Three Types of Businesses
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Abstract
The issues facing the subject within this scenario are many. With the lack of financial, management, and manufacturing skills the ability to startup, operate, and grow this business are daunting. Having low net worth and dealing with a special technology. Plus a saturated market with low annual growth rate further compounds the problems. Choosing the right type of business type to startup is important. Its also very complicated. “Thats why no single business structure can be considered the best choice for every home based business.” (Bill Lynott April1, 2008)
The advantages of running a sole proprietorship in this example are total control of his idea. He would be able to make all decisions himself regarding expansion and direction. The cost would be low for startup which is a plus since he has low net worth. Another advantage is all the profits are his. The tax forms are simple and easy to figure out since any profits can be filled on his personal tax return. For someone lacking financial skills this would be enticing. The downside of a sole proprietorship is all management decisions fall on to him. With his lack of management skills the learning curve will be sharp. Management skills are vital for him to be able to leverage his product into a saturated market with a low growth rate. Also his lack of manufacturing skills will make creating a device that requires a special technology nearly impossible to design and create. Another issue he faces is with any new or special technology there is an inherent danger that something can go wrong. If something does backfire all liability falls back on him. He could find himself facing several law suits.
The advantage of running a partnership in this example is additional starting revenue. With additional money he would be better situated in financing the development of his new technology. Also depending on the skill sets his partner or partners bring to the business he might have help with management or financial skills. The down side of this is he would lose total control of his idea. He would no longer be able to make the decisions on how his idea comes into fruition. The amount of risks his partners are willing to take might be higher than what he is comfortable in taking. Even though he is in a partnership he is still personally liable for any decisions his partners make.
The advantages of forming a corporation are the ability to sell stock to raise capital to fund the research and development of the special technology needed for his idea. Also as a corporation he can avoid personal liability. With a corporation he can more easily attract employees with the talents he needs to successfully run his business. The down side with a corporation is with selling