chapter no. 9 ppt (umair)
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8/7/2019 Chapter No. 9 PPt (Umair)
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ORGANIZATIONAL PLAN
GROUP MEMBERS
UMAIR KHAN BILAL KHALID
M. IMRAN FARZAD ALIJAWERIA RAFIQUE
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CHAPTER OUTLINE Legal Forms of Business
Tax Attributes of Forms of Business
Limited Liability Company versus the S Corporation.(Advantages and Disadvantages of S Corporation)
Limited Liability Company (Advantages)
Designing the Organization
Building the Management Team and a Successful OrganizationCulture
The Role of a Board of Directors
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LEGAL FO RMS OF BUSINESS
Proprietorship
Partnership
Corporation
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DEFINITIONS PROPRIETORSHIP
Is a form of business with single owner who has unlimited
liability controls all decisions, and receives all profit.
PARTNERSHIP
Two or more individuals having unlimited liability who havepooled resources to own a business.
CORPORATION
Corporation is treated as a separate legal entity for liabilityand tax purpose.
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FACTORS· THREE FORM OF
BUSINESS FORMATION Factors Proprietorship Partnership Corporation
Ownership Individual No. limit No. limit
Liability of
Owner
Individual Partners liablefor capital
Capitalcontribution is
liability of S.H
Cost of
Starting
Business
Trade fee Agreement
legal costs
trade name
Created under
companies
ordinance 1984.
filling fee
Taxes
Fee for states
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FACTORS· THREE FORM OF
BUSINESS FORMATION CONTINUE Transferability
of Interest
Complete
freedom
Consent with
other partner
Most flexible at
S.E
Capital
Requirement
Through loan
or owncontribution
Loans or new
contribution
by sale of stock
or bonds or debt.
Management
Control
Own make
decision
General partner Majority S.H
have control
Continuity of
Business
Death Death or
Withdrawal
Death or
Withdrawal hasno affect
Distribution of
Profit and
Losses
Only one Among partner Share holder can
share profit.
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TAX ATTRIBUTES OF FORMS
OF BUSINESS TAX ISSUES FOR PROPRIETORSHIP
The IRS treats the business as the individual owner. All incomeappears on the owner¶s return as personal income.
TAX ISSUES FOR PARTNERSHIP
It is important for partnerships to report income since the servesas the basis for determining the share of each partner. Theincome is distributes based n the partnership agreement. Theowner then report their share as personal income and paytaxes based on this amount.
TAX ISSUES FOR CORPORATION
Corporation is recognized by the IRS as a separate tax entity.
Corporation being able to take many deductions and expenses.
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TAX ATTRIBUTES OF VARIOUS
LEGAL FORMS OF BUSINESS Attributes Proprietorship Partnership Corporation
Taxable year Calendar year Calendar year or
other dates
Any year ended
Distribution of profits to
owners
Income appear on owner¶s
return
Partnershipagreement have
allocation of
income
No incomeallocated to
stockholder
Organization
Costs
Not amortizable Amortizable over
60 months
Amortizable over
60 months.
Capital Gains Taxed at
individual level.
Deduction is
allowed for long
term C. gain.
Capital gain to
partnership will
be taxed as
capital gain
Taxed at
corporate level.
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TAX ATTRIBUTES OF VARIOUS LEGAL
FORMS OF BUSINESS CONTINUE
Capital Losses Carried forward Capital Losses
can be used to
offset other
income.
Carry back three
years and carry
over five years
as short-term
capital loss.
Initial
Organization
Commenceme
nt of business
result no
additional tax
Contribution of
property to
partnership not
taxed
Acquisition of
stock for cash
entails no
immediate taxes.
Limitation onlosses
deductible by
owner
Amount at riskmay be
deducted
Partnershipinvestment plus
share of
recourse liability
of any.
No lossesallowed except
on sale of stock
or liquidation of
corporation.
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ADVANTAGES OF S CORPORATION
Shareholders retain limited liability
S Corporation is not subject to a minimum tax, as is the C
corporation.
S corporation is not subject to a minimum tax as is the Ccorporation.
Stock may be transferred to low-income bracket family member (children must 14 year or older)
Stock may be voting or nonvoting.
This form of business may use the cash method of accounting.
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DISADVANTAGES OF S CORPORATION
Even with the regulation passed in 1996 and 2004, there arestill some restriction regarding qualification for this form of business.
The S corporation may not deduct most benefits for shareholders.
The S corporation must adopt a calendar year for tax purposes.
Only one class of stock (common stock) is permitted for thisform of business.
S Corporation cannot have more than 100 shareholders.
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LIMITED LIABILITY COMPANY (LLC) The new flexibility offered by LLC status has enhanced its choice by
entrepreneurs. The tax rules for an LLC fall under Subchapter K, and thisbusiness form is considered a partnership-corporation with the followingcharacteristics.
Whereas the corporation has shareholders and partnerships have partners, theLLC has members.
No shares of stock issued, and each member owns an interest in the businessas designated by the articles of organization.
Liability does not extend beyond the member¶s capital contribution to thebusiness.
Members may transfer their interest only with the unanimous written consent of the remaining members.
The Internal Revenue Service now automatically treats LLCs as partnershipsfor tax purpose, unless another option is elected.
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ADVANTAGES OF LLC In a highly leverage enterprise the LLC offers the partnership a
distinct advantage over S corporation in that the partners canadd their proportionate shares of the LLC liabilities to their partnership interests.
With the exception of Taxes
One or more individuals, corporations, partnerships, trusts or other entities can join to organize or form an LLC.
Members are allowed to share income, profit, expense,dedication, loss and credit and equity of the LLC amongthemselves.
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DESIGNING THE ORGANIZATION ORGANIZATION STRUCTURE
Defines members jobs and the communication and relationship these jobs have with eachother.
PLANNING, MEASUREMENT, AND EVALUATION SCHEMES
Organization activities should reflect the goals and objectives that underlie the venture¶s
existence. The entrepreneur must spell outhow these goals will be achieve?
how they will be measured?
and how they will be evaluated?
REWARDS
Members of an organization will require rewards in the form of promotions, bonuses,praise, and so on. The Entrepreneur will be responsible for these rewards.
SELECTION CRITERIAThe entrepreneur will need to determine a set of guidelines for selecting individuals for each position.
TRAINING
Training, on or off the job, must be specified. This training may be in the form of formaleducation or learning sills.
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STAGES IN ORGANIZATIONAL DESIGN
STAGE 1
President
Production Marketing/Sales Administration
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STAGES IN ORGANIZATIONAL DESIGN
STAGE 2
President
Production Manager Marketing Manager Adminstrative Manager
Quality
ControlAssembly Sales
Promotion
Advertising
Finance
AccountingPurchasing
Shipping/
receiving
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BUILDING THE MANAGEMENT TEAM AND
SUCCESSFUL ORGANIZATIONAL CULTURE
Execute the business plan.
Identify fundamental changes in thebusiness as they occur.
Make adjustments to the plan based onchanges in the environment and marketthat will maintain profitability.
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ROLE OF A BOARD OF DIRECTORS
The purpose of board of directors is to provide importantleadership and direction for the new venture and it shouldbe carefully chosen to meet the requirements of the Act.
Select individuals who can work with a diverse group andwill commit to the venture¶s mission.
Select candidates who understand the marketenvironment or can contribute important skills to the new
venture¶s achievement of planning goals.
Select candidates who will show good judgment inbusiness decision making.
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