The most appropriate business organization for Carla is Sole proprietorship. Markedly, she wants to start her activities in small undertakings, where she will only have two employees, Quimby and Ruth. Additionally, she wants to be the sole trader in her business, which can be noted from her choice of name – Carla’s Pets Store. Furthermore, she has not mentioned the titles of the two employees, which means she will be the sole manager of her business.
The characteristics of a sole proprietorship are that first, it is owned and managed by one person. Then, there is the unlimited personal responsibility of the owner, and in case the business ends in debt, they should pay ( Hearn,2017 ) . Furthermore, the business is not required to meet any legal requirement, except if the law needs a license. The business also has several advantages and disadvantages.
Delegate your assignment to our experts and they will do the rest.
A sole proprietorship has several advantages for the trader. Firstly, Carla being the only owner of the business, she will be in complete control of the pets store. She will be in charge of making the decisions with no need to seek approval from shareholders, directors, partners, or any officers, unlike for corporations and partnerships ( Hearn,2017 ) . Secondly, the business is simplified and requires less operation cost. She does not require any additional government forms except for the business permit, unlike in an entity like a partnership whereby they could have to do a formal partnership agreement that would explain the duties and rights of the partners. Thirdly, Carla will enjoy privacy in running her business. Markedly, a sole proprietorship does not file any annual reports or formation documents with the state nor federal governments. Therefore, the operations of the Carla Pets Store will not be subject to public disclosure like corporations ( Lecture Notes ). Fourthly, there are minimal reporting requirements, since the entity does not have to file an annual report with the government. For corporations and LLCs, they are required to hold meetings of the shareholders and file several reports with the authorities. Fifthly, the tax reporting procedure is simplified because the owner does not have to pay different taxes for the entity. There is no need to file any special tax forms with the federal government. Instead, Carla will only report the net loss or net income of the business in their personal income tax forms. Nonetheless, this depends on the stat where Carla will be doing business.
However, there are also several disadvantages which the business owner should put into consideration before deciding to operate this type of business. First, there is unlimited liability, meaning the business will not exist as a separate legal entity. Instead, all her assets and personal wealth will be linked to the firm. Therefore, in case the business cannot afford to pay suppliers, then Carla will have to use money from her wallet ( Hearn,2017 ) . The other challenge is the difficulty in raising capital. Notably, although Carla Pets Store can start as a small business, at some point, it will start expanding, but it will be hard to increase capital from loans. Although having full control of the business at the beginning can be of great advantage to the business, as the business expands, she can require making more advanced decisions, which require further consultation. Lastly, in case Carla dies, the business will be liquidated, unless she writes a will on which the business should be given to. Therefore, Carla should also consider these disadvantages before setting up the business.
In case Carla needs to get additional capital to expand the business without losing the control she has for the business, she can look for a business partner, and then ask the partner to have limited liability. Therefore, she will e the only one with unlimited liability, and in case the business runs into debts, the partner will not be liable (How to Set Up a Sole Proprietorship, 2018 ) . This means the partner will not engage in the management functions of the business, but they will help in the contribution of additional capital.
References
“How to Set Up a Sole Proprietorship.” Findlaw , 16 Feb. 2018, smallbusiness.findlaw.com/incorporation-and-legal-structures/how-to-set-up-a-sole-proprietorship.html.
Hearn, E. N. R. (2017). Business Entities. In The Musician's Business and Legal Guide . Routledge
