Chapter 08 Revised

7/27/2019 Chapter 08 Revised

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PowerPoint Presentation by Charlie Cook

The University of West Alabama

Copyright 2006 Thomson Business & Professional Publishing.

All rights reserved.

Part 3 Developing the New

Venture Business Plan

The Human

Resource Plan:Managers, Owners,

Allies, and Directors


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 84

Building a Management Team

Management TeamManagers and other key persons who give a company

its general direction

Characteristics of a Strong Management Team

Capable of securing the resources needed to makebusiness a success

Reassures investors about the their investment and

the continuity of business

Diversity of talent makes the team stronger than anindividual entrepreneur


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Building a Management Team (contd.)

Team Building and StructureThe required combination of education and

experience depends on the type of business and the

nature of its operations.

The key is achieving a balance of skills andcompetencies in functional areas.

Design an internal management structure that defines

relationships and responsibilities.

Outside professional support can supplement the skills of amanagement team.

An active board of directors can provide counsel andguidance.


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 86Exhibit 8.1

Legal Forms of Organization


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Sole Proprietorship

Sole ProprietorshipA business owned by one person

Advantages

Receives all of the firms profits

Holds title to all of the firms assets

Can easily sell or transfer ownership of the company

name and assets

Requires no registration or filing fee

Has absolute freedom from interference by other

stakeholders


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Sole Proprietorship (contd.)

DisadvantagesBears all business risk

Is subject to all claims of creditors

Has unlimited personal liability for business

Receives no tax free benefits as an employee

Death/incapacity of owner terminates business

Is limited to the proprietors personal capital

Is taxed on business income as personal income


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Exhibit 8.2

Sharing Workload

Sharing FinancialBurden

Sharing Emotional

Burden

Procuring Executive

Talent

Companionship

Interpersonal

Conflicts

Dilution of Equity

Dissatisfaction

with Partner

Absence of One

Clear Leader

Frustration of NotCalling Own Shots

Advantages Disadvantages

The

Advantages

and

Disadvantages

of

Partnerships



Rights and Duties of Partners

Partnership AgreementA document that states explicitly the rights and duties

of partners

Agency Power

The ability of any one partnerto legally bind (e.g., borrow

money) the other partners



The C Corporation Option

CorporationA business organization that exists as a legal entity

and provides limited liabilityfor its owners

Legal Entity

A business organization that is recognized by the lawas having a separate legal existence (artificial

being); can be sued, hold property, incur debt

C Corporation

An ordinary, or regular, corporation chartered by the

state and taxed by the federal government as a

separate legal entity



Rights and Legal Status of Stockholders

Stock CertificateA document specifying the number of shares of stock

owned by a shareholder

Pre-emptive Right

The right of current stockholders to buy new shares ofstock before they are offered to the public

Legal Status

Ownership provides control over the firm

Ownership limits liability to investment in the firm

Ownership can be transferred without affecting the

firms operations


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Forms of BusinessFederal Income Taxes

Sole ProprietorshipSelf-employed persons are taxed on their business

incomes at tax rates set for individuals.

Partnership

The partnership does not pay taxes; allocated shares

of income from partnership are taxed as personal

income for each of the partners.

CorporationAs a separate legal entity, it reports its income and

pays any taxes related to these profits.


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Taxes on Gains and Losses

Ordinary IncomeIncome earned in the ordinary course of business,

including any salary

Capital Gains and Losses

Gains and losses from sale of property that are notpart of the firms regular business

Section 1244 Stock

Special of class stock that allows the owner to claim

an ordinary income tax-deductible loss should the

stock become worthless


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Specialized Forms of Organization

Limited Partnership StructureGeneral partneractive in the business, personally

liable for the debts of the business

Limited partnersnot active in the business, liability

limited to investment in business

Income (taxable) or lossesapportioned to each

partner


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Specialized Forms of Organization (contd.)

Limited Liability CompanyA corporation in which stockholders have limited

liability but pay personal income taxes on the business

profits

Easier to set up

More flexible

Tax advantages

Documents

Chapter 08 Revised