Organizing the Venture International Business - Chapter 2 Organizing the Venture Prepared by: Professor M. Banton, Florida International University

International Business - Chapter 2 Learning Objectives List the three basic ways to organize a business Explain the benefits and drawbacks of each of the 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 Prepared by: Professor M. Banton, Florida International University

Legal Forms of Business Organization Three Basic Ways to Organize an Entrepreneurial Venture Sole Proprietorship Partnership Corporation

Legal Forms of Business Organization Variation of Basic Organizational Alternatives Sole Proprietorship General Partnership Limited Liability Partnership C Corporation S Corporation Limited Liability Company

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

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

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

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

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 Naming a board of directors Adopting bylaws Electing corporate officers Issuing stock

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 Must be a domestic corporation Cannot have a nonresident alien as a shareholder Can issue only one class of common stock

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

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 Thomson & Thomson (thomson-thomson.com) CCH Trademark Research Corporation (corsearch.com)

Patents Three Different Types of Patents Utility Patent Design Patent Covers inventions that work uniquely to perform a function or use Design Patent Covers existing objects that have a unique or new form, shape, or design Plant Patent Covers new strains of living plants such as flowers, trees, or vegetables

Patent Requirements 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 Novelty Nonobviousness Usefulness

Contracts A contract is an agreement that creates legal obligations and is enforceable in a court of law Four essentials of a contract Mutual assent Consideration Legality of object Capacity of the parties

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

What is Organizing? Organizational Structure Organizational Chart 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

Organizational Design Decisions Organizational design involves decisions about six key elements How much work specialization is needed? Do we need specific departments? Who’s in charge, and who reports to whom? How many employees will supervisors manage? Who’s going to make organizational decisions? How much formalization is necessary?

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

Advantages and Drawbacks of Work Specialization

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

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

Mechanistic and Organic Organization Structures

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