May 26, 2018
We know that it is always be a challenging job to run a new business venture in a competitive industry such as the fashion industry offering in men’s clothes. This requires an elaborate and strategic structure in the business that take the operation of the business venture to be established. Enterprise success of the business will be guarantee when the structure of the business will show a clear line of operations of the business. . The prospective of small business investor must have to undertake an analysis of the fashion industries to determine whether there is a business opportunity in the sale of men’s clothing. This will enable him to make a wise business decision, which will guarantee success in his venture. It is essential for John to select a business structure that will determine how his business will be formed and organisation (Burns, 2016). He must choose between four common business structures which include a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. With these options, John must understand that the different types of business structures have some factors that must be considered before selecting. For example, he must understand than the criteria for choosing the business structure depends on the need of the investment, and the liabilities types and risks in each business structure, the tax of the incomes and the business expenses and procedures that accompany the different business structure to be establish and make them running. It’s more important to breakdown each of them in the different business structures.
The Four Business Structures
John should understand the four different types of business structures that should consider adopting in his new venture. These have been examined in the criteria and factors considered in setting up a business.
This is the most common and simplest form of a business structure since it has fewer formalities required when establishing and requires less capital. In this type of ownership, the investor enjoys the maximum independence and can withdraw his or her assets tax-free. In addition, the sole proprietorship has fewer legal controls, management has greater flexibility and fewer taxes paid (Burns, 2016). However, the proprietor has personal liability for the debts and losses incurred in the business.
In this ownership structure, two or more people are sharing the ownership of the business. The law does not distinguish the proprietorship between the business owners and the company itself. Also, there must be a legal agreement that outlines decision-making process, sharing of profits, how disputes are resolved and admitting future partners into the business. Despite this, the partnerships are relatively easy to form and run (Gitman, Juchau, ; Flanagan, 2015).
Limited Liability Company (LLC)
The formation of an LLC is more complicated and formal compared to establishing a partnership or a sole proprietorship. It is expensive to start since legal formalities must be adhered to and addressed fully before setting up. In addition, profits in the business are differently shared based on the ownership interests, who are taxed based on what they have earned. The debts and losses are not traced to the business owners. However, running and maintaining the LLC is expensive since professionals must run the business (Burns, Mullet, ; Bryant, 2016).
This business structure is complex and expensive to form since it has legal procedures that must be followed and required fees paid. The corporation where is a separate legal entity, and its tax obligations are separate from the business owners. Additionally, the business owners are taxed when they take the salaries, bonuses and dividends from the business profits in a corporation (Blair ; Marcum, 2015).
Criteria in Each Business Structure
In business, the business liabilities and risks are essential in determining the business decisions that an individual or organization is planning to venture into. Most business investors want a venture that carries less personal liability. Businesses that engage in risky and more dangerous business activities are likely to have less personal liability to the proprietors. John should consider if he would like to have a limited liability in case the business incurs losses. Therefore, the most appropriate that this client should consider adopting is the limited liability company or a corporation (Hatten, 2015). This is because the business owners in LLCs and corporations will have a type of limited liability that protects them against the claims made against their business since they cannot place personal liability in them. If John considers organizing his business as a sole proprietorship or a partnership, he will be health personally responsible for activities that the business did wrong. John should compare the business risks and liabilities in the four business structured before starting to set up his men’s clothing business.
It is essential to consider what you are trying to achieve in your business venture. John must consider his targets and goals in venturing into the fashion industry and whether these can be achieved in selling men’s clothing. John has to consider if he wants to have the sole ownership of the business or he wants to sell shares once the business is up and running. When a company is structured as a corporation, it will permit the owner to sell ownership shares in their businesses by offering stocks. This is a unique capability of operating a business as a corporation. The other business structures do not allow the business owners to sale shares or part of the business by offering stocks (Burns, 2016). Corporations have an advantage since can allow its owners to retain its employees and attract investors through the sale of stocks. If John does not wish to sell his business to the public and obtain investment incentives, which encourages employee retention, he should opt for the limited liability company, sole proprietorship or a partnership. Since the corporation can be offered on sale in terms of stock or shares, it has a lengthy procedure and also costly during its formation (Blair ; Marcum, 2015). A company with limited liability could be an option for John if he does not want to incur the expenses but still want to enjoy the advantages of a corporation.
Expenses and Procedures in Each Type of Business Structure
Investors must comply with the set procedures and legal policies that must be met in setting up a business. These procedures come with expenses and costs when we look for establishment of the business. The sole proprietorship and a partnership are a kinds of easiest business structures to establish since they do not require any special paperwork to be filled. Additionally, these types of business structures are not associated with any fees when establishing them or maintaining (Burns, Mullet, ; Bryant, 2016). I would advise John to consider the sole proprietorship or a partnership during the start-up if he has not strong financial muscle to pay for the procedures and expenses incurred in establishing a limited liability company or a corporation. It is more expensive and hard to establish and maintain a corporation and an LLC. Setting up a limited liability company or a corporation requires filing an Article of Incorporation and the investor must pay the fees accompanying the incorporation (Blair ; Marcum, 2015). The amount which need to pay depends upon location of the business and the state in which John like to form his LLC or a corporation if he prefers these two business structures. Based on these procedures and expenses, I would advise John to establish simplest and easiest type of business structure, which is either a partnership or a sole proprietorship. This prevents lengthy procedures and expenses that he could incur when establishing an incorporation of a limited liability company.
