When starting a business, it is important to consider the type of business structure that one is going to invest in. As for Smith who is an industrial engineer and Anthony who is a fresh graduate with a background in computer science, and want to start on a business, it is important for them to understand the various business structures that they could invest in. in understanding the business structures it will help them in making a decision which is the right structure for them. The following is thus a presentation of the viable options, their pros and cons as well as legal requirements.
Types of Business Structures Available
A partnership business is normally owned and operated by two or more individuals. However, there are two categories of partnership structure. These are, general partnership where the business has unlimited liability and partners with their assets are directly affected if the business is involved in any form of debt or legal obligation. The other is limited partnership where the partners are only investors and thus have limited liability in case of any event. However, limited liability partners do not have any control over the business unlike the general partners. Between the two forms, general partnership is the best choice for partners who have the intention of being actively involved.
A general partnership is characterized by tax exemption on its income and instead passes over any positive or negative returns to the individual partners. However, there is the concern for personal liability since the partners are liable to any legal obligations and debts that the business may incur. If a partner acts on behalf of the business such as borrowing of money or making of critical decisions, the outcome affects and binds on all the members. Also, partnership requires some degree of accounting and legal services.
A corporate business structure is highly complex and even more expensive compared to other forms of business structures. A corporation is defined as a legal entity that is independent of its owners and therefore is characterized by complying with many regulations as well as tax requirements. The main advantage of this kind of business to the owners is the liability protection that they receive. Therefore, if Smith and Anthony are to form a corporation, in case of any debt of the business they will not be liable for it and as a result, none of their personal assets will be at risk. Another advantage is that a corporation has a large potential of raising money through selling of its stock either as common or preferred. Also, in case one of the shareholder of the corporation defects or dies, the business does not dissolve.
However, despite these advantages, the business is characterized by several drawbacks which one is the high costs that are required to form the business. Also, there are many laws, statute and the corporation’s that have to be to be adhered to during its formation and therefore the need for guidance from an attorney. In addition, compared to partnership, a corporation’s rules are complex and requires more tax preparation and accounting services. Another downsize is that a corporation is subject to double taxation on the earnings from the business. The corporate has to pay tax on its corporate income as well as on the earnings that are distributed to its shareholders as dividends.
This form of business structure is more appealing to small entrepreneurs compared to the other regular corporation discussed above. The main reason is because, S corporation has attractive tax benefits and also gives its business owners a liability protection of the corporation. Normally, any income or loses incurred are passed down to the shareholders and included in their personal tax returns. Consequently, the corporation pays tax only once at the federal level. Also, the shareholders of an S corporation can use a cash policy of accounting if they do not have any inventory. Another positive feature of the business is that it has the capacity to attract more shareholders up to 100 thereby attracting more capital where the taxation expert is maintained.
However, the business structure has some drawbacks that come with it. One example is that S corporations are expected to follow the many rules that operate in other normal corporations. Thus, high costs are incurred due many tax and legal services. Also, it is expected to follow procedures such as filing of articles of incorporation, and keeping corporate minutes after holding of meetings for directors and shareholders
Limited Liability Company (LLC)
An LLC business structure is considered as a hybrid of corporations and partnerships whereby it comprises the best features of the two. For example, the owners of the business enjoy liability protection just like corporations without being subjected to double taxation. Issues related to earnings as well as losses are passed down to the shareholders where they are included on their individual tax returns. Compared to an S corporation, LLC offers its owners even more appealing features in that it does not limit the number of shareholders it can have. Also, all members of the corporation are allowed to fully participate in the operations of the business. This is an advantage compared to a limited partnership where members do not have any power to control business operations.
However, in setting up an LLC, members are expected to file articles of organization with the agent of state. Also, the company does not have a perpetual life and therefore could get dissolved after sometime due to death of a member, their retirement or withdrawal. There is also the need to have an accountant who is experienced and familiar with all the rules and regulations that govern LLCs.
From the above analysis of existing business structures, I would recommend for Smith and Anthony to embark on starting up a Limited Liability Company (LLC). The main reason is due to the appealing features of the business that are a combination of both partnerships and corporations. If they embark on starting an LLC, they will have liability protection just like corporations but will not be subjected to double taxation. Instead, their earnings and losses will be passed down to them and get included in their individual tax returns. Also, when the company grows, they could have more investors come in thereby creating a large pool of resources. In addition, they will also be directly involved in decision making thus providing a wide array of ideas. Concerning on how to raise starting capital, Smith and Anthony will have an easy time since they can get it from money lending institutions.
However, compared to partnership, Smith and Anthony will have to file articles of organization with the agent of Australia where they will be operating. Another likely drawback they may face is the dissolution of the company if one of them withdraws, retires, or meets death. Nonetheless, despite these perceived drawbacks, an LLC is the best option for Smith and Anthony because it’s a form of partnership that enjoys the privileges of a corporation.
Options on Developing a Logo, Trade Mark, and an Online Presence
A logo is said to be a visual representation of all that a business stands for. Therefore, Smith and Anthony have to ensure that the kind of logo they develop enhances the first impression of their potential customers. Among the types of logos that Smith and Anthony could choose to develop from are font based logos which are mainly made of a kind of treatment that make the company distinctive. An example is like that of Microsoft Corporation. The second type is an illustrative logo that indicates what the company will be specialized in a manner like the use of a brush on a logo of a house-painting company. The last kind is that with abstract graphic signs like that used by Nike.
