Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of...

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

Chapter 6







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

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Building an Organization

Selecting an Organizational Structure

The basic three legal forms• Proprietorship

• Partnership

• Corporation

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Organizational Structure: Sole Proprietorship

• Single owner• Unlimited liability• Controls all decisions• Receives all profits

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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

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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

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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

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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

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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

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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

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Attractiveness for raising capital• Sole Proprietor

– poor

• Partnership– Personal liability a problem

• Corporation– Issue stocks

– Bonds

– Debt financing

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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

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Tax issues

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Management Teams & Organization Design

Functions• Execute the business plan• Raise finances• Develop partnerships• Identify changes in the business environment• Make adjustments to the plans

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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

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Chapter 6







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

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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

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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

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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

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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

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The Organization and use of Advisors

• Mentors

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• 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

Chapter 6 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of...

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