Entrepreneurship

Lecture 10 – BBA2K19
By: Hassan Ali – Lecturer
Sindh University Campus, Thatta
Entrepreneurship
Chapter - 9

The
Organizational
Plan
The Organizational Plan

Learning Objectives
 Developing the Management Team
 Legal Forms of Business
 Tax Attributes of Forms of Business
 Designing the Organization
 The Role of a Board of Directors
The Organizational Plan

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.
The Organizational Plan

Legal Forms of Business

Basic Legal Forms of Business
■ Sole Proprietorship
– Owned by one person, operated for
personal profit.

■ Partnerships
– Owned by two or more people,
operated for joint profit.
The Organizational Plan

Legal Forms of Business

Basic Legal Forms of Business
■ Corporations
– “Legal entity”, owned by individuals,
operated for joint profit.

■ Limited Liability Companies(LLCs)

– Hybrid form including best aspect of
Corporation & Partnership
The Organizational Plan
Legal Forms of Business
Basic Legal Forms of Business
Sole Proprietorships
Strengths
 Low organizational cost.
 Income taxed once as
personal income.
 Independence.
 Secrecy & easy to dissolve.
Weaknesses
 Unlimited liability and limited
funding source.
 Proprietor must be all, difficult to
develop career opportunities.
 Dis-continuity on proprietor’s death.
The Organizational Plan

Legal Forms of Business

Basic Legal Forms of Business
Partnerships
Strengths
 Improved funding sources.
 Increased managerial talent.
 Income split by partnership.
 taxed as personal income.
Weaknesses
 Unlimited liability to all partners
 Partnership dissolved upon death
of partner
 Difficult to liquidate or transfer
ownership
The Organizational Plan
Legal Forms of Business
Basic Legal Forms of Business
Corporations
Strengths
 Owners’ limited liability
 Large capitalization, greater
funding and Indefinite life
 Ownership readily transferable
 Professional management
Weaknesses
 Higher tax rates/Double Taxation
 Greater government regulation
 Lacks secrecy as publicly traded
 Improper corporate structures may
lead to “Agency Problems”
The Organizational Plan

Legal Forms of Business

Basic Legal Forms of Business
Limited Liability Companies(LLCs)
Strengths Weaknesses
 The members of LLC are not  Difficult to Raise Capital.
personally liable for the debts and
obligations.  Confusion Across States.
 LLCs enjoy pass-through taxation;  No Perpetual Existence.
the income earned by the business
is not taxed at the company level
The Organizational Plan

Legal Forms of Business

New Forms of Business Formations
■ Limited liability partnership (LLP)
– LLP is a partnership concern in which
some or all partners have limited
liabilities.
– Each partner is not liable for another
partner's misconduct or negligence.
The Organizational Plan

Legal Forms of Business

New Forms of Business Formations:
■ S corporation
– S corporation is a way of forming a
business so that it pays less tax than
other types of corporations.
– This is done by letting shareholders
file their taxes using the company’s
income and losses as their own.
The Organizational Plan

Tax Attributes of Forms of Business

 Tax Issues for Proprietorship
• Businesses are treated as individual owner; not
regarded as a separate tax entity.
• All income appears on owner’s return as personal
income.
The Organizational Plan

Tax Attributes of Forms of Business

 Tax Issues for Corporation
• Can take many deductions and expenses which is not
available to proprietorship or partnership.
• Distribution of dividends is taxed twice. (can be avoided
if income is distributed to entrepreneur(s) in the form of
salary.
The Organizational Plan

Tax Attributes of Forms of Business

 Tax Issues for Partnership (General)
• Tax advantages and disadvantages similar
sole proprietorship.

 Tax Issues for Partnership (Limited)

• Has the advantage of limited liability.
• Treated the same as the LLC for tax purposes.
The Organizational Plan

Designing the Organization

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

Designing the Organization

Stages in Organizational Design
The Organizational Plan

Designing the Organization

Stages in Organizational Design
The Organizational Plan

Building the Management Team and a

Successful Organization Culture
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.
The Organizational Plan

Building the Management Team and a

Successful Organization Culture
Important Factors in Establishing an Effective Team:
 Desired culture must match business strategy outlined
in the business plan.
 Spend extra time in the hiring process and Employees
must be motivated and rewarded for good work.
 Entrepreneur should be flexible to try different things.
 Core values and appropriate tools must be provided for
employees to effectively complete their jobs.
The Organizational Plan

The Role of a Board of Directors

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

The Role of a Board of Directors

They meet the requirements of the Sarbanes-Oxley
Act and the following criteria:
 Ability to work with a diverse group and commit to
the venture’s mission.
 Ability to understand the market environment.
 Ability to contribute important skills to the new
venture’s achievement of planning goals.
 Ability to show good judgment in business decision
making.
The Organizational Plan

The Board of Advisors

 They serve only in an advisory capacity.
 No legal status; not subject to regulations
stipulated in the Sarbanes-Oxley Act.
 Likely to meet less frequently and useful in a
family business.
 Selection process is similar to the process for
selecting a board of directors.
 Advisors may be compensated on a per-
meeting basis or with stock or stock options.
The Organizational Plan

The Board of Advisors

The Organization and Use of Advisors
 They can become a part of the organization
and need to be managed.
 The relationship between the entrepreneur
and outside advisors can be enhanced by
involving them thoroughly at an early stage.
 Even after hiring advisors, the entrepreneur
should question their advice.