Chapter No. 9 PPt (Umair)

8/7/2019 Chapter No. 9 PPt (Umair)

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ORGANIZATIONAL PLAN

GROUP MEMBERS

UMAIR KHAN BILAL KHALID

M. IMRAN FARZAD ALIJAWERIA RAFIQUE



CHAPTER OUTLINE Legal Forms of Business

Tax Attributes of Forms of Business

Limited Liability Company versus the S Corporation.(Advantages and Disadvantages of S Corporation)

Limited Liability Company (Advantages)

Designing the Organization

Building the Management Team and a Successful OrganizationCulture

The Role of a Board of Directors



LEGAL FO RMS OF BUSINESS

Proprietorship

Partnership

Corporation



DEFINITIONS PROPRIETORSHIP

Is a form of business with single owner who has unlimited

liability controls all decisions, and receives all profit.

PARTNERSHIP

Two or more individuals having unlimited liability who havepooled resources to own a business.

CORPORATION

Corporation is treated as a separate legal entity for liabilityand tax purpose.



FACTORS· THREE FORM OF

BUSINESS FORMATION Factors Proprietorship Partnership Corporation

Ownership Individual No. limit No. limit

Liability of

Owner

Individual Partners liablefor capital

Capitalcontribution is

liability of S.H

Cost of

Starting

Business

Trade fee Agreement

legal costs

trade name

Created under

companies

ordinance 1984.

filling fee

Taxes

Fee for states



FACTORS· THREE FORM OF

BUSINESS FORMATION CONTINUE Transferability

of Interest

Complete

freedom

Consent with

other partner

Most flexible at

S.E

Capital

Requirement

Through loan

or owncontribution

Loans or new

contribution

by sale of stock

or bonds or debt.

Management

Control

Own make

decision

General partner Majority S.H

have control

Continuity of

Business

Death Death or

Withdrawal

Death or

Withdrawal hasno affect

Distribution of

Profit and

Losses

Only one Among partner Share holder can

share profit.



TAX ATTRIBUTES OF FORMS

OF BUSINESS TAX ISSUES FOR PROPRIETORSHIP

The IRS treats the business as the individual owner. All incomeappears on the owner¶s return as personal income.

TAX ISSUES FOR PARTNERSHIP

It is important for partnerships to report income since the servesas the basis for determining the share of each partner. Theincome is distributes based n the partnership agreement. Theowner then report their share as personal income and paytaxes based on this amount.

TAX ISSUES FOR CORPORATION

Corporation is recognized by the IRS as a separate tax entity.

Corporation being able to take many deductions and expenses.



TAX ATTRIBUTES OF VARIOUS

LEGAL FORMS OF BUSINESS Attributes Proprietorship Partnership Corporation

Taxable year Calendar year Calendar year or

other dates

Any year ended

Distribution of profits to

owners

Income appear on owner¶s

return

Partnershipagreement have

allocation of

income

No incomeallocated to

stockholder

Organization

Costs

Not amortizable Amortizable over

60 months

Amortizable over

60 months.

Capital Gains Taxed at

individual level.

Deduction is

allowed for long

term C. gain.

Capital gain to

partnership will

be taxed as

capital gain

Taxed at

corporate level.



TAX ATTRIBUTES OF VARIOUS LEGAL

FORMS OF BUSINESS CONTINUE

Capital Losses Carried forward Capital Losses

can be used to

offset other

income.

Carry back three

years and carry

over five years

as short-term

capital loss.

Initial

Organization

Commenceme

nt of business

result no

additional tax

Contribution of

property to

partnership not

taxed

Acquisition of

stock for cash

entails no

immediate taxes.

Limitation onlosses

deductible by

owner

Amount at riskmay be

deducted

Partnershipinvestment plus

share of

recourse liability

of any.

No lossesallowed except

on sale of stock

or liquidation of

corporation.



ADVANTAGES OF S CORPORATION

Shareholders retain limited liability

S Corporation is not subject to a minimum tax, as is the C

corporation.

S corporation is not subject to a minimum tax as is the Ccorporation.

Stock may be transferred to low-income bracket family member (children must 14 year or older)

Stock may be voting or nonvoting.

This form of business may use the cash method of accounting.



DISADVANTAGES OF S CORPORATION

Even with the regulation passed in 1996 and 2004, there arestill some restriction regarding qualification for this form of business.

The S corporation may not deduct most benefits for shareholders.

The S corporation must adopt a calendar year for tax purposes.

Only one class of stock (common stock) is permitted for thisform of business.

S Corporation cannot have more than 100 shareholders.



LIMITED LIABILITY COMPANY (LLC) The new flexibility offered by LLC status has enhanced its choice by

entrepreneurs. The tax rules for an LLC fall under Subchapter K, and thisbusiness form is considered a partnership-corporation with the followingcharacteristics.

Whereas the corporation has shareholders and partnerships have partners, theLLC has members.

No shares of stock issued, and each member owns an interest in the businessas designated by the articles of organization.

Liability does not extend beyond the member¶s capital contribution to thebusiness.

Members may transfer their interest only with the unanimous written consent of the remaining members.

The Internal Revenue Service now automatically treats LLCs as partnershipsfor tax purpose, unless another option is elected.



ADVANTAGES OF LLC In a highly leverage enterprise the LLC offers the partnership a

distinct advantage over S corporation in that the partners canadd their proportionate shares of the LLC liabilities to their partnership interests.

With the exception of Taxes

One or more individuals, corporations, partnerships, trusts or other entities can join to organize or form an LLC.

Members are allowed to share income, profit, expense,dedication, loss and credit and equity of the LLC amongthemselves.



DESIGNING THE ORGANIZATION ORGANIZATION STRUCTURE

Defines members jobs and the communication and relationship these jobs have with eachother.

PLANNING, MEASUREMENT, AND EVALUATION SCHEMES

Organization activities should reflect the goals and objectives that underlie the venture¶s

existence. The entrepreneur must spell outhow these goals will be achieve?

how they will be measured?

and how they will be evaluated?

REWARDS

Members of an organization will require rewards in the form of promotions, bonuses,praise, and so on. The Entrepreneur will be responsible for these rewards.

SELECTION CRITERIAThe entrepreneur will need to determine a set of guidelines for selecting individuals for each position.

TRAINING

Training, on or off the job, must be specified. This training may be in the form of formaleducation or learning sills.



STAGES IN ORGANIZATIONAL DESIGN

STAGE 1

President

Production Marketing/Sales Administration



STAGES IN ORGANIZATIONAL DESIGN

STAGE 2

President

Production Manager Marketing Manager Adminstrative Manager

Quality

ControlAssembly Sales

Promotion

Advertising

Finance

AccountingPurchasing

Shipping/

receiving



BUILDING THE MANAGEMENT TEAM AND

SUCCESSFUL ORGANIZATIONAL CULTURE

Execute the business plan.

Identify fundamental changes in thebusiness as they occur.

Make adjustments to the plan based onchanges in the environment and marketthat will maintain profitability.



ROLE OF A BOARD OF DIRECTORS

The purpose of board of directors is to provide importantleadership and direction for the new venture and it shouldbe carefully chosen to meet the requirements of the Act.

Select individuals who can work with a diverse group andwill commit to the venture¶s mission.

Select candidates who understand the marketenvironment or can contribute important skills to the new

venture¶s achievement of planning goals.

Select candidates who will show good judgment inbusiness decision making.



THANKS

Documents

Chapter No. 9 PPt (Umair)