To start a small company, some things to remember include the expense of the goods and their future demand. Individuals can select from the following formats, depending on their budget and target market:
This is a type of company that does not have a legitimate life apart from its owner (Bain & Nowak, 2016, p.56). This means that the proprietor of the corporation is responsible for the damages incurred by the enterprise in the event of the firm’s failure to pay. It is one of the most basic types of businesses to establish and run. The business can run under the name of the business owner or a fictitious title. However, the fictitious name does not create a legal entity that is separate from the owner. The main reason why this business is considered to be the simplest to start is that of the low start-up capital and ease of management (Segal & Choi, 2016, p.43). It allows the owner to run the financial transactions in his name and therefore, in case of bankruptcy he can be sued by the creditors to pay them. It is not required that the firm is registered with a government agency to start a business (Gitman, Juchau& Flanagan, 2015, p.69). However, one may need to obtain a license from the state to be able to operate within a given area. Three circumstances can lead to the dissolution of a sole proprietorship. One of them is the bankruptcy of the owner. Since the owner is the sole financier of the business, bankruptcy means that the firm cannot continue to run. The other reason is the death of the trader. Since he provides all the management services to the firm alone, his death means that the enterprise can no longer perform. The other reason is when the trader decides to dissolve the firm by their own will.
Advantages
The owner of a sole proprietorship can start it instantly and easily and hence it is easy and inexpensive to start.
It requires little or few formalities to start.
Since one is self-employed, it is not necessary to pay unemployment tax.
It is possible to use the personal assets in the business to increase productivity.
Disadvantages
Traders have unlimited liability, and thus debts and liabilities can be recovered from their savings.
Capital cannot be raised from the sale of the interest in the business and as such have limited access to capital.
In case of death or incapacity of the owner, it is tough for the firm to continue operating.
Partnership
It is a form of a firm that involves several individuals who come together to share the start-up cost, the profits as well as the management tasks of the business (Motiwalla et al., 2017, p.57). They can be classified as general partnerships or limited partnerships. In general partnerships, the partners are responsible for managing the company and also share the debts and other obligations of the business (Bayern, 2016, p.57). A limited partnership comprises of both the general and the limited partners. The general partners act as owners and the operators of the business and also assume liability in case the firm is bankrupt. The limited partners, on the other hand, invest in the business and are not responsible for the daily running of the company or the liabilities arising from the bankruptcy of the firm. Therefore, a partnership involves a higher capital base to be able to start as compared to the sole proprietorship. On the other hand, there are legal requirements for establishing a partnership where the members may sign a partnership deed. It comprises of the following: the names of the partners, the address of all the partners, responsibilities carried out by each of the partners, rights of the partners and the duration of the partnership (Yusupova, 2017, p.78). This is to mean that a partnership involves more legal framework as compared to the sole proprietorship form of business. A partnership may be dissolved in case all the partners agree to dissolve it or when there is a notice for the dissolving of the firm. It can also be dissolved when the firm becomes bankrupt; the firm is carrying out illegal business, the death of a partner, the expiry of the term of performance, court order or when the firm has completed the work for which it was formed to perform.
Advantages
Better managerial skills because more people are involved in the running of the business
The start-up cost is low and hence it is easy to establish
The business has greater borrowing as compared to the sole proprietorship
It is easy to change the business in future in case of change in the business environment
Disadvantages
In a general partnership, the partners have unlimited liability, and hence the debts of the company translate to the debts of the owner
Decision making can be slow especially when there is no understanding between the partners.
A partner is liable for the actions undertaken by their colleagues.
If one partner leaves or joins the partnership, it may be necessary to value the assets of the partnership and this activity may be costly.
It may be impossible to operate the firm in case of death or inability to perform of one of the partners.
Limited liability Company
This is a business where its members enjoy limited liability. This is to mean that in case of bankruptcy of the company, the owners cannot be held responsible because the company is a separate entity from the people who form it (Jelsma&Nollkamper, 2017, p. 78). However, to form it requires a number of documents. These documents include: Memorandum of Association is a document that formulates the initial shareholders and their intention to take shares in the corporation. This also includes the intended company name (Tricker&Tricker, 2015, p.64). An article of Association is a document that gives the rulebook that is abiding by all members of the corporation. It formulates the duties of the directors and what they cannot do (Tricker&Tricker, 2015, p.89). It is, therefore, difficult to establish this type of business as opposed to other types of business. The dissolution of the company can occur in the following circumstances: first of all is when there is a decree from the courts. Secondly, when the time or event specified in the article has expired. The other reason is when the majority of the shareholders vote in favor of dissolving the company.
Advantages
The owners of the firm enjoy limited liability because the firm has a separate legal entity from the owners.
It is possible to evade taxation because the proceedings from the firm can be classified as personal income and hence evade some taxes paid by corporations.
There is no limit to the number of people who can jointly own the firm, and hence several people can come together to increase their capital base.
Disadvantages
It requires a higher amount of starting capital and some documentation and therefore it is not easy and simple to start.
It is not all form of businesses that can qualify to be registered as Limited Liability Corporation. This is because of the government regulations.
The members of a Limited Liability Corporation are responsible for paying their self-employment taxes.
