MGT3960 Entrepreneurship Management Fall 2015

1. What are the factors in deciding what form of ownership is best suited for the potential business?

When you start a business, you must decide whether it will be a sole proprietorship, partnership, corporation, or limited liability company (LLC). Which of these forms is right for your business depends on the type of business you run, how many owners it has, and its financial situation. No one choice suits every business: Business owners have to pick the structure that best meets their needs. Here are some of the most important factors to consider when starting a business:

• The potential risks and liabilities of your business
• The formalities and expenses involved in establishing and maintaining the various business structures
• Your income tax situation, and
• Your investment needs

2. Briefly describe the advantages and disadvantages of a sole proprietorship and partnership.

 Advantages of sole proprietorship:

1. Profit incentive – after all the debt are paid, the owner receives
2. Total decision-making authority – the owner is in total control, thus he/she can respond quickly to changes, which is an asset in rapidly shifting markets
3. No special legal restrictions – it’s the least regulated form of business ownership
4. Easy to discontinue – if the owner no longer wishes to continue his/her business it can be terminated whenever.

Disadvantages of sole proprietorship:

1. Unlimited personal liability – the owner is personally liable for all business debts
2. Limited skills and capabilities of the sole owner – the owner might not know much of how to run a business and lack skills, education, work experience, and training
3. Limited access to capital – sole proprietorships often find it difficult to raise capital unless they have great personal wealth
4. Lack of continuity for the business – if the proprietor dies or becomes incapacitated, the business automatically terminates unless a family member can take over the business

Advantages of partnership:

1. (General Partnership) Easy to establish – like sole proprietorship, partnerships are easy and inexpensive to establish
2. Complementary skills of partners – in successful partnerships, the parties’ skills usually complement one another
3. Division of profits – profits can be divided among partners with no restrictions
4. Larger pool of capital – each partner’s asset base improves the ability of the business to borrow needed funds
5. Ability to attract limited partners – there can be any number of limited partners as long as there is at least one general partner
6. Flexibility – a partnership can generally react quickly to a changing market
7. Taxation – the partnership itself is not subject to federal taxation, but the involved parties’ salaries are

Disadvantages of partnership:

1. Unlimited liability of at least one partner – the general partner has unlimited personal liability
2. Capital accumulation – partnerships usually have limitations and restrictions to raising capital
3. Restrictions of elimination for the general partnership – when other partners don’t have money to buy the partner’s part, the existing partners are forced to accept a new partner or dissolve the partnership
4. Lack of continuity for the general partnership – if one partner dies, the other partners may not be interested in overtaking that partner’s interests
5. Potential for personality and authority conflicts – friction among partners in inevitable and difficult to control

3. Explain the corporate form of ownership and how a business is incorporated

 A corporation is a business or organization formed by a group of people, and it has rights and liabilities separate from those of the individuals involved. It may be a nonprofit organization engaged in activities for the public good; a municipal corporation, such as a city or town; or a private corporation (the subject of this article), which has been organized to make a profit.

In the eyes of the law, a corporation has many of the same rights and responsibilities as a person. It may buy, sell, and own property; enter into leases and contracts; and bring lawsuits. It pays taxes. It can be prosecuted and punished (often with fines) if it violates the law. The chief advantages are that it can exist indefinitely beyond the lifetime of any one member or founder, and that it offers its owners the protection of limited personal liability.

4. List the differences between the S-Corporation and the limited liability company

 The main differences between an S corp. and LLC are:

• S-corporations are more restrictive on who the shareholders (owners) of the company can be
• S-corporations are required to pay a salary to those owners who work for the company and own more than 2% of the company. In contrast, LLCs are not obligated to pay a salary to its members (owners). This has tax implications for some companies like single-person ventures
• S-corporations are required to maintain and file formal records for the board and shareholder meetings
• S-corporations are allowed to have only one class of stock
• It is a little easier to set up employee stock option plans for S corporations than for LLCs

Practical questions:

How do you think the large corporation, VW, should handle the emission? Could they have done anything to prevent this scandal; and why do you think it happened?

Writing a business plan is so important for a business because it serves as a design for building a successful company. There are many reasons why business plans fail; however, I found some that to me are really important to take in consideration when designing a business plan. For example, a lot business plans do not target potential investors properly, fail to identify the objectives, or sometimes even fail to review and update the plan. A business plan can also fail when it lacks of an adequate marketing analysis, or lacks a plan on how to react to the market conditions which are always changing. Some business plans focus on the service or product too much and fail to understand how to actually generate sales. Sometimes the business knows there is a demand and need for their product or service, but fails to get to know really well the competition and fails to create a pricing plan. I believe the probability for a business plan to fail can be considerably reduced if these points already mentioned above are considered and taken seriously. Setting realistic and achievable goals is also essential in the progress and success of a business plan. A really well implemented market research is imperative and vital part of a business plan; a business must understand the competition and the marketplace and develop a plan accordingly.

To make my point as clear as possible, I’ve decided to attack this question from a different angle. When my sister was getting married, there were a lot of things she and her fiancé had to consider. Building a business plan is sort of the same as building your wedding, so think about business planning like planning your wedding. When you plan your wedding you start with the big picture (your perfect day), you then break it up into its essential elements (venue, catering, photography, guest list, ceremony, budget etc.), you organize what needs to get done and in what order (book venue, decide on guest list, send invites etc.), develop a series of action plans (to do lists) and then delegate tasks to your team (unsuspecting family members). You monitor progress frequently and make adjustments to your plan as you go… but you never loose sight of the big picture (your perfect day).

If most people can plan their wedding day, why do most companies fall short when it comes to business planning? So, looking back at my sister’s wedding I came to think of 6 reasons why a business plan might fail:

#1 – The plan is too short sighted…

Most businesses lack a long-term vision of what they will become. Often business plans focus on achieving unrealistic short-term aims, without any perspective about where they want to be in the long term.

#2 – Biting off more than you can chew…

Many business plans fail because they attempt to take on too much at one time. To make sure you don’t choke, you need to break down your goals into bite size chunks. Think of your business plan like a meal (10 courses) that you enjoy over the course of the evening rather than a university burger eating competition.

#3 – The plan is too complicated…

A lot of business plans have too many moving parts. A breakdown in one part can cause the whole plan to collapse like a house of cards. Complicated plans that have lots of detailed and complex steps that take time to develop, are hard to communicate and harder to implement. The best plans are simple.

#4 – Focusing in the wrong thing…

Many business plans include initiatives that seem like a good idea, but at the end of the day don’t contribute much to the result you are aiming for. While working on these “seemingly good ideas” businesses are distracted from working on what really matters.

#5 – “Business as usual” takes over…

Many businesses are re-active in nature. When they get busy with the day-to-day “business as usual” activities, working on the business plan goes out the window. To successfully implement a business plan, you need to be pro-active. Being pro-active means taking a long-term view and making the implementation of your business plan a priority.

#6 – Poor Leadership…

Poor leaders are those that lack vision and direction, and they place no value on strategic planning and fail to lead by example. At the end of the day, the buck stops with you.

If entrepreneurs and other venture seeking individuals keep these things in mind when building and organising their business plans, then they will be much more well-equipped to handle any unforeseen problems that may arise in the long or short term. Most entrepreneurs don’t get it right the first time. Just think about Steve Jobs. Why do you think he didn’t succeed with Apple at first? After all, he was one of the founders of the company.