Subject: Business Advice
I received your request to help you understand how to move forward with your business in light of various concerns. Essentially, any business run by multiple owners should be defined to ensure that all owners agree as to how and when to make major decisions. For example, for the closely held corporation, dividing ownership can be a challenge, mainly since closely held corporations are more common in spousal relationships, whose one partner can be considered to take control of the shares of the other partner. For you and Denis, there is a lot that you will have to consider when deciding to divide the company’s ownership. The two of you will have to consider the ownership of the company shares, the majority, and minority shareholders, and payment of wages instead of dividends. For the minority shareholder, the process will be even more challenging as it may be difficult or even impossible to sell their stocks. In such a case, they should agree with the majority shareholder on how to handle their portion of the shares, especially if the partners decide to divide the shares unevenly based on the stock ownership.
On your second question, you sought to understand what factors to consider when choosing between a limited partnership and a limited liability partnership. The critical factor to consider is which type of ownership you would want to pursue and the tax liabilities with which you would want to be associated. As described, the future business will have two partners. Denise will be designing all apparel while Paul manages the business and provides finances. From this description, it appears that Paul will be the general partner while Denise will be the limited partner, making the business a limited partnership and not a limited liability partnership.
When forming a limited liability company, various factors have to be considered, unlike a limited partnership in which only the general partner has liability to the corporation’s debt, the limited liability company subjects all the partners to the same level of liability on company debts and taxes. A combination of the right form of ownership and focus on the profit element can be key indicators towards the right approach to starting a limited liability company. I also believe that a limited liability company (LLC) can be a good option for the proposed business as it comes with various advantages. For instance, it is easy to form and offers a flexible tax structure. An LLC can also have any number of members hence providing an opportunity for increasing the number of partners in the business. This makes it necessary for the partners to consider factors such as the number of members to include and the expected returns from the business.
Either the limited partnership or the limited liability partnership can be developed as a for-profit benefit business. A for-profit (benefits) business model (B- corporation), is founded on the need to create financial viability by designing products and prices that are aligned with the desires of the business owners in terms of profitability. To create a B- corporation, it is recommended that you begin with the identification of the specific business model through brainstorming, which is followed by the selection of the business structure, that is, whether you will be running a limited partnership or limited liability partnership. The next step would be to conduct market research and find out the trends that exist in the targeted market product and would be followed by the identification and application of specific licenses required to successfully run a business under the mandate targeted by the business owners. Running the business requires a well-written business plan and frequent revision of the business model to reflect growth. The advantages of a for-profit business model include ownership by the business partners, financial rewards, lower stringency of regulations compared to non-profit corporations, and high asset liquidity. On the other hand, the disadvantages of such corporations depend on the ownership model.
A business that depends on employees will inevitably need to expand its employee portfolio, and develop a clear employee policy that will guide the behaviors of the employees. For instance, you and Denise will need to develop a human resource management policy handout. The handout will provide instructions to the employees on how they are to handle various issues in the organization and how to interact with their fellow employees. The HR manual will be the blueprint for organizational behavior and will reduce cases of disciplinary misconduct by the employees.
As a conclusion, I am certain that the choice of a good business model and strategy will enable your business to success. A combination of the right form of ownership, focus on the profit element and the use of a reasonable HR handout will be effective in guiding business performance. I believe that a limited partnership will be a good option for the proposed business. With a limited partnership, there are various advantages that can be mentioned. For instance, a limited partnership gives different partners the opportunity for business control that is commensurate of the actual financial responsibility that a person has over the business. Furthermore, the individual who is financially responsible for the business is also held liable for its debts. The best way to make this work is to ensure that all people in the downstream are doing their duties effectively.