Factors an entrepreneur should put into consideration before deciding on the form of business
-The type of business owners
Will the business be owned by individuals, corporations, trusts, Kenya residents, foreign residents, or other entities? This factor is important because certain business entities (primarily S corporations) are not available to certain types of owners:
-The number of business owners
Will there be owner, a few owners, or numerous owners. This factor is important because certain types of business entities are not available to one-owner businesses and other types of entities are either not available or not practicable if the number of owners is too high.
- The primary purpose of the business venture
Is the primary purpose of the business to provide an employment for the business owners or is investment the primary purpose? Is the primary purpose of the business the same for each owner or are some of the .owners involved primarily for employment purposes and others primarily for investment of other purposes? This is important because the business entity must be capable of being structured so as to accomplish the purposes of all of the owners,
Whether the business, is startup or existing If the business is already in existence, certain types of entities .might not be feasible because of the impracticality of reorganizing the business into that entity; For example, if an business is being operated as a corporation, it may not be practicable (taxwise) to reorganize the business into an LLC company or partnership.
- How the business will be capitalized?
Will it be capitalized primarily by debt or equity? If it will be capitalized primarily by debt an LLC, partnership, or S corporation might be preferable to a C corporation because a portion of the debt may be included in. The tax basis of the owners? interest in the business.
- The importance to the owners of pass-through taxation
If this is important, a C corporation should not be used. If the owners anticipate net losses in the business operation during its early years and if it is important to the owners that these losses be passed directly to them in the year of incurrence, then C Corporation should not be used. An LLC, partnership or S corporation will clearly be preferable in this instance.
- The importance to the business owners of personal liability protection
If it is important to the owner or owners that they not be personally liable, for the un assumed debts and liabilities of the business, then a sole proprietorship or general partnership should not be used unless the partnership is a limited liability partnership. As a practical matter, from personal liability standpoint, it is almost never advisable for an individual to operate as a sole proprietor.
marto answered the question on February 4, 2019 at 06:08
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