Type of Business Structure - Research Paper Example

1) Type of business structure and implications for the family Before the start of any business, a business entity needs to be established. According to the type of business, the income tax return is filed up. Sole proprietorship, partnership, corporation are the most common forms of business. The state statute has allowed a new business structure named as Limited Liability Company. Keeping the family situation and the decision of Paul and Mari, the most suitable business structure for the family would be to go for a limited liability company (Mancuso, 2007, p.23). These are new kinds of business structures that are actually allowed by the state stature. Such companies have similarities to corporations, that is, the owners do not have a huge risk on their shoulders and instead only have to deal with a set amount of risk in terms of debts and the actions taken by the company; this can be seen as the main reason for the popularity of such firms. LLC have features similar to partnership too, like having flexible management and benefit of pass-through taxation. The LLC owners are called members. Ownership is mostly not restricted in many states and therefore the body of owners can consist of several different kinds of entities which would include corporations, individuals, and other limited liability companies along with foreign entities. Although it has often been seen that there are no real barriers to the number of owners one such firm can have, it is also true that some states are privy to allowing only single owner limited liability companies i.e. ones that have only a single owner that runs and managed the firm (Steingold, 2009, p.54). Banks and insurance companies are those businesses that cannot be LLCs. For further information, the state’s requirements need to be checked. Foreign LLCs have special rules. Classifications Federal taxes are another facet that is different from other kinds of corporations. The federal government doesn’t see these types of companies as an appropriate segment for taxation. It is a must for an LLC business to file the tax return as a corporation, sole proprietorship or partnership. The LLC companies that do not come under the classification of a corporation most likely will need to fill out the 8832 form in order to select the main business entity classification for themselves. A corporation or firm that is run by two different people simultaneously can opt for being placed into the category of a partnership, association taxable or a corporation. Companies that are controlled by a singular member also have the options of becoming either a corporation or an association taxable form; in some cases they can have the “disregarded entity” option, which is separated as a standalone entity that has nothing to do with its owner. The Form 8832 is also useful in the event a company wants to change their LLC classification altogether from one category to another. Accordingly, this will offer to provide the family security from going into personal debt if the organic business doesn’t do well. Raising capital for future expansion and becoming a full fledged corporation will also be easier having a limited liability structure than having a partnership. Starting out as a corporation with share capital is not a good move at this stage of the business since they are not sure about how well the business will do in the future. The implications for the family are that they will have to work out the organizational structure, pay higher taxes and have a lot more paperwork to file with the State but, the security of their personal finances, especially at this stage of their life is a solid reason for them to form a limiter liability company (Holderness, 2000, p.79). 2) Roles of the family members and their personal development. Continuing Professional development is a means that we possess the right abilities to do our job and keep on enhancing our expertise. It considers everything that requires improving job performance and one’s life long employability. In a limited liability structure both Paul and Mari need to have defined roles so as to be able to present a professional front and bring in their areas of specialized skills. I.e. Paul is a trained and qualified engineer and has vast experience running his own hotels and restaurant. This shows that Paul is a better at marketing, organizing and selling. Mari on the other hand has a very specialized skill which is that she is the expert on organic foods, their farming and cultivation. Paul can takeover the organizational and hiring side of the business while Mari can manage the farms and be in charge of production, buying of raw material and setting of wages etc. Even though both Paul and Mari will have different roles they will constantly need to interact with their specialized marketing team in order to quantify the demand, find out the latest trends in the market. Since this is the first time both of them are undertaking organic farming and selling at a business level their personal development will increase as well. For Paul it will be the knowledge of how to run organic farming business and for Mari it will be learning how to organize and manage a company. PEST analysis for the organic market Before the start of the marketing process, the organizations’ environment needs to be considered. The environmental analysis is one process that needs to take place continuously over a period of time and has to overlook all the different facets of the phases of planning. It is one factor that cannot be disregarded or ignored and cannot be done without either. The marketing environment that needs to be focused on comprises of the following components: “1. The internal environment basically includes for e.g. the staff (or internal customers), office technology, wages and finance, etc. 2. The micro-environment includes for e.g. our external customers, agents and distributors, suppliers, our competitors, etc. 3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These forces are known as the PEST factors in the business world.” (Williams & Greens, 1997, p.61) Political Factors Policies on regulation for businesses and on consumer purchasing patterns have a large influence of politics on themselves. Issues such as government stability should be considered in political factors. How the government will influence or regulate the business? What is the position of the government on marketing ethics? What are the policies of the government on the economy? How does the government deal with issues centering on religion