Organizing the Venture
Learning Objectives
 List the three basic ways to organize a business
 Explain the benefits and drawbacks of each of the
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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 incorporation
1.
2.
3.
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Naming a board of directors
Adopting bylaws
Electing corporate officers
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 corporation
1. 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 companies
1. Thomson & Thomson (thomsonthomson.com)
2. CCH Trademark Research Corporation
(corsearch.com)
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Patents
 Three Different Types of Patents
1. Utility Patent
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Covers inventions that work uniquely to
perform a function or use
2. Design Patent
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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
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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 requirements
1. Novelty
2. Nonobviousness
3. Usefulness
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Contracts
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A contract is an agreement that creates
legal obligations and is enforceable in a
court of law
– Four essentials of a contract
1. 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
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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
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