You have just graduated from business school and have been invited to become part of the management team of a start-up business. One of the first issues the team has to decide is what type of entity the new business should be. What factors do you consider in evaluating this issue? Will the nature or scope of the business influence your choice of form of entity? Why or why not? What type of entity would you recommend?
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//Before writing on this topic, you should be aware about different forms of business organizations and factors which must be considered for the evaluation of organization type. I am providing you an overview and the differences between these organizations. These are differentiated on the basis of various factors. See the text below for sample: //
Business Organizations: Start up business
There are several factors that should be considered while evaluating the type of entity for the new business. There can be various forms of business organizations including the C Corporations, S Corporations, Sole Proprietorships, General Partnerships, Limited Partnerships, and LLCs (Limited Liability Companies). The nature and scope of the business will also have a significant effect on the choice of the form of entity.
Following is a list of some important factors that should be considered while evaluating the type of organization: (Mathew, 2002)
1. The vulnerability of the business to lawsuits.
2. The need to re-invest the earnings into the business.
3. The vision regarding the size and nature of the business.
4. The need to access the cash-out of the business for oneself (owner).
5. The desired level of control, which the owners wish to have over the organization.
6. The tax implications of the various forms of business.
7. The level of structure one is ready to manage and handle.
8. Estimated profit or loss of the business.
The new company is a small one and the proposal for its start-up has just been accepted. As there is a management team for the organization, there is more than one person who is involved in the business and concerned for it. Thus, the sole proprietorship form will not be appropriate for the business.
//In the next part you will be having an overview of differences between these organizations. //
The key differences between C Corporations, S Corporations, Sole Proprietorships, General Partnerships, Limited Partnerships, and LLCs are outlined with the help of a chart.
COMPARISON CHART FOR DIFFERENT BUSINESS ENTITIES (Comparison Chart for Different Business Entities, 2008)
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