1. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-1 The Nature & Importance of Entrepreneurs

2. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-2 Chapter Learning Objectives To understand the different types of organizational structures To understand the importance of the management team To understand the advantages and disadvantages of the alternative legal forms To learn the importance of both the formal and informal organization To understand the importance of human resource management To illustrate how entrepreneurs should lead and motivate To illustrate how the board of directors, or board of advisors, can be used To understand the unique positions associated with family business

3. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-3 Building an Organization Selecting an Organizational Structure The basic three legal forms Proprietorship Partnership Corporation

4. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-4 Building an Organization

5. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-5 Building an Organization

6. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-6 Organizational Structure: Sole Proprietorship Single owner Unlimited liability Controls all decisions Receives all profits

7. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-7 Organizational Structure: Partnerships Two or more owners Unlimited liability if a general partnership Limited liability if a “limited partnership” LLP “limited liability partnership” –Commonly used in law firms and CA firms Share decisions Share profits

8. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-8 Organizational Structure: Corporations Separate legal entities from the people that run/own them Run by shareholders Shareholders/owners have limited liability “public” corporations –Shares listed on the stock market –Publically owned “private” corporations –AKA “closely held” corporations –Owned by a few people Liability –One of the critical reasons for establishing a corporation

9. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-9 Costs of Starting a Business Sole Proprietorship –Least expensive Partnership –An agreement needs to be written out –“limited” partnerships have to abide by provincial regulations Corporations –Need to file “articles of incorporation” with gov’t office

10. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-10 Continuity of Business Continuity differs for each form of business Sole Proprietorship –Death of the proprietor usually signals end of the business Partnership –Partner can pass on the business to another partner Corporation –Death or withdrawal has little impact Transferability of Interest

11. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-11 Organizational Structure Capital Requirements Sole Proprietor –Personal savings –Loans from a bank Partnership –Loans from a bank –Or one of the partners may have some money, which they agree gives him an appropriate share of the ownership Corporation –Can become a “public” corporation and list stocks for sale –Can issue corporate bonds –Can also borrow from a bank, if the company has assests

12. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-12 Organizational Structure Management Control Sole Proprietor –The most control & flexibility Partnership –Can be problems if the partners disagree Corporation –Control in the hands of management –Shareholders, through the board, control senior managers Distribution of Profits & Losses

13. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-13 Organizational Structure Attractiveness for raising capital Sole Proprietor –poor Partnership –Personal liability a problem Corporation –Issue stocks –Bonds –Debt financing

14. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-14 Tax issues Sole Proprietor –Treated as an individual owner Partnership –Treated as an individual owner, depending on the %’age share that each partner owns Corporation –Can make deductions –List business expenses

15. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-15 Tax issues

16. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-16 Management Teams & Organization Design Functions Execute the business plan Raise finances Develop partnerships Identify changes in the business environment Make adjustments to the plans

17. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-17 Management Teams & Organization Design Management leads and creates a vision. Managers make sure the management team: Acst as cohesive as possible Allows people the freedom and knowledge to act Rewards contributions Sees the company comes first Allow managers to share in the company profits

18. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-18

19. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-19 Human Resources Canada & the U.S. has a labour shortage in skilled positions. Entrepreneurs need to plan carefully to keep their organization staffed with qualified people. Strategies: Hire other company’s star employees Reward systems Generous vacations Hire baby Boomers Generation Y – 16-26 Offer training programs Balance work and life

20. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-20 Human Resources The Staffing Process Do’s and Don’ts of hiring When Interviewing candidates PAR –Present the candidate with a problem –Ask what action they took –Ask if the result was positive or negative

21. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-21 Human Resources The design of the organization indicates what is expected of the employees. These expectations are –Organizational structure –Planning and evaluation systems –Rewards –Selection criteria –Training

22. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-22 Building a successful organizational culture The entrepreneur’s desired culture must match the business strategy The leader’s must lead and be role models The entrepreneurs should be flexible Spend extra time in the hiring process Communication structure

23. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-23 The Role of the Board of Directors Reviewing budgets Developing long-term plans Supporting day-to-day activities Resolving conflicts among owners and shareholders Ensuring proper use of assets Developing a network of information resources

24. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-24 The Organization and use of Advisors Mentors

25. Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of Start-up Ventures Entrepreneurship & Economic Development Ethics and Social Responsibility Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-25 The Legal form of business Differences among Sole Proprietorship, Partnership and Corporation Need for a strong Management Team Importance of organization culture Board of Director and / or Advisors Chapter Closing Comments