Journal: Forms of Business Ownership

Do you remember the journal you started in Unit 1? We're going to use it again to review some of the exercises in this Unit 2 section. In the ""Factors to Consider"" resource, you were introduced to eight questions to consider when deciding which legal business structure to pursue. Review the eight questions identified in this section. 

1. What are you willing to do to set up and operate your business? 
2. How much control do you want? 
3. Do you want to share profits with others? 
4. Do you want to avoid special taxes on your business? 
5. Do you have all the necessary skills to run the business? 
6. Would the business be able to continue without you? 
7. What are your financing needs? 
8. How much liability are you willing to accept? 

Rate each question using this scale: [1] Not at all important, [2] Not very important, [3] Somewhat important, [4] Very important, [5] Extremely important. Select the two most and least important questions and explain your responses. 

This is a great way to start thinking about what type of business you should pursue. Let's start there and consider this ranking as you learn about the different types of business ownership. Sole proprietorship: Talk with a sole proprietor about his or her chosen business structure. Ask the proprietor which of the following dimensions were important in deciding to operate as a proprietor: setup costs and government regulations, control, profit sharing, income taxes, skills, continuity and transferability, ability to obtain financing, and liability exposure. Write a paragraph in your journal detailing what you learned from the business owner. 

Partnership: Jayden Collins started Grand Canyon Helicopter Adventures five years ago. The business has grown over the years but has reached a plateau. Jayden would like to expand, but he needs additional funds to do so. He could also really use help running the business. Although he is an excellent pilot with a perfect safety record, he is not very good at handling the day-to-day details needed to keep the business running smoothly. Recently, a friend of his, Rob Tocci, approached him and asked to join the business. Rob is fairly wealthy and has considerable business experience. He also knows how to fly helicopters, though he has had a few (thankfully nonfatal) mishaps. Jayden is apprehensive about sharing responsibility for running the business but doesn't mind sharing profits. However, he recognizes that he alone will not be able to grow the business.

Because Jayden doesn't want to incorporate, he only has two options: continue operating as a sole proprietorship or find a partner. In your journal, evaluate these alternatives, discuss the pros and cons of each, and recommend the most appropriate option. If you recommend forming a partnership, explain the difference between a limited partnership and a general partnership. 

Corporations: The SolarBike Company was formed ten years ago as a partnership by three sisters-in-law: Peg, Terry, and Joanie McLaughlin. They all worked diligently to design and produce the SolarBike, an electric bicycle propelled by sunlight. The good news is that the bike is a big hit with environmentalists, and last year's sales reached $2 million. However, to keep up with the growing demand, the company must expand its production capacity, which would cost $1 million. Despite the company's success, it's unlikely that the partnership could obtain the necessary $1 million in funds from a bank. 

The company's predicament was discussed at a recent partnership meeting. The three partners were unwilling to lend the company any more money and voiced concern about being held responsible for their own actions, as well as those of the other partners. Peg asked the group to consider incorporating and raising funds through stock sales. Joanie supported this idea, but Terry was against it. 

The three partners hired you as a consultant to advise them on whether to remain a partnership or form a private corporation. In addition to making a recommendation, discuss the pros and cons of both structures and explain how they apply to the SolarBike Company. 

Write a one-paragraph analysis in your journal. 

Other Types of Business Ownership: Create a table comparing regular corporations, S-corporations, and limited-liability companies in terms of limited-liability protection, double taxation, restrictions on the number of stockholders or members, and rules and restrictions. If you and several friends owned an ice skating rink, which type of business would you choose? Why? Which form of ownership would you select if you ran a large company like Google? Defend your choices in your journal. 

In case you didn't copy the journal from Section 1.1, you can use this document as your journal.