Question

As a small business owner or an accountant providing advice to your client, please discuss at least three primary factors you would consider in the identification of a suitable entity for a new business enterprise.

Answer 1

Three primary factors I would consider in the identification of a suitable entity for a new business enterprise are as follows.

1. Degree of Liability. If a person chose to be a sole proprietor or form a Partnership firm then his personal assets are also attached to pay liabilities of his business on the other hand if an incorporated business is formed such as S corporation or C corporation or an LLP, the liability of businessman is limited and it provides a protection to his personal assets. So before choosing a suitable entity I would consider liability clause.
2. Ownership Transfer: If I am starting to do a business I will also think about whether am I be able to transfer my interest in near future easily or not. A business involving shares are considered easy in case I want to transfer ownership but in case of a partnership firm or a sole proprietorship firm transferring interest is not that easy.
3. Formalities and legal issues with Formation. Before starting a business I should know what are the procedures I need to follow. Starting an incorporated business is a complicated one in comparison to a sole proprietor business. Formalities are high in incorporated business. This is the reason why a person prefers sole proprietorship or a partnership instead of an LLP or Incorporate business.