The success of a business is highly dependent on good management and planning. Research argues that a manager must be able to develop a rigid business structure that will propel the business towards the expected outcome. Developing a good business structure facilitates both financial and operational success of the firm. However, the decision to choosing a right business structure is highly influenced by factors such as the nature of workforce within the enterprise, the goal of the firm, the size of the operation and the company’s financial liability. In the business industry there exist different forms of legal business entities, since companies cannot be similar due to the difference in size, objectives, and product and market, legal business structures suit firms differently.
Each legal business entity has its advantages and setbacks; it is thereby important to view and analyze each legal entity separately to identify the business entity that fits the business the most. The paper attempts to develop excellent skills in choosing a business structure. By evaluating different forms of legal business entities, the author is expected to thoroughly analyze each type of corporate structure and its manner of taxation identifying a suitable business entity. The paper will explain which type of business entity a business will be easy to adapt and develop.
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Discussion
When starting a business, the manager has to select an organization type from one of the firm structures present in modern day business. Since there are many types of business structures, it is best to start by eliminating the business structures that seem not to fit the company. Concluding to a right decision to a business structure, the manager should focus on individual factors such as the different liabilities within the corporate structure, expense, and procedures associated with establishing and running the business structure, income tax and investments needs of the company. The decision made will dictate the structure that the firm will assume, in many cases you will have to choose between a Limited liability Company (LLC), a Partnership, a corporation, or a sole proprietorship.
A Limited liability company is a business that has a similar structure to both corporations and partnerships. A limited liability company structure protects the owner from certain liabilities example business debts. On the other hand, its legal structure provides a flexible platform for management of the firm. Corporations are limited liability partnerships that are separate from their owners, in a corporate business structure the shareholders have a link in the profits of the company and are not liable for the corporation’s debts. Both Corporations and limited liability companies allow their owners a limited liability, which offers personal protection from being held liable or responsible in case of a company debt.
Among the benefits of a limited liability company is the pass-through taxation process. The owner of the business is taxed in regards to the profits and losses made; this ensures that the corporation is not double taxed. However, different states have different laws on how the LLC starts and operate, the manager should thereby be keen in understanding what is expected regarding legal requirements by the government. A “C corporation” provides a limited liability over the owners to business debts and judgment. Owners and the company itself can pay lower taxes by splitting the profits of the firm. However, the company requires complicated paperwork that must be filled by the secretary of state, as well as pay tax as a separate tax entity. Although it is a very common means of business structure, it’s very expensive to start and experiences double taxation. An S Corporation offers a similar limited liability as the C Corporation; however, unlike the C Corporation the S corporation has to file taxes annually and does not subject to double taxation. The business structure supports investment opportunities and a cover of continuous existence.
A professional company business structure is a corporation made of individuals in a similar profession example lawyers, doctors. Regardless providing the owners a limited liability to the judgment of the company, the business structure is expensive to start, with enormous paper filing and profession restricting. A professional corporation structure, therefore, supports a limited number of shareholders, limited by one profession. A partnership is defined as the simplest business structure with two or more principles; partnerships do not have formal paperwork requirements (Rowse, 2008, p. 44) . But it is important to note that organizations do not provide liability to their owners. One would argue that if the business incurred a debt, then the owners have to share responsibility equally. Partnerships are easy to start and maintain; general partnerships do not require fees and paperwork in order start.
Without liability, the owner in a general partnership is liable for any the debt that the organization may face during a defined time. The business cannot be taxed directly thereby the owners of the pay business tax according to their income. In different cases, partners in a partnership have been seen to clash over certain factors such as working ethics, business role and the goal of the firm. According to the principles set by the partners at the beginning of the partnership, the partners can decide on whether to terminate a connection at a given time. A limited partnership is a partnership that provides liability to its members. A limited partnership attracts investors as they are only liable for the investments they put in the business.
Providing flexibility within the company, a limited partnership makes a healthy and manageable business structure that partners can manage. However, limited partnerships do not provide a cover for liability to the general partners, if the firm experiences and debts or judgment, then the general partners are in place to account for it (Stephanie Reid, 2007, p. 21) . Furthermore, limited partnerships are more expensive to start than general partnerships. A small business owner with the aim of business expansion must achieve a higher understanding of the Agency law, to select the right candidate for the job. An Agent is an individual that has been granted the authority to make decisions in the representation of another. Agents can include the third party in a contract that displays the influence of the first party (the principle).
In many cases, the agent receives implied and express authority in oral or writing form, from the principle. In particular cases, the officer may experience a situation that requires more that as stated in authority to secure the client, based on the different situational cases that defined outcome there are different types of agency that limit and guide a manager in choosing an agent. Example, the Seller's broker, is termed as the vendor representative, this organization works to find a buyer on behalf of the seller. Defined by an express written contract, the agent is authorized by the seller to sell the property. Certainly, the broker owes certain duties such as the obligation of loyalty and the duty of full disclosure to the seller (principle). When the property is sold, the agent gains profits as dictated by the agreement contract.
A sub-agency covers for situations where a potential buyer aspires to purchase a commodity and his agent if unavailable. Sub-agent assists the consumer, providing customers care services to the purchaser without disclosing any information that may affect the seller’s confidence in the property. One the other hand a buyer’s broker agency is an agency that adopts a similar relationship to that of the vendor’s agent. However, in this case, the company works directly with interested buyers looking for property (Peter Jan Honigsberg, 2008, p. 21) . The buyer’s broker is expected to disclose any information that seems to affect the quality of the building, in some cases, the buyer’s agent may approach the seller’s broker and represent the seller in a buying negotiation.
The dual agency represents cases where the agent represents both buyer and seller at the same time. Since both parties are aware of the agreement, the double agent is expected to keep information regarding price and quality confidential unless directed otherwise by the principle.
Conclusion
The strength and quality of decision making in business is always manifested in the success and development of business. To establish a good business, the manager must be able to assess and develop decisions that will cut the firm’s costs. Starting a real business is influenced by factors such as the financial status, objective of the company and the amount of workforce available. A manager must thereby be in a position to address and identify suitable legal business structures that will support the nature of the business intended.
A business manager should be able to analyze every type of corporate structure, canceling out the legal business entities that do not favor the firm’s line of business. The manager should consider the amount required for starting the business, the amount of paperwork and filing, as well as the legal fees and taxation, means employed by the business entity. A business entity is the foundation structure in business; its significance is reflected in the future of the firm.
References
Peter Jan Honigsberg, B. K. (2008). We own It: Starting and Managing Cooperatives and Employee-owned ventures. Davis: Bellsprings Publishers.
Rowse, D. (2008). 6 Types of Business Entities to Consider for your Blogging Business. Cambridge: Cambridge University Press.
Stephanie Reid, S. (2007). The Four Ways of Agency Law. New York: The New York Times.
