Casa Del Niño Schools System, Inc.

Region 02
CASA DEL NIÑO MONTESSORI SCHOOL OF ILAGAN
Guinatan, City of Ilagan, Isabela
S.Y 2020-2021

Grade 12
Entrepreneurship
Module 6

Title: The Organizational Plan

Scope: After the entrepreneur identifies the needs of his target market and spells out his strategy
and action plan, he can now proceed to the legal and organizational aspects of setting up the
business. In this chapter, we discuss the advantages and disadvantages of the different forms of
ownership. We also emphasize the need to highlight the qualifications, skills, and business.
Objectives:
Define what an organizational plan is
Explain the advantages and disadvantages of the different legal forms of ownership
Discuss the organizational structure of the business
Explain how the board of advisers can provide support to the management team of a new
business venture
Overview: An organizational plan is basically a “ to do” list of an organization. It list out the
plan of work, program and organizational growth over a period – six months, a year or five.
The tasks involved, who is responsible for them, and when they ‘ll will be done.

Discussion of the topic:

WHAT IS AN ORGANIZATIONAL PLAN?
The organizational plan is the section of the business plan that identifies the form of
ownership the business venture will take. It provides a background of the management team;
describes the organizational structure, including the management team’s roles, responsibilities,
and reporting relationships; outlines the planning, decision- making, monitoring, and evaluation
processes, and spells out the role of the board of the advisers, among others. This section of the
business plan must provide sufficient information to assure potential investors and creditors that
the money they are asked to pour into the business will be in good hands.

FORMS OF OWNERSHIP
One of the important decisions an entrepreneur must make is the form of ownership the
business will take. He could choose from any of the three basic legal forms of business
ownership- sole proprietorship, partnership, or corporation- each of which has its advantages and
disadvantages.
 Table 6.1 compares the three legal forms with regard to ownership, cost and ease of
starting the business, liability of owners, distribution of profits and losses, management control,
ability to raise capital, transferability of ownership, and business continuity.

Table 6.1 Legal Forms of Business Ownership

Things to consider Sole Proprietorship Partnership Corporation

Ownership One person No limit on number of No limit on number of

partners stockholders
Cost and ease of Low; easy Low; relatively easy High; more difficult
starting the business
Liability of owners Unlimited; risk Unlimited for general Stockholders typically
shouldered by owner partner; limited for not liable beyond their
alone limited partners investment
Share of profits and Owner receives all Depends on partners’ Stockholders can
losses profits and carries all investments and on share in profits
losses agreement of partners through dividends
Management control Owner makes all General partners have Majority stockholders
decisions equal control, and have control from a
majority rules legal standpoint
Ability to raise capital Limited moderate high
Transferability of Fully transferable Typically requires Stockholders can sell
ownership consent of partners or buy stock at will
Continuity of business Owner’s death Death or retirement of Death or withdrawal
dissolves the business general partner of owner(s) does not
dissolves the affect the business’s
partnership legal existence

Ownership
As its name implies, the sole proprietorship is owned by the individual who starts the
business, for which he has full responsibility. In a partnership, there must be at least one general
partner, and some (or many) limited partners. In a corporation, owners are those that hold shares
of stock. For both the partnership and corporation, there is theoretically no limit in the number of
partners and stockholders, respectively.

Cost and Ease of Starting the Business

As the simplest form of business ownership, sole proprietorship is the easiest to create.
Upon paying the required business licenses, the entrepreneur can immediately start the business.
Consequently, the costs involved in setting up a sole proprietorship are also lower compared to
the other two.

Liability of Owners
The sole proprietor is liable for all aspects of the business, as is the general partner in a
partnership. This means that in case the business is unable to pay for outstanding debts, the
creditor can go after the assets of the proprietor or general partner even outside of the business.
Because of unlimited personal liability, sole proprietors and general partners can be forced to sell
their personal properties, including their cars and homes, to pay off the debts that cannot be
completely covered by the assets of the business.
In partnership, the general partners usually share the amount of personal liability
regardless of their capital contributions, unless there is a specific agreement to the contrary. The
limited partners, on the other hand, are liable only up to the amount that they contribute to the
partnership.

Share of Profits and Losses

One of the advantages of being a sole proprietor is that one gets to keep all the profits of
the business. Conversely, the sole proprietor also carries all the losses if the business does not
perform well.
In a partnership, the distribution of profits and losses depends on what is provided for in
the partnership agreement. Partners with larger investments are likely to get a bigger share of the
profit. For limited partners, being protected from personal liability may mean getting a reduced
share of profits in favor of general partners, who assume much greater risk.

Management Control
Choosing a particular form of ownership has implications on managerial decision –making
and control.
In a sole proprietorship, the entrepreneur has great control and flexibility in making
decisions. This is especially true in a small- scale business, where the owner- manager decides
on purchasing, marketing, finance, human resource management, and other business functions.
When the business grows, however, the entrepreneur might choose to delegate the management
of certain business functions to a professional manager, who could make decisions that fall
within the scope of his responsibilities.
In a partnership, the element that ideally binds the parties is trust. Partners are, therefore,
assumed to make decisions meant to benefit the business and to protect the interests of the parties
involved. In some partnerships, in fact, several partners are willing to entrust their investment to
one of the partners, who might be the one managing the business on their behalf.
For corporations, control over the business depends on the type of business decisions and
on the scale of the enterprise. For day- to –day business activities, control is typically in the
hands of the management team, the members of which may or may not be major stockholders.
For start- up enterprises, major stockholders will likely be managing the business too. For
enterprises, major long – term decisions (e.g., huge loans, large capital investments).

