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.