This paper will cover the different forms of business and who would benefit from that type of business. The types of business discussed will be sole proprietorship, partnership, limited liability partnership, Limited Liability Company (LLC), S corporation, franchise, and corporate form. Justification will be given why the type of company would benefit from each form of business. The sole proprietorship type of business has advantages for entrepreneurs starting out to earn an income. An entrepreneur starting a sole proprietorship business owns the entire business and cost very little to start. The owner also makes all management decisions with no approvals from anyone else and receives all profits. The business is easily transferred and sold if the proprietor needs to sell for any reason.
The disadvantages of this type include funding and legal responsibility. The only funding an owner can receive comes from the owner and what loans he or she can get from a lender. The sole proprietor is also legally responsible all business contracts and unprotected against law suits (Cheeseman, 2010). An entrepreneur without much capital starting out would be a candidate for sole proprietorship. This would allow the owner to set up his business and get controls set while he or she is getting established in the business world.
A group of people may choose to go into business with each other. This venture is called a partnership and requires four elements: two or more persons, carrying on a business, work as co-owners, and the business works for profit. Partnerships share in the business profits, but further evidence is the partners have an agreement to share in profits and losses and rights to participate in management. This type of business if free to determine the terms between the persons of the partnership and businesses lasting more than one year must put the agreement in writing. All taxation in a partnership applies to the individual’s personal income tax (Cheeseman, 2010). Two people where one is knowledgeable in automobile repair and the other knowledgeable in taxes and business affairs who want to start a business in car repair could use a partnership to start their venture.
This would allow them to hire necessary people, locate a garage in a good location, and have the resources of both people to get started. One of the best forms of business today is limited liability company (LLC) because owners can manage the business and have limited liability. The LLC is a separate legal entity that can own property, sue and be sued, enter into and enforce contracts and be found civil and criminally liable for violations of the law. It also avoids double taxation because taxes flow through to individual’s tax returns and is not taxed at the entity level.
The LLC does not lose any powers of individual ownership companies keeping investors and partners safe from law suits and company losses (Cheeseman, 2010). Any business that requires contractors to enter into customers houses to take care of work, like small construction or cleaning services, would be better off using an LLC mode of business. If the company has one employee, the owner, or there are more employees, the LLC protects the business from lawsuits.
Entering into a private home is always risky because unintended damage can be done to someone else’s private property. An unprotected owner can lose his or her business very quickly in a lawsuit, especially if the owner is just starting out. Limited liability partnership (LLP) businesses are usually restricted to professionals such as accountants, lawyers, and doctors. All partners have limited liability and not personally responsible because there are no general partners. Companies using LLPs have flow-through tax benefits and are not taxed at the entity level.
They also have to formally file articles of partnership with the secretary of the state in the state the LLP is formed. A minimum one million dollars of insurance to cover negligence, wrongful acts, and misconduct by partners or employees is required in many states (Cheeseman, 2010). The benefit to the professional industries listed above includes protection from law suits. Since the dollar amount of law suits greatly increase in these types of business it is essential in many cases for professional industries invest in this type of business form.
The type-S corporation is similar to LLC except the government requires yearly business meetings and meeting notes have to be files with the state every year. Companies using type-S that do not follow all the rules of a corporation can lose their protected status. They are still not double taxed, but have to be very careful to follow the regulations and rules set forth by the federal government (Cheeseman, 2010). Larger companies with many stockholders would do well with this type of business. Business meetings are most likely already being held at regular intervals.
All the company would have to do is file the meetings to keep their protected status. This type of business does require good management and organizational skills over an LLC because of the potential lost status if sued. Franchise companies use the trademarks, name, commercial symbols, patents, copyrights, and other property in the distribution and selling of goods and services. The franchisee usually establishes itself as a separate corporation than the franchisor. Some of the benefits of running a franchise are product uniformity and quality. The owner also has access to the franchisor’s knowledge and resources while still running an independent business.
The franchise owner is responsible to follow the standards and training set by the franchisor in order for the owner to use the name, logo, and trademark. Some of the fees involved in owning a franchise are initial license, royalty, assessment, lease, cost of supplies, and consulting. Opening a franchise can be expensive, but since the owner is using the name and advertising of the franchisor the money invested could be recouped at a quicker rate (Cheeseman, 2010).
Restaurants, department stores, and automobile dealerships are common franchise businesses. Customers of McDonald’s or Burger King know what they are going to get when they purchase food from them no matter where they are in the country. Even international stores have common items, though some products change because of different cultures and customs found in internationally. Ford, Dodge, Chevy, Honda, and BMW all sell vehicles under their prospective names.
Customers know exactly what they are shopping for when he or she goes into a dealership. This consistency improves the chance of repeat business even if the consumer moves to another state. The type-C corporate form of business contains the same regulations to keep the protected status as the type-S corporation, but the federal government double taxes the business. It is first taxed at the business level, and then taxed again at the individual level (Cheeseman, 2010). Fortune 500 companies often use this type of business. Meetings are already held, minutes taken, earnings recorded and posted on line. Keeping the protected status as a corporation is not difficult for larger companies.
This paper has covered the different forms of business and who would benefit from that type of business. The types of business discussed were sole proprietorship, partnership, limited liability partnership, Limited Liability Company (LLC), S corporation, franchise, and corporate form. Justification has been given why the type of company would benefit from each form of business.