Entrp 1. Lecture 3

1. Entrp 1. Lecture 3 General Overview and Legal Structure

2. General Overview • A Business Plan usually has the following parts (refer to: http://entrp1.weebly.com/uploads/1/3/2/7/13275528/grading_matrix-business_plan.pdf • The Executive Summary • A condensed version of the complete plan • Single most important part of a plan “ ties with financials” • Used by interested parties to quickly assess the business idea and weed out plans • Keep it short (one to three pages) • Use clear and concise language and action words • Create last after plan details are developed

3. General Overview • Overview of the Business Concept • Why the business is being started? • What needs does it satisfy? • What do you expect it to become in the next 5 years? • What are some the of risks associated with this venture? • Explains how your e-business idea, goals, and strategies translate into profits

4. Objective of the New Business • Your business objective can either • Be Very Specific • Create a job searching portal where job seekers will pay not Job creator e.g. http://www.theladders.com/ • Create a professional network site eg. Linkedin • Or Very Generic • Improve customer response time • Advanced packaging techniques • State your Objective in specific terms. For Example • Capture 50% of the market in 5 years • Reach 500 franchise in 10 years • Sell all the patents and IP to a fortune 10 IT firm

5. Objective of the New Business • State your objective in specific terms. For example • Capture 50% of the market in 5 years • Reach 500 franchise in 10 years • Sell all the patents and IP to a fortune 10 IT firm

6. Legal Structure Sole Proprietorship Partnership Corporation

7. The sole Proprietorship An individual who runs an unincorporated business on his or her own. Sometimes otherwise known as a "sole proprietor" or (in the case of professional services) a"sole practitioner". The sole trader structure is the most straight-forward option. The individual is taxed under the Inland Revenue's Self-Assessment system, with income tax calculated after deduction for legitimate business expenses and personal allowances. A sole trader is personally liable for the debts of the business, but also owns all the profits.

8. The sole Proprietorship

9. Partnership • A partnership is an association of two or more people formed for the purpose of carrying on a business. Partnerships are governed by the Partnership Act (1890). • Unlike an incorporated company, a partnership does not have a "legal personality" of its own. Therefore the Partners are liable for any debts of the business. • Partner liability can take several forms. • General Partners (the usual situation) are fully liable for business debts. • Limited Partners are limited to the amount of investment they have made in the Partnership. • Nominal Partners also sometimes exist. These are people who allow their names top be used for the benefit of the partnership, usually for remuneration, but they do not get a share of the partnership profits.

10. Partnership • The operation of a partnership is usually governed by a "Partnership Agreement". The specific terms of this agreement are determined by the partners themselves, covering issues such as: • Profit-sharing - normally, partners share equally in the profits • Entitlement to receive salaries and other benefits in kind (e.g. cars, health insurance) • Interest on capital (the amount invested in the partnership) • Arrangements for the introduction of new partners • Arrangements for retiring partners • What happens when the partnership is dissolved?

11. Partnership

12. Incorporated Company/Corporations Incorporating business activities into a company confers life on the business as a "separate legal person". Profits and losses are the company's and it has its own debts and obligations. The company continues despite the resignation, death or bankruptcy of management or shareholders. A company also offers the best vehicle for expansion and the provision of outside investors.

13. Incorporated Company/Corporations The corporation is the most common form of business entity among larger companies. Unlike sole proprietorships and partnerships, corporations are separate and distinct from their owners in the eyes of the law. Corporations have several distinguishing characteristics including limited liability, easy transferability of shares, and perpetual existence. Have centralized management who may be different persons from the actual owners. In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Generally takes the same deductions as a sole proprietorship to figure its taxable income. Can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. Conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation. There are C corporations and S corporations

14. Incorporated Company/Corporations • C-Corporation • C corporation refers to any corporation that, under United States federal income tax law, is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies (and many smaller companies) are treated as C corporations for U.S. federal income tax purposes • http://www.irs.gov/businesses/small/article/0,,id=98240,00.html • S-Corporation • In general, S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns. • http://www.irs.gov/businesses/small/article/0,,id=98263,00.html

15. Incorporated Company/Corporations There are four main types of company: (1) Private company limited by shares - members' liability is limited to the amount unpaid on shares they hold (2) Private company limited by guarantee - members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. (3) Private unlimited company - there is no limit to the members' liability (4) Public limited company (PLC) - the company's shares may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them.

16. Incorporated Company/Corporations

17. Profile of Management Team and organizational Chart • Business succeed because they are run by people whose decisions are better than their competitors’. • Name all the key people in the firm alongside: • What positions need to be filled • Who will be in each position • How many people will be employed in the first few years of operations • Salaries of key persons • Job Descriptions • Who are some of the mentors • Who are consultants • Have s strong advisory board with important names • Attracts more funds • Ensures trust

18. Descriptions of Markets to be served and locations of Business • Market Place Analysis • Information about the specific industry of which business is a part • Description of targeted customers • Description of major competitors • Overview of marketing and sales strategies • Will you operate under more than one location? • Will you franchise?

19. Descriptions of Markets to be served and locations of Business

20. Operational Plan • Operational Plan • Describes a business’s physical location and equipment • Notes the manufacturing or service actions needed to get products/services to market • Summarizes Web site operations

21. Basis of Financing • Basis of Financing is dependent on type of legal structure • Financial Statements • Pro forma balance sheet • Projected income statement • Planned cash flow statement

22. Basis of Financing

23. Risks Issues Analysis and Critical Risks Identifying the threats to and opportunities for a startup e-business is called an issues analysis or risk assessment (or sometimes SWOT analysis). An issues analysis should consider the following outside influences that can affect an e-business’s success and describe any necessary contingency plans. Economic changes Impending product innovations and/or technological advancements Environmental changes and government regulations Barriers to market entry Legal factors and staffing concerns Level of managerial expertise among the business’s principals

24. Exit Strategies Exit Strategies Realistic exit strategies should suggest ways that owners and potential investors can harvest the business to get their money back in a new venture. Options might include continuing to operate the business as a “cash cow” or going public with an IPO.

25. Appendices • Appendices • Resumes • Pictures of products • Explanation of services • Legal documents • Other supporting documentation

26. Sources http://tutor2u.net/business/finance/legal_structure_intro.htm http://www.quickmba.com/law/org/ http://www.irs.gov/businesses/small/article/0,,id=98359,00.html http://www.entrepreneur.com/article/75118 http://www.maxfilings.com/incorporation-knowledge-center/business-entity.php http://www.powerhomebiz.com/vol3/legalstructure.htm