and culture? Are there any trade agreements in place with bodies such as NAFTA, EU ASEAN or others? Organic foods and their sales are restricted to a manner that has been prescribed by the European laws on the production of such kinds of goods. Such foods are only allowed to be produced and manufactured by processors, importers and growers that have completed their registration and are authorized by the relevant bodies to set up their plantations and get to work. Without certification these businesses cannot run; such processes need to be approved by the Department for environment, Food and Rural Affairs (Defra) or other similar controlling bodies elsewhere in the European Union (Wright, & McCrea, 2007, p.58). The bodies which are authorized to hand out certification can only do so after specific inspectors have been set in place to analyse and evaluate the farms. Their duty is to maintain a standard and quality control by checking on the fertilizers as well the pesticides that are being used on the farms. Such products i.e. fertilizers and pesticides need to be ones that have been previously approved and are safe for not just the organic food but also the consumers who will be buying them (Lynggaard, 2006). The food standards agency is neither for nor against the organics food market they just believe in providing accurate information about organic produce and the nutritional value of such food. There fore Pual and Mari can be assured that the political and legal environment is stable and consistent for them to do business in. Economic Factors The economic factors require the marketing managers to consider the economic state for trading in the short and long terms, and basically this is required and proven true for all businesses. The businesses need to consider the : Variations in prices, fluctuation in demand and supply which make it difficult to forecast revenue, reluctance of banks to lend funds makes it difficult to expand, the premium price of organic produce affects the choice of location of the shops. High level of demand for organic produce has kept its prices high in the markets because it sells in a niche market they can charge premium prices for the products but now demand for organic food is falling due to recession. The latest stats on shopping habits of the shoppers show that the “Demand for organic food has fallen faster than expected. Consumers at a time were ready to pay a premium price for organic production, and now they are turning to other reasonable alternatives, which has reduced sales by a fifth this year (Scialabba et al, 2002, p. 76). This was expected because the recession had anticipated decline, and the figures from the market research company TNS Worldpanel depict that there has been an overall 20 percent drop in sales for some foods: there has been a 31% reduce in; the fruit and vegetables have reduced by 16.5 per cent and 10 per cent respectively. The shopping habits of 25000 households have been monitored in UK from the time period ofFebruary 2008 to February 2009. Many of the big supermarkets have confirmed the declining sales of organic production during this period. The Co-op said there has been a 12.5 % decrease in organic meat, and the overall sales is on a declining since September. Tesco said:"Recently organics have declined slightly." (OECD, 2003, p.34) Sociocultural Factors All countries have different influences of social and cultural on their businesses. Therefore, it is highly necessary to consider these factors. The cultural factors of UK’s population favour organic food market, whereby the majority of the population is educated and scores high on the health awareness chart (Baourakis, 2004, p.67). Males and females both earn and support family and therefore are equal decision makers in the household. The consumers in UK have shown increasing demand for the past 15 years and have been willing to pay a high premium for organic food vs the normal alternative but due to the recession things have changed and now the consumer are not willing to pay such high prices for food they can get at cheaper prices. “The price differential [to a standard product] should be in the region of 20%. Prices shouldn’t be any greater than premium brands. If prices are more than premium brands, then organic doesn’t stand much of a chance of appealing to consumers” (Cottle, 2009). Some research has proven that organic food is not necessarily healthier than standard food. Consumers buy food for different reasons. They may include the environment concern, and even the animal welfare concern. Having organic food tends to have a reduction on consumption of pesticide residues and additives. Other reasons for consumers to buy organic food may be to have safer and nutritious diet than other types of food. However, this view is not supported by the balance of current scientific evidence. Technological Factors Technological factors are very important for capital intensive business and in these days for every kind of business in organic farming the emphasis is on the food being as natural as possible therefore the use of technology is the same as in standard products with the variation of use of pesticides. References Holderness, M. 2000. Organic banana 2000: towards an organic banana initiative in the Caribbean : report of the international workshop on the production and marketing of organic bananas by smallholder farmers, 31 October-4 November 1999, Santo Dominigo, Dominican Republic: Bioversity International, Baourakis, G. 2004. Marketing trends for organic food in the 21st century, Volume 3: World Scientific, Steingold, F. 2009. Legal Guide for Starting & Running a Small Business: Nolo, 2009 Organisation for Economic Co-operation and development. 2003. Organic agriculture: sustainability, markets, and policies: CABI Publishing Series Agriculture and food: OECD Publishing Lynggaard, K. 2006. The common agricultural policy and organic farming: CABI, 2006 Scialabba, N., Hattam, C., & Food and Agriculture Organization of the United Nations. 2002. Organic agriculture, environment and food security Issue 4 of Environment and natural resources series: Food & Agriculture Org., 2002 Wright, S. & McCrea, D. 2007. The handbook of organic and fair trade food marketing: Wiley-Blackwell Wiliams, T. & Green, A. 2007. The business approach to training: Gower Publishing, Ltd. Mancuso, A. 2007. Your Limited Liability Company: An Operating Manual: Nolo, 2007 ( http://www.ausfoodnews.com.au/2009/09/24/moving-organic-forward-uk-industry-assesses-plans-to-reignite-sales.html) Accessed on April 26, 2010 Read More