Download Legal Forms of Organization

Moving from R&D to
Operations
Chapter 11
Where we are
Idea to
Opportunity
Initial Proof
Of Concept
Final Feasibility
Assessment
Business Plan
Development
& Resource
Gathering
License
Launch
Assessing Technical
And Market Risks
Developing
Business Model
Transition
To
Operations
Designing IP
Strategy
Transition Challenges
 Technical specifications that don’t fit
 Market expectations don’t match reality
 Determination of first application is hard

First app versus killer app
 Technical and process uncertainty
 Initial assumptions about the market
generally prove false
What Makes a Successful Transition?
 People from the innovation team
 People from the operations team
 Transition management experts
 A mission
Develop a Mission Statement
Contributio
n to
Performanc
e
Component
s of the
Mission
Statement
Phrasing of
the Mission
Statement
Communicati
on to
Stakeholder
s
Construct a Process Flow Chart
 Take a fantasy tour of the business to see
how it works
 Track an order
 Note tasks, people, equipment
Gather Resource Pieces
 Financial Capital

Cash needs assessment
 Human Capital

Process flow chart and Founding Team
Assessment
 Physical Capital

Process flow chart of business
Resources have Significant
Implications for Survival and Growth
 Bundles of resources create competitive
advantages
 Resources that are unique, rare, and valuable
create wealth
 Rapidly growing entrepreneurial firms require
different resources at different times
Choose an Organizational Model
 Engineering model: hire for technical skills
 Star model: hire for long-term potential
 Bureaucracy model: formal control
procedures & employees hired for specific
skills
 Autocracy model: employees motivated by
financial rewards
 Commitment model: strong emotional bonds
and informal peer-group control (best
predictor of an IPO – Stanford Project on Emerging
Companies
Choose Legal Form of
Organization
Sole proprietorship
Partnership
Corporation
Hybrid form
How would you decide?
Criteria for Choice
 Who will be the owners?
 Level of liability protection required
 Operating requirements and costs
 Effect on the tax strategy of the
company & the founders

When do you expect to earn a
profit?

How do you want to distribute
earnings?
 Effect on financing plans
Summary of Forms
Legal Form
Sole Proprietor
General Partnership
Partnership
Limited Partnership
S-Corp
Bridge Forms
LLC
C-Corp
Full Corporate
Non-Profit
Sole Proprietorship
 76% of all businesses
 Flexible, easy, inexpensive
 Does not exist apart from the
owner so pays no tax
 Salary or draw not deductible as
expense
 Hobby rule (3 of 5 years)
Sole Proprietorship Disadvantages
 Unlimited liability
 Difficult to raise debt capital
 Lacks advantage of team
 Survival dependent on owner
Partnership
 Association of two or more
persons as a business
 Doctrine of ostensible
authority
 Specific property rights
 Share in profit/loss according
to contribution
Partnership Agreement
 Duties and responsibilities
 Profit/loss distribution
 Transfer of interest
 Duration and dissolution
 Arbitration and dispute
resolution
 Type of partnership

general v. limited

secret, silent, dormant
C-Corporation
 Legal entity
 Survival of death and separation
 Limited liability of shareholders
 Issue different classes of stock
 Raise capital by selling stock
 More status
 Benefit from retirement funds,
profit sharing, stock options
 Owners can lease their assets to
the corporation
Disadvantages of Corporation
 Complex and costs more
 Stockholders do not have benefit of writing off losses
 Double taxation (earnings and dividends)
 Pay taxes on profits whether or not distributed as
dividends
 Accountable to board of directors
S-Corporation
 Not a tax-paying entity
 Owners taxed on corporate
earnings
 Deduct losses on personal income
tax up to amount invested
 No more than 75 stockholders, US
citizens or legal residents
 One class of stock
Disadvantages of S-Corp
 Difficult to get loans if distributes earnings
 No deductions based on medical
reimbursements or health insurance plans
 If not a cash business, may not be able to pay
taxes out of business.
 Must convert to C for IPO
Limited Liability Company
 Limited liability of corporation with pass-through
tax advantages of partnership
 Members and interests,Articles of organization
 Managers, officers, members not personally liable
 Most organize for tax purposes as partnership
 No limitation to membership, more than one class
of stock
Non-Profit
 Established for charitable, public
benefit, religious or mutual benefit
 IRS 501(c)3 tax exempt
 Limited liability
 Owners give up proprietary interest
 Perpetual existence
 Apply for grants
Take-Aways
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