Every entrepreneur is dreaming about the success of his/her company.
But it's not as easy to achieve success as it sounds. The success or failure of an organization depends on various factors. It is therefore critical that the right information is given before any business project begins. This paper analyzes the various options and forms for business growth which Taira Nova can use to increase productivity and growth.
The best choice for business growth
The primary goal of starting a company is to produce considerable income. To do so, Taira Nova can practice franchising via Franchise R. Us' bid. This firm has matched Taira with an investor who is willing to invest in Taira’s business. In addition, the investor is ready to finance a line of necklet kiosks in malls both locally and internationally. The capital that this investor intends to provide is a remedy to most of the problems that Taira Nova is experiencing (Elgin, 2007). Firstly, the business will acquire the capital that it needs to expand and sustain various functions such as production (Siebert, 2004). With adequate funding, it will be possible to acquire an efficient team that will ensure the success of the business and put Taira’s products at a better position to compete with others in the market. Secondly, it will be easier for Taira Nova to sell its products and reach more clients once the necklet line is launched. Furthermore, this is a great opportunity to expand in both local and international markets. The investor has outlined the demands that should be reached before the deal is closed such as acquiring the patent right of the business which will be returned once he has recouped the original investment plus 7.5% interest. Despite these demands, this business offer will generate great income and within a short time, these conditions will be attained. This strategy is beneficial because the business will have grown while Taira Nova acquires the patent right back. In a scenario like this, complete ownership might not be as important as the profits generated as long as the patent will be returned once the conditions set are fulfilled.
Advantages and Disadvantages of Various Business Forms
There are different business forms and each of them has advantages and disadvantages (Spedaccini, 2009). The most suitable business form will be dictated by the needs of the business as well as the entrepreneur. The table below distinguishes the pros and cons of various business forms:
Sole Proprietorship
Advantages:
- The simplicity of formation and maintenance.
- No filing fee required while forming the business.
- It is only a few documents that are required while starting the business.
- The Sole Proprietor only pays for personal income taxes and profits.
- Complete authority and ownership of the business.
- The owner receives all the profits.
- The business can be passed down to heirs once the owner is not there.
Disadvantages:
- The owner is accountable for all the liabilities incurred by the business such as business debts.
- The capability to raise funds is limited to personal resources and loans from willing parties, which inhibits the growth of the business.
- The death of the business owner marks the end of most sole proprietorship businesses.
General Partnership
Advantages:
- The profits and losses are shared.
- Joint ownership of business and equal management rights.
- Easy to maintain and establish.
- There is increased ability to raise funds because both partners are contributing.
- Availability of more knowledge, skills, and contacts since more than one person is involved.
- There is no fee required when establishing the business.
Disadvantages:
- A partner cannot transfer an interest in the business without the consent of all the other partners.
- There is a danger of dissolution in case of death or withdrawal from the partnership.
- Since each partner is liable for the debts of the business, individual assets of the partners can be seized.
Limited Liability Partnership(LCP)
Advantages:
- The limited partner is only liable for the amount of capital it contributed to the business hence the creditor cannot seize the limited partner’s individual assets.
- Easy to attract investors since the limited partners are not responsible for business debts.
- General partners are free to focus their attention on the business.
- General partners can raise funds without diminishing their control over the business.
- Limited partners are free to exit the business without dissolving the limited partnership.
Disadvantages:
- The partners are taxed on their own personal income and tax returns.
- The limited partner gets to share profits and losses without participating directly in the business.
- The certificate of Limited Partnership must be filed with the state before the partnership is established.
- The filing fee is required.
- The general partner is personally fully liable for the debts of the business while limited partners are excluded.
- LLP is more expensive to establish compared to general partnership.
- LLP is not legal in some states.
- LLP is only suitable for some professions such as law and medicine.
Limited Liability Company (LCC)
Advantages:
- Profits pass through the LCC and the taxes are paid individually by the members of the company.
- Liability of the members depends on the amount of capital they have invested.
- Limited partners are not responsible for the debts and judgment of the company.
- The members are free to participate fully in the administration of the company.
- Offer a large amount of flexibility because members decide how to operate various business aspects through the operating agreement.
Disadvantages:
- Increased complexity in business formation.
- LCC is more difficult to create than sole proprietorship and partnership.
C Corporation
Advantages:
- Easily raise capital to grow the business.
- Have unlimited life.
- The shareholders are not individually liable for the debts of the corporation.
Disadvantages:
- Double taxation. Taxation occurs at the cooperate level as well as the dividends of the shareholders.
- Shareholders that own the majority of the shares have the dominant voice over the others.
- Articles have to be filed with the state including a filing fee.
S Corporation
Advantages:
- Prevents double taxation since the profit is only taxed at the shareholder level, unlike C Corp where double taxation takes place.
- Shareholders are not individually responsible for the debt of the corporation. They are not responsible for the debts of the corporation.
Disadvantages:
- Articles must be filed with the state.
- Filing fee is involved.
- The majority shareholders in the corporation dominate over the new ones.
The Selected Business Form
The growth option that has been chosen for Taira Nova is franchising. Therefore, the best business form to accompany this option is Sole Proprietorship. This form of business is very flexible. The owner of Taira Nova has complete authority and ownership over the business (Spedaccini, 2009). She can strike a deal with the investor (as stated above) without having to seek consent from another party. Taira will be free to make any move as long as it enhances the growth and productivity of the business. Another advantage is that Taira gets to keep all the profit and only pays for personal income taxes. Furthermore, the other forms of business such as partnership revolve around a second party investing their capital in the business. This objective has been achieved by the investor who intends to invest his money. Choosing Sole Proprietorship allows Taira Nova to utilize the benefits of Sole Proprietorship while acquiring an investor to provide the necessary funding.
Other Business Forms
The main reason why the other forms of business were left out is that the benefits they offer are captured by the franchising growth option that has been picked by Taira Nova.
Conclusion
In conclusion, there are factors that the business owner should consider and evaluate before choosing the right business growth option. The needs of each business are different and largely influence the decision of the entrepreneur. It is therefore important to evaluate the advantages and disadvantages of various business forms and growth options to increase growth and productivity of a business.
References:
- Elgin, J. (2007, December 28). Top 10 Reasons To Buy a Franchise. Retrieved October 1, 2017, from http://www.entrrpreneur.com
- Sadaccini, M. (2009, March 9). The Basics of Business Structure. Retrieved October 1, 2017, from http://entrepreneur.com
- Siebert, M. (2004, July 19). Should You Franchise Your Business? Retrieved October 1, 2017, from http://www.entrepreneur.com
