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Entity Selection Exercise - Elements of Business Formation

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Introduction

Entity Selection Exercise Elements of Business Formation Maria Cristina Medina University of Phoenix Law/529 -Legal Environment of Business Atty. William Davis July 18, 2005 Introduction Five friends are planning to form a commercial construction business, but with the combined savings they do not have enough assets to start their business. The group came up with a plan of either to obtain bank financing which require them to put collateral; or outside investors who will demand control with no personal collateral. Idea and Vision for the Business It is apparent that if they start up their commercial construction business, they would definitely succeed since majority from those five friends had worked closely with successful homebuilders while one headed the local division of national construction with two years of experience. Although only two of them have experience in running companies and have sizable assets, there is always an alternative to gain their source of capital. However, before they think of financing they should begin writing a business plan, which is a good idea for lenders to oversee how your investment will do in the market. ...read more.

Middle

These are the following: 1. Difficulty and cost associated for business creation. As we all know, it is very crucial and it takes a lot of time to complete creation of a particular organization. For that reason, it is essential to review all legal entities and the cost associated in order to make decision that would suit the most for commercial construction business. 2. Transfer of ownership. This is another factor to consider when selecting organizational form for a business. They need to evaluate what obligations owners might have after business dissolution. 3. How to Control decision making in business. Since five friends are going to start the construction business, it would be very hard to make collective decision because of their different points of views. This is the reason why control of making decision is important; to correct approaches in resolving conflict situations in identifying prior opening of a new business. . 4. Personal liability should be chosen for commercial construction. With the group situation, there are two alternatives available: the bank financing and Outside Investment. We all know that business involves money as the major requirement to start a business. ...read more.

Conclusion

These would allow all partners to share control and participate equally in management. Profits and losses are divided among partners in any manner they choose. General Partnership is the best choice since they have management control, and with careful analysis it is obvious that they can also have big financial interest in the company. Conclusion I therefore recommend, S Corporation as the best choice in starting business construction. This is because five friends have different amount of money to invest that would have the flexibility to divide ownership into multiple unequal shares. It would also allow investors together and obtain needed capital for investment, which will reduce bank financing of construction business. I can also say that, three of these friends who worked with successful homebuilders, wherein one of them headed the local division of national construction with two years experience will be able to control managerial decision-making process: shareholders, directors, officers. These three people cannot be held responsible for the debts and obligation of the corporation but only to the amount of their investments. Another key factor is the transfer of ownership, which is easily done by the sale of stock in S Corporation. ...read more.

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