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Organizing The Venture
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Legal Forms Of Business Organization
Structure
Ownership
Requirements Tax Treatment Liability Advantages Drawbacks
Sole
proprietorship
One owner Income andlosses ³passthrough´ toowner and aretaxed at
personal rate
Unlimitedpersonalliability
Low start-up costs
Freedom from mostregulations
Owner has direct
control
All profits go toowner
Easy to exit
business
Unlimited personalliability
Personal finances
at risk
Miss out on manybusiness taxdeductions
Total responsibility
May be moredifficult to raisefinancing
General
partnership
Two or more
owners
Income and
losses ³passthrough´ to
partners and aretaxed atpersonal rate
flexibility in
profit-loss
allocations to
partners
Unlimited
personalliability
Ease of formation
Pooled talentPooled resources
Somewhat easier
access to financing
Some tax benefits
Unlimited personal
liabilityDivided authority
and decisions
Potential for conflict
Continuity of
transfer of
ownership
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Legal Forms Of Business Organization
Structure
Ownership
Requirements Tax Treatment Liability Advantages Drawbacks
Limited
liability
partnership
(LLP)
Two or moreowners
Income andlosses ³passthrough´ topartner and are
taxed atpersonal rate;flexibility in
profit-loss
allocations to
partners
Limited,althoughonepartners
mustretainunlimitedliability
Good way to
acquire capital from
limited partners
Cost andcomplexity of forming can be high
Limited partners
cannot participate
in management of
business without
losing liability
protection
C corporation Unlimited number of shareholders;
no limits on typesof stock or votingarrangements
Dividend incomeis taxed at
corporate andpersonalshareholder levels; losses
and deductions
are corporate
Limited Limited liabilityTransferable
ownershipContinuousexistence
Easier access to
resources
Expensive to set up
Closely regulated
Double taxation
Extensive record
keeping
Charter restrictions
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Legal Forms Of Business Organization
Structure
Ownership
Requirements Tax Treatment Liability Advantages Drawbacks
S corporation Up to 75 share-
holders; nolimits on types
of stock or
voting
arrangements
Income and
losses ³passthrough´ to
partners and aretaxed at personalrate; flexibility in
profit-loss
allocation to
partners
Limited Easy to set up
Enjoy limitedliability protectionand tax benefits of partnership
Can have a tax-
exempt entity as a
shareholder
Must meet certain
requirementsMay limit future
financing options
Limited
liability
company
(LLC)
Unlimitednumber of ³members´;flexible
membership
arrangements
for voting rights
and income
Income andlosses ³passthrough´ to
partners and aretaxed at personalrate; flexibility in
profit-loss
allocations to
partners
Limited Greater flexibility
Not constrained byregulations on Cand S corporations
Taxed as partner-
ship, not as
corporation
Cost of switchingfrom one form tothis can be high
Need legal and
financial advice in
forming operating
agreement
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Other Legal Issues
� Choosing a Business Name, Slogan, or Design
� Trademarks: A Trademark is a form of legal protection for a
distinctive word, name, phrase, logo, symbol, design, slogan, or any
combination of these elements. � atents: A legal property that allows its holder to prevent others
from employing this property for their own use for a specified period
of time.
a) Utility Patent
b) Design Patent
c) Plant Patent
Invention must satisfy three additional requirements to be
patentable:
1. Novelty 2. Non-obviousness 3. Usefulness
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Other Legal Issues
� Contracts: A contract is an agreement that creates legal obligations and is
enforceable in a court of law.
Essentials for Contract:
1. Mutual Assent: which means that both parties must agree to the
contract.
2. Consideration: which means that both parties must do or pay something
as stated in contract.
3. Legality of Object: which means that the contract cannot force the parties
to do something illegal.
4. Capacity of the Parties:which means that all parties to the contract mustbe legally able to perform their part of contract.
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Other Legal Issues
� Employment Laws:
Employment law cover hiring and firing,
employment policies, employee compensationand benefits, discrimination, workers
compensation, workplace health and safety,
family and medical leave, and other employer-
employee relationships
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Other Legal Issues
- Sales Laws
- Trade Secret Laws
- Securities Laws
- Credit Laws
- Consumer ProtectionL
aws,- Pension and Fringe Benefit Laws
- Antitrust Laws
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Organizational Design issues
What is Organizing?
Organizational Structure:
A Organizational Structure is a formalframework within which work is divided,
grouped, and coordinated.
Organizational Chart:The visual representation of an organizations
structure is called Organizational Chart.
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Organizational Design Issues
Organizational Design
A process of developing or changing the organizationalstructure is called organizational design.
Organizational Design Decisions: decisions about six keyelements:
1. Work Specialization
2. Departmentalization
3. Chain of Command
4. Span of Control
5. Centralization-Decentralization
6. Formalization
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Organizational Design Issues
Types of Organizational Structures
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Organizational Design Issues
Appropriate for these
situations
� Cost efficiencies are critical
� Large Organization (2000 or
more employees)
� Standardized products
produced in a routine
Fashion
� Relatively stable and certain
external environment
Appropriate for these
situations
� Innovation is critical
� Smaller organizations
� Customized products
produced in a flexible
setting
� Dynamic , complex, anduncertain external
environment
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Organizational Design Issues
Boundaryless Organization
An flexible and unstructured organizational design
that is intended to break down external barriers
between the organization and its customers andsuppliers.
� Removes internal (horizontal) boundaries:
�Eliminates the chain of command
�Has limitless spans of control�Uses empowered teams rather than departments
� Eliminates external boundaries:
�Uses virtual, network, and modular organizational
structures to get closer to stakeholders.
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