Question

describe the roles of stakeholders involved in the venture, and a plan for legal organizational options for the venture and the implications for liability, protection, and taxes

Answer 1

In business, a stakeholder is usually an investor in your company whose actions determine the outcome of your business decisions. Stakeholders don't have to be equity shareholders. They can also be your employees, who have a stake in your company's success and incentive for your products to succeed. They can be business partners, who rely on your success to keep the supply chain going. Every business takes a different approach to stakeholders. The roles of stakeholders differ between businesses, dependent on the rules and responsibilities laid out at the founding of your company or as your business evolved over the years. The most common definition of a stakeholder, however, is a large investor that has the clout to hold a viable "stake" in your company.

Decision Making

The most common gathering of stakeholders in a publicly traded company is the board of directors, comprised of high-ranking executives and occasional outsiders who hold large amounts of equity in the company. Any one of these stakeholders has the power to disrupt decisions or introduce new ideas to the company. The board of directors has the power to appoint all levels of senior management - including the CEO - and remove them if necessary. Members of the board dictate the future of the company and are involved in all major business decisions.

Direct Management

While the board of directors is a more "hands off" approach to controlling a company, some stakeholders prefer the "hands on" approach by directly assuming management positions. Stakeholders can take over certain departments - such as human resources or research and development - to micromanage the business and insure success. In privately owned and publicly traded companies, large investors often directly participate in business decisions on the management level.

Investors

Stakeholders are regarded as large investors, who will either increase or decrease their stakes in your company according to your financial performance. Ideally, they act as guardian angels for everyday investors, poring over financial reports and pressuring management to change tactics if necessary. Certain stakeholders, known as activist investors, will make wildly unpredictable investments and divestitures in order to move the share price and attract media attention to a certain issue.

Types of Business Entities
The type of business entity you choose will depend on three primary factors: liability, taxation and record-keeping. Here's a quick look at the differences between the most common forms of business entities:

• A sole proprietorship is the most common form of business organization. It's easy to form and offers complete managerial control to the owner. However, the owner is also personally liable for all financial obligations of the business.
  
• A partnership involves two or more people who agree to share in the profits or losses of a business. A primary advantage is that the partnership does not bear the tax burden of profits or the benefit of losses-profits or losses are "passed through" to partners to report on their individual income tax returns. A primary disadvantage is liability-each partner is personally liable for the financial obligations of the business.
  
• A corporation is a legal entity that is created to conduct business. The corporation becomes an entity-separate from those who founded it-that handles the responsibilities of the organization. Like a person, the corporation can be taxed and can be held legally liable for its actions. The corporation can also make a profit. The key benefit of corporate status is the avoidance of personal liability. The primary disadvantage is the cost to form a corporation and the extensive record-keeping that's required. While double taxation is sometimes mentioned as a drawback to incorporation, the S corporation (or Subchapter corporation, a popular variation of the regular C corporation) avoids this situation by allowing income or losses to be passed through on individual tax returns, similar to a partnership.

Legal liability. To what extent does the owner need to be insulated from legal liability? This was a consideration for EnviroTech, says Kalish. He and Berthold had a hefty investment in equipment, and the contracts they work on are substantial. They didn't want to take on personal liability for potential losses associated with the business. "You need to consider whether your business lends itself to potential liability and, if so, if you can personally afford the risk of that liability,

Tax implications. Based on the individual situation and goals of the business owner, what are the opportunities to minimize taxation?

Baker points out that there are many more tax options available to corporations than to proprietorships or partnerships. As mentioned before, double taxation, a common disadvantage often associated with incorporation, can be avoided with S corporation status. An S corporation, according to Baker, is available to companies with less than 70 shareholder returns; business losses can help reduce personal tax liability, particularly in the early years of a company's existence.

Cost of formation and ongoing administration. Tax advantages, however, may not offer enough benefits to offset other costs of conducting business as a corporation.

It's the record-keeping requirements and the costs associated with them that led Kalish to identify the sole proprietorship as a very popular form of business entity. It's the type of entity in place at his other business, Nationwide Telemarketing.