Welcome to the Organization Plan Dashboard
Introduction
Research suggests that thriving enterprises are usually led by a talented and effective team of entrepreneurs, especially those who have had prior new venture experience.
This dashboard transforms "The Organization of the Business" presentation into an interactive format. Use the navigation on the left to explore the various important aspects of planning your business's organizational structure.
Learning Outcomes
After studying this chapter, you should be able to:
- Describe the characteristics and value of a strong management team.
- Explain the common legal forms of organization used by small businesses.
- Identify factors to consider in choosing among the primary legal forms of organization.
- Discuss the unique features and restrictions of five specialized organizational forms.
- Understand the nature of strategic alliances and their uses in small businesses.
- Describe the effective use of boards of directors and advisory councils.
Building a Management Team
Definition of a Management Team
Managers and other key persons who give a company its general direction. A management team can bring greater strength to a venture than a single entrepreneur can.
Achieving Balance
To ensure balance, a management team should comprise both competent insiders and outside specialists.
Expanding Social Networks
A social network is an interconnected system of relationships with other people. Sometimes it is not about what you know, but who you know that matters. Social networks are helpful in getting the business and sales started.
Common Legal Forms of Business
Sole Proprietorship Option
A business owned by one person, who bears unlimited liability for the enterprise. Unlimited liability means the owner's liability extends beyond the owner's investment in the business.
Partnership Option
A legal entity formed by two or more co-owners to operate a business for profit. It's important to choose partners carefully and create a clear partnership agreement.
Advantages:
- Sharing workload and emotional burden
- Sharing financial burden
- Procuring executive talent
Disadvantages:
- Interpersonal conflicts
- Absence of one clear leader
- Dilution of equity
Corporation Option
A business organization that exists as a legal entity and provides limited liability to its owners. It is a legal entity recognized by law as having a separate legal existence.
Shareholders have limited liability, and the continuity of the business is not affected by the death or withdrawal of shareholders.
Comparison of Legal Forms
| Criteria | Sole Proprietorship | General Partnership | C Corporation |
|---|---|---|---|
| Initial Requirements & Costs | Minimum requirements; generally no registration or filing fee. | Minimum requirements; written partnership agreement is highly suggested. | Most expensive and greatest requirements; filing fees; compliance with state regulations. |
| Liability of Owners | Unlimited liability. | Unlimited liability. | Liability limited to investment in company. |
| Continuity of Business | Dissolved upon proprietor’s death. | Dissolved upon withdrawal or death of a partner. | Continuity unaffected by shareholder withdrawal or death. |
| Transferability of Ownership | May transfer ownership of company name and assets. | Requires the consent of all partners. | Is easily transferred by transferring shares of stock. |
| Management Control | Absolute management freedom. | Majority vote of partners required for control. | Shareholders have final control, but the board of directors usually controls company policies. |
| Attractiveness for Raising Capital | Limited to proprietor’s personal capital. | Limited to partners' ability and desire to contribute capital. | Usually the most attractive form for raising capital. |
| Income Taxes | Income from the business is taxed as personal income to the proprietor. | Income from the business is taxed as personal income to the partners. | The C Corporation is taxed on its income and the stockholder is taxed on dividends received. |
Forming Strategic Alliances
An organizational relationship that links two or more independent business entities in a common endeavor. Strategic alliances are more important to small businesses today than ever before.
Steps for Success:
- Establish a healthy network of contacts.
- Do your homework to be prepared.
- Make sure any alliance offer is a win-win opportunity.
- Continue to monitor the alliance's progress to ensure that goals are being met.
Making the Most of a Board of Directors
The Board of Directors is the governing body of a corporation, elected by the stockholders. They set or approve management policies, consider reports on operating results, and declare dividends.
An entrepreneur who takes a constructive approach will find an active board to be both practical and beneficial. Outsiders can play a unique role in helping to evaluate family talent and mediate differences among family members.
Alternative: An Advisory Council
A group that serves as an alternative to a board of directors, acting only in an advisory capacity.
Case Study: Startover Automotive Services
Background
Ted Green (outgoing and enthusiastic) and Mark Stroder (reserved and skeptical) are close friends. Green had the idea of starting a new business that would rebuild automobile starters, and he asked Stroder to be his partner in the venture. Stroder will do all the work; Green will supply the cash.
Questions for Discussion:
- How relevant are the individual personalities to the success of this entrepreneurial team? Do you think Green and Stroder have a chance to survive their “partnership”? Why or why not?
- Do you consider it an advantage or disadvantage that the members of this team are the same age?
- On balance, is it good or bad that the company will be started by two men who are very close friends? What are the potential benefits and drawbacks of mixing business and friendship in this case?