Factors To Consider In Setting Up A Business - Essay Example

?Essay Factors to consider in setting up a business Factors that influence how a business choose to organize itself Many factors surround the idea oforganizing a business. These are funding, skills, control, responsibility for debts and obligations, taxation, succession, and type of organization mentioned in the article of McConnon, (2008). In addition, Lawrence (2013) a lawyer from a foundation that gives legal advice, suggested that when one is considering a structure for his business, promoter should consider who will own the business and what the activities will be. His choice of business structure will also depend on the type of business proposed, financial needs, and number of owners. In a separate standpoint, MacFarland, (1974, pp 60-61) said businesses are always profit seeking ventures, and as such considerations should also be given to customers perceptions. He said that a lot of businesses fail because of lack of capital, business knowledge, and inefficiency in management. Above views have been supported in the work of Dorman (2011). However, she adds business planning as an important element in business decisions. A business plan is more of a statement of goals and action plan needed to achieve them. Other organizations stated economic factors as underlying principle for choices. The Forestry Dept of FAO (2005) cited that external, internal and individual factors determine the structure of an organization. External factors are concerns in the environment which are not under the control of owners. These are economic, socio-economic and administrative factors that could affect structure. Internal factors are purpose and organizational instruments while individual choices refer to costs and benefits. Options people have when making decisions to organize Answers to above factors will solidify the type of business structure to be organized on whether it will be a sole proprietorship, general partnership, limited liability company, or a corporation since every structure has advantages and disadvantages. When one chooses an option he thinks is needed for the business, proponent should prepare himself of potential risks and liabilities, the investment needs, costs of maintaining the business structure and framework of income tax. Evaluating these decisions when a new business is starting up Before anything else, the proponent must have a personal assessment of his strength and weaknesses and must have a definite goal to success. Stephenson, (n.d.) of the Entrepreneur Magazine, stated that for someone to succeed in business, he must enjoy what he is doing because his satisfaction will be manifested in the success of the business. The owner must take the business seriously and must also believe in the products or services he is selling. The owner must be able to make plans, direct, and above all manage his money wisely. When the proponent is starting with a little budget, the decision to start with sole proprietorship or a general partnership seem logical because he will find it easy to set up, since it only needs one person to organize. He does not need to report to anybody as he is the boss. Sole proprietorship is simplified as it is not required to fill up many government documentations, follow specific rule, aside from having lower taxes. Mconnon (n.d.) said many small businesses started this way then later on changed structure of ownership as it grows. However, sole proprietorship is not free from headaches, as succession is not clear; there is a risk of losing business in case of death and total disability. Sole proprietorship finds it difficult to attract investors, thus it has limited financial resources. Owner has total personal liability on its debts and obligations; while profits are taxed as personal income. General partnership In order to augment owners’ capital, he/she may invite a partner into the business. This way, a general partnership is formed wherein both agree to share in capital and management of business. In general partnership, two or more people may pool capital and resources to form a business. This business is easy to register since there is no need for special forms except for registration of trade names and partners use. Although a written agreement is not specified by law, it should be practical that an agreement should be written to avoid future misunderstanding. The Agreement should specify the rights and responsibilities of partner, or their heirs; it should also list down continuity arrangement in case of death or disability of any partner, the profit distribution plan, and any special conditions agreed upon by partners. MacConnon (.n.d.) has written that many business partners favor this arrangement because it is easy to organize, sharing of personal resources and financial resources is uncomplicated, and owners have the right to select partners. In many cases, however, general partnerships have disadvantages such as limited business decisions and unlimited liability. This means partnership liabilities extends to personal assets of each general partners. Each partner is held personally liable for all business liabilities of the partnership. Limited partnership This type of partnership gives investors particular liability and tax protection. It is somewhat similar to a corporation wherein investors can invest in the business but their liability is limited only to the amount invested in the business or as agreed upon by the partnership. The arrangement calls for a general partner who has the general liability for the debts of the partnership and responsibility of management. The limited partner acts only as an investor and has no participation in the management. This type of business structure is preferred by owners and investors as it one of the easiest way to secure financing. Corporation Sole proprietors consider setting up a corporation as their business grows. They will be needing expansions and additional capital. A corporation is an easy way to attract investors because the company can sell shares of stocks to investors. An investor in the corporation does not share in the management, and has limited personal liability. A corporation has a legal entity and is considered a ‘legal person”. As such, it could enter into contracts; incur debts and liabilities for the interest of the corporation. Shareholders are assured of perpetual life of the business because death and sale of shares has no effect on management. On the other hand, proponent may find corporation to be complicated to manage, costly to operate, and has more government regulations to follow. Conclusion In finality, opinions rendered are only guides for proponents who wish to start business. As it is there is no definite structure that suits a business. It still depends on the situation that is taken differently. References Dorman, Kerrie, 2011. Factors to consider when starting a business. [online]Association of Business Mentors. Available at [Accessed 24 February 2013] Mconnon, Jim n.d “How to organize your business”. Bulletin no. 3009.[online] University of Maine .2008 Available at < http://www.nolo.com/legal-encyclopedia/business-ownership-structure-choose-best-29618.html > [Accessed 21 February 2013] McFarland, Dalton, E. “ Enterprises”. Management Principles and Practices. Macmillan Publishing Co., Inc, 1974, 4th ed. Pp. 60-61 Lawrence, Bethany, (2013) “Choosing the best ownership structure for your business [online] NOLO. Available at < http://www.nolo.com/legal-encyclopedia/business-ownership-structure-choose-best-29618.html> [Accessed 21 February 2013] Forestry Department, “Factors influencing organizational structures and institutional choice”. [online] FAO Corporate Document Repository. Available from [Accessed 21 February 2013] Stephenson, James. (n.d.) 25 Common Characteristics of Successful Entrepreneur [online] Entrepreneur Available at [ Accessed 21 February 2013] Read More