Organizational costs

Organizational costs are those costs incurred that relate to the setup of a business. Organizational costs include the following:

  • The survey cost associated with a review of potential markets
  • Training employees in their new tasks
  • Legal costs to create bylaws and articles of incorporation (for a corporation)
  • Legal costs to create a partnership agreement (for a partnership)
  • Filing fees with the applicable state government
  • Cost of organizational meetings

Costs not considered to be organizational costs include research and experimental costs, and the costs associated with issuing or selling stock.

Organizational costs are incurred whenever a subsidiary is created, so these costs can be incurred repeatedly over the life of a parent company.

Depending on the applicable tax rules, it may be possible to capitalize organizational costs, in which case they are amortized for tax purposes over a period of time. However, if the costs incurred are immaterial, it is more efficient to charge these costs to expense as incurred.