Business Venture and Incorporation of a Sports Bar Franchise - Term Paper Example

Business Planning & Incorporation Report of of Introduction This paper examines the options and processes necessary for the incorporation of a Sports Bar Franchise. The entity has a place where drinks are sold and customers can watch multiple sporting events on large television screens and socialize. The entity is to be registered and administered by a group of private owners. 1. Business Planning Structure The Sporting Bar Franchise (SBF) will be ran by a team of entrepreneurs who will invest capital into the initial founding and formation of the entity. They will pool their resources and invest with the view of making profits after costs are deducted from sales. This will provide the very foundation for the conduct of the business and the owners or entrepreneurs will need to also combine factors of production – land, labor and capital to acquire assets for the entity and provide working capital. The SBF is a franchise, meaning it will have to operate with a major intangible asset – the license or franchise agreement from the franchise owners. Therefore, the entrepreneurs must be concerned with the kind of license to acquire and the requirements and expectations of the franchising arrangement. Therefore, there is the need to examine the franchise license cost and the franchise license requirements and demands (eg. How much to pay to the franchise owners at the end of each year and the initial capital outlay requirements as well as running rules and regulations since some franchises will not accept some forms of operational systems). Afterwards, they must find out the minimum and optimum asset and working capital requirements for the franchise to become operational. There are numerous options available to the owners or entrepreneurs: Limited Liability Partnership A limited liability partnership is a partnership that differs from traditional partnerships because they have limited liabilities (Besley & Brigham, 2012). An LLP is one in which the entity that is formed has elements and aspects of a partnership as well as a corporation or a traditional company (Harlacher, 2013). However, the difference between an LLP and a corporation is that the partners have the right to manage, which is not the case with companies. On the other hand, in traditional partnerships, the partners have unlimited liabilities and they are personally liable to the losses that occur in the process of operation and business. Therefore, if the owners of the SBF decide to form an LLP, they will be partners with limited liabilities and this means in cases where they fold up, the entities they owe will only take the asset of the LLP and not the shareholders. Secondly, they will all get the right to maintain their managerial roles and capacities in a way that is guaranteed. The downside of this is that the goodwill and ability to take external funding will be limited. This is because no financial institution will want to be exposed to the risks of dealing with an entity that has liability limited by law. Hence, there will be many checks that will go on and requirements for collateral before they can access funding. Limited Liability Limited Partnership This is a modification of limited liability partnerships. It involves one or more general partners who have unlimited liabilities and one or more partners who have limited liabilities (Harlacher, 2013). This is such that the firm is able to get features of both the traditional partnership as well as the limited liability partnership. This implies that the entrepreneurs of the SBF can outline measures and processes that will ensure that they are able to gain the benefits of both a traditional partnership and a limited liability company. The benefits include ability to get more credibility for the acquisition of funding and the downsides of limited the liability of some partners in the team can be achieved. Limited Liability Company A limited liability company is a situation where an organization is formed by the pooling of resources by entrepreneurs in the form of dividing the ownership into a group of shares (Besley & Brigham, 2012). In this process, the ownership shares will be divided up and the entrepreneurs involved will all pay a specified amount for each share in order to own a defined percentage of the shares of the company. A limited liability company is subject to a corporation tax that is to be payable once every year. This means the SBF will have to pay taxes. And after the taxes, profits will be declared and from the profits, dividends will be shared. On the other hand, in all forms of partnerships, the profits are shared and individual partners get their share of the profits. After they get their shares, they are subjected to individual income taxes. This means the partners earn more money than an LLC. However, an LLC comes with better reputation since there are rules on how they ought to be ran. This creates a system of guidance and protection for the shareholders. LLC Manager Versus LLC Member When the SBF is incorporated as an LLC and any of the entrepreneurs becomes a manager, that individual will be a director – a person chosen by the members of the entrepreneur team to use the resources of the company. This will mean such a person will get remuneration as a director and also earn dividends. On the other hand, an LLC Member will be an ordinary shareholder will is not entitled to any form of directors’ remuneration. Hence, that individual will only be paid dividends which are declared at the end of the year, usually after taxation and other cost of production deductions are made from profits. 2. Recommendation for the SBF At this point, the main stakeholders who really matter are the entrepreneurs seeking to pool their resources to form the SBF. And if their best interest is to be assessed critically, the best option for them will be an LLLP. This is because they gain and maintain full control of affairs throughout the formation of the SBF. This is due to the fact that they are able to keep the partnership closed and prevent third parties from easily intruding. Secondly, they get to control all profits. After paying the franchise owners and declaring a profit, they are entitled to share the profit according to a predefined ratio. This way, profits are not going to be lost. Neither will they have to wait for some directors nor some corporate governance rules to be applied to their earnings which will reduce their earnings. Thirdly, an LLLP can enable the SBF to combine the benefits of a traditional partnership which includes goodwill and a positive credibility posture. On the other hand, they get the benefits of keeping what they earn. Therefore, it is recommended that the SBF pursues an LLLP. 3. Forming an LLLP in Delaware The first approach will be to register the company. Most LLLP are registered like other partnerships because they are in the same category. Therefore, there must be the registration with the state’s authorities. This will include the identification of the names of the limited partners and the unlimited partners. The second element is to pay the filing fee which is an annual flat fee that the SBF will have to pay as an LLLP. The name requirement of Delaware includes stating the letters LLLP at the end of the new SBF name that will be chosen. Delaware laws require an LLLP to have an insurance account and/or an escrow account that will require the firm to take out money and ensure that the interests of entities and persons they deal with are protected adequately and appropriately. This will include the formation of some kind of insurance payout. This is in addition to any professional or other safety legal insurance requirements that are linked to the industry the SBF operates within and the jurisdictions they are mandated to connect with. Finally, Delawarean laws require that foreign LLLPs must be qualified. This will include details of the jurisdiction of registration, the internal affairs including ratios of partnership ownerships percentages, the qualifications of partners, the assets of the firm and LLLPs debts and obligations as it occurs in the general sense of business and operations. This will give some kind of warning and notification to all persons and individuals who conduct any form of business with the SBF and provide some kind of transparent forum for the conduct of business and affairs as an LLLP. This can go a long way to boost the credibility of the organization. 4. Partnership Law of Delaware and the LLLP Partnerships in Delaware are formed under the aegis of the Delaware Revised Uniform Partnership Act. This is part of the Uniform Partnership Act which provided a revision and revised forms of partnership contracts that have become a standard form of partnership arrangements that is in use in different parts of the United States. Delaware has its own versions of the RUPA which was put forth in 1997. 4. Determine what provisions of state law that would apply to the business entity selection you made. (2 points) For example, Md. Corporations and Associations Code or Va. Code Ann. Title 13.1 Read More