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Chapter

The Organizational Plan

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Organizational Issues
Developing Management Team

Legal Form of Business

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Legal Forms
Sole Proprietorship

Partnership

Corporation
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 Corporation
Separate legal entity that is run by stockholders having limited liability.

C Corporation
Most common form of corporation, regulated by statute and treated as a separate legal entity for liability and tax purposes.

S Corporation
Special type of corporation where profits are distributed to stockholders and taxed as personal income.
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Ownership
Sole Proprietorship Partnership Individual No Limit On Number Of Partners No Limit On Number Of Shareholders

Corporation

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Liability of Owners
Sole Proprietorship
Individual Liable For Business Liabilities
All Individuals Liable For All Business Liabilities
Limited Partners Liable For Amount of Capital Contribution Shareholders Liable For Amount Of Capital Contribution
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Partnership- General
Partnership- Limited Corporation

Cost To Start
Sole Proprietorship Partnership- General Partnership- Limited Trade Name Filing Fees
Partnership Agreement, Legal Costs, Trade Name Filing Fees More Comprehensive Partnership Agreement
Created By Statute, Articles Of Incorporation, Filing Fees, Taxes, Fees for States In Which Corporation Registers To Do Business
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Corporation

Continuity Of Business
Sole Proprietorship Partnership- General Partnership- Limited Corporation
Death Dissolves Business
Death/Withdrawal Of 1 Partner Terminates Business Unless Agreement Stipulates Otherwise

Death/Withdrawal Has No Effect On Continuity Death/Withdrawal Of Owner Has No Effect On Continuity

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Transferability Of Interest
Sole Proprietorship Partnership- General
Partnership- Limited Corporation- Regular
Complete Freedom To Sell/Transfer
General Partners Can Transfer Only with Consent Of All Other General Partners Limited Partners Can Sell Interest Without Consent of General Partners Shareholders Can Sell/Buy Stock At Will. Some Transfers Might Be Restricted.
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Capital Requirements
Sole Proprietorship Partnership Corporation- Regular
Corporation- S
Raised By Loan Or Increased Contribution By Individual Loans/New Contributions Require Change In Agreement Raised By Sale of Stock/Bonds/Borrowing One Class Of Stock Limited to 75 Stockholders
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Management Control
Sole Proprietorship
Owner Makes All Decisions
All Partners Have Equal Control, Majority Rules Only General Partners Have Control Of Business Majority Shareholders Have Control. Day-To-Day Control With Management
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Partnership- General
Partnership- Limited Corporation

Distribution Of Profits
Sole Proprietorship
Partnership Corporation

Owner Receives All Profits/Losses

Distributed According To Agreement & Capital Contribution Shareholders Received Profits Through Dividends
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Ability To Raise Capital

Sole Proprietorship Partnership
Limited to Capability Of Owner & Success Of Business Depends On Capability of Partners & Success Of Business Limited Owner Liability Is Attractive To Investors
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Corporation

Tax Attributes Of Legal Form

Sole Proprietorship = Owner
No Double Tax No Capital Stock/Retained Earnings Penalty

Partnership
Limited Partners = Share Of Profits But No Liability Income Distributed Based On Agreement

Corporation = Separate Entity

More Deductions/Expenses Available Double Taxation Of Dividends
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S Corporation- Advantages
Gains/Losses = Personal Income/Loss Limited Liability Protection No Minimum Tax Stock Transferable Cash Method Of Accounting Long-Term Capital Gains/Losses Deductible To Shareholders
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S Corporation- Disadvantages
Some Restrictions For Qualification Most Fringe Benefits Not Deductible For Shareholders Must Have Calendar Tax Year Only one Class Of Stock (common class) Net Loss Limited to Shareholders Stock Plus Loans To Business No More Than 75 Shareholders
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Limited Liability Company

Partnership/Corporation Hybrid, Laws Differ From State To State Has Members No Shares Issued, Each Member Owns According to Articles of Incorporation Liability = Members Capital Contribution Transfer Requires Unanimous Consent Taxed As Partnership Standard Term = 30 Years, Continuity Restricted
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Advantages of LLC
LLC Liabilities Added To Partnership Interest Most States Do Not Tax LLCs Ownership Not Limited To Individuals Members Share Income, Profit, Expense, Etc., Among Themselves
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Organizational Design
Structure Planning, Measurement, Evaluation Schemes Rewards Selection Criteria Training Management Team Board Of Directors Board Of Advisors
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Effective Team
1) 2) 3) 4) 5) Clear Purpose Informal Participation Listen Civilized Disagreement 6) Consensus Decisions
7) Open Communication 8) Clear Roles/Work Assignments 9) Shared Leadership 10)External Relations 11)Style Diversity 12)Self-Assessment
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End please!

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