Multimedia Activity: Business Organization

Preferred Business Structure 

A good entrepreneur always hopes for the best but also prepares for the worst. These two possible outcomes must be in the mind of the entrepreneur when choosing a business structure. The size of the business and the nature of undertakings to be carried out are also key considerations (Murray & Hwang, 2011). It is also worthy of notice that the business structure selected when starting a business is critical for the success of the business in the interim, but the business is not bound to maintain it in the long run. As and when circumstances improve, the structure can be changed to a more suitable one. Upon careful analysis of the available business structures, which include sole proprietorship, partnership, limited liability company (LLC), and corporation, the LLC stands out as the most suitable to start a business. For a start, the LLC is dynamic and can be adjusted to a small business or a large business (Murray & Hwang, 2011). Therefore, the LLC will present the highest chance for continuity for the business. If for some reason the business suddenly blossoms or plummets, the LLC can adjust to either circumstance with no need for sudden changes. As indicated above hoping for the best is critical, and at best, the best means raking in a good profit. LLC favors making good profits due to lenient taxation regimens. When it comes to being prepared for the worst, LLC is also preferable as it has limited liability. The family home or personal property cannot be auctioned because of a business liability as it can be in a partnership or sole proprietorship. Finally, the registration process of the LLC is relatively simple and cheap when compared to other structures such as the corporation (Murray & Hwang, 2011). 

Analysis of Business Structures 

Sole Proprietorship 

In layman’s terms, a sole proprietorship can be considered as a business name. Sole proprietorships happen when a single individual goes into business and registers himself or herself under a specific name to use it to carry out a business. Under the US laws, any business enterprise that has only one owner is considered as a sole proprietorship unless and until it is registered as a different entity. 

Steps to form 

Other than registering a business name as, and when necessary, there are no formal steps for forming a sole proprietorship. A small kid who washes cars in the backyard for loose change can be considered as an informal sole proprietor. Depending on the nature of the business, however, the sole proprietor may be required to apply for licenses (USSBA, 2018). 

Taxation 

A sole proprietorship is not directly taxed as it is not an entity in itself. Instead, it is the owner who is taxed on the income made. 

Advantages and Disadvantages 

A sole proprietorship is easy to start, and the owner has full control of the business. Active registration is also not necessary which saves money. However, a sole proprietorship is closely associated with informal businesses and may not be taken seriously by other businesses and even some customers. 

Partnership 

A partnership is a business owned by more than one person but nor registered in the more advanced forms such as LLC or corporation. There are two kinds of partnership, limited partnerships (LP) and limited liability partnerships (LLP). In the LP, the dominant partner has unlimited liability while in the LLP, all partners have limited liability (USSBA, 2018). 

Steps to Form 

The nature and form of a partnership are determined by a partnership agreement . The preparation and registration of a partnership agreement are all that is necessary to form a partnership. 

Advantages and Disadvantages 

The main advantage of a partnership is the presence of more than one individual to share burdens such as raising capital and operating the business. In an LLP there is the advantage of limited liability. Taxation is one of the major disadvantages of a partnership. With an LLP for example, a double tax regimen as owners and employees arises (USSBA, 2018). 

The limited liability company (LLC) 

The LLC is a hybrid business structure that combines attributes of the much simpler sole proprietorship and partnership on the one hand, and the more complex corporation on the other. 

Formation 

An LLC is organized and not incorporated or chartered, and it is made up of members, nor shareholders. The formation of an LLC requires the preparation and registration of articles of organization and by-laws under which the LLC will operate. 

Advantages and Disadvantages 

An LLC is extremely easy to form and register which makes it quick and cheap to start. There is also a limited liability to all the members of the LLC. Most importantly the LLC is dynamic even in taxation with the members able to choose whether to be considered as sole proprietors, partners or a corporation for taxation (USSBA, 2018). The main disadvantage lies in the fact that for a larger business being an LLC does not command enough trust or reputation to operate effectively. 

The Corporation 

A business becomes a corporation when it attains the status of an entity in itself capable of being considered as a legal entity that can sue and be sued independently. A corporation can either be private or public. 

Formation 

A corporation is formed by preparing and registering articles of association and a memorandum of association with the relevant state authorities. 

Advantages and Disadvantages 

Prestige is among the main advantages of a corporation as being a corporation places a business in league with the larger business entities. The level of limitation of liability is also highest in the corporation with the business being considered as completely independent of its owners. The main disadvantages include difficulty and high expense of registration and a rigid and relatively more stringent taxation regimen (USSBA, 2018). 

References 

Murray, J. & Hwang E. I (2011). Purpose with Profit: Governance, Enforcement, Capital-Raising and Capital-Locking in Low-Profit Limited Liability Companies.  U. Miami L. Rev. ,  66 , 1-53 

USSBA. (2018). Choose a business structure. Retrieved February 01, 2018, from https://www.sba.gov/business-guide/launch/choose-business-structure-types-chart