Business Forms and Growth

Many people partake incorporate activities solely to generate income from a certain collection of inputs. There are, however, a few exceptions. Individuals engage in commercial activities for a variety of reasons, including personal interest. In essence, choices should be strategically evaluated and selected in order to reap the greatest value. Important choices include the kind of company to start and the best growth plan. The following is a case study of an entrepreneur who was presented with certain decisions; it extensively analyzes the choices and concludes on the right form to take.

Taira has three company expansion options on the table. It is important to note that she is in-need of capital to expand her business and foster her Necklet patent. The first option, which is offered by a consulting firm, has matched Taira with an investor who has promised to create a line of Kiosks and shops all over the region with her products; the investment plan has even pledged to venture abroad. Taira is however required to surrender her patent, which will be duly returned to her upon selling the business, or once the investor has gained a profit of 7.5% plus the original investment. In light of the circumstances, this seems a plausible idea.

The second option involves pursuing a loan to expand the business which also seems like a plausible idea, however, the enterprise will be solely owned as a sole proprietorship. The final option involves teaming up with a storefront owner who is on the verge of retiring. Bezan Brooks has all materials that Taira needs including proper inventory, knowledge, and experience. Profits would be shared halfway and Taira would maintain her patent. The options available as per this idea are extensively incisive.

In light of the above three alternatives, a decision has to be enacted. The second option is obviously out of the question since it would end robbing the business of a crucial resource, that is, an experienced partner. Business partners or investors inject every resource they can into a business idea since they want to reap the maximum possible profits (Steingold, 2012). If Taira was to secure a loan, she would gain liability in the process. Therefore, the business would remain a sole proprietorship with no external help. The second option is therefore not among the alternatives. The first option also seems attractive. However, it would rob Taira her patent, which is the crowning achievement of her innovation. If she were to choose this option, it would be likened to selling her entire business on uncertain terms. This would be the exact opposite of growth. The third option hence is the safest of all; this is because Taira keeps her patent and the profit is shared half way. Choosing the third option provides her with a partner, the much-needed inventory, knowledge, and experience on the field and best of all, she gets to keep her patent. Brooks is the best partner since he has an in-depth knowledge and expertise regarding jewelry business. The fact that he is nearing retirement is also a bonus since it implies that he is riddled with experience. In light of the above, the third option offers the best potential for growth.

Business Forms

The following table compares the five types of businesses, which exist for Taira to choose from. Each business unit has its own unique set of merits and demerits that assist in making a sound decision (Fontana, 2010). It is important for one to be well versed in the advantages and the disadvantages of the various business forms while comparing them with the resources at hand. Executing the undertaking forms the basis for sound decision-making (Hess & Liedtka, 2012).

Type of Business

Advantages

Disadvantages

Sole Proprietorship

The owner possesses complete control over the business more so in decision-making acts

The owner can make a sale and transfer ownership of the enterprise at his or her own free will, partnerships and other businesses will need the full consent of the board involved.

Lacks corporate tax payments

A sole proprietorship requires less legal formalities when opening.

Characterized by little if any, business requirements

The business owner is personally liable for the losses and debts of the firm. The owner is also responsible for losses and damages caused by employees.

All responsibilities regarding the business are in the hands of sole proprietors. This presents itself as an immense burden

Investors do not usually invest in sole proprietorships

A business with a single owner as the operator may lack the diversity in resources which is offered by partnerships

General Partnership

There is sharing of costs and investments which are made

Partnership benefits from diverse resources if members have different connections

Investors are more likely to invest in partnerships than sole businesses (Ericson, 2010).

Responsibilities and Burdens as a result of the business are shared equally amongst the partners.

Formation requires a multiple legal formalities.

The profits need to be shared as per the contracts no matter how small.

Partners are liable for each other’s deeds since they are all under a single business agreement

The partnership is immediately disbanded upon the death or the resignation of a single member of the group

Limited Liability Partnership

They are flexible in the sense that they allow partners to choose the manner in which they intend to contribute to the company

Has a decentralized management configuration hence it resolves conflict in instances where owners want equal rights of management.

Allows “pass through” taxation.

Not recognized in every state as business structures

Limited by state regulations

Partners have liability all over the setup, and one is not obligated to discuss business agreements with each other.

Death or withdrawal of partner leads to dissolution

Limited Liability Company

Offers limited liability across all its owners.

Have fewer corporate formalities.

Has significant tax flexibility processes

Offer liability protection to all its members

Death does not mean dissolution

Profits are subject to self-employment taxes.

Profit is shared out usually by a large group of individuals

Corporation

Owners are not liable for any debts

May be able to raise additional funds through selling of shares

May deduct cost of benefits provided to employees

Requires the most amount of resources, regarding time and money, during formation

Are monitored by government agencies, this increases the amount of paper work

Subject to higher corporate taxes.

Decision

In light of the growth strategy selected plus the merits and demerits of the various forms of businesses, the best unit is general partnership. It has already been discussed above that Taira’s business is in-need of a partner. Brooks was the best candidate because he would bring two major resources to the table, knowledge of the jewelry business and experience. He also allows Taira to keep her patent while also developing it. Such a relationship between Brooks and Taira is best suited to be a partnership. The general partnership that is the selected business form allows easier decision-making and permits equal sharing of total costs and liabilities (Erickson, 2010). It would be a burden for Taira to incur these alone, had she taken the second option. The other options, which exist, are either coupled with massive formalities during set up. For instance, a limited liability company is not applicable based on the circumstances, for example a corporation. A general partnership is hence the best form to start the business. The other units may be considered as the firm grows (Research, 2013).

Summary

Taira has a jewelry business, which is in desperate need of a growth strategy. Three options present themselves on the table. The first one is not preferable since it would mean that she is being robbed of her patent for a specified amount of time. The second option grants her a liability (loan repayment) and robs her of the chance to secure a partner. The third option is hence the most plausible since it allows her to keep her patent while at the same time work with an experienced and knowledgeable icon in the jewelry business. Since the third option would ultimately result in taking full control of the merged business by two individuals for a particular period. Conclusively, partnership business form would be the most appropriate to employ.

References

Ericson, M. (2010). A narrative approach to business growth. Cheltenham Northampton, MA: Edward Elgar.

Fontana, P. (2010). Choosing the right legal form of business: the complete guide to becoming a sole proprietor, partnership, LLC, or corporation. Ocala, Fla: Atlantic Pub. Group.

Hess, E. & Liedtka, J. (2012). The physics of business growth: mindsets, system, and processes. Stanford, Calif: Stanford Briefs, an imprint of Stanford University Press.

Research, I. (2013). The Management of Business Lending: A Survey. Manchester, England: INDUSTRIAL SYSTEMS RESEARCH.

Steingold, F. (2012). The complete guide to selling a business. Berkeley, CA: Nolo.