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How to Proceed in Business - Project 1: Organizational Structures
Transcript of How to Proceed in Business - Project 1: Organizational Structures
Choosing a Business Structure
How To Be "Fail-Proof"
Failure vs. Closing
Create a business plan.
Choose your business structure.
Which structure makes the most sense?
How does one choose the right structure?
one owner has complete control over business
free to respond quickly to new market needs
easy to set up/close, simple to operate
tax - less work to report, can fill paperwork by self
limited resources & skills
liability - unlimited, liable for all debts
Laws have expanded shareholder number
liability - limited protection
tax - only one level of federal tax, tax advantages like partnership, individual income tax rate
legal & accounting costs of setting up: similar to a standard corporation
no more than 75 shareholders
Small Business Management & Enterprise
"How To Proceed In Business"
attractive to investors of short-term projects
liability - partners allowed to have limited liability
taxes - like general partnerships; individual but no self-employment taxes
complicated: must file with Secretary of State
liability - can lose financial investment in business despite not being force to pay off business debts/claims with personal assets
increased access to resources
transfer of ownership
best way to pool most capital
liability - limited, person property remains protected from creditors
continues to operate despite stockholder
most complicated to form
expensive to start
complex to maintain
liability - may not completely protect personal property
taxes - double taxation
The Startup Process
The Clichés of Self-Employment
You will work your own hours -
You will be your own boss
Four out of five new businesses fail
You can do it yourself
"Sole Proprietorship." Entrepreneur. 2014 Entrepreneur Media, Inc., n.d. Web. 31 Aug. 2014. <http://www.entrepreneur.com/encyclopedia/sole-proprietorship>.
Perman, Stacy. "Famous Business Partnerships." Bloomberg Businessweek. Bloomberg, L.P., n.d. Web. 08 Sept. 2014. <http://images.businessweek.com/ss/08/11/1121_famous_partnerships/>.
Shontell, Alyson. "10 Super Successful Co-Founders, And Why Their Partnerships Worked." Business Insider. Business Insider, Inc, 19 July 2010. Web. 08 Sept. 2014. <http://www.businessinsider.com/10-super-successful-co-founders-and-why-their-partnerships-worked-2010-7?op=1>.
Reynolds, Michelle. "Typical Examples of a General Partnership." Chron - Small Business. Hearst Newspapers, LLC, n.d. Web. 08 Sept. 2014. <http://smallbusiness.chron.com/typical-examples-general-partnership-62195.html>.
"Partnership." The U.S. Small Business Administration | SBA.gov. The U.S. Small Business Administration | SBA.gov, n.d. Web. 07 Sept. 2014. <http://www.sba.gov/content/partnership>.
"General Partnership." Wikipedia. Wikimedia Foundation, 29 Aug. 2014. Web. 08 Sept. 2014. <http://en.wikipedia.org/wiki/General_partnership>.
Environmental Factors That Affect The Startup Process
• owner of the company might get sick/injured no backup
• no resources for expanding the company
• natural disaster can occur and damage company severely
• may not have no way in paying for the damage
• bankruptcy/foreclosure/voluntary withdrawal/finanical
loss to creditor
• having a bad set of future plans
• lack of capitalization
• need good management skills
Test your idea with a venture capitalist
Show your prototype to product retailers
Try to license your idea
Get consumer feedback
Innovation Triggering Event Implementation Growth Maturity Harvest
Limited Liability Partnerships
- Role models
- Gov. Policy
no limit of owners
can have an investor finance half of business without owning half of business
has any time to do what one would like with meetings, managing, etc.
liabilities - limited personal
work harder to find stock for funds
one could be charged more do to where your business is located
high fees but less than C-corporation payments
each state has a different law in LLC’s
Pros and Cons of Self-Employment
- better lifestyle
no guaranteed income
liable for own self
long work hours
fewer places to seek advice
SLIDE 25, 27: DETAILS OF FAILURE
Your decision will not only affect how much taxes you pay, but also the paperwork, personal liability, and ability to raise money.
"Choose Your Business Structure." Entrepreneur. Entrepreneur Media, Inc., n.d. Web. 08 Sept. 2014. <http://www.entrepreneur.com/article/38822>.
Johnson, Rose. "10 Examples of Sole Proprietors." Chron - Small Business. Hearst Newspapers, LLC, n.d. Web. 08 Sept. 2014. <http://smallbusiness.chron.com/10-examples-sole-proprietors-32858.html>.
easy to form
taxes - partners pay individual tax
cannot gather as many resources as a corporation
partnership dissolves if partner leaves
liability - unlimited, may be held liable for negligence
Limited Liability Company
no limits on shareholder number
liability - limited, protected
tax - no double taxation
Uniform Partnership Act
Act governs business partnerships
Intent is to settle problems between partners
"All partners must agree to any assignment of partnership property"
"Each partner has one vote...."
"Accurate bookkeeping records are required..."
"Salaries must be part of a written agreement..."
Articles of Partnership
Formal contract between principals/people forming a partnership
Name, location, purpose of partnership
Duration of partnership
Contribution of each partner in cash/services/property
Salaries/draws of partners
Procedure/conditions for dissolving partnership
Articles of Incorporation
Corporations' home office address
Amount of capital required at time of incorporation
Bylaws of corporation
Length of operation time
Operating Agreement of the LLC
allows to structure financial & working relationships with co-owners
establish each owner's percentage of ownership
establish share of profits/losses/rights/responsibilities
Traits Useful in Owning Business
Locus of control
Education and experience
Looking for a niche
Business Failure Rate per 10K Firms
Closely Held Corp. - limited shareholder number, stock traded on occasion
Public Corp. - sell shares of stock to public, listed on stock exchange
no perpetual life
fewer incentives, paperwork, taxes
tax - treatment varies by state
% of Businesses Operating after 4 years
spread costs & risks
improve access to financial resources
access to new/different technologies/customers
access to new/different/innovative management practices
subject to local laws, international included
high rate of failure statistically