Business Plan: Financial and Legal Viability

Posted on Dec 5, 2024 in Economy

3. FINANCIAL VIABILITY

Business Plan Investment Elements

Once activity levels are determined and the right technology chosen, a detailed business plan is presented and each component of the economic structure is evaluated to ensure feasibility. The most common investment plan components are:

  • Initial Fixed Investment:
    • Tangible fixed assets: land, buildings, machinery, facilities, equipment…
    • Intangible assets: patents, trademarks, software applications…
    • Incorporation expenses: company creation costs, production equipment implementation costs, initial advertising costs…
  • Initial Working Capital:

    Initial investment in circulating assets is crucial to meet sales targets. A full production process requires assets recovered through sales. Initial working capital includes:

    • Stocks: raw materials, work in progress, finished goods…
    • Accounts Receivable
    • Treasury
    • Accounts Payable: funds needed to manage supplier payments.

Business Project Financing Plan

The business plan includes long-term investment financial flows and a financing plan. After defining and quantifying the necessary assets, the financing plan is defined. This includes the company’s initial financial structure, specifying funding sources to cover initial disbursements. The plan outlines the amounts obtained from internal and external resources, all within the project’s expected timeframe. Initial funding must at least equal the investment level to ensure solvency and mitigate financial risks. Once operational, the operating cycle and self-financing, along with external sources, should ensure future growth.

4. LEGAL VIABILITY

Legal Form Considerations

When choosing a legal form, consider: minimum members, minimum capital, third-party liability, tax regime, and accounting requirements.

Legal Forms

a) Sole Proprietorship

  • One owner (employer).
  • Owner must be of legal age with full property availability.
  • Assets of the entrepreneur are merged with the business.
  • Unlimited liability.
  • No minimum capital requirement.
  • The company name benefits the owner.

b) Limited Liability Company (LLC)

  • Legal personality upon registration in the Mercantile Registry.
  • Capitalist company.
  • Capital divided into shares.
  • Minimum capital of €3,005 (cash and/or assets).
  • Liability limited to contributed capital.
  • Can be formed by one member.
  • Capital must be fully subscribed and disbursed.

c) Public Limited Company (PLC)

  • Capitalist company.
  • Minimum three members (one-person PLCs possible).
  • Capital divided into shares.
  • Liability limited to invested capital.
  • Members can only contribute goods or money, not labor.
  • Shares are transferable and traded on financial markets.
  • Requires written constitution, bylaws, and Commercial Register registration.
  • Capital must be fully subscribed, with at least 25% disbursed.

d) LLC vs. PLC: Similarities and Differences

Similarities:

  1. Can have one or more partners.
  2. Liability limited to contributed capital.
  3. Taxed as companies.
  4. Registered in the Commercial Register.

Differences:

  1. PLC capital is divided into shares; LLC capital is divided into shares.
  2. PLC minimum capital is €60,101; LLC minimum capital is €3,005.
  3. LLC capital must be fully subscribed and paid upon constitution; PLC capital does not need to be fully paid immediately.
  4. PLC share transfer is free and organized on financial markets; LLC share transfer requires prior notice and is not organized on financial markets.

e) Cooperatives

  • Aim to meet members’ common needs.
  • Non-profit; assets cannot be distributed.
  • First-degree (5 individual members); second-degree (two cooperative partners are legal entities).
  • Liability is limited (statutes may specify unlimited liability).
  • Minimum capital is fixed by statute.
  • No member can hold more than 25% of capital (first-degree) or 45% (second-degree).
  • 30% of surplus allocated to reserve and training funds.