Business Plan Business Formation ELIB 203 Week 7

Business Formation Key decisions relate to: 1. Forms of business organization 2. Laws governing intellectual property 3. Government regulations

1. Forms of Business Organization Form of ownership is an important decision as it affects: §Operation § Managerial Ability § Business Goals § Start-up Costs § Profit Distribution § Management Succession plans § Taxes § Liability Exposure

1. Forms of Business Organization : The most common ownership forms are: § Sole Proprietorship §Partnership §Corporation

1. Forms of Business Organization: Sole Proprietorship § Advantages: • Ease of Formation • Retention of Control • Pride of Ownership • Retention of Profits • Possible Tax Advantages § Disadvantages: • Limited Financial Resources • Unlimited Liability • Limited ability to attract and maintain talented employees • Lack of Permanence

1. Forms of Business Organization: Partnerships – Two heads can be better than one § • Advantages: Pooled Financial Resources • Shared Responsibilities • Ease of Formation • Tax Advantages § Disadvantages: • Unlimited Liability • Disagreements • Difficulty in withdrawing from agreement • Lack of Continuity

1. Forms of Business Organization: Corporations § A corporation is a legal entity, separate and distinct from its owners. § Corporations are owned by stockholders. § The Board of Directors • Elected by stockholders to oversee the operation of their company and protect their interests • • Oversee the operation of corporation and protect investors’ interest Establish mission and set objectives Rarely get involved in day-to-day management Responsible for monitoring the performance of the corporate officers

1. Forms of Business Organization: Corporations § Advantages: • Limited Liability • Permanence • Easy to Transfer Ownership • Ability to Raise Capital • Specialized Management § Disadvantages: • Expense/complexity of formation and operation • Double Taxation • Paperwork and Regulation • Conflicts of Interest

1. Forms of Business Organization: Comparison High DEGREE OF PERSONAL LIABILITY Low HIGH LOW Sole Proprietorships Partnerships LOW Low Corporations HIGH DEGREE OF COMPLEXITY AND PERPETUITY High

1. Forms of Business Organization: Most Common Form of Business is Sole Proprietorships Professional, Technical, and Scientific Services • Law firms, accountants, architects, computer system designers, consultants Construction • Residential construction, commercial construction, specialty contractors Retail Trade • Car dealerships, restaurants, clothing stores, home & garden stores Other Services • Automobile repair and body shops, laundries, personal services Health Care • Physicians, dentists, chiropractors, psychologists, psychiatrists Source for Table: “Sole Proprietorship Returns”, by Kevin Pierce Statistics of Income Bulletin, Summer, 2005,

2. Laws governing Intellectual Property 1. Patents: Provides the owner with exclusive rights to hold, transfer, and license the production and sale of the product or process as an intellectual property right. 2. Copyrights: Provides exclusive rights to creative individuals for the protection of their literary or artistic productions. 3. Trademarks: A distinctive name, mark, symbol, or motto identified with a company’s product(s) and registered at the Patent and Trademark Office

3. Government Regulations Tax considerations 1. Federal, state, and local 2. Payroll 3. Incentives Government Regulatory bodies 1. Zoning (property) 2. Administrative agencies (regulatory) 3. Consumer law Continuity of ownership rights 1. Property laws and ownership 2. Wills, trusts, and ownership 3. Bankruptcy

3. Government Regulations Register Your Business Once you have a name and chosen a structure, you need to register your business and obtain the appropriate licenses, permits, and identification. This will all depend on your location and your business.

Case Study Ali Al Sahimi decided to set up his own business. He was having trouble deciding on a name for his used car dealership business. Finally, he chose the name Al Sahimi Auto Company after his name. His business was picking up, but soon he found himself with a cease and desist letter from another company, Al Sahimi Autos. Unable to fight a lawsuit, Ali had to rename his company and re-register it. The name change was also reflected in his business because some clients believed that the company was changing with the name.