Question

If you were to start your own business, which business entity structure would you choose? Justify why your chosen structure is the best organizational form.

Explain the following business structures: sole proprietorship, partnership, LLC, and a corporation. In your analysis address the following for each business structure:

• Steps to form
• Personal liability for owners
• Taxation
• Advantages and disadvantages
• Your paper must be three to five pages

Answer 1

Answer is as under :

Explain the following business structures: sole proprietorship, partnership, LLC, and a corporation. In your analysis address the following for each business structure:

1) Sole Proprietorship Business

Here the owner and business act as the same person. Only one person is involved in this kind of business structure. Here the owner of the business is personally responsible for the all liability of the business and will take away all the profit of the business. He can operate the business under his own name also.

Advantages are :

a. No registration is separately required to start sole propertiorship business

b. It can be started by single person. Hence no dependency on other person

c. Here legal compliance's are comparatively less which will lead to saving of cost and time

d. Simple form of business , even common business man can run it without expertise knowledge

e. Easy liquidity of assets and liability

Disadvantages are :

a. Unlimited liability of owner

b. As only person is involved in the business, on the death of owner business needs to compulsory get liquidated

c. Bank does not the grant loan easily to such form of business

d. Cannot accept loan from public

2) Partnership business

In partnership business, more than one person are involved in the business. It is entered into by two or more person by a legal agreement specific the partnership share, interest rate , drawing power, profit share, and other legal terms. Partnership holds a separate legal identity from the partner. Liability of each partner is limited to their capital share

Advantages are :

a. Partnership business is easy to form

b. It has separate legal existence which differ from individual partnership

c. People with versatile expertise , knowledge and funding options come together , which lead to development of new and unique idea

d. Can share profit of partnership business

Disadvantages are :

a. Bank does not the grant loan easily to such form of business

b. Cannot accept loan from public

c. Conflict of interest can arise internally

3) Company ( Private and Public Company)

A Company is a separate legal artificial person with perpetual succession and common seal. It is created as per the Companies Act and under certain rules and regulation. Company can be private or public, limited by shares, guarantee, one person company etc. Directors are appointed in a company, Shareholder are the members and owners of the company. Companies profit is carried forward and kept as a reserve for future or else it is distributed among the shareholder. The taxation and return filling of the company is separately done

Advantages are :

a. Company can get funding from the public for the business and expansion purpose by bringing IPO and issuing debentures

b. Company can easily avail the loan from bank and private institution

c. There are many government schemes and subsidy for which only corporations are eligible

d. Company has good and worldwide prestige rather than other form

e. Shares can be listed on stock exchange

f. It continues to exist separately from its shareholder

Disadvantages are :

a. Complex structure

b. Many legal requiredement while formation and reservation of company

c. Costly and time consuming process

d. All confidential information are available in public

If you were to start your own business, which business entity structure would you choose? Justify why your chosen structure is the best organizational form.

Assume that Coffee shop business is to be started

To set up a small coffee shop, it is advisable to start your business under sole proprietorship or in case business investment is required then to opt for partnership model due to the following reason :

1) The value of investment required to start a coffee shop is not too high

2) can individually have all stake and profit in the business

3) can easily manage the business

4) Cost of company incorporation and regular filling will get reduced

5) Does not required to take registration for many other law and employee benefit plans

6) Confidential data will remain safe and unpublished

7) Cost cutting can be easily done

Also it needs to decided that whether to operate from rented premises or owned premises. In case, operated business from rented premises , it will lead to increase in companies expenses but income tax advantage can be claim against the same. Vendor should be located near by and hence it will lead to reduction in inventory and transportation cost. Also seating capacity , per hour number of customer entering the coffee shop, number of employees required, overhead cost should be calculated to get actual understanding of which business structure , from tax view point