Capital formation across business life cycle
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Discuss capital formation as it relates to the business form and the life cycle of businesses. How would the business form used by the manager/owner impact the firm's ability to raise capital?
Graduate level
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Solution Summary
Solution discusses various types of business by legal structure, i.e. sole propreitor, partnership, corportation, their characteristics and impacts on ability to raise capital given relative size and nature of the business as it relates to equity owners/shareholders/stakeholders.
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In order to discuss capital formation relative to business form and the life cycle of businesses we ought define the types of businesses from their broader categories rather than their specific legal definitions. The ability of these entities to raise or "form capital" is somewhat governed by their structure and constraints relative to their scope. I will define them from three broad categories along with their characteristics:
1) Sole Propreitorships -
Characteristics:
a) Limited life span and business follows the owner. Can be inherited but usually does not survive the owner. Usually "Joe Businessowner D/B/A as "Two Felons and a Truck moving and storage".
Early stage:
b) Difficulty raising funds to operate the business if outside the owner's personal resources.
c) Capital formation options severly limited characterized predominantly by the owner's assets in ...
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