Business Entity - Entrepreneurship Introduction The business entity has been continuously changing it shapes and structures as time moves into advanced era. Incorporation in today’s modern era is one of the most crucial steps for any business owner: big or small. The assets of the owner are protected and also provide additional advantages to the owner and its business. Many forms of incorporation exist today having different or similar characteristics when compared to other forms. These have its own advantages and disadvantages depending upon the type of incorporation requirement of the owner for his business.
The business that I tend to open is a web-based business solutions and resources provider to the entrepreneurs who are trying to start their own business. Based on the business that I tend to open, I have chosen general partnership incorporation for my business. General partnership is the simplest and the easiest form of partnership. It is an agreement between voluntary partners to work together for a common business purpose. It can be operated under the name of any partner(s) or under a fabricated name. If a general partnership is to be formed it must have meet the following four criteria: two or more partners, business purpose, co-owners, profit making Advantages of General Partnership in Web-based Business The trend of web-based business is increasing tremendously.
People and entrepreneurs find it easy to operate in internet environment due to the flexibility and ease of formation. The basis of our business is also web-based. The main function of the business is to provide new entrepreneurs with business solutions and resources that are essential to start a new business. The basic aim of the business is to provide links to books on websites such as Amazon. com and Barnes & Noble. com.
In addition to this, resources regarding certain topics such as interviews with successful entrepreneurs concerning the business tactics and linking start-up firms with one another. The idea is to provide entrepreneurs with the basic knowledge about the start-up firms and its paradigms. As the business is small and mostly related to computer and internet technology general partnership was the best possible option for its incorporation. Partnerships can be formed easily. There is no compulsory regulatory requirement to establish or maintain general partnership.
It can be an oral agreement between the partners or a written agreement. Partners can enter into a written agreement to ensure that certain aspects of the business are covered and no conflict arises. These can cover the points such as profit and loss sharing, investment share, admission and withdrawal of partner. The web based business can be run from the comfort of home and therefore no complex and expensive statutory filing is necessary. A simple agreement between the partners running the web-based business can be made that will govern the management of the business.
All the above mentioned requirements will be taken into account by us while forming the partnership agreement. The statutory regulations gives partnerships certain pass through tax treatment to the owners or the partners of such business entity. The partners do not have to pay any income tax. However, partner’s own personal expenses and income that flow to them through the business is taxed. The agreement for the partnership of web-based business can be constructed in a way that takes into account the profit/loss sharing, taxation rules, binding agreement and so on.
As the agreement that will be made, it would be clearly stated that the profits from this web-based business will go to the partners directly according to their shares in the profit and loss in the business. Although this increases the liability of the partner, it is still attractive to incorporate such an entity because there is no double taxation. As there are no or less statutory filing requirements for the formation of general partnership, the cost of creation of any business based on this entity is none.
The cost of setting up a web-based business is less expensive and therefore it is better to avoid unnecessary high expenses related to filing requirements. As it is a small web-based business and does not require a lot of startup expenses, no funding is required and even if the need arises, the option of debt is always open. Reason for not choosing Other Entities Limited Partnership There are a lot of formalities that have to be completed before limited partnership can takes the shape.
This requires public disclosure and other statutory requirements that are not needed for our web-based business. The partnership also requires two types of partners: general partner and limited partner who will invest in the business. As the business is small and does not require a huge investment, limited partnership was not chosen. Limited Liability Partnership The reason for not choosing this form of partnership is because of almost the same reasons as mentioned in the limited partnership. Although each partner will be equally liable for their own share in investment, it still requires about $1 million for the liability insurance.
Our business does not require such a big investment and therefore there is no need for a liability insurance which is compulsory in some states. Limited Liability Company Many new startup businesses choose limited liability company for incorporation, but we have done otherwise. Although it contains all the advantages related to partnerships and corporations, the formation of such entity requires lengthy statutory requirements. In future, if the company requires, it can be converted into a limited liability company but such a need is not required in the present.
In addition, an expiration date has to be mentioned as per the statutory requirements whereas; a web-based business can be carried on forever. Franchising In a web-based business, franchises do not work very well because every brick company has now its own website. Apart from this, the business that we choose to operate is an entrepreneurial business on the website as far as it is known. REFERENCES “Business Entity Comparison Table. ” Bizfilings. com. 15 March, 2009. “General Partnership. ” Smallbusiness. com. 15 March, 2009.
Friedman, S. How To Profit By Forming Your Own Limited Liability Company. Dearborn Trade Publishing, 1995. ISBN 0936894938, 9780936894935 Friend, L. Customer Business Resources. Prentice Hall. Harroch, J. & Smith, G. Start-Up and Emerging Companies: Planning, Financing & Operating the Successful Business. Law Journal Press, 1998 ISBN 1588520315, 9781588520319 Spadaccini, M. Incorporate Your Business: In Any State. Entrepreneur Press, 2007 ISBN 1599181061, 9781599181066