In the case where I want to invest my life savings into starting a business, it is necessary to consider some factors. First of all, I will consider the risk that is involved in establishing a business. When there is a high likelihood of losing the invested money, it is necessary to avoid such an investment. The second factor is the profitability of the business where it is wise to invest in highly profitable companies as opposed to those with small profits. The other factor is the future of the business where it is important to invest in a business where the firm can even continue to operate even after the withdrawal of some of the members. Therefore, in case of spending whole life savings, it is important to invest in a Limited Liability Corporation because it has limited liability and the debts of the company cannot be recovered from individual savings (Welch et al., 2016, p.61).
Question 2
Microsoft Corporation is a firm that ventures in making and selling of software (Dimitrova&Petrova, 2016, p.90). It is, therefore, very concerned when it comes to the satisfaction of the stakeholders because this ensures that they keep making profits. The key stakeholders in the corporation are the suppliers, government, the customers, employees, creditors, investors and the community. Each of these people has some direct or indirect interest in the business, and as such, it is important to ensure that they draw satisfaction from the business. Due to the differing expectations and interest of the stakeholders, the conflict of expectations exists. It is, therefore, the function of the management to be able to work towards reconciling the conflicts of interest with the business strategy. To analyze and identify the support and interests of the stakeholders, it is important to determine the type of interests that each shareholder has in the business. Some of the stakeholders are the most influential and powerful and have high interest in the business and as such the organization requires having them always informed on the performance of the business. Others are less interested in the affairs of the business but only require good performance and as such do not require continued information. To understand each of the stakeholders one can develop a power/dynamism matrix and an interest matrix (Caron &Salvatori, 2015, p.76). The power model shows the power and influence possessed by the different shareholders. Some have personal power which comes from a single shareholder. Others have legitimate power which can be said to be coming from recognized sources within the firm. Others have expert power, and others have political power (Cobb, 2016, p.65).
Probability
High
Low
Community
Power
Creditors
Employees
Suppliers
Government
Investors
Customers
Shareholders
In this case, the community has the least power in influencing the daily running of the company. They present few problems to the business, and as such, they do not require to be continuously informed on the running and the day to day activities of the firm. The creditors, employees and the suppliers also have low power in the organization. Their interests are always unpredictable, but they can be managed. The government is powerful and predictable. This is because the company is required to meet all the laws and regulations governing it within the country. Such regulations relate to registration of the business and complying with the tax requirements (Park, Chidlow& Choi, 2014, p.90). The shareholders are the most difficult to predict and therefore hard to please. This means that they possess the greatest power and they have to be satisfied. This matrix enables the firm to know the power of different stakeholders and how this can be translated into action (Planellas, 2013, p.54).
Interest
High
Low
Power
Community
Suppliers
Creditors
Government
Investors
Employees
Shareholders
Customers
In this case, the customers and the shareholders are the key players in the success of the business. Their interests, therefore, must be well taken off to ensure they are satisfied. The employees always need to be informed of the company policies to ensure that they are up to date with the firm policies and objectives (Fayol, 2016, p.65). The community, on the other hand, has low interest on the policies of the company mainly because they are not directly involved in the running of the business.
References
Bain, P. L., & Nowak, K. (2016).Sole Proprietorships. NY Practice Guide: Business and Commercial, 1.
Bayern, S. (2016).The Implications of Modern Business–Entity Law for the Regulation of Autonomous Systems. European Journal of Risk Regulation, 7(2), 297-309.
Caron, F., &Salvatori, F. (2015). Managing information for a risk based approach to stakeholder management. Transportation Systems and Engineering: Concepts, Methodologies, Tools, and Applications: Concepts, Methodologies, Tools, and Applications, 320.
Cobb, J. A. (2016). How firms shape income inequality: Stakeholder power, executive decision making, and the structuring of employment relationships. Academy of Management Review, 41(2), 324-348.
Dimitrova, S., &Petrova, E. (2016).Mission and Vision of the Organization and Their Relations with Corporate Social Responsibility.Plovdiv/BULGARIA, 57.
Fayol, H. (2016). General and industrial management.Ravenio Books.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015).Principles of managerial finance.Pearson Higher Education AU.
Jelsma, P. L., &Nollkamper, P. E. (2017).The Limited Liability Company.LexisNexis.
Motiwalla, L., Bowman, B., Zheng, J., Santagate, J., Walia, V., Soucie, K., & Richards, S. (2017). Industry Partnership for Business Analytics Programs: Role of Advisory Board Members.
Park, B. I., Chidlow, A., & Choi, J. (2014). Corporate social responsibility: Stakeholders influence on MNEs’ activities. International Business Review, 23(5), 966-980.
Planellas, M. (2013).In search of the essence of strategy, a model for strategic management in three stages.
Segal, S. P., & Choi, J. S. (2016). Ownership form and quality of care in sheltered care facilities: Chain-affiliated business vs. sole proprietorship. Adult Residential Care, 10(1).
Tricker, R. B., &Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Welch, E. P., Saunders, R. S., Land, A. L., Turezyn, A. J., & Voss, J. C. (2016). Folk on the Delaware General Corporation Law: Fundamentals. Wolters Kluwer Law & Business.
Yusupova, A. (2017). Partnership Cooperation of Companies: Key Characteristics and Influence to Innovative Activities. In Financial Environment and Business Development (pp. 623-631). Springer International Publishing.