In developing a trademark, it is important for Smith and Anthony to ensure that it complies with the Trade Marks Act. They can use it to determine how their brand will communicate of the company’s attributes and values, creating clarity on what they offer and what they don’t. Secondly, they should name the services they will be offering. The trademark’s typography should be legible as well as scalable. Also, the color of the trademark should match the product and services offered. Lastly, it is important to have a trademark that will distinguish them from their competitors. Available name registrations are such as Smith and Anthony, S and A, or Sam and Bonds but they should have a unique name that will avoid conflict with other companies. There is a link between a business name, its trade mark, and domain name in that, use of an existing business name and a trademark is infringement of IP rights. Also, the domain name helps in distinguishing the business from its competitors.
On the other hand, to stand out from the increasing online businesses, it is important that Smith and Anthony find a distinct way to make their business unique. For example, they could develop a custom-designed webpage that has a search engine customization. Other options for creating an online presence are such sharing of content, cross-promotion, blogging, and use of social media such as Facebook.
Converting Ideas into Property and the Intellectual Property Law that recognizes them
For Smith and Anthony to turn their ideas into property, they will have to fulfill three necessary conditions which are; the idea have to be great, they should be the sole owners of it, and it should be legally protectable. In this case, they both have a background knowledge of the business they wish to run and therefore it makes it a good idea. The other issue is that of being the sole owners of the idea since it may involve legal issues resulting from disputes. Therefore, it will be important for Smith and Anthony to overcome the obstacle that the idea originated while Smith is still working in the small firm. The invention of the idea by Smith while he is still working is a challenge because he may have signed an agreement on invention assignment. The assignment states that the firm has the right to claim ownership of the idea developed by an employee while they are still working for them. The other obstacle is that of the idea originating from a university. This poses as a challenge because Anthony who is Smith’s partner just graduated from the university and therefore the school may claim ownership of the idea if it involves a research that was conducted by the graduate student.
The other step is to ensure that the idea is legally protectable. There are two main types of legal protection which are; trade secrets and patents. Smith and Anthony can opt to have either of the two. The substantive provisions of the legislation that is concerned with Smith and Anthony’s idea is that of patents. According to IP Australia, a patent is a right that is granted for any method, process, device, or substance which is fresh, innovative, and useful. Therefore, Smith and Anthony should apply for an innovation or standard patent to protect their idea. Also, they should have an intellectual property (IP). In obtaining an IP, it will help them from infringing the ownership of IPs belonging to other people and alert them concerning products already in the market. Due to the complex nature of IP, it is advisable that Smith and Anthony seek advice from The Institute of patent and Trade Mark Attorneys of Australia.
The following are the approximated costs that Smith and Anthony are likely to incur for the whole procedure until their business is running.
Startup capital – 47, 265 Australian Dollars
Hiring an accountant – 675 Australian Dollars
Legal procedures – 3, 376 Australian Dollars
Accessing an IP Protection – 1800 Australian Dollars
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 Pride, Hughes, Robert, and Kapoor, Jack, Business. (Cengage Learning, 2009 )3
 Fontana, P. K., Choosing the Right Legal Form of Business: The Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, Or Corporation, (Atlantic Publishing Company, 2010) 189.
 Pride, Hughes, Robert, and Kapoor, Jack, Business. (Cengage Learning, 2009)129
 Mancuso, Anthony, How to Form Your Own California Corporation, (Nolo, 2015.)14.
 Ibid. 15.
 Ibid. 16.
 Mancuso, A., LLC or Corporation?: How to Choose the Right Form for Your Business, (Nolo, 2010.) 249.
 Piotrowski, Christine M., Professional Practice for Interior Designers.(John Wiley & Sons, 2011.)
 Jamison, Robert W., S Corporation Taxation 2009, (CCH, 2008.) 1093.
 Dummies, Consumers, Starting a Business All-In-One For Dummies,( John Wiley & Sons, 2015.) 232.
 Jentz, Gaylord A., Miller, Roger LeRoy, and Cross, Frank B., Business Law, Alternate Edition, (Cengage Learning, 2008) 703.
 Roger and Jentz, G. A., Cengage Advantage Books: Fundamentals of Business Law: Excerpted Cases,( Cengage Learning, 2009.) 541.
 Cross, F. B. and Miller, R. L., The Legal Environment of Business: Text and Cases: Ethical, Regulatory, Global, and Corporate Issues,( Cengage Learning., 2011.) 407.
 Miller, Roger L. and Jentz, Gaylord A., Business Law Today: Comprehensive: Text and Cases, (Cengage Learning, 2011.) 717.
 Ibid. 719.
 Entrepreneur Staff, “How to Create a Logo.” (Entrepreneur. Accessed May 7, 2016. https://www.entrepreneur.com/article/71902.)
 Trade Marks Act. 1995 (Cth)
 Idris, “An Introduction to Trademarks for Small and Medium-Sized Enterprises.” Intellectual Property for Business Series 1 (2006): 3.
 Lindberg, Van, Intellectual Property and Open Source: A Practical Guide to Protecting Code, (O’Reilly Media, Inc., 2008.) 103.
 Cohn, Chuck, “A Beginner’s Guide to Establishing an Online Presence on a Budget,” (Forbes, March 13, 2015) 1.
 Kasznik, “3 Steps for Turning Your Idea into Valuable Intellectual Property,” (The Business Journals, December 16, 2014. http://www.bizjournals.com/bizjournals/how-to/growth-strategies/2014/12/steps-for-turning-your-idea-into-ip.html.)1.
 Puri, Rachna S. and Viswanathan, A., Practical Approach to Intellectual Property Rights, (I. K. International Pvt Ltd, 2009.)84.
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