Business Structure Advice
Having the right business structure is important for any starting enterprise since it guarantees financial support and is instrumental in ensuring business’ growth and success. It is also important for one to consider whether a new business venture is something they can start on their own or with the help from partners. It is important to design a suitable legal entity that best fits the entrepreneur’s business structure; it could be a sole proprietorship, limited liability partnership or just a limited company. As a prerequisite, a budding entrepreneur needs sound advice on business formation, financing as well as suitable and beneficial partnerships.
Business Formation
The first and most important factor in business formation is the legal configuration. In order to have the most suitable legal configuration for a business, there are other factors that need to be taken into account. In the United States of America, one might be compelled by such factors as; the level of control the owner wants on the business, which would point at the need of sole proprietorship and the proposed business vulnerability to litigation as well as financial demands, which would point to a limited company (Barrow, 2012, p. 102). Therefore, based on this information, a limited-liability company, a non-profit organization and a corporation are subject to state registration while that is not necessary for sole proprietorships. It is a requirement that sole proprietorships also referred to as sole traders use their own names for the business.
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In addition, it is also important to register a business name. A business name is by default name of the person or persons that own it ( p. 103). A person or an organization might decide to use an assumed name (Doing Business As) and in this case the name as to be registered as a fictitious business name. The business name is what appears on all relevant government records including employer tax identification forms, licenses and permits.
The above two factors are prerequisites in the acquisition of a business’s federal tax identification. It is imperative that employers, corporations, business partnerships apply for and acquire an Employer Identification Number (EIN) from the government through the Internal Revenue Service. On the same note, it is a requirement for the business to obtain a tax identification number and permits from states revenue agency, these would include permits such as a vendors licenses in case the business sells products.
In addition to this, there are taxes considerations that new businesses need to implement, including application of state sales tax permit that allows them to collect taxes from goods sold to customers, paying business income tax, employee taxes, as well as state worker compensation and unemployment insurance. Some states such as California and Hawaii have even put obligations on business to pay for temporary disability insurance.
Business Financing
Starting a new business without a proper plan can be detrimental to business growth and development. Even with the entrepreneur’s creativity and legality of the business entity, the business cannot proceed beyond the starting point without proper funding. Based on this, there are several financial approaches proposed for a budding business owner. The major part of startup financing is personal savings and home-equity loans. Personal savings include stock investments, business savings as well as capital stored in banks. This form of business financing is secure, but if the business runs into losses, the entrepreneur may become bankrupt.
Friends and family are the best source of capital for any startup company ( p. 153). Most startup business source for funds from relatives, colleagues and other people they know well. Friends and family members often support starting enterprises though problems are likely to arise due to misunderstanding and family wrangles.
Loans and grants are the other option for startup businesses. The Small Business Administration (SBA) has over the years provided businesses with loans repaid at low interest rates. If the proposed business is a technology firm, the owner is liable to apply for a Small Business Innovation Research grant (SBIR) ( p. 159). The fund is mostly for high-tech firms with interesting inventions they want to commercialize. Besides, there are government grants for minority-owned businesses.
Partnership
Most successful businesses owe their prosperity to partnerships. Partnerships are meant to strengthen businesses by building up and strengthening limitations that might exist in sole proprietorships or sole trader businesses. Evidence suggests that there are benefits associated with partnerships including increase in accountability and synergy creation among others ( p. 93). Examples that exist on successful partnerships include Paul Allen and Bill Gates at Microsoft and Steve Jobs and Steve Wozniak at Apple (Allen, 2012). Such partnerships can motivate an upcoming entrepreneur since partnerships bring in new ideas, which are beneficial to the enterprise ( p. 93). However, finding a business partner is always challenging and unsuitable partners can impede business development. Prior to taking a partner, a budding entrepreneur should ensure there is a possibility of a healthy working relationship based on a common goal and work environment.
In conclusion, starting a business is not about having licenses and permits but, forming the right partnerships and sourcing for the required capital from the right sources. Funding is the backbone of any enterprise and there are several avenues for obtaining capital. As discussed in the paper, partnership may be beneficial for a startup business and despite this, there are avoidable challenges associated with wrong partnerships without proper research.
- Allen, P. (2012). Idea Man: A Memoir by the Cofounder of Microsoft. Portfolio Trade.
- Barrow, C. (2012). Business Start Up For Dummies, 3rd Ed. New York: John Wiley & Sons Publishers.
