Term Paper on "Company Structure a Pivotal Decision"

Term Paper 7 pages (2068 words) Sources: 7

[EXCERPT] . . . .

Company Structure

A pivotal decision that every person must undertake while starting a business venture is the legal structure to apply. It is this reason that the individual should seek advice of the qualified and independent business, financial and legal advisors. The typical arrangement of the channels of authority, communication and, rights and duties of an organization; are key in determining the business structure an individual or a group people chose to engage. The structure of organization that the entrepreneurs and investors chose to join is determined by the objectives and strategies of the venture. After finding that the choice the person takes is not effective for their wishes, they have the opening to change the business structure.

The business structure

While choosing the business structure, a person considers some features. The structure largely depends on the size and the business along with considerations of the personal circumstances, as well as the visualization of individuals for the business (Graubner 2006, p. 29). There is no perfect structure of a business; thus, the success is dependent on the structure chosen. The selection is because of balancing the factors that constitute the advantages and disadvantages of each business structure. These reflect the structure that a person is most comfortable using. The foremost factors that determine the structure that a person may choose include the following.

The first dynamic is the supply of the capital and the rate at which the cash will be flowing into the business (Spadaccini 2007, p. 71). Each business venture requires a certain amount of financial capital to establish. Thus, the entrepreneurs have the responsibility to find out their financial strength before settling on the legal structure of business to venture. Secondly, there is the factor of flexibility and the relative complexity. This consideration is significant if the two persons starting the business are professionals with other responsibilities. The relative complexity, therefore, goes hand in hand with the accessibility of individuals to manage the business and their qualifications to run the venture. Therefore, before choosing a business structure, the individuals should decide if the business structure they want is simple or complex.

The third and equally significant factor for consideration is the aspect of the liability. Most people chose the structure; just because it evades the liability from them (Spadaccini 2007, p. 121). However, this may not be the appropriate structure for their venture. The individuals need to establish if they are ready to share in the liability of the company or they want an independent business structure. The forth and considerably significant factor to consider is the legal paper work for the startup and the taxation. Some of the business structures do not require much paper and legal framework to fill and comply, whereas others have a hefty load of legal paperwork to fill. Therefore, with consideration of the time schedule that the entrepreneurs wishes to use to start the business, the person can consider the paper work to be done, to avoid delays. The last factor is that of taxation that the business structure will incur. Some business structures lead to double taxation due to their enjoinment with the owners. Additionally, some business structures are independent, and, therefore, lead to less taxation as compared to the others. Therefore, it is significant for people to consider the taxation involved before choosing the business venture. Several types of business structure are available for the persons who want to venture into business. These include, sole proprietorships, corporations, partnerships, limited liability partnership, joint ventures, associates and companies (Douglas 2009, p. 37). All these structures have their related dynamics and features, which make them suitable to those who wish to venture.

Limited Liability Partnership

As John and Fred have decided to venture into business, it is my pleasure to advise them to engage the limited liability partnership business structure. This partnership business structure allows two or more persons, to come together and discuss their entrepreneurial visions. They then agree and settle on the business venture to engage. As is evident, John and Fred have agreed to share their ideas and engage in the business of framing. They have already identified the site of location of their business taken measures to set the business.

The limited liability partnership is a new venture that has recently been introduced into the structures of a business establishment. This was added into the corporation law in 1996 and is much similar to the general partnerships (Radan, Gooley, & Vickovich 2009, p. 57). However, the only key difference from the usual partnerships is that it does have limited liability for each of the partners in the business. It allows professionals and even firms to act as individuals in the partnership. Moreover, the limited liability restricts the liability to only the tort claims and not to the contractual obligations. Therefore, the partnership is independent and can suffer the losses and enjoy profits independently. It accords the players in the partnership a separate legal identity while the business receives corporate identity (Balotti & Finkelstein 2010, p. 82).

The reason why I propose the limited liability partnership is for its numerous advantages. Such include easy of formation. This is because they do not require much regulatory paperwork to execute before establishing. Secondly, the partners jointly own the LLP structure of business, the property of the venture. Additionally, the LLP accords the partnership a perpetual opportunity of succession; hence the company can still exist even with the absence of the initial partners. In LLP, the distinction between the business and persons is set clearly thus, the liability of the partnership allows it to litigate under its own name. In addition, the ease of raising the finance for capital is simpler as it only requires the contributions of the partners. The more the partners are, the easier it is to establish the partnership. It is also easy to borrow and apply loans as the LLP is independent and thus can get finance independently.

The flexibility of the structure is befitting for the professionals. This is because, once the business is established, they can employ their workers to run the business while they continue conducting their own professional business. The structure of the organization is also suitable for the two businesspersons as they can easily continue engaging in their duties and still run the business venture. The complexity of the structure is not as much as the general partnerships and the other structures (Balotti & Finkelstein 2010, p. 111). The LLP can continue to exist without the presence of the initial starters, and it is easier to translate into another business structure legally as compared to the other business structures. The issue of taxation is also favorable for professionals to engage the structure. Therefore, the losses and the profits are "passed through" to the partnership directly. The limited liability partnership, therefore, presents the best option for the establishment that John and Fred wish to have. The corporate law guides the LLP and, therefore, its stipulations and expectations are clearly outlined by the law in the corporate law act.

The limitations of the structure are that the profits will be shared thus; none will get the ultimate gains (Balotti & Finkelstein 2010, p. 121). Moreover, as is evident in other partnerships, the partners must consult before taking a decision, which should be unanimous for John and Fred due to the even number. Therefore, in case of evident disagreement, they may not take a decision easily because of time wastage. Therefore, when the persons decides to participate in the limited liability partnership structure, it is advisable to outline measures to take in case of a splitting situation.

Why the other business structures are not suitable

To ensure that John and Fred chose the most appropriate structure, it is imperative to establish the factors that disqualify the other business structures. The first to discuss is the sole proprietorship. This venture is the most common and widely applied. It is easy to form, and the management is completely to the owner, however, in terms of liability, the business and the owner are one (Douglas 2009, p. 97). Owners, therefore, incur all losses and debts incurred by the business. Secondly, on the aspect of flexibility and complexity, sole proprietorship is simple, but it is not suitable since they are owned individually or by family and not two separate owners. In the financial aspect, the owner is responsible for all financial issues, and contributes all capital and enjoys all profits. On the subject of tax, the sole proprietorship and the individual are identical and thus, there is no double taxation. Therefore, this structure is not suitable for the business of John and Fred.

The second form of business structure is a general partnership. A partnership incorporates two or more individuals that settle and agree to share the losses and profits. The general partnerships, has the tax burden advantage, hence tax is not subject to prevent the two from engaging in the structure (Douglas 2009, p. 107). However, there is… READ MORE

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