A business has many advantages and disadvantages. To choose the right one, all of these aspects must be explored beforehand. These aspects must be explored for the business to be successful also. Taking your time to do this will ensure that you are not only making the best decision possible, but that you are making an informed one. Compare and contrast all the aspects of each type of business, then make your choice of which business is best suited to meet those needs.
Sole Proprietorship, Partnership, or a Corporation: Choosing the Best Option
There are three types of businesses according to MUSE 2010. They are defined as Sole Proprietorship, Partnerships, and Corporations. Each type has its own advantages and disadvantages about them. The scenario about to be discussed has some issues that must be taken into consideration before making a choice of which business type would be best suited to meet those issues. An inventor who wishes to start up a business based on his new idea for a new kind of home appliance which will meet everyday consumer needs (taken from the BUSN105: Scenario worksheet). The inventor has the following issues to consider before choosing which type of business to choose. 1. The inventor has no management skills, and very little financial skills. 2. The inventor’s net worth is not very high, and they are not sure if they will be able to fund the start-up. 3. The inventor has no knowledge of manufacturing, other than the fact that it costs a lot to set up the plant. 4. The inventor has a spouse.
All the information above was taken from the BUSN105: Scenario worksheet. All three types of businesses can solve one or more of the inventor’s dilemas in one way or another. A Sole Proprietorship is the easiest business to start up. The inventor will be his own boss, there are no formalities, the inventor will have control of everything, and the inventor will reap all the profits (MUSE, 2010). On the down side, the inventor will have an unlimited liability (meaning that the inventor alone is responsible for all debts incurred, and in the event that they cannot pay the debts, the creditors can come after personal property, or anything owned jointly with someone else), and it is very difficult to borrow money to start up the business or expand It (MUSE 2010, notes from the live chat session #2 by Belinda Smith Taken by Christie Bekaert 1/8/13).
A partnership has growth potential, it is easier to borrow money for the start-up, and the partners are taxed individually. The disadvantages of this business is most of these types of businesses are made by just a handshake and no paperwork, which later on could cause some issues. Another issue is that there is unlimited liability, meaning that if one partner decides to not pay their portion of the debt incurred, the other party or parties could be liable for that party’s debt as well as their part( MUSE 2010, notes taken from the live chat session#2 by Belinda Smith 1/8/13).
Businesses that are a corporation have the following advantages. It can continue after the owner (continuity, MUSE 2010), and a limited liability feature (the owners are only liable for the amount of their investment). Disadvantages of a corporation are the high start-up costs, double taxation, and the amount of regulations (MUSE 2010).
In order for this inventor to be able to start up the business, I believe they should choose to start a business would be a Partnership. The inventor has a low net worth and is not sure if he can fund the start-up of the business. The partner of partners could help solve this issue, plus if money is needed to be borrowed, it will be easier to get a loan. There is usually no filing fee, and the Partnership business is easy to create. The inventor has no management skills, and little financial and manufacturing skills. The partner(s) may have management skills, as well as financial and manufacturing skills. If that is not the case, then again, it will be easier for the inventor to have some financial help, and someone else to help them come up with a solution to the problem. The inventor and their partner(s), can sit down and form a business plan, which will help prevent future conflicts about who is responsible to do which jobs.
In every business adventure, there are some advantages and disadvantages. It takes a lot of time, thought, effort, and research to start up a business, not to mention, make it a successful one. Making the right choice should be well thought out. In any business, one should have a plan in writing, no matter what.
BUSN105: Scenario worksheet, unit 1 Introduction to Business
My Notes Form Belinda Smith’s Live Chat Session Archived Recording on 1/8/13, Instructor for BUSN105: Introduction to Business Textbook, Introduction to Business- Appendix- A pgs. A2-A4, Words of Wisdom, LLC