What Kind of Business Do I Want?
There are just so many things to consider when wanting to start your own business. You would think that the questions set above would be enough, but of course, like all things in life, beginning your own business is more complicated than that. There are three basic types of business that you will have to choose from when you are considering the start of your own business. They are as follows:
Sole Proprietorship
A sole proprietorship is a business that has only one owner. There can be many benefits and pitfalls to running your business as a sole proprietor.
The Benefits:
You can keep more of your businesses moneys earned.
There are less hassles than there might be with other proprietors.
You can run the business in any manner that you please.
It is the least costly way of starting a business.
It is easier to get your business started and apply for your permits, licensees etc.
Dealing with the issue of taxes is less complicated and cheaper.
Pitfalls
It is more costly when the business is faced with losses
All responsibility falls solely upon the proprietors shoulders
All of the costs that go along with maintaining the business keeping it running smoothly are solely the owners.
All decisions are made at the owners discretion
Basically, everything is the owners responsibility.
There are many reasons why you should consider running a business on your own. However, you do have other options.
Partnership
There are many types of partnerships that you can delve into. The most commonly chosen are general partnerships and limited partnerships. General partnerships can be entered into with a mere oral agreement or you can have lawyers draw up legal and binding partnership documents.
If you are considering the idea of having a partnership you should know that signing a legal partnership agreement is the best way to go about it. The legal fees for these documents are more costly than a sole proprietorship, but not as expensive as in a corporation.
When you decide to enter into a partnership, you should be certain to add only the specifics of the agreement that you can both agree to. Here is a list of some of the other things that you should have placed in a partnership agreement.
The type of business that you plan to run
The correct amount of equity that both parties will invest
How you will divide your profits and losses
How much you will each be compensated
How you will divide your profits and losses
How long will plan to be in business together
Set up provisions for any changes made and closing down
Dispute settlement clause
Restriction of authority and expenditures
A reasonable settlement in case one partner dies or is incapacitated
As you can see, there are a great many things to consider when starting a partnership. As with running a sole proprietorship, there are a lot of benefits and pitfalls as well. I have listed them here for you.
Benefits
The cost of investing in the business is cheaper since they are divided among two people instead of one.
The money needed to process legal fees and everything else that requires money is cheaper.
There is assistance in dealing with the everyday tasks like, merchandising, employee issues, general dealings with the public, and all general business concerns.
With two people running the business, each can have more time with their families and friends
Legal matters are cheaper for both
A partnership generally makes the profits and revenue much higher.
Losses are shared by both and are thus actually easier to deal with
Pitfalls
Complications may arise if both parties are not in agreement about decisions
Profits must be divided among the two and are therefore lower for each
One partner may wish to be let out of the business if things are not running smoothly (this can be a problem if you are only using an oral agreement)
Partners may not agree on when to end the business
Compensation problems can occur if one partner puts up more equity in the business and the other wants to be compensated in the same manner
Corporation
Corporation can make the start of a new business very much easier, but it also takes a great deal more money and much more paperwork in order to make it happen. Generally, it is best when beginning a retail business to avoid starting up as a corporation.
Usually corporations do not run with any specific person claiming themselves as the owner. In a corporation, control generally depends on whoever owns the most stock. It is most common that you must own at least 51% of the stock in the corporation in order to have control of the company.
There are also many more rules that you must follow in order to run any business as a corporation as well. In a corporation you must hold regular meetings of the board of directors which generally consists of 10 people. All of whom are to make decisions regarding the business.
You must also host stockholders meetings as well and keep viable records of all the decisions that are made. There can be any number of stockholders present for these meetings.
Corporations are best left for extremely large retail business ideas because of the complications that can arise in running a corporation. Some of these problems can be as follows:
Constant battling over stocks
Backbiting is always a problem when so many people are involved in a business deal.
People are often trying to buy out other stockholders so as to gain control over the businesses decisions; especially if it is successful
As corporations are generally formed with the intent on becoming a chain of retail outlets or franchises, it can be a very costly venture to take for the average business owner.
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