Ability to Raise Capital

Sole proprietors typically depend on their own resources to finance business operations.
Generally, it is difficult for them to secure loans from commercial banks, who might be reluctant
to provide financing because of the risks involved.
Partnerships are relatively better off than sole proprietorships, in the sense that they are
able to pool the financial resources of the partners. Corporations, however, have the most
oprtions in terms of raising capital. They can sell shares of stock to investors, who do not have to
worry about unlimited personal liability. Corporations also typically have the means to secure
bigger loans from commercial banks.
Transferability of Ownership

Just like in any human activity, people can change their minds about things, including
their desire to be a business owner.
In a sole proprietorship, the entrepreneur has the right to sell the assets of the business or
to transfer its ownership to another individual. For limited partners that belong to a general
partnership, they can typically sell their interest at any time even without the consent of the
general partners, unless otherwise stipulated in the partnership agreement.
Shareholders of corporations have the most freedom in terms of transferring their interest
in the business. They may sell their shares of stock to other parties, whether these are individuals
or organizations, even without the consent of other shareholders.

Continuity of Business
For sole proprietorships, the death of the owner means the termination of the business as
well. In a partnership, the death or withdrawal of a general partner signals the end of the
partnership too. However, the partnership may continue if the partnership agreement provides for
the buyout of the share of the partner who died or withdraw, based on a predetermined value. A
family member of the deceased partner can also take over as partner, if provided for in the
partnership, their death or withdrawal does not affect the continuity of the business. Corporations
on the other hand, can continue indefinitely. Death or withdrawal of a shareholder does not affect
the existence of the business since shares of stock are transferable or can be sold to other
individuals or companies.

ORGANIZATION STRUCTURE
This section of the organizational plan will show the reader of the business plan who the
principal owners of the business are, who constitutes the management team, and who provides
valuable advice to the business owners and/or management team. In a small entrepreneurial
venture, the organization structure could be as simple as the owner- manager being at the helm of
the enterprise with a few individuals directly reporting to him. As the workload increases,
though, the business will need additional employees, with more defined roles and
responsibilities.

Business Owners
One section of the organization plan could be a listing of the business owners and their
qualifications. Their previous entrepreneurial experience, if any, and the extent of their
investment in the business could also signal who among them would have a strong influence in
determining the general directions the business will take.

Figure 6.1 Template of a Summary Table Showing Details about the Business Owners.

Name of Major
Owners (Partners or Qualifications Previous Capital Contributuon
Shareholders Entrepreneurial
Experience

The Management Team

If the enterprise has a management team that is largely distinct from the business owners, it
is the best to highlight their qualifications, skills, and managerial experience, especially in
relation to the position, for which they will be handling. These details, including their job
descriptions, can be presented in summarized form, as shown in Figure 6.2. Similar with the
business owners, the managers’ curriculum vitae can be appended to the business plan.

Figure 6.2 Template of a Summary Table Showing Details About the Management Team

Name of Manager Job Title, Duties and Qualifications Managerial

Responsibilities Experience

In addition, it would help to present an organization chart that shows the reporting
relationships within the business. An example of an organization chart for a small company is
shown in Figure 6.3. Notice that the managers handle multiple positions (i.e., the purchasing and
production functions are managed by one persons; the sales and marketing functions are handled
by another manager; while the finance and human resource management functions are handled
by a third manager.
 Melinda dela Cruz
President

Joel Morales Justin Robredo Sylvia del Rosario

Purchasing and Sales and Marketing Finance and HR
Production Manager Manager Manager

Production Team Sales and Marketing Administrative

Team Assistant

Figure 6.3 Sample of Organizational Chart

Business Advisers

It is rare for a new (or proposed) venture to have all of the expertise it needs to grow the
business at the onset. It is best to be candid about this. The business owners, however, reinforce
their management team by having a board of advisers or consultants - a group of individuals that
the company invites to provide their inputs and insights on how to run the business. This allows
the owners of the new venture to draw upon these individuals’ expertise (e.g., knowledge about
the industry, about the market or about legal matters) and extensive business and/ or managerial
experience. The business owners can engage their advisers through regular face- to – face
meetings, or through phone calls or teleconferencing.

Self-Check Test

Directions: Explain the following:

1. What are the advantages and disadvantages of each form of business ownership?

2. How can young, budding entrepreneurs compete with older, more experienced
entrepreneurs? It is enough to have a novel business idea? Explain your answer.

LEARNING ACTIVITIES

1. Search the Internet for examples of businesses that fall under each of the three forms of
business ownership. Look for at least three businesses for each category. Read about their
histories, their products and services, how they are structured, and other pertinent
information. What do you think are the reasons why the owners of these businesses chose
their current form of ownership?

2. If you already have a business idea, what kind of expertise do you anticipate will be
needed to get this enterprise started? What form of ownership will it take? Prepare an
organization chart of the management team of your envisioned business. What will your
position be in that chart?