Organizing The Venture

Legal Forms Of Business Organization

Ownership
Structure Requirements Tax Treatment Liability Advantages Drawbacks

Sole One owner Income and Unlimited Low start-up costs Unlimited personal
proprietorship losses “pass personal Freedom from most liability
through” to liability regulations Personal finances
owner and are Owner has direct at risk
taxed at control Miss out on many
personal rate business tax
All profits go to
owner deductions
Easy to exit Total responsibility
business May be more
difficult to raise
financing

General Two or more Income and Unlimited Ease of formation Unlimited personal
partnership owners losses “pass personal Pooled talent liability
through” to liability Pooled resources Divided authority
partners and are and decisions
taxed at Somewhat easier
access to financing Potential for conflict
personal rate
Some tax benefits Continuity of
flexibility in transfer of
profit-loss
ownership
allocations to
partners
Legal Forms Of Business Organization
Ownership
Structure Requirements Tax Treatment Liability Advantages Drawbacks

Limited Two or more Income and Limited, Good way to Cost and
liability owners losses “pass although acquire capital from complexity of
partnership through” to one limited partners forming can be high
(LLP) partner and are partners Limited partners
taxed at must cannot participate
personal rate; retain in management of
flexibility in unlimited business without
profit-loss liability losing liability
allocations to protection
partners

C corporation Unlimited number Dividend income Limited Limited liability Expensive to set up
of shareholders; is taxed at Transferable Closely regulated
no limits on types corporate and ownership Double taxation
of stock or voting personal Continuous
arrangements shareholder existence Extensive record
levels; losses keeping
Easier access to
and deductions resources Charter restrictions
are corporate
Legal Forms Of Business Organization

Ownership
Structure Requirements Tax Treatment Liability Advantages Drawbacks

S corporation Up to 75 share- Income and Limited Easy to set up Must meet certain
holders; no losses “pass Enjoy limited requirements
limits on types through” to liability protection May limit future
of stock or partners and are and tax benefits of financing options
voting taxed at personal partnership
arrangements rate; flexibility in Can have a tax-
profit-loss exempt entity as a
allocation to
shareholder
partners

Limited Unlimited Income and Limited Greater flexibility Cost of switching

liability number of losses “pass Not constrained by from one form to
company “members”; through” to regulations on C this can be high
(LLC) flexible partners and are and S corporations Need legal and
membership taxed at personal Taxed as partner- financial advice in
arrangements rate; flexibility in forming operating
ship, not as
for voting rights profit-loss corporation agreement
and income allocations to
partners
 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.”
• Patents: “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
 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 must
be legally able to perform their part of contract.
 Other Legal Issues
• Employment Laws:
“Employment law cover hiring and firing,
employment policies, employee compensation
and benefits, discrimination, worker’s
compensation, workplace health and safety,
family and medical leave, and other employer-
employee relationships ”
 Other Legal Issues
- Sales Laws
- Trade Secret Laws
- Securities Laws
- Credit Laws
- Consumer Protection Laws,
- Pension and Fringe Benefit Laws
- Antitrust Laws
Organizational Design issues
What is Organizing?
Organizational Structure:
“A Organizational Structure is a formal
framework within which work is divided,
grouped, and coordinated.”
Organizational Chart:
“The visual representation of an organization’s
structure is called Organizational Chart.”
Organizational Design Issues
Organizational Design
“A process of developing or changing the organizational
structure is called organizational design.”
Organizational Design Decisions: decisions about six key
elements:
1. Work Specialization
2. Departmentalization
3. Chain of Command
4. Span of Control
5. Centralization-Decentralization
6. Formalization
Organizational Design Issues
Types of Organizational Structures
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, and
uncertain external
environment
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 and
suppliers.”
• 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.