A Trilogy On Entrepreneurship: Creating the Enterprise. Eduardo A. Morato Jr.
prospects; and (9) the risks in the business and the contingency measures to counteract them.
The business plan should then elaborate on the contents of the executive summary in more detail. Each of the content areas must be justified convincingly by analyzing relevant information and making logical conclusions. Also, for each of the major functional disciplines (marketing, operations, finance, human resources and general administration), there should be a functional strategy to show how the desired results could be obtained.
The concluding portion of the business plan should highlight the key messages for the intended readers of the plan. For the investors, they should be given “fearless forecasts” on expected profits, earnings per share, dividends and market values. Divestment or exit schemes should be discussed. Major features of the shareholder or investor agreement should be emphasized. Voting rights, seats in the board, veto powers, protection clauses for minority investors, and all significant sections of the Articles of Incorporation and the By- Laws should be divulged. For the financial institutions, the financial statements must be synthesized to capture both the upside and downside prospects. Due diligence must be evident in the analyses and conclusions made. The paying capacity of the enterprise, its investors’ capabilities and the venture’s back-up financial plans (just in case things do not turn out as expected) should round up the presentation. For the government readers, the business should provide compliance statements with all laws and regulatory provisions.
Organizing and Structuring the Enterprise
The Business Plan should be able to estimate the capital required by the enterprise. The capital required would be dictated by the investment in the assets of the enterprise. The assets will contain the working capital (current assets), the property, plant and equipment (fixed assets) and the organizational and pre-operating expenses (other assets) needed. These assets would be financed by suppliers credit, short term debt, long term debt and owners’ equity. How the financing package is designed to fund the assets is the capital structure of the enterprise. The right financing mix will not be discussed here. Suffice it to say that there should be enough capital provided by the owners in order to entice financiers to participate in the funding of the enterprise.
The simplest and easiest enterprise to organize is the sole proprietorship. In this structure, the entrepreneur or owner has sole control over the enterprise. He or she reaps all the profits and, also, all the losses. The law does not vest a juridical or a legal personality on the sole proprietorship separate from the owner. The enterprise and the owner are one. Thus, any entity that has a claim on the enterprise can run after all the personal assets of the owner. The risks carried by the enterprise are all borne by the owner. However, the owner is the supreme authority in running the business. He or she calls all the shots and is not answerable to anyone, except the government for its usual pound of taxes and its regulatory provisions. The owner should include the enterprise income in filing his or her personal income tax return. There is no distinction made by the law between the owner and the enterprise. If the entrepreneur enters into any business contract, including loan agreements, then the entrepreneur is also answerable and personally obligated to abide by the terms and conditions of the contract like any other dutiful citizen.
The sole proprietorship is mandated by law to register the business with the proper authorities. All businesses, whatever the legal form, are required to secure a mayor’s permit or municipal license before they can operate in a locality. Before getting this permit, there are clearances that must be obtained. These are (1) barangay clearance, (2) fire safety clearance, (3) certificate of electrical inspection, (4) certificate of occupancy, (5) Department of Trade and Industry certificate, (6) lease contract if space is leased, and (7) locational clearance.
There may be additional requirements depending on the type of business and the ordinances issued by the concerned local government. For food products, there should be a certificate from the Bureau of Food and Drugs. For hospitality enterprises, a clearance from the Department of Tourism is necessary. Schools, financial institutions, transportation companies, amusement centers and the like have their respective agencies to obtain clearances, permits or licenses from. Moreover, any enterprise employing the services of other people must register with the Social Security System. It is, likewise, the responsibility of any enterprise to register its business with the Bureau of Internal Revenue for taxation purposes. The official receipts of the enterprise must also be registered with the BIR. For a sole proprietorship, the tax identification number (TIN) of the entrepreneur serves as the enterprise TIN.
If two or more persons bind themselves in a contract to contribute money, property and expertise to a common fund with the intention of dividing the profits among themselves, then they would have entered into a partnership. Registration with the Securities and Exchange Commission is not essential to give the partnership a juridical personality. A partnership is vested with a juridical personality quite separate and distinct from its members. Thus, it is empowered to sue and can get sued.
A minimum of two persons can constitute a partnership. There is no limit to the number of persons comprising a partnership. There are two types of partnership based on the liability of the partners. A General Partnership is composed of partners who are liable pro rata and solidarily (together) to all those who have claims against them. Claimants can run after all the personal assets of all the partners. A Limited Partnership would have partners who have limited liabilities while others in the partnership would have unlimited liabilities. A limited partner is not personally liable for all the obligations of the partnership beyond his or her pro rata capital contribution to the partnership. The law requires that there must be at least one general partner in a Limited Partnership to assume the unlimited liabilities. The Limited Partnership must add the word Limited to its partnership name.
Partnerships have more participative decision-making processes, which capture the essence of what it means to be “partners.” Partners are supposed to respect one another’s contribution to the enterprise. In a general partnership, the decision of one partner is binding to all. Hence, there are internal mechanisms and procedures followed to ensure that the partners do not enter into contracts without the knowledge and consent of the other partners.
In order to form a partnership, a binding contract must be executed by the partners. The partners must decide on a partnership name and come up with their Articles of Partnership. These Articles should contain all the provisions governing the operation of the partnership. It should stipulate how decisions are to be made. One or more managing partners can be designated to make certain decisions. Levels of authority can be specified for the managing partners. The Articles can state what decisions would require the presence of all or the majority of the partners. They can include provisions on how the contributions of each partner would be compensated, how their interests would be safeguarded, and how the profits of the partnership would be computed and distributed. The Articles should also carry exit or divestment provisions in case one or more partners would want to get out of the partnership. There should also be provisions on the dissolution of the partnership.
The partnership should obtain all the required government clearances, permits and licenses. It should get a bank certificate of deposit on the money contributions of the partners. It should get the approval for its partnership name from the Department of Trade and Industry. With these documents, it should register with and file its Articles of Partnership with the Securities and Exchange Commission. Needless to say, the partnership must also register with the SSS and the BIR, as well as other government instrumentalities that may have jurisdiction over its type of business.
By and large, partnerships have worked well with individuals coming together as professionals in a field of expertise such as accounting, auditing, law, medicine, business consulting, architecture, and engineering. The partners pool their talents together to project a formidable image of a strong institution with a large network of clients and connections. It is an aggrupation of partners whose total impact is far greater than the sum of its parts. Each partner contributes his or her own weight to the enterprise. This is profoundly called “gravitas,” a term which connotes a certain heaviness and awesomeness of bearing that is respected in the elite and august circles of professionals.
The corporation is a separate