Question

Owen plans to open Owen’s Pets Store, a pet sales and pet supplies outlet, and to hire Quimby and Ruth. Owen will invest only his own money. He does not expect to make any profit for at least two years and to make almost no profit for the first three years, but he hopes to expand eventually. Which form of business organization would be most appropriate? What are the chief characteristics, advantages, and disadvantages of this form of business organization? If Owen wants to obtain additional capital to expand the business, but does not want to lose control of the firm, what is his best option?

Answer 1

When a company is small and is not diversified, has decent earnings, and is likely to expand eventually, the most suitable form for doing business is "Limited Liability Corporation".

i) it provides limited liability so your own assets are not at the risk for liabilities of business

ii) while you are the sole member, you can treat as a disregarded entity and you won't need a separate tax return

iii) if you ever want to bring in supplementary investors for development, the LLC form provides the most adaptability.

Another form of doing business initially could be Sole proprietorship, but that would be a difficult form to raise capital in the long run.

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