Entrepreneurs should consider the business forms and underlying features. Through extensive assessment, rational decisions can be made. For Elvern starting the PPP operations calls for consideration of the business structures. Accordingly, they display unique advantages and disadvantages. Sole proprietorships, corporations and partnerships are viable options providing an enabling platform for operations. Assessing facets such as regulations to start the business, raising equity or additional finances and what occurs upon the demise of the entrepreneur should form the basis for selection. Therefore, an in-depth evaluation should highlight the best decisions.
Corporations are sometimes known as regular C-Corporation. It is different from sole business and partnerships because it is referred to as a legal entity separate from the parties who own them. For Elvern, the PPP company will be considered a person who can enter into binding agreements, buy and sell properties, and sue and be sued (Rashid, 2020). The business can be held accountable for its actions and taxed once the organization reaches a substantial size. Elvern should organize it as a corporation for its owners to limit their liability.
The beneficial aspect of the corporation is the limited liability for Elvern. He is protected from legal redress and defaults on corporate debts. Further, the owners can opt on how the taxes are paid. With most States not enforcing annual meetings, it is a prudent approach to allow flexibility in decision-making. Further, the shareholders are unlimited in number allowing for accessibility to finances. Elvern can relinquish ownership by diluting his ownership stake by enjoying a wide scope of finances.
Additionally, preferential treatment by the bank can prevail due to its existence as a separate entity (Sahasranamam et al., 2020). The owners are limited in their ability to engage in the irresponsible act in the company’s name. For example, the owners may not withdraw from the company coffers due to their fiduciary obligation to the shareholders and creditors.
However, a major drawback of the corporation for Elvern is the dilution of decision-making. His start-up requires independence in determining its path. Nonetheless, the minimal independence will lead to conflicts, especially in putting his ideas forward (Sahasranamam et al., 2020). The obligation to the shareholders leads to limits to risk-taking. Management authority can be taken from Elvern, which may impede his ideas.
A partnership is an organization owned jointly by two or more individuals. Rashid (2020) emphasizes that approximately 10% of US businesses are partnerships. Despite the majority being small, some can be extensive. Elvern should consider the value of partnerships since they provide an opportunity for professional synergy. Accordingly, at least four big accounting firms, Price Water House Cooper and Deloitte are partners (Sahasranamam et al., 2020). Therefore, it is relatively easy to form and operate a partnership. A partnership deed, agreement and contract are necessary for its formation. Elvern should consider the agreement’s details, such as responsibilities, conditions for formation, division of responsibilities and conflict resolution. However, the cost of forming the partnership varies depending on the degree of complexity.
Nonetheless, Elvern should be concerned by the basic drawback of the partnership of conflict of interest in decision making. Bureaucracy can impede major decisions, especially in starting his business PPP. Of critical additionally, in an unlimited liability partnership, the mistake of one can affect the others. Loss of a business can happen, leading to its collapse. Moreover, partners share profits and may feel they are being exploited for their diversity in input. The risks of losing the partnership mainly emanate from the lawsuit from disputes. With owners not always agreeing on decisions, Elvern should not consider the partnership.
Best option – Sole proprietorship
A sole proprietor is the best decision for Elvern since it allows for independence. As an entrepreneur, the value of sole ownership emanates from decision-making competence. Within the operational mandate is the control over operations. Responsibility for the daily operations should rest on Elvern since the PPP is his idea during its commencement. At least for six months, the authority should allow. Managerial oversight and the parameters of income management are flexible (Sahasranamam et al., 2020). The profits are also taxed as personal income, eradicating the liability from special federal and income taxes (Sahasranamam et al., 2020).
Even with this, the sole proprietorship can limit Elvern from accessing multiple forms of finances. From shareholder equity to banks sometimes fearing the sole business, limit to the loans can prevail. Elvern will bear unlimited liability for any losses detrimental to personal finances. The business incurs debts and may grapple with the financial irresponsibility of Elvern (Sahasranamam et al., 2020). When Elvern is sued for misconduct, liability can be transferred to personal property. Lessening the risk of liability through insurance can steal lead to substantial exposure.
Starting a new business requires diligence and extensive research on the best options. Elvern starting the PPP business requires consideration of the viability of the partnerships and corporations for their limited liability in some instances. However, as his innovative idea, managerial control and independence is a beneficial aspect that shapes its best option. The principles of flexibility in decision-making should translate into a business that he controls considerably.
Rashid, M. M. (2020). Ownership structure and firm performance: the mediating role of board characteristics. Corporate Governance: The International Journal of Business in Society, 20(4), 719-737.
Sahasranamam, S., Arya, B., & Sud, M. (2020). Ownership structure and corporate social responsibility in an emerging market. Asia Pacific Journal of Management, 37, 1165-1192.