10/7/15

 

• What are the factors in deciding what form of ownership is best suited for the potential business?
  • The first thing I think of in deciding the type of ownership for a business is how much control you are willing to give up. For my Daycares I chose to own the business as a sole proprietorship because I wanted to be the only one making the decisions of the business.
  • Another factor to consider is how much capital is needed to start the business. If you cannot generate enough money to fund your own start up you will have to either get a loan or find investors which can become partners in the company.
  • An important question to ask is: How big do you want the company to grow or have the potential to grow? Since I knew my Daycares have a limit to how many children I can have at each location in total, I was not worried about getting partners or investors to grow the business because the department of health put a limit to it. Nevertheless for a product based business or a service without such limitations you can choose to incorporate your business to be able to have stocks in the future.
  • Will the company be big enough to continue after you no longer can be there to manage the company? This can include death and incapacitation. Can you pass it down to your children depending on the form of ownership you choose?
  • A very important question to ask is how much liability do you want to personally be responsible for? With my Daycares I am responsible for any failures because I am the sole proprietor. Therefore I get the full benefits if my business succeeds but I will also be liable if it fails.

 

• Briefly describe the advantages and disadvantages of a sole proprietorship and partnership.
  • A sole proprietorship is a form of business with a single owner.
    • The advantages are: The start up for this type of business is easier because it only requires a business license to open. The business can be closed/terminated easily. Since there is only one owner, he or she has the right to make all business decisions. For paying taxes, the business and owner are not taxed twice; it is taxed as income or loss directly to the owner.
    • The disadvantages of a sole proprietorship include having limited access to money. Unless the owner has money to grow the business themselves, it will be stuck and not be able to grow because the fund are limited. The skills and capabilities of the owner are also limited and there is no one else to help the business be successful or grow. When there is only one owner you tend to think that your way of doing something or solving a problem is the only way, nevertheless, if there were partners involved there would be more ideas, education, knowledge and experience. The biggest disadvantage is being unlimitedly personally liable if something goes wrong. Any debts can be collected from the sole proprietor using their personal items like their house, car or any savings.
  • A partnership is an association of two or more people being co-owners of a business.
  • The advantages are: A general partnership is fairly easy to establish and is also inexpensive. Although it does require a registration. Another advantage is that there are more people to help run the business. Therefore there is more knowledge and skills then with just one person. It is also better because having multiple partners can increase the amount of money that can be available for the business.
  • The disadvantages are: There has to be at least one general partner, which assumes unlimited personal liability. This can give way to conflicts within a partnership between the partners. If a partner wants to leave the business or dies the business might dissolute and there are many restrictions in the way the partners can leave the company.
  • Explain the corporate form of ownership and how a business is incorporated.
    • First you have to choose the name of your business and check if no one else is using that name. You can check on the Clerks Commissions website. You then have to choose what state to register in and see if you will need an agent to represent the corporation for a fee if you are not a resident of that state. The next step is to prepare the certificate of incorporation and have the filing fee.
  • List the differences between the S-Corporation and the limited liability company.
    • S-Corporation: Is taxed like a partnership. They are limited to only 100 owners and to one class of stock. Only individuals and certain trusts may own stock. This type of corporation has many tax consequences if S-Corp status is broken. An S-Corp is not easy to form and there are restrictions to ownership.
    • Limited Liability Company: There are no restrictions on the number and types of owners. There can also be different classes of memberships. LLC’s are not a tax paying entity. The company cannot be taken public. Nevertheless it is an easy company to form and maintain.