks

Issues Analysis and Critical Risks Identifying the threats to and opportunities for a startup e-business is called an issues analysis or risk assessment (or sometimes SWOT analysis). An issues analysis should consider the following outside influences that can affect an e-business’s success and describe any necessary contingency plans.

Economic changesImpending product innovations and/or technological advancementsEnvironmental changes and government regulationsBarriers to market entryLegal factors and staffing concernsLevel of managerial expertise among the business’s principals

Exit Strategies

Exit StrategiesRealistic exit strategies should suggest

ways that owners and potential investors can harvest the business to get their money back in a new venture. Options might include continuing to operate the business as a “cash cow” or going public with an IPO.

Appendices

Appendices Resumes Pictures of products Explanation of services Legal documents Other supporting documentation

Sources

http://tutor2u.net/business/finance/legal_structure_intro.htm

http://www.quickmba.com/law/org/http://www.irs.gov/businesses/small/article/0,,

id=98359,00.htmlhttp://www.entrepreneur.com/article/75118 http://

www.maxfilings.com/incorporation-knowledge-center/business-entity.php

http://www.powerhomebiz.com/vol3/legalstructure.htm