Organizing the Venture

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Learning Objectives List the three basic ways to organize a business Explain the benefits and drawbacks of each of the

six forms of business organization Describe what a trademark does Contrast the three types of patents Describe other legal issues that entrepreneurs face Explain the importance of choosing an appropriate

organizational structure Describe the six decisions in organizational design Discuss the characteristics of each of the two broad

types of organizational structure and when each might be appropriate

Describe virtual and boundaryless organizations

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Legal Forms of Business Organization

Three Basic Ways to Organize an Entrepreneurial Venture

1. Sole Proprietorship

2. Partnership

3. Corporation

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Legal Forms of Business Organization

Variation of Basic Organizational Alternatives

1. Sole Proprietorship

2. General Partnership

3. Limited Liability Partnership

4. C Corporation

5. S Corporation

6. Limited Liability Company

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Legal Forms of Business Organization

Sole Proprietorship– The owner maintains sole and complete control

over the business and is personally liable for business debts

– Advantage• Ease of formation and freedom to operate

business at will

– Disadvantage• Unlimited liability or the obligation to personally

repay all debts incurred by the business

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Legal Forms of Business Organization

General Partnership– Two or more business owners share the

management and risk of the business

– Advantage• Relatively easy to form

– Disadvantage• Unlimited personal liability

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Legal Forms of Business Organization

Limited Liability Partnership (LLP)– General partners and limited partners exist in the

venture

– Advantage• Good way for an entrepreneur to raise capital

– Disadvantage• High cost and complex to form an LLP

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Legal Forms of Business Organization

C Corporation– A legal business entity that is separate from its

owners and managers

– Advantage• Limited Liability

– Disadvantage• Double-taxation

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Articles of Incorporation

Articles of Incorporation– A document that describes the business and is

filed with the state in which the corporation is formed

– Main tasks involved in writing the articles of incorporation1. Naming a board of directors

2. Adopting bylaws

3. Electing corporate officers

4. Issuing stock

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Legal Forms of Business Organization

S Corporation– Has the regular characteristic of a C corporation,

but the owners are taxed as a partnership as long as certain criteria are met

– Legal criteria for being an S corporation1. Must be a domestic corporation

2. Cannot have a nonresident alien as a shareholder

3. Can issue only one class of common stock

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Legal Forms of Business Organization

Limited Liability-Company (LLC)– Offers the liability protection, tax benefits, and no

restrictions such as those on an S corporation

– Advantage• Gives flexibility to the owners

– Disadvantage• Complex and expensive to set up

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Choosing a Business Name, Slogan, or Design

Trademark– A form of legal protection for a distinctive word,

name, phrase, logo, symbol, design, or slogan

– Two of the biggest trademark Internet search companies1. Thomson & Thomson (thomson-

thomson.com)

2. CCH Trademark Research Corporation (corsearch.com)

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Patents

Three Different Types of Patents1. Utility Patent

• Covers inventions that work uniquely to perform a function or use

2. Design Patent• Covers existing objects that have a unique or

new form, shape, or design

3. Plant Patent• Covers new strains of living plants such as

flowers, trees, or vegetables

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Patent Requirements

To be patentable– An invention must be a process, a machine, a

manufacture, a composition, or an improvement of these

– Additionally, an invention must also satisfy the following three requirements1. Novelty

2. Nonobviousness

3. Usefulness

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Contracts

A contract is an agreement that creates legal obligations and is enforceable in a court of law

– Four essentials of a contract1. Mutual assent

2. Consideration

3. Legality of object

4. Capacity of the parties

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What is Organizing?

Organizing

– The process of deciding how best to get the venture’s work done by grouping organizational activities and resources within some type of organizational structure

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What is Organizing?

Organizational Structure– The formal framework within which work is

divided, grouped, and coordinated

Organizational Chart– A visual representation of an organization’s

structure

Organizational Design– The process of developing or changing the

organizational structure

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Organizational Design Decisions

Organizational design involves decisions about six key elements

1. How much work specialization is needed?

2. Do we need specific departments?

3. Who’s in charge, and who reports to whom?

4. How many employees will supervisors manage?

5. Who’s going to make organizational decisions?

6. How much formalization is necessary?

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Organizational Design Decisions

Work Specialization– Describes the degree to which work tasks are

divided into separate jobs

• Also known as “division of labor”

Departmentalization– Describes the basis by which specialized work

tasks (jobs) are grouped

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Advantages and Drawbacks of Work Specialization

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Organizational Design Decisions

Chain of Command– Empowerment is increasing the decision-making discretion

of individuals

Span of Control– Determines how many supervisors an organization will need

Centralization-decentralization– The degree to which decision-making is made by few people

or delegated to other organizational members

Formalization– The degree to which jobs are standardized and employee

behavior is dictated by rules and procedures

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Types of Organizational Structures

Mechanistic Organization– A rigid and tightly controlled structure which

tends to be focused on efficiency and cost minimization

Organic Organization– A structure that’s highly adaptive and

flexible, with little work specialization, and minimal formalization

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Mechanistic and Organic Organization Structures

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Types of Organizational Structures

Virtual Organization– A network of independent people linked by

common goals and information technology

Boundaryless Organization– Design is not defined by, or limited to,

horizontal, vertical, or external boundaries imposed by a predefined structure