A business must pay taxes on all its incomes and revenues and therefore tax planning is essential for John to consider in each type of business structure. Tax obligations are based on the business structures and this categorizes the income tax structures into two. One of the category is the one in which the business owners must pay income tax on profits made by the business. The other category includes business in which the business owners are not suppose to pay the income tax on business profits as it is not required (Burns, 2016). The limited liability companies, the partnerships and sole proprietorships are business structures types in which the business owners are expected to pay taxes. These are regarded as “pass-through” tax entities as income taxes are traced on profit or loss of the business through business owners which affect their personal tax in the incomes. In addition, the business owners operating these three types of structures must report and pay the income taxes on all the net profits made by the businesses (Hatten, 2015). On the other hand, the owners of a corporation are not forced to pay income taxes based on the net profit of the business in the corporation. The owners of the corporation can only pay taxes on the revenues they take from the corporation for example on the form of dividends, salaries and bonuses. John must considers these aspects of tax obligation in each type of business structure. Based on the tax advantage and tax obligation, John should consider operating a corporation.
In summary, John should consider all these aspects of business structures and ownership as he contemplates venturing into the fashion industry. Since he wants to start and run a small business selling men’s clothing, a sole proprietorship would be appropriate for him now. This is because he is new in business and therefore he should consider starting a business venture that is easier to form and run. It would be appropriate for John since he will have the independence of running and managing the business. The other three business structures the partnership, corporation or the limited liability company may not be appropriate since John has no other partners to start the business with. Therefore, he can start the small business as the sole owner.
First and foremost, directors are those people who look, supervise and lead the various members in the company. Likewise, being as a director of the company directors have various duties to be perform.
The directors who have got their power and position in the company they have to perform those powers with care and diligence without negligence. Directors are supposed to ensure that all the steps they take for the company goes to the right direction without taking any obstacles. Financial position of the company should have to be looked very strictly because what matters for the company is financial position if something went wrong then the company must bear hefty amount of loss by which directors may be come to the extent of losing their position from the company. Acting as a director of the company it is his duty to ensure that the company doesn’t do the business it stuck with insolvent as if the company start trading being insolvent then the company can’t make a good profit.
Directors are supposed to do the work with taking the best interests for the company if they do so then company won’t get any sorts of problems. Similarly, director’s duty towards the company should have to be with good faith and they must take any sorts of works with best interests. The main criteria of the company are the purpose of the company by which directors must take the purpose of the company with his best effort and he is not supposed to misuse it improperly.
The duty to the directors that they are not supposed make the improper use of the position for their sake of interest by dominating others that will cause the company to the large extent.
Most of the useful information are directly goes to the directors by which they can play improperly with that information because they are in such position to get that information. So, it is the duty of the directors not to gain position powers to improperly use the information of the company.
It is the most important duties of the directors that they keep the financial information of the company correctly so that they don’t have to bear a hard time when it comes to show the financial position of the company and it is the duty of the directors that the financial matters should be done through the Corporations Act. Directors are supposed to justify every kind of transactions of the company which they have shown in the financial documents. If the directors get failed to do so the directors may be sacked from their position.
Directors should be independent means directors should be able to take any decision by himself without taking the suggestions from others members of the company. He has a duty to avoid any sorts of conflicts that might arise in the company among the members and he is not supposed to make any kind of bad intention on behalf of the company by joining the hand with the other parties.
Directors also has the duty to think for the long term goal of the company or to take long term decision.
Governance is a kind of system in which companies are controlled. Directors and others members of the company have a crucial role in maintaining the governance in the companies.
Firstly, the directors should have to possessed the good understanding of the company financial statements and in which position company is going forward. So, it should be governed time to time which include the profitability, cashflow, financial position, performance of the company, budgeting of the company. Comparison is also the crucial factor.
Directors are hugely responsible for governing the budget and the cashflow of the company because budgeting and cashflow matters a lot for the company so directors are involved to make the company budget in a best manner and to tackle with the flow of cash in the company.
Directors perform board meeting in the company by which directors must ensure that every types of information have to flow in the meeting and important portions of the meeting information should be done before the meeting began because in the middle of the meeting it is not good to have information to be done that is not relevant.
A company secretary should have to be in the company as a full timer so the directors have to hire such secretary in the company as a full timer for which secretary should do the following kinds of work like connecting agenda with the chairperson when needed, giving the date and time notification and place information for the board meeting and giving various kinds of reports based on meeting to the directors and looking other kinds of works that exists in the company.
Directors should make aware of various kinds of works relating to the meetings like preparing the questions and well define notes before the meeting and keep themselves well informed about the matters that is happening in the company premises.
If the directors are unsure about any kind of situation whether that is in financial sectors or taking decision it is better to ask or take better suggestions from the experts or the good auditors as directors involvement in making the financial sectors and making decision is a very important factor in the company as if something went wrong then it hampers the company business and company have to bear a hefty loss and it also hamper to the director position and powers.
The directors have a crucial role in maintaining the risk factor that involve in the business as tackling with the risk is not a small thing. Also, the directors have the key responsibility in making the shareholder engagement in the company and conveying the shareholders about the liquidity and solvency and other matter of the company with the detail information. So, the importance of directors in governance of company is very crucial factor.
Sydney, Australia, NSW 2218
Blair, E.S. and Marcum, T.M., 2015. Heed Our Advice: Exploring How Professionals Guide Small Business Owners in Start?Up Entity Choice. Journal of Small Business Management, 53(1), pp.249-265.
Burns, L.D., Mullet, K.K. and Bryant, N.O., 2016. The business of fashion: Designing, manufacturing, and marketing. Bloomsbury Publishing USA.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Hatten, T.S., 2015. Small business management: Entrepreneurship and beyond. Nelson Education.