Entrepreneurship
MGT602
VU
Lesson
28
THE
ORGANIZATIONAL PLAN
(Continued....)
Transferability
of Interest
Each
of the forms of business offers different
advantages as to the transferability of
interest.
In
a proprietorship, the entrepreneur has the
right to sell any
assets.
In
the limited partnership, the limited
partners can sell their
interests at any time without
consent of
the
general partners.
A
general partner cannot sell any
interest unless specified in the
partnership agreement.
In
a corporation shareholders may
transfer their shares at any
time.
In
the S Corporation, the transfer of
interest can occur only as
long as the buyer is an
individual.
Capital
Requirements
The
need for capital during the
early months can become one
of the most critical factors in
keeping
a
new venture alive.
For
a proprietorship, any new
capital can only come
from loans or by additional
personal
contributions.
Often
an entrepreneur will take a second
mortgage as a source of
capital.
Any
borrowing from an outside investor
may require giving up some
equity.
Failure
to make payments can result
in foreclosure and liquidation of the
business.
In
the partnership, loans may be obtained
from banks or additional funds
may be contributed by
each
partner, but both methods
require change in the partnership
agreement.
In
the corporation, new capital
can be raised by:
a.
Stock
may be sold as either voting or
nonvoting.
b.
Bonds may be sold.
c.
Money
may also be borrowed in the
name of the corporation.
Management
Control
The
entrepreneur will want to retain as much
control as possible over the
business.
In
the proprietorship, the entrepreneur has the
most control and flexibility
in making business
decisions.
In
a partnership the majority usually rules
unless the partnership agreement states
otherwise.
In
a limited partnership the limited
partners have no control
over business
decision.
Control
of day-to-day business is in the hands of
management.
a.
Major
long-term decisions may require a
vote of the major stockholders.
b.
As the corporation increases in size, the
separation of management and
control is
probable.
Stockholders
can indirectly affect the operation by
electing someone to the board of
directors.
63
Entrepreneurship
MGT602
VU
Distribution
of Profits and
Losses
Proprietors
receive all profits from the
business.
In
the partnership, the distribution of profits
and losses depends on the partnership
agreement.
Corporations
distribute profits through dividends to
stockholders.
Attractiveness
for Raising
Capital
In
both the proprietorship and partnership,
the ability to raise capital
depends on the success of the
business
and personal capability of the
entrepreneur.
Because
of its limitations on personal
liability, the corporation is the most
attractive form for
raising
capital.
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