Entrp 1. Lecture 3
GENERAL OVERVIEW AND LEGAL
STRUCTURE
General Overview
 A Business Plan usually has the following parts (refer
to:
http://entrp1.weebly.com/uploads/1/3/2/7/1327552
8/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
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
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
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
Legal Structure
 Sole Proprietorship
 Partnership
 Corporation
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.
The sole Proprietorship
Advantages
Disadvantages
• You're the boss.
• You assume unlimited liability.
• It's easy to get started.
•
• You keep all profits.
• The amount of investment capital
you can raise is limited.
• You need to be a generalist.
• Income from business is taxed as
personal income.
• You can discontinue your
business at will.
• Retaining high-caliber employees
is difficult.
• The life of the business is
dependent on the owner's.
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.
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?
Partnership
Advantages
Disadvantages
• Two heads are better than one.
• Partners have unlimited liability.
• It's easy to get started.
• Partners must share all profits.
• More investment capital is
available.
• The partners may disagree.
• The life of the business is limited.
• Partners pay only personal income
tax.
• High-caliber employees can be
made partners.
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.
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
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
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.
Incorporated Company/Corporations
Advantages
Disadvantages
• Stockholders have limited
liability.
• Corporations are taxed twice.
• Corporations can raise the most
investment capital.
• Corporations have unlimited life.
• Ownership is easily transferable.
•
• Corporations utilize specialists.
• Corporations must pay capital
stock tax.
• Starting a corporation is
expensive.
• Corporations are closely regulated
by government agencies.
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
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?
Descriptions of Markets to be served and
locations of Business
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
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
Basis of Financing
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
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.
Appendices
 Appendices
 Resumes
 Pictures of products
 Explanation of services
 Legal documents
 Other supporting documentation
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/incorporationknowledge-center/business-entity.php
http://www.powerhomebiz.com/vol3/legalstructure.
htm